SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3 to
Rule 13e-3 Transaction Statement
(Pursuant to Section 13e-3 of the Securities Exchange Act of 1934 and
Rule 13e-3 thereunder)
Super 8 Economy Lodging IV, Ltd.
(Name of the Issuer)
Super 8 Economy Lodging IV, Ltd.
Grotewohl Management Services, Inc.
Mark Grotewohl
(Name of Persons Filing Statement)
Units of Limited Partnership Interest
(Title of Class of Securities)
N/A
(CUSIP Number of Class of Securities)
Philip B. Grotewohl
Grotewohl Management Services, Inc.
2030 J Street
Sacramento, CA 95814
(916) 442-9183
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of Persons Filement)
This statement is filed in connection with:
[X] (a) 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.
[ ] (b) The filing of a registration statement under the Securities Act of 1933.
[ ] (c) A tender offer.
[ ] (d) None of the above.
Check the following box if the soliciting materials or information statement
referred to above are preliminary copies: [X]
Calculation of Filing Fee
Transaction valuation Amount of filing fee
$7,600,000 $1,520
(Based on purchase price of property)
[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: $1,520
Form or Registration No.: Schedule 14A
Filing party: Registrant
Date Filed: May 15, 1998
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Schedule 14A (filed November 12, 1998)
CROSS REFERENCE SHEET REQUIRED PURSUANT TO
GENERAL INSTRUCTION "F" OF SCHEDULE 13E-3
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ITEM IN SCHEDULE 13E-3 LOCATION
- -------------------------- -----------------------------------------------------
- -------------------------- -----------------------------------------------------
1. Issuer and Class of Outstanding Voting Securities and Voting
Security Subject to the Rights; Introduction; Special
Transaction Factors; Financial Information - Selected
Partnership Financial Data; Financial
Information - Management's Discussion and
Analysis of Financial
Condition and Results of Operations
- ------------------------ -----------------------------------------------------
2. Identity and Background Management; Purchase Agreement; The Property
and the Partnership's Business
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3. Past Contacts, Transactions Management; Purchase Agreement; Financial
or Negotiations Statement; Amendment to Partnership Agreement;
Special Factors
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4. Terms of the Transaction Purchase Agreement
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5. Plans or Proposals of the Purchase Agreement; Effects of Approval of the
Issuer or Affiliate Proposal
- ------------------------ -----------------------------------------------------
6. Source and Amounts of Funds Purchase Agreement; Effects of Approval of the
or Other Consideration Proposal
- ------------------------ -----------------------------------------------------
7. Purpose(s), Alternatives, Introduction; Special Factors; Effects of
Reasons and Effects Approval of the Proposal
- ------------------------ -----------------------------------------------------
8. Fairness of the Transaction Special Factors; Outstanding Voting Securities
and Voting Rights
- ------------------------ -----------------------------------------------------
9. Reports, Opinions, Appraisals Special Factors; Appraisal of the
and Certain Negotiations Property/Fairness Opinion
- ------------------------ -----------------------------------------------------
10.Interest in Securities of Outstanding Voting Securities and Voting Rights
the Issuer
- ------------------------ -----------------------------------------------------
11.Contracts, Arrangements, or Outstanding Voting Securities and Voting Rights
Understandings with Respect
to the Issuer's Securities
- ------------------------ -----------------------------------------------------
12.Present Intention and Special Factors
Recommendation of Certain
Persons with Regard to the
Transaction
- ------------------------ -----------------------------------------------------
13.Other Provisions of the Outstanding Voting Securities and Voting Rights
Transaction
- ------------------------ -----------------------------------------------------
14.Financial Information Financial Statements; Financial Information -
Selected Partnership Financial Data
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15.Persons and Assets Purchase Agreement; Effects of Approval of the
Employed, Retained Proposal; Appraisal of the Property/Fairness
or Utilized Opinion; Legal Proceedings
- ------------------------ -----------------------------------------------------
16.Additional Information Consent Solicitation Statement; Form of Proxy;
Schedule 14A
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17.Materials to be Filed Exhibit 10.1 (agreement with Everest Group);
as Exhibits Exhibit 99.1 (Schedule 14A); Exhibit 99.2
(appraisal); Exhibit 99.3 (fairness opinion)
- ------------------------ -----------------------------------------------------
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<PAGE>
Capitalized terms used but not expressly defined herein shall have the
meanings ascribed to them in the Registrant's Consent Solicitation Statement (as
defined below). For the purpose of this Schedule 13E-3, the following
capitalized terms shall be ascribed the following meanings:
"Form of Proxy" refers to the form of Action by Written Consent of
Limited Partners included as Appendix 1 to the Schedule 14A.
"Consent Solicitation Statement" refers to the Consent Solicitation
Statement forming part of Schedule 14A.
"Investor Letter" refers to the letter to investors included as
Appendix 2 to the Schedule 14A.
"Schedule 14A" refers to the Partnership's Definitive Schedule 14A
filed on November 12, 1998.
All of the documents listed above are hereby incorporated herein by this
reference.
For the purpose of responses to this Schedule 13E-3, cross references
will be made to Schedule 14A and to information under specified sections of the
documents contained therein.
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ITEM 1. Issuer and Class of Security Subject to the Transaction.
(a) See "Outstanding Voting Securities and Voting Rights" in the Consent
Solicitation Statement. In answer to this item, such information is
incorporated herein by this reference.
(b) See "Introduction" and "Outstanding Voting Securities and Voting
Rights" in the Consent Solicitation Statement. In answer to this item, such
information is incorporated herein by this reference.
(c) See the bullet factors under "Special Factors" in the Consent
Solicitation Statement. In answer to this item, such information is
incorporated herein by this reference.
(d) See "Financial Information - Selected Partnership Financial Data" and
"Financial Information - Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Consent Solicitation Statement. In
answer to this item, such information is incorporated herein by this reference.
(e) During the past three years, neither the Partnership, Grotewohl Management
Services, Inc. nor Mark Grotewohl has made an underwritten offering of Units for
cash which was registered under the Securities Act of 1933 or exempt from
registration thereunder pursuant to Regulation A. Accordingly, this information
is omitted from the Consent Solicitation Statement.
(f) Since commencement of the Partnership's second full fiscal year preceding
the date of this Schedule 13E-3, neither the Partnership, Grotewohl Management
Services, Inc., nor Mark Grotewohl has purchased any Units. Accordingly, this
information is omitted from the Consent Solicitation Statement.
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<PAGE>
ITEM 2. Identity and Background
(a)-(d) This Schedule is filed by the Partnership, Grotewohl Management
Services, Inc., the Managing General Partner of the Partnership, and Mark
Grotewohl.
The Partnership is a California limited partnership which has no
executive officers or directors. The principal business address of the
Partnership is 2030 J Street, Sacramento, CA 95814. Its principal business is
the ownership and operation of a lodging facility. The Partnership's general
partners are Grotewohl Management Services, Inc., as managing general partner,
and Robert J. Dana, as associate general partner.
Grotewohl Management Services, Inc. is a California corporation owned
one-half by Philip B. Grotewohl and one-half by his former wife, who is not
involved in the day-to-day operations of Grotewohl Management Services, Inc.,
and who does not serve as a director or executive officer thereof. The sole
director of Grotewohl Management Services, Inc. is Philip Grotewohl and the
executive officer of Grotewohl Management Services, Inc. is Philip Grotewohl.
David Grotewohl has authority to sign documents on behalf of the General Partner
as its nominal President and Chief Financial Officer, but has no executive
duties. He does act as "inside" legal counsel to the General Partner, and his
principal occupation has been to head the operation and maintenance of the
Properties and the properties of the other GMS Partnerships. The principal
business address of Grotewohl Management Services, Inc. is 2030 J Street,
Sacramento, CA 95814. During the past five years Grotewohl Management Services,
Inc. and its affiliate, Brown & Grotewohl, a California general partnership
one-half owned by Philip Grotewohl and one-half owned by the Estate of Dennis A.
Brown, principally have been engaged in the business of managing various limited
partnerships which own and operate lodging facilities, and in the business of
managing such lodging facilities. During the past five years Philip Grotewohl's
business activities have been conducted solely through Grotewohl Management
Services, Inc. and Brown & Grotewohl. The principal business address of Philip
Grotewohl is 2030 J Street, Sacramento, CA 95814. In addition to the services
described above, during the past two and three-quarters years David Grotewohl
has been engaged part-time as a sole proprietor in the marketing of consumer
products and services under the business name "The Biscayne Group." The
principal business address of David Grotewohl is 2030 J Street, Sacramento, CA
95814.
Robert J. Dana is the associate general partner of the Partnership and,
as such, has no control over the management of the Partnership. During the past
five years Robert J. Dana has been self-employed through D/S Telecom and Telecom
Options as a seller of long-distance telephone services. The principal business
address of Robert J. Dana is 6439 Timber Springs Drive, Santa Rosa, CA 95409.
Mark Grotewohl is the son of Philip Grotewohl. During the last five
years, until April 30, 1998, Mark Grotewohl was employed as the marketing and
sales director for the five GMS Partnerships. Since that time, Mark Grotewohl
has been engaged in facilitating the proposed transaction discussed in the
Consent Solicitation Statement, and is operating from the offices of Grotewohl
Management Services, Inc.
See "Management," "Purchase Agreement" and "The Property and the
Partnership's Business" in the Consent Solicitation Statement for information
respecting the persons filing this Schedule 13E-3. In answer to this item, such
information is incorporated herein by this reference
(e) None of the Partnership, Grotewohl Management Services, Inc., Robert J.
Dana, Philip Grotewohl, David Grotewohl, or Mark Grotewohl has, during the
last five years, been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors). Accordingly, this information is omitted
from the Consent Solicitation Statement.
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(f) None of the Partnership, Grotewohl Management Services, Inc., Robert J.
Dana, Philip Grotewohl, David Grotewohl, or Mark Grotewohl has, during the last
five years, been a party to a civil proceeding of a judicial or administrative
body of competent jurisdiction and as a result of such proceeding was or is
subject to a judgment, decree or final order enjoining further violations of, or
prohibiting activities subject to, federal or state securities laws or finding
any violation of such laws. Accordingly, this information is omitted from the
Consent Solicitation Statement.
(g) Each of the natural persons named in (f) is a citizen of the United States.
This information is omitted from the Consent Solicitation Statement.
ITEM 3. Past Contacts, Transactions or Negotiations.
(a)(1) See "Management," "Purchase Agreement" and Note 4 and Note 5 to the
Partnership's audited financial statements included in the Consent Solicitation
Statement. In answer to this item, such information is incorporated herein by
this reference.
(a)(2) No contacts, negotiations or transactions have been entered into or
have occurred which are required to be disclosed under this item, other than the
proposed transaction to be voted upon. Accordingly, except with respect to the
proposed transaction to be voted upon, this information is omitted from the
Consent Solicitation Statement. With respect to the proposed transaction to be
voted upon, see "Purchase Agreement" and "Amendment to Partnership Agreement"
in the Consent Solicitation Statement. In answer to this item, such information
is incorporated herein by this reference.
(b) No contacts, negotiations or transactions have been entered into or
have occurred which are required to be disclosed under this item, other than the
proposed transaction to be voted upon and the offer to purchase the
Partnership's property made by the Everest Group. Accordingly, except with
respect to the proposed transaction to be voted upon and the offer to purchase
the Partnership's property made by the Everest Group, this information is
omitted from the Consent Solicitation Statement. With respect to the proposed
transaction to be voted upon, see "Purchase Agreement" and "Amendment to
Partnership Agreement" in the Consent Solicitation Statement, and with respect
to the offer to purchase the Partnership's property made by the Everest Group,
see "Special Factors" in the Consent Solicitation Statement. In answer to this
item, such information is incorporated herein by this reference.
ITEM 4. Terms of the Transaction.
(a) See "Purchase Agreement" in the Consent Solicitation Statement. In
answer to this item, such information is incorporated herein by this reference.
(b) There is no term or arrangement concerning the proposed transaction relating
to any Unit holder of the Partnership which is not identical to that relating to
other Unit holders of the Partnership. Accordingly, this information is omitted
from the Consent Solicitation Statement.
ITEM 5. Plans or Proposals of the Issuer or Affiliate.
(a)-(g) See "Purchase Agreement" and "Effects of Approval of the Proposal"
in the Consent Solicitation Statement for information respecting the proposed
sale of the Partnership's assets and its subsequent liquidation. In answer to
this item, such information is incorporated herein by this reference. There are
currently no plans or proposals of the nature set forth in this item with
respect to Grotewohl Management Services, Inc., and such plans or proposals are
not applicable to natural persons. Accordingly, this information is omitted from
the Consent Solicitation Statement.
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<PAGE>
ITEM 6. Source and Amounts of Funds or Other Consideration.
(a)-(d) See "Purchase Agreement" and "Effects of Approval of the Proposal" in
the Consent Solicitation Statement. In answer to this item, such
information is incorporated herein by this reference.
ITEM 7. Purpose(s), Alternatives, Reasons and Effects.
(a)-(d) See "Introduction," "Special Factors" and "Effects of Approval of
the Proposal" in the Consent Solicitation Statement. In answer to this item,
such information is incorporated herein by this reference.
ITEM 8. Fairness of the Transaction
(a) See "Special Factors" in the Consent Solicitation Statement. In answer to
this item, such information is incorporated herein by this reference.
(b) See "Special Factors" in the Consent Solicitation Statement. In answer to
this item, such information is incorporated herein by this reference.
(c) See "Special Factors" and "Outstanding Voting Securities and Voting Rights"
in the Consent Solicitation Statement. In answer to this item, such
information is incorporated herein by this reference.
(d)-(e) The Partnership does not have directors. Accordingly, this information
is omitted from the Consent Solicitation Statement.
(f) See "Special Factors" in the Consent Solicitation Statement. In answer to
this item, such information is incorporated herein by this reference.
ITEM 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a)-(c) See "Special Factors" and "Appraisal of the Property/Fairness Opinion"
in the Consent Solicitation Statement. In answer to this item, such
information is incorporated herein by this reference.
ITEM 10. Interest in Securities of the Issuer.
(a) See "Outstanding Voting Securities and Voting Rights" in the Consent
Solicitation Statement. In answer to this item, such information is
incorporated herein by this reference.
(b) There has been no transaction in the Units subject to Rule 13e-3 that was
effected during the past 60 days by the persons named in response to paragraph
(a) of this item. Accordingly, this information is omitted from the Consent
Solicitation Statement.
ITEM 11. Contracts, Arrangements or Understandings with Respect to the
Issuer's Securities.
See "Outstanding Voting Securities and Voting Rights" in the
Consent Solicitation Statement. In answer to this item, such information is
incorporated herein by this reference.
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ITEM 12. Present Intention and Recommendation of Certain Persons with
Regard to the Transaction.
(a) None of Grotewohl Management Services, Inc., Robert J. Dana, Philip B.
Grotewohl, David P. Grotewohl, or Mark Grotewohl owns any Units. Accordingly,
this information is omitted from the Consent Solicitation Statement.
(b) For the recommendation of Grotewohl Management Services, Inc. and Mark
Grotewohl, see "Special Factors" in the Consent Solicitation Statement. In
answer to this item, such information is incorporated herein by this reference.
None of the other persons named in paragraph (a) of this item has made a
recommendation. Accordingly, this information is omitted from the Consent
Solicitation Statement.
ITEM 13. Other Provisions of the Transaction.
(a) See "Outstanding Voting Securities and Voting Rights" in the Consent
Solicitation Statement. In answer to this item, such information is
incorporated herein by this reference.
(b) Except as required by state law or the Partnership Agreement, in connection
with the proposed transaction no provision has been made (i) to allow
unaffiliated security holders to obtain access to the files of the Partnership
or Grotewohl Management Services, Inc. or (ii) to obtain counsel or appraisal
services at the expense of any person named Item 2. Accordingly, this
information is omitted from the Consent Solicitation Statement.
(c) The proposed transaction does not entail the exchange of debt securities.
Accordingly, this information is omitted from the Consent Solicitation
Statement.
ITEM 14. Financial Information.
(a)(1) See the audited financial statements included under "Financial
Statements" in the Consent Solicitation Statement. In answer to this item,
such information is incorporated herein by this reference.
(a)(2) See the unaudited financial statements included under "Financial
Statements" in the Consent Solicitation Statement. In answer to this item,
such information is incorporated herein by this reference.
(a)(3) Inapplicable, as the Partnership is not registering and has not
registered debt securities or preference equity securities. Accordingly, this
information is omitted from the Consent Solicitation Statement.
(a)(4) See "Financial Information - Selected Partnership Financial Data" in the
Consent Solicitation Statement. In answer to this item, such information is
incorporated herein by this reference.
(b) As the Partnership will be liquidated if the proposed transaction is
consummated, pro forma data is omitted from the Consent Solicitation Statement.
ITEM 15. Persons and Assets Employed, Retained or Utilized.
(a) Partnership assets will be used in consideration of the proposed
transaction to pay the costs of the proposed transaction, and to make
liquidating distributions. Partnership officers and employees have been utilized
to negotiate the terms of the proposed transaction, to assist in the conduct of
the appraisal, and to assist in the preparation of this Schedule and the
Schedule 14A. See "Purchase Agreement," "Effects of Approval of the Proposal,"
7
<PAGE>
"Appraisal of the Property/Fairness Opinion" and "Legal Proceedings" in the
Consent Solicitation Statement. In answer to this item, such information is
incorporated herein by this reference.
(b) No persons have been or are to be employed, retained or compensated by the
Partnership, Grotewohl Management Services, Inc. or Mark Grotewohl or by any
person on behalf of the Partnership, Grotewohl Management Services, Inc. or Mark
Grotewohl to make solicitations or recommendations in connection with the
proposed transaction. Accordingly, this information is omitted from the Consent
Solicitation Statement.
ITEM 16. Additional Information.
See the Consent Solicitation Statement, the Form of Proxy, the
Investor Letter and the other portions of the Schedule 14A. In answer to this
item, such information is incorporated herein by this reference.
ITEM 17. Material to be Filed as Exhibits.
(a) Inapplicable. Accordingly, this information is omitted from the Consent
Solicitation Statement.
(b) See Exhibit 99.2 (appraisal) and Exhibit 99.3 (fairness opinion) hereto.
(c) See Exhibit 10.1 (agreement with the Everest Group) hereto.
(d) See Exhibit 99.1 (Schedule 14A) hereto.
(e) Inapplicable. Accordingly, this information is omitted from the Consent
Solicitation Statement.
(f) Inapplicable. Accordingly, this information is omitted from the Consent
Solicitation Statement.
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<PAGE>
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 12th day of November, 1998 SUPER 8 ECONOMY LODGING IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
By: Grotewohl Management Services, Inc.,
Managing General Partner
By: /S/ PHILIP B GROTEWOHL
Philip B. Grotewohl
GROTEWOHL MANAGEMENT SERVICES, INC.
By: /S/ PHILIP B GROTEWOHL
Philip B. Grotewohl
/s/ MARK GROTEWOHL
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EXHIBIT 10.1
AGREEMENT
This Agreement is made as of April 21, 1998. Everest Properties II, LLC and its
affiliates listed below ("Everest") are prepared to cooperate with Mark
Grotewohl and his affiliated entity (the "Buyer") to complete a purchase of the
properties (the "Properties") owned by the 5 Super 8 partnerships listed below
(the "Partnerships") on the following conditions:
(1) The Partnerships will execute and deliver, concurrently with execution of
the Purchase Agreement referred to below, the Exclusive Sales Agency
Contract in the form attached hereto as Exhibit A.
(2) Not later than April 30, 1998, Buyer executes a Purchase Agreement (in a
commercially reasonable from acceptable to Everest, incorporating the terms
set forth in this paragraph) to acquire all of the Properties for the
appraised values, payable in cash at closing. The Purchase Agreement will
provide that the Properties will be acquired by Buyer in an "as is"
condition and customary representations and warranties by the Buyer and the
Partnerships. The Purchase Agreement will include the following terms: (a)
all due diligence and receipt of a financing commitment (the "Buyer's
Contingencies") will be satisfied not later than June 30, 1998; (b) Buyer
will make a deposit (the "Deposit") of $150,000 to secure its performance
under the Purchase Agreement on the later to occur of the date the Buyer's
Contingencies are satisfied or the date Buyer is notified that the limited
partners of the Partnerships have approved the transaction (the "LP
Approval Date"); and (c) the Closing will occur on or before the later of
July 15, 1998 or 30 days after the LP Approval Date. The dates referred to
in 2(a) and 2(c) will be subject to commercially reasonable extensions. The
Deposit will be non-refundable if Buyer fails to complete the Closing as
set forth above, except if Buyer's lender fails to fund as permitted by the
terms of the financing commitment, the Deposit will be refunded to Buyer.
(3) Buyer agrees to permit Everest to attempt to provide financing for
acquisition of the Properties on terms which are to be provided to Everest
by Buyer (such terms being comparable to the terms otherwise available to
Buyer). Everest shall have 5 days following receipt of Buyer's term sheet,
to produce a written proposal from a qualified lender accepting all key
terms set forth by Buyer. If Everest's recommended lender provides
financing for the acquisition of the Properties, Everest Financial, Inc.
will be paid a 0.75% loan brokerage fee by Buyer at the Closing.
(4) The Partnerships will work diligently to file the proxy materials for the
limited partners' approval of the transaction with Buyer with the SEC not
later than April 30, 1998 and the Partnerships will work diligently to get
the proxy materials approved, mailed to limited partners and obtain the
affirmative vote of the limited partners to the transaction.
<PAGE>
If the above conditions are satisfied, Everest will (a) vote the limited
partnerships units owned in the Partnerships in favor of a sale to Buyer and (b)
not inhibit, delay or discourage the Partnerships from obtaining limited
partners' approval or the consummation of the proposed transaction.
The terms set forth herein shall be an amendment to our settlement agreement
dated February 20, 1998.
Grotewohl Management Services, Inc.
By: /s/ PHILIP B. GROTEWOHL
-----------------------------
Philip B. Grotewohl, Chairman
As General Partner of
Super 8 Motels, Ltd., Super 8 Motels II,
Ltd., Super 8 Motels III, Ltd., Super 8
Economy Lodging IV, Ltd., Famous Host
Lodging V, Ltd.
/s/ MARK GROTEWOHL
--------------------------------
Mark Grotewohl, as an individual
Everest Properties II, LLC
Everest Properties, LLC
By: /s/ W. ROBERT KOHORST
----------------------------
W. Robert Kohorst, President
for itself and as a Manager of
Everest Madison Investors, LLC
Everest Lodging Investors, LLC
KM Investments, LLC
Everest Financial, Inc.
By: /s/ W. ROBERT KOHORST
----------------------------
W. Robert Kohorst, President
<PAGE>
EXHIBIT A
EXCLUSIVE SALES AGENCY CONTRACT
Super 8 Motel, Ltd., a California limited partnership, Super 8 Motels
II, Ltd., a California limited partnership, Super 8 Motels III, Ltd., a
California limited partnership, Super 8 Economy Lodge IV, Ltd., a California
limited partnership, and Famous Host Lodging V, Ltd., a California limited
partnership (each a "Seller"), and each of them, hereby appoint Everest
Financial, Inc., a California corporation and licensed California real estate
broker ("Broker"), as their sole agent and grant Broker the exclusive right to
negotiate a sale of the properties described on Exhibit A attached hereto (each
a "Property" and collectively the "Properties").
Broker's appointment as the sole and exclusive agent shall be upon the
following terms and conditions, in addition to those contained in the attached
Commission Schedule:
1. The term of this agreement shall commence on the date of
Seller's execution hereof and continue for a period of six (6)
months (the "Term").
2. Broker agrees that it will use reasonable efforts to market
the Properties in order to secure a satisfactory purchasers of
the Properties. Broker will report to Sellers on its marketing
activities, including all submissions to potential purchasers
of the Properties. Notwithstanding the foregoing, Broker shall
not engage in such marketing activities so long as the
purchaser represented by Mark Grotewohl is negotiating or
under contract to purchase the Properties.
3. Broker, at Broker's cost, shall prepare all necessary
marketing material, and shall provide copies to Sellers not
less than 5 days prior to using them.
4. Sellers will refer to Broker all inquiries and offers received
by Sellers with respect to any Property, regardless of the
source thereof, and all negotiations shall be conducted
jointly by Broker and Sellers. Sellers will retain under this
agreement the sole and absolute right in their sole judgment
and discretion to accept or reject any proposals for any
reason or for no reason, without liability hereunder for any
commission, fee or other compensation whatsoever.
5. Sellers agree to pay Broker the commission provided in the
Commission Schedule if: (i) during the Term, a sale to any
purchaser of any or all of the Properties is completed or
any agreement or option is entered into with any purchaser
pursuant to which a sale of any or all of the Properties is
completed, whether or not Broker submitted any Properties to
such purchaser, (ii) during the Term or up to one (1) year
thereafter, any Seller enters into any agreement or option
pursuant to which a sale of any or all of the Properties is
completed with any purchaser to whom Broker had submitted
any Property. A Property shall be deemed to be submitted
<PAGE>
to any person that is contacted by or contacts Broker
concerning the sale of the Property, or that receives from the
Broker any sales information about the Property. Broker shall
provide Sellers with a list of persons to whom any Property
was submitted within fifteen (15) days after the Term expires.
6. Except as may be provided in the Commission Schedule, no other
licensed real estate broker ("Outside Broker") is entitled to
any compensation under this agreement. However, Broker shall
cooperate with and share its commission with an Outside Broker
to the extent customary in the industry.
7. Sellers shall be responsible for providing Broker with
information on each Property, including architectural and
structural plans. Sellers hereby represent and warrant that
all information relating to the Properties which is prepared
by Sellers or their representatives and which is delivered to
Broker for its use in marketing the Properties is and shall be
true and correct.
8. Sellers hereby agree to indemnify and defend Broker and its
affiliates, shareholders, officers, directors, employees and
representatives (the "Broker Parties"), with counsel
selected by the Broker Parties, and hold the Broker Parties
harmless, from any and all liabilities, damages, expenses
and costs, including reasonable attorney fees, resulting
from any claim or proceeding based on, related to or arising
from the sale or proposed sale of any of the Properties.
Broker shall not be indemnified against its negligence or
other misconduct. Broker shall hold Sellers and their
affiliates harmless from any and all liabilities, damages,
expenses and costs, including reasonable attorney fees,
resulting from Broker's negligence or misconduct related to
the sale or proposed sale of the Properties.
9. This agreement shall be binding upon the parties hereto and
their respective successors and assigns. In any action or
proceeding to enforce the provisions of this agreement, the
losing party shall pay the prevailing party's costs and
expenses, including reasonable attorney fees.
<PAGE>
IN WITNESS WHEREOF, the undersigned authorized representatives of each
Seller and Broker have executed and delivered this agreement on behalf of each
party, as of the date indicated below.
Dated: May 8, 1997
SUPER 8 MOTEL, LTD. EVEREST FINANCIAL, INC.
By: /S/PHILIP B. GROTEWOHL By: /S/W. ROBERT KOHORST
Name: Name: W. Robert Kohorst
Title: Title: President
SUPER 8 MOTELS II, LTD.
By: /S/PHILIP B. GROTEWOHL
Name:
Title:
SUPER 8 MOTELS III, LTD.
By: /S/PHILIP B. GROTEWOHL
Name:
Title:
SUPER 8 ECONOMY LODGE IV, LTD.
By: /S/PHILIP B. GROTEWOHL
Name:
Title:
FAMOUS HOST LODGING V, LTD.
By: /S/PHILIP B. GROTEWOHL
Name:
Title:
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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Super 8 Economy Lodging IV, Ltd., a California limited partnership
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1) Title of each class of securities to which transaction
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2) Aggregate number of securities to which transaction
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
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[X] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
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1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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4) Dated Filed:
May 15, 1998
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CONSENT SOLICITATION STATEMENT
PROPOSED ACTION BY WRITTEN CONSENT
OF LIMITED PARTNERS
OF
SUPER 8 ECONOMY LODGING IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
November 12, 1998
INTRODUCTION
The limited partners (the "Limited Partners") of SUPER 8 ECONOMY LODGING
IV, LTD., a California limited partnership (the "Partnership"), are being asked
by the Partnership and Grotewohl Management Services, Inc. (the "Managing
General Partner") to consider and approve by written consent the proposed sale
of all of the Partnership's interests in real property and related personal
property (the "Property") for an aggregate purchase price of $7,600,000, and the
dissolution of the Partnership, which proposal is described hereinafter (the
"Proposal"). If the Proposal is approved and the proposed sale is consummated,
among other things, all of the Partnership's assets will be liquidated and the
Partnership will be dissolved. (See "Effects of Approval of the Proposal"
below.)
If the Proposal is approved, the Partnership will be authorized to sell the
Property to Tiburon Capital Corporation, or a nominee thereof (the "Buyer"). It
is expected that Tiburon Capital Corporation will form a limited liability
company for the purpose of buying and owning the Property, and that Tiburon
Capital Corporation, as the managing member thereof, will have the power to
direct such Buyer's affairs and control all its major decisions. As discussed
below under "Purchase Agreement," Mark Grotewohl, a former employee of the
Partnership and the son of the two owners of the Managing General Partner, or a
limited liability entity to be formed by him, will be a member of the Buyer.
Mark Grotewohl or his wholly-owned entity will enter into a contract to provide
all centralized property management services to the Buyer and pay all
centralized property management expenses in exchange for 4 1/2% of gross
property revenues. The management contract will provide for performance
objectives which, if not met, will entitle the Buyer to terminate the contract.
As an additional management incentive Mr. Grotewohl or his wholly-owned entity
will receive on account of his or its membership in the Buyer up to 50% of the
profits from the Property after return of all capital to all equity investors,
plus a return thereon of at least 14% per annum. Neither Mark Grotewohl nor his
wholly-owned entity has or will have any interest in Tiburon Capital Corporation
or any voting rights in the Buyer with respect to major decisions (e.g., the
sale of refinancing of the Property).
The Limited Partners are urged to consider the following risk factors:
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- Inasmuch as the Buyer is engaging in the transaction in order to make a
profit by operating the Property, the Buyer's interests differ from those of the
Limited Partners. (See "Purchase Agreement" and "Special Factors.")
- The Managing General Partner is subject to conflicts of interest,
including conflicts arising from the settlement of lawsuits (see "Legal
Proceedings"), which may have impacted its decision to sell the Property, its
conduct of negotiations leading to the proposed sale of the Property and its
recommendation with respect thereto. (See "Conflicts of Interest.")
- The Managing General Partner did not list the Property for sale with a
broker to obtain competitive bids. Instead, the Managing General Partner based
the purchase price for the Property on a formal appraisal of the Property as of
January 1, 1998. (See "Special Factors" and "Conflicts of Interest.") It is
possible, then, that the Partnership might have received a higher price for the
Property if it had solicited offers by listing the Property.
- The appraiser may be subject to conflicts of interest in that it has
prepared other appraisals for the Managing General Partner. (See "Appraisal of
the Property/Fairness Opinion.")
- The Managing General Partner did not retain an unaffiliated
representative to act solely on behalf of the Limited Partners in negotiating
the terms of the proposed transaction. (See "Special Factors.")
- The Limited Partners will be allocated taxable gain if the Property is
sold. (See "Effects of Approval of the Proposal - Federal Income Tax
Consequences.")
Specifically, the Limited Partners are being asked to approve the following
Proposal:
An amendment to the Partnership Agreement to grant to the Managing General
Partner authority to sell the Property and related personal property to the
Buyer, notwithstanding that Mark Grotewohl will be an Affiliate of the Buyer; to
dissolve and wind up the affairs of the Partnership; to distribute the proceeds
of the sale and any other cash held by the Partnership in accordance with the
Partnership Agreement; to terminate the Partnership; and to take any action
deemed necessary or appropriate by it to accomplish the foregoing. The exact
wording of such amendment is set forth under "Amendment to Partnership
Agreement."
If the Limited Partners approve the Proposal, closing of the sale will be
subject to certain terms and conditions, including the availability of
sufficient debt financing to the Buyer. (See "Purchase Agreement.") If the sale
is consummated, distributions will be made to the Limited Partners in accordance
with the terms of the Partnership's Certificate and Agreement of Limited
Partnership (the "Partnership Agreement"). In an amendment to the settlement
agreement respecting the lawsuits discussed below (see "Legal Proceedings"), the
Partnership agreed to close the proposed transaction within a 30-day period
after approval thereof by the Limited Partners, so as to provide the Limited
Partners with the proceeds from the sale as quickly as possible.
The Proposal is subject to the approval of a majority-in-interest of the
Limited Partners. If the Limited Partners do not approve the Proposal, the
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Partnership will not sell the Property pursuant to the Proposal. Rather, the
Managing General Partner will entertain other offers to sell the Property and
will submit one or more of such offers to the Limited Partners for approval, in
the discretion of the Managing General Partner. Pending any sale of the
Property, the Partnership will continue to operate the Property as usual.
The purchase agreement was executed on April 30, 1998 by John F. Dixon and
William R. Dixon, Jr., on behalf of the Buyer, and Philip B. Grotewohl and David
P. Grotewohl, on behalf of the Partnership. The purchase agreement also covers
the proposed sale of the properties of four other California limited
partnerships as to which the Managing General Partner serves as general partner.
The term of all such purchases are identical, except for the amount being
offered for each property. The Buyer has the right to rescind the purchase
agreement if any of the five partnerships fails to approve the sale of its
property or properties to the Buyer.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
This Consent Solicitation Statement and the enclosed form of Action By
Written Consent of Limited Partners (the "Consent") were first sent to the
Limited Partners on or about November 12, 1998.
Units of limited partnership interest in the Partnership (the "Units")
represented by Consents duly executed and returned to the Partnership on or
before December 31, 1998 (unless extended by the Managing General Partner
pursuant to notice mailed to the Limited Partners) will be voted or not voted in
accordance with the instructions contained therein. If no instructions for the
Proposal are given on an executed and returned Consent, Units so represented
will be voted in favor of the Proposal. The Managing General Partner will take
no action with respect to the Proposal except as specified in the duly executed
and returned Consents.
The cost of this solicitation of Consents is being borne by the
Partnership. Such solicitation is being made by mail and, in addition, may be
made by officers and employees of the Partnership and the Managing General
Partner, either in person or by telephone or telegram.
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TABLE OF CONTENTS
Page
Special Factors.............................................................. 1
Outstanding Voting Securities and Voting Rights.............................. 6
Consent Under Partnership Agreement.......................................... 8
The Property and the Partnership's Business.................................. 8
Narrative Description of Business.......................................... 8
(a) Franchise Agreements................................................ 8
(b) Operation of the Motel ............................................. 9
(c) Competition......................................................... 9
Property................................................................... 9
Management...................................................................10
Purchase Agreement...........................................................11
Conflicts of Interest........................................................13
Effects of Approval of the Proposal..........................................14
General....................................................................14
Determination and Use of Net Proceeds......................................15
Federal Income Tax Consequences............................................15
(a) General.............................................................15
(b) Characterization of Gain............................................16
Dissolution of the Partnership.............................................17
Appraisal of the Property/Fairness Opinion...................................17
Legal Proceedings............................................................20
Amendment to Partnership Agreement...........................................23
Financial Information........................................................24
Selected Partnership Financial Data........................................24
Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................24
I. Fiscal Year Financial Statements...................................24
(a) Liquidity and Capital Resources...............................24
(b) Results of Operations.........................................25
II. Interim Financial Statements......................................27
(a) Liquidity and Capital Resources...............................27
(b) Results of Operations.........................................27
Other Financial Information................................................28
Financial Statements........................................................F-i
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SPECIAL FACTORS
A number of special factors apply to the Proposal. Some factors are
described more fully elsewhere in this Consent Solicitation Statement and should
be read in conjunction with the rest of this Consent Solicitation Statement.
Limited Partners are urged to read all of this Consent Solicitation Statement
carefully.
The primary purpose of the Proposal is to provide Limited Partners with an
opportunity to liquidate their investment in the Partnership. Based on (i)
comments and questions from Limited Partners with respect to a liquidation of
their investment, (ii) the lack of a public market for the Units, and (iii) the
original objective of the Partnership respecting the sale of the Property, the
Managing General Partner believes such liquidity is desired by the Limited
Partners.
The Partnership was formed in 1982 and its Property located in Pleasanton,
California opened for business during 1982.
This Consent Solicitation Statement has been prepared to ask the Limited
Partners to approve the sale of the Property for cash in the amount of the
appraised fair market value of $7,600,000.
It has always been the intention of the Partnership to liquidate the
Property when it became apparent that the best interests of the Limited Partners
would be served by doing so. The Managing General Partner has received inquiries
from the Limited Partners over the years as to when the Property was to be sold
and the Partnership liquidated. Its response, until recently, has been that
because of overbuilt and depressed motel market conditions, the time was not
right for a sale of the Property. During 1997 and the early part of 1998
conditions changed, and the Managing General Partner believes that the Property
should be sold pursuant to the Proposal, which was executed on April 30, 1998,
and the Partnership liquidated.
During September and October 1997, Everest Properties II, LLC, a member of
an affiliated group of entities which is the largest investor group in the
Partnership (the "Everest Group"), made an offer to purchase the Property and
the motel properties of four other California limited partnerships as to which
the Managing General Partner serves as general partner (the Partnership and the
four other partnerships are referred to herein as the "GMS Partnerships"). The
purchase price set forth in the October offer for the Property was $6,193,494, a
price far below $7,600,000, the appraised value as of January 1, 1998 and the
price offered in the Proposal. The Managing General Partner rejected the offer
of the Everest Group. Subsequent conflicts between the Everest Group and the
Partnership resulted in lawsuits. Inasmuch as the Managing General Partner
agreed with the Everest Group in principle that the Property should be sold, a
settlement was reached whereby, among other things, the Managing General Partner
agreed to take steps to sell the Property and the properties of the other GMS
Partnerships, and the lawsuits were dismissed. (See "Legal Proceedings.") In an
amendment to the settlement agreement, the Everest Group agreed to vote its
Units in favor of the Proposal. (See "Outstanding Voting Securities and Voting
Rights.")
The Managing General Partner considered seeking third party buyers for the
Property (and expects to do so if the Proposal is disapproved) but believes that
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it is unlikely that a sale materially more favorable to the Limited Partners
could have been arranged last spring, or can be arranged now, because (i) the
proposed purchase price is equal to the appraised value determined as of January
1, 1998, and (ii) in the opinion of the Managing General Partner, the market is
now less favorable to sellers than it was at the time the contract with the
Buyer was negotiated. It is also possible that a delay in pursuing the Buyer's
offer by listing the Property would have resulted in the loss of that offer.
In this regard, prior to negotiating the terms represented by the Proposal,
the Managing General Partner received in writing from two real estate brokers
who are not affiliated with the Partnership or the Managing General Partner
suggested sale strategies for the sale of the Property and the properties of the
other GMS Partnerships. One broker suggested a sealed bid sales strategy with an
emphasis of obtaining a single purchaser or a minimum number of purchasers. This
broker presented a broker's value for the eight individual properties which, in
the aggregate ($28,250,000), was slightly lower than the aggregate appraised
value ($28,900,000) of the eight properties. However, the values assigned by
this broker to the properties were, in some instances, lower than the appraised
values and, in other instances, higher. (For example, the broker assigned values
to the South San Francisco, Sacramento, Modesto, Santa Rosa, San Bernardino,
Bakersfield, Pleasanton and Barstow properties of $7,500,000, $2,600,000,
$1,250,000, $1,700,000, $1,700,000, $1,800,000, $7,800,000, and $3,900,000,
respectively, as compared to the appraised values determined by PKF Consulting
of $7,600,000, $2,700,000, $1,800,000, $2,200,000, $1,600,000, $1,300,000,
$7,600,000 and $4,100,000, respectively.) The other broker suggested that the
eight properties would derive the highest value if sold as a portfolio,
particularly if the buyer were trying to break into the California lodging
industry. The aggregate list price determined by this broker ($29,000,000) was
substantially the same as the aggregate appraised values. As was the case with
the first broker, this broker assigned list prices to the eight properties which
were, in some instances, lower than those of the appraised values and, in other
instances, higher. (This broker assigned list prices, assuming the properties
were sold individually, to the South San Francisco, Sacramento, Modesto, Santa
Rosa, San Bernardino, Bakersfield, Pleasanton and Barstow properties of
$7,663,176, $2,562,833, $1,177,217, $1,600,182, $1,417,824, $1,634,820,
$7,947,436 and $3,558,296, respectively.) Limited Partners should be aware that
"list" prices and "values" assigned by brokers are prices to be used to position
properties for ultimate sale over a period of time. Such estimated prices are
not intended to be appraised values, are not the work product of recognized
experts, are not the result of the rigorous efforts entailed in producing
appraised values, may reflect marketing strategy more than an honest estimate of
the probable value and, therefore, may not accurately reflect the actual amount
of a sale price for any given property. Indeed, the Managing General Partner is
aware that the competition between these two brokers to obtain the listings may
have, in some instances, resulted in an upward bias in the brokers' reports.
Accordingly, the Managing General Partner does not believe that the prices and
values submitted by the brokers should be relied upon in connection with a
Limited Partner's determination of the manner in which the Limited Partner will
vote on the Proposal. The Managing General Partner has included the information
set forth in this paragraph so that Limited Partners will have before them all
third-party information possessed by the Managing General Partner at the time it
negotiated the terms of the Proposal.
It was not until after the Managing General Partner's receipt of the PKF
Consulting appraisal, and the broker's reports discussed in the preceding
paragraph that Tiburon Capital Corporation (together with its nominees, the
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"Buyer") was introduced to the Managing General Partner by Mark Grotewohl.
Philip Grotewohl, on behalf of the Managing General Partner, conducted
negotiations relative to the sale of the Property.
As discussed more fully below under "Appraisal of the Property/Fairness
Opinion," the Property has been appraised by PKF Consulting, a national
hospitality industry specialist. PKF Consulting is an international firm of
management consultants, industry specialists, and appraisers who provide a wide
range of services to the hospitality, real estate, and tourism industries.
Headquartered in San Francisco, PKF Consulting has offices in New York,
Philadelphia, Atlanta, Boston, Houston, Los Angeles, Washington, D.C., and
abroad. As a member of the Pannell Kerr Forster International Association, PKF
Consulting has access to the resources of one of the world's largest accounting
and consulting firms, with 300 offices in 90 countries. Its conclusion was that
the fair market value of the Property as of January 1, 1998 was $7,600,000,
which is the purchase price of the Property set forth in the Proposal. The
purchase price is to be paid in cash, and the net proceeds thereof will be
distributed in accordance with the Partnership Agreement upon the close of the
sales transactions and the concomitant dissolution of the Partnership. The
amended settlement agreement with the Everest Group and the contract of sale
between the Partnership and the Buyer provide for a closing of the sale within
30 days after approval of the sale by the Limited Partners, in order to provide
for a rapid distribution of sale proceeds to the Limited Partners. Termination
of the Partnership will occur as soon as the winding up process can be
completed.
The Partnership and the Managing General Partner are recommending the
approval of the Proposal by the Limited Partners for the following reasons:
o The Managing General Partner believes that the subject contract was
entered into at the crest of a seller's market, which has now subsided. In this
regard, Limited Partners should note that economic journalists have reported
adverse changes in credit availability and consumer confidence since the terms
of the Proposal were negotiated, factors which could adversely affect the value
of the Property. The Managing General Partner believes that now is the time to
sell the Property.
o Although the motel is in good condition, it is almost 16 years old and
has never been refurbished. If the Property is to be retained, it would be
necessary for the Partnership to spend large sums for its refurbishment and
modernization. The Managing General Partner believes that the funds for such
expenditures would not be available from cash flow without reducing future
distributions.
o The Partnership's intention has always been to sell the Property when the
market conditions warranted sale. It was never an investment objective of the
Partnership to hold the Property permanently.
o The Managing General Partner understands that the circumstances of many
of the Limited Partners have changed over the life of the Partnership and
believes that the Limited Partners should be presented with an opportunity to
liquidate their investments. In this regard the Managing General Partner
believes that it is important that the Limited Partners understand that no true
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market exists for the sale of the Limited Partner's investment Units.
Heretofore, to dispose of their Units, Limited Partners have had to arrange
private sales, or accept tender offers, at prices well below the real value of
the underlying assets.
o The Property is proposed to be sold to the Buyer for $7,600,000,
approximately $1,406,000 more than was offered for the Property in October 1997
by the Everest Group. The sales price is equal to the appraised value of the
Property as of January 1, 1998 as determined by PKF Consulting, an independent
real estate advisory firm specializing in the valuation of lodging properties.
The proposed sale will be for all cash. PKF Consulting has rendered a fairness
opinion, stating its opinion that the sales price is fair to the Partnership.
o As of August 31, 1998, the Limited Partners had already received, over
the life of the Partnership, the sum of $686.30 per Unit in the form of
quarterly distributions. Upon the sale of the Property as described herein, the
Limited Partners would receive an additional pre-tax distribution in the
estimated amount of approximately $798 per Unit. For a discussion of other
effects of the sale of the Property, including Federal income tax consequences,
see "Effects of Approval of the Proposal" below.
Notwithstanding the preceding, Limited Partners should note that the Buyer
hopes to benefit from its acquisition of the Property, and that the Managing
General Partner has a conflict of interest (see "Conflicts of Interest") in
proposing the sale at this time. The fair market value and net cash flow of the
Property may increase over time. Therefore, it is possible that Limited Partners
would receive a greater return on their investment if the Partnership continued
to own and operate the Property and sold it at a later date, instead of
consummating a sale under the Proposal. The Limited Partners would likely fare
worse under a strategy of retaining the Property if its value were to decline.
The Managing General Partner has faced substantial conflicts of interest in
proposing, negotiating and structuring the Proposal. See "Conflicts of
Interest." Although, as discussed above, the Managing General Partner believes
that the Limited Partners are interested in a means of liquidating their
investment, the Proposal has not been initiated by the Limited Partners. The
steps that have been and are being taken to provide the Limited Partners with
procedural safeguards are: (i) the submission of the Proposal to the Limited
Partners (all of whom are unaffiliated with the Partnership, the General
Partners and Mark Grotewohl) for their approval; (ii) the commissioning of an
independent appraisal of the Property upon which the Proposal is based; and
(iii) the commissioning of a fairness opinion respecting the Proposal. The
factors are listed in descending order of importance, i.e., the first factor
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 factor because each factor is
relevant and the Partnership, the Managing General Partner and Mark Grotewohl
were not able to weigh the relative importance of each factor precisely.
Although the Partnership has not retained an independent representative for the
Limited Partners, the Partnership, the Managing General Partner and Mark
Grotewohl believe that the steps taken and to be taken constitute sufficient
procedural safeguards for the Limited Partners' interests and that the proposed
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transaction is procedurally fair. The Managing General Partner's determination
was made by Philip Grotewohl, as the sole director thereof.
Further, the Partnership, the Managing General Partner and Mark Grotewohl
believe that the proposed transaction represented by the Proposal is
substantively fair to the Limited Partners. The Partnership, the Managing
General Partner and Mark Grotewohl have considered a number of material factors
in connection with developing such beliefs. The factors are 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,
although, as a practical matter, this process is an approximation of the weight
given to each factor because each factor is relevant and the Partnership, the
Managing General Partner and Mark Grotewohl were not able to weigh the relative
importance of each factor precisely:
(i) The purchase price of the Property is equal to the appraised value of
the Property as of January 1, 1998;
(ii) The Units are at present illiquid and the cash to be distributed to
the Limited Partners as a result of the proposed sale will provide Limited
Partners with liquidity and cash in an amount greater than the recent sales
prices for the Units and the net book value of the Units(as discussed below);
(iii) The purchase price will be paid entirely in cash;
(iv) The Partnership, the Managing General Partner and Mark Grotewohl
believe that a current appraisal of the Property might reflect a lower value
than that reflected in the January 1, 1998 appraisal;
(v) The Partnership has received an opinion from PKF Consulting that the
terms of the proposed sale are fair to the Limited Partners;
(vi) The purchase price for the Property is substantially greater than that
proposed by the Everest Group, the only other firm offer made for the Property
during the preceding 18 months; and
(vii) A sale of the Property rather than the continued ownership thereof
will be consistent with the Partnership's investment objectives.
The appraisal prepared by PKF Consulting was received by the Managing
General Partner prior to the time that negotiations with the Buyer were
commenced. The Managing General Partner relied on the appraisal to determine the
valuation of $7,600,000 for the Property. As further discussed in the appraisal
(see "Appraisal of the Property/Fairness Opinion"), PKF Consulting relied on a
sales comparison analysis, a direct capitalization of income analysis, and a
discounted cash flow analysis. Inasmuch as the Property consists of an actively
operated business, the appraisal sets forth a single value for the "as is"
market value and the "going concern" value. Accordingly, in relying on the
appraisal, the Partnership, the Managing General Partner and Mark Grotewohl
considered the "as is" market value and the "going concern" value, as well as
current and historical prices for other motels. They did not consider the
current liquidation value of the Property because it is clear that the highest
and best use of the Property is as an operating motel. To sell the building and
personal property in a liquidation sale would be ill advised. Further, the
Managing General Partner deemed the net book value of the Property to be
irrelevant, given the holding period for the Property. Based upon experience in
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the lodging industry, as well as general familiarity with industry news as
reported by trade journals, the Partnership, the Managing General Partner and
Mark Grotewohl reasonably believe that the appraised fair market value of the
Property as determined by PKF Consulting as of January 1, 1998 was fair. PKF
Consulting was retained because of its reputation and expertise. The Partnership
paid PKF Consulting approximately $8,100 for its services in the proposed
transaction and the other GMS Partnerships paid PKF Consulting an aggregate of
approximately $41,400.
With respect to item (ii) above, in the absence of an established public
market in which Units are being traded, the Managing General Partner was not
able to determine accurately any market values for the Units. However, according
to Partnership Spectrum, an independent third party publication, and Schedules
13-D filed by the Everest Group, from August 1996 to August 1998 there were
sales of Units (including sales made pursuant to tender offers) at rates ranging
from $310 per Unit to $683 per Unit. The proposed sale would result in
distributions of approximately $798 per Unit. During the past two years, neither
the Partnership, the Managing General Partner nor Mark Grotewohl has purchased
or sold any Units. The net book value of the Partnership as of June 30, 1998 was
$255.86 per Unit. During the past two years no offers have been made by any
unaffiliated entity for a sale of Limited Partners' interests in the Partnership
allowing the purchaser thereof to exercise control over the Partnership.
Against the proposed transaction are the fact of an inside transaction, the
Managing General Partner's decision not to solicit bids from independent third
parties, and the possibility that the continued ownership of the Property could
be more economically beneficial than a sale at this time. The Partnership, the
Managing General Partner and Mark Grotewohl believe the factors listed above in
favor of the transaction outweigh these negative considerations.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The only outstanding class of voting securities of the Partnership is the
Units. Each Unit entitles its holder to one vote on the Proposal.
All Limited Partners as of the date action is taken on the Proposal (the
"Record Date") are entitled to notice of and to vote on the Proposal. As of
August 31, 1998 there were 10,000 Units outstanding and a total of 1,849 Limited
Partners entitled to vote such Units. With respect to the Proposal to be voted
upon, the favorable vote of Limited Partners holding in excess of 50% of the
Units outstanding as of the Record Date will be required for approval.
There are no rights of appraisal or similar rights of dissenters under
California law or otherwise with regard to the Proposal to be voted upon.
Dissenting Limited Partners are protected under California law by virtue of the
fiduciary duty of the Managing General Partner to act with prudence in the
business affairs of the Partnership on behalf of the Partnership and the Limited
Partners.
As of August 31, 1998 no person or group of related persons was known by
the Partnership to be the beneficial owner of more than 5% of the Units, except
the following group of related Unit holders:
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Everest Lodging Investors, LLC 182 Units 1.82%
Everest Madison Investors, LLC 497 Units 4.97%
Total 679 Units 6.79%
None of Grotewohl Management Services, Inc. (the Managing General Partner),
Robert J. Dana (the associate general partner), Philip B. Grotewohl, David P.
Grotewohl or Mark Grotewohl, or any of their affiliates, are the beneficial
owners of any Units.
As set forth above, the Everest Group owns 679 Units (6.79% of the total).
In a written agreement dated April 21, 1998 (a date prior to the date Mark
Grotewohl terminated his employment with the Partnership) entered into by the
GMS Partnerships, Mark Grotewohl, Everest Properties II, LLC, Everest
Properties, LLC, Everest Madison Investors, LLC, Everest Lodging Investors, LLC,
KM Investments, LLC and Everest Financial, Inc., which amended the settlement
agreement dated February 20, 1998 (discussed below under "Legal Proceedings"),
the Everest Group agreed to vote in favor of the Proposal upon satisfaction of
the following conditions: (i) execution by the GMS Partnerships of an exclusive
sales agency contract in favor of the Everest Group; (ii) execution by the GMS
Partnerships with an entity affiliated with Mark Grotewohl not later than April
30, 1998 of purchase agreements for the properties of the GMS Partnerships
providing for sale prices equal to the respective appraised values of the
properties and for full payment in cash at the time of the closing of escrow;
(iii) the grant to the Everest Group of the first opportunity to arrange
financing for the proposed transactions; and (iv) the diligent preparation and
dissemination by the Partnership of this Consent Solicitation Statement.
Condition (i) was satisfied on May 8, 1998 by the execution of an exclusive
sales agency contract granting the Everest Group an exclusive listing for the
sale of the Property and the properties owned by the other GMS Partnerships for
a six-month period. For a discussion of the commissions payable pursuant to such
contract, see "Purchase Agreement" below.
No meeting will be held with regard to this solicitation of the Limited
Partners. Voting may be accomplished by completing and returning to the offices
of the Partnership, at 2030 J Street, Sacramento, California 95814, telephone:
(916) 442-9183, the form of Consent included herewith. Only Consents received
prior to the close of business on the date (the "Action Date") which is the
earlier of (i) the date on which the Partnership receives approval and/or
disapproval of the Proposal by a majority-in-interest of the Limited Partners,
or (ii) December 31, 1998 (unless extended by the Managing General Partner
pursuant to notice mailed to the Limited Partners), will be counted toward the
vote on the Proposal. However, Limited Partners are urged to return their
Consents at the earliest practicable date.
If a Limited Partner has delivered an executed Consent to the Partnership,
the Limited Partner may revoke such Consent not later than the close of business
on the date immediately prior to the Action Date. As of the Action Date, the
action which is the subject of this solicitation will either be effective (if
the requisite number of executed Consents have been received by the Partnership)
or the solicitation period will have expired without approval of the Proposal.
The only method for revoking a Consent once it has been delivered to the
Partnership is by the delivery to the Partnership prior to the Action Date of a
written instrument executed by the Limited Partner who executed the Consent
which states that the Consent previously executed and delivered is thereby
revoked. Other than the substance of the revocation described above, no specific
form is required for such revocation. An instrument of revocation will be
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effective only upon its actual receipt prior to the Action Date by the
Partnership or its authorized agent at the Partnership's place of business as
set forth in the foregoing paragraph.
CONSENT UNDER PARTNERSHIP AGREEMENT
Pursuant to Section 14.1(e) of the Partnership Agreement, a
majority-in-interest of the Limited Partners must approve or disapprove the sale
at one time of all or substantially all of the Partnership's properties. Also,
under Section 11.2 of the Partnership Agreement, the Partnership is not
permitted to sell its property to "Affiliates" of the General Partners. (The
Partnership Agreement defines "Affiliate" as (i) any person directly or
indirectly controlling, controlled by, or under common control with another
person, (ii) any person owning or controlling 10% or more of the outstanding
voting securities of such other person, (iii) any officer, director or partner
of such person, and (iv) if such other person is an officer, director or
partner, any company for which such person acts in any such capacity.) Although
it might be contended that the Buyer is an Affiliate of the Managing General
Partner, in the opinion of the Managing General Partner the Buyer does not come
within such definition, because the Managing General Partner does not believe
that Mark Grotewohl is an Affiliate of the Managing General Partner. (See
"Purchase Agreement" below.) However, recognizing the possibility that
reasonable minds might differ in resolving that issue, and because the Property
constitutes substantially all of the Partnership's properties (as discussed
below under "The Property and the Partnership's Business"), the Managing General
Partner is seeking the approval of the proposed sale of the Property to the
Buyer on the terms described herein by a majority-in-interest of the Limited
Partners.
THE PROPERTY AND THE PARTNERSHIP'S BUSINESS
The Property consists of land located in Pleasanton, California, the motel
property constructed thereon by the Partnership, and the related personal
property.
Narrative Description of Business
(a) Franchise Agreements
The Partnership operates its motel property as a franchisee of Super 8
Motels, Inc. through a sub-franchise obtained from Super 8 Management
Corporation. In March 1988, Brown & Grotewohl, a California general partnership
that is an Affiliate of the Managing General Partner (the "Manager"), became
sub-franchisor in the stead of Super 8 Management Corporation, another Affiliate
of the Managing General Partner. As of November 10, 1997, Super 8 Motels, Inc.
had franchised a total of 1,619 motels having an aggregate of 98,000 guestrooms
in operation. Super 8 Motels, Inc. is a wholly-owned subsidiary of Hospitality
Franchise Systems, Inc. Neither the Partnership nor the Managing General Partner
has any interest in Hospitality Franchise Systems, Inc.
The objective of the Super 8 Motel chain is to maintain a competitive
position in the motel industry by offering to the public comfortable, no-frills
accommodations at a budget price. Each Super 8 Motel provides its guests with
attractively decorated rooms, free color television, direct dial telephone and
other basic amenities, but eliminates or modifies other items to provide
substantial cost reduction without seriously affecting comfort or convenience.
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Some of these savings are accomplished by reductions in room size, elimination
of expensive lobbies, and by substantial economies in building construction.
By the terms of each franchise agreement with Super 8 Motels, Inc., the
Partnership pays monthly franchise fees equal to 4% of its gross room revenues
(half of which is paid to the sub-franchisor) and contributes an additional 1%
of its gross room revenues to a fund administered by Super 8 Motels, Inc. to
finance the national reservation and promotions program.
(b) Operation of the Motel
Brown & Grotewohl, a California general partnership which is an affiliate
of the Managing General Partner (the "Manager"), manages and operates the
Partnership's motel. The Manager's management responsibilities include, but are
not limited to, the supervision and direction of the Partnership's employees who
operate the motel, the establishment of room rates and the direction of the
promotional activities of the Partnership's employees. In addition, the Manager
directs the purchase of replacement equipment and supplies, maintenance activity
and the engagement or selection of all vendors, suppliers and independent
contractors. The Partnership's financial accounting activities are performed by
the motel staff and a centralized accounting staff, all of which work under the
direction of the Managing General Partner or the Manager. Together, these staffs
perform all bookkeeping duties in connection with the motel, including all
collections and all disbursements to be paid out of funds generated by motel
operations or otherwise supplied by the Partnership.
As of December 31, 1997, the Partnership employed a total of 23 persons,
either full or part-time, at its motel, including six desk clerks, 13
housekeeping and laundry personnel, three maintenance personnel, and one general
manager. In addition, and as of the same date, the Partnership employed 11
persons in administrative positions at its central office in Sacramento,
California, all of whom worked for the Partnership on a part-time basis. They
included accounting, investor service, sales and marketing and motel supervisory
personnel, secretarial personnel, and purchasing personnel.
(c) Competition
As discussed in greater detail below, the Partnership faces intense
competition from motels of varying quality and size, including other budget
motels which are part of nationwide chains and which have access to nationwide
reservation systems.
Property
On October 4, 1982, the Partnership acquired from Hopyard Associates, a
general partnership, a parcel of 2.037 acres of unimproved real property located
in Pleasanton, California.
The property is located immediately adjacent to Interstate Highway 580, on
the southeast quadrant of the Hopyard Road overpass approximately one mile east
of Interstate Highway 680 and approximately 40 miles east of San Francisco.
Construction of the 102-room motel commenced on October 18, 1982 and was
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completed on October 4, 1983, on which date motel operations commenced
The Partnership's motel achieved the following average occupancy rates and
average room rates during the fiscal years ended September 30, 1997, 1996 and
1995:
1994-1995 1995-1996 1996-1997
Annual Average Occupancy 75.4% 76.6% 79.9%
Annual Average Room Rate $51.62 $56.44 $62.51
The following lodging facilities provide direct and indirect competition to
the Partnership's motel:
Approximated Distance
Number Of From
Facility Rooms Partnership's Motel
Sheraton Four Points 216 300 Yards
Candlewood Suites 126 300 Yards
Marriott Courtyard 145 0.75 Mile
Best Western Dublin Park 230 1.0 Mile
Sierra Suites 113 1.0 Mile
Summerfield Suites 128 1.0 Mile
Wyndham Garden 171 1.5 Miles
Hilton Hotel 300 2.0 Miles
Crowne Plaza 248 2.0 Miles
Comfort Inn 60 5.0 Mile
Extended Stay America 122 5.0 Mile
Springtown Inn 127 9.0 Miles
Motel 6 102 9.0 Miles
Holiday Inn 124 10.0 Miles
Patrons of the Partnership's motel are primarily commercial or business
travelers, and leisure business. The Pleasanton motel has no single customer the
loss of which would, in the opinion of the Managing General Partner, have a
material adverse effect on the motel's operations.
MANAGEMENT
The Partnership is a California limited partnership which has no executive
officers or directors. The principal business address of the Partnership is 2030
J Street, Sacramento, CA 95814. The Partnership's General Partners are Grotewohl
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Management Services, Inc., as managing general partner, and Robert J. Dana, as
associate general partner.
Grotewohl Management Services, Inc. is a California corporation owned
one-half by Philip B. Grotewohl and one-half by his former wife, who is not
involved in the day-to-day operations of Grotewohl Management Services, Inc.,
and who does not serve as a director or executive officer thereof. The sole
director of Grotewohl Management Services, Inc. is Philip Grotewohl, and the
executive officer of Grotewohl Management Services, Inc. is Philip Grotewohl.
David Grotewohl has authority to sign documents on behalf of the Managing
General Partner as its nominal President and Chief Financial Officer, but has no
executive duties. He does act as 'inside" legal counsel to the Managing General
Partner, and his principal occupation has been to head the operation and
maintenance of the Property and the properties of the other GMS Partnerships.
The principal business address of Grotewohl Management Services, Inc. is 2030 J
Street, Sacramento, CA 95814. During the past five years Grotewohl Management
Services, Inc. and its affiliate, Brown & Grotewohl, a California general
partnership one-half owned by Philip Grotewohl and one-half owned by the Estate
of Dennis A. Brown, principally have been engaged in the business of managing
various limited partnerships which own and operate lodging facilities, and in
the business of managing such lodging facilities. During the past five years
Philip Grotewohl's business activities have been conducted solely through
Grotewohl Management Services, Inc. and Brown & Grotewohl. The principal
business address of Philip Grotewohl is 2030 J Street, Sacramento, CA 95814. In
addition to the services described above, during the past two and three-quarters
years David Grotewohl has been engaged part-time as a sole proprietor in the
marketing of consumer products and services under the business name "The
Biscayne Group." The principal business address of David Grotewohl is 2030 J
Street, Sacramento, CA 95814.
Robert J. Dana is the associate general partner of the Partnership and, as
such, has no control over the management of the Partnership. During the past
five years Robert J. Dana has been self-employed through D/S Telecom and Telecom
Options as a seller of long-distance telephone services. The principal business
address of Robert J. Dana is 6439 Timber Springs Drive, Santa Rosa, CA 95409.
PURCHASE AGREEMENT
On April 30, 1998, the Partnership entered into an agreement to sell the
Property to Tiburon Capital Corporation, San Francisco, California, or a nominee
of Tiburon Capital Corporation (the "Buyer"), for the sum of $7,600,000, payable
in cash at the close of escrow. Escrow was opened at Chicago Title Company, San
Francisco, California on June 10, 1998.
Except as otherwise indicated, the following paragraph is based on
information provided by the Buyer. Tiburon Capital Corporation is a California
corporation formed in 1992. All of its stock has been owned since its inception
equally by William R. Dixon, Jr., Herbert J. Jaffe, John L. Wright and John F.
Dixon. Management and control persons of Tiburon Capital Corporation consist of
its stockholders. Tiburon Capital Corporation and its related entities are and
have been involved in many business transactions, including the ownership and
asset or property management of real estate assets. (The owners, management and
the control persons of such related entities are two or more of the owners of
Tiburon Capital Corporation.) In many instances, the real estate assets were or
are owned by limited partnerships or limited liability companies formed and
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syndicated by Tiburon Capital Corporation or its related entities for the
specific purpose of owning such assets. The form of an entity owning real estate
assets is typically dictated by investors and/or lenders. If the proposed sale
is consummated, a nominee of Tiburon Capital Corporation, which would be a
limited liability company, would actually purchase the Properties instead of
Tiburon Capital Corporation. The members of such limited liability company would
be Tiburon Capital Corporation, Mark Grotewohl or his wholly-owned entity, and,
perhaps, others. Mark Grotewohl's interest in the Buyer would be limited to 50%
of the profits remaining after return of all capital to all equity investors,
plus a return thereon of at least 14% per annum. Mark Grotewohl or his
wholly-owned entity also would provide centralized property management services
to the Buyer. The fee for this service would be 4 1/2% of gross property
revenues, from which Mark Grotewohl would be required to fund all centralized
property management expenses. The foregoing would be reflected in a written
agreement if the Proposal were approved. It is possible that some terms of the
relationships would vary from those as described, but in no event would Mark
Grotewohl's interest in the Buyer or the eight properties be greater than as
indicated.
Mark Grotewohl is the son of Philip Grotewohl. During the last five years,
until April 30, 1998, Mark Grotewohl was employed as the marketing and sales
director for the five GMS Partnerships. Since that time, Mark Grotewohl has been
engaged in facilitating the proposed transaction, and is operating from the
offices of the Managing General Partner. It might be contended that Mark
Grotewohl is, by virtue of his past relationship with the Partnership and the
other GMS Partnerships, an Affiliate of the Partnership as defined in its
Partnership Agreement. Under Section 11.2 of the Partnership Agreement, the
Partnership is not permitted to sell its real property to "Affiliates" of the
General Partners. (The Partnership Agreement defines "Affiliate" as (i) any
person directly or indirectly controlling, controlled by, or under common
control with another person, (ii) a person owning or controlling 10% or more of
the outstanding voting securities of such other person, (iii) any officer,
director or partner of such person, and (iv) if such other person is an officer,
director or partner, any company for which such person acts in any such
capacity.) The Managing General Partner believes that, based on the facts and
circumstances, Mark Grotewohl is not an Affiliate of the Partnership, because
Mark Grotewohl (i) does not control the Partnership or the Managing General
Partner, (ii) owns no voting securities in the Partnership or the Managing
General Partner, and (iii) is not an officer, director or partner of the
Managing General Partner or the Partnership. However, the Managing General
Partner recognizes that reasonable minds could differ as to the resolution of
this issue and has decided to treat this transaction as an inside transaction.
The Buyer has made a contemporaneous offer to purchase the motel properties
of the four other GMS Partnerships. The offers made by the Buyer for the
properties of each of the GMS Partnerships have been evaluated independently by
the Managing General Partner. Other than with respect to the purchase price of
each motel, the offers are on identical terms. If the limited partners of the
other Partnerships do not approve the sale of their respective properties to the
Buyer, however, the Buyer has the right and option not to proceed with the
proposed purchase of the Property from the Partnership, even if the Limited
Partners approve this sale. In this regard, the Partnership has not solicited
any offers to purchase the Property or the motel properties of the other GMS
Partnerships, has not listed the Property or the motel properties of the other
GMS Partnerships for sale with independent brokers, and has not otherwise
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actively sought competing offers for the Property or the motel properties of the
other GMS Partnerships. Consequently, the offer presented by the Buyer is the
only offer that the Managing General Partner has received for the Property or
the motel properties of the other GMS Partnerships other than those presented by
the Everest Group.
There are a number of significant conditions to the consummation of the
proposed sale of the Property to the Buyer; therefore, there can be no assurance
as to whether, or when, such transaction will be consummated. Among these
conditions are the Partnership's receipt of the approval of the Limited
Partners; the Buyer's receipt (at the Partnership's expense) and approval of an
ALTA Survey and preliminary title report for the Property; the absence of any
damage or loss to the Property prior to the closing date in excess of $50,000;
the decision by the Buyer, in its unfettered discretion, to terminate the
proposed purchase prior to June 30, 1998; the Buyer's receipt prior to June 30,
1998 of a loan commitment for financing in an amount of not less than 90% of the
purchase price of the Property (the Buyer has since waived but has not satisfied
this contingency); and receipt by the Partnership of any necessary approvals of
the sale by, among others, the franchisor, the landlords, and the subtenants.
The Managing General Partner expects that such conditions will be satisfied;
however, there can be no assurances in this regard. No federal or state
regulatory requirements must be complied with, or approvals obtained, in
connection with the transaction.
The Buyer will deposit the sum of $39,000 into escrow on the date the
Partnership notifies the Buyer that the Limited Partners have approved the
proposed sale of the Property to the Buyer. Should the Buyer default in the
performance of its obligations under the purchase agreement, the Partnership
will be entitled to retain said deposit as its only damages.
The Partnership and the Buyer will share closing costs. The Managing
General Partner anticipates that the Partnership's share of aggregate closing
costs, including real estate brokerage commissions, will be approximately
$285,000. Included therein is a real estate brokerage commission payable to
Everest Financial, Inc., a member of the Everest Group, in an amount equal to
2.75% of the purchase price. Everest Financial, Inc. has agreed to reallow 1.25%
of the purchase price to the Buyer's broker or, at the Buyer's option, the Buyer
will be entitled to a credit against the purchase price in the amount of 1.25%
of the purchase price.
CONFLICTS OF INTEREST
The Managing General Partner is subject to substantial conflicts of
interest in connection with the Proposal arising out of its relationship with
the Partnership, including the conflicts discussed below.
Philip B. Grotewohl, the co-owner and chief executive officer of the
Managing General Partner, is the father of Mark Grotewohl, an affiliate of the
Buyer. Accordingly, the Managing General Partner faced a significant conflict of
interest in determining the terms of the proposed transaction with the Buyer, in
determining not to solicit bids from independent third parties, and in rendering
its recommendation as to the fairness of the proposed transaction with the
Buyer. The Managing General Partner also faced significant conflicts of interest
in determining to sell the Property at this time in that it agreed to sell the
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Property in the agreement settling the lawsuits brought against and by the
Everest Group. (See "Legal Proceedings.") The state court action by the Everest
Group brought partly in response to the Managing General Partner's federal court
action brought against the Everest Group alleged violations by the Managing
General Partner of the Partnership Agreement and of its fiduciary duty to the
Partnership. Accordingly, the Managing General Partner may have been motivated
to agree to sell the Property as a result of the lawsuits rather than in pursuit
of the best interests of the Limited Partners. However, based upon its
experience in the lodging industry, as well as general familiarity with industry
news as reported by trade journals, the Managing General Partner believes that
the appraised market value of the Property as determined by PKF Consulting is
fair and reasonable. The Managing General Partner also believes that the sale of
the Property in accordance with the terms and conditions outlined in this
Consent Solicitation Statement will assist the Partnership in meeting its
investment objectives. Nonetheless, there can be no assurance that (i) the
Limited Partners would not receive a greater amount of sale proceeds if the
Managing General Partner were to solicit bids for the Property from third
parties, or (ii) the continued retention and operation of the Property by the
Partnership coupled with a sale of the Property at a later date would not result
in greater after-tax distributions to the Limited Partners.
EFFECTS OF APPROVAL OF THE PROPOSAL
Set forth below is a discussion of the effects of the sale of the Property
pursuant to the Proposal.
General
The consummation of the sale of the Property pursuant to the Proposal and
the concomitant dissolution of the Partnership should result in the following
consequences for the Partnership, the Limited Partners and the General Partners:
(i) The Limited Partners are expected to receive the distributions of net
cash proceeds from the sale of the Property as described below.
(ii) The Limited Partners and the General Partners are expected to realize
the Federal income tax consequences as described below.
(iii) All of the Partnership's assets and liabilities will be liquidated,
the Partnership will be dissolved and terminated, and the registration of the
Units under the Securities Exchange Act of 1934 will be terminated.
The consequences stated above are discussed in more detail in the
subsections which follow. Those subsections, in part, include computations as to
the cash proceeds to be received and distributed by the Partnership, and the
taxable gain and allocations thereof to be made by the Partnership, in the event
the proposed sale is consummated. HOWEVER, THIS INFORMATION IS PRESENTED SOLELY
FOR THE PURPOSES OF EVALUATING THE PROPOSAL. ALL AMOUNTS ARE ESTIMATES ONLY. ALL
COMPUTATIONS ARE BASED ON ASSUMPTIONS (SUCH AS THE DATE OF SALE, THE EXPENSES OF
THE SALE, AND THE RESULTS OF PARTNERSHIP OPERATIONS THROUGH THE DATE OF SALE)
WHICH MAY OR MAY NOT PROVE TO BE ACCURATE AND SHOULD NOT BE RELIED UPON TO
INDICATE THE ACTUAL RESULTS WHICH MAY BE ATTAINED.
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Determination and Use of Net Proceeds
The following is a summary of the projected amount of cash to be received
by the Partnership and the projected amount of cash to be distributed to the
Limited Partners, assuming the Property is sold for a gross sales price of
$7,600,000. This summary has been prepared by the Managing General Partner.
If the proposed transaction with the Buyer is consummated on November 30,
1998, it is estimated that the Partnership would receive the following net
proceeds:
Gross sales price $7,600,000
Less: Real estate commission (209,000)
Estimated escrow and closing costs (76,000)
Net proceeds of sale $7,315,000
Included in closing costs set forth above are, among other items, estimated
legal fees of $37,000, estimated fees in connection with the appraisal and
fairness opinion of $10,000, estimated accounting fees of $16,000 and estimated
fees in connection with solicitation activities of $4,000.
The Partnership's real property taxes are payable twice yearly on April 10
and December 10, partially in arrears, in the current amount of $29,991.49 each.
Accordingly, if the proposed transaction with the Buyer is consummated, the
actual date of consummation will determine whether there is a credit to the
Buyer for prorated real property taxes. Similarly, the amount indicated below as
the estimate of reserves available for distribution on dissolution of the
Partnership will vary depending on the actual date of consummation of the
proposed transaction.
The net proceeds of $7,315,000 estimated to be received by the Partnership
from the proposed transaction, in the estimated amount of $731.50 per Unit based
on a closing date of November 30, 1998, would be distributed entirely to the
Limited Partners. The Partnership's cash reserves would be retained for the
payment of accounts payable and other liabilities and expenses incurred to that
date or expected to be incurred in connection with the operation of the Property
through the date of sale and the operation and winding-up of the Partnership
through its termination, including severance pay to certain employees of the
Partnership and the other GMS Partnerships, and the balance, estimated to be
$665,000 or $66.50 per Unit, also would be distributed entirely to the Limited
Partners. Alternatively, if the Property is not sold pursuant to the Proposal,
the Partnership would continue to operate the Property for an indeterminate
period. The Managing General Partner estimates that if the Property is not sold
the Partnership will make average annual distributions to the Limited Partners
of from $500,000 ($50.00 per Unit) to $1,250,000 ($125.00 per Unit) for the
foreseeable future. However, there can be no assurance that the Managing General
Partner's estimate in this regard will be borne out.
Federal Income Tax Consequences
(a) General. The following is a summary of the Federal income tax
consequences expected to result from a sale of the Property based on the
Internal Revenue Code of 1986, as amended (the "Code"), existing laws, judicial
decisions and administrative regulations, rulings and practices. This summary is
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general in content and does not include considerations which might affect
certain Limited Partners, such as Limited Partners which are trusts,
corporations or tax-exempt entities, or Limited Partners who must pay an
alternative minimum tax. Except as otherwise specifically indicated, this
summary does not address any state or local tax consequences.
Tax counsel to the Partnership, Derenthal & Dannhauser, has delivered an
opinion to the Partnership which states that the following summary has been
reviewed by it and, to the extent the summary involves matters of law,
represents its opinion, subject to the assumptions, qualifications, limitations
and uncertainties set forth therein.
(b) Characterization of Gain. Upon the sale of property, the owner thereof
measures his gain or loss by the difference between the amount of consideration
received in connection with the sale and the owner's adjusted basis in the
property. A gain will be recognized for Federal income tax purposes. This is so
because the depreciation used for Federal income tax purposes, which decreases
adjusted basis, was greater than that used for book purposes.
The Property should constitute "Section 1231 property" (i.e., real property
and depreciable assets used in a trade or business which are held for more than
one year) rather than "dealer" property (i.e., property which is held primarily
for sale to customers in the ordinary course of business). While it is possible
that the Internal Revenue Service will argue that the Property is "dealer"
property, gain upon the sale of which would be taxed entirely as ordinary
income, tax counsel to the Partnership is of the opinion that it is more likely
than not that such an assertion would not be sustained by a court.
A Limited Partner's allocable share of Section 1231 gain from the sale of
the Property would be combined with any other Section 1231 gains or losses
incurred by him in the year of sale, and his net Section 1231 gains or losses
would be taxed as long-term capital gains or constitute ordinary losses, as the
case may be, except that a Limited Partner's net Section 1231 gains will be
treated as ordinary income to the extent of net Section 1231 losses for the five
most recent years which have not previously been offset against net Section 1231
gains.
Long-term gain on sale of Section 1231 property is taxed as follows: (i)
the excess of accelerated depreciation over straight-line depreciation is taxed
at ordinary income rates, (ii) to the extent that any other gain would be
treated as ordinary income if the property were depreciable personal property
rather than depreciable real property, at a maximum rate of 25%, and (iii) the
balance at a maximum rate of 20%.
Set forth below are the Managing General Partner's estimates of the total
taxable gain for Federal income tax purposes, and the allocations thereof, which
will result if the proposed sale of the Property to the Buyer is consummated,
based on an assumed closing date of November 30, 1998. These estimates do not
include any amounts relating to Partnership operations prior to the sale of the
Property or relating to dissolution of the Partnership. These estimates are not
the subject of an opinion of counsel.
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Portion
Total Taxed As Portion Portion
Estimate Ordinary Taxed At Taxed At
Ga Income 25% Rate 20% Rate
Limited Partners $7,147,000 $ 0 $1,988,000 $5,159,000
General Partners 72,000 0 20,000 52,000
Total $7,219,000 $ 0 $2,008,000 $5,211,000
Per Unit $714.70 $ 0 $198.80 $515.90
Because of different methods of depreciation used for California income tax
purposes than for Federal income tax purposes, the Managing General Partner
anticipates that consummation of the proposed transaction would produce a gain
for California income tax purposes in the amount of approximately $6,546,000, of
which approximately $65,000 and $6,481,000 would be allocated to the General
Partners and to the Limited Partners, respectively.
Dissolution of the Partnership
Section 18.1(e) of the Partnership Agreement provides that the Partnership
shall be dissolved upon the sale of all motel properties or any interest therein
and the conversion into cash of any proceeds of sale originally received in a
form other than cash. If the proposal is approved by a majority-in-interest of
the Limited Partners, and if the proposed sale of the Property is consummated,
the Partnership will be dissolved, the Managing General Partner will commence to
wind up the business of the Partnership, and after payment of all expenses of
the Partnership (including the expense of a final accounting for the
Partnership) the remaining cash reserves of the Partnership will be distributed
in accordance with the provisions of the Partnership Agreement. The Managing
General Partner will then take all necessary steps toward termination of the
Partnership's Certificate of Limited Partnership.
APPRAISAL OF THE PROPERTY/FAIRNESS OPINION
The appraisal of the Property and the fairness opinion respecting the
proposed transaction with the Buyer were prepared by PKF Consulting, San
Francisco, California. PKF Consulting was selected by the Managing General
Partner based on the Managing General Partner's belief as to the expertise of
PKF Consulting in appraising motel properties in the State of California and in
rendering fairness opinions with respect to the sale thereof. The Managing
General Partner's belief is based on past experience with PKF Consulting, which
rendered appraisals of the Property and the properties of the other GMS
Partnerships in 1988, on its knowledge of the lodging industry, and on
recommendations from others in the lodging industry, including attorneys and
accountants. PKF Consulting also prepared appraisals of the motel properties of
the other GMS Partnerships. PKF Consulting was instructed to prepare its
appraisals based on the assumption that the Property was to be sold on the open
market to knowledgeable buyers and that there would be no pressure to make a
quick sale. PKF Consulting was not advised that an affiliate of Mark Grotewohl
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would be a potential buyer of the Property. No limitations were imposed by the
Partnership on the appraiser's investigation. PKF Consulting delivered a written
report, dated February 20, 1998, which stated that the "as is" market value of
the Property as of January 1, 1998 was $7,600,000. PKF Consulting also delivered
its written fairness opinion, dated May 19, 1998, to the effect that the
proposed transaction with the Buyer is fair and equitable from a financial
standpoint to the Limited Partners. The amount offered by the Buyer for the
Property is based upon, and is equal to, the market value set forth in the
appraisals.
Other than with respect to the rendering of the appraisal reports and
fairness opinions referred to above, during the past two years there has been no
material relationship between PKF Consulting and the Partnership or its
affiliates. PKF Consulting received a total of approximately $49,000 from the
Partnership and the other GMS Partnerships in connection with the rendering of
such appraisal reports and fairness opinions.
PKF Consulting is an international firm of management consultants, industry
specialists, and appraisers who provide a wide range of services to the
hospitality, real estate, and tourism industries. Headquartered in San
Francisco, PKF Consulting has offices in New York, Philadelphia, Atlanta,
Boston, Houston, Los Angeles, Washington, D.C., and abroad. As a member of the
Pannell Kerr Forster International Association, PKF Consulting has access to the
resources of one of the world's largest accounting and consulting firms, with
300 offices in 90 countries.
The services offered by PKF Consulting include: market and feasibility
studies; real estate appraisals and business valuations; tourism and
recreational studies; strategic planning; operational reviews; asset management;
chain and management company selection; real estate consulting services;
financial consulting; and litigation support, expert witness and arbitration
services.
The following is excerpted from the appraisal reports:
"The scope of this appraisal included a detailed analysis of the
competitive market position of each of the eight properties. More specifically,
the market analysis for each property included the following work program.
1) In-depth analysis of the historical operating performance of each
property.
2) Detailed inspection of each property, focused on identifying areas of
deferred maintenance and/or functional obsolescence.
3) Evaluation of the economic environment of each property's local market,
focusing on economic factors which impact the demand for hotel rooms such as
changes in employment, office space absorption, airport utilization, attendance
18
<PAGE>
at tourist attractions and convention facilities, etc.
4) Primary market research in each market area, including interviews with
key demand generators, inspection and evaluation of competitive hotels and
discussions with persons familiar with the development patterns of each local
market.
5) Analysis of each property's future market position. This analysis
included a projection of the current and future demand for hotel accommodations
in each market, including an assessment of existing and potential future
competitive supply, and the share of the market that each hotel could reasonably
be able to capture over the next five to ten years.
Based on the foregoing scope of work, it was concluded that the Highest and
Best Use of each property is as currently improved.
In developing a value conclusion for each hotel, two of the three
traditional approaches to valuation have been used: the Sales Comparison and
Income Capitalization Approaches. In the Sales Comparison Approach, the value of
the subject properties were estimated based on an analysis of the sales of other
similar facilities using a unit indicator of price per room or multiple of rooms
revenue. In the Income Capitalization Approach, the value of each property is
estimated based on an analysis of the historical and projected income and
expenses generated by each facility during a typical holding period. Both direct
capitalization and yield capitalization (discounted cash flow analysis) methods
were employed.
The earnings stream most commonly used as the basis for the Income
Capitalization method of valuation is the projected net operating income (NOI)
from operations after the deduction of real estate taxes and insurance, but
before the deduction of interest, depreciation, amortization and taxes on
income. Also deducted from the profit from operations is a reserve for capital
improvements for each property. The projected operating income for each property
was based on a review of local market conditions and the historical operating
results of each hotel, coupled with an analysis of the historical operating
results of comparable hotels as compiled in PKF Consulting's 1997 issue of
'Trends in the Hotel Industry.'
Under the direct capitalization method, the NOI for a typical or stabilized
year of operation is converted into a value estimate by dividing it by an
appropriate income capitalization rate. The capitalization rate represents the
relationship between income and value observed in the market and is derived
through an analysis of comparable sales as well as other analyses.
19
<PAGE>
In yield capitalization, the value of a property is the present value of
the net operating income of each property in each year of a holding period
(typically ten years) plus the present value of the property as if sold at the
end of the holding period (the "reversion"). The present value of these elements
is obtained by applying a market-derived discount rate. The value of the
reversion is obtained through the capitalization of the adjusted income at the
end of the holding period, which should be a normalized or typical year, with a
deduction for the costs of sale.
In our analysis, the discount rates used to value the subject hotels ranged
from 13.0 to 14.5 percent; going-in capitalization rates ranged from 10.0 to
11.5 percent; and reversionary capitalization rates ranged from 10.5 to 12.0
percent. Differences in the discount and capitalization rates applied to
individual properties were based on a combination of factors, including the age
and condition of the hotels, local market conditions, durability of the
projected income stream, and the ownership rights appraised (fee simple interest
or leasehold interest).
The Cost Approach has not been included in the estimate of the value of the
subject properties. The Cost Approach is most applicable in the valuation of
special use properties, properties which are proposed or under construction, and
aged properties, in which the value of the improvements may be nominal and the
value of the property as a whole approaches land value. The subject properties
are all going concerns and the existing improvements contribute significant
value to the property. The costs to replace these facilities are of little more
than historical significance and are not used by the typical investor interested
in the purchase of an existing property."
Upon request the Partnership will furnish to a Limited Partner, without
charge, a copy of the appraisal report. In this regard Limited Partners are
cautioned to refer to the entire appraisal report, inasmuch as the opinions of
value stated therein are subject to the assumptions and limiting conditions
stated therein. Furthermore, Limited Partners should be aware that appraised
values are opinions and, as such, may not represent the realizable value of the
Property. Upon request, the Partnership will also furnish to a Limited Partner,
without charge, a copy of the fairness opinion.
LEGAL PROCEEDINGS
On October 27, 1997 a complaint was filed in the United States District
Court, Eastern District of California by the Partnership, the other GMS
Partnerships, and the Managing General Partner, as plaintiffs (the "GMS
Plaintiffs"). The complaint named as defendants Everest/Madison Investors, LLC,
Everest Lodging Investors, LLC, Everest Properties, LLC, Everest Partners, LLC,
Everest Properties II, LLC, Everest Properties, Inc., W. Robert Kohorst, David
I. Lesser, The Blackacre Capital Group, L.P., Blackacre Capital Management
Corp., Jeffrey B. Citrin, Ronald J. Kravit, and Stephen P. Enquist (the "Federal
Defendants"). The factual basis underlying the GMS Plaintiffs' causes of action
pertained to tender offers directed by the Federal Defendants to limited
partners of the GMS Partnerships, and to indications of interest made by certain
of the Federal Defendants in purchasing the properties of the GMS Partnerships.
20
<PAGE>
The complaint requested the following relief: (i) a declaration that each of the
Federal Defendants had violated Sections 13(d), 14(d) and 14(e) of the
Securities and Exchange Act of 1934 (the "Exchange Act"), and the rules and
regulations promulgated by the Securities and Exchange Commission thereunder;
(ii) a declaration that certain of the Federal Defendants had violated Section
15(a) of the Exchange Act and the rules and regulations thereunder; (iii) an
order permanently enjoining the Federal Defendants from (a) soliciting tenders
of or accepting for purchase securities of the GMS Partnerships, (b) exercising
any voting rights attendant to the securities already acquired, (c) soliciting
proxies from the limited partners of the GMS Partnerships, and (d) violating
Sections 13 or 14 of the Exchange Act or the rules and regulations promulgated
thereunder; (iv) an order enjoining certain of the Federal Defendants from
violating Section 15(a) of the Exchange Act and the rules and regulations
promulgated thereunder; (v) an order directing certain of the Federal Defendants
to offer to each person who sold securities in the GMS Partnerships to such
defendants the right to rescind such sale; (vi) a declaration that the GMS
Partnerships need not provide to the Federal Defendants a list of limited
partners in the GMS Plaintiffs or any other information respecting the GMS
Partnerships which is not publicly available; and (vii) awarding the GMS
Plaintiffs reasonable attorneys' fees, costs of suit incurred, and such other
and further relief as the Court may deem just and proper.
On October 28, 1997 a complaint was filed in the Superior Court of the
State of California, Sacramento County by Everest Lodging Investors, LLC and
Everest/Madison Investors, LLC, as plaintiffs (the "State Plaintiff"), against
Philip B. Grotewohl, the Managing General Partner, Kenneth M. Sanders, Robert J.
Dana, Borel Associates, and BWC Incorporated, as defendants (the "State
Defendants"), and the GMS Partnerships, as nominal defendants. On November 11,
1998 the complaint was amended and Mark and David Grotewohl were added as
defendants. The State Plaintiffs alleged that the State Defendants received
unauthorized rebates of franchise fees paid to Super 8 Motels, Inc., that the
Managing General Partner caused the GMS Partnerships to make unauthorized
payments of salaries and expenses, and reimbursements of expenses to the
Managing General Partner, that the Managing General Partner refused to cooperate
with the State Plaintiffs' efforts to buy the properties of the GMS
Partnerships, and that the Managing General Partner refused to provide
information required by the GMS Partnerships' governing documents and California
law. The Managing General Partner believes that these allegations were
unjustified. As amended, the complaint requested the following relief: (i) a
declaration that the action was a proper derivative action; (ii) an order
requiring the State Defendants to discharge their fiduciary duties to the GMS
Partnerships by accepting no kickbacks, charging no unauthorized expenses,
responding in good faith to the offer made by an affiliate of the State
Plaintiffs to purchase the properties of the GMS Partnerships and disclosing
such offers to the limited partners of the GMS Partnerships, and delivering all
information respecting the GMS Partnerships requested by the State Plaintiffs;
(iii) an order enjoining the State Defendants from breaching their fiduciary
duties; (iv) disgorgement of profits in excess of the reasonable value of the
services actually rendered; (v) appointment of a receiver; and (vi) an award for
compensatory and punitive damages and, under RICO, treble damages, and costs,
all in an amount to be determined.
21
<PAGE>
On February 20, 1998, the parties entered into a settlement agreement
pursuant to which both of the above complaints were dismissed. Pursuant to the
terms of the settlement agreement, the Federal Defendants (excluding The
Blackacre Capital Group, L.P., Blackacre Capital Management Corp., Jeffrey B.
Citrin, Ronald J. Kravit and Stephen P. Enquist) agreed not to generally solicit
the acquisition of any additional units of the GMS Partnerships without first
filing necessary documents with the Securities and Exchange Commission, and also
agreed to conduct any such solicitation in compliance with the provisions of
Section 14 of the Exchange Act and Regulation 14D, notwithstanding that any such
solicitation might otherwise be exempt from such requirements. It was also
agreed, among other things, that the Managing General Partner would retain, on
behalf of the GMS Partnerships, a real estate broker to market for sale all of
the properties of the GMS Partnerships. The Managing General Partner agreed to
evaluate and consider in good faith a designee of Everest Properties, Inc. to
serve as the real estate broker. Further, the Managing General Partner agreed to
include in any listing agreement between the GMS Partnerships and their real
estate broker a provision requiring the broker to share one-half of the real
estate commission payable with Everest Properties, Inc. or its designee in the
event that Everest Properties, Inc. or its designee were the procuring broker
for the property generating the real estate commission. The Managing General
Partner also agreed to proceed in a commercially reasonable manner with the
marketing of all properties of the GMS Partnerships, and agreed to entertain all
bona fide offers, whether made for all of the properties of the GMS Partnerships
as a group, for all of the properties of a particular GMS Partnership as a
group, or for an individual property. The Managing General Partner agreed, by no
later than June 30, 1998, to accept for submission to the limited partners of
any GMS Partnership either (i) any bona fide offer (an "Acceptable Offer") to
purchase one or more of the properties of a GMS Partnership if the offer were a
cash offer at a price equal to 75% or more of the appraised value of the
property or properties, or (ii) any offer for a property or properties of a GMS
Partnership on terms deemed by the Managing General Partner to be more favorable
to that GMS Partnership than the Acceptable Offer. In addition, the Managing
General Partner agreed to submit the offer for approval to the limited partners
of the GMS Partnership and other procedures as required by the GMS Partnership's
Agreement of Limited Partnership and applicable law. The Managing General
Partner retained the right to recommend to the limited partners of a GMS
Partnership rejection of any proposal if the proposed sales price were less than
the appraised value of the property or were not payable entirely in cash. The
Managing General Partner also agreed that, upon the sale of a property of one of
the GMS Partnerships, the Managing General Partner would distribute promptly the
proceeds of the sale after payment of payables and retention of reserves to pay
anticipated expenses. Under the terms of the settlement agreement, the GMS
Partnerships agreed to reimburse the Everest Defendants for certain costs, not
to exceed $60,000, to be allocated among the GMS Partnerships. Of this amount,
the Partnership paid $12,000.
For a discussion of the amendment to such settlement agreement, see
"Outstanding Voting Securities and Voting Rights."
22
<PAGE>
AMENDMENT TO PARTNERSHIP AGREEMENT
Set forth below is the proposed amendment to the Partnership Agreement
which is the subject of this Consent Solicitation
Statement:
Section 22. SALE OF PROPERTY
22.1 Sale and Disposition of Partnership Assets
Notwithstanding anything contained in this Agreement to the contrary,
including Section 11.2 hereof, the General Partners, for and on behalf of the
Partnership, are hereby authorized (i) to sell the Partnership's real property
interests, including its motel, and related personal property, to Tiburon
Capital Corporation or a nominee thereof, including a nominee as to which Mark
Grotewohl is an Affiliate, on the terms and conditions outlined in the Consent
Solicitation Statement of the Partnership dated November 12, 1998; (ii) to
dissolve and wind up the affairs of the Partnership; (iii) to distribute the
proceeds of the sale and any other cash held by the Partnership in accordance
with this Agreement; (iv) to terminate the Partnership; and (v) to take any
action deemed necessary or appropriate to accomplish the foregoing.
23
<PAGE>
FINANCIAL INFORMATION
Selected Partnership Financial Data
The Partnership's book values per Unit as of December 31, 1997 and June 30,
1998 were $282.77 and $255.86, respectively.
Following are selected financial data of the Partnership for the period
from October 1, 1992 to September 31, 1997.
<TABLE>
Year Ended Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30, September 30,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Guest room income $1,860,287 $1,613,817 $1,510,802 $1,415,308 $1,395,176
Net income $ 857,944 $ 665,100 $ 513,436 $ 419,009 $ 386,643
Per Partnership Unit:
Cash distributions(1) $ 76.25 $ 59.30 $54.60 $48.65 $40.00
Net income $ 84.94 $ 65.84 $50.83 $41.48 $38.28
September 30, September 30, September 30, September 30, September 30,
1997 1996 1995 1994 1993
Total assets $2,951,592 $2,841,572 $2,769,469 $2,786,858 $2,864,030
Long-term debt ---- ---- ---- ---- ----
_________
<FN>
(1) On an annual basis, to the extent cash distributions exceed net income,
Limited Partners receive a return of capital rather than a return on capital.
However, an annual analysis will be misleading if the Limited Partners do not
receive their investment back upon liquidation of the Partnership. For investors
who purchased their Units directly from the Partnership, the original investment
was $1,000 per Unit, cumulative allocations of income through September 30, 1997
were approximately $21 per Unit, and cumulative distributions through September
30, 1997 were approximately $555 per Unit. Investors who did not purchase Units
directly from the Partnership must consult with their own advisers in this
regard.
</FN>
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
I. Fiscal Year Financial Statements.
(a) Liquidity and Capital Resources
The Managing General Partner believes that the Partnership's liquidity,
defined as its ability to generate sufficient cash to satisfy its cash needs, is
adequate. The Partnership's primary source of liquidity is its cash flow from
operations. The Partnership had, as of September 30, 1997, current assets of
$1,147,488, current liabilities of $126,020 and, therefore, an operating reserve
of $1,021,468. The Managing General Partner's reserves target is 5% of the
adjusted capital contributions, or $455,000.
The Partnership's motel property is unencumbered. Although no assurance can
be had in this regard, the Managing General Partner believes that the
Partnership's equity in its property provides a potential source of external
liquidity (through financing) in the event the Partnership's internal liquidity
is impaired.
24
<PAGE>
During fiscal year 1997, the Partnership spent $54,213 ($32,756 of which
was capitalized) on the refurbishment of its motel and its furnishings. The
capitalized items included $14,165 for guest room carpet and vinyl, $9,742 for
game chairs and a sofa, $4,748 for five replacement air-conditioning units,
$2,632 for replacement televisions and $1,470 for guest room lamps. The items
not capitalized included $5,261 for bedspreads, $4,313 for parking lot resealing
and $4,300 for furniture repairs.
During fiscal year 1996, the Partnership spent $56,278 ($33,120 of which
was capitalized) on the refurbishment of its motel and its furnishings. The
capitalized items included $16,241 for replacement guest room carpet, $11,148
for central office computers, $3,653 for a replacement ice machine and $2,077
for furniture for the manager's apartment. Included in the $23,158 amount not
capitalized were expenditures for tub repair, replacement guest room lamps, bed
sets, televisions, air-conditioning units, landscaping upgrades and parking lot
repairs.
The Partnership currently has no material commitments for capital
expenditures. The Property is in full operation and no further property
acquisitions or extraordinary capital expenditures are planned. If the Property
is not sold the Managing General Partner is aware of no material trends or
changes with respect to the mix or relative cost of the Partnership's capital
resources. If the Property is retained adequate working capital is expected to
be generated by motel operations.
(b) Results of Operations
(i) Overall Financial Results
The Partnership achieved a 29.0% increase in net income for fiscal year
1997 as compared to fiscal year 1996. This result was achieved by an increase in
total income of $254,370 (15.1%) while limiting the increase in total expenses
to $61,526 (6.0%). The revenue increase was due primarily to increased guest
room occupancy to an annual average of 79.9% from 76.6% and by an increase in
the average room rate to $62.51 from $56.44.
The Partnership achieved a 29.5% increase in net income for fiscal year
1996 as compared to fiscal year 1995. This result was achieved by increasing
total income by $175,936 (11.6%) while limiting the increase in total expenses
to $24,272 (2.4%). The revenue increase was due primarily to increased guest
room revenue which was the result of both improved occupancy and average room
rates.
(ii) Pleasanton, California Motel
The following is a comparison of operating results at the Partnership's
Pleasanton motel for the fiscal years 1995, 1996 and 1997. The income and
expense numbers in the following table are shown on an accrual basis and other
payments on a cash basis. Total expenditures and debt service include the
operating expenses of the motel, together with the cost of capital improvements.
25
<PAGE>
Fiscal Year Ended Average Occupancy Rate Average Room Rate
September 30, 1995 75.4% $51.62
September 30, 1996 76.6% $56.44
September 30, 1997 79.9% $62.51
Total Total Partnership
Fiscal Year Ended Revenues Expenditures and Cash Flow
Debt Service (1)
September 30, 1995 $1,510,802 $947,078 $563,724
September 30, 1996 $1,686,738 $928,896 $757,842
September 30, 1997 $1,941,108 $1,003,191 $937,917
(1) While Partnership Cash Flow as it is used here is not an amount found
in the financial statements, the Managing General Partner believes that it is
the best indicator of the annual change in the amount available, if any, for
distribution to the Limited Partners because it tracks the definition of the
term "Cash Flow" as it is used in the Partnership Agreement. This calculation is
reconciled to the financial statements in the following table. Limited Partners
should not interpret Partnership Cash Flow as an alternative to net income or as
a measure of performance.
Following is a reconciliation of Total Expenditures and Debt Service as
used above to Total Expenses shown on the Statement of Operations (in the
audited financial statements):
1997 1996 1995
Total Expenditures and Debt Service $1,003,191 $928,896 $947,078
Net Additions to Fixed Asset (32,756) (21,791) (59,067)
Depreciation and Amortization 113,229 114,714 109,175
Other Items (500) (181) 180
Total Expenses $1,083,164 $1,021,638 $997,366
A reconciliation of Partnership Cash Flow (included in the chart above) to
Net Income as shown on the Statements of Operations (in the audited financial
statements) is as follows:
1995 1996 1997
Partnership Cash Flow $563,724 $757,842 $937,917
Net Additions to Fixed Assets 59,067 21,971 32,756
Depreciation and Amortization (109,175) (114,714) (113,229)
Other Items (180) -
Net Income $513,436 $665,099 $857,944
During fiscal year 1997 as compared to fiscal year 1996, the Partnership's
motel achieved a significant improvement in both its average room rate and its
26
<PAGE>
average occupancy rate. The motel experienced decreased patronage from the
discount and corporate market segments which was offset by increased occupied
rooms from the leisure market segment.
During fiscal year 1996 as compared to fiscal year 1995, the Partnership's
motel achieved a significant improvement in its average room rate and a slight
increase in its average occupancy rate. The motel replaced approximately 50% of
its low-rate discount business with guests in the leisure and corporate market
segments.
During fiscal year 1997 as compared to fiscal year 1996, the Partnership's
motel experienced a $74,295 (8.0%) increase in total expenditures due to rising
occupancy rates. The motel experienced increases of $9,963 in front desk wages
and salaries, and $8,078 in resident manager's salary due primarily to cost
inflation and competition for employees in the area. The motel experienced
$12,254 in increased management fees and $9,859 in increased franchise fees due
to the increased room revenue. The Partnership spent $7,250 for appraisal
services during the fiscal year.
During fiscal year 1996 as compared to fiscal year 1995, the Partnership's
motel achieved a decrease of $18,182 (1.9%) in expenditures notwithstanding
increased occupancy. The motel achieved reduced expenditures of $42,087 in
renovations and replacements and $5,250 in maintenance wages and salaries. The
reductions were substantially offset by increases of $15,149 in front desk wages
and salaries, and in proportionate increases in franchise and management fees.
II. Interim Financial Statements
(a) Liquidity and Capital Resources
As of June 30, 1998, the Partnership's current assets of $911,419 exceeded
its current liabilities of $101,820, providing an operating reserve of $809,599.
The Managing General Partner's reserves target is 5% of the adjusted capital
contributions, or $455,000.
The Partnership expended $27,319 on renovations and replacements during the
nine months ended June 30, 1998, of which $12,069 was capitalized.
(b) Results of Operations
Total income decreased $48,381 or 3.5% for the first three quarters of
fiscal year 1998 as compared to the first three quarters of fiscal year 1997.
Guest room revenue decreased $38,969 or 2.9% due to a decrease in the occupancy
rate from 78.0% to 69.0%. Such decrease was partially offset by an increase in
the average room rate from $61.65 to $67.61.
Total Partnership expenses increased $60,921 or 7.6% primarily due to
increases in the minimum wage and increases in legal, appraisal and other costs
associated with the proposed sale of the Property and the liquidation of the
Partnership.
During the three months ended June 30, 1998 the Partnership reversed a
contingent liability previously accrued during the three months ended December
31, 1997 in the amount of $110,100. The contingent liability arose from a notice
issued by the California Franchise Tax Board (the "FTB") wherein the FTB claimed
that the Partnership had failed to file its required information income tax
27
<PAGE>
returns. Upon establishing to the satisfaction of the FTB that the returns had
been filed, the FTB waived its notice and the Partnership reversed the accrual.
This reversal (in an amount equal to the accrual) gives rise to the credit in
general and administrative expenses for the three months ended June 30, 1998.
Other Financial Information
In 1996 the computers used by the Partnership at the Managing General
Partner's offices in Sacramento were updated. In the process of updating its
hardware and software, the Managing General Partner eliminated any potential
Year 2000 problem with respect to such computers. Similarly, the Managing
General Partner does not anticipate any material Year 2000 problem with the
computers in use at the motel. The Managing General Partner has not investigated
and does not know whether any Year 2000 problems may arise from its third party
vendors. Because the motel is a "budget" motel, the Partnership's most
significant vendors are its utility providers and banks. To the extent banking
services, utility services and other goods and services are unavailable as a
result of Year 2000 problems with the computer systems of such vendors or
otherwise, the ability of the Partnership to conduct business at its motel would
be compromised. No contingency plans have been developed in this regard.
Items 304 and 305 of Regulation S-K promulgated by the Securities and
Exchange Commission are not applicable to the Partnership.
28
<PAGE>
FINANCIAL STATEMENTS
for
CONSENT SOLICITATION STATEMENT
of
SUPER 8 ECONOMY LODGING IV, LTD.
November 12, 1998
F-i
<PAGE>
INDEX TO FINANCIAL STATEMENTS
SUPER 8 ECONOMY LODGING IV, LTD. Page
INDEPENDENT AUDITORS' REPORT ......................................... F-1
FINANCIAL STATEMENTS:
Balance Sheets, September 30, 1997 and 1996........................... F-2
Statements of Operations for the Years Ended
September 30, 1997, 1996 and 1995................................ F-3
Statements of Partners' Equity for the Years
Ended September 30, 1997, 1996 and 1995.......................... F-4
Statements of Cash Flows for the Years Ended
September 30, 1997, 1996 and 1995................................ F-5
Notes to Financial Statements......................................... F-7
Balance Sheets, June 30, 1998 and September 30, 1997 (Unaudited)...... F-11
Statements of Operations for the Three Months and Nine
Months Ended June 30, 1998 and 1997 (Unaudited).................... F-12
Statements of Partners' Equity for the Nine Months
Ended June 30, 1998 and 1997 (Unaudited)........................... F-13
Statements of Cash Flows for the Nine Months
Ended June 30, 1998 and 1997 (Unaudited)........................... F-14
Notes to Financial Statements......................................... F-15
F-ii
<PAGE>
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Super 8 Economy Lodging IV, Ltd.
We have audited the accompanying balance sheets of Super 8 Economy Lodging IV,
Ltd., a California limited partnership, as of September 30, 1997 and 1996 and
the related statements of operations, partners' equity and cash flows for each
of the three years in the period ended September 30, 1997. 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 audits 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 Economy Lodging IV,
Ltd. as of September 30, 1997 and 1996 and the results of its operations and its
cash flows for each of the three years in the period ended September 30, 1997,
in conformity with generally accepted accounting principles.
VOCKER KRISTOFFERSON AND CO.
December 4, 1997
San Mateo, California
e-super8/S8497fs.wp8.wpd
F-1
<PAGE>
<TABLE>
SUPER 8 ECONOMY LODGING IV, LTD.
(A California Limited Partnership)
BALANCE SHEETS
September 30, 1997 and 1996
ASSETS
1997 1996
------------- ---------
Current Assets:
<S> <C> <C> <C> <C>
Cash and temporary investments (Notes 1 and 3) $ 1,079,735 $ 938,477
Accounts receivable 54,290 21,563
Prepaid expenses 13,463 12,789
------------ -----------
Total Current Assets 1,147,488 972,829
------------ -----------
Property and Equipment (Notes 2 and 6):
Land 799,311 799,311
Buildings 2,246,419 2,246,419
Furniture and equipment 519,267 530,321
----------- -----------
3,564,997 3,576,051
Accumulated depreciation (1,824,868) (1,755,449)
---------- ----------
Property and Equipment, Net 1,740,129 1,820,602
---------- ----------
Other Assets (Note 2):
Deposit of federal income taxes 63,975 48,141
----------- -----------
Total Assets $2,951,592 $2,841,572
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 117,779 $ 106,979
Due to related parties (Note 4) 8,241 4,465
---------- ------------
Total Liabilities 126,020 111,444
--------- -----------
Partners' Equity:
General Partners (2,128) (10,707)
Limited Partners: 10,000 units authorized,
issued and outstanding 2,827,700 2,740,835
---------- ----------
Total Partners' Equity 2,825,572 2,730,128
---------- ----------
Total Liabilities and Partners' Equity $2,951,592 $2,841,572
========== ==========
</TABLE>
e-super8/S8497fs.wp8.wpd
F-2
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
SUPER 8 ECONOMY LODGING IV, LTD.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
Years Ended September 30:
1997 1996 1995
---------- ---------- -------
Income:
<S> <C> <C> <C>
Motel room $1,860,287 $1,613,817 $1,448,486
Telephone and vending 42,012 41,244 36,519
Interest 36,351 28,879 22,379
Other 2,458 2,798 3,418
------------ ------------ -----------
Total Income 1,941,108 1,686,738 1,510,802
----------- ---------- ----------
Expenses:
Motel operations (exclusive of depreciation
shown separately below) (Notes 4 and 5) 830,267 789,729 777,015
General and administrative (exclusive of
depreciation shown separately below (Note 4) 44,522 34,302 36,760
Depreciation and amortization (Note 2) 113,229 114,714 109,175
Property management fees (Note 4) 95,146 82,893 74,416
----------- ----------- -----------
Total Expenses 1,083,164 1,021,638 997,366
---------- ---------- ----------
Net Income $ 857,944 $ 665,100 $ 513,436
========= ========= =========
Net Income Allocable to General Partners $ 8,579 $ 6,651 $ 5,134
======= ======= =======
Net Income Allocable to Limited Partners $ 849,365 $ 658,449 $ 508,302
========= ========= =========
Net Income Per Partnership Unit (Note 1) $ 84.94 $ 65.84 $ 50.83
======= ======= =======
Distributions to Limited Partners
Per Partnership Unit (Note 1) $ 76.25 $ 59.30 $ 54.60
======= ======= =======
</TABLE>
e-super8/S8497fs.wp8.wpd
F-3
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
SUPER 8 ECONOMY LODGING IV, LTD.
(A California Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY
Years Ended September 30:
1997 1996 1995
---------- ---------- -------
General Partners:
<S> <C> <C> <C>
Balance at beginning of year $ (10,707) $ (17,358) $ (22,492)
Net income 8,579 6,651 5,134
------------ ------------ ------------
Balance at End of Year (2,128) (10,707) (17,358)
------------ ---------- -----------
Limited Partners:
Balance at beginning of year 2,740,835 2,675,386 2,713,084
Net income 849,365 658,449 508,302
Distributions to Limited Partners (762,500) (593,000) (546,000)
----------- ----------- -----------
Balance at End of Year 2,827,700 2,740,835 2,675,386
---------- ---------- ----------
Total Partners' Equity $2,825,572 $2,730,128 $2,658,028
========== ========== ==========
</TABLE>
e-super8/S8497fs.wp8.wpd
F-4
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
SUPER 8 ECONOMY LODGING IV, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
Years Ended September 30:
1997 1996 1995
------------ ------------ --------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Received from motel operations $1,874,958 $1,658,578 $1,492,593
Expended for motel operations and
general and administrative expenses (972,367) (917,820) (877,067)
Interest received 33,423 28,940 20,953
----------- ----------- ----------
Net Cash Provided by Operating Activities 936,014 769,698 636,479
----------- ----------- ----------
Cash Flows From Investing Activities:
Purchases of property and equipment (32,756) (33,120) (60,317)
Proceeds from sale of equipment 500 - 1,250
------------ -------------- ----------
Net Cash Used by Investing Activities (32,256) (33,120) (59,067)
----------- ----------- ----------
Cash Flows From Financing Activities:
Distributions paid to limited partners (762,500) (593,000) (546,000)
----------- ----------- ---------
Net Cash Used by Financing Activities (762,500) (593,000) (546,000)
----------- ----------- ---------
Net Increase in Cash and Temporary
Investments 141,258 143,578 31,412
Cash and Temporary Investments:
Beginning of year 938,477 794,899 763,487
----------- ----------- -----------
End of Year $1,079,735 $ 938,477 $ 794,899
========== ========== ==========
</TABLE>
e-super8/S8497fs.wp8.wpd
F-5
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
SUPER 8 ECONOMY LODGING IV, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS (Continued)
Years Ended September 30:
1997 1996 1995
---------- --------- -------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
<S> <C> <C> <C>
Net income $857,944 $665,100 $513,436
-------- -------- --------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 113,229 114,714 109,175
Loss (gain) on disposition of property
and equipment (500) - 1,430
(Increase) decrease in accounts receivable (32,727) 780 2,745
Increase in prepaid expenses (674) (855) (475)
Increase in other assets (15,834) (10,044) (5,006)
Increase (decrease) in accounts payable
and accrued liabilities 10,800 (2,996) 15,174
Increase in due to related parties 3,776 2,999 -
--------- --------- --------
Total Adjustments 78,070 104,598 123,043
--------- -------- --------
Net Cash Provided by
Operating Activities $936,014 $769,698 $636,479
======== ======== ========
</TABLE>
e-super8/S8497fs.wp8.wpd
F-6
The accompanying notes are an integral part of these financial statements
<PAGE>
SUPER 8 ECONOMY LODGING IV, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Super 8 Economy Lodging IV, Ltd., is a limited partnership organized under
California law on February 5, 1982, to acquire and operate motel properties in
Pleasanton and Santa Ana, California. The Pleasanton motel was opened in
October, 1983, and the Santa Ana motel was opened in February, 1985. The
Partnership grants credit to customers, substantially all of which are local
businesses in Pleasanton. The Santa Ana property was sold in April, 1992.
The Managing General Partner of the Partnership is Grotewohl Management
Services, Inc., the sole shareholder and officer of which is Philip B.
Grotewohl. The Associate General Partner of the Partnership is Robert J. Dana.
The net income or net loss of the Partnership is allocated 1% to the General
Partners and 99% to the Limited Partners. Net income (loss) and distributions
per partnership unit are based upon 10,000 units outstanding. All partnership
units are owned by the Limited Partners.
The Partnership agreement requires that the Partnership maintain reserves for
normal repairs, replacements, working capital and contingencies in an amount of
at least 5% of adjusted capital contributions. As of September 30, 1997, the
Partnership had a combined balance in cash and temporary investments of
$1,079,735, which was $624,735 in excess of the $455,000 required amount.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Items of Partnership income are passed through to the individual partners for
income tax purposes, along with any income tax credits. Therefore, no federal or
California income taxes are provided for in the financial statements of the
Partnership, except for a deposit of federal income taxes which is required of
partnerships with fiscal year ends other than a calendar year. The amount of the
deposit is based upon the taxable income of the partnership in the prior year.
Property and equipment are recorded at cost. Depreciation and amortization are
computed using the following estimated useful lives and methods:
Description Methods Useful Lives
Buildings 150% declining balance
and straight-line 10-25 years
Furniture and equipment 200% and 150% declining
balance and straight-line 3-7 years
Costs incurred in connection with maintenance and repair are charged to expense.
Major renewals and betterments that materially prolong the life of assets are
capitalized.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and the carrying value of the asset.
e-super8/S8497fs.wp8.wpd
F-7
<PAGE>
SUPER 8 ECONOMY LODGING IV, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
NOTE 3 - CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments as of September 30, 1997 and 1996 consist of the
following:
1997 1996
----------- ---------
Cash in bank, non-interest bearing $ 74,738 $ 26,184
Money market accounts 704,997 512,293
Certificates of deposit 300,000 400,000
----------- --------
Total Cash and Temporary Investments $1,079,735 $938,477
========== ========
Temporary investments are recorded at cost, which approximates market value. The
Partnership considers temporary investments and all highly liquid marketable
securities with original maturities of six months or less to be cash equivalents
for purposes of the statement of cash flows.
NOTE 4 - RELATED PARTY TRANSACTIONS
Franchise Fees
Super 8 Motels, Inc., now a wholly-owned subsidiary of Hospitality Franchise
Systems, Inc., is franchisor of all Super 8 Motels. The Partnership pays to the
franchisor monthly fees equal to 4% of the gross room revenues of the motel and
contributes an additional 1% of the gross room revenues to an advertising fund
administered by the franchisor. In return, the franchisor provides the right to
use the name "Super 8," a national institutional advertising program, an advance
room reservation system, and inspection services. These costs ($93,014 in 1997,
$80,691 in 1996 and $72,424 in 1995) are included in motel operations expense in
the accompanying statements of operations. The Partnership operates its motel
property as a franchisee of Super 8 Motels, Inc. through a sub-franchise
agreement with Brown & Grotewohl, a California general partnership, of which
Grotewohl Management Services, Inc., (see Note 1) is a 50% owner. Under the sub-
franchise agreement, Brown & Grotewohl earned 40% of the above franchise fees,
which amounted to $37,206, $32,276 and $28,970 in 1997, 1996 and 1995,
respectively.
Property Management Fees
The General Partner, or its affiliates, handles the management of the motel
property of the Partnership. The fee for this service is 5% of the gross
revenues from Partnership operations as defined in the Partnership agreement,
and amounted to $95,146, $82,893 and $74,416 in 1997, 1996 and 1995,
respectively.
e-super8/S8497fs.wp8.wpd
F-8
<PAGE>
SUPER 8 ECONOMY LODGING IV, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4 - RELATED PARTY TRANSACTIONS (Continued)
Subordinated Partnership Management Fees
During the Partnership's operational stage, the General Partners are to receive
9% of cash available for distribution for Partnership management services, along
with an additional 1% of cash available for distribution on account of their
interest in the profit and losses, subordinated, however, to receipt by the
Limited Partners of a 10% per annum cumulative pre-tax return on their adjusted
capital contributions. At September 30, 1997 the Limited Partners had not
received the 10% cumulative return, and as no Partnership management fees are
presently payable they are not reflected in these financial statements.
Management believes it is not likely that these fees will become payable in the
future. This fee is payable only from cash funds provided from operations of the
Partnership, and may not be paid from the proceeds of sales or a refinancing. As
of September 30, 1997 the cumulative amount of these fees was $516,715.
Subordinated Incentive Distributions
Under the terms of the Partnership agreement, the General Partners are to
receive 15% of distributions of net proceeds from the sale or refinancing of
Partnership property remaining after distribution to the Limited Partners of any
portion thereof required to cause distributions to the Limited Partners from all
sources to be equal to their capital contributions plus a cumulative 10% per
annum pre-tax return on their adjusted capital contributions.
Expenses Shared by the Partnership and its Affiliates There are certain
expenses which are allocated between the Partnership and affiliated Super 8
partnerships. These expenses, which are allocated based on usage, are telephone,
data processing, rent of the administrative office, administrative salaries and
duplication expenses. Management believes that the methods used to allocate
shared administrative expenses are reasonable. The expenses allocated to the
Partnership were approximately $113,000 in 1997, $113,000 in 1996 and $110,000
in 1995 and are included in motel and restaurant operations and general and
administrative expenses in the accompanying statements of operations. Included
in administrative salaries are allocated amounts paid to two employees who are
related to Philip B. Grotewohl, the sole shareholder of Grotewohl Management
Services, Inc., a General Partner of the Partnership.
NOTE 5 - MOTEL OPERATING EXPENSES
The following table summarizes the major components of motel operating expenses
for the years ended September 30, 1997, 1996 and 1995:
1997 1996 1995
----------- ----------- -------
Salaries and related costs $322,022 $308,314 $282,994
Franchise and advertising fees 93,015 80,691 72,424
Utilities 68,243 66,664 70,349
Allocated costs, mainly indirect salaries 90,713 92,355 89,327
Repairs and minor renovations 21,457 23,158 38,047
Maintenance expenses 64,434 48,215 58,516
Property taxes 46,739 45,681 44,476
Property insurance 22,781 21,691 20,793
Other operating expenses 100,863 102,960 100,089
-------- -------- --------
Total Motel Operating Expenses $830,267 $789,729 $777,015
======== ======== ========
e-super8/S8497fs.wp8.wpd
F-9
<PAGE>
SUPER 8 ECONOMY LODGING IV, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6 - PROPERTY AND EQUIPMENT
The following is a summary of the accumulated depreciation of property and
equipment:
1997 1996
------------ ------------
Buildings $1,381,389 $1,288,266
Furniture and equipment 443,479 467,183
----------- -----------
Accumulated depreciation $1,824,868 $1,755,449
========== ==========
NOTE 7 - CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash accounts in nine commercial banks located in
California. Accounts at each bank are guaranteed by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000 per bank. A summary of the total
insured and uninsured cash balances (not reduced by outstanding checks) as of
September 30, 1997 follows:
Total cash in all California banks $1,098,989
Portion insured by FDIC (800,000)
Uninsured cash balances $ 298,989
=========
NOTE 8 - SUBSEQUENT EVENTS
On October 27, 1997 a complaint was filed in the United States District Court by
Grotewohl Management Services, Inc. (a general partner of the Partnership)
naming as defendants Everest/Madison Investors, LLC, Everest Lodging Investors,
LLC, Everest Properties II, LLC, Everest Properties, Inc., W. Robert Kohorst,
David I. Lesser, The Blackacre Capital Group, L.P., Blackacre Capital Management
Corp., Jeffrey B. Citron, Ronald J. Kravit, and Stephen B. Enquist. The
complaint pertains to tender offers directed by certain of the defendants to
limited partners of the Partnerships, and to indications of interest made by
certain of the defendants in purchasing the property of the Partnership. The
complaint alleges that the defendants violated certain provisions of the
Security and Exchange Act of 1934 and seeks injunctive and declarative relief.
Defendants have yet to respond to the complaint.
On October 28, 1997 a complaint was filed in the Superior Court of the State of
California, Sacramento County by Everest Lodging Investors, LLC and
Everest/Madison Investors, LLC as plaintiffs against Philip B. Grotewohl,
Grotewohl Management Services, Inc., Kenneth M. Sanders, Robert J. Dana, Borel
Associates, and BWC Incorporated, as defendants, and the Partnership, along with
four other partnerships of which have common general partners, as nominal
defendants. The complaint pertains to the receipt by the defendants of franchise
fees and reimbursement of expenses, the indications of interest made by the
plaintiffs in purchasing the properties of the nominal defendants, and the
alleged refusal of the defendants to provide information required by the terms
of the Partnership's partnership agreement and California law. The complaint
requests the follow relief: a declaration that the action is a proper derivative
action; an order requiring the defendants to discharge their fiduciary duties to
the Partnerships and to enjoin them from breaching their fiduciary duties;
return of certain profits; appointment of a receiver; and an award for damages
in an amount to be determined. The defendants and nominal defendants have
recently been served and are formulating their response to the complaint.
e-super8/S8497fs.wp8.wpd
F-10
<PAGE>
Super 8 Economy Lodging IV, Ltd.
(A California Limited Partnership)
Balance Sheet
June 30, 1998 and September 30, 1997
6/30/98 9/30/97
---------- ----------
ASSETS
Current Assets:
Cash and temporary investments $ 856,167 $ 1,079,735
Accounts receivable 45,307 54,290
Prepaid expenses 9,945 13,463
---------- ----------
Total current assets 911,419 1,147,488
---------- ----------
Property and Equipment:
Land 799,311 799,311
Buildings 2,246,419 2,246,419
Furniture and equipment 527,588 519,267
---------- ----------
3,573,318 3,564,997
Accumulated depreciation (1,904,122) (1,824,868)
---------- ----------
Property and equipment, net 1,669,196 1,740,129
---------- ----------
Other Assets: 82,584 63,975
---------- ----------
Total Assets $ 2,663,199 $ 2,951,592
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 101,820 $ 126,020
---------- ----------
Total current liabilities 101,820 126,020
---------- ----------
Total liabilities 101,820 126,020
---------- ----------
Contingent Liabilities (See Note 1)
Partners' Equity:
General Partners 2,730 (2,128)
Limited Partners: (10,000 units authorized,
issued and outstanding) 2,558,649 2,827,700
---------- ----------
Total partners' equity 2,561,379 2,825,572
---------- ----------
Total Liabilities and Partners' Equity $ 2,663,199 $ 2,951,592
========== ==========
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE>
Super 8 Economy Lodging IV, Ltd.
(A California Limited Partnership)
Statement of Operations
Nine Months Ended June 30, 1998 and 1997
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
6/30/98 6/30/98 6/30/97 6/30/97
---------- ---------- ---------- ----------
Income:
Guest room $ 450,996 $ 1,299,461 $ 495,468 $ 1,338,430
Telephone and vending 6,947 24,008 9,955 32,642
Interest 7,842 26,983 8,611 26,252
Other 541 770 1,746 2,279
---------- ---------- ---------- ----------
Total Income 466,326 1,351,222 515,780 1,399,603
---------- ---------- ---------- ----------
Expenses:
Motel operating expenses
(Note 2) 209,013 630,679 222,444 613,443
General and administrative (89,703) 86,417 3,152 37,766
Depreciation and amortization 27,429 82,139 28,050 84,692
Property management fees 22,899 66,180 25,286 68,593
---------- ---------- ---------- ----------
Total Expenses 169,638 865,415 278,932 804,494
---------- ---------- ---------- ----------
Net Income (Loss) $ 296,688 $ 485,807 $ 236,848 $ 595,109
========== ========== ========== ==========
Net Income (Loss) Allocable
to General Partners $2,967 $4,858 $2,368 $5,951
========= ========== ========== ==========
Net Income (Loss) Allocable
to Limited Partners $293,721 $480,949 $234,480 $589,158
========= ========== ========== ==========
Net Income (Loss)
per Partnership Unit $29.37 $48.09 $23.45 $58.92
========= ========== ========== ==========
Distribution to Limited Partners
per Partnership Unit $25.00 $75.00 $18.75 $56.25
========= ========== ========== ==========
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
Super 8 Economy Lodging IV, Ltd.
(A California Limited Partnership)
Statement of Partners' Equity
Nine Months Ended June 30, 1998 and 1997
6/30/98 6/30/97
---------- ----------
General Partners:
Balance, beginning of year $ (2,128) $ (10,707)
Net income (loss) 4,858 5,951
---------- ----------
Balance, End of period 2,730 (4,756)
---------- ----------
Limited Partners:
Balance, beginning of year 2,827,700 2,740,835
Net income (loss) 480,949 589,158
Distributions to Limited Partners (750,000) (562,500)
---------- ----------
Balance, End of Period 2,558,649 2,767,493
---------- ----------
Total Partners' Equity $ 2,561,379 $ 2,762,737
========== ==========
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
Super 8 Economy Lodging IV, Ltd.
(A California Limited Partnership)
Statement of Cash Flows
Nine Months Ended June 30, 1998 and 1997
6/30/98 6/30/97
---------- ----------
Cash Flows from Operating Activities:
Received from motel revenues $ 1,331,013 $ 1,345,755
Expended for motel operations and
general and administrative expenses (821,704) (730,126)
Interest received 29,192 25,878
---------- ----------
Net Cash Provided (Used) by Operating Activities 538,501 641,507
---------- ----------
Cash Flows from Investing Activities:
Purchases of property and equipment (12,069) (31,286)
Proceeds from sale of land - 500
---------- ----------
Net Cash Provided (Used) by Investing Activities (12,069) (30,786)
---------- ----------
Cash Flows from Financing Activities:
Distributions to limited partners (750,000) (562,500)
---------- ----------
Net Cash Provided (Used) by Financing Activities (750,000) (562,500)
---------- ----------
Net Increase (Decrease) in Cash and
Temporary Investments (223,568) 48,221
Cash and Temporary Investments:
Beginning of period 1,079,735 938,477
---------- ----------
End of period $ 856,167 $ 986,698
========== ==========
Reconciliation of Net Income (Loss) to Net Cash Provided (Used) by
Operating Activities:
Net Income (Loss) $ 485,807 $ 595,109
---------- ----------
Adjustments to reconcile net income to net cash used by operating
activities:
Depreciation and amortization 82,139 84,692
(Gain) loss on disposition of property and
equipment 863 (500)
(Increase) decrease in accounts receivable 8,983 (27,970)
(Increase) decrease in prepaid expenses 3,518 3,698
(Increase) decrease in other assets (18,609) (15,834)
Increase (decrease) in accounts payable (24,200) 2,312
---------- ----------
Total Adjustments 52,694 46,398
Net Cash Provided (Used) by
Operating Activities $ 538,501 $ 641,507
========== ==========
UNAUDITED
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
Super 8 Economy Lodging IV, Ltd.
(A California Limited Partnership)
Notes to Financial Statements
June 30, 1998
Note 1:
The attached interim financial statements include all adjustments which are, in
the opinion of management, necessary to a fair statement of the results for the
period presented.
Users of these interim financial statements should refer to the audited
financial statements for the year ended September 30, 1997 for a complete
disclosure of significant accounting policies and practices and other detail
necessary for a fair presentation of the financial statements.
In accordance with the partnership agreement, the following information is
presented related to fees paid to the General Partners or affiliates for the
period.
Property Management Fees $66,180
Franchise Fees $26,000
Partnership management fees and subordinated incentive distributions are
contingent in nature and none have been accrued or paid during the current
period.
Note 2:
The following table summarizes the major components of motel operating expenses
for the following periods:
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
6/30/98 6/30/98 6/30/97 6/30/97
---------- ---------- ---------- ----------
Salaries and related costs $ 82,548 $ 258,941 $ 79,487 $ 230,643
Franchise and
advertising fees 22,546 65,000 24,778 66,975
Utilities 14,863 45,184 16,805 47,817
Allocated costs,
mainly indirect salaries 23,877 75,595 22,157 68,759
Maintenance, repairs &
replacements 22,366 49,694 34,258 70,311
Property taxes 11,667 34,822 11,345 34,942
Property insurance 6,013 17,464 6,489 17,671
Other operating expenses 25,133 83,979 27,125 76,325
---------- ---------- ---------- ----------
Total motel operating
expenses $ 209,013 $ 630,679 $ 222,444 $ 613,443
========== ========== ========== ==========
The following additional material contingencies are required to be stated in the
interim reports under federal securities law: None.
F-15
<PAGE>
APPENDIX 1
PLEAE MARK, SIGN, DATE AND RETURN IN THE ENCLOSED STAMPED ENVELOPE
ACTION BY WRITTEN CONSENT OF LIMITED PARTNERS
SUPER 8 ECONOMY LODGING IV, LTD.,
a California limited partnership
2030 J Street
Sacramento, California 95814
(916) 442-9183
THIS CONSENT IS SOLICITED ON BEHALF OF THE PARTNERSHIP AND THE MANAGING
GENERAL PARTNER.
The undersigned hereby acknowledges receipt of the Consent Solicitation
Statement dated November 12, 1998 and hereby votes all the units of limited
partnership interest of Super 8 Economy Lodging IV, Ltd., a California limited
partnership (the "Partnership"), held of record by the undersigned as follows:
The Proposal. The Partnership's Certificate and Agreement of Limited
Partnership will be amended to grant to the General Partners authority to sell
the Partnership's motel and related personal property to Tiburon Capital
Corporation, or a nominee thereof, as specifically set forth under "Amendment to
the Partnership Agreement' on page 23 in the accompanying Consent Solicitation
Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
This Consent, when properly executed and returned to the Partnership, will
be voted in the manner directed herein by the undersigned limited partner. IF NO
DIRECTION IS MADE FOR THE PROPOSAL, THIS CONSENT, IF SO EXECUTED AND RETURNED,
WILL BE VOTED FOR THE PROPOSAL.
Please sign exactly If signing as attorney, executor,
as name appears below: 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 a partnership, please sign
in partnership name by authorized person. If held by
co-owners, both should sign.
DATED: , 1998
___________________________________
Signature
___________________________________
Additional signature, if held jointly
PLEASE MARK, SIGN, DATE AND
RETURN THIS
POSTPAID CONSENT CARD.
<PAGE>
APPENDIX 2
To all Limited Partners of Super 8 Economy Lodging IV, Ltd.
We are pleased to submit to you the enclosed materials for use in our
solicitation of the Limited Partners' approval of the proposed sale of the
Partnership's motel assets to Tiburon Capital Corporation.
All of our Limited Partners should carefully read the enclosed materials
and then vote for or against the proposed sale by marking, signing and returning
the enclosed ballot form in the enclosed stamped, addressed envelope.
It must be understood that the proposed sale cannot be considered approved
without the affirmative vote of the owners of more than 50% of the units of
limited partnership interest. Therefore, if a Limited Partner does not return
his signed ballot, that Limited Partner will have effectively voted against the
sale.
The Managing General Partner believes that this proposed sale at an
all-cash price equal to the full amount of the recent appraisal of the
Partnership's motel would be favorable to the Limited Partners and should be
approved. It believes that this is particularly true in light of the national
and world-wide economic uncertainties that have developed since the contract of
sale was made on April 30, 1998.
The Limited Partners should be aware that Mark Grotewohl, a son of the
owners of the Managing General Partner, and a former employee of the
Partnership, will be employed by the buyer as the property manager and will have
a profits (but not a capital) interest in the buyer.
We estimate that after we have received the required affirmative vote, the
sale and distribution of proceeds should be
completed within 45 days.
Please mark the enclosed ballot and return it to us in the enclosed
envelope. And please call us if you have any questions.
Sincerely yours,
EXHIBIT 99.2
APPRAISAL
===============================================================
APPRAISAL OF THE FEE SIMPLE
AND
LEASEHOLD ESTATES
IN THE EIGHT HOTEL PROPERTIES
CONTROLLED BY THE FAMOUS HOST COMPANIES
EFFECTIVE DATE OF THE APPRAISAL:
JANUARY 1, 1998
PREPARED FOR:
MR. PHILIP GROTEWOHL
THE FAMOUS HOST COMPANIES
2030 J STREET
SACRAMENTO, CALIFORNIA 95814
PREPARED BY:
PKF CONSULTING
SAN FRANCISCO, CALIFORNIA
DATE OF THE REPORT: FEBRUARY 20, 1998
===============================================================
<PAGE>
February 20, 1998
Mr. Philip Grotewohl
The Famous Host Companies
2030 J Street
Sacramento, California 95814
Re: Appraisal of the Eight Company-Owned Hotels
Dear Mr. Grotewohl:
In accordance with your request, we have completed our appraisal of the seven
company-owned Super 8 Lodges and one Holiday Inn operated by the Famous Host
Companies in California.
The purpose of this appraisal is to estimate the "as is" market value of the fee
simple or leasehold interest in these eight properties. The function of the
appraisal is for use by the Famous Host Companies for asset evaluation purposes.
The scope of work included inspection of each properties, analysis of local
economic and market conditions, analysis of the historical operating results of
each hotel, estimation of future operating performance of the properties, and
derivation of a value estimate using the Sales Comparison and Income
Capitalization Approaches to valuation. The Cost Approach was not considered to
be a meaningful indicator of value for these properties. The properties were
valued on a going-concern basis including all rights of realty, personalty, and
intangible value. The effective date of this appraisal is January 1, 1998.
To develop our opinion of value, we have performed a complete appraisal process,
as defined by the Uniform Standards of Professional Appraisal Practice. However,
at the request of our client, this appraisal is communicated in a summary report
format. This report is intended to comply with the reporting requirements set
forth under Standards Rule 2-2(b) of the Uniform Standards of Professional
Appraisal Practice for a Summary Appraisal Report. As such, it presents only
summary discussions of the data, reasoning, and analyses that were used in the
appraisal process to develop our opinion of value. Supporting documentation
concerning the data, reasoning and analysis is retained in our files. The depth
of discussion contained in this report is specific to the needs of the client
and for the intended use stated above. PKF Consulting is not responsible for
unauthorized use of this report.
<PAGE>
To the best of our belief, this appraisal report conforms to requirements of the
Code of Professional Ethics and Standards of Professional Appraisal Practice of
the Appraisal Institute and the Uniform Standards of Professional Appraisal
Practice (USPAP) established by the Appraisal Foundation. This report is subject
to the Certification and General Statement of Assumptions and Limiting
Conditions presented in the Addenda.
Based on the scope outlined and our experience as real estate analysts and
appraisers, we are of the opinion that the "as is" market value of the fee
simple or leasehold interest in each of the eight hotels, as of January 1, 1998,
is:
Property Rights Valuation
Property Appraised Conclusion
- ------------------------ ----------------- --------------------
Super 8
Bakersfield, CA Fee Simple $1,300,000
- ------------------------ ----------------- --------------------
Holiday Inn
Barstow, CA Leasehold $4,100,000
- ------------------------ ----------------- --------------------
Super 8
Modesto, CA Leasehold $1,800,000
- ------------------------ ----------------- --------------------
Super 8
Pleasanton, CA Fee Simple $7,600,000
- ------------------------ ----------------- --------------------
Super 8
Sacramento, CA Leasehold $2,700,000
- ------------------------ ----------------- --------------------
Super 8
San Bernardino, CA Fee Simple $1,600,000
- ------------------------ ----------------- --------------------
Super 8
South San Francisco, CA Leasehold $7,600,000
- ------------------------ ----------------- --------------------
Super 8
Santa Rosa, CA Leasehold $2,200,000
========================================== ====================
Sum of Individual Values $28,900,000
========================================== ====================
2
<PAGE>
PKF Consulting appreciates this opportunity to be of service to you. Should you
have any questions or if we can be of further assistance, please do not hesitate
to contact us.
Yours sincerely,
PKF Consulting
/s/ THOMAS E. CALLAHAN
By Thomas E. Callahan, CPA, CRE, MAI
Executive Vice President
California Certified General Appraiser AG9618
/s/ KENNETH KUCHMAN
By Kenneth Kuchman
Vice President
California Certified General Appraiser AG22842
3
<PAGE>
SECTION I
INTRODUCTION
<PAGE>
A. IDENTIFICATION OF THE PROPERTIES TO BE APPRAISED
The subject of this appraisal are the following eight lodging properties.
=================================================
Summary of Properties Appraised
=================================================
Number of
Hotel Name and City Rooms
- --------------------------------- ---------------
Super 8
Bakersfield, CA 90
- --------------------------------- ---------------
Holiday Inn
Barstow, CA 148
- --------------------------------- ---------------
Super 8
Modesto, CA 80
- --------------------------------- ---------------
Super 8
Pleasanton, CA 102
- --------------------------------- ---------------
Super 8
Sacramento, CA 121
- --------------------------------- ---------------
Super 8
San Bernardino, CA 81
- --------------------------------- ---------------
Super 8
South San Francisco, CA 117
- --------------------------------- ---------------
Super 8
Santa Rosa, CA 100
- --------------------------------- ---------------
A more detailed description of each hotel is presented within the appropriate
sections of the attached report.
B. PURPOSE AND USE OF THE APPRAISAL
The purpose of this appraisal is to estimate the "as is" market value of the fee
simple interest in each hotel. The function of the appraisal is for use by the
Famous Host Companies in asset monitoring and assessment.
C. PROPERTY RIGHTS APPRAISED
The property rights appraised represent the fee simple interest or leasehold
interest in each hotel as applicable. A fee simple interest is defined as:
Absolute ownership unencumbered by any other interest or estate,
subject only to the limitations imposed by the governmental powers of
taxation, eminent domain, police power, and escheat.1
1 Apparisal Institute, The Dictionary of Real Estate Appraisal,
3rd ed (Chicago: Appraisal Institute, 1993) pg. 140.
I-1
<PAGE>
A leasehold interest is defined as:
The interest held by the lessee (the tenant or renter) through a lease
conveying the rights of use and occupancy for a stated term under
certain conditions.2
D. IMPORTANT DATES
The effective date of this appraisal is January 1, 1998. The eight hotels were
inspected by members of PKF Consulting, on various dates in 1997 and 1998. These
inspections included a random sampling of guestrooms, all public areas, and all
back-of-the-house facilities.
E. SUMMARY OF OWNERSHIP AND SALES HISTORY
The eight hotels under review are owned by one of four limited partnerships. The
Famous Host Companies, or an affiliate, is the general partner in each of these
four partnerships.
We understand that all of these properties have been owned by the same entities
since their construction. We are not aware of any other transactions involving
these hotels which have occurred during the past three years.
F. DEFINITION OF VALUES
1. Market Value
"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 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 acting in what
they consider their own best interests;
3) A reasonable time is allowed for exposure in the open market;
2 Ibid, p. 204
I-2
<PAGE>
4) Payment is made in terms of case 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.3
Market value "as is" on the appraisal date means an estimate of the market value
of a property in the conditions observed upon inspection and as it physically
and legally exists without hypothetical conditions, assumptions, or
qualifications as of the date the appraisal is prepared.4
2. Going Concern Value
The value created by a proven property operation; considered as a separate
entity to be valued with a specific business establishment.5
G. SCOPE AND METHODOLOGY OF THE APPRAISAL
The scope of this appraisal included a detailed analysis of the competitive
market position of each of the eight properties. More specifically, the market
analysis for each property included the following work program.
1) In-depth analysis of the historical operating performance of each
property.
2) Detailed inspection of each property, focused on identifying areas
of deferred maintenance and/or functional obsolescence.
3) Evaluation of the economic environment of each property's local market,
focusing on economic factors which impact the demand for hotel rooms
such as changes in employment, office space absorption, airport
utilization, attendance at tourist attractions and convention
facilities, etc.
4) Primary market research in each market area, including interviews with
key demand generators, inspection and evaluation of competitive hotels
3 Federal Register, Vol. 55, 165, Friday, August 24, 1990, Rules and
Regulations, 12CFR Part 34.42(F).
4 Appraisal Policies and Practicies of Insured Institutionas and
Services Corporation Federal Home Loan Bank Board, "Final Rule", 12 CFR Parts
563 and 571, December 31, 1987.
5 Appraisal Institute, The Dictionary of Real Estate Appraisal,
3rd ed (Chicago: Appraisal Institute, 1993)
I-3
<PAGE>
and discussions with persons familiar with the development patterns of
each local market.
5) Analysis of each property's future market position. This analysis
included a projection of the current and future demand for hotel
accommodations in each market, including an assessment of existing and
potential future competitive supply, and the share of the market that
each hotel could reasonably be able to capture over the next five to
ten years.
Based on the foregoing scope of work, it was concluded that the Highest and Best
Use of each property is as currently improved.
In developing a value conclusion for each hotel, two of the three traditional
approaches to valuation have been used: the Sales Comparison and Income
Capitalization Approaches. In the Sales Comparison Approach, the value of the
subject properties were estimated based on an analysis of the sales of other
similar facilities using a unit indicator of price per room or multiple of rooms
revenue. In the Income Capitalization Approach, the value of each property is
estimated based on an analysis of the historical and projected income and
expenses generated by each facility during a typical holding period. Both direct
capitalization and yield capitalization (discounted cash flow analysis) methods
were employed.
The earnings stream most commonly used as the basis for the Income
Capitalization method of valuation is the projected net operating income (NOI)
from operations after the deduction of real estate taxes and insurance, but
before the deduction of interest, depreciation, amortization and taxes on
income. Also deducted from the profit from operations is a reserve for capital
improvements for each property. The projected operating income for each property
was based on a review of local market conditions and the historical operating
results of each hotel, coupled with an analysis of the historical operating
results of comparable hotels as compiled in PKF Consulting's 1997 issue of
"Trends in the Hotel Industry".
Under the direct capitalization method, the NOI for a typical or stabilized year
of operation is converted into a value estimate by dividing it by an appropriate
income capitalization rate. The capitalization rate represents the relationship
between income and value observed in the market and is derived through an
analysis of comparable sales as well as other analyses.
In yield capitalization, the value of a property is the present value of the net
operating income of each property in each year of a holding period (typically
ten years) plus the present value of the property as if sold at the end of the
holding period (the "reversion"). The present value of these elements is
obtained by applying a market-derived discount rate. The value of the reversion
is obtained through the capitalization of the adjusted income at the end of the
holding period, which should be a normalized or typical year, with a deduction
for the costs of sale.
I-4
<PAGE>
In our analysis, the discount rates used to value the subject hotels ranged from
13.0 to 14.5 percent; going-in capitalization rates ranged from 10.0 to 11.5
percent; and reversionary capitalization rates ranged from 10.5 to 12.0 percent.
Differences in the discount and capitalization rates applied to individual
properties were based on a combination of factors, including the age and
condition of the hotels, local market conditions, durability of the projected
income stream, and the ownership rights appraised (fee simple interest or
leasehold interest).
The Cost Approach has not been included in the estimate of the value of the
subject properties. The Cost Approach is most applicable in the valuation of
special use properties, properties which are proposed or under construction, and
aged properties, in which the value of the improvements may be nominal and the
value of the property as a whole approaches land value. The subject properties
are all going concerns and the existing improvements contribute significant
value to the property. The costs to replace these facilities are of little more
than historical significance and are not used by the typical investor interested
in the purchase of an existing property.
A brief discussion of the research, methodology, analysis and conclusions
pertaining to each property are presented in the following sections of this
report.
=============================================
Summary of Property Sections
=============================================
City Section
- ------------------------------ --------------
Bakersfield II
- ------------------------------ --------------
Barstow III
- ------------------------------ --------------
Modesto IV
- ------------------------------ --------------
Pleasanton V
- ------------------------------ --------------
Sacramento VI
- ------------------------------ --------------
San Bernardino VII
- ------------------------------ --------------
Santa Rosa VIII
- ------------------------------ --------------
South San Francisco IX
- ------------------------------ --------------
The Addenda includes the Statement of Assumptions and Limiting Conditions,
Certification of the Appraisers, and Qualifications of the Appraisers.
I-5
<PAGE>
SECTION II
SUPER 8 MOTEL
BAKERSFIELD, CALIFORNIA
<PAGE>
===============================================================================
Summary of Important Facts and Conclusions
===============================================================================
Property Address Super 8 Motel
901 Real Road
Bakersfield, California 93309
Telephone (805) 322-1012
- ---------------------------------------------- --------------------------------
Owner Super 8 Motels III, Ltd.
- ---------------------------------------------- --------------------------------
Assessor's Parcel Numbers 020-120-29-00-6
- ---------------------------------------------- --------------------------------
Effective Date of Appraisal January 1, 1998
- ---------------------------------------------- --------------------------------
Property Rights Appraised Fee Simple
===============================================================================
Highest and Best Use
===============================================================================
Highest and Best Use
As if Vacant Limited-service hotel
As Improved Limited-service hotel
===============================================================================
Property Description
===============================================================================
Existing Improvements
Year Built 1982
Gross Building Area 33,560 square feet
Number of Hotel Guest Rooms 90
Parking 91 spaces (including two for
disabled persons)
Number of Floors Two
Hotel Amenities Swimming pool and whirlpool
Compliance with ADA In compliance
- ---------------------------------------------- --------------------------------
Site
Area 2.32 acres (101,059 square feet)
Zoning C-2 (Commercial)
Flood Zone Zone C, Panel #060077-0027B,
dated May 1, 1985
Wetlands Zone No
Alquist Priolo Special Studies Zone No
Historic, Natural , Cultural,
Recreational, or Scientific Value None
===============================================================================
Valuation Conclusion
===============================================================================
Cost Approach Not Used
- ---------------------------------------------- --------------------------------
Sales Comparison Approach $1,350,000
- ---------------------------------------------- --------------------------------
Income Capitalization Approach
Stabilized Occupancy 75.0%
Average Daily Room Rate $33.50 (1998 value dollars)
- ---------------------------------------------- --------------------------------
Stabilized Net Operating Income $137,000 (1998 value dollars)
- ---------------------------------------------- --------------------------------
Overall Capitalization Rate 11.0%
Terminal Capitalization Rate 11.5%
Discount Rate 14.0%
- ---------------------------------------------- --------------------------------
Indicated Market Values
Direct Capitalization Technique $1,250,000
Discounted Cash Flow Analysis $1,300,000
- ---------------------------------------------- --------------------------------
Final Estimate of Market Value $1,300,000
- ---------------------------------------------- --------------------------------
Marketing and Exposure Period Six months or less
- ---------------------------------------------- --------------------------------
II-1
<PAGE>
(Photograph Deleted)
View of the Subject Property
(Photograph Deleted)
View of a Typical Queen-Bed Guestroom
II-2
<PAGE>
A. AREA AND NEIGHBORHOOD REVIEW
1. Introduction
The subject property is located at 901 Real Road in Bakersfield, California, the
seat of Kern County. The City of Bakersfield lies in the southern portion of the
San Joaquin Valley of Central California, approximately 110 miles north of Los
Angeles and 290 miles south of San Francisco. Bakersfield is an important
farming and oil-producing area, supplying approximately 61.0 percent of
California's oil production and 9.0 percent of the U.S.'s production.
One of the most important agricultural counties in the United States, Kern
County is a major supplier of table grapes, wine grapes, cotton, almonds, and
field crops. Bakersfield is the largest city between Fresno and Los Angeles,
providing governmental, financial, distribution, and transportation services for
the southern part of the San Joaquin Valley. A map highlighting the subject
site's location in relation to the surrounding area is shown on the following
page.
2. Economic Data
Presented in the following text is a brief overview of selected economic data
that characterizes the local area.
Population: In 1996, Bakersfield's population was 212,700, compared to
180,200 in 1991, indicating a compound average annual growth rate (CAAG) of
3.4 percent. This growth rate indicates the underlying economic stability
in Bakersfield.
Demand Generators: Apart from convention demand generated by the city's
convention center, and local commercial demand, Bakersfield has been
largely an "overnight stop" for highway travelers. Coach tours along
Interstate 5 and commercial traffic along Highway 99 generate a substantial
portion of demand.
Convention Center: The Bakersfield Convention Center, located in downtown
Bakersfield, is the largest and complete event facility in southern San
Joaquin Valley. The center offers over 51,000 square feet of meeting space.
Retail Sales: Retail sales for Bakersfield totaled over $2.1 billion in
1996, representing more than half of the total retail sales for Kern
County.
Income: The average household Effective Buying Income (EBI) for Kern
County was approximately $35,000 for 1996, and is expected to increase to
$40,000 in 2002, reflecting a CAAG of 2.3 percent.
II-3
<PAGE>
(Street map of Bakersfield and surrounding area deleted)
Regional Map
II-4
<PAGE>
Transportation: Kern County has approximately 6,000 miles of extensive
roadway systems. Three state highways run through the city (99, 58, and
178), as well as Interstate 5 which is located 15 miles west of
Bakersfield. Kern County's Meadows Field Airport services the area's air
transportation and provides commercial airline service via several
carriers.
Employment: In 1996, Kern County was the nation's leading oil-producing
county, and the fourth most productive agricultural county in the nation.
Grapes, Cotton, Almonds & Market Milk are the principal crops. The major
employers in the area are highlighted in the following table.
==============================================================
Major Employers in Bakersfield
==============================================================
------------------------------- ------------------------------
Number of
Company Employees
------------------------------- ------------------------------
Sunworld/Superior Farms 3,000
Grimmway Farms 2,700
Giumarra Vineyards 2,500
Bolthouse Farms, Inc. 1,600
Kern Medical Hospital 1,600
Mercy Health Care 1,500
Memorial Hospital 1,200
Dole Bakersfield, Inc. 1,000
Chevron USA 1,000
==============================================================
Source: Bakersfield Chamber of Commerce
==============================================================
3. Neighborhood Review
The subject property is located in one of the commercial areas of Bakersfield.
Surrounding improvements include: five restaurants (Pizza Hut, Wendy, Carl's
Jr., Sizzler, and McDonald's); three hotels (the Radisson Suites, California
Inn, and the Regency Inn); two gasoline stations (Texaco and Shell); car
dealerships; and a shopping mall. State Highway 99 is situated approximately 500
yards to the east.
4. Conclusion
Kern County remains highly dependent on its agriculture and oil industries. The
populations of Kern County and Bakersfield continue to grow at levels higher
than the state average. Overall, we view that the area will be experiencing
stable growth levels in the near future, positively impacting the lodging
industry.
II-5
<PAGE>
B. PROPERTY DESCRIPTION
1. Introduction
The subject property is a limited-service hotel with 90 guestrooms. Amenities at
the property include an outdoor swimming pool and a whirlpool. The property
includes one main building containing the guest rooms and the lobby.
The subject property was constructed in 1982 and is currently owned in fee
simple by Super 8 Motels III, Ltd. We are not aware of any transactions relating
to the site or the improvements since the date of opening.
2. Site Description and Zoning
The subject property is located at 901 Real Road, and is bounded by California
Avenue to the north, Wendy's, Carl's Jr., and the California Inn to the south,
Real Road to the east, and a small canal to the west. The land area is 2.32
acres (101,059 square feet), and the property has approximately 150 feet of
frontage along Real Road. The site has good visibility to traffic, and is also
easily accessible from Highway 99. The subject site is attractively landscaped
with lawn bushes and palm trees.
The subject property is zoned C-2 (Commercial) by Kern County. The present use
of the property is permitted with this zoning designation, and the subject is,
therefore, a legal, conforming use.
We are aware of no easements or covenants which would adversely affect the value
of the subject property.
3. Improvements Description
The subject property of this appraisal is improved with a 90-room
limited-service hotel. The exterior-corridor property includes a lobby area, an
outdoor swimming pool, and a whirlpool, and has a port cochere with a blue-tile
roof. The second floor corridors have wrought iron railings, and there are stair
towers located at the corners of the building. Parking for 91 automobiles,
including two for disabled persons, is provided.
4. Basic Construction and Mechanical Systems
The subject building is a two-story wood-framed structure, with white stucco
finish. The hotel building forms an approximate L-shape, with the inner portion
of the L-shape forming a courtyard area. The courtyard is landscaped and is also
the site of the pool. The hotel offers exterior corridors with no elevators. The
entire building is fire sprinklered, and has a flat, built-up roof with
concrete-barrel access areas. The exterior of the building is comprised of white
II-6
<PAGE>
stucco. The total interior square footage of the hotel is 33,560 square feet
with the average interior space of a typical guestroom being approximately 282
square feet.
The Super 8 Motel provides 90 guestrooms, configured as 37 single-queen
bedrooms, 33 double-queen, and 20 suite rooms. The guestrooms are furnished with
a color television, desk, two chairs, nightstand, lamp, and dresser. Overall the
property is in good condition and has been maintained on a regular basis.
Presented in the following table is a summary of the basic construction and
mechanical systems of the hotel.
===============================================================================
Super 8 Motel - Bakersfield
Summary of Basic Construction and Mechanical Systems
===============================================================================
Foundation: Concrete slab on-grade with spread
footings
- ------------------------------------- -----------------------------------------
Frame: Wood
- ------------------------------------- -----------------------------------------
Exterior Walls: Stucco
- ------------------------------------- -----------------------------------------
Floor: Wood trusses, 5/8" plywood, and 3/4"
gypsum board
- ------------------------------------- -----------------------------------------
Roof: Concrete barrel tile and built-up tar and
gravel
- ------------------------------------- -----------------------------------------
Ceiling Heights: 8'- 0"
- ------------------------------------- -----------------------------------------
Doors:
Guest Room and Bathroom: 1 3/4" thick solid core wood
Exterior: 13/4" thick solid core wood; aluminum
store-front door
- ------------------------------------- -----------------------------------------
Windows: Sliding bronze anodized double pane
aluminum
- ------------------------------------- -----------------------------------------
Heating and Cooling: GE Zoneline III for guest rooms and
lobby; Carrier Model 50YQ060 in
laundry room
- ------------------------------------- -----------------------------------------
Elevators: One Otis passenger hydraulic elevator
- ------------------------------------- -----------------------------------------
Electrical: 120-280V; 2,000 AMPS; 42,000 A system
- ------------------------------------- -----------------------------------------
Plumbing:
Water Pipes: Copper type M above-grade; type L below-
grade
Sewer Pipes: No-hub cast iron in building; ABS outside
building
- ------------------------------------- -----------------------------------------
Domestic Hot Water: Two boilers and holding tank
- ------------------------------------- -----------------------------------------
Laundry Facilities: Two washers and three dryers
- ------------------------------------- -----------------------------------------
Sprinkler System: Entire building is sprinklered
- ------------------------------------- -----------------------------------------
Life Safety:
Fire Alarm Stations: At reception desk area
Smoke Detectors: Hard-wired dual ionization smoke detectors
Emergency Illumination: Yes
===============================================================================
Source: Famous Host Companies
===============================================================================
5. Assessed Value and Property Taxes
The subject property is assessed by the Kern County on a tax year commencing
July 1 of every year. Under the provisions of Article 13-A of the State of
California (Proposition 13), properties are assessed based on their fair market
value as of the change of ownership date. The assessed value can be increased by
a maximum of 2.0 percent per year until such date as the property is
II-7
<PAGE>
subsequently sold, substantial new construction takes place, or the use of the
property is substantially changed. The current assessed value of the property is
presented in the following table.
===================================================================
Assessor's Parcel Number 020-120-29-00-6
1997/98 Assessed Value
===================================================================
Land $802,053
Personal Property $83,592
Improvements $1,487,832
- -------------------------------------- ----------------------------
Total Assessed Value $2,373,477
- -------------------------------------- ----------------------------
For fiscal year 1997/1998, total property taxes were $31,027.67 on the subject
property. The effective tax rate, therefore, is 1.3073 percent of the total
assessed value.
6. Renovation and Capital Improvements
We understand that $33,000 have been allocated as part of capital expenditures
for a new roof during 1998.
7. Summary of Functional Utility and Condition
Overall, the subject property is well-maintained. The grounds are neat and
well-trimmed, and the paint both inside and outside the building is in good
condition. As noted previously, $33,000 will be spent on a new roof in 1998.
C. HOTEL MARKET ANALYSIS
1. Competitive Supply
The competitive hotel market for the Super 8 is comprised of 14 properties,
including the subject, with a total of 1,205 rooms, comprising nearly all of the
limited-service levels in the market The selection of the competitive supply was
based on location, room count, facilities and amenities, room rate structure,
and market orientation. These properties are all affiliated with national chains
and cater to the area's commercial, leisure, and government demand.
II-8
<PAGE>
<TABLE>
=================================================================================================================
Super 8 Motel -- Bakersfield
Census of Competitive Properties
=================================================================================================================
Published Room Rates
Year Number AAA
Property Opened of Rooms Single Double Amenities Rating
- -------------------------- ----------- ----------- -------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Super 8 Motel 1982 90 $38.00 $47.00 F,G,H Not Rated
Comfort Inn Central 1989 53 $35.00 $40.00 F,G 1 star (Motel)
La Quinta Inn 1986 129 $49.00 $56.00 D,F,H 3 star (Motel)
Motel 6 1962 107 $35.00 $45.00 F,G,H Not Rated
Motel 6 - North 1983 109 $35.00 $45.00 F,G,H Not Rated
TraveLodge-- South 1987 60 $38.00 $50.00 F,G,H 2 star (Motel)
Quality Inn 1992 89 $42.00 $61.00 D,F,G,H 3 star (Motel)
Radisson Suites 1993 80 $69.00 $79.00 D,F,G 3 star (Motel)
California Inn 1983 74 $39.00 $49.00 F,G,H 2 star (Motel)
Motel 6 - East 1981 111 $35.00 $45.00 F,G,H Not Rated
Econolodge 1989 53 $35.00 $40.00 F,G,H Not Rated
Holiday Inn Express 1994 108 $45.00 $49.00 D,F,G 3 star (Motel)
Hampton Inn 1998 95 $65.00 $75.00 D,F,G,H 3 star Motel)
Best Western Heritage 1995 47 $50.00 $57.00 F,H 3 star (Motel)
- -------------------------- ----------- ----------- -------------- -------------- ----------------- --------------
Total 1,205 -
- -------------------------- ----------- ----------- -------------- -------------- ----------------- --------------
Amenities Codes AAA Rating
A - Restaurant 5 star - Renowned; exceptional property recognized for
B - Bar/Lounge market superiority of facilities and service
C - Complimentary Continental Breakfast 4 star - Exceptional; offers luxurious accommodations as
well as extra amenities
D - Meeting Rooms 3 star - Offers very comfortable and attractive
E - Exercise Room accommodations
F - Swimming Pool 2 star - Exceeds AAA minimum requirements in some physical
G - Whirlpool and operational categories
H - Adjacent Restaurant 1 star - Meets AAA basic requirements for recommendation
- -------------------------------------- ----------- -------------- -------------------------------------------------
Source: Management of Individual Properties and 1998 American Automobile Association Tour Book
===================================================================================================================
</TABLE>
As can be noted above, there is a considerable number of competitive lodging
facilities in the market, characterized by smaller, budget-oriented, national
brand-affiliated products.
The 95-room Hampton Inn has just been completed, at the intersection of Oak
Street and Park Way, on the opposite side of Highway 99 from the subject.
According to our discussions with the Kern County Planning Department, no
additional hotels are planned in the surrounding area.
2. Historical Market Performance
The following table presents a summary of the historical market performance of
the selected competitive hotels, together with the subject, over the period 1994
to 1996, as well as our estimate for 1997.
II-9
<PAGE>
<TABLE>
========================================================================================================================
Super 8 Motel -- Bakersfield
Competitive Hotel Market
Historical Occupancy and Room Rate
1994 to 1997 (Estimated)
========================================================================================================================
Annual Rooms Percent Percent Average Daily Percent
Year Available Change Occupancy Change Room Rate Change
- --------------------- ------------------ ------------- ----------------- ------------- -------------------- ------------
<S> <C> <C> <C> <C>
1994 396,223 - 64.9% - $36.58 -
- --------------------- ------------------ ------------- ----------------- ------------- -------------------- ------------
1995 402,595 1.6% 59.8% (6.3%) $38.59 5.5%
- --------------------- ------------------ ------------- ----------------- ------------- -------------------- ------------
1996 405,150 0.6% 59.5% 0.1% $38.53 (0.1%)
- --------------------- ------------------ ------------- ----------------- ------------- -------------------- ------------
1997 (Estimated) 405,150 0.0% 61.0% 2.6% $38.50 (0.1%)
- --------------------- ------------------ ------------- ----------------- ------------- -------------------- ------------
CAAG 0.7% - - - 1.7% -
========================================================================================================================
Source: PKF Consulting and Smith Travel Research
========================================================================================================================
</TABLE>
As can be noted, over the past four years the number of available rooms within
the competitive market has changed only slightly. During the same period, demand
has decreased slightly. This decrease in demand is primarily attributed to the
addition of new hotels in outlying sub-markets within Bakersfield, which
captured a portion of the competitive market demand. In terms of ADR, the
competitive market has experienced below-inflation growth, indicating a CAAG of
1.7 percent between 1994 and 1997.
3. Demand Segmentation
The competitive market is oriented towards attracting commercial, leisure, and
contract demand. Commercial demand includes employees and visitors to local
companies, such as Chevron and Dole. The majority of leisure travelers to the
area are typically on their way to, or returning from, other cities, and stop at
the area's lodging facilities for a one night stay. Most of the leisure demand
is generated between Memorial Day and Labor Day. Contract demand is primarily
generated by Santa Fe and Amtrak railroad companies, which help bolster
occupancy levels yet are highly rate-sensitive.
4. Projected Future Supply and Demand
Over the past four years (1994 to 1997), demand for hotel accommodations in the
competitive market has decreased slightly. However, based on our review of the
local market, we project overall demand for hotel rooms will increase at a
modest rate of 2.0 percent per year over the next five years. In deriving this
growth rate, we have specifically analyzed the overall growth in manufacturing
and services, retail sales, and the historical CAAG of this market. Further,
this growth rate reflects the impact of the opening of the New Hampton Inn,
which is envisioned to induce demand into the competitive market. Presented in
the following table is a summary of the projected growth in supply, demand, and
the resulting occupancy levels for the competitive market for the period 1998 to
2002.
II-10
<PAGE>
<TABLE>
=======================================================================================================
Super 8 Motel -- Bakersfield
Estimated Growth In Supply and Demand
Competitive Hotel Market
=======================================================================================================
Daily Annual Total
Year Available Rooms Available Rooms Demand Occupancy
- ------------------------ -------------------- --------------------- ---------------- ------------------
Actual
<S> <C> <C> <C> <C> <C>
1994 1,085 396,223 257,137 64.9%
1995 1,103 402,595 240,751 59.8%
1996 1,110 405,150 240,918 59.5%
1997 (Estimated) 1,110 405,150 247,142 61.0%
- ------------------------ -------------------- --------------------- ---------------- ------------------
Projected
1998(1) 1,197 436,905 252,000 58.0%
1999 1,205 439,825 257,000 59.0%
2000 1,205 439,825 262,000 60.0%
2001 1,205 439,825 268,000 61.0%
2002 1,205 439,825 273,000 62.0%
- ------------------------ -------------------- --------------------- ---------------- ------------------
CAAG
1994 to 1997 0.7% - (1.3%) -
1998 to 2002 0.2% - 2.0% -
=======================================================================================================
<FN>
(1) 95-room Hampton Inn opened at the beginning of February (annualized).
Source: PKF Consulting and Smith Travel Research
=======================================================================================================
</FN>
</TABLE>
As can be noted above, we project demand in the overall market to grow at a CAAG
of 2.0 percent over the five year period. Given the addition of the 95-room
Hampton Inn, the competitive market's occupancy is projected to decrease to 58.0
percent in 1998, and then increase gradually to 62.0 percent by 2002.
5. Market Performance of the Subject
The following table summarizes the historical occupancy levels and ADR for the
Super 8 Motel over the past four years.
===============================================================================
Super 8 Motel -- Bakersfield
Historical Occupancy and Room Rate
1994 to 1997 (Estimated)
===============================================================================
Average Daily
Year Occupancy % Change Room Rate % Change
- ------------------- ---------- ---------------- ----------------- -------------
1994 89.9% - $30.73 -
- ------------------- ---------- ---------------- ----------------- -------------
1995 85.6% (4.8%) $30.87 0.5%
- ------------------- ---------- ---------------- ----------------- -------------
1996 87.2% 1.9% $30.28 (1.9%)
- ------------------- ---------- ---------------- ----------------- -------------
1997 (Estimated) 84.0% (3.7%) $32.50 7.3%
- ------------------- ---------- ---------------- ----------------- -------------
CAAG (2.2%) - 1.9% -
===============================================================================
Source: Famous Host Companies
===============================================================================
II-11
<PAGE>
As can be noted, the subject is estimated to have had experienced a nearly 6.0
percentage point drop in occupancy between 1994 and 1997, attributed to the
addition of new supply, such as the indirectly-competitive Extended Stay America
which opened in 1997. The growth in ADR has been less-than-market, equating to a
CAAG of 1.9 percent, generally similar to the market's 1.7 percent. The subject
property's market penetration rate (subject's occupancy divided by the market's
occupancy) has fluctuated from 138.5 percent in 1994 to an estimated 137.7
percent in 1997. It should be noted that the subject property achieves a much
higher annual occupancy compared to the market, as a result of significant
contract business with both Amtrack and Santa Fe railroads. On the other hand,
this contract business is negotiated at an ADR lower than the market ADR. The
subject property's 1997 year-to-date occupancy (ending September) was 84.6
percent, compared to 87.5 percent in 1996, indicating the impact of the opening
of the Extended Stay America.
Based on our analysis of the local market in the Bakersfield area, coupled with
our discussions with management at the subject property, we are of the opinion
that the subject will achieve an occupancy level of approximately 80.0 percent
in 1998, below that estimated for 1997 (84.0 percent). In 1999, we estimate that
the subject property will continue to be impacted by the addition of the nearby
95-room Hampton Inn, and will achieve an occupancy of 78.0 percent, and then
will stabilize in 2000 at an estimated level of 75.0 percent.
Based on our market research, we project the hotel to achieve an ADR of $33.50
in 1998, or an increase of 3.0 percent over 1997. Over the balance of our
projection period, we project the hotel's ADR to increase at the anticipated
long-term level of inflation (3.0 percent per year). We believe that this is
realistic given the supply and demand dynamics of the San Bernardino hotel
market.
===============================================================================
Super 8 Motel -- Bakersfield
Projected Occupancy and Average Daily Room Rate - 1998 to 2002
===============================================================================
Market Average Percent
Year Occupancy Penetration Daily Room Rate Change
- ---------- --------------- --------------- ------------------------- ----------
- ---------- --------------- --------------- ------------------------- ----------
1998 80.0% 138.0% $33.50 3.0%
1999 78.0% 132.0% $34.50 3.0%
2000 75.0% 125.0% $35.50 3.0%
2001 75.0% 123.0% $36.50 3.0%
2002 75.0% 121.0% $37.75 3.0%
- ---------- --------------- --------------- ------------------------- ----------
- ---------- --------------- --------------- ------------------------- ----------
CAAG (1.6%) - 3.0% -
- ---------- --------------- --------------- ------------------------- ----------
===============================================================================
Source: PKF Consulting
===============================================================================
D. HIGHEST AND BEST USE
Based on our analysis, we are of the opinion that the existing improvements
contribute significant overall value to the site. There is no alternative, legal
II-12
<PAGE>
use that could economically justify the restructuring or removal of the existing
improvements at this time. Therefore, the subject property, as improved,
represents the highest and best use of the site.
E. VALUATION -- SALES COMPARISON APPROACH
1. Introduction
We have reviewed a number of recent sales and have focused on those considered
most comparable in providing support for the market value of the subject. Our
search for sales was initially focused on Bakersfield; however, due to the
limited number of comparable transactions, our search for sales was extended to
include surrounding areas, such as Colton, Bishop, and Kingsburg. Based on this
search, five sales were identified to use as the basis for our valuation of the
subject under this approach. Presented in the following table is a summary of
the selected comparable hotel sales. As can be noted, these sales have occurred
between November 1996 and October 1997.
<TABLE>
=====================================================================================================================
Comparable Hotel Sales
=====================================================================================================================
Rooms Overall
Sale Sale Year Number of Price Revenue Capitalization
No. Hotel Name Location Date Built Rooms Per Room Multiplier Rate
- ----- --------------------------- -------------- --------- --------- ------------ ---------- ---------- =============
<S> <C> <C> <C> <C> <C>
1 Econolodge Colton 10/97 1972 51 $19,601 2.4 NA
2 Days Inn Colton 8/97 1985 147 $19,932 2.6 NA
3 Bishop Lodge Bishop 7/97 1979 52 $28,846 3.9 8.9%
4 Swedish Inn Kingsburg 1/97 1988 47 $31,195 2.9 NA
5 Super 8 Ontario 11/96 1985 53 $22,925 2.2 NA
=====================================================================================================================
Source: PKF Consulting
=====================================================================================================================
</TABLE>
2. Analysis of the Hotel Sales
In reviewing the preceding table, it can be noted that the sale prices per room
ranged between $19,601 for the 51-room Econolodge and $31,195 for the 47-room
Swedish Inn in Kingsburg.
Because of the many differences between the comparable hotel sales and the
subject property, we are of the opinion that an analysis using a rooms revenue
multiplier (RRM) is the most approiate unit of comparison to value the subject.
A RRM measures the total revenue generated from room rentals in relation to the
sale price. RRMs do not require subjective adjustments since most variances in
properties are considered to be reflected in ADRs and annual occupancies
achieved in the market. As can be noted, the indicated RRMs range from 2.2 to
3.9, with an average of 2.8.
II-13
<PAGE>
The subject property's location within the highly competitive Bakersfield
market, which is characterized by lower ADRs due to the presence of
rate-sensitive contract demand, applies a ceiling on the subject's upside
potential. Accordingly, we are of the opinion that a RRM in the order of 1.5
(which is lower than the indicated comparable sales) is appropriate in valuing
the subject property. Based on this multiplier, and assuming a stabilized
occupancy level of 75.0 percent at an ADR of $33.50 (stated in 1998 dollars),
the indicated value per room for the subject is as follows:
<TABLE>
Rooms Stabilized Stabilized Indicated Value
Revenue Average Rate Occupancy Per Room
Multiplier Level Days/Year (Rounded)
- ---------------- --- --------------- --- ----------------- --- ---------------- --- -----------------------
<S> <C> <C> <C> <C> <C>
1.5 X $33.50 X 75.0% X 365 = $14,000
- ---------------- --- --------------- --- ----------------- --- ---------------- --- -----------------------
</TABLE>
As noted above, the RRM analysis produced a value indication of $14,000 per
available room. This value unit is converted into a total value estimate by
multiplying the indicated value per room by the total number of rooms. Based on
90 rentable rooms, the indicated stabilized value of the fee simple interest in
the Super 8 Motel is $1,300,000 as calculated below:
- ----------------------- ---- ---------------- ----- ---------------------------
$14,000 X 90 Rooms = $1,300,000 (Rounded)
- ----------------------- ---- ---------------- ----- ---------------------------
F. INDICATED VALUE VIA THE SALES COMPARISON APPROACH
After concluding to our estimate of the stabilized value of the subject, the
next step in our analysis is to develop an estimate of the "as is" market value
of the subject property.
The first step to develop the value estimate is to add the income gain, or
surplus, projected to occur until the property is stabilized (as will be
discussed in the Income Capitalization section).
===================================================================
Sales Comparison Approach
"As Is" Fee Simple Value
===================================================================
Stabilized value Indication $1,300,000
Plus: Income Gain Until Stabilization 51,000
- ---------------------------------------------- --------------------
"As Is" Fee Simple Value (Rounded) $1,350,000
- ---------------------------------------------- ====================
II-14
<PAGE>
As a result of the foregoing analysis, we estimate the "as is" market value of
the fee simple interest in the subject as of January 1, 1998, through the Sales
Comparison Approach to be:
===============================================================================
ONE MILLION THREE HUNDRED FIFTY THOUSAND DOLLARS
===============================================================================
$1,350,000
===============================================================================
G. VALUATION -- INCOME CAPITALIZATION APPROACH
1. Basis for Cash Flow Projection
In order to develop an estimate of the net operating income (NOI) for the
subject for both a stabilized year of operation (direct capitalization) and each
year of the aforementioned holding period (yield capitalization), the following
have been analyzed:
1. The historical operating results for the subject for year-end 1994,
1995, 1996, year-to-date September 1997, and management's operating
budget for 1997;
2. The previously discussed market performance (occupancy levels and ADR)
of the competitive hotels; and,
3. The operating results of the category "Limited-Service Hotels" from the
1997 issue of PKF Consulting's Trends in the Hotel Industry.
The historical operating results of the subject are presented at the end of this
section of the report.
2. Stabilized Year Operating Estimate
We first developed an estimate of the performance of the subject for a
stabilized year of operation stated in current value, 1998 dollars. This
estimate is based on our review of the historical operating results of the
subject hotel coupled with an analysis of the operating results of the selected
PKF Consulting's "Trends" category. Additional key assumptions used in preparing
this stabilized year estimate are summarized as follows:
a) The stabilized annual occupancy of the hotel is projected to be 75.0
percent at a $33.50 ADR (in 1998 value dollars);
b) A franchise fee of 8.0 percent of rooms revenue;
II-15
<PAGE>
c) A management fee of 5.0 percent of total revenues as well as a reserve
for capital replacements of 4.0 percent of total revenue have been
deducted to establish the net operating income of the
subject;
d) The projection of expense for taxes on real and personal property
is a function of the market value of the property. The subject
property is in the real estate taxing jurisdiction of the Kern County
Tax Assessor's Office. Our estimate of the property taxes for the
subject is based on the provisions of Proposition 13. Proposition 13
limits ad valorem property taxes to 1.0 percent of the assessed value
plus assessment for city, special district, and county bonds. The
current effective tax rate is 1.3073 percent of market value. This
appraisal assumes a sale of the subject property on the effective
date of the appraisal, which will initiate a reassessment of real
estate for tax purposes. For the purpose of this analysis, the
reassessment is based on the value estimate of the subject property
as determined using the Income Capitalization Approach. Based on
the estimated value of the hotel, a tax rate of 1.3073 per $100 of
assessed value is utilized, resulting in real estate taxes of
$17,000, rounded, in the representative or stabilized year.
Presented in the following table is our estimate of the subject hotel's
stabilized year operating results. As can be noted, on a stabilized basis the
Super 8 Motel will generate approximately $861,000 in total revenues, with a net
operating income of $137,000 in 1998 value dollars.
II-16
<PAGE>
===============================================================================
Super 8 Motel -- Bakersfield
Stabilized Year Operating Results (Stated in 1998 Value Dollars)
===============================================================================
Occupancy Level 75.0%
- ------------------------------------------------ ------------------------------
Average Room Rate $33.50
- ------------------------------------------------ ------------------------------
REVPAR $25.12
- ------------------------------------------- ---------- ------------ -----------
Total Ratios PAR (1) POR (2)
- ------------------------------------------- ---------- ------------ -----------
Revenues
Rooms $825,000 95.8% $9,167 $33.50
Telephone 35,000 4.1% 389 1.42
Other Operated Departments 1,000 0.1% 11 0.04
- -------------------------------------------- ---------- ------------ ----------
Total Revenues 861,000 100.0% 9,568 34.95
- -------------------------------------------- ---------- ------------ ----------
Departmental Expenses (3)
Rooms 236,000 28.6% 2,621 10.00
Telephone 29,000 80.0% 320 1.17
- -------------------------------------------- ---------- ------------ ----------
Total Departmental Expenses 265,000 30.7% 2,941 10.74
- -------------------------------------------- ---------- ------------ ----------
Departmental Income 596,000 69.3% 6,626 24.21
- -------------------------------------------- ---------- ------------ ----------
Undistributed Operating Expenses
Administrative and General 126,000 14.6% 1,396 5.10
Franchise Fees 66,000 7.7% 733 2.68
Marketing 24,000 2.8% 263 0.96
Property Maintenance 67,000 7.8% 744 2.72
Energy and Utilities 65,000 7.5% 721 2.63
- -------------------------------------------- ---------- ------------ ----------
Total Undistributed Expenses 347,000 40.3% 3,858 14.09
- -------------------------------------------- ---------- ------------ ----------
Income Before Fixed Charges 249,000 28.9% 2,769 10.11
- -------------------------------------------- ---------- ------------ ----------
Management Fees and Fixed Charges
Base Management Fees 43,000 5.0% 478 1.75
Property Taxes 17,000 2.0% 189 0.69
Insurance 19,000 2.2% 206 0.75
- -------------------------------------------- ---------- ------------ ----------
Total 79,000 9.1% 873 3.19
- -------------------------------------------- ---------- ------------ ----------
Income Before Reserve 171,000 19.8% 1,896 6.93
- -------------------------------------------- ---------- ------------ ----------
Reserve for Replacement 34,000 4.0% 378 1.38
- -------------------------------------------- ---------- ------------ ----------
Income Before Other Charges (4) $137,000 15.9% $1,500 $5.55
===============================================================================
(1) PAR - Per Available Room
(2) POR - Per Occupied Room
(3) Departmental expense ratios are based on the respective department's
revenue, not total revenue.
(4) Income before interest, taxes, depreciation, and amortization
Source: PKF Consulting
===============================================================================
3. Ten Year Statement of Estimated Annual Operating Results
Presented at the end of this section of the appraisal report is our estimate of
the operating results for the subject for the ten-year period beginning January
1, 1998. This forecast is based on the preceding stabilized year estimate,
adjusted to reflect effects of inflation and the impact of fixed and variable
components of each revenue and expense item. Selected key assumptions used to
develop this forecast are summarized as follows:
II-17
<PAGE>
a) With the exception of property taxes, all other revenues and expenses
are projected to increase at 3.0 percent throughout the holding period.
Property taxes are projected to increase at a rate of 2.0 percent per
year as allowed by California law, and growth in ADR is expected to
grow at inflation throughout the analysis period as a result of
market-driven factors.
b) For the first five years of this forecast, the occupancy and ADR of the
hotel were projected as previously discussed. Thereafter, the hotel's
occupancy was assumed to remain at 75.0 percent, with the ADR
increasing at 3.0 percent per year.
4. Valuation using Direct Capitalization
Based on our evaluation of the subject, it was concluded that an overall
capitalization rate (OAR) of 11.0 percent is appropriate to value the subject,
and properly reflects the risks associated with this hotel given the property's
age, physical features, location, and market position.
Based on the projection of net operating income for a stabilized year of
operation, and the selected overall rate of 11.0 percent, the value of the
subject as if stabilized is calculated to be as follows.
- -------------------------------------------------- =====================
Projected Stabilized Net Operating Income $137,000
Overall Capitalization Rate 11.0%
- -------------------------------------------------- ---------------------
Stabilized Value Indication (Rounded) $1,200,000
- -------------------------------------------------- =====================
From this derived stabilized value, an adjustment must be made for any income
surplus until the property stabilizes. This adjustment is typically referred to
as an "income gain". Income gain is the difference in projected cash flows and
the cash flow which would result if the property were stabilized. This amount
must be added to the stabilized value to reflect the higher occupancy in the
first two years of the projection period. Based on our market research and
analysis, it is estimated that the subject will achieve a stabilized level of
operation by 2000. A calculation of the income gain associated with the two
years prior to stabilization is presented in the following table.
II-18
<PAGE>
<TABLE>
========================================================================================================
Income Gain to Stabilization
========================================================================================================
Estimated Stabilized Year
Net Operating Net Operating Estimated Present Value
Year Income Income(1) Income Gain @ 14.0%
- --------------------- ------------------- -------------------- ------------------ ----------------------
<S> <C> <C> <C> <C> <C>
1998 $175,000 $137,000 $38,000 $33,000
1999 $164,000 $141,000 $23,000 $18,000
- --------------------- ------------------- -------------------- ------------------ ----------------------
Total Rounded $61,000 $51,000
========================================================================================================
(1)Inflated to future value dollars at 3.0 percent.
========================================================================================================
</TABLE>
Based upon the preceding calculation, the cumulative income gain over the
stabilization period is estimated to be approximately $61,000. Investors
typically discount the estimated income gain at the market-derived discount rate
for the property. Consequently, if the estimated income gain, or surplus, is
discounted at a rate of 14.0 percent, the present value of this additional
income is projected to be approximately $51,000.
Presented below is our calculation of the "as is" market value of the subject
taking into account the above estimate of income gain during the projected
stabilization period.
=======================================================================
Value Conclusion -- Direct Capitalization
=======================================================================
Stabilized Value $1,200,000
Plus: Income Gain During Stabilization Period $51,000
- ------------------------------------------------------ ----------------
"As Is" Value $1,251,000
- ------------------------------------------------------ ----------------
Rounded $1,250,000
- ------------------------------------------------------ ----------------
Therefore, the estimated "as is" market value of the leasehold interest in the
subject using the Direct Capitalization Approach, as of January 1, 1998, is:
==============================================================================
ONE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS
- ------------------------------------------------------------------------------
$1,250,000
==============================================================================
5. Discounted Cash Flow Valuation Analysis
To estimate the value of the subject using a discounted cash flow analysis, it
is assumed that the property will be sold at the end of a ten-year holding
period. The value of the property at that time is estimated by capitalizing the
expected or anticipated net operating income of the property in the eleventh
year. From this value estimate, an estimate of sales costs is deducted to arrive
at the net proceeds upon sale.
II-19
<PAGE>
Based on our market research, we are of the opinion that a reversionary
capitalization rate of 11.5 percent and a 14.0 percent discount rate are
appropriate to value the subject.
The following table indicates the present value of the projected net operating
income for the subject for the ten-year holding period, along with the present
value of the reversion, deriving a value estimate.
===============================================================================
Discounted Cash Flow Analysis
===============================================================================
Cash Flow Present Present
From Value Value
Year Operations Factor @ 14.0%
- ----------------- -------------------- ----------------------- ----------------
1998 $175,000 0.8772 $154,000
1999 $164,000 0.7695 $126,000
2000 $145,000 0.6750 $98,000
2001 $149,000 0.5921 $88,000
2002 $156,000 0.5194 $81,000
2003 $160,000 0.4556 $73,000
2004 $165,000 0.3996 $66,000
2005 $172,000 0.3506 $60,000
2006 $178,000 0.3075 $55,000
2007 $183,000 0.2697 $49,000
- ----------------- -------------------- ----------------------- ----------------
Reversion $1,600,000 0.2697 $433,000
- ----------------- -------------------- ----------------------- ----------------
Present Value $1,284,000
- ----------------- -------------------- ----------------------- ----------------
Value (Rounded) $1,300,000
===============================================================================
6. Income Capitalization Approach Valuation Conclusion
The value conclusion under the Income Capitalization Approach is based on both a
direct capitalization and a discounted cash flow analysis. Direct capitalization
indicated a value of $1,250,000 and the discounted cash flow analysis indicated
a value of $1,300,000. Placing primary reliance on the discounted cash flow
approach, our conclusion as to the "as is" market value of the fee simple
interest of the subject using the Income Capitalization Approach, as of January
1, 1998, is:
==============================================================================
ONE MILLION THREE HUNDRED THOUSAND DOLLARS
- ------------------------------------------------------------------------------
$1,300,000
==============================================================================
II-20
<PAGE>
G. RECONCILIATION AND FINAL ESTIMATE OF VALUE
The reconciliation involves the correlation of the conclusions reached from the
two valuation methodologies applied, considering the property type and the
requirements of the appraisal assignment. This process depends on the
appropriateness and reliability of each approach, and of the quality and
reliability of the data obtained. The results from the two approaches are as
follows:
============================================ ======================
Sales Comparison Approach $1,350,000
Income Capitalization Approach
Direct Capitalization $1,250,000
Discounted Cash Flow Analysis $1,300,000
============================================ ======================
In the Sales Comparison Approach we compared five recently sold hotels to the
subject. The selected sales indicated a relatively wide range in value.
Furthermore, the sales were located in varying sub-market areas in the
surrounding region, and no property was identical to the subject. These factors
make this approach less meaningful, but act as a reference checkpoint for the
value derived from the Income Approaches.
The Income Capitalization Approach is undoubtedly the most commonly used method
to evaluate an income producing property such as a hotel. In this approach, we
have utilized two methods of analysis: The direct capitalization method and the
discounted cash flow method (yield capitalization). There was good market
support for both the projected cash flow of the subject as well as the
capitalization and yield rates used to convert our cash flow projections into a
value estimate. Both income methods resulted in similar values, heightening our
confidence in this approach. Accordingly, the primary reliance was placed on
this approach.
Based on the facts, assumptions, and procedures outlined in this report, it is
estimated that the "as is" market value of the fee simple interest in the
subject property, as of January 1, 1998, is reasonably represented as:
===============================================================================
ONE MILLION THREE HUNDRED THOUSAND DOLLARS
- -------------------------------------------------------------------------------
$1,300,000
===============================================================================
II-21
<PAGE>
SUPER 8 MOTEL -- BAKERSFIELD, CALIFORNIA
HISTORICAL OPERATING RESULTS
<PAGE>
<TABLE>
Super 8, Bakersfield
Historical Operating Results
---------------------------------------------------------------------------------------------------
1994 1995
---------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Number of Keys 90 90
Occupancy 89.93% 85.59%
Average Daily Room Rate (ADR) $30.73 $30.87
REVPAR $27.64 $26.42
REVENUES
ROOMS $ 907,692 98.7% $ 10,085 30.73 $ 867,818 98.4% $ 9,642 30.87
TELEPHONE 11,433 1.2% 127 0.39 13,718 1.6% 152 0.49
MISCELLANEOUS 242 0.0% 3 0.01 725 0.1% 8 0.03
------------------------------- ---------------------------------------
TOTAL REVENUE 919,367 100.0% 10,215 31.12 882,261 100.0% 9,803 31.38
DEPT. COSTS & EXPENSES (3)
ROOMS 242,961 26.8% 2,700 8.22 230,851 26.6% 2,565 8.21
TELEPHONE 8,425 73.7% 94 0.29 9,292 67.7% 103 0.33
MISCELLANEOUS 192 79.3% 2 0.01 295 40.7% 3 0.01
------------------------------- ---------------------------------------
TOTAL COST & EXP. 251,578 27.4% 2,795 8.52 240,438 27.3% 2,672 8.55
TOTAL OPER. DEPTS. INCOME 667,789 72.6% 7,420 22.60 641,823 72.7% 7,131 22.83
------------------------------- ---------------------------------------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 127,790 13.9% 1,420 4.33 118,784 13.5% 1,320 4.22
MARKETING 22,466 2.4% 250 0.76 19,150 2.2% 213 0.68
FRANCHISE FEES 45,225 4.9% 503 1.53 43,391 4.9% 482 1.54
UTILITIES 67,544 7.3% 750 2.29 61,984 7.0% 689 2.20
PROPERTY OPERATIONS 87,218 9.5% 969 2.95 79,236 9.0% 880 2.82
------------------------------- ---------------------------------------
TOTAL 350,243 38.1% 3,892 11.86 322,545 36.6% 3,584 11.47
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 317,546 34.5% 3,528 10.75 319,278 36.2% 3,548 11.36
------------------------------- ---------------------------------------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 45,808 5.0% 509 1.55 44,113 5.0% 490 1.57
PROPERTY TAXES 30,324 3.3% 337 1.03 30,504 3.5% 339 1.08
INSURANCE 17,352 1.9% 193 0.59 17,137 1.9% 190 0.61
RENT - 0.0% - - - 0.0% - -
------------------------------- ---------------------------------------
TOTAL 93,484 10.2% 1,039 3.16 91,754 10.4% 1,019 3.26
INCOME BEFORE OTHER (4) $ 224,062 24.4% 2,490 7.58 $ 227,524 25.8% 2,528 8.09
=============================== =======================================
FIXED CHARGES
RENOVATION PAYMENT $ 35,940 $ 44,120
- -------------------------------------------------------------------------------
1996
-------------------------------------------------
$ % PAR (1) POR (2)
-------------------------------------------------
Number of Keys 90
Occupancy 87.19%
Average Daily Room Rate (ADR) $30.28
REVPAR $26.40
REVENUES
ROOMS $ 869,509 98.2% $ 9,661 $ 30.27
TELEPHONE 14,203 1.6% 158 0.49
MISCELLANEOUS 1,691 0.2% 19 0.06
--------- ------ ------- -------
TOTAL REVENUE 885,403 100.0% 9,838 30.83
DEPT. COSTS & EXPENSES (3)
ROOMS 238,365 27.4% 2,649 8.30
TELEPHONE 10,657 75.0% 118 0.37
MISCELLANEOUS 351 20.8% 4 0.01
--------- ------ ------- -------
TOTAL COST & EXP. 249,373 28.2% 2,771 8.68
TOTAL OPER. DEPTS. INCOME 636,030 71.8% 7,067 22.15
--------- ------ ------- -------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 118,784 13.4% 1,320 4.14
MARKETING 19,150 2.2% 213 0.67
FRANCHISE FEES 43,391 4.9% 482 1.51
UTILITIES 61,984 7.0% 689 2.16
PROPERTY OPERATIONS 79,236 8.9% 880 2.76
--------- ------ ------ -------
TOTAL 330,810 37.4% 3,676 11.52
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 305,220 34.5% 3,391 10.63
--------- ------ ------ -------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 44,283 5.0% 492 1.54
PROPERTY TAXES 31,267 3.5% 347 1.09
INSURANCE 21,455 2.4% 238 0.75
RENT - 0.0% - -
--------- ------ ------ -------
TOTAL 97,005 11.0% 1,078 3.38
INCOME BEFORE OTHER (4) $ 208,215 23.5% 2,314 7.25
========= ====== ====== ========
FIXED CHARGES
RENOVATION PAYMENT $ 43,080
- -------------------------------------------------
</TABLE>
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios based on the respective department's
revenue, not total revenue.
(4) Net operating income before reserves, interest, depreciation,
amortization, and income taxes.
===============================================================================
Source: The Famous Host Company
===============================================================================
<PAGE>
<TABLE>
Super 8, Bakersfield
Year-to-Date September 1997 and Full Year 1997 Budget
----------------------------------------------------------------------------------------------------
September 1997 Budget 1997
----------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
----------------------------------------------------------------------------------------------------
Number of Keys 90 89
Occupancy 84.58% 86.70%
Average Daily Room Rate (ADR) $32.48 $31.26
REVPAR $27.47 $27.10
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROOMS $ 672,525 98.8% $10,028 $ 32.48 $ 880,455 98.7% $ 9,893 $ 31.26
TELEPHONE 7,579 1.2% 113 0.37 11,017 1.2% 124 0.39
MISCELLANEOUS 427 0.1% 6 0.02 282 0.0% 3 0.01
------------------------------------------------ ---------------------------------------------
TOTAL REVENUE 680,531 100.0% 10,148 32.87 891,754 100.0% 10,020 31.66
DEPT. COSTS & EXPENSES (3)
ROOMS 175,112 26.0% 2,611 8.46 220,282 25.0% 2,475 7.82
TELEPHONE 6,138 81.0% 92 0.30 7,980 72.4% 90 0.28
MISCELLANEOUS 525 123.0% 8 0.03 200 70.9% 2 0.01
------------------------------------------------ ---------------------------------------------
TOTAL COST & EXP. 181,775 26.7% 2,711 8.78 228,462 25.6% 2,567 8.11
TOTAL OPER. DEPTS. INCOME 498,756 73.3% 7,437 24.09 663,292 74.4% 7,453 23.55
------------------------------------------------ ---------------------------------------------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 96,593 14.2% 1,440 4.67 125,128 14.0% 1,406 4.44
MARKETING 7,411 1.1% 111 0.36 12,300 1.4% 138 0.44
FRANCHISE FEES 33,626 4.9% 501 1.62 44,023 4.9% 495 1.56
UTILITIES 45,795 6.7% 683 2.21 60,548 6.8% 680 2.15
PROPERTY OPERATIONS 59,295 8.7% 884 2.86 71,604 8.0% 805 2.54
------------------------------------------------ ---------------------------------------------
TOTAL 242,720 35.7% 3,619 11.72 313,603 35.2% 3,524 11.13
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 256,036 37.6% 3,818 12.37 349,689 39.2% 3,929 12.42
------------------------------------------------ ---------------------------------------------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 34,027 5.0% 507 1.64 44,588 5.0% 501 1.58
PROPERTY TAXES 23,167 3.4% 345 1.12 30,996 3.5% 348 1.10
INSURANCE 14,737 2.2% 220 0.71 18,000 2.0% 202 0.64
RENT - 0.0% - - - 0.0% - -
------------------------------------------------ ---------------------------------------------
TOTAL 71,931 10.6% 1,073 3.47 93,584 10.5% 1,052 3.32
INCOME BEFORE OTHER (4) $ 184,105 27.1% 2,745 8.89 $ 256,105 28.7% 2,878 9.09
================================================ =============================================
FIXED CHARGES
RENOVATION PAYMENT $ 37,622 $ 26,753
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective department's
revenue, not total revenue.
(4) Net operating income before reserves, interest, depreciation,
amortization, and income taxes.
===================================================================================================================================
Source: The Famous Host Company
===================================================================================================================================
</TABLE>
<PAGE>
SUPER 8 MOTEL - BAKERSFIELD, CALIFORNIA
TEN YEAR STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS
<PAGE>
<TABLE>
===================================================================================================================================
Super 8
Bakersfield, California
Projected Operating Results
----------------------------------------------------------------------------------------------
Calendar Year Beginning January 1 1998 1999
----------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
----------------------------------------------------------------------------------------------
Number of Keys 90 90
Occupancy 80.00% 78.00%
Average Daily Room Rate $33.50 $34.50
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $ 880,000 95.8% $ 9,778 $ 33.49 $ 884,000 95.8% $ 9,822 $ 34.50
Food - 0.0% - - - 0.0% - -
Beverage - 0.0% - - - 0.0% - -
Telephone 38,000 4.1% 422 1.45 38,000 4.1% 422 1.48
Other Operated Departments 1,000 0.1% 11 0.04 1,000 0.1% 11 0.04
------------- -------- --------- --------- ------------- -------- --------- ------
Total Revenues 919,000 100.0% 10,211 34.97 923,000 100.0% 10,256 36.02
Departmental Expenses (3)
Rooms 244,000 27.7% 2,711 9.28 248,000 28.1% 2,756 9.68
Food & Beverage - 0.0% - - - 0.0% - -
Telephone 30,000 78.9% 333 1.14 30,000 78.9% 333 1.17
Other Operated Departments - 0.0% - - - 0.0% - -
------------- -------- --------- --------- ------------- -------- --------- ---------
Total Departmental Expenses 274,000 29.8% 3,044 10.43 278,000 30.1% 3,089 10.85
------------- -------- --------- --------- ------------- -------- --------- ---------
Departmental Profit 645,000 70.2% 7,167 24.54 645,000 69.9% 7,167 25.17
Undistributed Expenses
Administrative & General 126,000 13.7% 1,400 4.79 130,000 14.1% 1,444 5.07
Franchise Fee 70,000 7.6% 778 2.66 71,000 7.7% 789 2.77
Marketing 23,000 2.5% 256 0.88 24,000 2.6% 267 0.94
Property Operations & Maintenance 67,000 7.3% 744 2.55 69,000 7.5% 767 2.69
Energy & Utilities 65,000 7.1% 722 2.47 67,000 7.3% 744 2.61
------------- -------- --------- --------- ------------- -------- --------- ---------
Total Undistributed Expenses 351,000 38.2% 3,900 13.36 361,000 39.1% 4,011 14.09
------------- -------- --------- --------- ------------- -------- --------- ---------
Gross Operating Profit 294,000 32.0% 3,267 11.19 284,000 30.8% 3,156 11.08
Fixed Charges & Management Fee
Base Management Fee 46,000 5.0% 511 1.75 46,000 5.0% 511 1.80
Property Taxes 17,000 1.8% 189 0.65 18,000 2.0% 200 0.70
Insurance 19,000 2.1% 211 0.72 19,000 2.1% 211 0.74
Total Fixed Charges 82,000 8.9% 911 3.12 83,000 9.0% 922 3.24
------------- -------- --------- --------- ------------- -------- --------- ---------
Income Before Reserves 212,000 23.1% 2,356 8.07 201,000 21.8% 2,233 7.84
Reserves for Replacements 37,000 4.0% 411 1.41 37,000 4.0% 411 1.44
------------- -------- --------- --------- ------------- -------- --------- ---------
Net Operating Income (4) $ 175,000 19.0% $ 1,944 $ 6.66 $ 164,000 17.8% $ 1,822 $ 6.40
============= ======== ========= ========= ============= ======== ========= =========
-------------------------------------------------
Calendar Year Beginning January 1 2000
-------------------------------------------------
$ % PAR (1) POR (2)
-------------------------------------------------
Number of Keys 90
Occupancy 75.00%
Average Daily Room Rate $35.50
Revenues
Rooms $ 875,000 95.7% $ 9,722 $ 35.51
Food - 0.0% - -
Beverage - 0.0% - -
Telephone 38,000 4.2% 422 1.54
Other Operated Departments 1,000 0.1% 11 0.04
------------- ------- --------- ----------
Total Revenues 914,000 100.0% 10,156 37.10
Departmental Expenses (3)
Rooms 250,000 28.6% 2,778 10.15
Food & Beverage - 0.0% - -
Telephone 30,000 78.9% 333 1.22
Other Operated Departments - 0.0% - -
------------- ------- --------- ----------
Total Departmental Expenses 280,000 30.6% 3,111 11.36
------------- ------- --------- ----------
Departmental Profit 634,000 69.4% 7,044 25.73
Undistributed Expenses
Administrative & General 133,000 14.6% 1,478 5.40
Franchise Fee 70,000 7.7% 778 2.84
Marketing 25,000 2.7% 278 1.01
Property Operations & Maintenance 71,000 7.8% 789 2.88
Energy & Utilities 69,000 7.5% 767 2.80
------------- ------- --------- ----------
Total Undistributed Expenses 368,000 40.3% 4,089 14.94
------------- ------- --------- ----------
Gross Operating Profit 266,000 29.1% 2,956 10.80
Fixed Charges & Management Fee
Base Management Fee 46,000 5.0% 511 1.87
Property Taxes 18,000 2.0% 200 0.73
Insurance 20,000 2.2% 222 0.81
Total Fixed Charges 84,000 9.2% 933 3.41
------------- ------- --------- ----------
Income Before Reserves 182,000 19.9% 2,022 7.39
Reserves for Replacements 37,000 4.0% 411 1.50
------------- ------- --------- ----------
Net Operating Income (4) $ 145,000 15.9% $ 1,611 $ 5.89
============= ======= ========= ==========
- -------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net cash flow before interest, tax, amortization, and depreciation.
===================================================================================================================================
Source:PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
===============================================================================
<TABLE>
Super 8
Bakersfield, California
Projected Operating Results
------------------------------------------------------------------------------------------------
Calendar Year Beginning January 1 2001 2002
-------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
------------------------------------------------------------------------------------------------
Number of Keys 90 90
Occupancy 75.00% 75.00%
Average Daily Room Rate $36.50 $37.75
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $ 899,000 95.7% $ 9,989 $ 36.49 $ 930,000 95.8% $ 10,333 $ 37.75
Food - 0.0% - - - 0.0% - -
Beverage - 0.0% - - - 0.0% - -
Telephone 39,000 4.2% 433 1.58 40,000 4.1% 444 1.62
Other Operated Departments 1,000 0.1% 11 0.04 1,000 0.1% 11 0.04
------------- ------ -------- ----------- ------------- ------- --------- ---------
Total Revenues 939,000 100.0% 10,433 38.11 971,000 100.0% 10,789 39.41
Departmental Expenses (3)
Rooms 258,000 28.7% 2,867 10.47 265,000 28.5% 2,944 10.76
Food & Beverage - 0.0% - - - 0.0% - -
Telephone 31,000 79.5% 344 1.26 32,000 80.0% 356 1.30
Other Operated Departments - 0.0% - - - 0.0% - -
------------- ------ -------- ----------- ------------- ------- --------- ---------
Total Departmental Expenses 289,000 30.8% 3,211 11.73 297,000 30.6% 3,300 12.05
------------- ------ -------- ----------- ------------- ------- --------- ---------
Departmental Profit 650,000 69.2% 7,222 26.38 674,000 69.4% 7,489 27.36
Undistributed Expenses
Administrative & General 137,000 14.6% 1,522 5.56 141,000 14.5% 1,567 5.72
Franchise Fee 72,000 7.7% 800 2.92 74,000 7.6% 822 3.00
Marketing 25,000 2.7% 278 1.01 26,000 2.7% 289 1.06
Property Operations & Maintenance 73,000 7.8% 811 2.96 76,000 7.8% 844 3.08
Energy & Utilities 71,000 7.6% 789 2.88 73,000 7.5% 811 2.96
------------- ------ -------- ----------- ------------- ------- --------- ---------
Total Undistributed Expenses 378,000 40.3% 4,200 15.34 390,000 40.2% 4,333 15.83
------------- ------ -------- ----------- ------------- ------- --------- ---------
Gross Operating Profit 272,000 29.0% 3,022 11.04 284,000 29.2% 3,156 11.53
Fixed Charges & Management Fee
Base Management Fee 47,000 5.0% 522 1.91 49,000 5.0% 544 1.99
Property Taxes 18,000 1.9% 200 0.73 19,000 2.0% 211 0.77
Insurance 20,000 2.1% 222 0.81 21,000 2.2% 233 0.85
Total Fixed Charges 85,000 9.1% 944 3.45 89,000 9.2% 989 3.61
------------- ------- -------- ----------- ------------- ------- --------- ---------
Income Before Reserves 187,000 19.9% 2,078 7.59 195,000 20.1% 2,167 7.91
Reserves for Replacements 38,000 4.0% 422 1.54 39,000 4.0% 433 1.58
------------- ------- -------- ----------- ------------- ------- --------- ---------
Net Operating Income (4) $ 149,000 15.9% $ 1,656 $ 6.05 $ 156,000 16.1% $ 1,733 $ 6.33
============= ========= ======== =========== ============= ======= ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------
Calendar Year Beginning January 1 2003
----------------------------------------------------
$ % PAR (1) POR (2)
----------------------------------------------------
Number of Keys 90
Occupancy 75.00%
Average Daily Room Rate $38.75
Revenues
Rooms $ 955,000 95.8%$ 10,611 $ 38.76
Food - 0.0% - -
Beverage - 0.0% - -
Telephone 41,000 4.1% 456 1.66
Other Operated Departments 1,000 0.1% 11 0.04
---------------- ---------- --------- ---------
Total Revenues 997,000 100.0% 11,078 40.47
Departmental Expenses (3)
Rooms 273,000 28.6% 3,033 11.08
Food & Beverage - 0.0% - -
Telephone 33,000 80.5% 367 1.34
Other Operated Departments - 0.0% - -
---------------- ---------- --------- ---------
Total Departmental Expenses 306,000 30.7% 3,400 12.42
---------------- ---------- --------- ---------
Departmental Profit 691,000 69.3% 7,678 28.05
Undistributed Expenses
Administrative & General 145,000 14.5% 1,611 5.89
Franchise Fee 76,000 7.6% 844 3.08
Marketing 27,000 2.7% 300 1.10
Property Operations & Maintenance 78,000 7.8% 867 3.17
Energy & Utilities 75,000 7.5% 833 3.04
---------------- ---------- --------- ---------
Total Undistributed Expenses 401,000 40.2% 4,456 16.28
---------------- ---------- --------- ---------
Gross Operating Profit 290,000 29.1% 3,222 11.77
Fixed Charges & Management Fee
Base Management Fee 50,000 5.0% 556 2.03
Property Taxes 19,000 1.9% 211 0.77
Insurance 21,000 2.1% 233 0.85
Total Fixed Charges 90,000 9.0% 1,000 3.65
---------------- ---------- --------- ---------
Income Before Reserves 200,000 20.1% 2,222 8.12
Reserves for Replacements 40,000 4.0% 444 1.62
---------------- ---------- --------- ---------
Net Operating Income (4) $ 160,000 16.0% $ 1,778 $ 6.49
================ ========== ========= =========
- ---------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net cash flow before interest, tax, amortization, and depreciation.
==================================================================================================================================
Source:PKF Consulting
==================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
================================================================================================================================
Super 8
Bakersfield, California
Projected Operating Results
-------------------------------------------------------------------------------------------------
Calendar Year Beginning January 1 2004 2005
-------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-------------------------------------------------------------------------------------------------
Number of Keys 90 90
Occupancy 75.00% 75.00%
Average Daily Room Rate $40.00 $41.25
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $ 986,000 95.7%$ 10,956 $ 40.02 $1,016,000 95.7%$ 11,289 $ 41.24
Food - 0.0% - - - 0.0% - -
Beverage - 0.0% - - - 0.0% - -
Telephone 42,000 4.1% 467 1.70 44,000 4.1% 489 1.79
Other Operated Departments 2,000 0.2% 22 0.08 2,000 0.2% 22 0.08
------------- -------- --------- --------- ------------ -------- --------- ---------
Total Revenues 1,030,000 100.0% 11,444 41.81 1,062,000 100.0% 11,800 43.10
Departmental Expenses (3)
Rooms 282,000 28.6% 3,133 11.45 290,000 28.5% 3,222 11.77
Food & Beverage - 0.0% - - - 0.0% - -
Telephone 34,000 81.0% 378 1.38 35,000 79.5% 389 1.42
Other Operated Departments - 0.0% - - - 0.0% - -
------------- -------- --------- --------- ------------ -------- --------- ---------
Total Departmental Expenses 316,000 30.7% 3,511 12.83 325,000 30.6% 3,611 13.19
------------- -------- --------- --------- ------------ -------- --------- ---------
Departmental Profit 714,000 69.3% 7,933 28.98 737,000 69.4% 8,189 29.91
Undistributed Expenses
Administrative & General 150,000 14.6% 1,667 6.09 154,000 14.5% 1,711 6.25
Franchise Fee 79,000 7.7% 878 3.21 81,000 7.6% 900 3.29
Marketing 28,000 2.7% 311 1.14 29,000 2.7% 322 1.18
Property Operations & Maintenance 80,000 7.8% 889 3.25 83,000 7.8% 922 3.37
Energy & Utilities 77,000 7.5% 856 3.13 80,000 7.5% 889 3.25
------------- -------- --------- --------- ------------ -------- --------- ---------
Total Undistributed Expenses 414,000 40.2% 4,600 16.80 427,000 40.2% 4,744 17.33
------------- -------- --------- --------- ------------ -------- --------- ---------
Gross Operating Profit 300,000 29.1% 3,333 12.18 310,000 29.2% 3,444 12.58
Fixed Charges & Management Fee
Base Management Fee 52,000 5.0% 578 2.11 53,000 5.0% 589 2.15
Property Taxes 20,000 1.9% 222 0.81 20,000 1.9% 222 0.81
Insurance 22,000 2.1% 244 0.89 23,000 2.2% 256 0.93
Total Fixed Charges 94,000 9.1% 1,044 3.82 96,000 9.0% 1,067 3.90
------------- -------- --------- --------- ------------ -------- --------- ---------
Income Before Reserves 206,000 20.0% 2,289 8.36 214,000 20.2% 2,378 8.69
Reserves for Replacements 41,000 4.0% 456 1.66 42,000 4.0% 467 1.70
------------- -------- --------- --------- ------------ -------- --------- ---------
Net Operating Income (4) $ 165,000 16.0% $ 1,833 $ 6.70 $ 172,000 16.2% $ 1,911 $ 6.98
============= ======== ========= ========= ============ ======== ========= =========
- -----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------
Calendar Year Beginning January 1 2006
------------------------------------------------
$ % PAR (1) POR (2)
------------------------------------------------
Number of Keys 90
Occupancy 75.00%
Average Daily Room Rate $42.50
Revenues
Rooms $1,047,000 95.7%$ 11,633 $ 42.50
Food - 0.0% - -
Beverage - 0.0% - -
Telephone 45,000 4.1% 500 1.83
Other Operated Departments 2,000 0.2% 22 0.08
------------ -------- --------- ---------
Total Revenues 1,094,000 100.0% 12,156 44.40
Departmental Expenses (3)
Rooms 299,000 28.6% 3,322 12.14
Food & Beverage - 0.0% - -
Telephone 36,000 80.0% 400 1.46
Other Operated Departments - 0.0% - -
----------- -------- --------- ---------
Total Departmental Expenses 335,000 30.6% 3,722 13.60
----------- -------- --------- ---------
Departmental Profit 759,000 69.4% 8,433 30.81
Undistributed Expenses
Administrative & General 159,000 14.5% 1,767 6.45
Franchise Fee 84,000 7.7% 933 3.41
Marketing 29,000 2.7% 322 1.18
Property Operations & Maintenanc 85,000 7.8% 944 3.45
Energy & Utilities 82,000 7.5% 911 3.33
---------- -------- --------- ---------
Total Undistributed Expenses 439,000 40.1% 4,878 17.82
---------- -------- --------- ---------
Gross Operating Profit 320,000 29.3% 3,556 12.99
Fixed Charges & Management Fee
Base Management Fee 55,000 5.0% 611 2.23
Property Taxes 20,000 1.8% 222 0.81
Insurance 23,000 2.1% 256 0.93
Total Fixed Charges 98,000 9.0% 1,089 3.98
------------ -------- --------- ---------
Income Before Reserves 222,000 20.3% 2,467 9.01
Reserves for Replacements 44,000 4.0% 489 1.79
------------ -------- --------- ---------
Net Operating Income (4) 178,000 16.3% $ 1,978 $ 7.22
=========== ======== ========= =========
- -------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net cash flow before interest, tax, amortization, and depreciation.
===================================================================================================================================
Source:PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
Bakersfield, California
Projected Operating Results
Calendar Year Beginning January 1 2007 2008
-------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-------------------------------------------------------------------------------------------------
Number of Keys 90 90
Occupancy 75.00% 75.00%
Average Daily Room Rate $43.75 $45.00
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $1,078,000 95.7% $ 11,978 $ 43.75 $1,109,000 95.7% $ 12,322 $ 45.01
Food - 0.0% - - - 0.0% - -
Beverage - 0.0% - - - 0.0% - -
Telephone 46,000 4.1% 511 1.87 48,000 4.1% 533 1.95
Other Operated Departments 2,000 0.2% 22 0.08 2,000 0.2% 22 0.08
------------- ------- --------- --------- ---------- ------- --------- --------
Total Revenues 1,126,000 100.0% 12,511 45.70 1,159,000 100.0% 12,878 47.04
Departmental Expenses (3)
Rooms 308,000 28.6% 3,422 12.50 317,000 28.6% 3,522 12.87
Food & Beverage - 0.0% - - - 0.0% - -
Telephone 37,000 80.4% 411 1.50 38,000 79.2% 422 1.54
Other Operated Departments - 0.0% - - - 0.0% - -
-------- ------- ------- -------- ---------- -------- ------- --------
Total Departmental Expenses 345,000 30.6% 3,833 14.00 355,000 30.6% 3,944 14.41
-------- ------- ------- -------- ---------- -------- ------- --------
Departmental Profit 781,000 69.4% 8,678 31.70 804,000 69.4% 8,933 32.63
Undistributed Expenses
Administrative & General 163,000 14.5% 1,811 6.62 168,000 14.5% 1,867 6.82
Franchise Fee 86,000 7.6% 956 3.49 89,000 7.7% 989 3.61
Marketing 30,000 2.7% 333 1.22 31,000 2.7% 344 1.26
Property Operations &
Maintenance 88,000 7.8% 978 3.57 90,000 7.8% 1,000 3.65
Energy & Utilities 85,000 7.5% 944 3.45 87,000 7.5% 967 3.53
--------- ------- ------- ---------- --------- ------- --------- ----------
Total Undistributed Expenses 452,000 40.1% 5,022 18.35 465,000 40.1% 5,167 18.87
--------- ------- ------- ---------- --------- ------- --------- ----------
Gross Operating Profit 329,000 29.2% 3,656 13.35 339,000 29.2% 3,767 13.76
Fixed Charges & Management Fee
Base Management Fee 56,000 5.0% 622 2.27 58,000 5.0% 644 2.35
Property Taxes 21,000 1.9% 233 0.85 21,000 1.8% 233 0.85
Insurance 24,000 2.1% 267 0.97 25,000 2.2% 278 1.01
Total Fixed Charges 101,000 9.0% 1,122 4.10 104,000 9.0% 1,156 4.22
--------- ------- ------- ---------- --------- ------- --------- ----------
Income Before Reserves 228,000 20.2% 2,533 9.25 235,000 20.3% 2,611 9.54
Reserves for Replacements 45,000 4.0% 500 1.83 46,000 4.0% 511 1.87
--------- ------- ------- ---------- ---------- ------- --------- ----------
Net Operating Income (4) $ 183,000 16.3% $ 2,033 $ 7.43 $ 189,000 16.3% $ 2,100 $ 7.67
========= ======= ======= ========== ========== ======= ========= ==========
------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net cash flow before interest, tax, amortization, and
depreciation.
============================================================================================================================
Source: PKF Consulting
============================================================================================================================
</TABLE>
<PAGE>
SECTION III
HOLIDAY INN
BARSTOW, CALIFORNIA
<PAGE>
HOLIDAY INN -- BARSTOW
===============================================================================
Summary of Important Facts and Conclusions
===============================================================================
Property Address Holiday Inn
1511 East Main Street
Barstow, California 92311
Telephone (760) 256-5673
- ----------------------------------------- -------------------------------------
Owner
Leased Fee Fred Rosenberg
Leasehold Famous Host Lodging V, Ltd.
- ----------------------------------------- -------------------------------------
Assessor's Parcel Numbers 0181-851-13/18/28/30-L-001
- ----------------------------------------- -------------------------------------
Effective Date of Appraisal January 1, 1998
- ----------------------------------------- -------------------------------------
Property Rights Appraised Leasehold
===============================================================================
Highest and Best Use
===============================================================================
Highest and Best Use
As if Vacant Full-service hotel
As Improved Full-service hotel
===============================================================================
Property Description
===============================================================================
Existing Improvements
Year Built 1986
Gross Building Area 83,095 square feet
Number of Hotel Guest Rooms 148
Parking: 140 spaces (including six for
disabled persons)
Number of Floors Three
Hotel Amenities Restaurant, heated swimming pool,
whirlpool, and meeting rooms
Compliance with ADA In compliance
- ----------------------------------------- -------------------------------------
Site
Area 3.12 acres (135,884 square feet)
Zoning HC (Highway Commercial)
Flood Zone Zone XC, Panel #060271-3919F, dated
February 1, 1980
Wetlands Zone No
Alquist Priolo Special Studies Zone No
Historic, Natural , Cultural,
Recreational, or Scientific None
Value
===============================================================================
Valuation Conclusion
===============================================================================
Cost Approach Not Used
- ----------------------------------------- -------------------------------------
Sales Comparison Approach $4,100,000
- ----------------------------------------- -------------------------------------
Income Capitalization Approach
Stabilized Occupancy 70.0%
Average Daily Room Rate $69.00 (1998 value dollars)
- ----------------------------------------- -------------------------------------
Stabilized Net Operating Income $459,000 (1998 value dollars)
- ----------------------------------------- -------------------------------------
Overall Capitalization Rate 11.0%
Terminal Capitalization Rate 12.0%
Discount Rate 14.0%
- ----------------------------------------- -------------------------------------
Indicated Market Values
Direct Capitalization Technique $4,200,000
Discounted Cash Flow Analysis $4,100,000
- ----------------------------------------- -------------------------------------
Final Estimate of Market Value $4,100,000
- ----------------------------------------- -------------------------------------
Marketing and Exposure Period Six months or less
- ----------------------------------------- -------------------------------------
III-1
<PAGE>
(Photograph deleted)
View of the Subject Property Looking North
(Photograph deleted)
View of a Typical Double-Queen-Bed Guestroom
III-2
<PAGE>
A. AREA AND NEIGHBORHOOD REVIEW
1. Introduction
The subject property is located in Barstow, San Bernardino County, the largest
county in the United States. Barstow is at the mid point between Los Angeles,
134 miles to the west, and Las Vegas, 152 miles to the northeast. Located in the
high-desert terrain, Barstow is a former frontier town that has become one of
the fastest-growing cities in San Bernardino County. Barstow is strategically
located at the intersection of Interstates 15 and 40, and State Highways 58 and
247, which provide links to major market areas throughout Southern California
and, more specifically, the Mojave Desert. Barstow revolves around the local
military institutions that anchor the city's economy, and its $15 million
tourist sector. A map highlighting the subject's location in relation to the
surrounding area is shown on the following page.
2. Economic Data
Presented in the following text is a brief overview of selected economic data
that characterizes the local market area.
Population: The population of Barstow was 22,250 in January 1997,
a 0.9 compound average annual growth rate (CAAG) over 1990. The
corresponding population of San Bernardino County was 1.6 million,
representing a CAAG of approximately 1.1 percent over the 1990
figure of 1.4 million. Population in the San Bernardino County
area is expected to increase at a CAAG of 1.2 percent by 2002, up
to 1.7 million.
Retail Sales: Total retail sales for San Bernardino County were
$11.4 billion in 1996. Retail sales are projected to increase to
$13.4 billion by 2002, representing a 2.7 percent CAAG increase.
Retail sales per household in 1996 were $22,000, and are expected
to increase to $25,000 by 2002.
Income: Average household effective buying income (EBI) for San
Bernardino County was $36,700. Total EBI was $18.9 billion in 1996
and is expected to increase to $22.4 billion by 2002, a 2.9
percent CAAG increase.
Employment: In November 1997, the total number of persons
employed in the Riverside-San Bernardino MSA, which includes
Riverside and San Bernardino Counties, was approximately 853,300;
this represents a 3.6 percent increase over 1996. The
corresponding unemployment rate was 6.0 percent during this
period, and 7.2 percent in 1996. The Barstow unemployment rate was
6.9 percent in 1997. Overall, the largest increases in employment
were experienced in the retail trade sector.
III-3
<PAGE>
(Regional map of southern California deleted)
Regional Map
III-4
<PAGE>
The following table presents a listing of the major employers in Barstow.
==============================================================
Major Employers in Barstow
==============================================================
Number of
Company Employees
- ------------------------------- ------------------------------
Fort Irwin Training Center 2,729
Marine Corps Logistics Base 2,215
Factory Merchants Barstow 1,200
ITT Federal Services 840
Burlington Northern Santa Fe 820
Yellow Freight 720
Barstow Unified School District 680
Johnson Controls 400
Hughes Technical 385
Barstow Community Hospital 241
==============================================================
Source: Barstow Chamber of Commerce
==============================================================
Transportation: Barstow is a transportation hub for Southern
California with complete railroad, truck, bus, air, and highway
systems. Santa Fe and Union Pacific railway systems provide major
rail service, while the interstate highways provide links to
cities throughout California. The expanding Barstow/Daggett
Airport, 16 miles east of the city, is an economic resource for
Barstow. Ontario International Airport, 90 miles to the southwest,
also services Barstow.
Military Bases: Fort Irwin, located 37 miles northeast of Barstow, is
the largest employer in the area. The Marine Corps Logistics Base
is the second largest employer in Barstow, while the closing of
George Air Force Base has prompted improvements and expansions to
the Barstow/Daggett Airport. This expansion increases the
possibility of having a commercial-scheduled airline operating
from the airport, which should increase traffic counts.
Commercial/Industrial Developments: In Barstow there are over 1,200
acres within the city limits zoned for light and heavy industry.
Approximately 60.0 percent of the land is vacant and available for
development; included in this are three industrial parks.
Barstow's retail shopping facilities have experienced major growth
with the expansion of two outlet malls, and the city is projected
to have strong commercial and industrial developments in the near
future.
Tourism: Barstow offers many activities for residents and visitors.
Tourist attractions include the Calico Ghost Town, Mojave River
Valley Museum, Afton Canyon, Rainbow Basin, Owl Canyon, and the Early
Man Site.
III-5
<PAGE>
3. Neighborhood Review
The subject property is located on the north side of East Main Street,
approximately one-tenth of a mile from the northbound and southbound on-ramps
for Interstate 15, and one-half mile from the eastbound on-ramp for Interstate
40.
The area surrounding the subject is predominately commercial in character, with
residential uses along the secondary thoroughfares. The commercial character of
East Main Street is a result of this roadway being Route 66, the renowned
thoroughfare linking Los Angeles to Chicago. The predominant usage along this
thoroughfare is corporate-owned or franchise-operated restaurants and hotels
which capture demand off of Interstate 15. This area is also a stopping point
for many travelers and bus tours for either overnight accommodations or for
meals. Some of the predominant restaurants within this area include a
McDonald's, Burger King, Carl's Jr., Long John Silver, Taco Bell, and Sizzler.
A number of limited and full-service lodging facilities have been developed
within the subject's immediate neighborhood over the last decade. With the
exception of the Quality Inn, Best Western Desert Villa, Vagabond Inn, and
Holiday Inn Express, all of the lodging facilities along East Main Street
represent motor hotels which do not compete with the subject property. Included
in this group of lodging facilities are the Days Inn, Motel 6, and Desert Inn,
among others. Further west on East Main Street is a variety of old,
limited-service motor hotels that were constructed over 30 years ago when Route
66 was still a major roadway. Northeast of the subject is the location of the
Union Pacific and Santa Fe railroads, and their related facilities. Due to the
highly commercial nature of East Main Street, there is generally limited land
available for development, yet there is still a vacant lot located to the north
of the subject site, beyond the railroad tracks.
Situated east of the subject is the Barstow Station, a tourist-oriented retail
complex. Barstow Station primarily contains a general store, a bakery, a deli, a
gift shop, and a Baskin Robbins ice cream parlor. Other commercial developments
in the area include the four-plex, 714-seat Wallace Theater, two Union 76
gasoline stations, a Smart and Final store, and an RV overnight park. The
aforementioned improvements all contribute to an economic environment which is
suitable for a lodging facility located near a highway.
4. Conclusion
The City of Barstow is a well-known, identifiable area along Interstate 15. The
area is truly a stopping point for many travelers on their way to Las Vegas or
Los Angeles. The growth that has recently occurred is located approximately six
miles south of the subject, at the Lenwood Road interchange off of Interstate
Highway 15. The city is highly dependant on the two military installations, Fort
III-6
<PAGE>
Irwin and the U.S. Marine Corps Logistics Base, as they are the two largest
employers in the area, generating room nights for the local hotel market. The
Holiday Inn is well-positioned within the Barstow market with good visibility
and access, and should continue to benefit from demand by the commercial,
leisure, and military segments. Overall, we anticipate that Barstow will
continue to experience modest growth levels over the next few years.
B. PROPERTY DESCRIPTION
1. Introduction
The subject property is a full-service hotel with 148 guestrooms. Amenities at
the property include an adjacent 160-seat restaurant (Cactus Club Bar & Grill);
four meeting rooms with a total of 4,000 square feet; furnished lobby; an
outdoor swimming pool and Jacuzzi within a courtyard area; and a spa and
whirlpool. The property includes one main building containing guest rooms off an
interior courtyard area, the lobby, and a connecting, one-story addition which
contains the meeting facilities.
The subject property, previously named the Barstow Station Inn, was constructed
in 1985, and is currently owned in leasehold by Philip B. Grotewhol and Dennis
A. Brown. We are not aware of any transactions relating to the site or the
improvements since the date of opening.
2. Site Description and Zoning
The subject property is located at 1511 East Main Street, and is bounded by
Eastgate Road to the northwest, Main Street to the southwest, and Interstate 15
to the southeast. The land area is 3.12 acres (153,884 square feet), and the
property has 835 feet of frontage along Eastgate Road. The site has good
visibility to traffic from both Interstates 40 and 15, and is also easily
accessible from the two highways. The subject site is attractively landscaped
with lawn, bushes, palm, and olive trees.
The subject property is zoned HC (Highway Commercial) by San Bernardino County.
The present use of the property is permitted with this zoning designation, and
the subject is, therefore, a legal, conforming use.
We are aware of no easements or covenants which would adversely affect the value
of the subject property.
3. Improvements Description
The subject property of this appraisal is improved with a 148-room hotel and an
adjacent restaurant, lounge, and approximately 4,000 square feet of meeting
space. The hotel is known as the Holiday Inn, while the adjacent restaurant and
III-7
<PAGE>
lounge are known as the Cactus Club Bar & Grill. The adjacent Cactus Club Bar &
Grill has 160 seats in the restaurant and 50 seats in the lounge. The restaurant
is open 24 hours a day, seven days per week. The bar is also operated seven days
per week, with live entertainment on Friday and Saturday nights. The Cactus Club
is an attractively decorated restaurant with a stucco exterior, tile roof, and a
Spanish-style appearance.
There are four meeting rooms at the property with a banquet capacity of 328. The
property includes a large, attractively-furnished lobby area decorated in pastel
colors. Each floor of the three-story property is serviced by the lobby
elevators. Parking for 150 automobiles, including six for disabled persons, is
provided on-grade. The subject property includes an outdoor swimming pool and
Jacuzzi within an attractively-landscaped courtyard. A spa and whirlpool are
also located within this area.
4. Basic Construction and Mechanical Systems
The subject building is a three-story wood-framed structure, with stucco finish
painted in two-tone colors. The roof of the building is of Spanish tile, and the
hotel has decorative towers at the corners that render a Spanish mission
ambiance. The hotel has a large roadside electronic signboard facing Main
Street, and has a decorative porte cochere, to the west of which is a one-story
addition that contains the meeting rooms. The swimming pool area is attractively
landscaped with a concrete walkway surrounding it. Presented in the following
table is a summary of the basic construction and mechanical systems of the
hotel.
===============================================================================
Holiday Inn -- Barstow
Summary of Basic Construction and Mechanical Systems
===============================================================================
Foundation: Concrete slab-on-grade with spread footings
- ------------------------------- -----------------------------------------------
Frame: Wood
- ------------------------------- -----------------------------------------------
Exterior Walls: Stucco
- ------------------------------- -----------------------------------------------
Floor: Tile in the lobby; otherwise carpeted
- ------------------------------- -----------------------------------------------
Roof: Tile
- ------------------------------- -----------------------------------------------
Doors:
Guest Room and Bathroom: Metal with metal frames
- ------------------------------- -----------------------------------------------
Windows: Dark anodized aluminum (sliding with screen)
- ------------------------------- -----------------------------------------------
Heating and Cooling: GE through-the-wall heat pump
- ------------------------------- -----------------------------------------------
Elevators: Hydraulically-operated with 2,500-pound capacity
- ------------------------------- -----------------------------------------------
Laundry Facilities: Located on ground floor and include three
washers and four dryers
- ------------------------------- -----------------------------------------------
Sprinkler System: All guest rooms, corridors, public areas, and
back-of-the-house facilities have sprinklers
- ------------------------------- -----------------------------------------------
Life Safety:
Smoke Detectors: Hard-wired detectors in all guest rooms
Emergency Illumination: Installed in all corridors
===============================================================================
Source: Famous Host Companies
===============================================================================
III-8
<PAGE>
5. Assessed Value and Property Taxes
The subject property is assessed by the San Bernardino County on a tax year
commencing July 1 of every year. Under the provisions of Article 13-A of the
State of California (Proposition 13), properties are assessed based on their
fair market value as of the change of ownership date. The assessed value can be
increased by a maximum of 2.0 percent per year until such date as the property
is subsequently sold, substantial new construction takes place, or the use of
the property is substantially changed. The current assessed value of the
property is presented in the following table.
===================================================================
Assessor's Parcel Numbers 0181-851-13/18/28/30-L-001
1996/97 Assessed Value
===================================================================
Land $840,355
Improvements $5,939,692
- -------------------------------------- ----------------------------
Total Assessed Value $6,780,047
- -------------------------------------- ----------------------------
For fiscal year 1997/1998, total property taxes were $73,402.29 on the subject
property, which included $5,601.82 for special assessments. The effective tax
rate including the special assessments, therefore, is 1.0826 percent of the
total assessed value.
6. Land Lease
The property upon which the Holiday Inn and adjacent Cactus Club Bar & Grill are
built is owned in leased fee by Fred Rosenberg and Dennis A. Brown. The lease
started on December 31, 1984 with a monthly base rent of $10,000 ($120,000 per
annum), or 8.0 percent of combined rooms and food and beverage revenue,
whichever is greater. The lease provides for a term of 15 years, ending on
December 31, 1999, and offering three, ten-year extension options. Adjustments
to the rent are made in proportion to increases in the consumer price index
(CPI) every year.
7. Management and Affiliation
It should be noted that we were not provided with copies of the franchise
agreement with Holiday Inn or the management agreement. However, based on our
review of the subject property's historical financial statements, the management
fees have been in the order of 4.0 percent of gross revenue, while franchise
fees have been approximately 4.5 percent of total revenue.
III-9
<PAGE>
8. Renovation and Capital Improvements
We understand that $130,000 have been allocated as part of capital expenditures
for a new roof to be installed at the subject during 1998. This is due to
leaking experienced with the current roofing.
9. Summary of Functional Utility and Condition
Overall, the subject property is well-maintained. The grounds are neat and
well-trimmed, and the paint both inside and outside the building is in good
condition. The roof, which has been experiencing leakage, will be replaced in
1998.
C. HOTEL MARKET ANALYSIS
1. Competitive Supply
Route 66's historical importance of being a major thoroughfare from Los Angeles
to Chicago led to the development of many motels along East and West Main Street
in Barstow during the 1950's and 1960's. However, with the construction of
superhighway systems (Interstates 15 and 40), and the resulting change in
traffic patterns, many of these motels have become residential motels, and, as
such, do not compete in the subject's market.
The competitive hotel market for the Holiday Inn is comprised of five
properties, including the subject, with a total of 475 rooms. The selection of
the competitive supply was based on facilities and amenities, room rate
structure, and market orientation. These properties are all affiliated with
national chains and cater to the area's commercial, leisure, government, and
tour group demand.
III-10
<PAGE>
<TABLE>
====================================================================================================================
Holiday Inn -- Barstow
Census of Competitive Properties
====================================================================================================================
Published Room Rates
-----------------------------
Year Number AAA
Property Opened of Rooms Single Double Amenities Rating
- -------------------------- ----------- ----------- -------------- -------------- ----------------- =================
<S> <C> <C> <C> <C>
Holiday Inn 1986 148 $68.00 $68.00 A,B,D,F,G 3 star (Motor Inn)
Holiday Inn Express 1994 65 $67.00 $67.00 F 3 star (Motel)
Vagabond Inn 1978 67 $65.00 $65.00 C,F Not Rated
Quality Inn 1965 100 $65.00 $65.00 A,D,F Not Rated
Best Western Desert Villa 1985 95 $62.00 $$67.00 A,F,G 3 star (Motel)
- -------------------------- ----------- ----------- -------------- -------------- ----------------- =================
Total 475 -
- -------------------------- ----------- ----------- -------------- -------------- ----------------- =================
Amenities Codes AAA Rating
A - Restaurant 5 star - Renowned; exceptional property recognized for
B - Bar/Lounge market superiority of facilities and service
C - Complimentary Continental Breakfast 4 star - Exceptional; offers luxurious accommodations as
well as extra amenities
D - Meeting Rooms 3 star - Offers very comfortable and attractive
E - Exercise Room accommodations
F - Swimming Pool 2 star - Exceeds AAA minimum requirements in some
G - Whirlpool physical and operational categories
1 star - Meets AAA basic requirements for recommendation
Source: Management of Individual Properties and 1998 American Automobile Association Tour Book
====================================================================================================================
</TABLE>
As can be noted above, the competitive market is characterized by smaller,
budget-oriented, national brand-affiliated products.
The subject property is in the upper-tier of the competitive market as a full
service hotel. The property offers modern furnishings and interior-corridor room
entrances, with ample meeting space and an adjacent restaurant. As such, the
Holiday Inn captures a significant amount of the market's commercial and
government demand. The Quality Inn is positioned in the middle-tier of the
competitive market, offering food and beverage facilities, meeting space, and
exterior-corridor room entrances. The Best Western Desert Villa is also
positioned at the middle-tier as it offers a level of furnishings and fixtures
similar to the Quality Inn. The Vagabond Inn and Holiday Inn Express, in turn,
are in the lower-tier due to their limited services, and level of furnishings
and fixtures.
With regard to future supply in the market, we understand that a proposed
200-room Clarion Hotel has been approved at the intersection of Interstate 58
and West Main Street. According to our discussions with the City of Barstow
Planning Department, the potential date for ground-breaking is August 1998;
however, this project is viewed as being highly speculative at this point in
time, and has not been incorporated into the future supply projections.
2. Historical Market Performance
The following table presents a summary of the historical market performance of
the five selected competitive hotels, together with the subject, over the period
1994 to 1996, as well as our estimate for 1997.
III-11
<PAGE>
<TABLE>
========================================================================================================================
Holiday Inn -- Barstow
Competitive Hotel Market
Historical Occupancy and Room Rate
1994 to 1997 (Estimated)
========================================================================================================================
Annual Rooms Percent Percent Average Daily Percent
Year Available Change Occupancy Change Room Rate Change
- --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============
<S> <C> <C> <C> <C>
1994 173,375 - 65.4% - $49.64 -
- --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============
1995 173,375 0.0% 67.8% 3.7% $53.77 8.3%
- --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============
1996 173,375 0.0% 62.3% (8.1%) $56.87 5.8%
- --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============
1997 (Estimated) 173,375 0.0% 66.0% 5.9% $59.00 3.7%
- --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============
CAAG 0.0% - - - 5.9% -
========================================================================================================================
Source: PKF Consulting
========================================================================================================================
</TABLE>
As can be noted, over the past four years the number of available rooms within
the competitive market has remained stable. During the same period, demand has
increased slightly, with a decrease in demand experienced in 1996, due to the
conversion of the 64-room Barstow Lodge into a Comfort Inn, as well as the cut
backs in military exercises at the nearby bases, the Marine Corps Logistics Base
and Fort Irwin. However, year-to-date 1997 occupancy levels are approximately
three percentage points above last year, indicating that the market has started
to re-stabilize. In terms of ADR, the competitive market has experienced
above-inflation growth, indicating a CAAG of 5.9 percent between 1994 and 1997.
3. Demand Segmentation
The competitive market is oriented towards attracting commercial, leisure, and
government demand. It is important to note that within the Barstow market, the
commercial and government segments are closely integrated in that a significant
portion of commercial demand consists of corporations doing contract work at the
military installations in the area. The base-related demand consists of civilian
contractors who are entitled to the Federal Government per diem of $60.00,
families of staff relocating to the bases, and observers of the units at Fort
Irwin. Commercial demand also includes companies involved in regional
distribution, namely Santa Fe Rail, Union Pacific, and Yellow Freight Trucking.
The majority of leisure travelers to the area are typically on their way to, or
returning from, another destination such as Los Angeles, Anaheim, Las Vegas,
Arizona, or San Diego, and stop at the area's lodging facilities for a one night
stay. Most of the leisure demand is generated between Memorial Day and Labor
Day. In addition, the local area attractions previously discussed can be visited
within one day.
III-12
<PAGE>
4. Projected Future Supply and Demand
Over the past four years (1994 to 1997), demand for hotel accommodations in the
competitive market has increased only slightly, reflecting the stable nature of
this market.
Based on our review of the local market, we project overall demand for hotel
rooms will increase at a CAAG of approximately 1.0 percent over the next five
years. In deriving this growth rate, we have specifically analyzed the overall
growth in manufacturing and services, employment, the flux pertinent to the
military bases, and the historical CAAG of this market. Presented in the
following table is a summary of the projected growth in supply, demand, and the
resulting occupancy levels for the competitive market for the period 1998 to
2002.
<TABLE>
=======================================================================================================
Holiday Inn -- Barstow
Estimated Growth In Supply and Demand
Competitive Hotel Market
=======================================================================================================
Daily Annual Total
Year Available Rooms Available Rooms Demand Occupancy
- ------------------------ -------------------- --------------------- ---------------- ------------------
Actual
<S> <C> <C> <C> <C> <C>
1994 475 173,375 113,314 65.4%
1995 475 173,375 117,465 67.8%
1996 475 173,375 108,003 62.3%
1997 (Estimated) 475 173,375 114,000 66.0%
- ------------------------ -------------------- --------------------- ---------------- ------------------
Projected
1998 475 173,375 117,000 67.0%
1999 475 173,375 119,000 69.0%
2000 475 173,375 121,000 70.0%
2001 475 173,375 121,000 70.0%
2002 475 173,375 121,000 70.0%
- ------------------------ -------------------- --------------------- ---------------- ------------------
CAAG
1994 to 1997 0.0% - 0.2% -
1997 to 2002 0.0% - 1.2% -
=======================================================================================================
Source: PKF Consulting and Smith Travel Research
=======================================================================================================
</TABLE>
As can be noted above, although we project demand in the overall market to grow
at a CAAG of 1.2 percent over the five year period, due to demand timing and
capacity constraints, the competitive market occupancy is not projected to
exceed 70.0 percent.
5. Market Performance of the Subject
The following table summarizes the historical occupancy levels and ADR for the
Holiday Inn over the past four years.
III-13
<PAGE>
===============================================================================
Holiday Inn -- Barstow
Historical Occupancy and Room Rate
1994 to 1997 (Estimated)
===============================================================================
Average Daily
Year Occupancy % Change Room Rate % Change
- --------------------- ------------- ------------ ----------------- ------------
1994 79.7% - $59.16 -
- --------------------- ------------- ------------ ----------------- ------------
1995 74.9% (6.0%) $61.79 4.4%
- --------------------- ------------- ------------ ----------------- ------------
1996 71.1% (4.8%) $65.32 5.7%
- --------------------- ------------- ------------ ----------------- ------------
1997 (Estimated) 69.0% (3.2%) $67.00 2.6%
- --------------------- ------------- ------------ ----------------- ------------
CAAG (4.7%) - 4.2% -
===============================================================================
Source: Famous Host Companies
===============================================================================
As can be noted, the subject has experienced a nearly ten percentage point drop
in occupancy, contributed to the impact of the Holiday Inn Express, the
conversion of the Barstow Lodge to a Comfort Inn brand, and the recent cut backs
at the military bases. The growth in ADR has been less-than-market, equating to
a CAAG of 4.2 percent, compared to the market's 5.9 percent. The subject
property's market penetration rate (subject's occupancy divided by the market's
occupancy) has decreased from 122.0 percent in 1994 to an estimated 105.0
percent in 1997.
Based on our analysis of the local market in the Barstow area, we are of the
opinion that the subject will achieve an occupancy level of approximately 69.0
percent in 1998, similar to that estimated in 1997. In 1999 and onwards, we
estimate that the subject property will stabilize its occupancy at 70.0 percent.
Based on our market research, we project the hotel to achieve an ADR of $69.00
in 1998, or an increase of 3.0 percent over 1997. Over the balance of our
projection period, we project the hotel's ADR to increase at the anticipated
long-term level of inflation (3.0 percent per year). We believe that this is
realistic given the supply and demand dynamics of the Barstow hotel market.
===============================================================================
Holiday Inn -- Barstow
Projected Occupancy and Average Daily Room Rate -- 1998 to 2002
===============================================================================
Market Average Percent
Year Occupancy Penetration Daily Room Rate Change
- ----------- -------------- --------------- ------------------------- ----------
1998 69.0% 103.0% $69.00 3.0%
1999 70.0% 101.0% $71.00 3.0%
2000 70.0% 100.0% $73.00 3.0%
2001 70.0% 100.0% $75.00 3.0%
2002 70.0% 100.0% $78.00 3.0%
- ----------- -------------- --------------- ------------------------- ----------
CAAG 0.4% - 3.0% -
===============================================================================
Source: PKF Consulting
===============================================================================
III-14
<PAGE>
D. HIGHEST AND BEST USE
Based on our analysis, we are of the opinion that the existing improvements
contribute significant overall value to the site. There is no alternative, legal
use that could economically justify the restructuring or removal of the existing
improvements at this time. Therefore, the subject property, as improved,
represents the highest and best use of the site.
E. VALUATION -- SALES COMPARISON APPROACH
1. Introduction
We have reviewed a number of recent sales and have focused on those considered
most comparable in providing support for the market value of the subject. Our
search for sales was initially focused on Barstow; however, due to the limited
number of comparable transactions, our search for sales was extended to include
the surrounding area, namely Colton and Ontario. Based on this search, four
sales were identified to use as the basis for our valuation of the subject under
this approach. Presented in the following table is a summary of the selected
comparable hotel sales. As can be noted, these sales have occurred between
November 1996 and October 1997.
<TABLE>
=====================================================================================================================
Comparable Hotel Sales
=====================================================================================================================
Rooms Overall
Sale Sale Year Number of Price Revenue Capitalization
No. Hotel Name Location Date Built Rooms Per Room Multiplier Rate
- ------ --------------------------- ------------- --------- --------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1 Econolodge Colton 10/97 1972 51 $19,601 2.4 NA
2 Days Inn Colton 8/97 1985 147 $19,932 2.6 NA
3 Motel 6 Barstow 2/97 1985 121 $25,674 NA NA
4 Super 8 Ontario 11/96 1985 53 $22,925 2.2 NA
=====================================================================================================================
Source: PKF Consulting
=====================================================================================================================
</TABLE>
2. Analysis of the Hotel Sales
In reviewing the preceding table, it can be noted that the sale prices per room
ranged between $19,601 for the 51-room Econolodge and $25,674 for the 121-room
Motel 6; no overall capitalization rates were attainable from the principals of
these hotel sales.
Because of the many differences between the comparable hotel sales and the
subject property, we are of the opinion that an analysis using a rooms revenue
multiplier (RRM) is the most approiate unit of comparison to value the subject.
A RRM measures the total revenue generated from room rentals in relation to the
sale price. RRMs do not require subjective adjustments since most variances in
properties are considered to be reflected in ADRs and annual occupancies
III-15
<PAGE>
achieved in the market. As can be noted, the three indicated RRMs (out of the
four sales) range from 2.2 to 2.6.
We consider that the subject property is superior to the indicated comparable
hotel sales, and that it would command a higher price per room if it were sold.
This is attributed to the fact that the subject is a full-service lodging
product. Accordingly, we are of the opinion that a RRM in the order of 2.6 (at
the high end of the three indicated comparable sales' RRMs) is appropriate in
valuing the fee simple interest in the subject property. Based on this
multiplier, and assuming a stabilized occupancy level of 70.0 percent at an ADR
of $69.00 (stated in 1998 dollars), the indicated value per room for the subject
is as follows:
<TABLE>
Rooms Stabilized Stabilized Indicated Value
Revenue Average Rate Occupancy Per Room
Multiplier Level Days/Year (Rounded)
- ---------------- --- --------------- --- ----------------- --- ---------------- --- -----------------------
<S> <C> <C> <C> <C> <C>
2.6 X $69.00 X 70.0% X 365 = $46,000
- ---------------- --- --------------- --- ----------------- --- ---------------- --- -----------------------
</TABLE>
As noted above, the RRM analysis produced a value indication of $46,000 per
available room. This value unit is converted into a total value estimate by
multiplying the indicated value per room by the total number of rooms. Based on
148 rentable rooms, the indicated stabilized value of the fee simple interest in
the Holiday Inn is $6,800,000 as calculated below.
- ----------------------- ---- ---------------- ----- ---------------------------
$46,000 X 148 Rooms = $6,800,000 (Rounded)
- ----------------------- ---- ---------------- ----- ---------------------------
F. INDICATED VALUE VIA THE SALES COMPARISON APPROACH
After concluding to our estimate of the stabilized value of the fee simple
interest in the subject, the next step in our analysis is to develop an estimate
of the "as is" leasehold market value of the subject property.
1. Valuation of Leased Fee Interest
After having developed an estimate of the "as is" fee simple value of the
subject under the Sales Comparison Approach, the next step is to develop an
estimate of the value of the leased fee interest in the property. This
represents the position of the ground lessor, who benefits from the income
derived from the ground lease payments during the term of the lease, as well as
the ownership of the property in fee at the termination of the lease (the
reversion). The estimated leased fee interest in the hotel is then subtracted
from the fee simple value to arrive at our estimate of the value of the
leasehold interest.
III-16
<PAGE>
This deduction is derived by capitalizing the land lease payment for a
stabilized year ($245,000) by an appropriate capitalization rate (9.0 percent).
This capitalization rate of 200 basis points less than the rate used to
capitalize the revenue stream from the hotel operations (as will be discussed in
the Income Capitalization Approach) is reflective of the more secure position of
the landlord as compared to the lessee. This calculation results in a leased fee
interest of $2,700,000 ($245,000 / 9.0 percent). The following table summarizes
the deduction made from the stabilized fee simple value indication.
==============================================================
Sales Comparison Approach
"As Is" Leasehold Value
==============================================================
Fee Simple Value Estimate $6,800,000
Less: Leased Fee Land Value $(2,700,000)
- ------------------------------------- ------------------------
Leasehold Value $4,100,000
===================================== ========================
As a result of the foregoing analysis, we estimate the "as is" market value of
the leasehold interest in the subject as of January 1, 1998, through the Sales
Comparison Approach to be:
===============================================================================
FOUR MILLION ONE HUNDRED THOUSAND DOLLARS
- -------------------------------------------------------------------------------
$4,100,000
===============================================================================
G. VALUATION -- INCOME CAPITALIZATION APPROACH
1. Basis for Cash Flow Projection
In order to develop an estimate of the net operating income (NOI) for the
subject for both a stabilized year of operation (direct capitalization) and each
year of the aforementioned holding period (yield capitalization), the following
have been analyzed:
1. The historical operating results for the subject for year-end 1994,
1995, 1996, year-to-date September 1997, and management's operating
budget for 1997;
2. The previously discussed market performance (occupancy levels and ADR)
of the competitive hotels; and
3. The operating results of the category "Full-Service Hotels" from the
1997 issue of PKF Consulting's Trends in the Hotel Industry.
III-17
<PAGE>
The historical operating results of the subject are presented at the end of this
section of the report.
2. Stabilized Year Operating Estimate
We first developed an estimate of the performance of the subject for a
stabilized year of operation stated in current value, 1998 dollars. This
estimate is based on our review of the historical operating results of the
subject hotel coupled with an analysis of the operating results of the selected
PKF Consulting's "Trends" category. Additional key assumptions used in preparing
this stabilized year estimate are summarized as follows:
a) The stabilized annual occupancy of the hotel is projected to be 70.0
percent at a $69.00 ADR (in 1998 value dollars);
b) A franchise fee of approximately 5.5 percent of rooms revenue;
c) A management fee of 3.0 percent of total revenues as well as a reserve
for capital replacements of 4.0 percent of total revenue have been
deducted to establish the net operating income of the
subject;
d) The food and beverage department, which is comprised of revenue
generated from the Cactus Club Bar & Grill, has historically been
operating at a loss. In 1994, the departmental expense was 127.8
percent; in 1995, 132.7 percent; in 1996, 127.4 percent; and for
year-to-date ending September 1997, it was 136.6 percent. We have
estimated that for a stabilized year of operation, the subject
property's food and beverage departmental expense would be in the order
of 120.0; and,
e) The projection of expense for taxes on real and personal property
is a function of the market value of the property. The subject
property is in the real estate taxing jurisdiction of the San
Mateo County Tax Assessor's Office. Our estimate of the property
taxes for the subject is based on the provisions of Proposition 13.
Proposition 13 limits ad valorem property taxes to 1.0 percent of the
assessed value plus assessment for city, special district, and county
bonds. The current effective tax rate is 1.0826 percent of market
value. This appraisal assumes a sale of the subject property on the
effective date of the appraisal, which will initiate a reassessment
of real estate for tax purposes. For the purpose of this analysis,
the reassessment is based on the value estimate of the subject
property as determined using the Income Capitalization Approach.
Based on the estimated value of the hotel, a tax rate of 1.0826 per
$100 of assessed value is utilized, resulting in real estate taxes
of $68,000, rounded, in the representative or stabilized year.
III-18
<PAGE>
Presented in the following table is our estimate of the subject hotel's
stabilized year operating results. As can be noted, on a stabilized basis the
Holiday Inn will generate approximately $3.1 million in total revenues, with a
net operating income of $459,000, in 1998 value dollars.
<TABLE>
===================================================================================================
Holiday Inn -- Barstow
Stabilized Year Operating Results (Stated in 1998 Value Dollars)
===================================================================================================
Occupancy Level 70.0%
- ------------------------------------------------ --------------------------------------------------
Average Room Rate $69.00
- ------------------------------------------------ --------------------------------------------------
REVPAR $48.30
- ------------------------------------------------ -------------- ---------- ------------ -----------
Total Ratios PAR (1) POR (2)
- ------------------------------------------------ -------------- ---------- ------------ -----------
Revenues
<S> <C> <C> <C> <C>
Rooms $2,610,000 78.0% $17,635 $69.00
Food & Beverage 662,000 19.8% 4,475 17.51
Telephone 63,000 1.9% 425 1.66
Other Operated Departments 11,000 0.3% 77 0.30
- ------------------------------------------------ -------------- ---------- ------------ -----------
Total Revenues 3,346,000 100.0% 22,611 88.50
- ------------------------------------------------ -------------- ---------- ------------ -----------
Departmental Expenses (3)
Rooms 428,000 16.4% 2,895 11.00
Food & Beverage 795,000 120.0% 5,372 21.00
Telephone 31,000 50.0% 209 0.82
Other Operated Departments 1,000 10.0% 7 0.03
- ------------------------------------------------ -------------- ---------- ------------ -----------
Total Departmental Expenses 1,225,000 37.5% 8,483 33.20
- ------------------------------------------------ -------------- ---------- ------------ -----------
Departmental Income 2,091,000 62.5% 14,129 55.30
- ------------------------------------------------ -------------- ---------- ------------ -----------
Undistributed Operating Expenses
Administrative and General 382,000 11.4% 2,582 10.11
Franchise Fees 141,000 4.2% 953 3.73
Marketing 152,000 4.6% 1,030 4.03
Property Maintenance 198,000 5.9% 1,336 5.23
Energy and Utilities 168,000 5.0% 1,134 4.44
- ------------------------------------------------ -------------- ---------- ------------ -----------
Total Undistributed Expenses 1,041,000 31.1% 7,035 27.54
- ------------------------------------------------ -------------- ---------- ------------ -----------
Income Before Fixed Charges 1,050,000 31.4% 7,094 27.76
- ------------------------------------------------ -------------- ---------- ------------ -----------
Management Fees and Fixed Charges
Base Management Fees 100,000 3.0% 676 2.64
Property Taxes 68,000 2.0% 459 1.80
Land Lease 245,000 7.3% 1,655 6.48
Insurance 44,000 1.3% 299 1.17
- ------------------------------------------------ -------------- ---------- ------------ -----------
Total 457,000 13.7% 3,090 12.09
- ------------------------------------------------ -------------- ---------- ------------ -----------
Income Before Reserve 593,000 17.7% 4,000 15.67
- ------------------------------------------------ -------------- ---------- ------------ -----------
Reserve for Replacement 134,000 4.0% 905 3.54
- ------------------------------------------------ -------------- ---------- ------------ -----------
Income Before Other Charges (4) $459,000 13.7% $3,100 $12.15
===================================================================================================
(1) PAR - Per Available Room
(2) POR - Per Occupied Room
(3) Departmental expense ratios are based on the respective department's revenue, not total
revenue.
(4) Income before interest, taxes, depreciation, and amortization
Source: PKF Consulting
===================================================================================================
</TABLE>
III-19
<PAGE>
3. Ten Year Statement of Estimated Annual Operating Results
Presented at the end of this section of the appraisal report is our estimate of
the operating results for the subject for the ten-year period beginning January,
1, 1998. This forecast is based on the preceding stabilized year estimate,
adjusted to reflect effects of inflation, variations in occupancy and rate, and
the impact of fixed and variable components of each revenue and expense item.
Selected key assumptions used to develop this forecast are summarized below.
a) With the exception of property taxes, all other revenues and expenses
are projected to increase at 3.0 percent throughout the holding period.
Property taxes are projected to increase at a rate of 2.0 percent per
year as allowed by California law, and growth in ADR is expected to
grow at inflation throughout the analysis period as a result of
market-driven factors.
b) For the first five years of this forecast, the occupancy and ADR of the
hotel were projected as previously discussed. Thereafter, the hotel's
occupancy was assumed to remain at 70.0 percent, with the ADR
increasing at 3.0 percent per year.
4. Valuation using Direct Capitalization
Based on our evaluation of the subject, it was concluded that an overall
capitalization rate (OAR) of 11.0 percent is appropriate to value the subject,
and properly reflects the risks associated with this hotel given the property's
age, physical features, location, and market position.
Based on the projection of net operating income for a stabilized year of
operation, and the selected overall rate of 11.0 percent, the value of the
subject as if stabilized is calculated to be as follows.
- -------------------------------------------------- ---------------------
Projected Stabilized Net Operating Income $459,000
Overall Capitalization Rate 11.0%
- -------------------------------------------------- ---------------------
Stabilized Value Indication (Rounded) $4,200,000
- -------------------------------------------------- ---------------------
Therefore, the estimated "as is" market value of the leasehold interest in the
subject using the Direct Capitalization Approach, as of January 1, 1998, is:
==============================================================================
FOUR MILLION TWO HUNDRED THOUSAND DOLLARS
- ------------------------------------------------------------------------------
$4,200,000
==============================================================================
III-20
<PAGE>
5. Discounted Cash Flow Valuation Analysis
To estimate the value of the subject using a discounted cash flow analysis, it
is assumed that the property will be sold at the end of a ten-year holding
period. The value of the property at that time is estimated by capitalizing the
expected or anticipated net operating income of the property in the eleventh
year. From this value estimate, an estimate of sales costs is deducted to arrive
at the net proceeds upon sale.
Based on our market research, we are of the opinion that a reversionary
capitalization rate of 12.0 percent and a 14.0 percent discount rate are
appropriate to value the subject.
The following table indicates the present value of the projected net operating
income for the subject for the ten-year holding period, along with the present
value of the reversion, deriving a value estimate.
===============================================================================
Discounted Cash Flow Analysis
===============================================================================
Cash Flow Present Present
From Value Value
Year Operations Factor @ 14.0%
- ------------------ -------------------- -------------------- ------------------
1998 $432,000 0.8772 $379,000
1999 $470,000 0.7695 $362,000
2000 $481,000 0.6750 $325,000
2001 $492,000 0.5921 $291,000
2002 $529,000 0.5194 $275,000
2003 $539,000 0.4556 $246,000
2004 $542,000 0.3996 $217,000
2005 $575,000 0.3506 $202,000
2006 $577,000 0.3075 $177,000
2007 $602,000 0.2697 $162,000
- ------------------ -------------------- -------------------- ------------------
Reversion $5,378,000 0.2697 $1,451,000
- ------------------ -------------------- -------------------- ------------------
Present Value $4,086,000
- ------------------ -------------------- -------------------- ------------------
Value (Rounded) $4,100,000
- ------------------ -------------------- -------------------- ------------------
III-21
<PAGE>
6. Income Capitalization Approach Valuation Conclusion
The value conclusion under the Income Capitalization Approach is based on both a
direct capitalization and a discounted cash flow analysis. Direct capitalization
indicated a value of $4,200,000 and the discounted cash flow analysis indicated
a value of $4,100,000. Placing most weight on the discounted cash flow method,
our conclusion as to the "as is" market value of the leasehold interest of the
subject using the Income Capitalization Approach, as of January 1, 1998, is:
==============================================================================
FOUR MILLION ONE HUNDRED THOUSAND DOLLARS
- ------------------------------------------------------------------------------
$4,100,000
==============================================================================
G. RECONCILIATION AND FINAL ESTIMATE OF VALUE
The reconciliation involves the correlation of the conclusions reached from the
two valuation methodologies applied, considering the property type and the
requirements of the appraisal assignment. This process depends on the
appropriateness and reliability of each approach, and of the quality and
reliability of the data obtained. The results from the two approaches are as
follows:
============================================ ======================
Sales Comparison Approach $4,100,000
Income Capitalization Approach
Direct Capitalization $4,200,000
Discounted Cash Flow Analysis $4,100,000
============================================ ======================
In the Sales Comparison Approach we compared four recently sold hotels to the
subject. The selected sales indicated a relatively wide range in value.
Furthermore, the sales were located in varying sub-market areas within the
Barstow area, and no property was identical to the subject. These factors make
this approach less meaningful, but act as a reference checkpoint for the value
derived from the Income Approaches.
The Income Capitalization Approach is undoubtedly the most commonly used method
to evaluate an income producing property such as a hotel. In this approach, we
have utilized two methods of analysis: The direct capitalization method and the
discounted cash flow method (yield capitalization). There was good market
support for both the projected cash flow of the subject as well as the
capitalization and yield rates used to convert our cash flow projections into a
value estimate. Both income methods resulted in a close range in values,
III-22
<PAGE>
heightening our confidence in this approach. Accordingly, the primary reliance
was placed on this approach, with more reliance put on the discounted cash flow
analysis.
Based on the facts, assumptions, and procedures outlined in this report, it is
estimated that the "as is" market value of the leasehold interest in the subject
property, as of January 1, 1998, is reasonably represented as:
===============================================================================
FOUR MILLION ONE HUNDRED THOUSAND DOLLARS
- -------------------------------------------------------------------------------
$4,100,000
===============================================================================
III-23
<PAGE>
HOLIDAY INN -- BARSTOW, CALIFORNIA
HISTORICAL OPERATING RESULTS
<PAGE>
<TABLE>
Holiday Inn, Barstow
Historical Operating Results
---------------------------------------------------------------------------------------------------
1994 1995
---------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
---------------------------------------------------------------------------------------------------
Number of Keys 148 148
Occupancy 79.72% 74.90%
Average Daily Room Rate (ADR) $59.16 $61.79
REVPAR $47.16 $46.28
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROOMS $ 2,547,733 76.6% $ 17,214 $ 59.16 $ 2,500,011 78.1% $ 16,892 $ 61.79
RESTAURANT 701,900 21.1% 4,743 16.30 636,141 19.9% 4,298 15.72
TELEPHONE 58,572 1.8% 396 1.36 53,213 1.7% 360 1.32
MISCELLANEOUS 15,890 0.5% 107 0.37 12,412 0.4% 84 0.31
------------ ------- -------- ------- ----------- ------- -------- ----------
TOTAL REVENUE 3,324,095 100.0% 22,460 77.19 3,201,777 100.0% 21,634 79.13
DEPT. COSTS & EXPENSES (3)
ROOMS 409,071 16.1% 2,764 9.50 406,172 16.2% 2,744 10.04
RESTAURANT 897,293 127.8% 6,063 20.84 844,027 132.7% 5,703 20.86
TELEPHONE 47,739 81.5% 323 1.11 40,417 76.0% 273 1.00
MISCELLANEOUS 5,562 35.0% 38 0.13 884 7.1% 6 0.02
------------ ------- -------- ------- ----------- ------- -------- ----------
TOTAL COST & EXP. 1,359,665 40.9% 9,187 31.57 1,291,500 40.3% 8,726 31.92
TOTAL OPER. DEPTS. INCOME 1,964,430 59.1% 13,273 45.62 1,910,277 59.7% 12,907 47.21
------------ ------- -------- ------- ----------- ------- -------- ----------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 305,020 9.2% 2,061 7.08 302,990 9.5% 2,047 7.49
MARKETING 156,559 4.7% 1,058 3.64 135,424 4.2% 915 3.35
FRANCHISE FEES 138,970 4.2% 939 3.23 135,649 4.2% 917 3.35
UTILITIES 177,296 5.3% 1,198 4.12 163,683 5.1% 1,106 4.05
PROPERTY OPERATIONS 185,369 5.6% 1,252 4.30 221,419 6.9% 1,496 5.47
------------ ------- ------- ------- ------------ ------- -------- ----------
TOTAL 963,214 29.0% 6,508 22.37 959,165 30.0% 6,481 23.71
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 1,001,216 30.1% 6,765 23.25 951,112 29.7% 6,426 23.51
------------ ------- -------- ------- ----------- ------- -------- ----------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 131,110 3.9% 886 3.04 128,282 4.0% 867 3.17
PROPERTY TAXES 63,622 1.9% 430 1.48 63,372 2.0% 428 1.57
INSURANCE 37,623 1.1% 254 0.87 39,776 1.2% 269 0.98
RENT 239,751 7.2% 1,620 5.57 235,455 7.4% 1,591 5.82
------------ ------ -------- ------- ------------ ------- -------- ----------
TOTAL 472,106 14.2% 3,190 10.96 466,885 14.6% 3,155 11.54
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 529,110 15.9% 3,575 12.29 $ 484,227 15.1% 3,272 11.97
============ ====== ======== ======= ============ ======= ======== ==========
RENOVATION PAYMENT $ 188,487 $ 383,468
- -----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------
1996
-----------------------------------------------------
$ % PAR (1) POR (2)
-----------------------------------------------------
Number of Keys 148
Occupancy 71.12%
Average Daily Room Rate (ADR) $65.32
REVPAR $46.46
REVENUES
ROOMS $ 2,516,420 77.5% $ 17,003 $ 65.32
RESTAURANT 655,746 20.2% 4,431 17.02
TELEPHONE 63,705 2.0% 430 1.65
MISCELLANEOUS 11,340 0.3% 77 0.29
------------- ------- -------- -------
TOTAL REVENUE 3,247,211 100.0% 21,941 84.29
DEPT. COSTS & EXPENSES (3)
ROOMS 418,444 16.6% 2,827 10.86
RESTAURANT 835,267 127.4% 5,644 21.68
TELEPHONE 42,194 66.2% 285 1.10
MISCELLANEOUS 2,477 21.8% 17 0.06
------------- ------- -------- -------
TOTAL COST & EXP. 1,298,382 40.0% 8,773 33.70
TOTAL OPER. DEPTS. INCOME 1,948,829 60.0% 13,168 50.59
------------- ------- --------- --------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 385,011 11.9% 2,601 9.99
MARKETING 154,921 4.8% 1,047 4.02
FRANCHISE FEES 137,068 4.2% 926 3.56
UTILITIES 157,189 4.8% 1,062 4.08
PROPERTY OPERATIONS 210,789 6.5% 1,424 5.47
------------- ------- --------- --------
TOTAL 1,044,978 32.2% 7,061 27.13
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 903,851 27.8% 6,107 23.46
------------- ------- --------- --------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 129,638 4.0% 876 3.37
PROPERTY TAXES 67,002 2.1% 453 1.74
INSURANCE 41,984 1.3% 284 1.09
RENT 226,479 7.0% 1,530 5.88
------------- ------- --------- --------
TOTAL 465,103 14.3% 3,143 12.07
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 438,748 13.5% 2,965 11.39
============= ======= ========= ========
RENOVATION PAYMENT $ 59,420
- -----------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenue, not total revenue.
(4) Net operating income before reserves, interest, depreciation,
amortization, and income taxes.
================================================================================================================================
Source:The Famous Host Company
================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Holiday Inn, Barstow
Operating Results Year-to-Date September 1997 and September 1996
--------------------------------------------------------------------------------------------
September 30, 1997 September 30, 1996
--------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR(1) POR(2)
--------------------------------------------------------------------------------------------
Number of Keys 148 148
Occupancy 72.00% 74.00%
Average Daily Room Rate (ADR) $66.23 $64.56
REVPAR $47.69 $47.77
REVENUES
<S> <C> <C> <C> <C>
ROOMS $ 1,949,557 78.0% $ 17,612 $ 66.98 $ 1,956,497 78.1% $ 17,610 $65.19
RESTAURANT 497,360 19.9% 4,493 17.09 491,946 19.6% 4,428 16.39
TELEPHONE 43,253 1.7% 391 1.49 47,770 1.9% 430 1.59
MISCELLANEOUS 8,726 0.3% 79 0.30 8,586 0.3% 77 0.29
----------------------------------------------- ---------------------------------------
TOTAL REVENUE 2,498,896 100.0% 22,574 85.86 2,504,799 100.0% 22,545 83.46
DEPT. COSTS & EXPENSES (3)
ROOMS 310,255 15.9% 2,803 10.66 309,855 15.8% 2,789 10.32
RESTAURANT 679,156 136.6% 6,135 23.33 618,569 125.7% 5,568 20.61
TELEPHONE 24,810 57.4% 224 0.85 33,187 69.5% 299 1.11
MISCELLANEOUS 863 9.9% 8 0.03 1,505 17.5% 14 0.05
----------------------------------------------- ---------------------------------------
TOTAL COST & EXP. 1,015,084 40.6% 9,170 34.88 963,116 38.5% 8,669 32.09
TOTAL OPER. DEPTS. INCOME 1,483,812 59.4% 13,404 50.98 1,541,683 61.5% 13,876 51.37
----------------------------------------------- ---------------------------------------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 268,944 10.8% 2,430 9.24 287,017 11.5% 2,583 9.56
MARKETING 100,475 4.0% 908 3.45 120,938 4.8% 1,089 4.03
FRANCHISE FEES 116,060 4.6% 1,048 3.99 106,670 4.3% 960 3.55
UTILITIES 123,827 5.0% 1,119 4.25 119,104 4.8% 1,072 3.97
PROPERTY OPERATIONS 134,332 5.4% 1,214 4.62 160,856 6.4% 1,448 5.36
----------------------------------------------- ---------------------------------------
TOTAL 743,638 29.8% 6,718 25.55 794,585 31.7% 7,152 26.48
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 740,174 29.6% 6,687 25.43 747,098 29.8% 6,724 24.89
----------------------------------------------- ---------------------------------------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 100,077 4.0% 904 3.44 100,781 4.0% 907 3.36
PROPERTY TAXES 49,217 2.0% 445 1.69 51,123 2.0% 460 1.70
INSURANCE 32,185 1.3% 291 1.11 31,266 1.2% 281 1.04
RENT 183,375 7.3% 1,657 6.30 183,945 7.3% 1,656 6.13
----------------------------------------------- ---------------------------------------
TOTAL 364,854 14.6% 3,296 12.54 367,115 14.7% 3,304 12.23
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 375,320 15.0% 3,391 12.90 $ 379,983 15.2% $ 3,420 $ 12.66
=============================================== =======================================
RENOVATION PAYMENT $ 69,888 $ 36,352
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenue, not total revenue.
(4) Net operating income before reserves, interest, depreciation,
amortization, and income taxes.
============================================================================================
Source:The Famous Host Company
============================================================================================
</TABLE>
<PAGE>
HOLIDAY INN -- BARSTOW, CALIFORNIA
TEN YEAR STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS
<PAGE>
<TABLE>
Holiday Inn
Barstow, California
Projected Operating Results
----------------------------------------------------------------------------------------------------
Calendar Years Beginning January 1 1998 1999
---------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
----------------------------------------------------------------------------------------------------
Number of Keys 148 148
Occupancy 69.00% 70.00%
Average Daily Room Rate $69.00 $71.00
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $ 2,572,000 78.0%$ 17,378 $ 69.00 $ 2,685,000 78.0%$ 18,142 $ 71.01
Restaurant 653,000 19.8% 4,412 17.52 682,000 19.8% 4,608 18.04
Telephone 61,000 1.8% 412 1.64 64,000 1.9% 432 1.69
Other Operated Departments 12,000 0.4% 81 0.32 12,000 0.3% 81 0.32
------------- -------- --------- --------- ------------- -------- --------- ---------
Total Revenues 3,298,000 100.0% 22,284 88.48 3,443,000 100.0% 23,264 91.05
Departmental Expenses (3)
Rooms 425,000 16.5% 2,872 11.40 441,000 16.4% 2,980 11.66
Restaurant 788,000 120.7% 5,324 21.14 818,000 119.9% 5,527 21.63
Telephone 31,000 50.8% 209 0.83 32,000 50.0% 216 0.85
Other Operated Departments 1,000 8.3% 7 0.03 1,000 8.3% 7 0.03
------------- -------- --------- --------- ------------- -------- --------- ---------
Total Departmental Expenses 1,245,000 37.8% 8,412 33.40 1,292,000 37.5% 8,730 34.17
------------- -------- --------- --------- ------------- -------- --------- ---------
Departmental Profit 2,053,000 62.2% 13,872 55.08 2,151,000 62.5% 14,534 56.88
Undistributed Expenses
Administrative & General 380,000 11.5% 2,568 10.19 392,000 11.4% 2,649 10.37
Franchise Fee 139,000 4.2% 939 3.73 145,000 4.2% 980 3.83
Marketing 152,000 4.6% 1,027 4.08 157,000 4.6% 1,061 4.15
Property Operations & Maintenance 198,000 6.0% 1,338 5.31 204,000 5.9% 1,378 5.39
Energy & Utilities 168,000 5.1% 1,135 4.51 173,000 5.0% 1,169 4.58
------------- -------- --------- --------- ------------- -------- --------- ---------
Total Undistributed Expenses 1,037,000 31.4% 7,007 27.82 1,071,000 31.1% 7,236 28.32
------------- -------- --------- --------- ------------- -------- --------- ---------
Gross Operating Profit 1,016,000 30.8% 6,865 27.26 1,080,000 31.4% 7,297 28.56
Fixed Charges & Management Fee
Base Management Fee 99,000 3.0% 669 2.66 103,000 3.0% 696 2.72
Property Taxes 68,000 2.1% 459 1.82 70,000 2.0% 473 1.85
Land Lease 242,000 7.3% 1,635 6.49 253,000 7.3% 1,709 6.69
Insurance 44,000 1.3% 297 1.18 46,000 1.3% 311 1.22
Total Fixed Charges 453,000 13.7% 3,061 12.15 472,000 13.7% 3,189 12.48
------------- -------- --------- --------- ------------- -------- --------- ---------
Income Before Reserves 563,000 17.1% 3,804 15.10 608,000 17.7% 4,108 16.08
Reserves for Replacements 131,000 4.0% 885 3.51 138,000 4.0% 932 3.65
------------- -------- --------- --------- ------------- -------- --------- ---------
Net Operating Income (4) $ 432,000 13.1% $ 2,919 $ 11.59 $ 470,000 13.7% $ 3,176 $ 12.43
============= ======== ========= ========= ============= ======== ========= =========
- ----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------
Calendar Year Beginning January 1 2000
-----------------------------------------------
$ % PAR (1) POR (2)
-----------------------------------------------
Number of Keys 148
Occupancy 70.00%
Average Daily Room Rate $73.00
Revenues
Rooms $ 2,760,000 78.0%$ 18,649 $ 72.99
Restaurant 702,000 19.8% 4,743 18.56
Telephone 66,000 1.9% 446 1.75
Other Operated Departments 12,000 0.3% 81 0.32
------------- ------- --------- ----------
Total Revenues 3,540,000 100.0% 23,919 93.62
Departmental Expenses (3)
Rooms 454,000 16.4% 3,068 12.01
Restaurant 843,000 120.1% 5,696 22.29
Telephone 33,000 50.0% 223 0.87
Other Operated Departments 1,000 8.3% 7 0.03
------------- ------- --------- ----------
Total Departmental Expenses 1,331,000 37.6% 8,993 35.20
------------- ------- --------- ----------
Departmental Profit 2,209,000 62.4% 14,926 58.42
Undistributed Expenses
Administrative & General 403,000 11.4% 2,723 10.66
Franchise Fee 149,000 4.2% 1,007 3.94
Marketing 162,000 4.6% 1,095 4.28
Property Operations & Maintenance 210,000 5.9% 1,419 5.55
Energy & Utilities 178,000 5.0% 1,203 4.71
------------- ------- --------- ----------
Total Undistributed Expenses 1,102,000 31.1% 7,446 29.14
------------- ------- --------- ----------
Gross Operating Profit 1,107,000 31.3% 7,480 29.27
Fixed Charges & Management Fee
Base Management Fee 106,000 3.0% 716 2.80
Property Taxes 71,000 2.0% 480 1.88
Land Lease 260,000 7.3% 1,757 6.88
Insurance 47,000 1.3% 318 1.24
Total Fixed Charges 484,000 13.7% 3,270 12.80
------------- ------- --------- ----------
Income Before Reserves 623,000 17.6% 4,209 16.48
Reserves for Replacements 142,000 4.0% 959 3.76
------------- ------- --------- ----------
Net Operating Income (4) $ 481,000 13.6% $ 3,250 $ 12.72
============= ======= ========= ==========
- --------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net cash flow before interest, tax, amortization, and depreciation.
===================================================================================================================================
Source:PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Holiday Inn
Barstow, California
Projected Operating Results
--------------------------------------------------------------------------------------------------
Calendar Years Beginning January 1 2001 2002
--------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
--------------------------------------------------------------------------------------------------
Number of Keys 148 148
Occupancy 70.00% 70.00%
Average Daily Room Rate $75.00 $78.00
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $ 2,836,000 77.9% $ 19,162 $ 75.00 $ 2,949,000 78.1%$ 19,926 $ 77.99
Restaurant 724,000 19.9% 4,892 19.15 745,000 19.7% 5,034 19.70
Telephone 68,000 1.9% 459 1.80 70,000 1.9% 473 1.85
Other Operated Departments 13,000 0.4% 88 0.34 13,000 0.3% 88 0.34
------------- ------- ---------- --------- ------------- ------- --------- ---------
Total Revenues 3,641,000 100.0% 24,601 96.29 3,777,000 100.0% 25,520 99.88
Departmental Expenses (3)
Rooms 468,000 16.5% 3,162 12.38 482,000 16.3% 3,257 12.75
Restaurant 869,000 120.0% 5,872 22.98 894,000 120.0% 6,041 23.64
Telephone 34,000 50.0% 230 0.90 35,000 50.0% 236 0.93
Other Operated Departments 1,000 7.7% 7 0.03 1,000 7.7% 7 0.03
------------- ------- ---------- --------- ------------- ------- --------- ---------
Total Departmental Expenses 1,372,000 37.7% 9,270 36.28 1,412,000 37.4% 9,541 37.34
------------- ------- ---------- --------- ------------- ------- --------- ---------
Departmental Profit 2,269,000 62.3% 15,331 60.00 2,365,000 62.6% 15,980 62.54
Undistributed Expenses
Administrative & General 415,000 11.4% 2,804 10.97 428,000 11.3% 2,892 11.32
Franchise Fee 153,000 4.2% 1,034 4.05 159,000 4.2% 1,074 4.20
Marketing 167,000 4.6% 1,128 4.42 172,000 4.6% 1,162 4.55
Property Operations & Maintenance 217,000 6.0% 1,466 5.74 223,000 5.9% 1,507 5.90
Energy & Utilities 183,000 5.0% 1,236 4.84 189,000 5.0% 1,277 5.00
------------- ------- ---------- --------- ------------- ------- --------- ---------
Total Undistributed Expenses 1,135,000 31.2% 7,669 30.02 1,171,000 31.0% 7,912 30.97
------------- ------- ---------- --------- ------------- ------- --------- ---------
Gross Operating Profit 1,134,000 31.1% 7,662 29.99 1,194,000 31.6% 8,068 31.58
Fixed Charges & Management Fee
Base Management Fee 109,000 3.0% 736 2.88 113,000 3.0% 764 2.99
Property Taxes 72,000 2.0% 486 1.90 74,000 2.0% 500 1.96
Land Lease 267,000 7.3% 1,804 7.06 277,000 7.3% 1,872 7.33
Insurance 48,000 1.3% 324 1.27 50,000 1.3% 338 1.32
Total Fixed Charges 496,000 13.6% 3,351 13.12 514,000 13.6% 3,473 13.59
------------- ------- ---------- --------- ------------- ------- --------- ---------
Income Before Reserves 638,000 17.5% 4,311 16.87 680,000 18.0% 4,595 17.98
Reserves for Replacements 146,000 4.0% 986 3.86 151,000 4.0% 1,020 3.99
------------- ------- ---------- --------- ------------- ------- --------- ---------
Net Operating Income (4) $ 492,000 13.5% $ 3,324 $ 13.01 $ 529,000 14.0% $ 3,574 $ 13.99
============= ======= ========== ========= ============= ======= ========= =========
- -----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------
Calendar Years Beginning January 1 2003
------------------------------------------------
$ % PAR (1) POR (2)
------------------------------------------------
Number of Keys 148
Occupancy 70.00%
Average Daily Room Rate $80.00
Revenues
Rooms $ 3,025,000 78.0%$ 20,439 $ 80.00
Restaurant 768,000 19.8% 5,189 20.31
Telephone 72,000 1.9% 486 1.90
Other Operated Departments 14,000 0.4% 95 0.37
------------- -------- --------- ---------
Total Revenues 3,879,000 100.0% 26,209 102.58
Departmental Expenses (3)
Rooms 496,000 16.4% 3,351 13.12
Restaurant 921,000 119.9% 6,223 24.36
Telephone 36,000 50.0% 243 0.95
Other Operated Departments 1,000 7.1% 7 0.03
------------- -------- --------- ---------
Total Departmental Expenses 1,454,000 37.5% 9,824 38.45
------------- -------- --------- ---------
Departmental Profit 2,425,000 62.5% 16,385 64.13
Undistributed Expenses
Administrative & General 441,000 11.4% 2,980 11.66
Franchise Fee 163,000 4.2% 1,101 4.31
Marketing 177,000 4.6% 1,196 4.68
Property Operations & Maintenance 230,000 5.9% 1,554 6.08
Energy & Utilities 194,000 5.0% 1,311 5.13
------------- -------- --------- ---------
Total Undistributed Expenses 1,205,000 31.1% 8,142 31.87
------------- -------- --------- ---------
Gross Operating Profit 1,220,000 31.5% 8,243 32.26
Fixed Charges & Management Fee
Base Management Fee 116,000 3.0% 784 3.07
Property Taxes 75,000 1.9% 507 1.98
Land Lease 284,000 7.3% 1,919 7.51
Insurance 51,000 1.3% 345 1.35
Total Fixed Charges 526,000 13.6% 3,554 13.91
------------- -------- --------- ---------
Income Before Reserves 694,000 17.9% 4,689 18.35
Reserves for Replacements 155,000 4.0% 1,047 4.10
------------- -------- --------- ---------
Net Operating Income (4) $ 539,000 13.9% $ 3,642 $ 14.25
============= ======== ========= =========
- -------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net cash flow before interest, tax, amortization, and
depreciation.
===================================================================================================================================
Source:PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Holiday Inn
Barstow, California
Projected Operating Results
----------------------------------------------------------------------------------------------------
Calendar Years Beginning January 1 2004 2005
----------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
----------------------------------------------------------------------------------------------------
Number of Keys 148 148
Occupancy 70.00% 70.00%
Average Daily Room Rate $82.00 $85.00
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $ 3,101,000 77.9%$ 20,953 $ 82.01 $3,214,000 78.0%$ 21,716 $ 84.99
Restaurant 791,000 19.9% 5,345 20.92 814,000 19.8% 5,500 21.53
Telephone 74,000 1.9% 500 1.96 77,000 1.9% 520 2.04
Other Operated Departments 14,000 0.4% 95 0.37 14,000 0.3% 95 0.37
------------- -------- --------- --------- ------------ -------- --------- ---------
Total Revenues 3,980,000 100.0% 26,892 105.25 4,119,000 100.0% 27,831 108.93
Departmental Expenses (3)
Rooms 511,000 16.5% 3,453 13.51 526,000 16.4% 3,554 13.91
Restaurant 949,000 120.0% 6,412 25.10 977,000 120.0% 6,601 25.84
Telephone 37,000 50.0% 250 0.98 38,000 49.4% 257 1.00
Other Operated Departments 1,000 7.1% 7 0.03 1,000 7.1% 7 0.03
------------- -------- --------- --------- ------------ -------- --------- ---------
Total Departmental Expenses 1,498,000 37.6% 10,122 39.61 1,542,000 37.4% 10,419 40.78
------------- -------- --------- --------- ------------ -------- --------- ---------
Departmental Profit 2,482,000 62.4% 16,770 65.64 2,577,000 62.6% 17,412 68.15
Undistributed Expenses
Administrative & General 454,000 11.4% 3,068 12.01 468,000 11.4% 3,162 12.38
Franchise Fee 167,000 4.2% 1,128 4.42 174,000 4.2% 1,176 4.60
Marketing 182,000 4.6% 1,230 4.81 187,000 4.5% 1,264 4.95
Property Operations & Maintenance 237,000 6.0% 1,601 6.27 244,000 5.9% 1,649 6.45
Energy & Utilities 200,000 5.0% 1,351 5.29 206,000 5.0% 1,392 5.45
------------- -------- --------- --------- ------------ -------- --------- ---------
Total Undistributed Expenses 1,240,000 31.2% 8,378 32.79 1,279,000 31.1% 8,642 33.82
------------- -------- --------- --------- ------------ -------- --------- ---------
Gross Operating Profit 1,242,000 31.2% 8,392 32.84 1,298,000 31.5% 8,770 34.33
Fixed Charges & Management Fee
Base Management Fee 119,000 3.0% 804 3.15 124,000 3.0% 838 3.28
Property Taxes 77,000 1.9% 520 2.04 78,000 1.9% 527 2.06
Land Lease 292,000 7.3% 1,973 7.72 302,000 7.3% 2,041 7.99
Insurance 53,000 1.3% 358 1.40 54,000 1.3% 365 1.43
Total Fixed Charges 541,000 13.6% 3,655 14.31 558,000 13.5% 3,770 14.76
------------- -------- --------- --------- ------------ -------- --------- ---------
Income Before Reserves 701,000 17.6% 4,736 18.54 740,000 18.0% 5,000 19.57
Reserves for Replacements 159,000 4.0% 1,074 4.20 165,000 4.0% 1,115 4.36
------------- -------- --------- --------- ------------ -------- --------- ---------
Net Operating Income (4) $ 542,000 13.6% $ 3,662 $ 14.33 $ 575,000 14.0% $ 3,885 $ 15.21
============= ======== ========= ========= ============ ======== ========= =========
-----------------------------------------------
Calendar Years Beginning January 1 2006
-----------------------------------------------
$ % PAR (1) POR (2)
-----------------------------------------------
Number of Keys 148
Occupancy 70.00%
Average Daily Room Rate $87.00
Revenues
Rooms $3,290,000 77.9%$ 22,230 $ 87.00
Restaurant 839,000 19.9% 5,669 22.19
Telephone 79,000 1.9% 534 2.09
Other Operated Departments 15,000 0.4% 101 0.40
----------- -------- --------- ---------
Total Revenues 4,223,000 100.0% 28,534 111.68
Departmental Expenses (3)
Rooms 542,000 16.5% 3,662 14.33
Restaurant 1,007,000 120.0% 6,804 26.63
Telephone 39,000 49.4% 264 1.03
Other Operated Departments 1,000 6.7% 7 0.03
----------- -------- --------- ---------
Total Departmental Expenses 1,589,000 37.6% 10,736 42.02
----------- -------- --------- ---------
Departmental Profit 2,634,000 62.4% 17,797 69.66
Undistributed Expenses
Administrative & General 481,000 11.4% 3,250 12.72
Franchise Fee 178,000 4.2% 1,203 4.71
Marketing 193,000 4.6% 1,304 5.10
Property Operations & Maintenance 251,000 5.9% 1,696 6.64
Energy & Utilities 212,000 5.0% 1,432 5.61
----------- -------- --------- ---------
Total Undistributed Expenses 1,315,000 31.1% 8,885 34.78
----------- -------- --------- ---------
Gross Operating Profit 1,319,000 31.2% 8,912 34.88
Fixed Charges & Management Fee
Base Management Fee 127,000 3.0% 858 3.36
Property Taxes 80,000 1.9% 541 2.12
Land Lease 310,000 7.3% 2,095 8.20
Insurance 56,000 1.3% 378 1.48
Total Fixed Charges 573,000 13.6% 3,872 15.15
----------- -------- --------- ---------
Income Before Reserves 746,000 17.7% 5,041 19.73
Reserves for Replacements 169,000 4.0% 1,142 4.47
----------- -------- --------- ---------
Net Operating Income (4) $ 577,000 13.7% $ 3,899 $ 15.26
=========== ======== ========= =========
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net cash flow before interest, tax, amortization, and depreciation.
===================================================================================================================================
Source:PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Holiday Inn
Barstow, California
Projected Operating Results
-------------------------------------------------------------------------------------------------
Calendar Years Beginning January 1 2007 2008
-------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-------------------------------------------------------------------------------------------------
Number of Keys 148 148
Occupancy 70.00% 70.00%
Average Daily Room Rate $90.00 $93.00
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $3,403,000 78.0%$ 22,993 $ 89.99 $3,517,000 78.0%$ 23,764 $ 93.01
Restaurant 864,000 19.8% 5,838 22.85 890,000 19.7% 6,014 23.54
Telephone 81,000 1.9% 547 2.14 84,000 1.9% 568 2.22
Other Operated Departments 15,000 0.3% 101 0.40 16,000 0.4% 108 0.42
------------- ------- --------- ---------- ------------ ------- --------- ----------
Total Revenues 4,363,000 100.0% 29,480 115.38 4,507,000 100.0% 30,453 119.19
Departmental Expenses (3)
Rooms 558,000 16.4% 3,770 14.76 575,000 16.3% 3,885 15.21
Restaurant 1,037,000 120.0% 7,007 27.42 1,068,000 120.0% 7,216 28.24
Telephone 41,000 50.6% 277 1.08 42,000 50.0% 284 1.11
Other Operated Departments 2,000 13.3% 14 0.05 2,000 12.5% 14 0.05
------------- ------- --------- ---------- ------------ ------- --------- ----------
Total Departmental Expenses 1,638,000 37.5% 11,068 43.32 1,687,000 37.4% 11,399 44.61
------------- ------- --------- ---------- ------------ ------- --------- ----------
Departmental Profit 2,725,000 62.5% 18,412 72.06 2,820,000 62.6% 19,054 74.58
Undistributed Expenses
Administrative & General 496,000 11.4% 3,351 13.12 511,000 11.3% 3,453 13.51
Franchise Fee 184,000 4.2% 1,243 4.87 190,000 4.2% 1,284 5.02
Marketing 199,000 4.6% 1,345 5.26 205,000 4.5% 1,385 5.42
Property Operations & Maintenance 259,000 5.9% 1,750 6.85 266,000 5.9% 1,797 7.03
Energy & Utilities 219,000 5.0% 1,480 5.79 225,000 5.0% 1,520 5.95
------------- ------- --------- ---------- ------------ ------- --------- ----------
Total Undistributed Expenses 1,357,000 31.1% 9,169 35.89 1,397,000 31.0% 9,439 36.94
------------- ------- --------- ---------- ------------ ------- --------- ----------
Gross Operating Profit 1,368,000 31.4% 9,243 36.18 1,423,000 31.6% 9,615 37.63
Fixed Charges & Management Fee
Base Management Fee 131,000 3.0% 885 3.46 135,000 3.0% 912 3.57
Property Taxes 82,000 1.9% 554 2.17 84,000 1.9% 568 2.22
Land Lease 320,000 7.3% 2,162 8.46 331,000 7.3% 2,236 8.75
Insurance 58,000 1.3% 392 1.53 59,000 1.3% 399 1.56
Total Fixed Charges 591,000 13.5% 3,993 15.63 609,000 13.5% 4,115 16.11
------------- ------- --------- ---------- ------------ ------- --------- ----------
Income Before Reserves 777,000 17.8% 5,250 20.55 814,000 18.1% 5,500 21.53
Reserves for Replacements 175,000 4.0% 1,182 4.63 180,000 4.0% 1,216 4.76
------------- ------- --------- ---------- ------------ ------- --------- ----------
Net Operating Income (4) $ 602,000 13.8% $ 4,068 $ 15.92 $ 634,000 14.1% $ 4,284 $ 16.77
============= ======= ========= ========== ============ ======= ========= ==========
- ------------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net cash flow before interest, tax, amortization, and
depreciation.
====================================================================================================================================
Source:PKF Consulting
====================================================================================================================================
</TABLE>
<PAGE>
SECTION IV
SUPER 8 MOTEL
MODESTO, CALIFORNIA
<PAGE>
===============================================================================
Summary of Important Facts and Conclusions
===============================================================================
Property Address Super 8 Motel
2025 West Orangeburg Avenue
Modesto, California 95350
Telephone (209) 557-8008
- -------------------------------------------- ----------------------------------
Owner
Leased Fee Interest Allen R. Grant and Carolyn M. Grant
Leasehold Interest Super 8 Motels, Ltd.
- -------------------------------------------- ----------------------------------
Assessor's Parcel Number 029-0237-531 and 029-0237-150
- -------------------------------------------- ----------------------------------
Effective Date of Appraisal January 1, 1998
- -------------------------------------------- ----------------------------------
Property Rights Appraised Leasehold Interest
===============================================================================
Highest and Best Use
===============================================================================
Highest and Best Use
As if Vacant Limited-service hotel
As Improved Limited-service hotel or highway
commercial use
===============================================================================
Property Description
===============================================================================
Existing Improvements
Year Built 1980
Gross Building Area 30,862 square feet
Number of Hotel Guest Rooms 80
Parking 95 spaces
Number of Floors Three above ground (no basement)
Hotel Amenities Pool and spa, complimentary coffee
Compliance with ADA Partial
- -------------------------------------------- ----------------------------------
Site
Area 2.188 acres (95,309 square feet)
Zoning C-3 (Highway Frontage Commercial)
Flood Zone C, Panel Number 060387-0005C dated
August 17, 1982
Wetlands Zone No
Alquist Priolo Special Studies Zone No
Historic, Natural , Cultural,
Recreational, or Scientific Value None
===============================================================================
Valuation Conclusion
===============================================================================
Cost Approach Not Applicable
- -------------------------------------------- ----------------------------------
Sales Comparison Approach $1,800,000
- -------------------------------------------- ----------------------------------
Income Capitalization Approach
Stabilized Occupancy 68.0%
Average Daily Room Rate $46.25 (1998 value dollars)
Stabilized Net Income $212,000 (1998 value dollars)
Overall Capitalization Rate 11.5%
Terminal Capitalization Rate 12.0%
Discount Rate 14.5%
Indicated Market Values
Direct Capitalization Technique $1,800,000
Discounted Cash Flow Analysis $1,800,000
- -------------------------------------------- ----------------------------------
Final Estimate of Market Value $1,800,000
- -------------------------------------------- ----------------------------------
Marketing and Exposure Period Six months or less
============================================ ==================================
IV-1
<PAGE>
(Photograph deleted)
View of Hotel Looking Northeast from West Orangeburg Avenue
(Photograph deleted)
View of Typical Queen-Bed Guestroom
IV-2
<PAGE>
A. AREA AND NEIGHBORHOOD REVIEW
1. Introduction
The subject property is located in downtown Modesto. Situated within the San
Joaquin Valley along State Highway 99, Modesto is located 77 miles south of
Sacramento, 75 miles east of San Jose and Silicon Valley, 91 miles southeast of
San Francisco, and 316 miles north of Los Angeles. It is one of the largest
cities in Stanislaus County and is the hub of one of the world's most productive
agricultural areas. The rich, fertile soil, combined with a long growing season,
produces a large portion of the nation's food supply. Modesto is best known as
the home of the Gallo Winery, the world's leading vintner, producing 25.0
percent of all wine sold in the United States. In addition, Tri Valley Growers
operates the world's largest cannery, while the California Almond Growers
Exchange (Blue Diamond) has the world's second largest almond-producing facility
in Modesto.
Agribusiness is still the dominant force in the Modesto area, with most of the
250 manufacturing plants in the area devoted to some facet of this industry.
Modesto is also a regional medical center, serving the northern San Joaquin
Valley with three hospitals. A map showing the location of the subject in
relation to the surrounding area is shown on the following page.
2. Economic Data
Presented in the following text is a brief overview of selected economic data
that characterizes the local market area.
Population: The population of the City of Modesto was 179,800 persons in
1997. The corresponding population of the Modesto MSA (Stanislaus County)
was 419,500 persons. Over the last five years, the population of the MSA
has increased at a compound average annual growth rate (CAAG) of 1.9
percent. The MSA population is projected to increase to 549,400, with
249,400 for Modesto itself, by the year 2005. This equates to a CAAG of 1.2
percent. This rate of growth is slightly above that projected for the state
as a whole for the same period.
Retail Sales: Total taxable retail sales for the Modesto MSA was
approximately $2.6 billion in 1996. This equates to a 3.2 percent CAAG over
the past five years. For the next ten years, forecasters are projecting
retail sales for this area to outpace the state as a whole, yet increasing
at a more moderate rate of 1.6 percent per year.
IV-3
<PAGE>
(Street map of a portion of Modesto area deleted)
Regional Map
IV-4
<PAGE>
Income: Over the past five years, the income per capita of the Modesto
market area increased at an annual rate of 0.6 percent. This is above the
change in per capita income for the State of California as a whole, which
decreased during this period. Over the next ten years, the per capita
income of residents in this region is expected to increase by 1.3 percent
per year, which mirrors the rate forecasted for the state. Currently, per
capita income for Modesto is $13,572 with an average household income of
$38,064.
Employment: In 1997, the total number of persons employed in the Modesto
MSA was approximately 150,000. This figure represents a 1.1 percent annual
increase over the employment level in 1990. Over the next ten years, the
employment base of the MSA is projected to increase to approximately
197,000 persons. This equates to a 1.2 percent annual growth.
Presented in the following table is a summary of the largest public and private
employers in Stanislaus County.
===============================================================================
Major Employers in Stanislaus County
===============================================================================
Employer Type Number of Employees
- --------------------------------- ------------------------ -------------------
Stanislaus County Government 3,600
Modesto City Schools Education 2,720
Tri Valley Growers Food Products 2,400
E&J Gallo Winery Wines 2,000
Doctors Medical Center Health Care 1,827
Modesto Junior College/
Yosemite Community College Education 1,680
Foster Farms Poultry Products 1,500
Memorial Hospital Health Care 1,432
Emanuel Medical Health Care 1,100
Turlock Schools Education 1,100
City of Modesto Government 1,090
Gallo Glass Co. Glass Bottles 950
Ceres Schools Education 900
Patterson Frozen Foods Frozen Foods 900
Hershey Chocolate Chocolate 750
Butterball Turkey Poultry Products 750
===============================================================================
Source: Modesto Chamber of Commerce
===============================================================================
Commercial Development: Modesto's commercial development is primarily
industrial oriented, with office and retail being relatively minor
components. Major corporations in Modesto typically have their office
and industrial installations in centralized, company-owned complexes.
Thus, most office and industrial tenants are smaller companies and
service establishments. In 1996, the Modesto City Council approved an
additional 5,000 acres for industrial/commercial use within the General
IV-5
<PAGE>
Plan area. There are approximately 4,000 acres now zoned for industry
in the current sewer service area; included in this acreage are a
variety of industrial parks. More than 3,800 additional acres in the
urban area outside the city of Modesto are zoned for industry.
Agriculture and food processing industries are important to Modesto's
economic success. However, the growing commercial, industrial, and
service sectors provide a diversified base for the area's labor force.
3. Neighborhood Review
The subject property is located near the major freeway intersection of Highway
99 and Briggsmore Avenue, in the suburban, northwestern area of Modesto. West
Orangeburg Avenue is reached by turning off Briggsmore Avenue and heading south.
The area surrounding the subject property is a combination of highway commercial
and residential. A number of other hotel properties, such as the Holiday Inn,
Ramada Inn, and Motel 6 are also located near the subject property, giving an
identifiable hotel focus to the area. Further, a number of restaurants are also
located in the vicinity of the subject property, an added attraction given that
the Super 8 offers no food and beverage service of its own.
The immediate neighboring uses surrounding the subject are predominantly hotels
and restaurants; farther east and south of the subject is primarily retail and
residential use; farther north and west of the subject is primarily hotel,
restaurant, and retail use.
Specific developments adjoining the subject property comprise a Ramada Inn hotel
to the south and a California Highway Patrol impound office to the north and
east. To the west, across West Orangeburg Avenue, a Denny's, Burger King,
International House of Pancakes restaurant, a local bar known as the Tree Frog
Tavern, and a Dunne-Edwards paint store, are located.
The trend in development in Modesto is for new growth and new construction to
occur in the northwestern portion of the city, outside of the downtown area. The
subject property is located in the northwestern region of Modesto and therefore
is well positioned in terms of location.
4. Conclusion
In summary, we are of the opinion that the subject property is well located in
the northwest area of the city of Modesto. Growth in nearly all economic
indicators has been positive over the past several years and we forecast
continued modest growth for the foreseeable future.
IV-6
<PAGE>
B. PROPERTY DESCRIPTION
1. Introduction
The subject property is a limited-service hotel comprising 80 guestrooms.
Additional amenities at the property include an outdoor swimming pool, 24-hour
coffee service, and large vehicle parking. The hotel comprises a wood-framed
structure of three floors. The hotel building houses guestrooms, the lobby, the
hotel laundry, service areas, and various mechanical and electrical equipment.
The hotel was constructed in 1980, the first year of operation. The hotel is
currently owned in leasehold by Super 8 Motels, Ltd., a related company to the
Famous Host Companies. We are not aware of any transactions relating to the site
or the improvements since the date of opening.
2. Site Description and Zoning
The subject property is located at 2025 West Orangeburg Avenue. The subject site
comprises 2.188 acres, or 95,309 square feet. The site is triangular in shape
with the angle side fronting West Orangeburg Avenue and the straight sides
forming the property boundaries with adjoining parcels. The property is level
and is at grade with West Orangeburg Avenue, with 533 feet of frontage along the
street side of the property.
The subject property is zoned C-3 (Highway Frontage Commercial). This zoning
allows a variety of commercial development in a highway setting and a hotel is a
permitted use in this zone. We are aware of no easements or covenants affecting
the subject property, which would negatively impact the market value of the
subject property.
3. Improvements Description
The hotel building forms an approximate U-shape with the interior of the U-shape
forming a courtyard area. The courtyard is landscaped and is also the site of
the pool. The hotel offers interior corridors and one hydraulic elevator. The
building is fire sprinklered. The building has a composition shingle roof which
appears to be in good condition. The exterior of the building is comprised of
off-white stucco with dark brown trim. A coordinated stucco wall lines the rear
sides of the perimeter of the property. The total interior square footage of the
hotel is 30,862 square feet with the average interior space of a typical
guestroom being approximately 225 square feet.
The Super 8 Motel provides 80 guestrooms, configured as 32 queen-size bedrooms,
44 double, queen-size bedrooms, and four suite rooms. The guestrooms are
furnished with a color television, desk, two chairs, nightstand, lamp, and
IV-7
<PAGE>
dresser. The lobby is wood paneled with contemporary wood furniture. Overall,
the property is in good condition and has been maintained on a regular basis.
With regard to parking, the hotel has 95 surface parking spaces located on the
paved parking lot which surrounds the hotel building. Three of these spaces are
designated for physically challenged persons. Also located on-site for guest use
are an ice machine, soft-drink vending machine, and a snack vending machine.
4. Basic Construction and Mechanical Systems
The subject building is a wood-framed structure having foundations of
poured-in-place concrete. The exterior walls are composed of stucco and
dark-brown painted wood. The exterior colors and styling of the hotel convey an
update Old English style of decor. The interior walls are sheet rock and are
primarily painted or have vinyl wall covering. The roof is a composition shingle
roof which appears to be in good condition. Presented in the following table is
a summary of the basic construction and mechanical systems of the hotel.
===============================================================================
Super 8 Motel -- Modesto
Summary of Basic Construction and Mechanical Systems
===============================================================================
Foundation: Concrete slab on grade
- ------------------------------------- -----------------------------------------
Frame: Wood-frame construction, type V-1 hour
fire rating.
- ------------------------------------- -----------------------------------------
Walls: Exterior: stucco.
Interior: gypsum board covering an
airspace between 2x4 studs. The
walls in the guestrooms are painted
gypsum board and partially papered.
Lobby walls are wood paneled and painted
gypsum board.
- ------------------------------------- -----------------------------------------
Floor: Floors are carpeted in guestrooms and
corridor areas. Bathrooms have
vinyl tile. The lobby area is carpeted
and the vending area has ceramic
tile flooring.
- ------------------------------------- -----------------------------------------
Roof: Slightly pitched with red concrete
Spanish-style roofing tiles
- ------------------------------------- -----------------------------------------
Ceiling Heights: 8.0 feet. Ceilings are painted gypsum
board and painted wood. In the public
areas the lighting is set in incandescent
light fixtures. In the guestrooms, are
table lamps.
- ------------------------------------- -----------------------------------------
Windows: Window and door sashes are bronzed
anodized aluminum. Window trim is
painted wood.
- ------------------------------------- -----------------------------------------
Heating and Cooling: Each room had individual electric heating
and air conditioning units located in the
wall under a window
- ------------------------------------- -----------------------------------------
Laundry Facilities: Laundry equipment consists of two washers
and three dryers, commercial grade.
- ------------------------------------- -----------------------------------------
Sprinkler System: All public areas and guest rooms are fire
sprinklered.
- ------------------------------------- -----------------------------------------
Life Safety: There are two individual fire systems in
the guest rooms: fire sensitive
sensors and independent smoke alarms.
===============================================================================
Source: Famous Host Companies
===============================================================================
IV-8
<PAGE>
5. Assessed Value and Property Taxes
The subject property is assessed by Stanislaus County on a tax year commencing
July 1 of every year. Under the provisions of Article 13-A of the State of
California (Proposition 13), properties are assessed based on their fair market
value as of the change of ownership date. The assessed value can be increased by
a maximum of 2.0 percent per year until such date as the property is
subsequently sold, substantial new construction takes place, or the use of the
property is substantially changed. The current assessed value of the property is
presented in the following table.
============================================================
Assessor's Parcel Numbers
029-0237-531 and 029-0237-150
1997/98 Assessed Value
============================================================
Land and Improvements $1,865,379
Personal Property 101,823
- -------------------------------------- ---------------------
Net Taxable Value $1,967,202
====================================== =====================
For 1997/1998, total property taxes and direct assessments are $21,656.90 on the
subject property. The indicated tax rate, therefore, is 1.1009 percent.
6. Land Lease
The subject property is encumbered by a lease, with the underlying land owned by
Allen R. Grant and Carolyn M. Grant, husband and wife, who acquired the property
on October 29, 1978. Mr. and Mrs. Grant leased the property to Dennis A. Brown
and Philip B. Grotewohl on March 7, 1979. The lease was then assigned to Super 8
Motels as recorded on July 15, 1980. The term of the lease extends until
September 15, 2029, with three renewal options of ten years each. The base rent
was set at $2,530 monthly, and is adjusted every three years to reflect changes
in the Consumer Price Index. The current rent is $5,827.66 per month as of
December 31, 1997 ($69,931.92 annually).
7. Renovation and Capital Improvements
Identified renovation plans include the replacement of the sub-flooring of the
ground floor guest corridors as well as the carpeting of these hallways.
Further, as the through-the wall air conditioning units in each guestroom
continue to age, these units will need to be replaced. As the guestroom doors
are secured with standard key locks, an upgrade to more contemporary electronic
door locks is also necessary.
Given that the cost of such renovation work, on a project-by-project basis, is
not unusually large, annual funding for such projects on a phased-basis is
IV-9
<PAGE>
considered to be possible through an annual reserve for capital replacement of
4.0 percent of total revenue.
8. Summary of Functional Utility and Condition
It is our opinion that the hotel is adequately designed and maintained to
service the hotel market demands of the suburban Modesto community.
C. HOTEL MARKET ANALYSIS
1. Competitive Supply
There are a wide variety of lodging facilities currently located in Modesto,
ranging from limited-service motels such as the Motel 6 to full-service
properties such as the downtown Doubletree. Of these various hotels and motels,
we have identified six hotels, including the subject, with a total of 649
available rooms as comprising the current competitive set of the Super 8 Motel.
The selection of the competitive supply was based on location, facilities and
amenities, room rate structure, and market orientation. The competitive
properties are summarized in the following table.
<TABLE>
===============================================================================
Super 8 Motel -- Modesto
Census of Competitive Properties
===============================================================================
Published Room Rates
---------------------------
Year Number AAA
Property Opened of Rooms Single Double Amenities Rating
- --------------------------- ---------- ----------- -------------- -------------- ----------------- ===============
<S> <C> <C> <C> <C> <C> <C> <C>
Super 8 Motel 1980 80 $41 - $46 $44 - $52 F,G,H 1 star (Motel)
Ramada Modesto 1991 115 $64 - $94 $72 - $102 D,F,G,H 3 star (Motel)
Motel 6 Modesto North 1977 100 $35 $41 F Not Listed
Holiday Inn Modesto 1973 186 $88 $98 A,B,D,E,F,G 2 star (Motor Inn)
Holiday Inn Express Modesto 1993 65 $65 - $75 $70 - $80 C,F,G 3 star (Motel)
Days Inn Modesto 1968 103 $60 $65 C,D,F,G,H 3 star (Motel)
- --------------------------- ---------- ----------- -------------- -------------- ----------------- ---------------
Total 649
- -------------------------------------- ----------- -------------- -------------- ----------------- ---------------
Amenities Codes AAA Rating
A - Restaurant 5 star - Renowned; exceptional property recognized for
B - Bar/Lounge market superiority of facilities and service
C - Complimentary Continental Breakfast 4 star - Exceptional; offers luxurious accommodations
as well as extra amenities
D - Meeting Rooms 3 star - Offers very comfortable and attractive
E - Exercise Room accommodations
F - Swimming Pool 2 star - Exceeds AAA minimum requirements in some
G - Whirlpool physical and operational categories
H - Adjacent Restaurant 1 star - Meets AAA basic requirements for recommendation
N/L Not listed
==================================================================================================================
Source: Management of Individual Properties and 1998 American Automobile Association Tour Book
==================================================================================================================
</TABLE>
With regard to future lodging supply, there are no hotels currently under
construction in the area, and we are aware of none that are planned or approved.
IV-10
<PAGE>
The current state of the Modesto hotel market is such that we do not anticipate
any new lodging properties entering the market in the foreseeable future.
Therefore, no additions to the competitive supply are projected during the next
five-year period.
2. Historical Market Performance
The following table presents a summary of the historical market performance of
the five selected competitive hotels, together with the subject, over the period
1992 to 1996, as well as our estimate for 1997.
<TABLE>
====================================================================================================================
Competitive Hotel Market
Historical Occupancy and Room Rate
1992 to 1997 (Estimated)
====================================================================================================================
Daily Rooms
Available Percent Percent Average Daily Percent
Year Change Occupancy Change Room Rate Change
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ============
<S> <C> <C> <C> <C>
1992 584 - 58.1% - $50.72 -
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ============
1993 649 11.1% 59.5% 2.4% $46.28 (8.8)%
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ============
1994 649 0.0% 57.2% (3.9)% $47.38 2.4%
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ============
1995 649 0.0% 59.0% 3.1% $50.28 6.1%
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ============
1996 649 0.0% 54.4% (7.8)% $51.25 1.9%
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ============
1997 (Estimated) 649 0.0% 55.9% 2.7% $54.46 6.3%
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ============
CAAG 0.0%. - - - 1.4% -
====================================================================================================================
Source: PKF Consulting and Smith Travel Research
====================================================================================================================
</TABLE>
As can be noted, over the past five years, the number of available rooms within
the competitive market increased with the opening of the Holiday Inn Express in
1993, and has remained stable since that time. During the same period, demand
has declined in general, with occupancy showing a biennial fluctuation,
attributed to a citywide bowling league that meets in Modesto every other
summer. However, in general, with the addition of the Holiday Inn Express to the
competitive market in 1993, occupancy has declined from a high of 59.5 percent
that year to an estimated 55.9 percent as of year-end 1997.
In terms of the competitive market's average room rate, we estimate that the six
competitive hotels will achieve a weighted average rate of $54.46 in 1997. This
equates to CAAG of 1.4 percent over the past six years.
3. Demand Segmentation
The primary demand segments in the Modesto market are corporate, group, and
leisure demand. Business and leisure travel are the two largest demand segments
on an annual basis. On a more seasonal basis, such as the biennial summer
bowling leagues, group demand is the third demand segment in the Modesto market.
IV-11
<PAGE>
Each hotel penetrates these three demand segments based on the appeal of the
property to the various types of travelers in each segment.
The current mix of demand at the subject property is primarily composed of
leisure travelers (52.0%) who are attracted to the subject property because of
its convenient location and clean, well-priced rooms. The second largest
component of demand (44.8%) is from corporate and government travelers who are
visiting businesses and agencies in the area, as well as truckers who stay at
the hotel. The balance of demand is generated by group travelers (3.2%) such as
athletic and school groups.
4. Projected Future Supply and Demand
Over the past six years (1992 to 1997) demand for hotel accommodations in
Modesto has increased at a CAAG of 1.3 percent. This reflects the mature nature
of the lodging industry in Modesto and the seasonal nature of both agribusiness
and tourism to the area.
Based on our review of the local market, we project overall demand for hotel
rooms will continue to stabilize and perhaps show limited growth over the next
five years. Presented in the table below is a summary of the projected growth in
supply, demand, and the resulting occupancy levels for the competitive market
for the period 1998 to 2002.
<TABLE>
=======================================================================================================
Super 8 Motel -- Modesto
Estimated Growth In Supply and Demand
Competitive Hotel Market
=======================================================================================================
Daily Annual Total
Year Available Rooms Available Rooms Demand Occupancy
- --------------------- ----------------------- --------------------- ---------------- ------------------
Actual
<S> <C> <C> <C> <C> <C>
1992 584 213,160 123,846 58.1%
1993 649 236,855 140,947 59.5%
1994 649 236,855 135,498 57.2%
1995 649 236,855 139,762 59.0%
1996 649 236,855 128,865 54.4%
1997 (Estimated) 649 236,855 132,412 55.9%
- --------------------- ----------------------- --------------------- ---------------- ------------------
Projected
1998 649 236,855 135,000 57.0%
1999 649 236,855 138,000 58.3%
2000 649 236,855 141,000 59.5%
2001 649 236,855 143,000 60.4%
2002 649 236,855 146,000 61.6%
- --------------------- ----------------------- --------------------- ---------------- ------------------
CAAG
1992 to 1997 2.1% - 1.3% -
1997 to 2002 0.0% 2.0%
=======================================================================================================
Source: PKF Consulting and Smith Travel Research
=======================================================================================================
</TABLE>
IV-12
<PAGE>
As can be noted above, the number of rooms available in the market grew
slightly, at 2.1 percent, with the entry of the Holiday Inn Express into the
competitive market in 1993. During that period, demand grew at a relatively
modest pace of 1.3 percent annually. No change in the number of rooms in the
competitive market is forecast during the next five years. With no growth in
supply, modest growth in occupancy is forecast, and occupancy is expected to
grow from 55.9 percent as of year-end 1997 to 61.6 percent as of year-end 2002.
This represents a CAAG of 2.0 percent. From 2002 onwards, a stable, composite
average annual occupancy of 62.0 percent is foreseen.
5. Market Performance of the Subject
The following table summarizes the historical occupancy levels and average room
rate for the Super 8 Motel over the past four years
===============================================================================
Super 8 Motel -- Modesto
Historical Occupancy and Room Rate
1994 to 1997 (Estimated)
===============================================================================
Average Daily
Year Occupancy % Change Room Rate % Change
- ------------------- --------------- ------------- ----------------- -----------
1994 71.0% - $41.02 -
- ------------------- --------------- ------------- ----------------- -----------
1995 73.2% 3.1% $41.06 0.0%
- ------------------- --------------- ------------- ----------------- -----------
1996 66.8% (8.7)% $41.63 1.4%
- ------------------- --------------- ------------- ----------------- -----------
1997 (Estimated) 62.0% (7.2)% $45.00 8.1%
- ------------------- --------------- ------------- ----------------- -----------
CAAG (4.4)% - 3.1% -
===============================================================================
Source: Famous Host Companies
===============================================================================
As can be noted, occupancy rates at the subject property have been trending
downward from a high of 73.2 percent achieved in 1995 to 66.8 percent achieved
in 1996. A further-declined occupancy level of 62.0 percent is estimated for
year-end 1997. A portion of the decline in occupancy is attributed to
management's efforts to raise ADR, thus turning away some rate-sensitive demand.
Occupancy rates are expected to climb from the year-end 1997 level in future
years.
With regard to room rates, after remaining comparably flat for three years from
1994 to 1996, room rates jumped 8.1 percent to an estimated $45.00 for year-end
1997. This increase in ADR is a reflection of some economic strength in the
local market.
Based on our analysis of the local market, we are of the opinion the subject
will achieve a stable occupancy level of approximately 62.0 percent in 1998, an
increased occupancy of 65.0 percent in 1999, and an increased occupancy to 68.0
percent for 1999. For the balance of the projection period, from 2000 to 2007, a
stable occupancy level of 68.0 percent is projected.
IV-13
<PAGE>
Based on our market analysis, we project the hotel to achieve an average room
rate of $46.25 in 1998, a 3.0 percent increase from 1997. Over the balance of
our projection period, we project the hotel's average room rates to increase at
the anticipated long-term level of inflation (3.0 percent per year). We believe
that this is realistic given the projected limited growth in demand combined
with no new additions to supply.
The following table summarizes our projections for the subject property over the
first five years of the ten-year analysis period from January 1, 1998 to
December 31, 2002.
===============================================================================
Super 8 Motel -- Modesto
Projected Occupancy and Average Daily Room Rate
1998 to 2002
===============================================================================
Average
Market Daily Percent
Year Occupancy Penetration Room Rate Change
- --------------- --------------- ------------------- ---------------- ----------
1997 62.0% 111% $45.00 -
(Estimated)
- --------------- --------------- ------------------- ---------------- ----------
1998 62.0% 109% $46.25 3.0%
1999 65.0% 111% $47.75 3.0%
2000 68.0% 114% $49.25 3.0%
2001 68.0% 113% $50.75 3.0%
2002 68.0% 110% $52.25 3.0%
- --------------- --------------- ------------------- ---------------- ----------
CAAG 2.3% - 3.0% -
(1998-2002)
===============================================================================
Source: PKF Consulting
===============================================================================
D. HIGHEST AND BEST USE
Based on our analysis, we are of the opinion that the existing improvements
contribute significant overall value to the site. There is no alternative, legal
use that could economically justify the restructuring or removal of the existing
improvements at this time. Therefore, the subject property, as improved,
represents the highest and best use of the site.
E. VALUATION -- SALES COMPARISON APPROACH
1. Introduction
We have reviewed a number of recent sales and have focused on those sales
considered most comparable in providing support for the market value of the
subject. However, due to the limited number of recent comparable hotel sales in
the region immediately surrounding Modesto, we have expanded our search to
include other limited-service hotels located elsewhere in the Central Valley.
Based on this search, five sales were identified to use as the basis for our
valuation of the hotel component of the subject under this approach.
IV-14
<PAGE>
Presented in the following table is a summary of the selected comparable hotel
sales. As can be noted, these sales have occurred between October 1995 and
January 1997.
<TABLE>
=====================================================================================================================
Comparable Hotel Sales
=====================================================================================================================
Rooms Overall
Sale Sale Year Number of Price Per Revenue Capitalization
No. Hotel Name Location Date Built Rooms Room Multiplier Rate
- -------- ----------------- ------------------ --------- --------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
1 Best Western Tracey 1/97 1994 60 $58,750 3.6 11.0%
2 Comfort Inn Stockton 8/96 1970s 66 $20,145 2.2 N/A
3 Motel 6 Modesto 7/96 1985 70 $22,857 4.2 N/A
4 Acorn Inn Stockton 10/95 1965 56 $23,214 2.8 N/A
5 Holiday Inn Modesto 10/95 1973 186 $16,667 1.9 10.7%
=====================================================================================================================
Source: PKF Consulting
=====================================================================================================================
</TABLE>
2. Analysis of the Hotel Sales
In reviewing the preceding table, it can be noted that the sales price per room
indicates a range in value on a per-room basis from $16,667 to $58,750.
Because of the many differences between these hotels and the subject hotel, we
are of the opinion that an analysis using a rooms revenue multiplier is the most
appropriate units of comparison to value the subject. A rooms revenue multiplier
measures the total revenue generated from room rentals, the major revenue source
for this type of hotel property, in relation to the sales price. Rooms revenue
multipliers do not require subjective adjustments since most variance in
properties are considered to be reflected in average daily room rates and annual
occupancies as achieved in the market. As can be noted, indicated rooms revenue
multipliers for the five sales ranged from a low of 1.9 to a high of 4.2, with
an average of 2.9.
Based on our analysis, we are of the opinion that a rooms revenue multiplier
close to the average indicated by the comparable sales is appropriate in valuing
the subject property. Based on this multiplier, and assuming a stabilized
occupancy level of 68.0 percent at an average daily room rate of $46.25 (stated
in 1998 dollars), the indicated value for available rooms for the subject is as
follows:
<TABLE>
Rooms Stabilized Stabilized Indicated Value
Revenue Average Rate Occupancy Per Room
Multiplier Level Days/Year (Rounded)
- ---------------- --- --------------- --- ----------------- --- ---------------- --- -----------------------
<S> <C> <C> <C> <C> <C>
2.9 X $46.25 X 68.0% X 365 = $33,300
- ---------------- --- --------------- --- ----------------- --- ---------------- --- -----------------------
</TABLE>
As noted above, the rooms revenue multiplier analysis produced a value
indication of $33,300 per available room. This value unit is converted into a
IV-15
<PAGE>
total value estimate by multiplying the indicated value per room by the total
number of rooms. Based on 80 rentable rooms, the indicated stabilized value of
the fee simple interest in the Super 8 Motel is $2,700,000 as calculated below:
- ----------------------- ---- ---------------- ----- ---------------------------
$33,300 X 80 Rooms = $2,700,000(Rounded)
- ----------------------- ---- ---------------- ----- ---------------------------
F. INDICATED VALUE VIA THE SALES COMPARISON APPROACH
After concluding to our estimate of the stabilized value of the subject, the
next step in our analysis is to develop an estimate of the "as is" leasehold
market value of the subject property.
1. Income Loss
The first step to develop the value estimate is to deduct the income loss
projected to occur until the property is stabilized (as discussed in the Income
Capitalization section).
===================================================================
Sales Comparison Approach
"As Is" Fee Simple Value
===================================================================
Stabilized value Indication $2,700,000
Less: Income Loss Until Stabilization (77,000)
- ---------------------------------------------- --------------------
"As Is" Fee Simple Value $2,623,000
- ---------------------------------------------- --------------------
2. Valuation of Leased Fee Interest
After having developed an estimate of the "as is" fee simple value of the
subject under the Sales Comparison Approach, the next step is to develop an
estimate of the value of the leased fee interest in the property. This
represents the position of the ground lessor, who benefits from the income
derived from the ground lease payments during the term of the lease, as well as
the ownership of the property in fee at the termination of the lease (the
reversion). The estimated leased fee interest in the hotel is then subtracted
from the fee simple value to arrive at our estimate of the value of the
leasehold interest.
This deduction is derived by capitalizing the land lease payment for a
stabilized year ($72,000) by an appropriate capitalization rate (9.0 percent).
This capitalization rate of 250 basis points less than the rate used to
capitalize the revenue stream from the hotel operations (as will be discussed in
the Income Capitalization Approach) is reflective of the more secure position of
IV-16
<PAGE>
the landlord as compared to the lessee. This calculation results in a leased fee
interest of $800,000 ($72,000 / 9.0 percent). The following table summarizes the
deduction made from the stabilized fee simple value indication.
==============================================================
Sales Comparison Approach
"As Is" Leasehold Value
==============================================================
Fee Simple Value Estimate $2,623,000
Less: Leased Fee Land Value (800,000)
- ------------------------------------- ------------------------
Leasehold Value $1,823,000
- ------------------------------------- ------------------------
Rounded $1,800,000
===================================== ========================
As a result of the foregoing analysis, we estimate the "as is" market value of
the leasehold interest in the subject as of January 1, 1998, through the Sales
Comparison Approach to be:
===============================================================================
ONE MILLION EIGHT HUNDRED THOUSAND DOLLARS
- -------------------------------------------------------------------------------
$1,800,000
===============================================================================
G. VALUATION -- INCOME CAPITALIZATION APPROACH
1. Basis for Cash Flow Projection
In order to develop an estimate of the net operating income (NOI) for the
subject for both a stabilized year of operation (direct capitalization) and each
year of the aforementioned holding period (yield capitalization), the following
have been analyzed:
1. The historical operating results for the subject for year-end 1994,
1995, 1996, year-to-date September 1997, and management's operating
budget for 1997.
2. The operating results of the category "Limited-Service Hotels" from the
1997 issue of PKF Consulting's Trends in the Hotel Industry.
The historical operating results of the subject are presented at the end of this
section of the report.
2. Stabilized Year Operating Estimate
We first developed an estimate of the performance of the subject for a
stabilized year of operation stated in current value, 1998 dollars. This
IV-17
<PAGE>
estimate is based on our review of the historical operating results of the
subject hotel coupled with an analysis of the operating results of the selected
PKF Consulting "Trends" category. Additional key assumptions used in preparing
this stabilized year estimate are summarized below.
a) The stabilized annual occupancy of the hotel is projected to be 68.0
percent at an average daily room rate of $46.25 as stated in 1998
dollars;
b) A management fee of 5.0 percent of total revenues, a franchise fee of
8.0 percent of room revenues, and a reserve for capital replacements of
4.0 percent of total revenue have been deducted to establish the net
operating income of the subject.
c) The projection of expense for taxes on real and personal property is a
function of the market value of the property. The subject property is
in the real estate taxing jurisdiction of the Stanislaus County Tax
Assessor's Office. Our estimate of the property taxes for the
subject is based on the provisions of Proposition 13. Proposition 13
limits ad valorem property taxes to 1.0 percent of the assessed value
plus assessment for city, special district, and county bonds. The
current effective tax rate is 1.1009 percent of market value. This
appraisal assumes a sale of the subject property on the effective date
of the appraisal, which will initiate a reassessment of real estate
for tax purposes. For the purpose of this analysis, the reassessment
is based on the value estimate of the subject property as determined
using the Income Capitalization Approach as if owned in fee simple.
Based on that estimated value of the hotel, a tax rate of 1.1009
per $100 of assessed value is utilized, resulting in real estate
taxes of $28,000, rounded, in the representative or stabilized year.
Presented below is our estimate of the subject hotel's stabilized year operating
results. As can be noted, on a stabilized basis, the subject property will
generate approximately $945,000 in total revenue, with a net operating income of
$212,000, or 22.4 percent of total revenue.
IV-18
<PAGE>
<TABLE>
==============================================================================================
Super 8 Motel -- Modesto
Stabilized Year Operating Results (Stated in 1998 Value Dollars)
==============================================================================================
Occupancy Level 68.0%
- -------------------------------------------- -------------------------------------------------
Average Room Rate $46.25
- -------------------------------------------- -------------------------------------------------
REVPAR $31.45
- -------------------------------------------- -------------- ---------- ----------- -----------
Total Ratios POR (1) POR (2)
- -------------------------------------------- -------------- ---------- ----------- -----------
Revenues
<S> <C> <C> <C> <C>
Rooms $918,000 97.2% $11,475 $46.25
Telephone 24,000 2.5% 300 1.17
Other Operated Departments 3,000 0.3% 38 0.15
- -------------------------------------------- -------------- ---------- ----------- -----------
Total Revenues 945,000 100.0% 11,813 47.57
- -------------------------------------------- -------------- ---------- ----------- -----------
Departmental Expenses (3)
Rooms 186,000 20.3% 2,325 9.38
Telephone 11,000 45.8% 138 0.56
Other Operated Departments 1,000 33.3% 13 0.05
- -------------------------------------------- -------------- ---------- ----------- -----------
Total Departmental Expenses 198,000 21.0% 2,476 9.99
- -------------------------------------------- -------------- ---------- ----------- -----------
Departmental Income 747,000 79.0% 9,337 37.58
- -------------------------------------------- -------------- ---------- ----------- -----------
Undistributed Operating Expenses
Administrative and General 120,000 12.7% 1,500 6.04
Franchise Fees 74,000 7.8% 925 3.73
Marketing 25,000 2.6% 310 1.26
Property Maintenance 60,000 6.3% 745 3.02
Energy and Utilities 54,000 5.7% 670 2.72
- -------------------------------------------- -------------- ---------- ----------- -----------
Total Undistributed Expenses 333,000 35.2% 4,150 16.77
- -------------------------------------------- -------------- ---------- ----------- -----------
Income Before Fixed Charges 414,000 43.8% 5,187 20.85
- -------------------------------------------- -------------- ---------- ----------- -----------
Management Fees and Fixed Charges
Management Fees 47,000 5.0% 587 2.37
Property Taxes 28,000 3.0% 350 1.41
Insurance 16,000 1.7% 206 0.81
Land Lease 72,000 7.6% 900 3.63
- -------------------------------------------- -------------- ---------- ----------- -----------
Total 163,000 17.3% 2,043 8.22
- -------------------------------------------- -------------- ---------- ----------- -----------
Income Before Reserve 251,000 26.6% 3,137 12.64
- -------------------------------------------- -------------- ---------- ----------- -----------
Reserve for Replacement 39,000 4.0% 487 1.96
- -------------------------------------------- -------------- ---------- ----------- -----------
Income Before Other Charges(4) $212,000 22.4% $2,650 $10.68
==============================================================================================
(1) PAR -- Per Available Room
(2) POR -- Per Occupied Room
(3) Departmental expense ratios are based on the respective department's
revenue, not total revenue
(4) Income before interest, taxes, depreciation, and amortization
Source: PKF Consulting
==============================================================================================
</TABLE>
3. Ten Year Statement of Estimated Annual Operating Results
Presented at the end of this section of the appraisal report is our estimate of
the operating results for the subject for the ten-year period beginning January
1, 1998. This forecast is based on the preceding stabilized year estimate,
adjusted to reflect effects of inflation, variations in occupancy and rate and
the impact of fixed and variable components of each revenue and expense item.
Selected key assumptions used to develop this forecast are summarized below.
IV-19
<PAGE>
a) With the exception of property taxes, all other revenues are expenses
are projected to increase at 3.0 percent throughout the holding period.
Property taxes are projected to increase at a rate of 2.0 percent per
year as allowed by California law, and growth in average daily room
rate is expected to be depressed for the first four years of the
analysis period as a result of market-driven factors.
b) For the first two years of this forecast, the occupancy and rates of
the hotel were projected as previously discussed. Thereafter, the
hotel's occupancy was assumed to remain at 68.0 percent, with the
average rate increasing at 3.0 percent per year.
4. Valuation Using Direct Capitalization
Based on our evaluation of the subject, it is was concluded that an overall
capitalization rate (OAR) of 11.5 percent is appropriate to value the subject,
and properly reflects the risks associated with this hotel given the property's
age, physical features, location, market position, and leasehold estate status.
Based on the projection of net operating income for a stabilized year of
operation, and the selected overall rate of 11.5 percent, the value of the
subject as if stabilized is calculated to be as follows.
================================================== =====================
Projected Stabilized Net Operating Income $212,000
Overall Capitalization Rate 11.5%
- -------------------------------------------------- ---------------------
Stabilized Value Indication $1,843,478
Rounded $1,850,000
================================================== =====================
From this derived stabilized value, a deduction is made for the cost required
for the hotel to achieve the projected stabilized level of income. This cost is
typically referred to as "income loss".
Income loss is the difference in projected cash flows and the cash flow which
would be available if the property were stabilized. This amount must be
subtracted from the stabilized value to reflect the risk associated with the
loss of income of a hotel property during the stabilization period. Based on our
market research and analysis, it is estimated that the subject will achieve a
stabilized level of operation in 2000. A calculation of the income loss
associated for the two years prior to that period is presented on the following
table.
IV-20
<PAGE>
===============================================================================
Income Loss to Stabilization
===============================================================================
Estimated Stabilized Year
Net Operating Net Operating Estimated Present Value
Year Income Income (1) Income Loss @ 6.5%
- -------------- ----------------- ----------------- ---------------- -----------
1998 $155,000 $212,000 $57,000 $55,072
1999 193,000 218,360 25,360 22,539
- -------------- ----------------- ----------------- ---------------- -----------
Total 82,360 77,611
- -------------- ----------------- ----------------- ---------------- -----------
Rounded $82,000 $78,000
===============================================================================
(1)Inflated to future value dollars at 3.0 percent.
===============================================================================
Based upon the preceding calculation, the cumulative income loss over the
stabilization period is estimated to be approximately $82,000. Investors
typically discount the estimated income loss at either the internal rate of
return for the property or at a "safe rate" such as AAA bonds or short-term
treasury bills. For the purpose of this analysis, we have chosen to discount the
income loss at the safe rate, or a rate which easily could be achieved if this
additional cash flow were available for short-term reinvestment. Consequently,
if the sum of the income losses were discounted at a safe rate of 6.5 percent,
the present value of the estimated income loss would be roundly $78,000.
Presented below is our calculation of the "as is" market value of the subject
taking into account the above estimate of income loss during the projected
stabilization period.
=======================================================================
Value Conclusion -- Direct Capitalization
=======================================================================
Stabilized Value $1,850,000
Less: Income Loss During Stabilization Period (78,000)
- ---------------------------------------------------- ------------------
"As Is" Value $1,772,000
- ---------------------------------------------------- ------------------
Rounded $1,800,000
- ---------------------------------------------------- ------------------
Therefore, the estimated "as is" market value of the leasehold interest in the
subject using the Direct Capitalization Approach, as of January 1, 1998, is:
==============================================================================
ONE MILLION EIGHT HUNDRED THOUSAND DOLLARS
- ------------------------------------------------------------------------------
$1,800,000
==============================================================================
5. Discounted Cash Flow Valuation Analysis
To estimate the value of the subject using a discounted cash flow analysis, it
is assumed that the property will be sold at the end of a ten-year holding
IV-21
<PAGE>
period. The value of the property at that time is estimated by capitalizing the
expected or anticipated net operating income of the property in the eleventh
year. From this value estimate, an estimate of sales costs is deducted to arrive
at the net proceeds upon sale.
Based on our market research, we are of the opinion that a reversionary
capitalization rate of 12.0 percent and a 14.5 percent discount rate are
appropriate to value the subject on a discounted cash flow basis.
The following table shows the present value of the projected net operating
income for the subject for the ten-year holding period, along with the present
value of the reversion, deriving a value estimate.
===============================================================================
Discounted Cash Flow Analysis
===============================================================================
Cash Flow Present Present
From Value Value
Year Operations Factor @ 14.5%
- ----------------- -------------------- ----------------------- ----------------
1998 $155,000 0.8734 $135,371
1999 $193,000 0.7628 $147,213
2000 $235,000 0.6662 $156,549
2001 $239,000 0.5818 $139,052
2002 $245,000 0.5081 $124,491
2003 $253,000 0.4438 $112,276
2004 $261,000 0.3876 $101,158
2005 $269,000 0.3385 $91,056
2006 $279,000 0.2956 $82,481
2007 $286,000 0.2582 $73,843
- ----------------- -------------------- ----------------------- ----------------
Reversion $2,421,000 0.2582 $625,086
- ----------------- -------------------- ----------------------- ----------------
Present Value $1,788,578
- ----------------- -------------------- ----------------------- ----------------
Value, Rounded $1,800,000
- ----------------- -------------------- ----------------------- ----------------
6. Income Capitalization Approach Valuation Conclusion
The value conclusion under the Income Capitalization Approach is based on both a
direct capitalization and a discounted cash flow analysis. Both methods resulted
in the same value. Our conclusion as to the "as is" market value of the
leasehold interest of the subject using the Income Capitalization Approach, as
of January 1, 1998, is:
==============================================================================
ONE MILLION EIGHT HUNDRED THOUSAND DOLLARS
- ------------------------------------------------------------------------------
$1,800,000
==============================================================================
IV-22
<PAGE>
H. RECONCILIATION AND FINAL ESTIMATE OF VALUE
The reconciliation involves the correlation of the conclusions reached from the
two valuation methodologies applied, considering the property type and the
requirements of the appraisal assignment. This process depends on the
appropriateness and reliability of each approach, and of the quality and
reliability of the data obtained. The results from the two approaches are as
follows:
============================================ ======================
Sales Comparison Approach $1,800,000
Income Capitalization Approach
Direct Capitalization $1,800,000
Discounted Cash Flow Analysis $1,800,000
============================================ ======================
In the Sales Comparison Approach we compared five recent hotel transactions to
the subject. The selected sales indicated a relatively wide range in value.
Furthermore, the sales were located in varying market areas throughout the
Central Valley of California and no property was identical to the subject. These
factors make this approach less meaningful, but act as a reference checkpoint
for the value derived from the Income Capitalization Approach methods.
The Income Capitalization Approach is undoubtedly the most commonly used method
to evaluate an income producing property such as a hotel. In this approach, we
have utilized two methods of analysis: The direct capitalization method and the
discounted cash flow method (yield capitalization). There was good market
support for both the projected cash flow of the subject as well as the
capitalization and yield rates used to convert our cash flow projections into a
value estimate. Both income methods resulted in a close range in values, within
2.0 percent of each other, heightening our confidence in this approach.
Accordingly, the primary reliance was placed on this method.
Based on the facts, assumptions, and procedures outlined in this report, it is
estimated that the "as is" market value of the leasehold interest in the subject
property, as of January 1, 1998, is reasonably represented as:
===============================================================================
ONE MILLION EIGHT HUNDRED THOUSAND DOLLARS
- -------------------------------------------------------------------------------
$1,800,000
===============================================================================
IV-23
<PAGE>
SUPER 8 MOTEL -- MODESTO, CALIFORNIA
HISTORICAL OPERATING RESULTS
<PAGE>
<TABLE>
Super 8, Modesto
Historical Operating Results
---------------------------------------------------------------------------------------------------
1994 1995
---------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
---------------------------------------------------------------------------------------------------
Number of Keys 80 80
Occupancy 71.00% 73.20%
Average Daily Room Rate (ADR) $41.02 $41.06
REVPAR $29.12 $30.06
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROOMS $ 849,946 97.9% $ 10,624 $ 41.00 $ 877,096 97.8% $ 10,964 $ 41.03
TELEPHONE 15,964 1.8% 200 0.77 16,718 1.9% 209 0.78
MISCELLANEOUS 2,566 0.3% 32 0.12 2,966 0.3% 37 0.14
------------ ------- -------- ------- ---------- ------- -------- -------
TOTAL REVENUE 868,476 100.0% 10,856 41.89 896,780 100.0% 11,210 41.96
DEPT. COSTS & EXPENSES (3)
ROOMS 180,136 21.2% 2,252 8.69 177,268 20.2% 2,216 8.29
TELEPHONE 11,395 71.4% 142 0.55 10,668 63.8% 133 0.50
MISCELLANEOUS 196 7.6% 2 0.01 547 18.4% 7 0.03
------------ ------- -------- ------- ---------- -------- -------- -------
TOTAL COST & EXP. 191,727 22.1% 2,397 9.25 188,483 21.0% 2,356 8.82
TOTAL OPER. DEPTS. INCOME 676,749 77.9% 8,459 32.64 708,297 79.0% 8,854 33.14
------------ ------- -------- ------- ---------- -------- -------- -------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 123,464 14.2% 1,543 5.96 128,563 14.3% 1,607 6.01
MARKETING 24,932 2.9% 312 1.20 26,088 2.9% 326 1.22
FRANCHISE FEES 42,399 4.9% 530 2.05 43,855 4.9% 548 2.05
UTILITIES 48,267 5.6% 603 2.33 56,054 6.3% 701 2.62
PROPERTY OPERATIONS 73,496 8.5% 919 3.55 74,930 8.4% 937 3.51
------------ ------- ------ ------- ----------- -------- -------- -------
TOTAL 312,558 36.0% 3,907 15.08 329,490 36.7% 4,119 15.42
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 364,191 41.9% 4,552 17.57 378,807 42.2% 4,735 17.72
------------ ------- ------ ------- ------------ --------- -------- -------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 43,325 5.0% 542 2.09 44,839 5.0% 560 2.10
PROPERTY TAXES 29,876 3.4% 373 1.44 20,990 2.3% 262 0.98
INSURANCE 15,474 1.8% 193 0.75 16,235 1.8% 203 0.76
RENT 66,885 7.7% 836 3.23 66,637 7.4% 833 3.12
------------ -------- ------ ------- ------------ --------- -------- -------
TOTAL 155,560 17.9% 1,945 7.50 148,701 16.6% 1,859 6.96
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 208,631 24.0% 2,608 10.06 $ 230,106 25.7% 2,876 10.77
============ ======== ====== ======= ============= ========= ======== =======
RENOVATION PAYMENT $ 38,662 $ 59,099
-----------------------------------------------------
1996
-----------------------------------------------------
$ % PAR (1) POR (2)
-----------------------------------------------------
Number of Keys 80
Occupancy 66.83%
Average Daily Room Rate (ADR) $41.63
REVPAR $27.82
REVENUES
ROOMS $ 814,510 97.1% $ 10,181 $ 41.62
TELEPHONE 21,127 2.5% 264 1.08
MISCELLANEOUS 2,943 0.4% 37 0.15
---------- ------- -------- -------
TOTAL REVENUE 838,580 100.0% 10,482 42.86
DEPT. COSTS & EXPENSES (3)
ROOMS 173,376 21.3% 2,167 8.86
TELEPHONE 13,018 61.6% 163 0.67
MISCELLANEOUS 598 20.3% 7 0.03
---------- ------- -------- -------
TOTAL COST & EXP. 186,992 22.3% 2,337 9.56
TOTAL OPER. DEPTS. INCOME 651,588 77.7% 8,145 33.30
---------- ------- -------- -------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 136,249 16.2% 1,703 6.96
MARKETING 22,325 2.7% 279 1.14
FRANCHISE FEES 40,760 4.9% 510 2.08
UTILITIES 50,704 6.0% 634 2.59
PROPERTY OPERATIONS 68,119 8.1% 851 3.48
---------- ------- -------- --------
TOTAL 318,157 37.9% 3,977 16.26
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 333,431 39.8% 4,168 17.04
---------- ------- -------- --------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 41,952 5.0% 524 2.14
PROPERTY TAXES 24,321 2.9% 304 1.24
INSURANCE 8,175 1.0% 102 0.42
RENT 67,896 8.1% 849 3.47
---------- ------- -------- --------
TOTAL 142,344 17.0% 1,779 7.27
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 191,087 22.8% 2,389 9.77
========== ======= ======== ========
RENOVATION PAYMENT $ 16,191
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenue, not total revenue.
(4) Net operating income before reserves, interest, depreciation,
amortization, and income taxes.
===================================================================================================================================
Source:The Famous Host Company
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8, Modesto
Operating Results Year-To-Date Septmber 1997 and 1997 Budget
---------------------------------------------------------------------------------------------------
September 1997 Budget 1997
---------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
---------------------------------------------------------------------------------------------------
Number of Keys 80 80
Occupancy 64.80% 69.62%
Average Daily Room Rate (ADR) $44.83 $43.74
REVPAR $29.05 $30.45
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROOMS $ 634,906 97.3% $10,611 $ 44.83 $ 889,160 97.7% $ 11,115 $ 43.74
TELEPHONE 16,228 2.5% 271 1.15 16,228 1.8% 203 0.80
MISCELLANEOUS 1,481 0.2% 25 0.10 2,449 0.3% 31 0.12
------------ ------- ------- ------- --------- ------- --------- -------
TOTAL REVENUE 652,615 100.0% 10,907 46.08 909,980 100.0% 11,375 44.76
DEPT. COSTS & EXPENSES (3)
ROOMS 128,935 20.3% 2,155 9.10 178,173 20.0% 2,227 8.76
TELEPHONE 8,093 49.9% 135 0.57 9,461 58.3% 118 0.47
MISCELLANEOUS 333 22.5% 6 0.02 200 8.2% 3 0.01
------------ -------- ------- -------- --------- ------- -------- -------
TOTAL COST & EXP. 137,361 21.0% 2,296 9.70 187,834 20.6% 2,348 9.24
TOTAL OPER. DEPTS. INCOME 515,254 79.0% 8,611 36.38 722,146 79.4% 9,027 35.52
------------ -------- ------- -------- --------- ------- -------- -------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 99,505 15.2% 1,663 7.03 128,416 14.1% 1,605 6.32
MARKETING 7,586 1.2% 127 0.54 16,896 1.9% 211 0.83
FRANCHISE FEES 31,745 4.9% 531 2.24 44,458 4.9% 556 2.19
UTILITIES 43,382 6.6% 725 3.06 52,014 5.7% 650 2.56
PROPERTY OPERATIONS 49,837 7.6% 833 3.52 55,811 6.1% 698 2.75
------------ ------- ------ -------- ---------- ------- -------- -------
TOTAL 232,055 35.6% 3,878 16.39 297,595 32.7% 3,720 14.64
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 283,199 43.4% 4,733 20.00 424,551 46.7% 5,307 20.88
------------ ------- ------- -------- ----------- -------- -------- -------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 32,631 5.0% 545 2.30 45,499 5.0% 569 2.24
PROPERTY TAXES 17,856 2.7% 298 1.26 30,000 3.3% 375 1.48
INSURANCE 12,461 1.9% 208 0.88 15,900 1.7% 199 0.78
RENT 53,215 8.2% 889 3.76 67,000 7.4% 838 3.30
------------ ------- ------- -------- ------------ --------- -------- -------
TOTAL 116,163 17.8% 1,941 8.20 158,399 17.4% 1,980 7.79
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 167,036 25.6% 2,792 11.79 $ 266,152 29.2% $ 3,327 $ 13.09
============ ======= ======= ======== ============= ========== ======== =======
RENOVATION PAYMENT $ 21,086 $ 27,299
- ------------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenue, not total revenue.
(4) Net operating income before reserves, interest, depreciation,
amortization, and income taxes.
====================================================================================================================================
Source:The Famous Host Company
====================================================================================================================================
</TABLE>
<PAGE>
SUPER 8 MOTEL -- MODESTO, CALIFORNIA
TEN YEAR STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS
<PAGE>
<TABLE>
Super 8
Modesto, California
Projected Operating Results
-----------------------------------------------------------------------------------------------
Calendar Years Ending December 31: 1998 1999
-----------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-----------------------------------------------------------------------------------------------
Number of Keys 80 80
Occupancy 62.00% 65.00%
Average Daily Room Rate $46.25 $47.75
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $ 837,000 97.2% $10,463 $46.23 $ 906,000 97.2% $11,325 $47.73
Telephone 21,000 2.4% 263 1.16 23,000 2.5% 288 1.21
Other Operated Departments 3,000 0.3% 38 0.17 3,000 0.3% 38 0.16
----------- ------- ------- --------- --------- ------- ------- -------
Total Revenues 861,000 100.0% 10,763 47.56 932,000 100.0% 11,650 49.10
Departmental Expenses (3)
Rooms 178,000 21.3% 2,225 9.83 188,000 20.8% 2,350 9.91
Telephone 11,000 52.4% 138 0.61 12,000 52.2% 150 0.63
Other Operated Departments 1,000 33.3% 13 0.06 1,000 33.3% 13 0.05
----------- ------- ------ --------- ---------- ------ ------ -------
Total Departmental Expenses 190,000 22.1% 2,375 10.49 201,000 21.6% 2,513 10.59
----------- ------- ------ --------- ---------- ------ ------ -------
Departmental Profit 671,000 77.9% 8,388 37.06 731,000 78.4% 9,138 38.51
Undistributed Expenses
Administrative and General 118,000 13.7% 1,475 6.52 122,000 13.1% 1,525 6.43
Franchise Fees 67,000 7.8% 838 3.70 72,000 7.7% 900 3.79
Marketing 25,000 2.9% 313 1.38 25,000 2.7% 313 1.32
Property Operations and Maintenance 60,000 7.0% 750 3.31 62,000 6.7% 775 3.27
Energy and Utilities 54,000 6.3% 675 2.98 55,000 5.9% 688 2.90
----------- ------- ------ --------- ---------- ------ ------- -------
Total Undistributed Expenses 324,000 37.6% 4,050 17.90 336,000 36.1% 4,200 17.70
----------- ------- ------ --------- ---------- ------ ------ -------
Gross Operating Profit 347,000 40.3% 4,338 19.17 395,000 42.2% 4,938 20.81
Fixed Charges and Management Fees
Base Management Fees 43,000 5.0% 538 2.38 47,000 5.0% 588 2.48
Property Taxes 27,000 3.1% 338 1.49 27,000 2.9% 338 1.42
Insurance 16,000 1.9% 200 0.88 17,000 1.8% 213 0.90
Land Lease 72,000 8.4% 900 3.98 74,000 7.9% 925 3.90
----------- ------- ------ --------- ---------- ------- ------ -------
Total Fixed Charges 158,000 18.4% 1,975 8.73 165,000 17.7% 2,063 8.69
----------- ------- ------ --------- ---------- ------- ------ -------
Income Before Reserves 189,000 22.0% 2,363 10.44 230,000 24.7% 2,875 12.12
Reserves for Replacements 34,000 3.9% 425 1.88 37,000 4.0% 463 1.95
----------- ------- ------ --------- ---------- ------- ------ -------
Net Operating Income (4) $ 155,000 18.0% $ 1,938 $ 8.56 $ 193,000 20.7% $ 2,413 $10.17
=========== ======= ====== ========= ========= ======= ====== =======
------------------------------------------------
Calendar Years Ending December 31: 2000
------------------------------------------------
$ % PAR (1) POR (2)
------------------------------------------------
Number of Keys 80
Occupancy 68.00%
Average Daily Room Rate $49.25
Revenues
Rooms $ 981,000 97.2% $12,263 $49.27
Telephone 25,000 2.5% 313 1.26
Other Operated Departments 3,000 0.3% 38 0.15
----------- ------- ------ --------
Total Revenues 1,009,000 100.0% 12,613 50.68
Departmental Expenses (3)
Rooms 198,000 20.2% 2,475 9.94
Telephone 13,000 52.0% 163 0.65
Other Operated Departments 1,000 33.3% 13 0.05
----------- ------- ------ --------
Total Departmental Expenses 212,000 21.0% 2,650 10.65
----------- ------- ------ --------
Departmental Profit 797,000 79.0% 9,963 40.03
Undistributed Expenses
Administrative and General 127,000 12.6% 1,588 6.38
Franchise Fees 78,000 7.7% 975 3.92
Marketing 26,000 2.6% 325 1.31
Property Operations and Maintenance 63,000 6.2% 788 3.16
Energy and Utilities 57,000 5.6% 713 2.86
----------- ------- ------ --------
Total Undistributed Expenses 351,000 34.8% 4,388 17.63
----------- ------- ------ --------
Gross Operating Profit 446,000 44.2% 5,575 22.40
Fixed Charges and Management Fees
Base Management Fees 50,000 5.0% 625 2.51
Property Taxes 28,000 2.8% 350 1.41
Insurance 17,000 1.7% 213 0.85
Land Lease 76,000 7.5% 950 3.82
----------- ------- ------ --------
Total Fixed Charges 171,000 16.9% 2,138 8.59
----------- ------- ------ --------
Income Before Reserves 275,000 27.3% 3,438 13.81
Reserves for Replacements 40,000 4.0% 500 2.01
----------- ------- ------ --------
Net Operating Income (4) $ 235,000 23.3% $ 2,938 $11.80
=========== ======= ======= ========
- -------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net operating income before interest, amortization, depreciation,
and income tax.
===================================================================================================================================
Source: PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
Modesto, California
Projected Operating Results
-----------------------------------------------------------------------------------------------
Calendar Years Ending December 31: 2001 2002
-----------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-----------------------------------------------------------------------------------------------
Number of Keys 80 80
Occupancy 68.00% 68.00%
Average Daily Room Rate $50.75 $52.25
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $1,008,000 97.2% $12,600 $50.77 $1,037,000 97.3% $12,963 $52.23
Telephone 26,000 2.5% 325 1.31 26,000 2.4% 325 1.31
Other Operated Departments 3,000 0.3% 38 0.15 3,000 0.3% 38 0.15
----------- ------- ------- -------- --------- ------- ------- --------
Total Revenues 1,037,000 100.0% 12,963 52.23 1,066,000 100.0% 13,325 53.69
Departmental Expenses (3)
Rooms 204,000 20.2% 2,550 10.27 210,000 20.3% 2,625 10.58
Telephone 13,000 50.0% 163 0.65 13,000 50.0% 163 0.65
Other Operated Departments 1,000 33.3% 13 0.05 1,000 33.3% 13 0.05
----------- ------- ------ -------- --------- ------- ------ --------
Total Departmental Expenses 218,000 21.0% 2,725 10.93 224,000 21.0% 2,800 11.28
----------- ------- ------ -------- --------- ------- ------ --------
Departmental Profit 819,000 79.0% 10,238 41.25 842,000 79.0% 10,525 42.41
Undistributed Expenses
Administrative and General 130,000 12.5% 1,625 6.55 134,000 12.6% 1,675 6.75
Franchise Fees 81,000 7.8% 1,013 4.08 83,000 7.8% 1,038 4.18
Marketing 27,000 2.6% 338 1.36 28,000 2.6% 350 1.41
Property Operations and Maintenance 65,000 6.3% 813 3.27 67,000 6.3% 838 3.37
Energy and Utilities 59,000 5.7% 738 2.97 60,000 5.6% 750 3.02
----------- ------- ------ -------- -------- ------- ------ --------
Total Undistributed Expenses 362,000 34.9% 4,525 18.23 372,000 34.9% 4,650 18.73
----------- ------- ------ -------- -------- ------- ------ --------
Gross Operating Profit 457,000 44.1% 5,713 23.02 470,000 44.1% 5,875 23.67
Fixed Charges and Management Fees
Base Management Fees 52,000 5.0% 650 2.62 53,000 5.0% 663 2.67
Property Taxes 28,000 2.7% 350 1.41 29,000 2.7% 363 1.46
Insurance 18,000 1.7% 225 0.91 19,000 1.8% 238 0.96
Land Lease 79,000 7.6% 988 3.98 81,000 7.6% 1,013 4.08
----------- ------- ------ -------- -------- ------- ------ --------
Total Fixed Charges 177,000 17.1% 2,213 8.91 182,000 17.1% 2,275 9.17
----------- ------- ------ -------- -------- ------- ------ --------
Income Before Reserves 280,000 27.0% 3,500 14.10 288,000 27.0% 3,600 14.50
Reserves for Replacements 41,000 4.0% 513 2.06 43,000 4.0% 538 2.17
----------- ------- ------ -------- -------- ------- ------ --------
Net Operating Income (4) $ 239,000 23.0% $ 2,988 $12.04 $ 245,000 23.0% $ 3,063 $12.34
=========== ======= ======= ======== ========= ======= ======= ========
-----------------------------------------------
Calendar Years Ending December 31: 2003
-----------------------------------------------
$ % PAR (1) POR (2)
-----------------------------------------------
Number of Keys 80
Occupancy 68.00%
Average Daily Room Rate $53.75
Revenues
Rooms $1,067,000 97.2% $13,338 $53.74
Telephone 27,000 2.5% 338 1.36
Other Operated Departments 4,000 0.4% 50 0.20
----------- -------- ------- --------
Total Revenues 1,098,000 100.0% 13,725 55.30
Departmental Expenses (3)
Rooms 216,000 20.2% 2,700 10.88
Telephone 14,000 51.9% 175 0.71
Other Operated Departments 1,000 25.0% 13 0.05
----------- -------- ------ --------
Total Departmental Expenses 231,000 21.0% 2,888 11.63
----------- -------- ------ --------
Departmental Profit 867,000 79.0% 10,838 43.66
Undistributed Expenses
Administrative and General 138,000 12.6% 1,725 6.95
Franchise Fees 85,000 7.7% 1,063 4.28
Marketing 29,000 2.6% 363 1.46
Property Operations and Maintenance 69,000 6.3% 863 3.48
Energy and Utilities 62,000 5.6% 775 3.12
----------- -------- ------ --------
Total Undistributed Expenses 383,000 34.9% 4,788 19.29
----------- -------- ------ --------
Gross Operating Profit 484,000 44.1% 6,050 24.38
Fixed Charges and Management Fees
Base Management Fees 55,000 5.0% 688 2.77
Property Taxes 29,000 2.6% 363 1.46
Insurance 19,000 1.7% 238 0.96
Land Lease 84,000 7.7% 1,050 4.23
----------- -------- ------ --------
Total Fixed Charges 187,000 17.0% 2,338 9.42
----------- -------- ------ --------
Income Before Reserves 297,000 27.0% 3,713 14.96
Reserves for Replacements 44,000 4.0% 550 2.22
----------- -------- ------ --------
Net Operating Income (4) $ 253,000 23.0% $ 3,163 $12.74
=========== ======== ======= ========
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net operating income before interest, amortization, depreciation,
and income tax.
===================================================================================================================================
Source: PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
Modesto, California
Projected Operating Results
-------------------------------------------------------------------------------------------
Calendar Years Ending December 31: 2004 2005
-----------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-----------------------------------------------------------------------------------------------
Number of Keys 80 80
Occupancy 68.00% 68.00%
Average Daily Room Rate $55.25 $57.00
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $1,100,000 97.2% $13,750 $55.25 $1,132,000 97.2% $14,150 $57.01
Telephone 28,000 2.5% 350 1.41 29,000 2.5% 363 1.46
Other Operated Departments 4,000 0.4% 50 0.20 4,000 0.3% 50 0.20
----------- ------- ------ -------- ---------- ------- ------- --------
Total Revenues 1,132,000 100.0% 14,150 56.86 1,165,000 100.0% 14,563 58.67
Departmental Expenses (3)
Rooms 223,000 20.3% 2,788 11.20 229,000 20.2% 2,863 11.53
Telephone 14,000 50.0% 175 0.70 14,000 48.3% 175 0.71
Other Operated Departments 1,000 25.0% 13 0.05 1,000 25.0% 13 0.05
----------- ------- ------ -------- --------- ------- ------ --------
Total Departmental Expenses 238,000 21.0% 2,975 11.95 244,000 20.9% 3,050 12.29
----------- ------- ------ -------- --------- ------- ------ --------
Departmental Profit 894,000 79.0% 11,175 44.90 921,000 79.1% 11,513 46.38
Undistributed Expenses
Administrative and General 142,000 12.5% 1,775 7.13 147,000 12.6% 1,838 7.40
Franchise Fees 88,000 7.8% 1,100 4.42 91,000 7.8% 1,138 4.58
Marketing 30,000 2.7% 375 1.51 30,000 2.6% 375 1.51
Property Operations and Maintenance 71,000 6.3% 888 3.57 73,000 6.3% 913 3.68
Energy and Utilities 64,000 5.7% 800 3.21 66,000 5.7% 825 3.32
----------- ------- ------ -------- --------- ------- ------ --------
Total Undistributed Expenses 395,000 34.9% 4,938 19.84 407,000 34.9% 5,088 20.50
----------- ------- ------ -------- --------- ------- ------ --------
Gross Operating Profit 499,000 44.1% 6,238 25.06 514,000 44.1% 6,425 25.89
Fixed Charges and Management Fees
Base Management Fees 57,000 5.0% 713 2.86 58,000 5.0% 725 2.92
Property Taxes 30,000 2.7% 375 1.51 31,000 2.7% 388 1.56
Insurance 20,000 1.8% 250 1.00 20,000 1.7% 250 1.01
Land Lease 86,000 7.6% 1,075 4.32 89,000 7.6% 1,113 4.48
----------- ------- ------ -------- --------- ------- ------ --------
Total Fixed Charges 193,000 17.0% 2,413 9.69 198,000 17.0% 2,475 9.97
----------- ------- ------ -------- --------- ------- ------ --------
Income Before Reserves 306,000 27.0% 3,825 15.37 316,000 27.1% 3,950 15.91
Reserves for Replacements 45,000 4.0% 563 2.26 47,000 4.0% 588 2.37
----------- ------- ------ -------- --------- ------- ------- --------
Net Operating Income (4) $ 261,000 23.1% $ 3,263 $13.11 $ 269,000 23.1% $ 3,363 $13.55
=========== ======= ======= ======== ========= ======= ======= ========
-----------------------------------------------
Calendar Years Ending December 31: 2006
-----------------------------------------------
$ % PAR (1) POR (2)
-----------------------------------------------
Number of Keys 80
Occupancy 68.00%
Average Daily Room Rate $58.75
Revenues
Rooms $1,167,000 97.2% $14,588 $58.77
Telephone 30,000 2.5% 375 1.51
Other Operated Departments 4,000 0.3% 50 0.20
---------- -------- ------ --------
Total Revenues 1,201,000 100.0% 15,013 60.49
Departmental Expenses (3)
Rooms 236,000 20.2% 2,950 11.89
Telephone 15,000 50.0% 188 0.76
Other Operated Departments 1,000 25.0% 13 0.05
----------- -------- ------ --------
Total Departmental Expenses 252,000 21.0% 3,150 12.69
----------- -------- ------ --------
Departmental Profit 949,000 79.0% 11,863 47.79
Undistributed Expenses
Administrative and General 151,000 12.6% 1,888 7.60
Franchise Fees 93,000 7.7% 1,163 4.68
Marketing 31,000 2.6% 388 1.56
Property Operations and Maintenance 76,000 6.3% 950 3.83
Energy and Utilities 68,000 5.7% 850 3.42
----------- -------- ------ --------
Total Undistributed Expenses 419,000 34.9% 5,238 21.10
----------- -------- ------ --------
Gross Operating Profit 530,000 44.1% 6,625 26.69
Fixed Charges and Management Fees
Base Management Fees 60,000 5.0% 750 3.02
Property Taxes 31,000 2.6% 388 1.56
Insurance 21,000 1.7% 263 1.06
Land Lease 91,000 7.6% 1,138 4.58
----------- -------- ------ --------
Total Fixed Charges 203,000 16.9% 2,538 10.22
----------- -------- ------ --------
Income Before Reserves 327,000 27.2% 4,088 16.47
Reserves for Replacements 48,000 4.0% 600 2.42
----------- -------- ------ --------
Net Operating Income (4) $ 279,000 23.2% $ 3,488 $14.05
=========== ======== ======= ========
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net operating income before interest, amortization, depreciation,
and income tax.
===================================================================================================================================
Source: PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
Modesto, California
Projected Operating Results
-----------------------------------------------------------------------------------------------
Calendar Years Ending December 31: 2007 2008
-----------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-----------------------------------------------------------------------------------------------
Number of Keys 80 80
Occupancy 68.00% 68.00%
Average Daily Room Rate $60.50 $62.25
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $1,201,000 97.2% $15,013 $ 60.49 $1,236,000 97.2% $15,450 $ 62.25
Telephone 31,000 2.5% 388 1.56 32,000 2.5% 400 1.61
Other Operated Departments 4,000 0.3% 50 0.20 4,000 0.3% 50 0.20
----------- ------- ------ --------- ---------- -------- ------ ---------
Total Revenues 1,236,000 100.0% 15,450 62.25 1,272,000 100.0% 15,900 64.06
Departmental Expenses (3)
Rooms 243,000 20.2% 3,038 12.24 250,000 20.2% 3,125 12.59
Telephone 15,000 48.4% 188 0.76 16,000 50.0% 200 0.81
Other Operated Departments 1,000 25.0% 13 0.05 1,000 25.0% 13 0.05
----------- ------- ------ --------- --------- -------- ------ --------
Total Departmental Expenses 259,000 21.0% 3,238 13.04 267,000 21.0% 3,338 13.45
----------- ------- ------ --------- --------- -------- ------ ---------
Departmental Profit 977,000 79.0% 12,213 49.20 1,005,000 79.0% 12,563 50.61
Undistributed Expenses
Administrative and General 156,000 12.6% 1,950 7.86 160,000 12.6% 2,000 8.06
Franchise Fees 96,000 7.8% 1,200 4.83 99,000 7.8% 1,238 4.99
Marketing 32,000 2.6% 400 1.61 33,000 2.6% 413 1.66
Property Operations and Maintenance 78,000 6.3% 975 3.93 80,000 6.3% 1,000 4.03
Energy and Utilities 70,000 5.7% 875 3.53 72,000 5.7% 900 3.63
----------- ------- ------ --------- --------- -------- ------ ---------
Total Undistributed Expenses 432,000 35.0% 5,400 21.76 444,000 34.9% 5,550 22.36
----------- ------- ------ --------- --------- -------- ------ ---------
Gross Operating Profit 545,000 44.1% 6,813 27.45 561,000 44.1% 7,013 28.25
Fixed Charges and Management Fees
Base Management Fees 62,000 5.0% 775 3.12 64,000 5.0% 800 3.22
Property Taxes 32,000 2.6% 400 1.61 32,000 2.5% 400 1.61
Insurance 22,000 1.8% 275 1.11 22,000 1.7% 275 1.11
Land Lease 94,000 7.6% 1,175 4.73 97,000 7.6% 1,213 4.89
----------- ------- ------ --------- -------- -------- ------ ---------
Total Fixed Charges 210,000 17.0% 2,625 10.58 215,000 16.9% 2,668 10.83
----------- ------- ------ --------- -------- -------- ------ ---------
Income Before Reserves 335,000 27.1% 4,188 16.87 346,000 27.2% 4,325 17.43
Reserves for Replacements 49,000 4.0% 613 2.47 51,000 4.0% 638 2.57
----------- ------- ------ --------- -------- -------- ------ ---------
Net Operating Income (4) $ 286,000 23.1% $ 3,575 $ 14.40 $ 295,000 23.2% $ 3,668 $ 14.86
=========== ======= ======= ========= ========= ======== ======= =========
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net operating income before interest, amortization, depreciation,
and income tax.
===================================================================================================================================
Source: PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
SECTION V
SUPER 8 MOTEL
PLEASANTON, CALIFORNIA
<PAGE>
===============================================================================
Summary of Important Facts and Conclusions
===============================================================================
Property Address Super 8 Motel
5375 Owens Court
Pleasanton, California 94566
Telephone (510) 463-1300
- -------------------------------------------- ----------------------------------
Owner Super 8 Economy Lodging IV, Ltd.
- -------------------------------------------- ----------------------------------
Assessor's Parcel Number 941-1301-18 and 941-2771-2
- -------------------------------------------- ----------------------------------
Effective Date of Appraisal January 1, 1998
- -------------------------------------------- ----------------------------------
Property Rights Appraised Fee Simple Interest
===============================================================================
Highest and Best Use
===============================================================================
Highest and Best Use
As if Vacant Limited-service hotel
As Improved Limited-service hotel or highway
commercial use
===============================================================================
Property Description
===============================================================================
Existing Improvements
Year Built 1984
Gross Building Area 35,984 square feet
Number of Hotel Guest Rooms 102
Parking 105 spaces
Number of Floors Three above ground (no basement)
Hotel Amenities Pool and whirlpool, complimentary
coffee
Compliance with ADA Partial
- -------------------------------------------- ----------------------------------
Site
Area 2.04 acres (88,715 square feet)
Zoning PUD-C (Planned Unit Development -
Commercial)
Flood Zone B, Panel Number 060012-0001E dated
September 30, 1997
Wetlands Zone No
Alquist Priolo Special Studies Zone No
Historic, Natural , Cultural,
Recreational, or Scientific Value None
===============================================================================
Valuation Conclusion
===============================================================================
Cost Approach Not Applicable
- -------------------------------------------- ----------------------------------
Sales Comparison Approach $7,400,000
- -------------------------------------------- ----------------------------------
Income Capitalization Approach
Stabilized Occupancy 75.0%
Average Daily Room Rate $65.00
Stabilized Net Income $795,000
Overall Capitalization Rate 10.0%
Terminal Capitalization Rate 10.5%
Discount Rate 13.0%
Indicated Market Values
Direct Capitalization Technique $8,000,000
Discounted Cash Flow Analysis $7,600,000
- -------------------------------------------- ----------------------------------
Final Estimate of Market Value $7,600,000
- -------------------------------------------- ----------------------------------
Marketing and Exposure Period Six months or less
- -------------------------------------------- ----------------------------------
V-1
<PAGE>
(Photograph deleted)
View of Hotel Looking Northwest from Owens Court Driveway to Site
(Photograph deleted)
View of Typical Double Queen-Bed Guestroom
V-2
<PAGE>
A. AREA AND NEIGHBORHOOD REVIEW
1. Introduction
The subject property is located in the city of Pleasanton, Alameda County.
Pleasanton is located 15 miles southeast of Oakland and approximately 30 miles
east of San Francisco. Alameda County has extensive transportation facilities
including a major port that is accessible to ocean-going vessels, an airport,
railroads, freeways, and rapid transit lines connecting the region with the
entire Bay Area. The southern portion of the county, with its proximity to the
Silicon Valley, contains much of the county's high-tech industry. Over the past
few years, biotech firms have moved into the northern portion of Alameda County,
to Emeryville and Berkeley. The eastern section of the county, on the other
hand, has developed from a suburban area into a more commercial and financial
headquarters center.
Pleasanton has developed from a farming community to a residential and business
center due to relatively low land costs, its proximity to San Francisco, and the
development of the large Hacienda Business Park to attract corporate tenants. As
such, the Pleasanton economy is directly involved with the neighboring economies
of San Ramon, Livermore, and central Contra Costa County. A map highlighting the
location of the subject property in relation to the surrounding area is shown on
the following page.
2. Economic Data
Presented in the following text is a brief overview of selected economic data
that characterizes the local market area.
Population: The population of Pleasanton was 59,800 in January 1997, a
3.5 percent increase from 1996. The corresponding population of Alameda
County was 1,375,900. This figure represents a compound average annual
growth rate (CAAG) of 1.1 percent over the 1990 figure of 1,291,700. In
comparison, the CAAG increase in the population of the State of
California as 1.3 percent since 1990. Population in the Pleasanton area
is expected to grow at a faster rate than Alameda County overall.
Retail Sales: Total taxable retail sales for Alameda County totaled
over $9.5 billion in 1996. This county figure represented a CAAG
increase of 2.4 percent over the past six years.
V-3
<PAGE>
(Street map of the Pleasanton area deleted)
Regional Map
V-4
<PAGE>
Income: Median household effective buying income (EBI) has increased
at a CAAG rate of 1.2 percent over the 1990 to 1996 period for Alameda
County, while EBI for the City of Pleasanton has increased at a 5.4
percent rate. Based on the 1990 census, income per capita for
Pleasanton is $24,812 with an average household income of $66,867.
Employment: In 1997, the total number of persons employed in the
Oakland MSA, which is composed of Alameda and Contra Costa Counties,
was approximately 94,000 persons. This is about a 2.0 percent increase
over 1996 which was approximately 92,000 persons. The Oakland MSA
unemployment rate was 6.4 percent through mid-year 1997 and 7.2 percent
in 1996. Moderate job growth is projected through 2010 for the Bay
Area, with the largest growth projected to be in the areas of services
and manufacturing.
The following table presents a listing of the major private industry employers
in Pleasanton as of year-end 1997.
=======================================================
Major Private Industry Employers in Pleasanton
1997
=======================================================
Number of
Company Employees
- -------------------------- ============================
AT&T 1,900
Providian Bancorp 1,600
People Soft 1,400
Pacific Bell Mobile Services 1,000
Macy's 800
Valley Care Medical Center 600
Farmers Insurance 580
Nellcor Puritan Bennett 500
Clorox Technical Center 500
Safeway Co. 500
Nordstrom 500
Pacific Bell Communications 410
Unisource Worldwide 400
GTE Mobilnet 400
=======================================================
Source: City of Pleasanton Chamber of Commerce
=======================================================
Commercial Office Space: Over the past seven years, the total net
rentable area within Pleasanton has increased from approximately 6.2
million square feet to 7.4 million square feet. Of the total 7.4
million square feet of space in Pleasanton, the majority is located in
Hacienda Business Park. Over the next few years, new office
construction is likely to be limited to built-to-suit buildings. As
the regional economy strengthens, the East Bay office market is
projected to benefit from tightening markets in San Francisco and
V-5
<PAGE>
Silicon Valley. As a result, vacancy rates are expected to decline
further, and effective rental rates should rise over the next few
years.
Tourism: The East Bay is not generally considered to be a tourist
destination in its own right, but benefits from its relationship to the
San Francisco Bay Area. Leisure travel to the Pleasanton area is
generated primarily from friends and relatives visiting local
residents, as well as special events. In 1995, the City was successful
in attracting the Scottish Rites and Games, an annual festival bringing
thousands of participants and onlookers. Pleasanton is also the home of
the annual Alameda County Fair which takes place from the end of June
through early July each year.
More than 465,000 people attend this event each year.
Transportation: Transportation within Alameda County includes an
efficient and expanding freeway system, various railroad lines, public
transportation featuring the Bay Area Rapid Transit System (BART), and
the Port of Oakland International Airport. The subject's market area is
primarily served by the Oakland International Airport with additional
service provided by the major San Francisco International Airport,
located on the opposite side of San Francisco Bay. Oakland
International Airport is located approximately 30 miles southwest of
the subject site and is easily accessible via major freeways.
3. Neighborhood Review
The subject property is located near the major freeway intersection of
Interstate 580 and Hopyard Road. The surrounding area is comprised of office,
commercial, restaurant, and lodging uses oriented to the freeway nature of the
neighborhood. The subject site is in proximity to the major freeway interchange
of Interstates 680 (north-south) and 580 (east-west). The Hopyard Road
interchange is one interchange north of the aforementioned freeway intersection.
The new Pleasanton BART station is a short distance east of the subject property
and can be reached by foot.
Surrounding uses proximate to the subject site include: (facing the subject site
across Hopyard Road) a large CompUSA retail store, a Candlewood extended-stay
lodging facility, and an office building housing the Prudential Company;
(surrounding the site) a Buttercup Pantry restaurant, a Burger King fast food
facility, the Pleasant Asian restaurant, Schroeber's Athletic Club, Ski World
USA; and (south of the site) Hacienda Motors, a Mercedes dealership.
4. Conclusion
In summary, we are of the opinion that the subject property is well located in
the city of Pleasanton. Growth in nearly all economic indicators has been
positive over the past several years and we forecast continued growth in the
foreseeable future.
V-6
<PAGE>
B. PROPERTY DESCRIPTION
1. Introduction
The subject property is a limited-service hotel comprising 102 guestrooms.
Additional amenities at the property include an outdoor swimming pool and
24-hour coffee service. The hotel is proximate to several restaurants and
fast-food establishments, a full-service health club, and is within walking
distance of the new Pleasanton BART station. The hotel comprises a wood-frame
structure of three floors. The hotel building houses guestrooms, the lobby, the
hotel laundry, service areas, and various mechanical and electrical equipment.
The hotel was constructed in 1984, the first year of operation. The hotel is
currently owned by Super 8 Economy Lodging IV, Ltd., a related company to the
Famous Host Companies. We are not aware of any transactions relating to the site
or the improvements since the date of opening.
2. Site Description and Zoning
The subject property is located at 5375 Owens Court, off Owens Drive and Hopyard
Road, in Pleasanton, California. The subject site comprises 2.04 acres, or
88,715 square feet. The site is irregular in shape and has excellent frontage
facing Interstate 580 and Hopyard Road. The entry to the parcel is set back from
Owens Court, and the subject site adjoins two neighboring parcels, Schroeber's
Athletic Club and Ski World USA in this area. The property is level and is at
grade with the surrounding streets and parcels, although Hopyard Road elevates
above the subject parcel in a upward sloping direction as Hopyard Road
overpasses the Interstate 580 freeway.
The subject property is zoned PUD-C (Planned Unit Development - Commercial).
This zoning allows a variety of commercial development in a planned development
setting, and a hotel is a permitted use in this zone. We are aware of no
easements or covenants affecting the subject property which would negatively
affect the market value of the subject property.
3. Improvements Description
The hotel building forms a rectangular shape with the guestrooms opening outward
to covered, exterior corridors on all levels. The perimeter of the parcel and
the perimeter of the building are landscaped. Chain link fencing lines the
portions of the perimeter of the property adjoining Hopyard Road and Interstate
580. A portion of the site is more intensively landscaped and is also the site
of the outdoor pool and whirlpool. The hotel offers various corridor staircases
and one hydraulic elevator, and is fire sprinklered. The exterior of the
building is comprised of tan stucco with maroon red trim, and, in combination
with the Spanish tile, conveys a contemporary California Mission style of
architecture.
V-7
<PAGE>
The total interior square footage of the hotel is 35,984 square feet and the
average size of a typical guest room is 282 square feet. The Super 8 Motel
provides 102 guestrooms, configured as 68 queen-size bedrooms, 21 double,
queen-size bedrooms, and 13 suite rooms (with queen sized beds). Four rooms are
equipped for disabled persons. The guestrooms are furnished with a color
television, desk, two chairs, nightstand, lamp, and dresser. The lobby is wood
paneled with contemporary wood furniture. Overall, the property is in good
condition and has been maintained on a regular basis.
With regard to parking, the hotel has 105 surface parking spaces located on the
paved parking lot which surrounds the hotel building. Five of these spaces are
designated for physically challenged persons. Also located on-site for guest use
are an ice machine, soft-drink vending machine, and a snack vending machine.
4. Basic Construction and Mechanical Systems
The subject building is a wood-framed structure having foundations of
poured-in-place concrete slab on-grade. The exterior walls are composed of
stucco. The exterior colors of the hotel are a one-tone paint beige scheme with
a contrasting maroon accent coloration. The interior walls are sheet rock and
are primarily painted or have vinyl wall covering. The roof is a flat, rolled,
built-up tar paper-type over wood framing with Spanish tile mansard accenting,
all of which appear to be in good condition. Presented in the following table is
a summary of the basic construction and mechanical systems of the hotel.
V-8
<PAGE>
===============================================================================
Super 8 Motel -- Pleasanton
Summary of Basic Construction and Mechanical Systems
===============================================================================
Foundation: Concrete slab on-grade with spread footings
- ------------------------------- -----------------------------------------------
Frame: Wood
- ------------------------------- -----------------------------------------------
Walls: Stucco
- ------------------------------- -----------------------------------------------
Floor: Wood trusses, 5/8" plywood, and 3/4" gypcrete
- ------------------------------- -----------------------------------------------
Roof: Built-up tar and gravel with concrete tile
- ------------------------------- -----------------------------------------------
Ceiling Heights: 8'
- ------------------------------- -----------------------------------------------
Doors:
Guest Room and Bathroom: 1 3/4" metal door with 20 minute label and
1 3/8" wood with no rating
Exterior: 1 3/4" metal with 20 minute label and also
aluminum store-front
- ------------------------------- -----------------------------------------------
Windows: Sliding bronze anodized aluminum with double
glazing
- ------------------------------- -----------------------------------------------
Heating and Cooling: Guestrooms: GE Zoneline through-the-wall heat
pumps
Lobby: Carrier package system
- ------------------------------- -----------------------------------------------
Elevators: US Elevator hydraulic lift
- ------------------------------- -----------------------------------------------
Electrical: 120 - 20 BV, 2,000 amps
- ------------------------------- -----------------------------------------------
Plumbing:
Water Pipes: Copper type "M" above grade; type "L" below
grade
Sewer Pipes: No hub cast iron
Gas Pipes: Black steel inside; wrapped steel outside of
building
- ------------------------------- -----------------------------------------------
Domestic Hot Water: 2 boilers and 1 holding tank
- ------------------------------- -----------------------------------------------
Laundry Facilities: 2 Uni-Wash washers
2 Huebsch dryers
1 Uni-Wash dryer
- ------------------------------- -----------------------------------------------
Sprinkler System: Entire building is sprinklered
- ------------------------------- -----------------------------------------------
Life Safety:
Fire Alarm Stations: Main fire alarm is located at the front desk
Smoke Detectors: Hard-wired dual ionization smoke detectors
Emergency Illumination: Provided
===============================================================================
Source: Famous Host Companies
===============================================================================
5. Assessed Value and Property Taxes
The subject property is assessed by Alameda County on a tax year commencing July
1 of every year. Under the provisions of Article 13-A of the State of California
(Proposition 13), properties are assessed based on their fair market value as of
the change of ownership date. The assessed value can be increased by a maximum
of 2.0 percent per year until such date as the property is subsequently sold,
substantial new construction takes place, or the use of the property is
substantially changed. The current assessed value of the property is presented
in the following table.
V-9
<PAGE>
============================================================
Assessor's Parcel Numbers
941-1301-18 and 941-2771-2
1997/98 Assessed Value
============================================================
Land and Improvements $3,650,289
Personal Property 203,125
- -------------------------------------- ---------------------
Net Taxable Value $3,853,414
- -------------------------------------- ---------------------
For 1997/1998, total property taxes and direct assessments are $46,472.75 on the
subject property. The indicated tax rate, therefore, is 1.2061 percent.
6. Renovation and Capital Improvements
The property has been maintained in good condition and no renovation projects
are currently identified other than typical maintenance work. A consideration to
upgrade the landscaping at the site entrance has been made, but we understand
that one of the adjoining owners, Schroeber's Athletic Club, is not interested
in this project, so plans have been dropped.
As the through-the-wall air conditioning units in each guestroom continue to
age, these units will need to be replaced. Further, as the guestroom doors are
secured with standard key locks, an upgrade to more contemporary electronic door
locks is also necessary. Given that the cost of such renovation work, on a
project-by-project basis, is not unusually large, annual funding for such
projects on a phased-basis is considered to be possible through an annual
reserve for capital replacement of 4.0 percent of total revenue.
7. Summary of Functional Utility and Condition
It is our opinion that the hotel is adequately designed and maintained to
service the limited-service hotel market demand of suburban Pleasanton.
C. HOTEL MARKET ANALYSIS
1. Competitive Supply
There are a wide variety of lodging facilities currently located in Pleasanton
ranging from limited-service motels such as the subject property to full-service
properties such as the Pleasanton Hilton. With regard to future lodging supply,
there are a number of new facilities planned. At the top end of the market, the
Pleasanton Hilton is reviewing proposals to add 150 rooms to the existing
facility. More competitive to the subject property, the following table
highlights hotel development occurring in the Pleasanton market area, comprising
a total of 593 rooms.
V-10
<PAGE>
<TABLE>
==========================================================================================================
Super 8 Motel -- Pleasanton
New Hotel Supply
==========================================================================================================
Development Expected
Product Location Rooms Status Opening Date
------------------------------------ --------------- ----------- ---------------- ========================
<S> <C> <C>
Summerfield Suites Pleasanton 128 Construction July 1, 1998
Sierra Suites Pleasanton 113 Construction July 1, 1998
AmeriSuites Dublin 128 In Escrow January 1, 1999
Holiday Inn Express & Suites Dublin 89 Approved January 1, 1999
Residence Inn Pleasanton 135 Approved January 1, 1999
==========================================================================================================
Source: PKF Consulting and the Dublin and Pleasanton Planning Departments
==========================================================================================================
</TABLE>
It should also be noted that in San Ramon, a 138-room Courtyard by Marriott and
a 147-unit Homestead Village are currently under construction, and there is also
talk of Starwood Lodging Corporation building a hotel. In Livermore, an 80-room
Hampton Inn opened in July of this year, and a 125-unit Extended-stay America is
undergoing construction. Additionally, the Livermore City Council has approved
the development of a 122-room Courtyard by Marriott, and a 100-room Hilton
Garden Inn. The opening of these two hotels is tentatively scheduled for the
first quarter of 1998. Directly opposite the subject property, on the west side
of Hopyard Road, a 126-unit Candlewood Suites hotel opened in November 1997.
In total, the identified new rooms in the Pleasanton market area are anticipated
to open by 1999, resulting in a significant increase in supply. Therefore,
additions to the competitive supply are projected during the next five-year
period, and we have taken such new supply into account in our estimation of the
future operating performance of the subject property.
2. Historical Market Performance
The following table presents a summary of the historical market performance of
the Pleasanton market area as compiled by PKF Consulting. The following market
statistics, which include the subject property, cover the period 1992 to 1996,
as well as our estimate for 1997.
V-11
<PAGE>
<TABLE>
====================================================================================================================
Competitive Hotel Market
Historical Occupancy and Room Rate
1992 to 1997 (Estimated)
====================================================================================================================
Daily Rooms
Available Percent Percent Average Daily Percent
Year Change Occupancy Change Room Rate Change
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ============
<S> <C> <C> <C> <C>
1992 1,068 - 67.9% - $67.71 -
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------
1993 1,068 0.0% 71.0% 4.6% $70.08 3.5%
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------
1994 1,068 0.0% 70.7% (0.5)% $72.58 3.6%
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------
1995 1,068 0.0% 75.0% 6.1% $76.85 5.9%
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------
1996 1,068 0.0% 77.3% 3.0% $85.04 10.7%
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------
1997 (Estimated) 1,089 (1) 2.0% 78.2% 3.2% $98.37 15.7%
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------
CAAG 0.4% - - - 7.7% -
====================================================================================================================
Notes: (1) Addition of Candlewood Suites as of November 1, 1997
Source: PKF Consulting
====================================================================================================================
</TABLE>
As can be noted, over the five-year period 1992 to 1996, the number of available
rooms within the competitive market has remained stable. In 1997, the
introduction of the Candlewood Suites increased the supply of available rooms.
As the hotel opened in late 1997 (November), the full effect of the new hotel
will occur in 1998. During the 1992 to 1997 period, demand has increased
year-by-year, attributed the strong local economy and from spill-over demand
from other regions of the East Bay such as Livermore and San Ramon. Overall,
occupancy has increased from 67.9 percent in 1992 to an estimate 78.2 percent as
of year-end 1997.
In terms of the competitive market's average daily room rate (ADR), we estimate
that the composite hotel market will achieve an ADR of $98.37 in 1997, another
year of steady room rate growth. From an ADR of $67.71 in 1992, the market has
shown a CAAG of 7.7 percent, with much stronger growth occurring most recently
in 1996 and 1997 as occupancy levels have stabilized in the high 70s percent
range.
3. Demand Segmentation
The primary demand segments in the Pleasanton market are corporate (including
government and military travelers), group, and leisure demand. Business and
leisure travel are the two largest demand segments on an annual basis. On a more
seasonal basis, group demand is the third demand segment in the Pleasanton
market. Each hotel penetrates these three demand segments based on the appeal of
the property to the various types of travelers in each segment.
The current mix of demand at the subject property is primarily composed of
primarily of leisure travelers (52.1%) who are attracted to the subject property
because of its convenient location and clean, well-priced rooms. The second
V-12
<PAGE>
largest component of demand (46.6%) is from corporate, government, and military
travelers who are visiting businesses and agencies in the area. The balance of
demand is generated by group travelers (1.3%) such as athletic and school
groups.
4. Projected Future Supply and Demand
Over the past six years (1992 to 1997) demand for hotel accommodations in
Pleasanton has increased at a CAAG of 3.3 percent in a generally stable supply
market. This reflects the increase in demand for lodging in Pleasanton generated
by the growth in the regional and local economy. As indicated, this growth has
not gone unnoticed by developers, and a number of new hotels are planned to come
on-line by the end of 1999 to accommodate the expected continued growth in
demand.
Based on our review of the local market, we project overall demand for hotel
rooms will continue to stabilize and will show growth over the next five years.
While demand will grow in general, occupancy rates at hotels in specific should
decline as a result of additions to supply. Presented in the table below is a
summary of the projected growth in supply, demand, and the resulting occupancy
levels for the competitive market for the period 1998 to 2002.
<TABLE>
=======================================================================================================
Super 8 Motel -- Pleasanton
Estimated Growth In Supply and Demand
Competitive Hotel Market
=======================================================================================================
Daily Annual Total
Year Available Rooms Available Rooms Demand Occupancy
- --------------------- ----------------------- --------------------- ---------------- ------------------
Actual
<S> <C> <C> <C> <C> <C>
1992 1,068 389,820 264,688 67.9%
1993 1,068 389,820 276,772 71.0%
1994 1,068 389,820 275,603 70.7%
1995 1,068 389,820 292,365 75.0%
1996 1,068 389,820 301,331 77.3%
1997 (Estimated) 1,089 397,485 310,833 78.2%
- --------------------- ----------------------- --------------------- ---------------- ------------------
Projected
1998 1,314 479,610 350,100 73.0%
1999 1,787 652,255 417,400 64.0%
2000 1,787 652,255 443,500 68.0%
2001 1,787 652,255 463,100 71.0%
2002 1,787 652,255 476,100 73.0%
- --------------------- ----------------------- --------------------- ---------------- -----------------
CAAG
1992 to 1997 0.4% - 3.3% -
1997 to 2002 10.4% 8.9%
=======================================================================================================
Source: PKF Consulting
=======================================================================================================
</TABLE>
As can be noted above, the number of rooms available in the market will increase
significantly in 1998 and 1999, with a CAAG of 10.4 percent over the period 1997
to 2002. Along with the growth in supply, growth in demand is forecast at a CAAG
V-13
<PAGE>
of 8.9 percent over the 1997 to 2002 period. With the growth in demand forecast
to be lower than the growth in supply, declining occupancy is forecast, and we
predict the current level of occupancy in the high 70s percent to stabilize,
after a period of lowered occupancy, in the low 70s percent by 2002.
5. Market Performance of the Subject
The following table summarizes the historical occupancy levels and average room
rate for the Super 8 Motel over the past four years
===============================================================================
Super 8 Motel -- Pleasanton
Historical Occupancy and Room Rate
1994 to 1997 (Estimated)
===============================================================================
Average Daily
Year Occupancy % Change Room Rate % Change
- --------------------- -------------- ------------ ----------------- -----------
1994 73.2% - $50.08 -
- --------------------- -------------- ------------ ----------------- -----------
1995 76.0% 3.8% $52.63 5.1%
- --------------------- -------------- ------------ ----------------- -----------
1996 77.9% 2.5% $57.69 9.6%
- --------------------- -------------- ------------ ----------------- -----------
1997 (Estimated) 80.0% 2.7% $63.00 9.2%
- --------------------- -------------- ------------ ----------------- -----------
CAAG 3.0% - 7.9% -
===============================================================================
Source: Famous Host Companies
===============================================================================
As can be noted, occupancy rates at the subject property have been trending
upward from 73.2 percent achieved in 1995 to 80.0 percent estimated for year-end
1997. This steady increase in occupancy is attributed to the strength of the
Tri-Valley market combined with, up to the present, limited additions to the
supply of hotel rooms. However, due to numerous upcoming additions to supply,
occupancy rates are expected to decline in future years.
With regard to room rates, from 1994 to 1997, room rates increased at a CAAG of
7.9 percent, from $50.08 as of year-end 1994 to an estimated $63.00 for year-end
1997. This increase in ADR is a reflection of the economic strength in the local
market.
Based on our analysis of the local market, we are of the opinion the subject
will achieve an average occupancy of 75.0 percent over the ten-year analysis
period discussed in this report. From the 80.0 percent occupancy achieved in
1997, occupancy will remain at that level in 1998. With additions to supply, a
decreased occupancy of 77.0 percent will be achieved in 1999, followed by three
years of occupancy at 75.0 percent for 2000, 2001, and 2002, respectively. For
the balance of the projection period, from 2003 to 2007, an occupancy level of
73.0 percent is projected due to the threat of additional new competition in the
limited-service market. However, it should be noted that the derived stabilized
occupancy of 75.0 percent for the subject property is the average for the
ten-year period (1998-2007).
V-14
<PAGE>
Based on our market analysis, we project the hotel to achieve an average room
rate of $65.00 in 1998, a 3.0 percent increase over 1997. Over the balance of
our projection period, we project the hotel's average room rates to increase at
the anticipated long-term level of inflation (3.0 percent per year). We believe
that this is realistic given the expected growth in demand in the market
dampened by competitive new additions to supply.
The following table summarizes our projections for the subject property over the
first five years of the ten-year analysis period from January 1, 1998 to
December 31, 2002.
===============================================================================
Super 8 Motel -- Pleasanton
Projected Occupancy and Average Daily Room Rate
1998 to 2002
===============================================================================
Average
Market Daily Percent
Year Occupancy Penetration Room Rate Change
- ------------- --------------- ---------------- ----------------- --------------
1997 80.0% 102.3% $63.00 -
- ------------- --------------- ---------------- ----------------- --------------
1998 80.0% 110.0% $65.00 3.0%
1999 77.0% 120.0% $66.75 3.0%
2000 75.0% 110.0% $68.75 3.0%
2001 75.0% 106.0% $71.00 3.0%
2002 75.0% 103.0% $73.00 3.0%
- ------------- --------------- ---------------- ----------------- --------------
CAAG (1.3)% - 3.0% -
(1998-2002)
===============================================================================
Source: PKF Consulting
===============================================================================
D. HIGHEST AND BEST USE
Based on our analysis, we are of the opinion that the existing improvements
contribute significant overall value to the site. There is no alternative, legal
use that could economically justify the restructuring or removal of the existing
improvements at this time. Therefore, the subject property, as improved,
represents the highest and best use of the site.
E. VALUATION -- SALES COMPARISON APPROACH
1. Introduction
The Sales Comparison Approach is based on the premise that knowledgeable
investors will pay no more for a specific property than the cost of acquiring a
substitute property of equal utility. The basis for this analysis is a
comparison of the subject to the sale of other facilities.
V-15
<PAGE>
We have reviewed a number of Alameda County hotel sales and focused on those
sales considered most comparable in providing support for the market value of
the subject. Based on this review, we have identified five recent hotel sales in
the local region. The sales occurred between February 1996 and February 1997.
The sales are all of a fee simple interest in the respective properties.
<TABLE>
==============================================================================================================
Comparable Hotel Sales
==============================================================================================================
Rooms Overall
Sale Sale Year Number Price Revenue Capitalization
No. Hotel Name Location Date Built Of Rooms Per Room Multiplier Rate
- ----- ------------------------ ----------- ------- ------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
1 Days Inn Bay Bridge Emeryville 2/97 1985 153 $60,784 3.07 9.3%
2 Days Inn Oakland 2/97 1975 142 $44,366 3.03 14.1%
3 Sheraton Four Points Pleasanton 1/97 1985 214 $109,000 4.85 9.7%
4 Best Western Dublin Dublin 7/96 1974 235 $34,480 3.46 5.0%
5 Park Hilton Pleasanton 2/96 1985 294 $78,912 3.32 11.1%
==============================================================================================================
Source: PKF Consulting
==============================================================================================================
</TABLE>
2. Analysis of Hotel Sales
Because of the many differences between the selected transactions and the
subject property, we are of the opinion that an analysis using a rooms revenue
multiplier is a more appropriate unit of comparison to value the subject. A
rooms revenue multiplier measures the total revenue generated from room rentals
in relation to the sales price. Rooms revenue multipliers do not require
subjective adjustments since most price variance in quality of properties is
reflected in occupancy and average daily room rate achievement as determined by
the market. As can be noted, the indicated rooms revenue multipliers for the
five sales ranges from a low of 3.03 to a high of 4.85 with an average of 3.55.
Based on our evaluation of the Super 8 Motel, we are of the opinion that a rooms
revenue multiple at high end of this range, but below the Sheraton Four Points,
is appropriate to value the subject. The Sheraton Four Points has a leased
restaurant which adds additional value compared to the subject property. Sale
number 5 took place nearly two years ago under different market conditions thus
its value may have been lower than if it were sold today. Accordingly, we have
selected a multiple of 4.00 to value the subject. Based on this multiplier, and
assuming a stabilized occupancy level of 75.0 percent at an average daily room
rate of $65.00 (stated in 1999 value dollars), the indicated value per available
room for the subject is as follows.
<TABLE>
Rooms Revenue Stabilized Stabilized Indicated Value
Multiplier Average Occupancy Per Room
Rate Level Days/Year (Rounded)
- --------------- ---- ------------- ---- --------------- ---- -------------- ---- --------------------
<S> <C> <C> <C> <C> <C>
4.00 x $65.00 x 75.0% x 365 = $71,175
- --------------- ---- ------------- ---- --------------- ---- -------------- ---- --------------------
</TABLE>
V-16
<PAGE>
As noted above, the rooms revenue multiplier analysis produced a value
indication of approximately $71,200 per available room. This value per room is
converted into a total value estimate by multiplying the indicated value per
room by the total number of rooms. Based on the current configuration of 102
rentable rooms, the indicated stabilized value of the fee simple interest in the
hotel is $7,300,000 (rounded) as calculated below.
- ------------- ----- -------------- ----- ----------------
$71,200 x 102 Rooms = $7,300,000
- ------------- ----- -------------- ----- ----------------
C. INDICATED VALUE VIA THE SALES COMPARISON APPROACH
1. Conclusion of "As Is" Market Value
After concluding to our estimate of the stabilized value using the Sales
Comparison Approach, the next step is to develop an estimate of the "as is"
market value. In order to develop this value estimate, the "income gain" that is
projected to occur until the property is stabilized (as will be discussed in the
Income Capitalization Approach to follow) must be added. The following table
summarizes this calculation.
==============================================================
Sales Comparison Approach
Estimate of "As Is" Market Value
==============================================================
Indication of Stabilized Value $7,300,000
Plus: Income Gain Until Stabilization $102,000
- ------------------------------------------- ------------------
Indicated "As Is" Market Value $7,402,000
- ------------------------------------------- ------------------
Rounded $7,400,000
- ------------------------------------------- ------------------
Thus, after the addition of income gain prior to stabilization, we estimate that
the as is market value of the fee simple estate in the subject as of January 1,
1998, via the Sales Comparison Approach, is:
===============================================================================
SEVEN MILLION FOUR HUNDRED THOUSAND DOLLARS
- -------------------------------------------------------------------------------
$7,400,000
===============================================================================
V-17
<PAGE>
G. VALUATION -- INCOME CAPITALIZATION APPROACH
1. Basis for Cash Flow Projection
In order to develop an estimate of the net operating income (NOI) for the
subject for both a stabilized year of operation (direct capitalization) and each
year of the aforementioned holding period (yield capitalization), the following
have been analyzed:
1. The historical operating results for the subject for year-end 1994,
1995, 1996, year-to-date September 1997, and management's operating
budget for 1997.
2. The operating results of the category "Limited-Service Hotels" from the
1997 issue of PKF Consulting's Trends in the Hotel Industry.
The historical operating results of the subject are presented at the end of this
section of the report.
2. Stabilized Year Operating Estimate
We first developed an estimate of the performance of the subject for a
stabilized year of operation stated in current value, 1998 dollars. This
estimate is based on our review of the historical operating results of the
subject hotel coupled with an analysis of the operating results of the selected
PKF Consulting "Trends" category. Additional key assumptions used in preparing
this stabilized year estimate are summarized below.
a) The stabilized annual occupancy of the hotel is projected to be 75.0
percent at an average daily room rate of $65.00 as stated in 1998
dollars;
b) A management fee of 5.0 percent of total revenues, and a franchise fee
of 8.0 percent of room revenues, and a reserve for capital replacements
of 4.0 percent of total revenue have been deducted to establish the net
operating income of the subject.
c) The projection of expense for taxes on real and personal property is a
function of the market value of the property. The subject property
is in the real estate taxing jurisdiction of the Alameda County Tax
Assessor's Office. Our estimate of the property taxes for the
subject is based on the provisions of Proposition 13. Proposition 13
limits ad valorem property taxes to 1.0 percent of the assessed
value plus assessment for city, special district, and county bonds. The
current effective tax rate is 1.2061 percent of market value. This
appraisal assumes a sale of the subject property on the effective date
of the appraisal, which will initiate a reassessment of real estate
for tax purposes. For the purpose of this analysis, the reassessment
is based on the value estimate of the subject property as determined
V-18
<PAGE>
using the Income Capitalization Approach. Based on that estimated
value of the hotel, a tax rate of 1.2061 per $100 of assessed value
is utilized, resulting in real estate taxes of $92,000, rounded, in
the representative or stabilized year.
Presented below is our estimate of the subject hotel's stabilized year operating
results. As can be noted, on a stabilized basis, the subject property will
generate approximately $1,857,000 in total revenue, with a net operating income
of $795,000, or 42.8 percent of total revenue.
<TABLE>
=================================================================================================
Super 8 Motel, Pleasanton
Stabilized Year Operating Results (Stated in 1998 Value Dollars)
=================================================================================================
Occupancy Level 75.0%
- -------------------------------------------- ====================================================
Average Room Rate $65.00
- -------------------------------------------- ====================================================
REVPAR $48.75
- -------------------------------------------- ---------------- ---------- ------------ -----------
Total Ratios PAR (1) POR (2)
- -------------------------------------------- ---------------- ---------- ------------ -----------
Revenues
<S> <C> <C> <C> <C>
Rooms $1,815,000 97.7% $17,794 $65.00
Telephone 36,000 1.9% 350 1.28
Other Operated Departments 6,000 0.3% 59 0.20
- -------------------------------------------- ---------------- ---------- ------------ -----------
Total Revenues 1,857,000 100.0% 17,647 64.46
- -------------------------------------------- ---------------- ---------- ------------ -----------
Departmental Expenses (3)
Rooms 280,000 15.4% 2,745 10.04
Telephone 18,000 50.0% 176 0.64
Other Operated Departments 3,000 50.0% 29 0.10
- -------------------------------------------- ---------------- ---------- ------------ -----------
Total Departmental Expenses 301,000 16.2% 2,950 10.77
- -------------------------------------------- ---------------- ---------- ------------ -----------
Departmental Income 1,556,000 83.8% 15,255 55.73
- -------------------------------------------- ---------------- ---------- ------------ -----------
Undistributed Operating Expenses
Administrative and General 147,000 7.9% 1,442 5.26
Franchise Fees 145,000 7.8% 1,421 5.19
Marketing 21,000 1.1% 206 0.75
Property Maintenance 97,000 5.2% 953 3.47
Energy and Utilities 71,000 3.8% 695 2.54
- -------------------------------------------- ---------------- ---------- ------------ -----------
Total Undistributed Expenses 481,000 25.9% 4,715 17.23
- -------------------------------------------- ---------------- ---------- ------------ -----------
Income Before Fixed Charges 1,075,000 57.9% 10,539 38.50
Management Fees and Fixed Charges
Management Fees 93,000 5.0% 912 3.33
Property Taxes 92,000 5.0% 902 3.29
Insurance 21,000 1.1% 206 0.75
- -------------------------------------------- ---------------- ---------- ------------ -----------
Total 206,000 11.1% 2,019 7.38
- -------------------------------------------- ---------------- ---------- ------------ -----------
Income Before Reserve 869,000 46.8% 8,519 31.12
- -------------------------------------------- ---------------- ---------- ------------ -----------
Reserve for Replacement 74,000 4.0% 725 2.65
- -------------------------------------------- ---------------- ---------- ------------ -----------
Income Before Other Charges(4) $795,000 42.8% $7,794 $28.47
=================================================================================================
(1) PAR - Per Available Room
(2) POR - Per Occupied Room
(3) Departmental expense ratios are based on the respective department's
revenue, not total revenue
(4) Income before interest, taxes, depreciation, and amortization
Source: PKF Consulting
=================================================================================================
</TABLE>
V-19
<PAGE>
3. Ten Year Statement of Estimated Annual Operating Results
Presented at the end of this section of the appraisal report is our estimate of
the operating results for the subject for the ten-year period beginning January
1, 1998. This forecast is based on the preceding stabilized year estimate,
adjusted to reflect effects of inflation, variations in occupancy and rate and
the impact of fixed and variable components of each revenue and expense item.
Selected key assumptions used to develop this forecast are summarized as
follows.
a) With the exception of property taxes, all other revenues are expenses
are projected to increase at 3.0 percent throughout the holding period.
Property taxes are projected to increase at a rate of 2.0 percent per
year as allowed by California law.
b) For the first five years of this forecast, the occupancy and rates of
the hotel were projected as previously discussed. Thereafter, the
hotel's occupancy was assumed to decrease and stabilize at 73.0
percent, with the average rate increasing at 3.0 percent per year.
4. Valuation Using Direct Capitalization
Based on our evaluation of the subject, it is was concluded that an overall
capitalization rate (OAR) of 10.0 percent is appropriate to value the subject,
and properly reflects the risks associated with this hotel given the property's
age, physical features, location, market position, and fee simple estate status.
Based on the projection of net operating income for a stabilized year of
operation, and the selected overall rate of 10.0 percent, the value of the
subject as if stabilized is calculated to be as follows.
================================================== =====================
Projected Stabilized Net Operating Income $795,000
Overall Capitalization Rate 10.0%
- -------------------------------------------------- ---------------------
Stabilized Value Indication $7,950,000
- -------------------------------------------------- ---------------------
Rounded $7,900,000
================================================== =====================
From this derived stabilized value, an addition is made for the benefit of the
additional income the hotel is expect to earn prior to reaching the projected
lower stabilized level of income. This surplus cash flow is typically referred
to as "income gain".
Income gain is the difference in projected cash flows and the cash flow which
would be available if the property were stabilized. This amount must be added to
the stabilized value to reflect the higher occupancy in the first two years of
the analysis period prior to the attainment of a lower stabilization level of
V-20
<PAGE>
operation. Based on our market research and analysis, it is estimated that the
subject will achieve a stabilized level of operation in 2000. A calculation of
the income gain associated for the two years prior to that period is presented
on the following table.
===============================================================================
Income Gain to Stabilization
===============================================================================
Estimated Stabilized Year
Net Operating Net Operating Estimated Present Value
Year Income Income (1) Income Gain @ 13.0%
- -------------- ---------------- ----------------- --------------- -----------
1998 $883,000 $795.000 $88,000 $77,876
1999 850,000 818,850 31,150 24,395
- -------------- ---------------- ----------------- --------------- -----------
Total 121,180 102,271
- -------------- ---------------- ----------------- --------------- -----------
Rounded $121,000 $102,000
===============================================================================
(1) Inflated to future value dollars at 3.0 percent.
===============================================================================
Based upon the preceding calculation, the cumulative income gain over the
stabilization period is estimated to be approximately $121,000. Investors
typically discount the estimated income loss at a comparable discount rate as
that used for the valuation of the subject property itself, or, in this case,
13.0 percent annually. This is reflective of the more aggressive discount rate
used to value potential gains as compared to potential losses. Consequently, if
the sum of the income gains were discounted at a rate of 13.0 percent, the
present value of the estimated income loss would be roundly $102,000.
Presented below is our calculation of the "as is" market value of the subject
taking into account the above estimate of income gain during the projected
stabilization period.
=======================================================================
Value Conclusion -- Direct Capitalization
=======================================================================
Stabilized Value $7,900,000
Plus: Income Gain During Stabilization Period 102,000
- ----------------------------------------------------- -----------------
"As Is" Value $8,002,000
- ----------------------------------------------------- -----------------
Rounded $8,000,000
=======================================================================
Therefore, the estimated "as is" market value of the fee simple interest in the
subject using the Direct Capitalization Approach, as of January 1, 1998, is:
==============================================================================
EIGHT MILLION DOLLARS
- ------------------------------------------------------------------------------
$8,000,000
==============================================================================
V-21
<PAGE>
5. Discounted Cash Flow Valuation Analysis
To estimate the value of the subject using a discounted cash flow analysis, it
is assumed that the property will be sold at the end of a ten-year holding
period. The value of the property at that time is estimated by capitalizing the
expected or anticipated net operating income of the property in the eleventh
year. From this value estimate, an estimate of sales costs is deducted to arrive
at the net proceeds upon sale.
Based on our market research, we are of the opinion that a reversionary
capitalization rate of 10.5 percent and a 13.0 percent discount rate are
appropriate to value the subject on a discounted cash flow basis.
The following table shows the present value of the projected net operating
income for the subject for the ten-year holding period, along with the present
value of the reversion, deriving a value estimate.
===============================================================================
Discounted Cash Flow Analysis
===============================================================================
Cash Flow Present Present
From Value Value
Year Operations Factor @ 13.0%
- ------------------- -------------------- ------------------ -------------------
1998 $884,000 0.8850 $782,301
1999 $852,000 0.7831 $667,241
2000 $845,000 0.6931 $585,627
2001 $870,000 0.6133 $533,587
2002 $893,000 0.5428 $484,685
2003 $881,000 0.4803 $423,161
2004 $914,000 0.4251 $388,505
2005 $934,000 0.3762 $351,333
2006 $965,000 0.3329 $321,234
2007 $997,000 0.2496 $293,705
- ------------------- -------------------- ------------------ -------------------
Reversion $9,438,000 0.2946 $2,780,325
- ------------------- -------------------- ------------------ -------------------
Present Value $7,611,704
- ------------------- -------------------- ------------------ -------------------
Value, Rounded $7,600,000
- ------------------- -------------------- ------------------ -------------------
V-22
<PAGE>
6. Income Capitalization Approach Valuation Conclusion
The value conclusion under the Income Capitalization Approach is based on both a
direct capitalization and a discounted cash flow analysis. Direct capitalization
indicated a value of $8,000,000 and the discounted cash flow analysis indicated
a value of $7,600,000, and the values are within 5.0 percent of each other.
Placing most weight on the discounted cash flow approach, as this methodology
best accounts for the benefits and risks of holding the property over an
extended period of time, our conclusion as to the "as is" market value of the
fee simple interest of the subject using the Income Capitalization Approach, as
of January 1, 1998, is:
==============================================================================
SEVEN MILLION SIX HUNDRED THOUSAND DOLLARS
- ------------------------------------------------------------------------------
$7,600,000
==============================================================================
H. RECONCILIATION AND FINAL ESTIMATE OF VALUE
The reconciliation involves the correlation of the conclusions reached from the
two valuation methodologies applied, considering the property type and the
requirements of the appraisal assignment. This process depends on the
appropriateness and reliability of each approach, and of the quality and
reliability of the data obtained. The results from the two approaches are as
follows:
============================================ ======================
Sales Comparison Approach $7,400,000
Income Capitalization Approach
Direct Capitalization $8,000,000
Discounted Cash Flow Analysis $7,600,000
============================================ ======================
In the Sales Comparison Approach we compared five recent hotel transactions to
the subject. The selected sales indicated a relatively wide range in value.
Furthermore, the sales were located in varying market areas throughout Alameda
County and no property was identical to the subject. These factors make this
approach less meaningful, but act as a reference checkpoint for the value
derived from the Income Capitalization Approach methods.
The Income Capitalization Approach is undoubtedly the most commonly used method
to evaluate an income producing property such as a hotel. In this approach, we
have utilized two methods of analysis: The direct capitalization method and the
discounted cash flow method (yield capitalization). There was good market
support for both the projected cash flow of the subject as well as the
capitalization and yield rates used to convert our cash flow projections into a
V-23
<PAGE>
value estimate. Both income methods resulted in a close range in values, within
5.0 percent of each other, heightening our confidence in this approach.
Accordingly, the primary reliance was placed on this approach. Further, we
specifically placed more reliance on the discounted cash flow method which, in
combination with the conclusions derived via the Sales Comparison Approach,
indicates a lower values that that derived by the direct capitalization method.
Based on the facts, assumptions, and procedures outlined in this report, it is
estimated that the "as is" market value of the fee simple interest in the
subject property, as of January 1, 1998, is reasonably represented as:
===============================================================================
SEVEN MILLION SIX HUNDRED THOUSAND DOLLARS
- -------------------------------------------------------------------------------
$7,600,000
===============================================================================
V-24
<PAGE>
SUPER 8 MOTEL -- PLEASANTON, CALIFORNIA
HISTORICAL OPERATING RESULTS
<PAGE>
<TABLE>
Super 8, Pleasanton
Historical Operating Results
---------------------------------------------------------------------------------------------------
1994 1995
---------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
---------------------------------------------------------------------------------------------------
Number of Keys 102 102
Occupancy 73.20% 76.00%
Average Daily Room Rate (ADR) $50.08 $52.63
REVPAR $36.66 $40.00
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROOMS $ 1,364,542 97.1% $ 13,378 $ 50.07 $ 1,488,310 97.4% $ 14,591 $ 52.60
TELEPHONE 33,726 2.4% 331 1.24 34,633 2.3% 340 1.22
MISCELLANEOUS 6,867 0.5% 67 0.25 5,798 0.4% 57 0.20
------------ ------ ------- ------- ----------- ------- -------- -------
TOTAL REVENUE 1,405,135 100.0% 13,776 51.56 1,528,741 100.0% 14,988 54.03
DEPT. COSTS & EXPENSES (3)
ROOMS 253,913 18.6% 2,489 9.32 258,454 17.4% 2,534 9.13
TELEPHONE 18,713 55.5% 183 0.69 15,228 44.0% 149 0.54
MISCELLANEOUS 2,893 42.1% 28 0.11 3,029 52.2% 30 0.11
------------ ------ ------- ------- ----------- ------- -------- ------
TOTAL COST & EXP. 275,519 19.6% 2,701 10.11 276,711 18.1% 2,713 9.78
TOTAL OPER. DEPTS. INCOME 1,129,616 80.4% 11,075 41.45 1,252,030 81.9% 12,275 44.25
------------ ------ ------- ------- ----------- ------- -------- ------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 157,736 11.2% 1,546 5.79 140,181 9.2% 1,374 4.95
MARKETING 22,682 1.6% 222 0.83 19,531 1.3% 191 0.69
FRANCHISE FEES 68,226 4.9% 669 2.50 74,399 4.9% 729 2.63
UTILITIES 70,578 5.0% 692 2.59 69,182 4.5% 678 2.45
PROPERTY OPERATIONS 87,936 6.3% 862 3.23 93,741 6.1% 919 3.31
------------ ------ ----- ------- ----------- ------- -------- ------
TOTAL 407,158 29.0% 3,992 14.94 397,034 26.0% 3,892 14.03
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 722,458 51.4% 7,083 26.51 854,996 55.9% 8,382 30.22
------------ ------ ----- ------- ----------- ------- -------- ------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 70,260 5.0% 689 2.58 76,350 5.0% 749 2.70
PROPERTY TAXES 44,701 3.2% 438 1.64 45,528 3.0% 446 1.61
INSURANCE 20,333 1.4% 199 0.75 20,990 1.4% 206 0.74
RENT - 0.0% - - - 0.0% - -
------------ ------ ----- ------- ----------- ------- -------- -------
TOTAL 135,294 9.6% 1,326 4.96 142,868 9.3% 1,401 5.05
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 587,164 41.8% 5,757 21.55 $ 712,128 46.6% 6,982 25.17
============ ====== ===== ======= =========== ======= ======== =======
RENOVATION PAYMENT $ 52,270 $ 109,005
-----------------------------------------------------
1996
----------------------------------------------------
$ % PAR (1) POR (2)
----------------------------------------------------
Number of Keys 102
Occupancy 77.90%
Average Daily Room Rate (ADR) $57.69
REVPAR $44.94
REVENUES
ROOMS $ 1,677,855 97.3% $ 16,450 $ 57.69
TELEPHONE 44,710 2.6% 438 1.54
MISCELLANEOUS 2,596 0.2% 25 0.09
------------- ------ -------- -------
TOTAL REVENUE 1,725,161 100.0% 16,913 59.32
DEPT. COSTS & EXPENSES (3)
ROOMS 275,749 16.4% 2,703 9.48
TELEPHONE 18,767 42.0% 184 0.65
MISCELLANEOUS 802 30.9% 8 0.03
------------- ------ -------- ------
TOTAL COST & EXP. 295,318 17.1% 2,895 10.15
TOTAL OPER. DEPTS. INCOME 1,429,843 82.9% 14,018 49.17
------------- ------ -------- ------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 157,774 9.1% 1,547 5.43
MARKETING 18,347 1.1% 180 0.63
FRANCHISE FEES 83,909 4.9% 823 2.89
UTILITIES 66,033 3.8% 647 2.27
PROPERTY OPERATIONS 90,846 5.3% 891 3.12
------------- ------ -------- ------
TOTAL 416,909 24.2% 4,087 14.34
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 1,012,934 58.7% 9,931 34.83
------------- ------ --------- ------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 86,289 5.0% 846 2.97
PROPERTY TAXES 46,649 2.7% 457 1.60
INSURANCE 21,962 1.3% 215 0.76
RENT - 0.0% - -
------------- ------ --------- ------
TOTAL 154,900 9.0% 1,519 5.33
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 858,034 49.7% 8,412 29.50
============== ======= ========= =======
RENOVATION PAYMENT $ 42,107
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenue, not total revenue.
(4) Net operating income before reserves, interest, depreciation,
amortization, and income taxes.
===================================================================================================================================
Source:The Famous Host Company
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8, Pleasanton
Operating Results Year-To-Date September 1997 and 1997 Budget
---------------------------------------------------------------------------------------------------
September 1997 Budget 1997
---------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
---------------------------------------------------------------------------------------------------
Number of Keys 102 102
Occupancy 81.20% 75.44%
Average Daily Room Rate (ADR) $63.40 $59.61
REVPAR $51.48 $44.97
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROOMS $ 1,433,136 97.9%$ 18,785 $ 63.40 $ 1,674,254 97.7% $ 16,414 $ 59.61
TELEPHONE 28,143 1.9% 369 1.24 32,395 1.9% 318 1.15
MISCELLANEOUS 1,876 0.1% 25 0.08 6,761 0.4% 66 0.24
------------ ------ ------- ------- ----------- ------- -------- -------
TOTAL REVENUE 1,463,155 100.0% 19,179 64.73 1,713,410 100.0% 16,798 61.01
DEPT. COSTS & EXPENSES (3)
ROOMS 281,535 15.2% 2,865 9.67 257,938 15.4% 2,529 9.18
TELEPHONE 11,869 42.2% 156 0.53 16,712 51.6% 164 0.60
MISCELLANEOUS 168 9.0% 2 0.01 3,200 47.3% 31 0.11
------------ ------- ------- ------- ------------ ------- -------- -------
TOTAL COST & EXP. 230,572 15.8% 3,022 10.20 277,850 16.2% 2,724 9.89
TOTAL OPER. DEPTS. INCOME 1,232,583 84.2% 16,156 54.53 1,435,560 83.8% 14,074 51.11
------------ ------- ------- ------- ------------ ------- -------- -------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 119,646 8.2% 1,568 5.29 140,275 8.2% 1,375 4.99
MARKETING 9,648 0.7% 126 0.43 12,804 0.7% 126 0.46
FRANCHISE FEES 71,656 4.9% 939 3.17 83,713 4.9% 821 2.98
UTILITIES 50,500 3.5% 662 2.23 67,973 4.0% 666 2.42
PROPERTY OPERATIONS 70,675 4.8% 926 3.13 67,798 4.0% 665 2.41
------------ ------- ------- ------- ------------- ------- -------- -------
TOTAL 322,125 22.0% 4,222 14.25 372,563 21.7% 3,653 13.26
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 910,458 62.2% 11,934 40.28 1,062,997 62.0% 10,422 37.85
------------ ------- ------- ------- ------------- ------- -------- --------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 73,158 5.0% 959 3.24 85,670 5.0% 840 3.05
PROPERTY TAXES 35,589 2.4% 466 1.57 45,696 2.7% 448 1.63
INSURANCE 17,189 1.2% 225 0.76 21,000 1.2% 206 0.75
RENT - 0.0% - - - 0.0% - -
------------ ------- ------- ------- ------------- ------- -------- --------
TOTAL 125,936 8.6% 1,651 5.57 152,366 8.9% 1,494 5.42
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 784,522 53.6% 10,283 34.71 $ 910,631 53.1% $ 8,928 $ 32
============ ======= ======= ======= ============= ======= ======== ========
RENOVATION PAYMENT $ 32,232 $ 51,402
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenue, not total revenue.
(4) Net operating income before reserves, interest, depreciation,
amortization, and income taxes.
====================================================================================================================================
Source:The Famous Host Company
====================================================================================================================================
</TABLE>
<PAGE>
SUPER 8 MOTEL -- PLEASANTON, CALIFORNIA
TEN YEAR STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS
<PAGE>
<TABLE>
Super 8
Pleasanton, California
Projected Operating Results
-------------------------------------------------------------------------------------------
Calendar Years Ending December 31: 1998 1999
-----------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-----------------------------------------------------------------------------------------------
Number of Keys 102 102
Occupancy 80.00% 77.00%
Average Daily Room Rate $65.00 $66.75
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $1,936,000 97.8% $18,980 $65.00 $1,914,000 97.8% $18,765 $66.77
Telephone 38,000 1.9% 373 1.28 38,000 1.9% 373 1.33
Other Operated Departments 6,000 0.3% 59 0.20 6,000 0.3% 59 0.21
----------- ------- ------- --------- ---------- ------- ------- -------
Total Revenues 1,980,000 100.0% 19,412 66.48 1,958,000 100.0% 19,196 68.30
Departmental Expenses (3)
Rooms 290,000 15.0% 2,843 9.74 293,000 15.3% 2,873 10.22
Telephone 19,000 50.0% 186 0.64 19,000 50.0% 186 0.66
Other Operated Departments 3,000 50.0% 29 0.10 3,000 50.0% 29 0.10
----------- ------- ------- --------- --------- ------- ------- -------
Total Departmental Expenses 312,000 15.8% 3,059 10.48 315,000 16.1% 3,088 10.99
----------- ------- ------- --------- --------- ------- ------ -------
Departmental Profit 1,668,000 84.2% 16,353 56.00 1,643,000 83.9% 16,108 57.31
Undistributed Expenses
Administrative and General 149,000 7.5% 1,461 5.00 152,000 7.8% 1,490 5.30
Franchise Fees 155,000 7.8% 1,520 5.20 153,000 7.8% 1,500 5.34
Marketing 21,000 1.1% 206 0.71 22,000 1.1% 216 0.77
Property Operations and Maintenance 97,000 4.9% 951 3.26 100,000 5.1% 980 3.49
Energy and Utilities 71,000 3.6% 696 2.38 73,000 3.7% 716 2.55
----------- ------- ------- --------- --------- ------- ------ -------
Total Undistributed Expenses 493,000 24.9% 4,833 16.55 500,000 25.5% 4,902 17.44
----------- ------- ------- --------- --------- ------- ------ -------
Gross Operating Profit 1,175,000 59.3% 11,520 39.45 1,143,000 58.4% 11,206 39.87
Fixed Charges and Management Fees
Base Management Fees 99,000 5.0% 971 3.32 98,000 5.0% 961 3.42
Property Taxes 92,000 4.6% 902 3.09 93,000 4.7% 912 3.24
Insurance 21,000 1.1% 206 0.71 22,000 1.1% 216 0.77
----------- ------- ------- --------- --------- ------- ------ -------
Total Fixed Charges 212,000 10.7% 2,078 7.12 213,000 10.9% 2,088 7.43
----------- ------- ------- --------- --------- ------- ------ -------
Income Before Reserves 963,000 48.6% 9,441 32.33 930,000 47.5% 9,118 32.44
Reserves for Replacements 79,000 4.0% 775 2.65 78,000 4.0% 765 2.72
----------- ------- ------- --------- --------- ------- ------ -------
Net Operating Income (4) $ 884,000 44.6% $ 8,667 $29.68 $ 852,000 43.5% $ 8,353 $29.72
=========== ======= ======== ========= ========= ======= ======= =======
------------------------------------------------
Calendar Years Ending December 31: 2000
------------------------------------------------
$ % PAR (1) POR (2)
------------------------------------------------
Number of Keys 102
Occupancy 75.00%
Average Daily Room Rate $68.75
Revenues
<S> <C> <C> <C> <C>
Rooms $1,925,000 97.8% $18,873 $68.75
Telephone 38,000 1.9% 373 1.36
Other Operated Departments 6,000 0.3% 59 0.21
----------- ------- ------- --------
Total Revenues 1,969,000 100.0% 19,304 70.32
Departmental Expenses (3)
Rooms 298,000 15.5% 2,922 10.64
Telephone 19,000 50.0% 186 0.68
Other Operated Departments 3,000 50.0% 29 0.11
----------- ------- ------- --------
Total Departmental Expenses 320,000 16.3% 3,137 11.43
----------- ------- ------- --------
Departmental Profit 1,649,000 83.7% 16,167 58.89
Undistributed Expenses
Administrative and General 156,000 7.9% 1,529 5.57
Franchise Fees 154,000 7.8% 1,510 5.50
Marketing 22,000 1.1% 216 0.79
Property Operations and Maintenance 103,000 5.2% 1,010 3.68
Energy and Utilities 75,000 3.8% 735 2.68
----------- ------- ------- --------
Total Undistributed Expenses 510,000 25.9% 5,000 18.21
----------- ------- ------- --------
Gross Operating Profit 1,139,000 57.8% 11,167 40.68
Fixed Charges and Management Fees
Base Management Fees 98,000 5.0% 961 3.50
Property Taxes 95,000 4.8% 931 3.39
Insurance 22,000 1.1% 216 0.79
----------- ------- ------- --------
Total Fixed Charges 215,000 10.9% 2,108 7.68
----------- ------- ------- --------
Income Before Reserves 924,000 46.9% 9,059 33.00
Reserves for Replacements 79,000 4.0% 775 2.82
----------- ------- ------- --------
Net Operating Income (4) $ 845,000 42.9% $ 8,284 $30.18
=========== ======= ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net operating income before interest, amortization, depreciation,
and income tax.
===================================================================================================================================
Source: PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
Super 8
Pleasanton, California
Projected Operating Results
<TABLE>
-------------------------------------------------------------------------------------------
Calendar Years Ending December 31: 2001 2002
-----------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-----------------------------------------------------------------------------------------------
Number of Keys 102 102
Occupancy 75.00% 75.00%
Average Daily Room Rate $71.00 $73.00
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $1,983,000 97.8% $19,441 $71.02 $2,038,000 97.8% $19,980 $72.99
Telephone 39,000 1.9% 382 1.40 40,000 1.9% 392 1.43
Other Operated Departments 6,000 0.3% 59 0.21 6,000 0.3% 59 0.21
----------- ------- --------- -------- ----------- ------- --------- --------
Total Revenues 2,028,000 100.0% 19,882 72.63 2,084,000 100.0% 20,431 74.63
Departmental Expenses (3)
Rooms 307,000 15.5% 3,010 10.99 316,000 15.5% 3,098 11.32
Telephone 20,000 51.3% 196 0.72 20,000 50.0% 196 0.72
Other Operated Departments 3,000 50.0% 29 0.11 3,000 50.0% 29 0.11
----------- ------- --------- -------- ----------- ------- --------- --------
Total Departmental Expenses 330,000 16.3% 3,235 11.82 339,000 16.3% 3,324 12.14
----------- ------- --------- -------- ----------- ------- --------- --------
Departmental Profit 1,698,000 83.7% 16,647 60.81 1,745,000 83.7% 17,108 62.49
Undistributed Expenses
Administrative and General 161,000 7.9% 1,578 5.77 166,000 8.0% 1,627 5.94
Franchise Fees 159,000 7.8% 1,559 5.69 163,000 7.8% 1,598 5.84
Marketing 23,000 1.1% 225 0.82 24,000 1.2% 235 0.86
Property Operations and Maintenance 106,000 5.2% 1,039 3.80 109,000 5.2% 1,069 3.90
Energy and Utilities 77,000 3.8% 755 2.76 80,000 3.8% 784 2.87
----------- ------- --------- -------- ----------- ------- --------- --------
Total Undistributed Expenses 526,000 25.9% 5,157 18.84 542,000 26.0% 5,314 19.41
----------- ------- --------- -------- ----------- ------- --------- --------
Gross Operating Profit 1,172,000 57.8% 11,490 41.97 1,203,000 57.7% 11,794 43.08
Fixed Charges and Management Fees
Base Management Fees 101,000 5.0% 990 3.62 104,000 5.0% 1,020 3.72
Property Taxes 97,000 4.8% 951 3.47 99,000 4.8% 971 3.55
Insurance 23,000 1.1% 225 0.82 24,000 1.2% 235 0.86
----------- ------- --------- -------- ----------- ------- --------- --------
Total Fixed Charges 221,000 10.9% 2,167 7.91 227,000 10.9% 2,225 8.13
----------- ------- --------- -------- ----------- ------- --------- --------
Income Before Reserves 951,000 46.9% 9,324 34.06 976,000 46.8% 9,569 34.95
Reserves for Replacements 81,000 4.0% 794 2.90 83,000 4.0% 814 2.97
----------- ------- --------- -------- ----------- ------- --------- --------
Net Operating Income (4) $ 870,000 42.9% $ 8,529 $31.16 $ 893,000 42.9% $ 8,755 $31.98
=========== ======= ========= ======== =========== ======= ========= ========
-----------------------------------------------
Calendar Years Ending December 31: 2003
-----------------------------------------------
$ % PAR (1) POR (2)
-----------------------------------------------
Number of Keys 102
Occupancy 73.00%
Average Daily Room Rate $75.25
Revenues
Rooms $2,045,000 97.8% $20,049 $75.24
Telephone 41,000 2.0% 402 1.51
Other Operated Departments 6,000 0.3% 59 0.22
----------- -------- ------- --------
Total Revenues 2,092,000 100.0% 20,510 76.97
Departmental Expenses (3)
Rooms 321,000 15.7% 3,147 11.81
Telephone 20,000 48.8% 196 0.74
Other Operated Departments 3,000 50.0% 29 0.11
----------- -------- ------- --------
Total Departmental Expenses 344,000 16.4% 3,373 12.66
----------- -------- ------- --------
Departmental Profit 1,748,000 83.6% 17,137 64.32
Undistributed Expenses
Administrative and General 170,000 8.1% 1,667 6.26
Franchise Fees 164,000 7.8% 1,608 6.03
Marketing 24,000 1.1% 235 0.88
Property Operations and Maintenance 113,000 5.4% 1,108 4.16
Energy and Utilities 82,000 3.9% 804 3.02
----------- -------- ------- --------
Total Undistributed Expenses 553,000 26.4% 5,422 20.35
----------- -------- ------- --------
Gross Operating Profit 1,195,000 57.1% 11,716 43.97
Fixed Charges and Management Fees
Base Management Fees 105,000 5.0% 1,029 3.86
Property Taxes 101,000 4.8% 990 3.72
Insurance 24,000 1.1% 235 0.88
----------- -------- ------- --------
Total Fixed Charges 230,000 11.0% 2,255 8.46
----------- -------- ------- --------
Income Before Reserves 965,000 46.1% 9,461 35.51
Reserves for Replacements 84,000 4.0% 824 3.09
----------- -------- ------- --------
Net Operating Income (4) $ 881,000 42.1% $ 8,637 $32.42
=========== ======== ======= ========
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net operating income before interest, amortization, depreciation,
and income tax.
===================================================================================================================================
Source: PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
Pleasanton, California
Projected Operating Results
-------------------------------------------------------------------------------------------
Calendar Years Ending December 31: 2004 2005
-----------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-----------------------------------------------------------------------------------------------
Number of Keys 102 102
Occupancy 73.00% 73.00%
Average Daily Room Rate $77.50 $79.75
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $2,112,000 97.7% $20,706 $77.50 $2,167,000 97.7% $21,245 $79.73
Telephone 42,000 1.9% 412 1.54 43,000 1.9% 422 1.58
Other Operated Departments 7,000 0.3% 69 0.26 7,000 0.3% 69 0.26
----------- ------- ------- -------- --------- ------- ------ --------
Total Revenues 2,161,000 100.0% 21,186 79.30 2,217,000 100.0% 21,735 81.57
Departmental Expenses (3)
Rooms 331,000 15.7% 3,245 12.15 341,000 15.7% 3,343 12.55
Telephone 21,000 50.0% 206 0.77 22,000 51.2% 216 0.81
Other Operated Departments 3,000 42.9% 29 0.11 3,000 42.9% 29 0.11
----------- ------- ------ -------- --------- ------- ------ --------
Total Departmental Expenses 355,000 16.4% 3,480 13.03 366,000 16.5% 3,588 13.47
----------- ------- ------ -------- --------- ------- ------ --------
Departmental Profit 1,806,000 83.6% 17,706 66.27 1,851,000 83.5% 18,147 68.11
Undistributed Expenses
Administrative and General 175,000 8.1% 1,716 6.42 180,000 8.1% 1,765 6.62
Franchise Fees 169,000 7.8% 1,657 6.20 173,000 7.8% 1,696 6.37
Marketing 25,000 1.2% 245 0.92 26,000 1.2% 255 0.96
Property Operations and Maintenance 116,000 5.4% 1,137 4.26 120,000 5.4% 1,176 4.42
Energy and Utilities 85,000 3.9% 833 3.12 87,000 3.9% 853 3.20
----------- ------- ------ -------- --------- ------- ------ --------
Total Undistributed Expenses 570,000 26.4% 5,588 20.92 586,000 26.4% 5,745 21.56
----------- ------- ------ -------- --------- ------- ------ --------
Gross Operating Profit 1,236,000 57.2% 12,118 45.35 1,265,000 57.1% 12,402 46.54
Fixed Charges and Management Fees
Base Management Fees 108,000 5.0% 1,059 3.96 111,000 5.0% 1,088 4.08
Property Taxes 103,000 4.8% 1,010 3.78 105,000 4.7% 1,029 3.86
Insurance 25,000 1.2% 245 0.92 26,000 1.2% 255 0.96
----------- ------- ------ -------- --------- ------- ------ --------
Total Fixed Charges 236,000 10.9% 2,314 8.66 242,000 10.9% 2,373 8.90
----------- ------- ------ -------- --------- ------- ------ --------
Income Before Reserves 1,000,000 46.3% 9,804 36.69 1,023,000 46.1% 10,029 37.64
Reserves for Replacements 86,000 4.0% 843 3.16 89,000 4.0% 873 3.27
----------- ------- ------ -------- ---------- ------- ------- --------
Net Operating Income (4) $ 914,000 42.3% $ 8,961 $33.54 $ 934,000 42.1% $ 9,157 $34.37
=========== ======= ======= ======== ========= ======= ======= ========
-----------------------------------------------
Calendar Years Ending December 31: 2006
-----------------------------------------------
$ % PAR (1) POR (2)
-----------------------------------------------
Number of Keys 102
Occupancy 73.00%
Average Daily Room Rate $82.25
Revenues
<S> <C> <C> <C> <C>
Rooms $2,235,000 97.8% $21,912 $82.24
Telephone 44,000 1.9% 431 1.62
Other Operated Departments 7,000 0.3% 69 0.26
----------- -------- ------- --------
Total Revenues 2,286,000 100.0% 22,412 84.11
Departmental Expenses (3)
Rooms 351,000 15.7% 3,441 12.91
Telephone 22,000 50.0% 216 0.81
Other Operated Departments 4,000 57.1% 39 0.15
----------- -------- ------- --------
Total Departmental Expenses 377,000 16.5% 3,696 13.87
----------- -------- ------ --------
Departmental Profit 1,909,000 83.5% 18,716 70.24
Undistributed Expenses
Administrative and General 186,000 8.1% 1,824 6.84
Franchise Fees 179,000 7.8% 1,755 6.59
Marketing 27,000 1.2% 265 0.99
Property Operations and Maintenance 123,000 5.4% 1,206 4.53
Energy and Utilities 90,000 3.9% 882 3.31
----------- -------- ------ --------
Total Undistributed Expenses 605,000 26.5% 5,931 22.26
----------- -------- ------ --------
Gross Operating Profit 1,304,000 57.0% 12,784 47.98
Fixed Charges and Management Fees
Base Management Fees 114,000 5.0% 1,118 4.19
Property Taxes 107,000 4.7% 1,049 3.94
Insurance 27,000 1.2% 265 0.99
----------- -------- ------ --------
Total Fixed Charges 248,000 10.8% 2,431 9.13
----------- -------- ------ --------
Income Before Reserves 1,056,000 46.2% 10,353 38.85
Reserves for Replacements 91,000 4.0% 892 3.35
----------- -------- ------- --------
Net Operating Income (4) $ 965,000 42.2% $ 9,461 $35.51
=========== ======== ======= ========
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net operating income before interest, amortization, depreciation,
and income tax.
===================================================================================================================================
Source: PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
Pleasanton, California
Projected Operating Results
--------------------------------------------------------------------------------------------
Calendar Years Ending December 31: 2007 2008
--------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
--------------------------------------------------------------------------------------------
Number of Keys 102 102
Occupancy 73.00% 73.00%
Average Daily Room Rate $84.75 $87.25
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $2,303,000 97.8% $22,578 $ 84.74 $2,371,000 97.7% $23,245 $ 87.24
Telephone 46,000 2.0% 451 1.69 47,000 1.9% 461 1.73
Other Operated Departments 7,000 0.3% 69 0.26 8,000 0.3% 78 0.29
----------- ------- ------- --------- ---------- -------- ------- ---------
Total Revenues 2,356,000 100.0% 23,098 86.69 2,426,000 100.0% 23,784 89.26
Departmental Expenses (3)
Rooms 361,000 15.7% 3,539 13.28 372,000 15.7% 3,647 13.69
Telephone 23,000 50.0% 225 0.85 24,000 51.1% 235 0.88
Other Operated Departments 4,000 57.1% 39 0.15 4,000 50.0% 39 0.15
----------- ------- --------- --------- ----------- -------- --------- ------
Total Departmental Expenses 388,000 16.5% 3,804 14.28 400,000 16.5% 3,922 14.72
----------- ------- --------- --------- ----------- -------- --------- ------
Departmental Profit 1,968,000 83.5% 19,294 72.41 2,026,000 83.5% 19,863 74.55
Undistributed Expenses
Administrative and General 191,000 8.1% 1,873 7.03 197,000 8.1% 1,931 7.25
Franchise Fees 184,000 7.8% 1,804 6.77 190,000 7.8% 1,863 6.99
Marketing 27,000 1.1% 265 0.99 28,000 1.2% 275 1.03
Property Operations and Maintenance 127,000 5.4% 1,245 4.67 131,000 5.4% 1,284 4.82
Energy and Utilities 93,000 3.9% 912 3.42 95,000 3.9% 931 3.50
----------- ------- --------- --------- ----------- -------- --------- ------
Total Undistributed Expenses 622,000 26.4% 6,098 22.89 641,000 26.4% 6,284 23.59
----------- ------- --------- --------- ----------- -------- --------- ------
Gross Operating Profit 1,346,000 57.1% 13,196 49.53 1,385,000 57.1% 13,578 50.96
Fixed Charges and Management Fees
Base Management Fees 118,000 5.0% 1,157 4.34 121,000 5.0% 1,186 4.45
Property Taxes 110,000 4.7% 1,078 4.05 112,000 4.6% 1,098 4.12
Insurance 27,000 1.1% 265 0.99 28,000 1.2% 275 1.03
Total Fixed Charges 255,000 10.8% 2,500 9.38 261,000 10.8% 2,559 9.60
----------- ------- --------- --------- ----------- -------- --------- ------
Income Before Reserves 1,091,000 46.3% 10,696 40.14 1,124,000 46.3% 11,020 41.36
Reserves for Replacements 94,000 4.0% 922 3.46 97,000 4.0% 951 3.57
----------- ------- --------- --------- ----------- -------- --------- ------
Net Operating Income (4) $ 997,000 42.3% $ 9,775 $ 36.68 $1,027,000 42.3% $10,069 $ 37.79
=========== ======= ========= ========= =========== ======== ========= ======
- ------------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net operating income before interest, amortization,
depreciation, and income tax.
===================================================================================================================================
Source: PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
SECTION VI
SUPER 8 MOTEL
SACRAMENTO, CALIFORNIA
<PAGE>
===============================================================================
Summary of Important Facts and Conclusions
===============================================================================
Property Address Super 8 Motel
4317 Madison Avenue
Sacramento, California 95842
Telephone (916) 334-7430
- -------------------------------------------- ----------------------------------
Owner
Leased Fee Interest Hale G. Zimmerman
Leasehold Interest Super 8 Motels, Ltd.
- -------------------------------------------- ----------------------------------
Assessor's Parcel Number 228-0141-028-000 and
228-0191-031-000
- -------------------------------------------- ----------------------------------
Effective Date of Appraisal January 1, 1998
- -------------------------------------------- ----------------------------------
Property Rights Appraised Leasehold Interest
===============================================================================
Highest and Best Use
===============================================================================
Highest and Best Use
As if Vacant Limited-service hotel
As Improved Hold for future development
===============================================================================
Property Description
===============================================================================
Existing Improvements
Year Built 1980
Gross Building Area 45,633 square feet
Number of Hotel Guest Rooms 128
Parking 137 spaces
Number of Floors Two and Three above ground
(no basement)
Hotel Amenities Pool and spa, complimentary coffee
Compliance with ADA Partial
- -------------------------------------------- ----------------------------------
Site
Area 5.37 acres (234,000 square feet)
Zoning T-C (Travel Commercial)
Flood Zone XC, Panel Number 060262-0090D
dated September 30, 1988
Wetlands Zone No
Alquist Priolo Special Studies Zone No
Historic, Natural , Cultural,
Recreational, or Scientific Value None
===============================================================================
Valuation Conclusion
===============================================================================
Cost Approach Not Applicable
- -------------------------------------------- ----------------------------------
Sales Comparison Approach $2,650,000
- -------------------------------------------- ----------------------------------
Income Capitalization Approach
Stabilized Occupancy 60.0%
Average Daily Room Rate $43.00
Stabilized Net Income $307,000
Overall Capitalization Rate 11.5%
Terminal Capitalization Rate 12.0%
Discount Rate 14.5%
Indicated Market Values
Direct Capitalization Technique $2,700,000
Discounted Cash Flow Analysis $2,700,000
- -------------------------------------------- ----------------------------------
Final Estimate of Market Value $2,700,000
- -------------------------------------------- ----------------------------------
Marketing and Exposure Period Six months or less
============================================ ==================================
VI-1
<PAGE>
(Photograph deleted)
View of Hotel Looking Southeast from Main Parking Lot
(Photograph deleted)
View of Typical Queen-Bed Guestroom
VI-2
<PAGE>
A. AREA AND NEIGHBORHOOD REVIEW
1. Introduction
The subject property is located in Sacramento, the largest city in Central
California, a metropolis of over 1.6 million people which includes the overall
Metropolitan Statistical Area (MSA). Sacramento is a major stop along both
Interstate 5 and Highway 99, which connect all of the Central Valley cities. As
the state capital, Sacramento is dominated by government sector employment. The
reliance on state government provides the area with a stable employment base.
However, as a low-cost alternative to Silicon Valley, the Sacramento MSA is also
becoming home to the manufacturing, distribution, and non-research and
development portions of numerous technology companies, such as Apple, HP, Intel,
JVC, NEC, and Packard Bell. In addition, the area is becoming an attractive base
for the back-office operations of banks and communications companies because of
less expensive land and the absence of seismic activity in the Sacramento area.
A map showing the location of the subject in relation to the surrounding area is
shown on the following page.
2. Economic Data
Presented in the following text is a brief overview of selected economic data
that characterizes the local market area.
Population: The population of Sacramento was 388,700 persons in January
1997, a 0.9 percent increase over 1996. The Sacramento MSA population was
1,647,000 in 1997. This represents a compound average annual growth rate
(CAAG) of approximately 2.0 percent over 1991. The growth rate is higher
than the population growth of the state overall, which was a CAAG increase
of 1.6 percent over the same period. Population in the Sacramento area is
expected to show stable growth through the year 2000.
Income: The effective buying income (EBI) is defined as personal income
less person tax and non-tax payments. It is used as an indicator of market
quality and market potential. In the Sacramento MSA, real median household
experienced a slight decrease from $37,232 in 1994 to $33,301 in 1996, a
5.4 percent decrease. Currently, based on the 1990 census, income per
capita is $14,087 with an average household income of $28,183.
VI-3
<PAGE>
(Map of north-central California deleted)
Regional Map
VI-4
<PAGE>
Employment: While government activity is a major contributor to the local
economy, as indicated, manufacturing and services industries have become
increasingly important. Sacramento now has a highly diversified economy
which has experienced steady growth during the past decade. Economic growth
is further supported by the city's proximity to the San Francisco Bay Area,
an extensive transportation system, and comparably inexpensive land,
housing, and real estate development costs.
Employment in the Sacramento MSA counties is estimated to have grown by 3.7
percent from 1995 to 1996, with a total average employment of 702,500 in
October 1997. The unemployment rate in the Sacramento MSA decreased from
5.5 percent in 1996 to 5.2 percent in 1997. This rate compares favorably to
the estimated unemployment rate of 6.0 percent for the nation as a whole.
The following table presents a listing of the major public and private
industry employers in the Sacramento MSA area.
=================================================================
Major Employers in the Sacramento MSA
=================================================================
Number of
Employer Employees
---------------------------------------------- ==================
State of California 70,700
University of California Davis 14,910
County of Sacramento 11,790
McClellan Air Force Base 10,100
San Juan Unified School District 8,600
Sutter Health 5,975
UC Davis Medical Center 5,300
Kaiser Permanente 5,130
Sacramento City Unified School District 5,000
Raley's Supermarkets 4,900
=================================================================
Source: Sacramento Business Journal
=================================================================
Tourism: Sacramento is home to numerous tourist attractions, state
monuments, and the State Capitol. Other attractions include the Railroad
Museum, Old Sacramento, the Crocker Art Museum, the Downtown Plaza/K Street
mall, and the California State Fairgrounds (Cal Expo). According to the
Sacramento Convention and Visitors Bureau, the number of tourists to
Sacramento has increased steadily over the past five years at 2.2 percent,
compounded annually.
Sacramento Metropolitan Airport: Sacramento is served by 140 daily flights
to all major US cities by the Sacramento Metropolitan Airport. The total
number of passengers increased by 90.0 percent from 1990 to 1997 because of
new airline service into the area, low airfares during the 1992 airfare
"war", and the expansion of the airport to be completed this year in
VI-5
<PAGE>
February. From 1996 to 1997, there was a 0.5 increase in airline
passengers. In future years, however, air traffic counts are expected to
continue to increase comparable to a CAAG of over 10.0 percent.
Military Installations: McClellan Air Force base is scheduled to close
down in 2001, following a 5-year transition period. McClellan is located
one mile west of the subject along Madison Avenue. Due to the diversity of
the area's economic make-up and the expected privatized re-use of the base,
we do not envision the closure of the base having a significant impact.
Mather Air Force Base closed in 1993 and the local market has since then
recovered after an initial negative impact on the market.
Riverfront and Old Sacramento: On both sides of the Sacramento River,
improvement of the riverfront is planned. These redevelopment efforts are
being conducted by the Sacramento Housing and Redevelopment Agency and the
City of West Sacramento Redevelopment Agency. Coordination of the
improvements of both riverbanks is being made by the two agencies, and
mutual benefits are expected. On the City of Sacramento side of the river,
a high-quality bike trail will be constructed along the Sacramento River
from Old Sacramento to the Miler Park Marina. This trail will connect the
existing American River Parkway bike trail to the north with the existing
Sacramento River bikeway to the south. The bike trails will have emergency
telephones with interpretive signs at points of historic or natural
interest. Nearer to Old Sacramento, a series of levee improvements to the
Docks area are planned to compliment recent upgrades to Old Sacramento. The
Docks, a former maritime area, is located just south of the Tower Bridge.
Improvements include attractive promenade sidewalk areas, decorative lamps,
river outlook points, and landscaping.
3. Neighborhood Review
The subject property is located near the major freeway intersection of
Interstate 80 and Madison Avenue, in the suburban, northeastern area of
Sacramento. Madison Avenue is reached by off ramps from Interstate 80. The
subject property is accessed by turning right (north) off of Madison Avenue to
Hillsdale Street, and then right (east) from Hillsdale Street to access the
subject site. The Super 8 Motel is set back from Madison Avenue behind a
Brookfields Restaurant and the various buildings comprising the small commercial
center at the corner of Madison Avenue and Hillsdale Street. Shops and
businesses located in this center include a restaurant, pizzeria, coffee stand,
hair salon, and animal hospital. Facing the subject from the south side of
Madison Avenue are a Denny's Restaurant and a vacant lot. On the other side of
Hillsdale Street, at the corner of Madison Avenue, are located a Beacon gasoline
station and a Trinity Christian School.
The area surrounding the subject property further east is residential, and the
area further south and west is a combination of highway commercial and strip
commercial. The Holiday Inn Northeast is located on the south side of Interstate
VI-6
<PAGE>
80, also facing Madison Avenue, and its neighbors include a large Ford
dealership and an American Automobile Association office. West of the subject
along Madison Avenue is additional strip commercial and the entrance to
McClellan Air Force Base (one-mile west).
As indicated, a number of restaurants are also located in the vicinity of the
subject property, an added attraction given that the Super 8 offers no food and
beverage service of its own. A special walkway has been developed between the
subject property and the Brookfields Restaurant, for example, so that Super 8
guests may easily reach the restaurant, which offers breakfast, lunch, and
dinner.
The trend in development in this portion of Sacramento is for new growth and new
construction to occur farther east in Roseville and Rocklin, outside of the City
of Sacramento area. The upcoming privatization of McClellan Air Force Base
indicates that some new construction and redevelopment may occur during this
process. The subject property is well positioned to accommodate demand generated
by the "new" use of McClellan given its proximity to the base.
4. Conclusion
In summary, we are of the opinion that the subject property is well located in
the northeast area of the City of Sacramento. Growth in nearly all economic
indicators has been positive over the past several years and we forecast
continued modest growth in these areas for the foreseeable future.
B. PROPERTY DESCRIPTION
1. Introduction
The subject property is a limited-service hotel comprising 128 guestrooms.
Additional amenities at the property include an outdoor swimming pool and
24-hour coffee service. The hotel comprises a wood framed structure in two
wings, one of two floors and one of three floors. The main, three-floor hotel
building houses guestrooms, the lobby, the hotel laundry, service areas, and
various mechanical and electrical equipment. The porte cochere entrance to the
hotel is created by a driveway passage through a portion of the first floor of
the three-story wing, as shown in the photograph presented on page one of this
report.
The hotel was constructed in 1980 and we understand that 1980 was the first year
of operation. The hotel is currently owned by Super 8 Motels Ltd., a related
company to the Famous Host Companies. We are not aware of any transactions
relating to the site or the improvements since the date of opening.
VI-7
<PAGE>
2. Site Description and Zoning
The subject property is located at 4316 Madison Avenue. The subject site
comprises 5.37acres, or 234,000 square feet. The site is irregular in shape, and
slopes downward slightly to the east from surrounding streets. The property has
205 feet of frontage along Madison Avenue street side of the property.
The subject property is zoned T-C (Travel Commercial). This zoning allows a
variety of commercial development in a highway setting and a hotel is a
permitted use in this zone. We are aware of no easements or covenants affecting
the subject property which would negatively affect the market value of the
subject property.
3. Improvements Description
The hotel building forms an approximate Y-shape with the interior of the Y-shape
forming a courtyard area. The courtyard is landscaped and is also the site of
the pool. The hotel offers interior corridors and one hydraulic elevator. The
building is fire sprinklered.
The total interior square footage of the hotel is 45,633 square feet with the
average interior space of a typical guestroom being approximately 225 square
feet. The Super 8 Motel provides 128 guestrooms, configured as 54 queen-size
bedrooms, 74 double queen-size bedrooms, and no suites. A small number of rooms
are provided for disabled persons. The guestrooms are furnished with a color
television, desk, two chairs, nightstand, lamp, and dresser. The lobby is wood
paneled with contemporary wood furniture. Overall the property is in good
condition and has been maintained on a regular basis.
With regard to parking, the hotel has 137 surface parking spaces located in the
paved parking lot which surrounds the hotel building. Three of these spaces are
designated for physically challenged persons. Also located on-site for guest use
are an ice machine, soft-drink vending machine, and a snack vending machine.
4. Basic Construction and Mechanical Systems
The subject building is a wood framed structures having foundations of
poured-in-place concrete. The exterior walls are composed of stucco and painted
wood. The exterior colors of the hotel are a beige-tone paint scheme with
contrasting dark-brown wood . The interior walls are sheet rock and are
primarily painted or have vinyl wall covering. The roofs are pitched,
composition tile roofing which appear to be in good condition. Presented on the
following table is a summary of the basic construction and mechanical systems of
the hotel.
VI-8
<PAGE>
===============================================================================
Super 8 Motel -- Sacramento
Summary of Basic Construction and Mechanical Systems
===============================================================================
Foundation: Concrete slab on grade
- ---------------------------- --------------------------------------------------
Frame: Wood frame construction, type V-1 hour fire rating.
- ---------------------------- --------------------------------------------------
Walls: Exterior: stucco.
Interior: gypsum board covering an airspace
between 2x4 studs. The walls in the guestrooms
are painted gypsum board and partially papered.
Lobby walls are wood paneled and painted gypsum
board.
- ---------------------------- --------------------------------------------------
Floor: Floors are carpeted in guestrooms and corridor
areas. Bathrooms have vinyl tile. The lobby area
is carpeted and the vending area has ceramic
tile flooring.
- ---------------------------- --------------------------------------------------
Roof: Slightly pitched with composition tile roofing
- ---------------------------- --------------------------------------------------
Ceiling Heights: 8.0 feet. Ceilings are painted gypsum board and
painted wood. In the public areas the lighting is
set in incandescent light fixtures. In the
guestrooms, are table lamps.
- ---------------------------- --------------------------------------------------
Windows: Window and door sashes are bronzed anodized
aluminum. Window trim is painted wood.
- ---------------------------- --------------------------------------------------
Heating and Cooling: Each room had individual electric heating and air
conditioning units located in the wall under a
window
- ---------------------------- --------------------------------------------------
Laundry Facilities: Laundry equipment consists of two washers and three
dryers, commercial grade.
- ---------------------------- --------------------------------------------------
Sprinkler System: All public areas and guestrooms are fire
sprinklered.
- ---------------------------- --------------------------------------------------
Life Safety: There are two individual fire systems in the
guestrooms: fire sensitive sensors and independent
smoke alarms.
===============================================================================
Source: Famous Host Companies
===============================================================================
5. Assessed Value and Property Taxes
The subject property is assessed by Sacramento County on a tax year commencing
July 1 of every year. Under the provisions of Article 13-A of the State of
California (Proposition 13), properties are assessed based on their fair market
value as of the change of ownership date. The assessed value can be increased by
a maximum of 2.0 percent per year until such date as the property is
subsequently sold, substantial new construction takes place, or the use of the
property is substantially changed. The current assessed value of the property is
presented in the following table.
============================================================
Assessor's Parcel Numbers
228-0141-028-0000
1997/98 Assessed Value
============================================================
Land and Improvements $2,303,063
Personal Property 244,221
- -------------------------------------- ---------------------
Net Taxable Value $2,547,284
- -------------------------------------- ---------------------
VI-9
<PAGE>
For 1997/1998, total property taxes and direct assessments are $27,311.31 on the
subject property. The indicated tax rate, therefore, is 1.0722 percent.
6. Land Lease
The subject property is encumbered by a lease, with the underlying land owned by
Mr. Hale G. Zimmerman. The term of the lease extends until June 20, 2013, with
five renewal options of ten years each. The base rent is adjusted every two
years to reflect changes in the Consumer Price Index. The current rent is $9,783
per month as of December 31, 1997 ($117,396 annually).
Super 8 Motel, Ltd. currently sub-leases three portions of their leased land,
one to a restaurant operation, the other two to strip shopping center
developers. The names of the sublessees are KMH Trinity, Madison Avenue, and
Sterling Equity. The income from this sub-leased land appears on the hotel's
financial statement as Other Income, which as of year-end 1997, totaled $80,863.
7. Renovation and Capital Improvements
Identified renovation plans include the replacement of the sub-flooring of the
ground floor guest corridors as well as the carpeting of these hallways.
Further, as the through-the wall air conditioning units in each guestroom
continue to age, these units will need to be replaced. Further, as the guestroom
doors are secured with standard key locks, an upgrade to more contemporary
electronic door locks is also necessary.
Given that the cost of such renovation work, on a project-by-project basis, is
not unusually large, annual funding for such projects on a phased-basis is
considered to be possible through a annual reserve for capital replacement of
4.0 percent of total revenue.
8. Summary of Functional Utility and Condition
It is our opinion that the hotel is adequately designed and maintained to
service the hotel market demands of the suburban Sacramento community.
VI-10
<PAGE>
C. HOTEL MARKET ANALYSIS
1. Sacramento Metropolitan Area Hotel Market Overview
There are a wide variety of existing lodging facilities offering distinctive
levels of quality, service, and amenities in the metropolitan Sacramento market.
The primary sub-market areas are Downtown, Richards Boulevard, Natomas, Cal
Expo, Roseville, and Rancho Cordova/Folsom. For year-end 1996, the composite
annual average occupancy of the overall Sacramento area was 69.9 percent as
reported by PKF Consulting's Trends in the Hotel Industry. The corresponding
year-end 1996 average daily room rate (ADR) is estimated to be $73.50. For 1997,
PKF Consulting estimates an occupancy level of 72.8 percent and an ADR of
$75.50. An eight-year review of occupancy and ADR for the Sacramento area is
presented in the following chart.
<TABLE>
==============================================================================================================
Sacramento Metropolitan Area Hotel Market Performance
1990 - 1997
- ---------------------------- ----------------- ---------------- ----------------- ----------- ----------------
Percentage
Average Points Average Daily Percent
Year Occupancy Change Room Rate Change Inflation(1)
- ---------------------------- ----------------- ---------------- ----------------- ----------- ----------------
<S> <C> <C> <C>
1990 65.2% - $58.99 - -
1991 64.6% (0.6)% $58.75 (0.4%) 3.0%
1992 64.4% (0.2)% $59.45 1.2% 3.0%
1993 66.8% 2.4% $61.16 2.9% 2.7%
1994 71.2% 4.4% $64.09 4.8% 2.7%
1995 71.5% 0.3% $70.72 5.9% 2.6%
1996 69.9% (1.6)% $73.50 3.9% 3.0%
1997 72.8% 4.1% $75.50 2.7% 3.5%
- ---------------------------- ----------------- ---------------- ----------------- ----------- ----------------
CAAG 1.6% - 3.6% - -
==============================================================================================================
(1) U.S. City Average CPI change over previous year
Source: PKF Consulting's Trends in the Hotel Industry and U.S. Dept. of Labor Statistics
==============================================================================================================
</TABLE>
Over the 1990 to 1997 period, occupancy has increased at a CAAG of 1.6 percent
annually, with strong growth shown for 1997. With regard to ADR, the market has
indicated a steady room rate growth of 3.6 percent annually overall, ahead of
inflation as measured by CPI, which has averaged approximately 3.0 percent over
the same period. For 1998, based on historical trends, current economic status,
and the addition of new supply to the market, PKF Consulting projects a year-end
1998 area-wide occupancy of 72.5 percent at a corresponding ADR of approximately
$78.50.
2. Proposed Additions to Hotel Supply
Based on our discussions with planning departments and various hotel development
personnel, we understand that there are a number of hotels planned for
VI-11
<PAGE>
construction and proposed hotel development in the Sacramento metropolitan area
is summarized in the following table. In specific, a number of projects in the
Roseville and Rocklin area may potentially impact the subject property.
<TABLE>
=======================================================================================================================
Sacramento Metropolitan Area
Proposed Hotel Development
=======================================================================================================================
No. of Development
Hotel/Product Location Rooms Status
- ------ -------------------------------- --------------------------------- ------------ ================================
<S> <C> <C> <C>
1 Various Hotel Products I-80 at Taylor 155-350 A Hilton Garden Inn, Courtyard
Roseville by Marriott, Fairfield Inn,
and Comfort Inn are proposed.
Phased opening from 1998 to
1999
- ------ -------------------------------- --------------------------------- ------------ --------------------------------
2 Extended Stay America Harding at Lead Hill 122 Ground broken. September 1998
Roseville opening planned
- ------ -------------------------------- --------------------------------- ------------ --------------------------------
3 Microtel Rocklin Road at Interstate 80 100 Plans completed. June 1, 1998
Rocklin opening scheduled
- ------ -------------------------------- --------------------------------- ------------ --------------------------------
4 Radisson Inn at Lake Natoma 720 Gold Lake Drive 62 Approved by Planning Dept.
(Expansion) Folsom Awaiting financing
- ------ -------------------------------- --------------------------------- ------------ --------------------------------
5 Best Western Heritage Inn 11269 Point East Drive 63 Approved by Planning Dept.
(Expansion) Rancho Cordova
- ------ -------------------------------- --------------------------------- ------------ --------------------------------
6 AmeriSuites Zinfandel and Gold Circle 128 Plans and approval complete.
Rancho Cordova January 1, 1999 opening
scheduled
- ------ -------------------------------- --------------------------------- ------------ --------------------------------
7 Crossland Economy Studio Point East Drive 127 Early-1999 opening likely
Rancho Cordova
- ------ -------------------------------- --------------------------------- ------------ --------------------------------
8 Hampton Inn Zinfandel and Gold Circle 88 Early-1999 opening likely
Rancho Cordova
- ------ -------------------------------- --------------------------------- ------------ --------------------------------
9 Homewood Suites 2480 Natomas Park Drive 125 Letter of development intent
Natomas signed
- ------ -------------------------------- --------------------------------- ------------ --------------------------------
10 TownePlace Suites East side of Venture Oaks Way, 95 Letter of development intent
off Gateway Oaks Dr. signed
Natomas
- ------ -------------------------------- --------------------------------- ------------ --------------------------------
11 Hilton Garden Inn East side of Venture Oaks Way, 150 Speculative
off Gateway Oaks Drive
Natomas
- ------ -------------------------------- --------------------------------- ------------ --------------------------------
12 Embasssy Suites Hotel Capitol Mall at The Docks 247 Under negotiation with City.
Old Sacramento Mid-1999 opening possible
- ------ -------------------------------- --------------------------------- ------------ --------------------------------
13 Sheraton Hotel J Street at 13th Street 450 Under negotiation with City.
Downtown Sacramento Late-1999 opening possible
- ------ -------------------------------- --------------------------------- ------------ --------------------------------
12 All-Suite Hotel Captain's Table Marina along 120 Advanced stage of planning
the Sacramento River
South Sacramento
=======================================================================================================================
Source: PKF Consulting
=======================================================================================================================
</TABLE>
Up to 572 new hotel rooms are proposed in the nearby areas of Roseville and
Rocklin which may have some effect on the subject property. The three projects
that may have the most impact would be the 100-room Microtel in Rocklin, the
VI-12
<PAGE>
90-room Comfort Inn in Roseville, and the 82-unit Fairfield Inn, also in
Roseville. These projects are expected to start construction after the cessation
of the heavy winter rains and have the potential to be open by the end of 1998.
Therefore, we have analyzed the impact of these additions to the competitive
supply projected during the next five-year period.
3. Demand Segmentation
The primary demand segments in the Sacramento market are corporate, group, and
leisure demand. Business and leisure travel are the two largest demand segments
on an annual basis. On a more seasonal basis, such as the bi-annual summer
bowling leagues, group demand is the third demand segment in the Sacramento
market. Each hotel penetrates these three demand segments based on the appeal of
the property to the various types of travelers in each segment.
The current mix of demand at the subject property is primarily composed of
leisure travelers (45.0%) who are attracted to the subject property because of
its convenient location and clean, well-priced rooms. The second largest
component of demand (27.0%) is from corporate and county government travelers
who are visiting businesses and agencies in the area. Federal government,
military, and McClellan demand comprises the third largest segment (15.0). The
balance of demand (13.0 percent) is generated by group travelers, such as
athletic and school groups, and miscellaneous segments.
4. Projected Future Supply and Demand
Over the past eight years (1990 to 1997) demand for hotel accommodations in
Sacramento has increased at a CAAG of 1.6 percent. This reflects economic growth
in the area, which has remained in the low 70s percent level since 1994. Based
on our review of the local market, we project overall demand for hotel rooms
will stabilize at this level and may drop slightly over the next five years as
the market absorbs new supply.
VI-13
<PAGE>
5. Market Performance of the Subject
The following table summarizes the historical occupancy levels and average room
rate for the Super 8 Motel over the past four years
===============================================================================
Super 8 Motel -- Sacramento
Historical Occupancy and Room Rate
1994 to 1997 (Estimated)
===============================================================================
Average Daily
Year Occupancy % Change Room Rate % Change
- --------------------- -------------- ------------- -------------- -------------
1994 61.9% - $37.21 -
- --------------------- -------------- ------------- -------------- -------------
1995 53.8% (13.1)% $41.06 10.3%
- --------------------- -------------- ------------- -------------- -------------
1996 55.5% 3.1% $40.37 (1.7)%
- --------------------- -------------- ------------- -------------- -------------
1997 (Estimated) 62.0% 11.7% $41.75 3.4%
- --------------------- -------------- ------------- -------------- -------------
CAAG 0.0% - 3.9% -
===============================================================================
Source: Famous Host Companies
===============================================================================
As can be noted, occupancy rates at the subject property dropped significantly
from 61.9 percent in 1994 to 53.8 percent in 1995 as changes at McClellan Air
Force Base were announced. Since 1995, occupancy rates have increased annually,
and an occupancy of 62.0 is estimated for year-end 1997. Occupancy rates at the
subject property are expected to stabilize in the near future as new supply
comes on-line in neighboring areas.
On the other hand, during this period of declined occupancy, management has
raise ADR at a CAAG of 3.9 percent from 1994 to estimated year-end 1997. Room
rate increased from $37.21 in 1994 to $41.75 estimated for year-end 1997. This
increase in ADR is a reflection of some economic strength in the local market.
Based on our analysis of the local market, we are of the opinion the subject
will achieve a stable occupancy level of approximately 60.0 percent in 1999 as
new supply comes on-line in both Roseville and Rocklin. An occupancy of 62.0
percent is forecast for 1998, comparable to that achieved in 1997, and then a
decreased occupancy of 60.0 percent if forecast for 1999. For the balance of the
projection period, from 2000 to 2007, a stable occupancy level of 60.0 percent
is projected.
Based on our market analysis, we project the hotel to achieve an average room
rate of $43.00 in 1998, a 3.0 percent increase from 1997. Over the balance of
our projection period, we project the hotel's average room rates to increase at
the anticipated long-term level of inflation (3.0 percent per year). We believe
that this is realistic given the projected limited growth in demand combined
with some new additions to supply.
VI-14
<PAGE>
The following table summarizes our projections for the subject property over the
first five years of the ten-year analysis period from January 1, 1998 to
December 31, 2002.
===========================================================================
Super 8 Motel -- Sacramento
Projected Occupancy and Average Daily Room Rate
1998 to 2002
===========================================================================
Average
Daily Percent
Year Occupancy Room Rate Change
- --------------- ------------------- -------------------- ------------------
1997 62.0% $41.75 -
- --------------- ------------------- -------------------- ------------------
1998 62.0% $43.00 3.0%
1999 60.0% $44.25 3.0%
2000 60.0% $45.50 3.0%
2001 60.0% $47.00 3.0%
2002 60.0% $49.75 3.0%
- --------------- ------------------- -------------------- ------------------
CAAG (0.6)% 3.0% -
- --------------- ------------------- -------------------- ------------------
D. HIGHEST AND BEST USE
Based on our analysis, we are of the opinion that the existing improvements
contribute significant overall value to the site. There is no alternative, legal
use that could economically justify the restructuring or removal of the existing
improvements at this time. Therefore, the subject property, as improved,
represents the highest and best use of the site.
E. VALUATION -- SALES COMPARISON APPROACH
1. Introduction
We have reviewed a number of Sacramento metropolitan area hotel sales and
focused on those sales considered most comparable in providing support for the
market value of the subject. Based on this review, we have identified six recent
hotel sales in the Sacramento region. The sales occurred between August 1993 and
May 1997. The sales are all of a fee simple estate interest in the property.
<TABLE>
==========================================================================================================================
Comparable Hotel Sales
==========================================================================================================================
Rooms Overall
Sale Sale Year Number Price Revenue Capitalization
No. Hotel Name Location Date Built of Rooms Per Room Multiplier Rate
- ----------- ----------------- ----------------- --------------- -------- ---------- ----------- ----------- ==============
<S> <C> <C> <C> <C> <C> <C> <C>
1 Fountain Suites Sacramento 5/97 1988 300 $56,667 3.30 11.1%
2 Beverly Garland Sacramento 5/96 1980 205 $30,224 2.03 N/A
3 Residence Inn Sacramento 1/96 1985 176 $81,818 3.51 10.6%
4 South Pointe Inn Sacramento 8/95 1960 152 $13,500 6.50 N/A
5 Fairfield Inn Sacramento 8/94 1990 117 $32,692 3.02 10.8%
6 Days Inn Sacramento 8/93 1981 173 $20,231 3.06 N/A
==========================================================================================================================
Source: PKF Consulting
==========================================================================================================================
</TABLE>
VI-15
<PAGE>
2. Analysis of the Hotel Sales
In reviewing the preceding table, it can be noted that the sales price per room
indicates a range in value on a per-room basis from $13,500 to $56,667.
Because of the many differences between these hotels and the subject hotel, we
are of the opinion that an analysis using a rooms revenue multiplier is the most
appropriate units of comparison to value the subject. A rooms revenue multiplier
measures the total revenue generated from room rentals, the major revenue source
for this type of hotel property, in relation to the sales price. Rooms revenue
multipliers do not require subjective adjustments since most variance in
properties are considered to be reflected in average daily room rates and annual
occupancies as achieved in the market. As can be noted, indicated rooms revenue
multipliers for the six sales ranged from a low of 2.03 to a high of 6.50. Sale
number four was of a distressed property and the low rooms revenue of this hotel
causes the transaction to have a comparably high rooms revenue multiplier of
6.50. Without this transaction, the average rooms revenue multiplier of the
other five properties is 2.98, with a range of 2.03 to 3.51.
Based on our analysis, we are of the opinion that a rooms revenue multiplier
close to the high end of the range indicated by the five comparable sales is
appropriate in valuing the subject property, in the order of 3.25 Based on this
multiplier, and assuming a stabilized occupancy level of 60.0 percent at an
average daily room rate of $43.00 (stated in 1998 dollars), the indicated value
for available rooms for the subject is as follows:
<TABLE>
Rooms Stabilized Stabilized Indicated Value
Revenue Average Rate Occupancy Per Room
Multiplier Level Days/Year (Rounded)
- ---------------- --- --------------- --- ----------------- --- ---------------- --- -----------------------
<S> <C> <C> <C> <C> <C>
3.25 X $43.00 X 60.0% X 365 = $30,600
- ---------------- --- --------------- --- ----------------- --- ---------------- --- -----------------------
</TABLE>
As noted above, the rooms revenue multiplier analysis produced a value
indication of $30,600 per available room. This value unit is converted into a
total value estimate by multiplying the indicated value per room by the total
number of rooms. Based on 128 rentable rooms, the indicated stabilized value of
the fee simple interest in the Super 8 Motel is $3,900,000 as calculated below:
- ----------------------- ---- ---------------- ----- ---------------------------
$30,600 X 128 Rooms = $3,900,000 (Rounded)
- ----------------------- ---- ---------------- ----- ---------------------------
VI-16
<PAGE>
F. INDICATED VALUE VIA THE SALES COMPARISON APPROACH
After concluding to our estimate of the stabilized value of the subject, the
next step in our analysis is to develop an estimate of the "as is" leasehold
market value of the subject property.
1. Income Gain
The first step to develop the value estimate is to add the income gain projected
to occur until the property is stabilized (as discussed in the Income
Capitalization section).
===================================================================
Sales Comparison Approach
"As Is" Fee Simple Value
===================================================================
Stabilized Value Indication $3,900,000
Less: Income Gain Until Stabilization 26,000
- ---------------------------------------------- --------------------
"As Is" Fee Simple Value $3,926,000
- ---------------------------------------------- --------------------
2. Valuation of Leased Fee Interest
After having developed an estimate of the "as is" fee simple value of the
subject under the Sales Comparison Approach, the next step is to develop an
estimate of the value of the leased fee interest in the property. This
represents the position of the ground lessor, who benefits from the income
derived from the ground lease payments during the term of the lease, as well as
the ownership of the property in fee at the termination of the lease (the
reversion). The estimated leased fee interest in the hotel is then subtracted
from the fee simple value to arrive at our estimate of the value of the
leasehold interest.
This deduction is derived by capitalizing the land lease payment for a
stabilized year ($121,000) by an appropriate capitalization rate (9.0 percent).
This capitalization rate of 250 basis points less than the rate used to
capitalize the revenue stream from the hotel operations (as will be discussed in
the Income Capitalization Approach) is reflective of the more secure position of
the landlord as compared to the lessee. This calculation results in a leased fee
interest of $1,300,000 ($121,000 / 9.0 percent). The following table summarizes
the deduction made from the stabilized fee simple value indication.
VI-17
<PAGE>
==============================================================
Sales Comparison Approach
"As Is" Leasehold Value
==============================================================
Fee Simple Value Estimate $3,926,000
Less: Leased Fee Land Value (1,300,000)
- ------------------------------------- ------------------------
Leasehold Value $2,626,000
- ------------------------------------- ------------------------
Rounded $2,650,000
- ------------------------------------- ------------------------
As a result of the foregoing analysis, we estimate the "as is" market value of
the leasehold estate interest in the subject as of January 1, 1998, through the
Sales Comparison Approach to be:
===============================================================================
TWO MILLION SIX HUNDRED FIFTY THOUSAND DOLLARS
- -------------------------------------------------------------------------------
$2,650,000
===============================================================================
G. VALUATION -- INCOME CAPITALIZATION APPROACH
1. Basis for Cash Flow Projection
In order to develop an estimate of the net operating income (NOI) for the
subject for both a stabilized year of operation (direct capitalization) and each
year of the aforementioned holding period (yield capitalization), the following
have been analyzed:
1. The historical operating results for the subject for year-end 1994,
1995, 1996, year-to-date September 1997, and management's operating
budget for 1997.
2. The operating results of the category "Limited-Service Hotels" from the
1997 issue of PKF Consulting's Trends in the Hotel Industry.
The historical operating results of the subject are presented at the end of this
section of the report.
2. Stabilized Year Operating Estimate
We first developed an estimate of the performance of the subject for a
stabilized year of operation stated in current value, 1998 dollars. This
estimate is based on our review of the historical operating results of the
subject hotel coupled with an analysis of the operating results of the selected
PKF Consulting "Trends" category. Additional key assumptions used in preparing
this stabilized year estimate are summarized below.
VI-18
<PAGE>
a) The stabilized annual occupancy of the hotel is projected to be 60.0
percent at an average daily room rate of $43.00 as stated in 1998
dollars;
b) A management fee of 5.0 percent of total revenues, a franchise fee of
8.0 percent of room revenues, and a reserve for capital replacements of
4.0 percent of total revenue have been deducted to establish the net
operating income of the subject.
c) The projection of expense for taxes on real and personal property is a
function of the market value of the property. The subject property is
in the real estate taxing jurisdiction of the Sacramento County Tax
Assessor's Office. Our estimate of the property taxes for the subject
is based on the provisions of Proposition 13. Proposition 13 limits
ad valorem property taxes to 1.0 percent of the assessed value plus
assessment for city, special district, and county bonds. The
current effective tax rate is 1.0722 percent of market value. This
appraisal assumes a sale of the subject property on the effective date
of the appraisal, which will initiate a reassessment of real
estate for tax purposes. For the purpose of this analysis, the
reassessment is based on the value estimate of the subject property as
determined using the Income Capitalization Approach as if owned
in fee simple. Based on that estimated value of the hotel, a tax
rate of 1.0722 per $100 of assessed value is utilized, resulting
in real estate taxes of $40,000, rounded, in the representative or
stabilized year.
Presented below is our estimate of the subject hotel's stabilized year operating
results. As can be noted, on a stabilized basis, the subject property will
generate approximately $1,329,000 in total revenue, with a net operating income
of $307,000, or 23.1 percent of total revenue.
VI-19
<PAGE>
<TABLE>
==================================================================================================
Super 8 Motel, Sacramento
Stabilized Year Operating Results (Stated in 1998 Value Dollars)
==================================================================================================
Occupancy Level 60.0%
- -------------------------------------------- -----------------------------------------------------
Average Room Rate $43.00
- -------------------------------------------- -----------------------------------------------------
REVPAR $25.80
- -------------------------------------------- -------------- ------------ ------------ ------------
Total Ratios POR (1) POR (2)
- -------------------------------------------- -------------- ------------ ------------ ------------
Revenues
<S> <C> <C> <C> <C>
Rooms $1,205,000 90.7% $9,414 $43.00
Telephone 23,000 1.7% 180 0.80
Other Operated Departments 101,000 7.6% 789 3.60
- -------------------------------------------- -------------- ------------ ------------ ------------
Total Revenues 1,329,000 100.0% 10,383 47.40
- -------------------------------------------- -------------- ------------ ------------ ------------
Departmental Expenses (3)
Rooms 231,000 19.2% 1,805 8.24
Telephone 11,000 50.0% 86 0.40
Other Operated Departments 10,000 10.0% 78 0.37
- -------------------------------------------- -------------- ------------ ------------ ------------
Total Departmental Expenses 252,000 19.0% 1,969 8.74
- -------------------------------------------- -------------- ------------ ------------ ------------
Departmental Income 1,077,000 81.0% 8,414 38.42
- -------------------------------------------- -------------- ------------ ------------ ------------
Undistributed Operating Expenses
Administrative and General 178,000 13.4% 1,390 6.34
Franchise Fees 97,000 7.3% 756 3.46
Marketing 30,000 2.2% 231 1.06
Property Maintenance 96,000 7.2% 747 3.41
Energy and Utilities 63,000 4.7% 491 2.24
- -------------------------------------------- -------------- ------------ ------------ ------------
Total Undistributed Expenses 464,000 34.9% 3,625 16.55
- -------------------------------------------- -------------- ------------ ------------ ------------
Income Before Fixed Charges 613,000 46.1% 4,789 21.87
- -------------------------------------------- -------------- ------------ ------------ ------------
Management Fees and Fixed Charges
Management Fees 66.000 5.0% 519 2.37
Property Taxes 40,000 3.1% 313 1.43
Insurance 26,000 2.0% 203 0.94
Land Lease 121,000 9.1% 945 4.32
- -------------------------------------------- -------------- ------------ ------------ ------------
Total 253,000 19.0% 1,976 9.02
- -------------------------------------------- -------------- ------------ ------------ ------------
Income Before Reserve 360,000 27.0% 2,812 12.84
- -------------------------------------------- -------------- ------------ ------------ ------------
Reserve for Replacement 53,000 4.0% 414 1.89
- -------------------------------------------- -------------- ------------ ------------ ------------
Income Before Other Charges(4) $307,000 23.1% $2,398 $10.95
==================================================================================================
(1) PAR - Per Available Room
(2) POR - Per Occupied Room
(3) Departmental expense ratios are based on the respective department's
revenue, not total revenue
(4) Income before interest, taxes, depreciation, and
amortization
Source: PKF Consulting
==================================================================================================
</TABLE>
3. Ten Year Statement of Estimated Annual Operating Results
Presented at the end of this section of the appraisal report is our estimate of
the operating results for the subject for the ten-year period beginning January,
1, 1998. This forecast is based on the preceding stabilized year estimate,
adjusted to reflect effects of inflation, variations in occupancy and rate and
the impact of fixed and variable components of each revenue and expense item.
Selected key assumptions used to develop this forecast are summarized below.
VI-20
<PAGE>
a) With the exception of property taxes, all other revenues are expenses
are projected to increase at 3.0 percent throughout the holding period.
Property taxes are projected to increase at a rate of 2.0 percent per
year as allowed by California law, and growth in average daily room
rate is expected to be depressed for the first four years of the
analysis period as a result of market-driven factors.
b) For the first year of this forecast, the occupancy and rates of the
hotel were projected as previously discussed. Thereafter, the hotel's
occupancy was assumed to decrease to, and remain at, 60.0 percent, with
the average rate increasing at 3.0 percent per year.
4. Valuation Using Direct Capitalization
Based on our evaluation of the subject, it is was concluded that an overall
capitalization rate (OAR) of 11.5 percent is appropriate to value the subject,
and properly reflects the risks associated with this hotel given the property's
age, physical features, location, market position, and leasehold estate status.
Based on the projection of net operating income for a stabilized year of
operation, and the selected overall rate of 11.5 percent, the value of the
subject as if stabilized is calculated to be as follows.
========================================================================
Projected Stabilized Net Operating Income $307,000
Overall Capitalization Rate 11.5%
- -------------------------------------------------- ---------------------
Stabilized Value Indication $2,669,565
Rounded $2,700,000
========================================================================
From this derived stabilized value, an addition is made for the benefit of the
additional income the hotel is expect to earn prior to reaching the projected
lower stabilized level of income. This surplus cash flow is typically referred
to as "income gain."
Income gain is the difference in projected cash flows and the cash flow which
would be available if the property were stabilized. This amount must be added to
the stabilized value to reflect the higher occupancy in the first year of the
analysis period prior to the attainment of a lower stabilization level of
operation. Based on our market research and analysis, it is estimated that the
subject will achieve a stabilized level of operation in 1999. A calculation of
the income gain associated for the year prior to that period is presented on the
following table.
VI-21
<PAGE>
===============================================================================
Income Gain to Stabilization
===============================================================================
Estimated Stabilized Year
Net Operating Net Operating Estimated Present Value
Year Income Income Income Gain @ 14.5%
- ----------- ----------------- ----------------- --------------- ---------------
1998 $337,000 $307,000 $30,000 $26,201
- ----------- ----------------- ----------------- --------------- ---------------
Rounded $30,000 $26,000
- ----------- ----------------- ----------------- --------------- ---------------
Based upon the preceding calculation, the cumulative income gain over the
stabilization period is estimated to be approximately $30,000. Investors
typically discount the estimated income gain at a comparable discount rate as
that used for the valuation of the subject property itself, or, in this case,
14.5 percent annually. This is reflective of the more aggressive discount rate
used to value potential gains as compared to potential losses. Consequently, if
the sum of the income gains were discounted at a rate of 14.5 percent, the
present value of the estimated income gain would be roundly $26,000.
Presented below is our calculation of the "as is" market value of the subject
taking into account the above estimate of income gain during the projected
stabilization period.
=======================================================================
Value Conclusion -- Direct Capitalization
=======================================================================
Stabilized Value $2,700,000
Plus: Income Gain During Stabilization Period 26,000
- ----------------------------------------------------- -----------------
"As Is" Value $2,726,000
- ----------------------------------------------------- -----------------
Rounded $2,700,000
- ----------------------------------------------------- -----------------
Therefore, the estimated "as is" market value of the leasehold interest in the
subject using the Direct Capitalization Approach, as of January 1, 1998, is:
==============================================================================
TWO MILLION SEVEN HUNDRED THOUSAND DOLLARS
- ------------------------------------------------------------------------------
$2,700,000
==============================================================================
5. Discounted Cash Flow Valuation Analysis
To estimate the value of the subject using a discounted cash flow analysis, it
is assumed that the property will be sold at the end of a ten-year holding
period. The value of the property at that time is estimated by capitalizing the
expected or anticipated net operating income of the property in the eleventh
year. From this value estimate, an estimate of sales costs is deducted to arrive
at the net proceeds upon sale.
VI-22
<PAGE>
Based on our market research, we are of the opinion that a reversionary
capitalization rate of 12.0 percent and a 14.5 percent discount rate are
appropriate to value the subject on a discounted cash flow basis.
The following table shows the present value of the projected net operating
income for the subject for the ten-year holding period, along with the present
value of the reversion, deriving a value estimate.
===============================================================================
Discounted Cash Flow Analysis
===============================================================================
Cash Flow Present Present
From Value Value
Year Operations Factor @ 14.5%
- ------------------ -------------------- ----------------------- ---------------
1998 $337,000 0.8734 $294,323
1999 $317,000 0.7628 $241,796
2000 $330,000 0.6662 $219,835
2001 $339,000 0.5818 $197,232
2002 $352,000 0.5081 $178,861
2003 $357,000 0.4438 $158,429
2004 $372,000 0.3876 $144,180
2005 $385,000 0.3385 $130,322
2006 $395,000 0.2956 $116,774
2007 $404,000 0.2582 $104,310
- ------------------ -------------------- ----------------------- ---------------
Reversion $3,473,000 0.2582 $896,706
- ------------------ -------------------- ----------------------- ---------------
Present Value $2,682,768
- ------------------ -------------------- ----------------------- ---------------
Value, Rounded $2,700,000
================== ==================== ======================= ================
6. Income Capitalization Approach Valuation Conclusion
The value conclusion under the Income Capitalization Approach is based on both a
direct capitalization and a discounted cash flow analysis. Both the direct
capitalization method and the discounted cash flow method indicated a value of
$2,700,000. Placing equal weight on both methods, our conclusion as to the "as
is" market value of the leasehold interest of the subject using the Income
Capitalization Approach, as of January 1, 1998, is:
==============================================================================
TWO MILLION SEVEN HUNDRED THOUSAND DOLLARS
- ------------------------------------------------------------------------------
$2,700,000
==============================================================================
H. RECONCILIATION AND FINAL ESTIMATE OF VALUE
The reconciliation involves the correlation of the conclusions reached from the
two valuation methodologies applied, considering the property type and the
VI-23
<PAGE>
requirements of the appraisal assignment. This process depends on the
appropriateness and reliability of each approach, and of the quality and
reliability of the data obtained. The results from the two approaches are as
follows:
============================================ ======================
Sales Comparison Approach $2,650,000
Income Capitalization Approach
Direct Capitalization $2,700,000
Discounted Cash Flow Analysis $2,700,000
============================================ ======================
In the Sales Comparison Approach we compared six Sacramento area hotel
transactions to the subject. The selected sales indicated a relatively wide
range in value, and no property was identical to the subject. These factors make
this approach less meaningful, but act as a reference checkpoint for the value
derived from the Income Capitalization Approach methods.
The Income Capitalization Approach is undoubtedly the most commonly used method
to evaluate an income producing property such as a hotel. In this approach, we
have utilized two methods of analysis: The direct capitalization method and the
discounted cash flow method (yield capitalization). There was good market
support for both the projected cash flow of the subject as well as the
capitalization and yield rates used to convert our cash flow projections into a
value estimate. Both income methods resulted in similar values, heightening our
confidence in this approach. Accordingly, the primary reliance was placed on
this method.
Based on the facts, assumptions, and procedures outlined in this report, it is
estimated that the "as is" market value of the leasehold interest in the subject
property, as of January 1, 1998, is reasonably represented as:
===============================================================================
TWO MILLION SEVEN HUNDRED THOUSAND DOLLARS
- -------------------------------------------------------------------------------
$2,700,000
===============================================================================
VI-24
<PAGE>
SUPER 8 MOTEL -- SACRAMENTO, CALIFORNIA
HISTORICAL OPERATING RESULTS
<PAGE>
<TABLE>
Super 8, Sacramento
Historical Operating Results
---------------------------------------------------------------------------------------------------
1994 1995
---------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
---------------------------------------------------------------------------------------------------
Number of Keys 128 128
Occupancy 61.90% 53.76%
Average Daily Room Rate (ADR) $37.21 $41.06
REVPAR $23.03 $22.07
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROOMS $ 1,076,064 91.0% $ 8,407 $ 37.21 $ 1,031,471 90.1% $ 8,058 $ 41.07
TELEPHONE 17,651 1.5% 138 0.61 16,111 1.4% 126 0.64
MISCELLANEOUS 89,238 7.5% 697 3.09 96,596 8.4% 755 3.85
------------ ------ ------- ------- ----------- ------ ------- -------
TOTAL REVENUE 1,182,953 100.0% 9,242 40.90 1,144,178 100.0% 8,939 45.55
DEPT. COSTS & EXPENSES (3)
ROOMS 217,219 20.2% 1,697 7.51 213,907 20.7% 1,671 8.52
TELEPHONE 12,001 68.0% 94 0.41 11,118 69.0% 87 0.44
MISCELLANEOUS 589 0.7% 5 0.02 7,228 7.5% 56 0.29
------------ ------- ------ ------- ----------- ------- ------- -------
TOTAL COST & EXP. 229,809 19.4% 1,795 7.95 232,253 20.3% 1,814 9.25
TOTAL OPER. DEPTS. INCOME 953,144 80.6% 7,446 32.96 911,925 79.7% 7,124 36.31
------------ ------- ------ ------- ----------- ------- ------- -------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 130,621 11.0% 1,020 4.52 151,992 13.3% 1,187 6.05
MARKETING 22,969 1.9% 179 0.79 28,569 2.5% 223 1.14
FRANCHISE FEES 53,720 4.5% 420 1.86 51,574 4.5% 403 2.05
UTILITIES 54,119 4.6% 423 1.87 53,162 4.6% 415 2.12
PROPERTY OPERATIONS 72,012 6.1% 563 2.49 74,364 6.5% 581 2.96
------------ ------- ----- ----- ---------- ------- ------- ------
TOTAL 333,441 28.2% 2,605 11.53 359,661 31.4% 2,810 14.32
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 619,703 52.4% 4,841 21.43 552,264 48.3% 4,315 21.99
------------ ------- ------ ----- ---------- ------- ------- ------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 54,903 4.6% 429 1.90 53,056 4.6% 415 2.11
PROPERTY TAXES 27,672 2.3% 216 0.96 27,905 2.4% 218 1.11
INSURANCE 19,876 1.7% 155 0.69 20,602 1.8% 161 0.82
RENT 109,003 9.2% 852 3.77 111,325 9.7% 870 4.43
------------ ------- ------ ------ ---------- ------- ------- ------
TOTAL 211,454 17.9% 1,652 7.31 212,888 18.6% 1,663 8.48
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 408,249 34.5% 3,189 14.12 $ 339,376 29.7% 2,651 13.51
============ ======= ====== ====== ========== ======= ======= ======
RENOVATION PAYMENT $ 58,689 $ 80,817
-----------------------------------------------------
1996
-----------------------------------------------------
$ % PAR (1) POR (2)
-----------------------------------------------------
Number of Keys 128
Occupancy 55.48%
Average Daily Room Rate (ADR) $40.37
REVPAR $22.40
REVENUES
ROOMS $ 1,049,315 89.2% $ 8,198 $ 40.37
TELEPHONE 23,293 2.0% 182 0.90
MISCELLANEOUS 104,008 8.8% 813 4.00
------------- ------- ------- -------
TOTAL REVENUE 1,176,616 100.0% 9,192 45.27
DEPT. COSTS & EXPENSES (3)
ROOMS 202,942 19.3% 1,585 7.81
TELEPHONE 11,406 49.0% 89 0.44
MISCELLANEOUS 13,030 12.5% 102 0.50
------------- ------- ------- -------
TOTAL COST & EXP. 227,378 19.3% 1,776 8.75
TOTAL OPER. DEPTS. INCOME 949,238 80.7% 7,416 36.52
------------- ------- ------- -------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 154,610 13.1% 1,208 5.95
MARKETING 24,866 2.1% 194 0.96
FRANCHISE FEES 52,590 4.5% 411 2.02
UTILITIES 52,627 4.5% 411 2.02
PROPERTY OPERATIONS 64,035 5.4% 500 2.46
------------- ------- ------- -------
TOTAL 348,728 29.6% 2,724 13.42
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 600,510 51.0% 4,691 23.10
------------- ------- ------- -------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 54,608 4.6% 427 2.10
PROPERTY TAXES 28,009 2.4% 219 1.08
INSURANCE 21,679 1.8% 169 0.83
RENT 113,977 9.7% 890 4.39
------------- ------- ------- -------
TOTAL 218,73 18.6% 1,705 8.40
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 382,237 32.5% 2,986 14.71
============= ======= ======= =======
RENOVATION PAYMENT $ 23,700
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenue, not total revenue.
(4) Net operating income before reserves, interest, depreciation,
amortization, and income taxes.
===================================================================================================================================
Source:Famous Host Company
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8, Sacramento
Operating Results Year-to-Date September 1997 and 1997 Budget
---------------------------------------------------------------------------------------------------
September 1997 Budget 1997
---------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
---------------------------------------------------------------------------------------------------
Number of Keys 128 128
Occupancy 62.00% 57.08%
Average Daily Room Rate (ADR) $41.76 $42.28
REVPAR $25.89 $24.13
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROOMS $ 904,874 90.9% $ 9,452 $ 41.76 $ 1,127,411 91.2% $11,776 $ 42.28
TELEPHONE 17,085 1.7% 178 0.79 20,065 1.6% 210 0.75
MISCELLANEOUS 73,304 7.4% 766 3.38 88,587 7.2% 925 3.32
---------- ------ ------ ------- ----------- ------- ------- -------
TOTAL REVENUE 995,263 100.0% 10,396 45.93 1,236,063 100.0% 12,911 46.35
DEPT. COSTS & EXPENSES (3)
ROOMS 172,425 19.1% 1,801 7.96 215,361 19.1% 2,250 8.08
TELEPHONE 10,839 63.4% 113 0.50 10,563 52.6% 110 0.40
MISCELLANEOUS 6,994 9.5% 73 0.32 630 0.7% 7 0.02
---------- ------ ------ ------- ----------- ------- ------- ------
TOTAL COST & EXP. 190,258 19.1% 1,987 8.78 226,554 18.3% 2,366 8.50
TOTAL OPER. DEPTS. INCOME 805,005 80.9% 8,409 37.15 1,009,509 81.7% 10,545 37.86
---------- ------ ------ ------- ----------- ------- ------- ------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 129,575 13.0% 1,353 5.98 142,373 11.5% 1,487 5.34
MARKETING 14,770 1.5% 154 0.68 19,693 1.6% 206 0.74
FRANCHISE FEES 45,244 4.5% 473 2.09 56,370 4.6% 589 2.11
UTILITIES 45,843 4.6% 479 2.12 51,090 4.1% 534 1.92
PROPERTY OPERATIONS 46,143 4.6% 482 2.13 62,498 5.1% 653 2.34
---------- ------ ----- ------- ---------- ------- ------- ------
TOTAL 281,575 28.3% 2,941 12.99 332,024 26.9% 3,468 12.45
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 523,430 52.6% 5,467 24.16 677,485 54.8% 7,077 25.40
---------- ------ ------ ------- ---------- ------- ------- ------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 46,731 4.7% 488 2.16 57,655 4.7% 602 2.16
PROPERTY TAXES 20,437 2.1% 213 0.94 28,392 2.3% 297 1.06
INSURANCE 17,475 1.8% 183 0.81 20,000 1.6% 209 0.75
RENT 87,472 8.8% 914 4.04 110,000 8.9% 1,149 4.12
---------- ------ ----- ------ ---------- ------- ------- ------
TOTAL 172,115 17.3% 1,798 7.94 216,047 17.5% 2,257 8.10
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 351,315 35.3% 3,670 16.21 $ 461,438 37.3% $ 4,820 $ 17.30
========== ====== ====== ====== ========== ======= ======= =======
RENOVATION PAYMENT $ 46,544 $ 37,082
- ------------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenue, not total revenue.
(4) Net operating income before reserves, interest, depreciation,
amortization, and income taxes.
====================================================================================================================================
Source:Famous Host Company
====================================================================================================================================
</TABLE>
<PAGE>
SUPER 8 MOTEL -- SACRAMENTO, CALIFORNIA
TEN YEAR STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS
<PAGE>
<TABLE>
Super 8
Sacramento, California
Projected Operating Results
-----------------------------------------------------------------------------------------------
Calendar Years Ending December 31: 1998 1999
-----------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-----------------------------------------------------------------------------------------------
Number of Keys 128 128
Occupancy 62.00% 60.00%
Average Daily Room Rate $43.00 $44.25
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $1,246,000 90.7% $ 9,734 $43.02 $1,240,000 90.6% $ 9,688 $44.24
Telephone 24,000 1.7% 188 0.83 24,000 1.8% 188 0.86
Other Operated Departments 104,000 7.6% 813 3.59 104,000 7.6% 813 3.71
----------- ------- ------ --------- ---------- ------- ------- -------
Total Revenues 1,374,000 100.0% 10,734 47.43 1,368,000 100.0% 10,688 48.80
Departmental Expenses (3)
Rooms 236,000 18.9% 1,844 8.15 237,000 19.1% 1,852 8.45
Telephone 12,000 50.0% 94 0.41 12,000 50.0% 94 0.43
Other Operated Departments 10,000 9.6% 78 0.35 10,000 9.6% 78 0.36
----------- ------- ------ --------- ---------- ------- ------ -------
Total Departmental Expenses 258,000 18.8% 2,016 8.91 259,000 18.9% 2,023 9.24
----------- ------- ------ --------- ---------- ------- ------ -------
Departmental Profit 1,116,000 81.2% 8,719 38.53 1,109,000 81.1% 8,664 39.56
Undistributed Expenses
Administrative and General 179,000 13.0% 1,398 6.18 183,000 13.4% 1,430 6.53
Franchise Fees 100,000 7.3% 781 3.45 99,000 7.2% 773 3.53
Marketing 30,000 2.2% 234 1.04 31,000 2.3% 242 1.11
Property Operations and Maintenance 96,000 7.0% 750 3.31 98,000 7.2% 766 3.50
Energy and Utilities 63,000 4.6% 492 2.17 65,000 4.8% 508 2.32
----------- ------- ------ --------- ---------- ------- ------ -------
Total Undistributed Expenses 468,000 34.1% 3,656 16.16 476,000 34.8% 3,719 16.98
----------- ------- ------ --------- ---------- ------- ------ -------
Gross Operating Profit 648,000 47.2% 5,063 22.37 633,000 46.3% 4,945 22.58
Fixed Charges and Management Fees
Base Management Fees 69,000 5.0% 539 2.38 68,000 5.0% 531 2.43
Property Taxes 40,000 2.9% 313 1.38 41,000 3.0% 320 1.46
Insurance 26,000 1.9% 203 0.90 27,000 2.0% 211 0.93
Land Lease 121,000 8.8% 945 4.18 125,000 9.1% 977 4.46
----------- ------- ------ --------- ----------- ------- ------- -------
Total Fixed Charges 256,000 18.6% 2,000 8.84 261,000 19.1% 2,039 9.31
----------- ------- ------ --------- ----------- ------- ------- -------
Income Before Reserves 392,000 28.5% 3,063 13.53 372,000 27.2% 2,906 13.27
Reserves for Replacements 55,000 4.0% 430 1.90 55,000 4.0% 430 1.96
----------- ------- ------- --------- ----------- ------- ------ -------
Net Operating Income (4) $ 337,000 24.5% $ 2,633 $11.63 $ 317,000 23.2% $ 2,477 $11.31
=========== ======= ======= ========= =========== ======= ======= =======
------------------------------------------------
Calendar Years Ending December 31: 2000
------------------------------------------------
$ % PAR (1) POR (2)
------------------------------------------------
Number of Keys 128
Occupancy 60.00%
Average Daily Room Rate $45.50
Revenues
Rooms $1,279,000 90.6% $ 9,992 $45.50
Telephone 25,000 1.8% 195 0.89
Other Operated Departments 108,000 7.6% 844 3.84
----------- ------- ------ --------
Total Revenues 1,412,000 100.0% 11,031 50.23
Departmental Expenses (3)
Rooms 245,000 19.2% 1,914 8.72
Telephone 12,000 48.0% 94 0.43
Other Operated Departments 11,000 10.2% 86 0.39
----------- ------- ------ --------
Total Departmental Expenses 268,000 19.0% 2,094 9.53
----------- ------- ------ --------
Departmental Profit 1,144,000 81.0% 8,938 40.70
Undistributed Expenses
Administrative and General 189,000 13.4% 1,477 6.72
Franchise Fees 102,000 7.2% 797 3.63
Marketing 31,000 2.2% 242 1.10
Property Operations and Maintenance 101,000 7.2% 789 3.59
Energy and Utilities 66,000 4.7% 516 2.35
----------- ------- ------ --------
Total Undistributed Expenses 489,000 34.6% 3,820 17.40
----------- ------- ------ --------
Gross Operating Profit 655,000 46.4% 5,117 23.30
Fixed Charges and Management Fees
Base Management Fees 71,000 5.0% 555 2.53
Property Taxes 42,000 3.0% 328 1.49
Insurance 28,000 2.0% 219 1.00
Land Lease 128,000 9.1% 1,000 4.55
----------- ------- ------ --------
Total Fixed Charges 269,000 19.1% 2,102 9.57
----------- ------- ------ --------
Income Before Reserves 386,000 27.3% 3,016 13.73
Reserves for Replacements 56,000 4.0% 438 1.99
----------- ------- ------ --------
Net Operating Income (4) $ 330,000 23.4% $ 2,578 $11.74
=========== ======= ======= ========
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net operating income before interest, amortization,
depreciation, and income tax.
===================================================================================================================================
Source: PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
Sacramento, California
Projected Operating Results
-----------------------------------------------------------------------------------------------
Calendar Years Ending December 31: 2001 2002
-----------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-----------------------------------------------------------------------------------------------
Number of Keys 128 128
Occupancy 60.00% 60.00%
Average Daily Room Rate $47.00 $48.50
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $1,318,000 90.7% $10,297 $47.02 $1,360,000 90.7% $10,625 $48.52
Telephone 25,000 1.7% 195 0.89 26,000 1.7% 203 0.93
Other Operated Departments 110,000 7.6% 859 3.92 114,000 7.6% 891 4.07
----------- ------- ------- -------- ---------- ------- ------- --------
Total Revenues 1,453,000 100.0% 11,352 51.83 1,500,000 100.0% 11,719 53.51
Departmental Expenses (3)
Rooms 252,000 19.1% 1,969 8.99 259,000 19.0% 2,023 9.24
Telephone 13,000 52.0% 102 0.46 13,000 50.0% 102 0.46
Other Operated Departments 11,000 10.0% 86 0.39 11,000 9.6% 86 0.39
----------- ------- ------- -------- ----------- ------- ------- --------
Total Departmental Expenses 276,000 19.0% 2,156 9.85 283,000 18.9% 2,211 10.10
----------- ------- ------- -------- ----------- ------- ------- --------
Departmental Profit 1,177,000 81.0% 9,195 41.99 1,217,000 81.1% 9,508 43.41
Undistributed Expenses
Administrative and General 195,000 13.4% 1,523 6.96 201,000 13.4% 1,570 7.17
Franchise Fees 105,000 7.2% 820 3.75 109,000 7.3% 852 3.89
Marketing 32,000 2.2% 250 1.14 33,000 2.2% 258 1.18
Property Operations and Maintenance 104,000 7.2% 813 3.71 108,000 7.2% 844 3.85
Energy and Utilities 68,000 4.7% 531 2.43 70,000 4.7% 547 2.50
----------- ------- ------ -------- --------- ------- ------- --------
Total Undistributed Expenses 504,000 34.7% 3,938 17.98 521,000 34.7% 4,070 18.59
----------- ------- ------ -------- --------- ------- ------- --------
Gross Operating Profit 673,000 46.3% 5,258 24.01 696,000 46.4% 5,438 24.83
Fixed Charges and Management Fees
Base Management Fees 73,000 5.0% 570 2.60 75,000 5.0% 586 2.68
Property Taxes 42,000 2.9% 328 1.50 43,000 2.9% 336 1.53
Insurance 29,000 2.0% 227 1.03 30,000 2.0% 234 1.07
Land Lease 132,000 9.1% 1,031 4.71 136,000 9.1% 1,063 4.85
----------- ------- ------ -------- --------- ------- ------- --------
Total Fixed Charges 276,000 19.0% 2,156 9.85 284,000 18.9% 2,219 10.13
----------- ------- ------ -------- --------- ------- ------- --------
Income Before Reserves 397,000 27.3% 3,102 14.16 412,000 27.5% 3,219 14.70
Reserves for Replacements 58,000 4.0% 453 2.07 60,000 4.0% 469 2.14
----------- ------- ------- -------- ---------- ------- ------- --------
Net Operating Income (4) $ 339,000 23.3% $ 2,648 $12.09 $ 352,000 23.5% $ 2,750 $12.56
=========== ======= ======= ======== ========== ======= ======= ========
-----------------------------------------------
Calendar Years Ending December 31: 2003
-----------------------------------------------
$ % PAR (1) POR (2)
-----------------------------------------------
Number of Keys 128
Occupancy 60.00%
Average Daily Room Rate $49.75
Revenues
Rooms $1,395,000 90.6% $10,898 $49.76
Telephone 27,000 1.8% 211 0.96
Other Operated Departments 117,000 7.6% 914 4.17
----------- -------- --------- --------
Total Revenues 1,539,000 100.0% 12,023 54.90
Departmental Expenses (3)
Rooms 267,000 19.1% 2,086 9.52
Telephone 13,000 48.1% 102 0.46
Other Operated Departments 12,000 10.3% 94 0.43
----------- -------- --------- --------
Total Departmental Expenses 292,000 19.0% 2,281 10.42
----------- -------- --------- --------
Departmental Profit 1,247,000 81.0% 9,742 44.48
Undistributed Expenses
Administrative and General 206,000 13.4% 1,609 7.35
Franchise Fees 112,000 7.3% 875 4.00
Marketing 34,000 2.2% 266 1.21
Property Operations and Maintenance 111,000 7.2% 867 3.96
Energy and Utilities 73,000 4.7% 570 2.60
----------- -------- --------- --------
Total Undistributed Expenses 536,000 34.8% 4,188 19.12
----------- -------- --------- --------
Gross Operating Profit 711,000 46.2% 5,555 25.36
Fixed Charges and Management Fees
Base Management Fees 77,000 5.0% 602 2.75
Property Taxes 44,000 2.9% 344 1.57
Insurance 31,000 2.0% 242 1.11
Land Lease 140,000 9.1% 1,094 4.99
----------- -------- --------- --------
Total Fixed Charges 292,000 19.0% 2,281 10.42
----------- -------- --------- --------
Income Before Reserves 419,000 27.2% 3,273 14.95
Reserves for Replacements 62,000 4.0% 484 2.21
----------- -------- --------- --------
Net Operating Income (4) $ 357,000 23.2% $ 2,789 $12.74
=========== ======== ========= ========
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net operating income before interest, amortization,
depreciation, and income tax.
===================================================================================================================================
Source: PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
Sacramento, California
Projected Operating Results
-------------------------------------------------------------------------------------------
Calendar Years Ending December 31: 2004 2005
-----------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-----------------------------------------------------------------------------------------------
Number of Keys 128 128
Occupancy 60.00% 60.00%
Average Daily Room Rate $51.25 $53.00
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $1,441,000 90.6% $11,258 $51.26 $1,486,000 90.7% $11,609 $53.01
Telephone 28,000 1.8% 219 1.00 28,000 1.7% 219 1.00
Other Operated Departments 121,000 7.6% 945 4.30 124,000 7.6% 969 4.42
----------- ------- --------- -------- ----------- ------- --------- --------
Total Revenues 1,590,000 100.0% 12,422 56.57 1,638,000 100.0% 12,797 58.43
Departmental Expenses (3)
Rooms 276,000 19.2% 2,156 9.82 283,000 19.0% 2,211 10.10
Telephone 14,000 50.0% 109 0.50 14,000 50.0% 109 0.50
Other Operated Departments 12,000 9.9% 94 0.43 12,000 9.7% 94 0.43
----------- ------- --------- -------- ----------- ------- --------- --------
Total Departmental Expenses 302,000 19.0% 2,359 10.74 309,000 18.9% 2,414 11.02
----------- ------- --------- -------- ----------- ------- --------- --------
Departmental Profit 1,288,000 81.0% 10,063 45.82 1,329,000 81.1% 10,383 47.41
Undistributed Expenses
Administrative and General 213,000 13.4% 1,664 7.58 219,000 13.4% 1,711 7.81
Franchise Fees 115,000 7.2% 898 4.09 119,000 7.3% 930 4.25
Marketing 35,000 2.2% 273 1.25 36,000 2.2% 281 1.28
Property Operations and Maintenance 114,000 7.2% 891 4.06 118,000 7.2% 922 4.21
Energy and Utilities 75,000 4.7% 586 2.67 77,000 4.7% 602 2.75
----------- ------- --------- -------- ----------- ------- --------- --------
Total Undistributed Expenses 552,000 34.7% 4,313 19.64 569,000 34.7% 4,445 20.30
----------- ------- --------- -------- ----------- ------- --------- --------
Gross Operating Profit 736,000 46.3% 5,750 26.18 760,000 46.4% 5,938 27.11
Fixed Charges and Management Fees
Base Management Fees 80,000 5.0% 625 2.85 82,000 5.0% 641 2.93
Property Taxes 45,000 2.8% 352 1.60 46,000 2.8% 359 1.64
Insurance 31,000 1.9% 242 1.10 32,000 2.0% 250 1.14
Land Lease 144,000 9.1% 1,125 5.12 149,000 9.1% 1,164 5.32
----------- ------- --------- -------- ----------- ------- --------- --------
Total Fixed Charges 300,000 18.9% 2,344 10.67 309,000 18.9% 2,414 11.02
----------- ------- --------- -------- ----------- ------- --------- --------
Income Before Reserves 436,000 27.4% 3,406 15.51 451,000 27.5% 3,523 16.09
Reserves for Replacements 64,000 4.0% 500 2.28 66,000 4.0% 516 2.35
----------- ------- --------- -------- ----------- ------- --------- --------
Net Operating Income (4) $ 372,000 23.4% $ 2,906 $13.23 $ 385,000 23.5% $ 3,008 $13.73
=========== ======= ========= ======== =========== ======= ========= ========
-------------------------------------------------
Calendar Years Ending December 31: 2006
-----------------------------------------------
$ % PAR (1) POR (2)
-----------------------------------------------
Number of Keys 128
Occupancy 60.00%
Average Daily Room Rate $54.50
Revenues
Rooms $1,528,000 90.7% $11,938 $54.51
Telephone 29,000 1.7% 227 1.03
Other Operated Departments 128,000 7.6% 1,000 4.57
----------- -------- --------- --------
Total Revenues 1,685,000 100.0% 13,164 60.11
Departmental Expenses (3)
Rooms 292,000 19.1% 2,281 10.42
Telephone 15,000 51.7% 117 0.54
Other Operated Departments 13,000 10.2% 102 0.46
----------- -------- --------- --------
Total Departmental Expenses 320,000 19.0% 2,500 11.42
----------- -------- --------- --------
Departmental Profit 1,365,000 81.0% 10,664 48.69
Undistributed Expenses
Administrative and General 226,000 13.4% 1,766 8.06
Franchise Fees 122,000 7.2% 953 4.35
Marketing 38,000 2.3% 297 1.36
Property Operations and Maintenance 121,000 7.2% 945 4.32
Energy and Utilities 79,000 4.7% 617 2.82
----------- -------- --------- --------
Total Undistributed Expenses 586,000 34.8% 4,578 20.90
----------- -------- --------- --------
Gross Operating Profit 779,000 46.2% 6,086 27.79
Fixed Charges and Management Fees
Base Management Fees 84,000 5.0% 656 3.00
Property Taxes 47,000 2.8% 367 1.68
Insurance 33,000 2.0% 258 1.18
Land Lease 153,000 9.1% 1,195 5.46
----------- -------- --------- --------
Total Fixed Charges 317,000 18.8% 2,477 11.31
----------- -------- --------- --------
Income Before Reserves 462,000 27.4% 3,609 16.48
Reserves for Replacements 67,000 4.0% 523 2.39
----------- -------- --------- --------
Net Operating Income (4) $ 395,000 23.4% $ 3,086 $14.09
=========== ======== ========= ========
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net operating income before interest, amortization, depreciation,
and income tax.
===================================================================================================================================
Source: PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
Sacramento, California
Projected Operating Results
--------------------------------------------------------------------------------------------
Calendar Years Ending December 31: 2007 2008
--------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
--------------------------------------------------------------------------------------------
Number of Keys 128 128
Occupancy 60.00% 60.00%
Average Daily Room Rate $56.00 $57.75
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $1,570,000 90.6% $12,266 $ 56.01 $1,619,000 90.6% $12,648 $ 57.76
Telephone 30,000 1.7% 234 1.07 31,000 1.7% 242 1.11
Other Operated Departments 132,000 7.6% 1,031 4.71 136,000 7.6% 1,063 4.85
----------- ------- --------- --------- ----------- -------- -------- --------
Total Revenues 1,732,000 100.0% 13,531 61.79 1,786,000 100.0% 13,953 63.71
Departmental Expenses (3)
Rooms 300,000 19.1% 2,344 10.70 309,000 19.1% 2,414 11.02
Telephone 15,000 50.0% 117 0.54 16,000 51.6% 125 0.57
Other Operated Departments 13,000 9.8% 102 0.46 14,000 10.3% 109 0.50
----------- ------- --------- --------- ----------- -------- -------- --------
Total Departmental Expenses 328,000 18.9% 2,563 11.70 339,000 19.0% 2,648 12.09
----------- ------- --------- --------- ----------- -------- -------- --------
Departmental Profit 1,404,000 81.1% 10,969 50.09 1,447,000 81.0% 11,305 51.62
Undistributed Expenses
Administrative and General 232,000 13.4% 1,813 8.28 239,000 13.4% 1,867 8.53
Franchise Fees 126,000 7.3% 984 4.49 130,000 7.3% 1,016 4.64
Marketing 39,000 2.3% 305 1.39 40,000 2.2% 313 1.43
Property Operations and Maintenance 125,000 7.2% 977 4.46 128,000 7.2% 1,000 4.57
Energy and Utilities 82,000 4.7% 641 2.93 84,000 4.7% 656 3.00
----------- ------- --------- --------- ----------- -------- -------- --------
Total Undistributed Expenses 604,000 34.9% 4,719 21.55 621,000 34.8% 4,852 22.15
----------- ------- --------- --------- ----------- -------- -------- --------
Gross Operating Profit 800,000 46.2% 6,250 28.54 826,000 46.2% 6,453 29.47
Fixed Charges and Management Fees
Base Management Fees 87,000 5.0% 680 3.10 89,000 5.0% 695 3.17
Property Taxes 48,000 2.8% 375 1.71 49,000 2.7% 383 1.75
Insurance 34,000 2.0% 266 1.21 35,000 2.0% 273 1.25
Land Lease 158,000 9.1% 1,234 5.64 163,000 9.1% 1,273 5.81
----------- ------- --------- --------- ----------- -------- -------- --------
Total Fixed Charges 327,000 18.9% 2,555 11.67 336,000 18.8% 2,625 11.99
----------- ------- --------- --------- ----------- -------- -------- --------
Income Before Reserves 473,000 27.3% 3,695 16.87 490,000 27.4% 3,828 17.48
Reserves for Replacements 69,000 4.0% 539 2.46 71,000 4.0% 555 2.53
----------- ------- --------- --------- ----------- -------- -------- --------
Net Operating Income (4) $ 404,000 23.3% $ 3,156 $ 14.41 $ 419,000 23.5% $ 3,273 $ 14.95
=========== ======= ========= ========= =========== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net operating income before interest, amortization,
depreciation, and income tax.
====================================================================================================================================
Source: PKF Consulting
====================================================================================================================================
</TABLE>
<PAGE>
SECTION VII
SUPER 8 MOTEL
SAN BERNARDINO, CALIFORNIA
<PAGE>
===============================================================================
Summary of Important Facts and Conclusions
===============================================================================
Property Address Super 8 Motel
294 East Hospitality Lane
San Bernardino, California 92408
Telephone (909) 381-1681
- ----------------------------------------- -------------------------------------
Owner Super 8 Motels III, Ltd.
- ----------------------------------------- -------------------------------------
Assessor's Parcel Numbers 0141-412-13-P-001
- ----------------------------------------- -------------------------------------
Effective Date of Appraisal January 1, 1998
- ----------------------------------------- -------------------------------------
Property Rights Appraised Fee Simple
===============================================================================
Highest and Best Use
===============================================================================
Highest and Best Use
As if Vacant Limited-service hotel
As Improved Limited-service hotel
===============================================================================
Property Description
===============================================================================
Existing Improvements
Year Built 1982
Gross Building Area 27,736 square feet
Number of Hotel Guest Rooms 81
Parking 83 spaces (including two for
disabled persons)
Number of Floors Two
Hotel Amenities Swimming pool and whirlpool
Compliance with ADA In compliance
- ----------------------------------------- -------------------------------------
Site
Area 1.62 acres (70,567 square feet)
Zoning CD (Commercial Districts)
Flood Zone Zone XB, Panel #060281-8684F, dated
July 16, 1979
Wetlands Zone No
Alquist Priolo Special Studies Zone No
Historic, Natural , Cultural,
Recreational, or Scientific None
Value
===============================================================================
Valuation Conclusion
===============================================================================
Cost Approach Not Used
- ----------------------------------------- -------------------------------------
Sales Comparison Approach $1,700,000
- ----------------------------------------- -------------------------------------
Income Capitalization Approach
Stabilized Occupancy 59.0%
Average Daily Room Rate $44.75 (1998 value dollars)
- ----------------------------------------- -------------------------------------
Stabilized Net Operating Income $174,000 (1998 value dollars)
- ----------------------------------------- -------------------------------------
Overall Capitalization Rate 11.0%
Terminal Capitalization Rate 11.5%
Discount Rate 14.0%
- ----------------------------------------- -------------------------------------
Indicated Market Values
Direct Capitalization Technique $1,600,000
Discounted Cash Flow Analysis $1,550,000
- ----------------------------------------- -------------------------------------
Final Estimate of Market Value $1,600,000
- ----------------------------------------- -------------------------------------
Marketing and Exposure Period Six months or less
- ----------------------------------------- -------------------------------------
VII-1
<PAGE>
(Photograph deleted)
View of the Subject Property
(Photograph deleted)
View of a Typical Double Queen-Bed Guestroom
VII-2
<PAGE>
A. AREA AND NEIGHBORHOOD REVIEW
1. Introduction
The subject property is located in San Bernardino, which lies in San Bernardino
County. Covering over 20,000 square miles in total area, it is the largest
county in the United States. San Bernardino County is located 45 miles from
Anaheim, 55 miles from Palm Springs, and 62 miles east of Los Angeles. Inyo, Los
Angeles, Kern, and Riverside Counties border San Bernardino County. The area is
the gateway to the resort areas of the San Bernardino Mountains, including Lake
Arrowhead, and Big Bear Lake, and is known as Southern California's Inland
Empire. San Bernardino is the county's governmental, financial and business
center. Over 90.0 percent of the county's land is desert, and most of the
population and agricultural production is concentrated west of the San
Bernardino Mountains, which separate the area from the desert region. A map on
the following page highlights the location of the subject property within the
surrounding area.
2. Economic Data
Presented in the following text is a brief overview of selected economic data
that characterizes the local market area.
Population: The population of San Bernardino was 180,300 persons
in January 1997, a 1.6 percent compound average annual growth rate
(CAAG) over 1990. The corresponding population of San Bernardino
County was 1.6 million in January 1997. This figure represents a
CAAG rate of 2.0 percent over the 1990 figure of 1.4 million. The
population level in San Bernardino County is expected to increase
at a CAAG of 1.2 percent, to 1.7 million persons by 2002.
Retail Sales: Total taxable sales for San Bernardino County
totaled over $3.5 billion in 1996. This county figure represented
an annual increase of 6.1 percent over the previous year. Retail
sales per household in 1996 were $22,000, and are expected to
increase to $25,000 by 2002, a CAAG increase of 2.1 percent.
Income: Average household effective buying income (EBI) for San
Bernardino County was $36,682 in 1996, and is expected to increase
to $42,000 by 2000, representing a CAAG increase of 2.3 percent.
VII-3
<PAGE>
(Street map of San Bernardino area deleted)
Regional Map
VII-4
<PAGE>
Employment: In November 1997, the total number of persons
employed in the Riverside-San Bernardino MSA, which includes
Riverside and San Bernardino Counties, was approximately 853,300
persons. This is approximately a 3.6 percent increase over 1996;
the corresponding unemployment rate was 6.0 percent during this
period. The San Bernardino County unemployment rate was 5.4
percent, which is lower than the rate of 6.0 percent for Los
Angeles County and 5.7 percent for California. Overall the largest
increases in employment were experienced in the retail trade and
the services sectors.
The following table presents a listing of the major employers in San Bernardino.
============================================================
Major Employers in San Bernardino
============================================================
Number of
Company Employees
- ------------------------------- ----------------------------
San Bernardino Unified School District 4,432
Stater Brothers Markets 3,600
Carousel Mall 2,000
Inland Center Mall 2,000
St. Bernardine's Medical Center 1,671
Patton State Hospital 1,585
San Bernardino County 1,516
San Bernardino Community Hospital 1,400
City of San Bernardino 1,300
Unite States Post Office 1,200
California State University 1,000
McLane Co. 650
San Bernardino Valley College 565
Harris' Company 500
FEDCO Incorporated 450
GE Capital Corporation 400
============================================================
Source: San Bernardino Economic Development Agency
============================================================
Tourism: San Bernardino hosts the National Orange Show, one of the
premier events in Southern California. It is also home to the
Renaissance Pleasure Faire, the Route 66 Rendezvous, Festival de
Mariachi, and the Western Regional Little League. Surrounded by
the San Bernardino National Forest, both Lake Arrowhead and Big
Bear Lake, regional parks, mountains, museums and other
attractions, San Bernardino offers a wide array of recreational
and cultural activities for tourists.
Transportation: Major airline transportation to San Bernardino
County includes San Bernardino International Airport, Ontario
VII-5
<PAGE>
International Airport, and Los Angeles International Airport, less
than one hour away. San Bernardino's easily accessible commuter
train, Metrolink, provides rapid service to Orange County and
downtown Los Angeles.
3. Neighborhood Review
The subject property is located in one of the highly commercial areas of San
Bernardino. Surrounding improvements include: four restaurants (Wendy's, Carl's
Jr., Black Angus, and a Japanese restaurant); four hotels (the 250-room San
Bernardino Hilton Inn, 153-room La Quinta Inn, 120-room Motel 6, and the 50-room
Comfort Inn); four gasoline stations (Texaco, Shell, Union 76, and Chevron), and
an upscale shopping center. Interstate 10 is situated just across from East
Hospitality Lane, to the south of the Hilton.
4. Conclusion
San Bernardino County, the largest in the United States, is a retail and
shopping center, benefiting from its proximity to the purchasing power of Los
Angeles County. Overall, we view the area will be experiencing stable growth
levels in the near future, positively impacting the lodging industry.
B. PROPERTY DESCRIPTION
1. Introduction
The subject property is a limited-service hotel with 81 guestrooms. Amenities at
the property include an outdoor swimming pool and a whirlpool. The property
includes one main building containing the guest rooms and the lobby.
The subject property was constructed in 1982 and is currently owned in fee
simple by Grotewhol Management, Inc. We are not aware of any transactions
relating to the site or the improvements since the date of opening.
2. Site Description and Zoning
The subject property is located at 294 East Hospitality Lane, and is bounded by
the 50-room Comfort Inn to the north, East Hospitality Lane and the 247-room
Hilton to the south, Business Center Drive to the east, and Waterman Avenue to
the west. The land area is 1.62 acres (70,567 square feet), and the property has
130 feet of frontage along East Hospitality Lane. The site has good visibility
to traffic, and is also easily accessible from Interstate 10. The subject site
is attractively landscaped with lawn, bushes, and palm trees.
VII-6
<PAGE>
The subject property is zoned CD (Commercial District) by San Bernardino County.
The present use of the property is permitted with this zoning designation, and
the subject is, therefore, a legal, conforming use.
We are aware of no easements or covenants which would adversely affect the value
of the subject property.
3. Improvements Description
The subject property of this appraisal is improved with a 81-room
limited-service hotel. The exterior-corridor property includes a lobby area, an
outdoor swimming pool, and a whirlpool, and has a port cochere. The second floor
corridors have wrought iron railings, and there are stair towers located at the
corners of the building. Parking for 83 automobiles, including two for disabled
persons, is provided.
4. Basic Construction and Mechanical Systems
The subject building is a two-story wood-framed structure, with white stucco
finish. The hotel building forms an approximate L-shape, with the inner portion
of the L-shape forming a courtyard area. The courtyard is landscaped and is also
the site of the pool. The hotel offers exterior corridors with no elevators. The
entire building is sprinklered, and has a concrete-barrel tile roof which
appears to be in good condition. The exterior of the building is comprised of
white stucco. The total interior square footage of the hotel is 27,736 square
feet with the average interior space of a typical guestroom being approximately
282 square feet.
The Super 8 Motel provides 81 guestrooms, configured as 35 queen-size bedrooms,
29 double-queen , and 17 suite rooms. The guestrooms are furnished with a color
television, desk, two chairs, nightstand, lamp, and dresser. Overall the
property is in good condition and has been maintained on a regular basis.
Presented in the following table is a summary of the basic construction and
mechanical systems of the hotel.
VII-7
<PAGE>
===============================================================================
Super 8 Motel - San Bernardino
Summary of Basic Construction and Mechanical Systems
===============================================================================
Foundation: Concrete slab on-grade with spread footings
- --------------------------------- ---------------------------------------------
Frame: Wood
- --------------------------------- ---------------------------------------------
Exterior Walls: Stucco
- --------------------------------- ---------------------------------------------
Floor: Wood trusses, 5/8" plywood, and 3/4" gypsum
board
- --------------------------------- ---------------------------------------------
Roof: Concrete barrel tile and four ply built-up
fiberglass with minimum surface cap sheet
- --------------------------------- ---------------------------------------------
Ceiling Heights: 8' - 0"
- --------------------------------- ---------------------------------------------
Doors:
Guest Room and Bathroom: 1 3/4" thick solid core wood
Exterior: 13/4" thick solid core wood; aluminum store-
front door
- --------------------------------- ---------------------------------------------
Windows: Sliding bronze anodized double pane aluminum
- --------------------------------- ---------------------------------------------
Heating and Cooling: GE Zoneline III, 2,775-watt auxiliary heater
for guest rooms and lobby;
Carrier split-system heat pump in laundry room
- --------------------------------- ---------------------------------------------
Elevators: None
- --------------------------------- ---------------------------------------------
Electrical: 120-280V; 1,600 AMPS; 42,000 A system
- --------------------------------- ---------------------------------------------
Plumbing:
Water Pipes: Copper type M above-grade; type L below-grade
Sewer Pipes: ABS pipe and fittings (interior and exterior)
- --------------------------------- ---------------------------------------------
Domestic Hot Water: Two boilers and holding tank
- --------------------------------- ---------------------------------------------
Laundry Facilities: Two washers and six dryers
- --------------------------------- ---------------------------------------------
Sprinkler System: Entire building is sprinklered
- --------------------------------- ---------------------------------------------
Life Safety:
Fire Alarm Stations: At reception desk area
Smoke Detectors: Hard-wired dual ionization smoke detectors
Emergency Illumination: Yes
===============================================================================
Source: Famous Host Companies
===============================================================================
5. Assessed Value and Property Taxes
The subject property is assessed by the San Bernardino County on a tax year
commencing July 1 of every year. Under the provisions of Article 13-A of the
State of California (Proposition 13), properties are assessed based on their
fair market value as of the change of ownership date. The assessed value can be
increased by a maximum of 2.0 percent per year until such date as the property
is subsequently sold, substantial new construction takes place, or the use of
the property is substantially changed. The current assessed value of the
property is presented in the following table.
===================================================================
Assessor's Parcel Number 0141-412-13-P-001
1997/98 Assessed Value
===================================================================
Land $624,240
Personal Property $109,051
Improvements $1,643,865
- -------------------------------------- ----------------------------
Total Assessed Value $2,377,156
===================================================================
VII-8
<PAGE>
For fiscal year 1997/1998, total property taxes were $26,555.90 on the subject
property, which included $2,784.34 for special assessments. The effective tax
rate including the special assessments, therefore, is 1.1171 percent of the
total assessed value.
6. Renovation and Capital Improvements
We understand that $31,000 has been allocated as part of capital expenditures
for the parking lot's resurfacing, as well as the painting of the subject
property's exterior during 1998.
7. Summary of Functional Utility and Condition
Overall, the subject property is well-maintained. The grounds are neat and
well-trimmed, and the paint both inside and outside the building is in good
condition. As noted previously, $31,000 will be spent on resurfacing the parking
lot and painting the exterior of the subject property in 1998.
C. HOTEL MARKET ANALYSIS
1. Competitive Supply
The competitive hotel market for the Super 8 is comprised of six properties,
including the subject, with a total of 745 rooms. The selection of the
competitive supply was based on facilities and amenities, room rate structure,
and market orientation. These properties are all affiliated with national chains
and cater to the area's commercial, leisure, and government demand.
VII-9
<PAGE>
<TABLE>
=======================================================================================================================
Super 8 Motel - San Bernardino
Census of Competitive Properties
=======================================================================================================================
Published Room Rates
-----------------------------
Year Number AAA
Property Opened of Rooms Single Double Amenities Rating
- -------------------------- ----------- ----------- -------------- -------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
Super 8 Motel 1982 81 $38.00 $47.00 F,G,H 2 star (Motel)
La Quinta Inn 1985 153 $47.00 $59.00 D,F,H 3 star (Motel)
Motel 6 1986 120 $47.00 $47.00 H Not Rated
Hilton Inn 1988 250 $120.00 $120.00 A,B,D,E,F,G 3 star (Hotel)
Comfort Inn 1987 50 $53.00 $67.00 F,H 3 star (Motel)
TraveLodge 1980 91 $45.00 $45.00 F,H Not Rated
- -------------------------- ----------- ----------- -------------- -------------- ----------------- --------------------
Total 745 -
- -------------------------- ----------- ----------- -------------- -------------- ----------------- --------------------
Amenities Codes AAA Rating
A - Restaurant 5 star - Renowned; exceptional property recognized for
B - Bar/Lounge market superiority of facilities and service
C - Complimentary Continental Breakfast 4 star - Exceptional; offers luxurious accommodations as
well as extra amenities
D - Meeting Rooms 3 star - Offers very comfortable and attractive
E - Exercise Room accommodations
F - Swimming Pool 2 star - Exceeds AAA minimum requirements in some physical
G - Whirlpool and operational categories
H - Adjacent Restaurant 1 star - Meets AAA basic requirements for recommendation
=======================================================================================================================
Source: Management of Individual Properties and 1998 American Automobile Association Tour Book
=======================================================================================================================
</TABLE>
As can be noted above, the competitive market is characterized by smaller,
budget-oriented, national brand-affiliated products.
According to our discussions with the San Bernardino County Planning Department,
there are no new hotels planned in the surrounding market area.
2. Historical Market Performance
The following table presents a summary of the historical market performance of
the selected competitive hotels, together with the subject, over the period 1994
to 1996, as well as our estimate for 1997.
<TABLE>
=======================================================================================================================
Super 8 Motel - San Bernardino
Competitive Hotel Market
Historical Occupancy and Room Rate
1994 to 1997 (Estimated)
========================================================================================================================
Annual Rooms Percent Percent Average Daily Percent
Year Available Change Occupancy Change Room Rate Change
- --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============
<S> <C> <C> <C> <C>
1994 271,925 - 61.6% - $47.63 -
- --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============
1995 271,925 0.0% 60.6% (1.7%) $49.72 4.4%
- --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============
1996 271,925 0.0% 63.2% 4.4% $51.11 2.8%
- --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============
1997 (Estimated) 271,925 0.0% 65.0% 2.8% $57.00 11.5%
- --------------------- ------------------ ------------- ----------------- ------------- -------------------- ============
CAAG 0.0% - - - 6.2% -
========================================================================================================================
Source: PKF Consulting and Smith Travel Research
========================================================================================================================
</TABLE>
VII-10
<PAGE>
As can be noted, over the past four years the number of available rooms within
the competitive market has remained stable. During the same period, demand has
increased from 60.6 percent to 65.0 percent. In terms of ADR, the competitive
market has experienced above-inflation growth, indicating a CAAG of 6.2 percent
between 1994 and 1997.
3. Demand Segmentation
The competitive market is oriented towards attracting commercial, leisure, and
government demand. Commercial demand includes employees and visitors to local
companies, such as FEDCO and GE Capital. The majority of leisure travelers to
the area are typically on their way to, or returning from, another destination
such as Los Angeles, Anaheim, Las Vegas, Arizona, or San Diego, and stop at the
area's lodging facilities for a one night stay. Most of the leisure demand is
generated between Memorial Day and Labor Day. In addition, the local area
attractions previously discussed, namely the shopping malls, can be visited
within one day.
4. Projected Future Supply and Demand
Over the past four years (1994 to 1997), demand for hotel accommodations in the
competitive market has increased at a CAAG of 1.8 percent. Based on our review
of the local market, we project overall demand for hotel rooms will increase at
a rate of 3.0 percent per year over the next five years. In deriving this growth
rate, we have specifically analyzed the overall growth in manufacturing and
services, retail sales, and the historical CAAG of this market. Presented in the
following table is a summary of the projected growth in supply, demand, and the
resulting occupancy levels for the competitive market for the period 1998 to
2002.
VII-11
<PAGE>
<TABLE>
=======================================================================================================
Super 8 Motel - San Bernardino
Estimated Growth In Supply and Demand
Competitive Hotel Market
=======================================================================================================
Daily Annual Total
Year Available Rooms Available Rooms Demand Occupancy
- ------------------------ -------------------- --------------------- ---------------- ------------------
Actual
<S> <C> <C> <C> <C> <C>
1994 745 271,925 167,525 61.6%
1995 745 271,925 164,744 60.6%
1996 745 271,925 171,935 63.2%
1997 (Estimated) 745 271,925 177,000 65.0%
- ------------------------ -------------------- --------------------- ---------------- ------------------
Projected
1998 745 271,925 182,000 67.0%
1999 745 271,925 185,000 68.0%
2000 745 271,925 185,000 68.0%
2001 745 271,925 185,000 68.0%
2002 745 271,925 185,000 68.0%
- ------------------------ -------------------- --------------------- ---------------- ------------------
CAAG
1994 to 1997 0.0% - 1.8% -
1998 to 2002 0.0% - 0.4% -
=======================================================================================================
Source: PKF Consulting and Smith Travel Research
=======================================================================================================
</TABLE>
As can be noted above, although we project demand in the overall market to grow
at a CAAG of 3.0 percent over the five year period, due to demand timing and
capacity constraints, the competitive market occupancy is not projected to
exceed 68.0 percent. This will result in unsatisfied demand between 1999 and
2002, rendering an effective market growth of only 0.4 percent.
5. Market Performance of the Subject
The following table summarizes the historical occupancy levels and ADR for the
Super 8 Motel over the past four years.
===============================================================================
Super 8 Motel - San Bernardino
Historical Occupancy and Room Rate
1994 to 1997 (Estimated)
===============================================================================
Average Daily
Year Occupancy % Change Room Rate % Change
- --------------------- -------------- ------------ ----------------- -----------
1994 59.1% - $41.07 -
- --------------------- -------------- ------------ ----------------- -----------
1995 55.3% (6.4%) $40.29 (1.9%)
- --------------------- -------------- ------------ ----------------- -----------
1996 49.9% (9.8%) $40.23 (0.1%)
- --------------------- -------------- ------------ ----------------- -----------
1997 (Estimated) 58.0% 16.2% $43.50 8.1%
- --------------------- -------------- ------------ ----------------- -----------
CAAG (0.6%) - 1.9% -
===============================================================================
Source: Famous Host Companies
===============================================================================
VII-12
<PAGE>
As can be noted, the subject experienced a nearly ten percentage point drop in
occupancy between 1994 and 1996, attributed to the closure of the Norton Air
Force Base. The growth in ADR has been less-than-market, equating to a CAAG of
1.9 percent, compared to the market's 6.2 percent. The subject property's market
penetration rate (subject's occupancy divided by the market's occupancy) has
decreased from 95.9 percent in 1994 to an estimated 89.0 percent in 1997. It
should be noted that the subject property's 1997 year-to-date occupancy (ending
September) was 58.6 percent, compared to 50.7 percent in 1996, indicating the
subject's improving position in the market following the closure of Norton Air
Force Base.
Based on our analysis of the local market in the San Bernardino area, coupled
with our discussions with management at the subject property, we are of the
opinion that the subject will achieve an occupancy level of approximately 59.0
percent in 1998, slightly above that estimated for 1997. In 1999 and onwards, we
estimate that the subject property will continue to achieve an occupancy of 59.0
percent, a level we believe as being the subject property's stabilized position.
Based on our market research, we project the hotel to achieve an ADR of $44.75
in 1998, or an increase of 3.0 percent over 1997. Over the balance of our
projection period, we project the hotel's ADR to increase at the anticipated
long-term level of inflation (3.0 percent per year). We believe that this is
realistic given the supply and demand dynamics of the San Bernardino hotel
market.
===============================================================================
Super 8 Motel - San Bernardino
Projected Occupancy and Average Daily Room Rate - 1998 to 2002
===============================================================================
Market Average Percent
Year Occupancy Penetration Daily Room Rate Change
- ------------ ---------------- --------------- --------------------- -----------
1998 59.0% 88.0% $44.75 3.0%
1999 59.0% 87.0% $46.25 3.0%
2000 59.0% 87.0% $47.50 3.0%
2001 59.0% 87.0% $49.00 3.0%
2002 59.0% 87.0% $50.50 3.0%
- ------------ ---------------- --------------- --------------------- -----------
CAAG 0.0% - 3.0% -
===============================================================================
Source: PKF Consulting
===============================================================================
D. HIGHEST AND BEST USE
Based on our analysis, we are of the opinion that the existing improvements
contribute significant overall value to the site. There is no alternative, legal
use that could economically justify the restructuring or removal of the existing
improvements at this time. Therefore, the subject property, as improved,
represents the highest and best use of the site.
VII-13
<PAGE>
E. VALUATION - SALES COMPARISON APPROACH
1. Introduction
We have reviewed a number of recent sales and have focused on those considered
most comparable in providing support for the market value of the subject. Our
search for sales was initially focused on San Bernardino; however, due to the
limited number of comparable transactions, our search for sales was extended to
include the surrounding area, namely Colton, Bishop, and Kingsburg. Based on
this search, five sales were identified to use as the basis for our valuation of
the subject under this approach. Presented in the following table is a summary
of the selected comparable hotel sales. As can be noted, these sales have
occurred between November 1996 and October 1997.
<TABLE>
=======================================================================================================================
Comparable Hotel Sales
=======================================================================================================================
Rooms Overall
Sale Sale Year Number of Price Revenue Capitalization
No. Hotel Name Location Date Built Rooms Per Room Multiplier Rate
- ----- --------------------------- -------------- --------- --------- ------------ ---------- ----------- ==============
<S> <C> <C> <C> <C> <C>
1 Econolodge Colton 10/97 1972 51 $19,601 2.4 NA
2 Days Inn Colton 8/97 1985 147 $19,932 2.6 NA
3 Bishop Lodge Bishop 7/97 1979 52 $28,846 3.9 8.9%
4 Swedish Inn Kingsburg 1/97 1988 47 $31,195 2.9 NA
5 Super 8 Ontario 11/96 1985 53 $22,925 2.2 NA
=======================================================================================================================
Source: PKF Consulting
=======================================================================================================================
</TABLE>
2. Analysis of the Hotel Sales
In reviewing the preceding table, it can be noted that the sale prices per room
ranged between $19,601 for the 51-room Econolodge and $31,195 for the 47-room
Swedish Inn in Kingsburg.
Because of the many differences between the comparable hotel sales and the
subject property, we are of the opinion that an analysis using a rooms revenue
multiplier (RRM) is the most approiate unit of comparison to value the subject.
A RRM measures the total revenue generated from room rentals in relation to the
sale price. RRMs do not require subjective adjustments since most variances in
properties are considered to be reflected in ADRs and annual occupancies
achieved in the market. As can be noted, the indicated RRMs range from 2.2 to
3.9, with an average of 2.8.
We consider that the subject property is most similar to the 53-room Super 8
Motel sale in Ontario. Accordingly, we are of the opinion that a RRM in the
order of 2.2 is appropriate in valuing the subject property. Based on this
VII-14
<PAGE>
multiplier, and assuming a stabilized occupancy level of 59.0 percent at an ADR
of $44.75 (stated in 1998 dollars), the indicated value per room for the subject
is as follows:
<TABLE>
===========================================================================================================
Rooms Stabilized Stabilized Indicated Value
Revenue Average Rate Occupancy Per Room
Multiplier Level Days/Year (Rounded)
- ---------------- --- --------------- --- ----------------- --- ---------------- --- -----------------------
<S> <C> <C> <C> <C> <C>
2.2 X $44.75 X 59.0% X 365 = $21,000
===========================================================================================================
</TABLE>
As noted above, the RRM analysis produced a value indication of $21,000 per
available room. This value unit is converted into a total value estimate by
multiplying the indicated value per room by the total number of rooms. Based on
81 rentable rooms, the indicated stabilized value of the fee simple interest in
the Super 8 Motel is $1,700,000 as calculated below:
- ----------------------- ---- ---------------- ----- ---------------------------
$21,000 X 81 Rooms = $1,700,000 (Rounded)
- ----------------------- ---- ---------------- ----- ---------------------------
F. INDICATED VALUE VIA THE SALES COMPARISON APPROACH
As a result of the foregoing analysis, we estimate the "as is" market value of
the fee simple interest in the subject as of January 1, 1998, through the Sales
Comparison Approach to be:
===============================================================================
ONE MILLION SEVEN HUNDRED THOUSAND DOLLARS
- -------------------------------------------------------------------------------
$1,700,000
===============================================================================
G. VALUATION - INCOME CAPITALIZATION APPROACH
1. Basis for Cash Flow Projection
In order to develop an estimate of the net operating income (NOI) for the
subject for both a stabilized year of operation (direct capitalization) and each
year of the aforementioned holding period (yield capitalization), the following
have been analyzed:
1. The historical operating results for the subject for year-end 1994,
1995, 1996, year-to-date September 1997, and management's operating
budget for 1997;
VII-15
<PAGE>
2. The previously discussed market performance (occupancy levels and ADR)
of the competitive hotels; and
3. The operating results of the category "Limited-Service Hotels" from the
1997 issue of PKF Consulting's Trends in the Hotel Industry.
The historical operating results of the subject are presented at the end of this
section of the report.
2. Stabilized Year Operating Estimate
We first developed an estimate of the performance of the subject for a
stabilized year of operation stated in current value, 1998 dollars. This
estimate is based on our review of the historical operating results of the
subject hotel coupled with an analysis of the operating results of the selected
PKF Consulting's "Trends" category. Additional key assumptions used in preparing
this stabilized year estimate are summarized as follows:
a) The stabilized annual occupancy of the hotel is projected to be 59.0
percent at a $44.75 ADR (in 1998 value dollars);
b) A franchise fee of 8.0 percent of rooms revenue;
c) A management fee of 5.0 percent of total revenues as well as a reserve
for capital replacements of 4.0 percent of total revenue have been
deducted to establish the net operating income of the subject;
d) The projection of expense for taxes on real and personal property
is a function of the market value of the property. The subject
property is in the real estate taxing jurisdiction of the San
Bernardino County Tax Assessor's Office. Our estimate of the
property taxes for the subject is based on the provisions of
Proposition 13. Proposition 13 limits ad valorem property taxes to
1.0 percent of the assessed value plus assessment for city, special
district, and county bonds. The current effective tax rate is 1.1171
percent of market value. This appraisal assumes a sale of the subject
property on the effective date of the appraisal, which will initiate a
reassessment of real estate for tax purposes. For the purpose of this
analysis, the reassessment is based on the value estimate of the
subject property as determined using the Income Capitalization
Approach. Based on the estimated value of the hotel, a tax rate of
1.1171 per $100 of assessed value is utilized, resulting in real
estate taxes of $18,000, rounded, in the representative or stabilized
year.
Presented in the following table is our estimate of the subject hotel's
stabilized year operating results. As can be noted, on a stabilized basis the
VII-16
<PAGE>
Super 8 Motel will generate approximately $810,000 in total revenues, with a net
operating income of $174,000 in 1998 value dollars.
<TABLE>
===================================================================================================
Super 8 Motel - San Bernardino
Stabilized Year Operating Results (Stated in 1998 Value Dollars)
===================================================================================================
Occupancy Level 59.0%
- ------------------------------------------------ --------------------------------------------------
Average Room Rate $44.75
- ------------------------------------------------ --------------------------------------------------
REVPAR $26.40
- ------------------------------------------------ -------------- ---------- ------------ -----------
Total Ratios PAR (1) POR (2)
- ------------------------------------------------ -------------- ---------- ------------ -----------
Revenues
<S> <C> <C> <C> <C>
Rooms $781,000 96.4% $9,642 $44.75
Telephone 25,000 3.1% 309 1.43
Other Operated Departments 4,000 0.5% 49 0.23
- ------------------------------------------------ -------------- ---------- ------------ -----------
Total Revenues 810,000 100.0% 10,000 46.44
- ------------------------------------------------ -------------- ---------- ------------ -----------
Departmental Expenses (3)
Rooms 183,000 23.4% 2,259 10.49
Telephone 18,000 70.0% 222 1.03
Other Operated Departments 1,000 20.0% 12 0.06
- ------------------------------------------------ -------------- ---------- ------------ -----------
Total Departmental Expenses 202,000 24.9% 2,494 11.58
- ------------------------------------------------ -------------- ---------- ------------ -----------
Departmental Income 608,000 75.1% 7,506 34.86
- ------------------------------------------------ -------------- ---------- ------------ -----------
Undistributed Operating Expenses
Administrative and General 121,000 15.0% 1,494 6.94
Franchise Fees 62,000 7.7% 775 3.55
Marketing 25,000 3.1% 309 1.43
Property Maintenance 60,000 7.4% 741 3.44
Energy and Utilities 58,000 7.2% 716 3.33
- ------------------------------------------------ -------------- ---------- ------------ -----------
Total Undistributed Expenses 326,000 40.2% 4,025 18.69
- ------------------------------------------------ -------------- ---------- ------------ -----------
Income Before Fixed Charges 282,000 34.8% 3,481 16.17
- ------------------------------------------------ -------------- ---------- ------------ -----------
Management Fees and Fixed Charges
Base Management Fees 41,000 5.0% 506 2.35
Property Taxes 18,000 2.2% 222 1.03
Insurance 17,000 2.1% 210 0.97
- ------------------------------------------------ -------------- ---------- ------------ -----------
Total 76,000 9.4% 938 4.36
- ------------------------------------------------ -------------- ---------- ------------ -----------
Income Before Reserve 206,000 25.4% 2,543 11.81
- ------------------------------------------------ -------------- ---------- ------------ -----------
Reserve for Replacement 32,000 4.0% 395 1.83
- ------------------------------------------------ -------------- ---------- ------------ -----------
Income Before Other Charges (4) $174,000 21.5% $2,148 $1.00
===================================================================================================
(1) PAR - Per Available Room
(2) POR - Per Occupied Room
(3) Departmental expense ratios are based on the respective department's
revenue, not total revenue.
(4) Income before interest, taxes, depreciation, and amortization
Source: PKF Consulting
===================================================================================================
</TABLE>
3. Ten Year Statement of Estimated Annual Operating Results
Presented at the end of this section of the appraisal report is our estimate of
the operating results for the subject for the ten-year period beginning January,
1, 1998. This forecast is based on the preceding stabilized year estimate,
adjusted to reflect effects of inflation and the impact of fixed and variable
VII-17
<PAGE>
components of each revenue and expense item. Selected key assumptions used to
develop this forecast are summarized as follows.
a) With the exception of property taxes, all other revenues and expenses
are projected to increase at 3.0 percent throughout the holding period.
Property taxes are projected to increase at a rate of 2.0 percent per
year as allowed by California law, and growth in ADR is expected to
grow at inflation throughout the analysis period as a result of
market-driven factors.
b) For the first five years of this forecast, the occupancy and ADR of the
hotel were projected as previously discussed. Thereafter, the hotel's
occupancy was assumed to remain at 59.0 percent, with the ADR
increasing at 3.0 percent per year.
4. Valuation Using Direct Capitalization
Based on our evaluation of the subject, it was concluded that an overall
capitalization rate (OAR) of 11.0 percent is appropriate to value the subject,
and properly reflects the risks associated with this hotel given the property's
age, physical features, location, and market position.
Based on the projection of net operating income for a stabilized year of
operation, and the selected overall rate of 11.0 percent, the value of the
subject as if stabilized is calculated to be as follows.
- -------------------------------------------------- =====================
Projected Stabilized Net Operating Income $174,000
Overall Capitalization Rate 11.0%
- -------------------------------------------------- ---------------------
Stabilized Value Indication (Rounded) $1,600,000
- -------------------------------------------------- =====================
Therefore, the estimated "as is" market value of the fee simple interest in the
subject using the Direct Capitalization Approach, as of January 1, 1998, is:
==============================================================================
ONE MILLION SIX HUNDRED THOUSAND DOLLARS
- ------------------------------------------------------------------------------
$1,600,000
==============================================================================
5. Discounted Cash Flow Valuation Analysis
To estimate the value of the subject using a discounted cash flow analysis, it
is assumed that the property will be sold at the end of a ten-year holding
period. The value of the property at that time is estimated by capitalizing the
VII-18
<PAGE>
expected or anticipated net operating income of the property in the eleventh
year. From this value estimate, an estimate of sales costs is deducted to arrive
at the net proceeds upon sale.
Based on our market research, we are of the opinion that a reversionary
capitalization rate of 11.5 percent and a 14.0 percent discount rate are
appropriate to value the subject.
The following table indicates the present value of the projected net operating
income for the subject for the ten-year holding period, along with the present
value of the reversion, deriving a value estimate.
===============================================================================
Discounted Cash Flow Analysis
===============================================================================
Cash Flow Present Present
From Value Value
Year Operations Factor @ 14.0%
- ------------------- -------------------- ------------------ -------------------
1998 $174,000 0.8772 $153,000
1999 $181,000 0.7695 $139,000
2000 $185,000 0.6750 $125,000
2001 $193,000 0.5921 $114,000
2002 $196,000 0.5194 $102,000
2003 $203,000 0.4556 $92,000
2004 $207,000 0.3996 $83,000
2005 $211,000 0.3506 $74,000
2006 $223,000 0.3075 $69,000
2007 $228,000 0.2697 $62,000
- ------------------- -------------------- ------------------ -------------------
Reversion $2,000,000 0.2697 $541,000
- ------------------- -------------------- ------------------ -------------------
Present Value $1,553,000
- ------------------- -------------------- ------------------ -------------------
Value (Rounded) $1,550,000
===============================================================================
6. Income Capitalization Approach Valuation Conclusion
The value conclusion under the Income Capitalization Approach is based on both a
direct capitalization and a discounted cash flow analysis. Direct capitalization
indicated a value of $1,600,000 and the discounted cash flow analysis indicated
a value of $1,550,000. Placing more weight on the direct capitalization method,
our conclusion as to the "as is" market value of the fee simple interest of the
subject using the Income Capitalization Approach, as of January 1, 1998, is:
==============================================================================
ONE MILLION SIX HUNDRED THOUSAND DOLLARS
- ------------------------------------------------------------------------------
$1,600,000
==============================================================================
VII-19
<PAGE>
H. RECONCILIATION AND FINAL ESTIMATE OF VALUE
The reconciliation involves the correlation of the conclusions reached from the
two valuation methodologies applied, considering the property type and the
requirements of the appraisal assignment. This process depends on the
appropriateness and reliability of each approach, and of the quality and
reliability of the data obtained. The results from the two approaches are as
follows:
============================================ ======================
Sales Comparison Approach $1,700,000
Income Capitalization Approach
Direct Capitalization $1,600,000
Discounted Cash Flow Analysis $1,550,000
============================================ ======================
In the Sales Comparison Approach we compared five recently sold hotels to the
subject. The selected sales indicated a relatively wide range in value.
Furthermore, the sales were located in varying sub-market areas in the
surrounding region, and no property was identical to the subject. These factors
make this approach less meaningful, but act as a reference checkpoint for the
value derived from the Income Approaches.
The Income Capitalization Approach is undoubtedly the most commonly used method
to evaluate an income producing property such as a hotel. In this approach, we
have utilized two methods of analysis: the direct capitalization method and the
discounted cash flow method (yield capitalization). There was good market
support for both the projected cash flow of the subject as well as the
capitalization and yield rates used to convert our cash flow projections into a
value estimate. Both income methods resulted in similar values, heightening our
confidence in this approach, although indications from the Sales Comparison
Approach and the direct capitalization method highlight higher values than that
derived by the discounted cash flow method. Accordingly, the primary reliance
was placed on the Income Capitalization Approach.
Based on the facts, assumptions, and procedures outlined in this report, it is
estimated that the "as is" market value of the fee simple interest in the
subject property, as of January 1, 1998, is reasonably represented as:
===============================================================================
ONE MILLION SIX HUNDRED THOUSAND DOLLARS
- -------------------------------------------------------------------------------
$1,600,000
===============================================================================
VII-20
<PAGE>
SUPER 8 MOTEL - SAN BERNARDINO, CALIFORNIA
HISTORICAL OPERATING RESULTS
<PAGE>
<TABLE>
Super 8, San Bernardino
Historical Operating Results
--------------------------------------------------------------------------------------------------
1994 1995
--------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
--------------------------------------------------------------------------------------------------
Number of Keys 81 81
Occupancy 59.12% 55.32%
Average Daily Room Rate (ADR) $41.07 $40.29
REVPAR $24.28 $22.29
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROOMS $ 717,889 96.8% $ 8,863 $ 41.07 $ 658,924 97.1% $ 8,135 $ 40.29
TELEPHONE 21,641 2.9% 267 1.24 18,387 2.7% 227 1.12
MISCELLANEOUS 2,033 0.3% 25 0.12 1,249 0.2% 15 0.08
------------ ------ ------- ------- --------- ------- ------- -------
TOTAL REVENUE 741,563 100.0% 9,155 42.43 678,560 100.0% 8,377 41.49
DEPT. COSTS & EXPENSES (3)
ROOMS 169,372 23.6% 2,091 9.69 168,181 25.5% 2,076 10.28
TELEPHONE 21,149 97.7% 261 1.21 19,426 105.7% 240 1.19
MISCELLANEOUS 245 12.1% 3 0.01 145 11.6% 2 0.01
------------ ------ ----- ------- -------- ------ ----- -----
TOTAL COST & EXP. 190,766 25.7% 2,355 10.91 187,752 27.7% 2,318 11.48
TOTAL OPER. DEPTS. INCOME 550,797 74.3% 6,800 31.51 490,808 72.3% 6,059 30.01
------------ ------ ----- ------- -------- ------ ----- -----
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 141,904 19.1% 1,752 8.12 132,612 19.5% 1,637 8.11
MARKETING 21,897 3.0% 270 1.25 19,729 2.9% 244 1.21
FRANCHISE FEES 35,852 4.8% 443 2.05 32,946 4.9% 407 2.01
UTILITIES 63,327 8.5% 782 3.62 59,985 8.8% 741 3.67
PROPERTY OPERATIONS 69,144 9.3% 854 3.96 51,813 7.6% 640 3.17
------------ ------ ----- ----- ------- ----- ------ -----
TOTAL 332,124 44.8% 4,100 19.00 297,085 43.8% 3,668 18.16
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 218,673 29.5% 2,700 12.51 193,723 28.5% 2,392 11.84
------------ ------ ----- ----- ------- ----- ------ -----
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 37,036 5.0% 457 2.12 33,928 5.0% 419 2.07
PROPERTY TAXES 36,580 4.9% 452 2.09 37,061 5.5% 458 2.27
INSURANCE 14,697 2.0% 181 0.84 15,218 2.2% 188 0.93
RENT - 0.0% - - - 0.0% - -
------------ ------ ----- ---- -------- ----- ----- -----
TOTAL 88,313 11.9% 1,090 5.05 86,207 12.7% 1,064 5.27
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 130,360 17.6% 1,609 7.46 $ 107,516 15.8% 1,327 6.57
============ ====== ===== ==== ========= ===== ===== =====
RENOVATION PAYMENT $ 79,227 $ 37,500
---------------------------------------------------
1996
---------------------------------------------------
$ % PAR (1) POR (2)
---------------------------------------------------
Number of Keys 81
Occupancy 49.92%
Average Daily Room Rate (ADR) $40.23
REVPAR $20.08
REVENUES
ROOMS $ 595,341 96.7% $ 7,350 $ 40.23
TELEPHONE 18,645 3.0% 230 1.26
MISCELLANEOUS 1,485 0.2% 18 0.10
------------ ------ ------- -------
TOTAL REVENUE 615,471 100.0% 7,598 41.59
DEPT. COSTS & EXPENSES (3)
ROOMS 157,673 26.5% 1,947 10.65
TELEPHONE 19,914 106.8% 246 1.35
MISCELLANEOUS 245 16.5% 3 0.02
------------ ------ ----- -------
TOTAL COST & EXP. 177,832 28.9% 2,195 12.02
TOTAL OPER. DEPTS. INCOME 437,639 71.1% 5,403 29.57
------------ ------ ----- -------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 136,279 22.1% 1,682 9.21
MARKETING 17,618 2.9% 218 1.19
FRANCHISE FEES 30,035 4.9% 371 2.03
UTILITIES 55,200 9.0% 681 3.73
PROPERTY OPERATIONS 53,347 8.7% 659 3.60
------------ ------ ----- ------
TOTAL 292,479 47.5% 3,611 19.76
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 145,160 23.6% 1,792 9.81
------------ ------ ----- ------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 31,039 5.0% 383 2.10
PROPERTY TAXES 23,558 3.8% 291 1.59
INSURANCE 15,760 2.6% 195 1.06
RENT - 0.0% - -
------------ ------ ------ ------
TOTAL 70,357 11.4% 869 4.75
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 74,803 12.2% 923 5.05
============ ====== ===== ======
RENOVATION PAYMENT $ 16,491
- ----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenue, not total revenue.
(4) Net operating income before reserves, interest, depreciation,
amortization, and income taxes.
==================================================================================================================================
Source:The Famous Host Company
==================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8, San Bernardino
Operating Results Year-to-Date September 1997 and 1997 Budget
---------------------------------------------------------------------------------------------------
September 1997 Budget 1997
---------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
---------------------------------------------------------------------------------------------------
Number of Keys 81 81
Occupancy 58.60% 52.89%
Average Daily Room Rate (ADR) $43.51 $42.10
REVPAR $25.50 $22.27
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROOMS $ 564,220 96.5% $ 9,313 $ 43.51 $ 658,352 97.1% $ 8,128 $ 42.10
TELEPHONE 17,913 3.1% 296 1.38 17,922 2.6% 221 1.15
MISCELLANEOUS 2,484 0.4% 41 0.19 1,729 0.3% 21 0.11
------------ ------ ------ ------- --------- ------- ------- --------
TOTAL REVENUE 584,617 100.0% 9,650 45.08 678,003 100.0% 8,370 43.36
DEPT. COSTS & EXPENSES (3)
ROOMS 115,015 20.4% 1,898 8.87 156,006 23.7% 1,926 9.98
TELEPHONE 12,738 71.1% 210 0.98 18,092 100.9% 223 1.16
MISCELLANEOUS 635 25.6% 10 0.05 200 11.6% 2 0.01
------------ ------ ------ ------- --------- ------- ------- ------
TOTAL COST & EXP. 128,388 22.0% 2,119 9.90 174,298 25.7% 2,152 11.15
TOTAL OPER. DEPTS. INCOME 456,229 78.0% 7,531 35.18 503,705 74.3% 6,219 32.21
------------ ------ ------ ------- --------- ------- ------- ------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 108,169 18.5% 1,785 8.34 122,704 18.1% 1,515 7.85
MARKETING 8,979 1.5% 148 0.69 19,812 2.9% 245 1.27
FRANCHISE FEES 28,211 4.8% 466 2.18 32,918 4.9% 406 2.11
UTILITIES 42,198 7.2% 697 3.25 55,048 8.1% 680 3.52
PROPERTY OPERATIONS 40,132 6.9% 662 3.09 58,503 8.6% 722 3.74
------------ ------ ----- ------- --------- ------- ------ ------
TOTAL 227,689 38.9% 3,758 17.56 288,985 42.6% 3,568 18.48
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 228,540 39.1% 3,772 17.62 214,720 31.7% 2,651 13.73
------------ ------ ----- ------- --------- ------- ------- ------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 29,231 5.0% 482 2.25 33,900 5.0% 419 2.17
PROPERTY TAXES 21,375 3.7% 353 1.65 36,000 5.3% 444 2.30
INSURANCE 11,257 1.9% 186 0.87 15,000 2.2% 185 0.96
RENT - 0.0% - - - 0.0% - -
------------ ------ ----- ------- ---------- ------- ------- ------
TOTAL 61,863 10.6% 1,021 4.77 84,900 12.5% 1,048 5.43
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 166,677 28.5% 2,751 12.85 $ 129,820 19.1% $ 1,603 $ 8.30
============ ====== ===== ======= =========== ======= ======= =======
RENOVATION PAYMENT $ 17,130 $ 20,340
- ------------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenue, not total revenue.
(4) Net operating income before reserves, interest, depreciation,
amortization, and income taxes.
====================================================================================================================================
Source:The Famous Host Company
====================================================================================================================================
</TABLE>
<PAGE>
SUPER 8 MOTEL - SAN BERNARDINO, CALIFORNIA
TEN YEAR STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS
<PAGE>
<TABLE>
Super 8
San Bernardino, California
Projected Operating Results
----------------------------------------------------------------------------------------------------
Calendar Years Beginning January 1 1998 1999
----------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
----------------------------------------------------------------------------------------------------
Number of Keys 81 81
Occupancy 59.00% 59.00%
Average Daily Room Rate $44.75 $46.25
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $ 781,000 96.4% $ 9,642 $ 44.77 $ 807,000 96.4% $ 9,963 $ 46.26
Telephone 25,000 3.1% 309 1.43 26,000 3.1% 321 1.49
Other Operated Departments 4,000 0.5% 49 0.23 4,000 0.5% 49 0.23
------------- -------- ------ --------- ---------- -------- ------- ---------
Total Revenues 810,000 100.0% 10,000 46.44 837,000 100.0% 10,333 47.98
Departmental Expenses (3)
Rooms 183,000 23.4% 2,259 10.49 188,000 23.3% 2,321 10.78
Telephone 18,000 72.0% 222 1.03 18,000 69.2% 222 1.03
Other Operated Departments 1,000 25.0% 12 0.06 1,000 25.0% 12 0.06
------------- -------- ------ --------- ----------- -------- ------- ---------
Total Departmental Expenses 202,000 24.9% 2,494 11.58 207,000 24.7% 2,556 11.87
------------- -------- ------ --------- ------------ -------- ------- ---------
Departmental Profit 608,000 75.1% 7,506 34.86 630,000 75.3% 7,778 36.12
Undistributed Expenses
Administrative & General 121,000 14.9% 1,494 6.94 125,000 14.9% 1,543 7.17
Franchise Fee 62,000 7.7% 765 3.55 65,000 7.8% 802 3.73
Marketing 25,000 3.1% 309 1.43 26,000 3.1% 321 1.49
Property Operations & Maintenance 60,000 7.4% 741 3.44 62,000 7.4% 765 3.55
Energy & Utilities 58,000 7.2% 716 3.33 60,000 7.2% 741 3.44
------------- -------- ------ --------- ----------- -------- ------- ---------
Total Undistributed Expenses 326,000 40.2% 4,025 18.69 338,000 40.4% 4,173 19.38
------------- -------- ------ --------- ------------ -------- ------ ---------
Gross Operating Profit 282,000 34.8% 3,481 16.17 292,000 34.9% 3,605 16.74
Fixed Charges & Management Fee
Base Management Fee 41,000 5.1% 506 2.35 42,000 5.0% 519 2.41
Property Taxes 18,000 2.2% 222 1.03 19,000 2.3% 235 1.09
Insurance 17,000 2.1% 210 0.97 17,000 2.0% 210 0.97
Total Fixed Charges 76,000 9.4% 938 4.36 78,000 9.3% 963 4.47
------------- -------- ------ --------- ------------ -------- ------ ---------
Income Before Reserves 206,000 25.4% 2,543 11.81 214,000 25.6% 2,642 12.27
Reserves for Replacements 32,000 4.0% 395 1.83 33,000 3.9% 407 1.89
------------- -------- ------ --------- ------------ -------- ------ ---------
Net Operating Income (4) $ 174,000 21.5% $ 2,148 $ 9.98 $ 181,000 21.6% $ 2,235 $ 10.38
============= ======== ======= ========= ============ ======== ======= =========
---------------------------------------------------
Calendar Years Beginning January 1 2000
---------------------------------------------------
$ % PAR (1) POR (2)
---------------------------------------------------
Number of Keys 81
Occupancy 59.00%
Average Daily Room Rate $47.50
Revenues
Rooms $ 829,000 96.4%$ 10,235 $ 47.53
Telephone 27,000 3.1% 333 1.55
Other Operated Departments 4,000 0.5% 49 0.23
--------------- ------- --------- ----------
Total Revenues 860,000 100.0% 10,617 49.30
Departmental Expenses (3)
Rooms 194,000 23.4% 2,395 11.12
Telephone 19,000 70.4% 235 1.09
Other Operated Departments 1,000 25.0% 12 0.06
--------------- ------- --------- ----------
Total Departmental Expenses 214,000 24.9% 2,642 12.27
--------------- ------- --------- ----------
Departmental Profit 646,000 75.1% 7,975 37.03
Undistributed Expenses
Administrative & General 128,000 14.9% 1,580 7.34
Franchise Fee 66,000 7.7% 815 3.78
Marketing 27,000 3.1% 333 1.55
Property Operations & Maintenance 64,000 7.4% 790 3.67
Energy & Utilities 62,000 7.2% 765 3.55
--------------- ------- --------- ----------
Total Undistributed Expenses 347,000 40.3% 4,284 19.89
--------------- ------- --------- ----------
Gross Operating Profit 299,000 34.8% 3,691 17.14
Fixed Charges & Management Fee
Base Management Fee 43,000 5.0% 531 2.47
Property Taxes 19,000 2.2% 235 1.09
Insurance 18,000 2.1% 222 1.03
Total Fixed Charges 80,000 9.3% 988 4.59
--------------- ------- --------- ----------
Income Before Reserves 219,000 25.5% 2,704 12.56
Reserves for Replacements 34,000 4.0% 420 1.95
--------------- ------- --------- ----------
Net Operating Income (4) $ 185,000 21.5% $ 2,284 $ 10.61
=============== ======= ========= ==========
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net cash flow before interest, tax, amortization, and depreciation.
===================================================================================================================================
Source:PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
San Bernardino, California
Projected Operating Results
---------------------------------------------------------------------------------------------------
Calendar Years Beginning January 1 2001 2002
---------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
---------------------------------------------------------------------------------------------------
Number of Keys 81 81
Occupancy 59.00% 59.00%
Average Daily Room Rate $49.00 $50.50
Revenues
Rooms $ 855,000 96.5% $ 10,556 $ 49.02 $ 881,000 96.5%$ 10,877 $ 50.51
Telephone 27,000 3.0% 333 1.55 28,000 3.1% 346 1.61
Other Operated Departments 4,000 0.5% 49 0.23 4,000 0.4% 49 0.23
------------- ------- --------- --------- ---------- ------- --------- ---------
Total Revenues 886,000 100.0% 10,938 50.79 913,000 100.0% 11,272 52.34
Departmental Expenses (3)
Rooms 200,000 23.4% 2,469 11.47 206,000 23.4% 2,543 11.81
Telephone 19,000 70.4% 235 1.09 20,000 71.4% 247 1.15
Other Operated Departments 1,000 25.0% 12 0.06 1,000 25.0% 12 0.06
------------- ------- -------- --------- ----------- ------- ------- ---------
Total Departmental Expenses 220,000 24.8% 2,716 12.61 227,000 24.9% 2,802 13.01
------------- ------- -------- --------- ----------- ------- ------- ---------
Departmental Profit 666,000 75.2% 8,222 38.18 686,000 75.1% 8,469 39.33
Undistributed Expenses
Administrative & General 132,000 14.9% 1,630 7.57 136,000 14.9% 1,679 7.80
Franchise Fee 68,000 7.7% 840 3.90 70,000 7.7% 864 4.01
Marketing 27,000 3.0% 333 1.55 28,000 3.1% 346 1.61
Property Operations & Maintenance 66,000 7.4% 815 3.78 68,000 7.4% 840 3.90
Energy & Utilities 64,000 7.2% 790 3.67 66,000 7.2% 815 3.78
------------- ------- -------- --------- ----------- ------- ------ ---------
Total Undistributed Expenses 357,000 40.3% 4,407 20.47 368,000 40.3% 4,543 21.10
------------- ------- -------- --------- ----------- ------- ------ ---------
Gross Operating Profit 309,000 34.9% 3,815 17.71 318,000 34.8% 3,926 18.23
Fixed Charges & Management Fee
Base Management Fee 44,000 5.0% 543 2.52 46,000 5.0% 568 2.64
Property Taxes 19,000 2.1% 235 1.09 20,000 2.2% 247 1.15
Insurance 18,000 2.0% 222 1.03 19,000 2.1% 235 1.09
Total Fixed Charges 81,000 9.1% 1,000 4.64 85,000 9.3% 1,049 4.87
------------- ------- ------- --------- ----------- ------- ------- ---------
Income Before Reserves 228,000 25.7% 2,815 13.07 233,000 25.5% 2,877 13.36
Reserves for Replacements 35,000 4.0% 432 2.01 37,000 4.1% 457 2.12
------------- ------- ------- --------- ----------- ------- ------- ---------
Net Operating Income (4) $ 193,000 21.8% $ 2,383 $ 11.06 $ 196,000 21.5% $ 2,420 $ 11.24
============= ======= ======= ========= =========== ======= ======= =========
------------------------------------------------
Calendar Years Beginning January 1 2003
------------------------------------------------
$ % PAR (1) POR (2)
------------------------------------------------
Number of Keys 81
Occupancy 59.00%
Average Daily Room Rate $52.00
Revenues
<S> <C> <C> <C> <C>
Rooms $ 907,000 96.5%$ 11,198 $ 52.00
Telephone 29,000 3.1% 358 1.66
Other Operated Departments 4,000 0.4% 49 0.23
------------- -------- -------- ---------
Total Revenues 940,000 100.0% 11,605 53.89
Departmental Expenses (3)
Rooms 212,000 23.4% 2,617 12.15
Telephone 20,000 69.0% 247 1.15
Other Operated Departments 1,000 25.0% 12 0.06
------------- -------- ------- ---------
Total Departmental Expense 233,000 24.8% 2,877 13.36
------------- -------- ------- ---------
Departmental Profit 707,000 75.2% 8,728 40.53
Undistributed Expenses
Administrative & General 140,000 14.9% 1,728 8.03
Franchise Fee 73,000 7.8% 901 4.19
Marketing 29,000 3.1% 358 1.66
Property Operations & Mainte 70,000 7.4% 864 4.01
Energy & Utilities 68,000 7.2% 840 3.90
------------- -------- ------- ---------
Total Undistributed Expens 380,000 40.4% 4,691 21.79
------------- -------- ------- ---------
Gross Operating Profit 327,000 34.8% 4,037 18.75
Fixed Charges & Management Fee
Base Management Fee 47,000 5.0% 580 2.69
Property Taxes 20,000 2.1% 247 1.15
Insurance 19,000 2.0% 235 1.09
Total Fixed Charges 86,000 9.1% 1,062 4.93
------------- -------- ------ ---------
Income Before Reserves 241,000 25.6% 2,975 13.82
Reserves for Replacements 38,000 4.0% 469 2.18
------------- -------- ------ ---------
Net Operating Income (4) $ 203,000 21.6% $ 2,506 $ 11.64
============= ======== ======= =========
- --------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net cash flow before interest, tax, amortization, and depreciation.
================================================================================================================================
Source:PKF Consulting
================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
San Bernardino, California
Projected Operating Results
-------------------------------------------------------------------------------------------------
Calendar Years Beginning January 1 2004 2005
---------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
---------------------------------------------------------------------------------------------------
Number of Keys 81 81
Occupancy 59.00% 59.00%
Average Daily Room Rate $53.50 $55.00
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $ 933,000 96.5%$ 11,519 $ 53.49 $959,000 96.5%$ 11,840 $ 54.98
Telephone 30,000 3.1% 370 1.72 31,000 3.1% 383 1.78
Other Operated Departments 4,000 0.4% 49 0.23 4,000 0.4% 49 0.23
------------- -------- --------- --------- ------------ -------- --------- ---------
Total Revenues 967,000 100.0% 11,938 55.44 994,000 100.0% 12,272 56.99
Departmental Expenses (3)
Rooms 218,000 23.4% 2,691 12.50 225,000 23.5% 2,778 12.90
Telephone 21,000 70.0% 259 1.20 22,000 71.0% 272 1.26
Other Operated Departments 1,000 25.0% 12 0.06 1,000 25.0% 12 0.06
------------- -------- --------- --------- ------------ -------- --------- ---------
Total Departmental Expenses 240,000 24.8% 2,963 13.76 248,000 24.9% 3,062 14.22
------------- -------- --------- --------- ------------ -------- --------- ---------
Departmental Profit 727,000 75.2% 8,975 41.68 746,000 75.1% 9,210 42.77
Undistributed Expenses
Administrative & General 145,000 15.0% 1,790 8.31 149,000 15.0% 1,840 8.54
Franchise Fee 75,000 7.8% 926 4.30 77,000 7.7% 951 4.41
Marketing 30,000 3.1% 370 1.72 31,000 3.1% 383 1.78
Property Operations & Maintenance 72,000 7.4% 889 4.13 74,000 7.4% 914 4.24
Energy & Utilities 70,000 7.2% 864 4.01 72,000 7.2% 889 4.13
------------- -------- --------- --------- ------------ -------- --------- ---------
Total Undistributed Expenses 392,000 40.5% 4,840 22.47 403,000 40.5% 4,975 23.10
------------- -------- --------- --------- ------------ -------- --------- ---------
Gross Operating Profit 335,000 34.6% 4,136 19.21 343,000 34.5% 4,235 19.66
Fixed Charges & Management Fee
Base Management Fee 48,000 5.0% 593 2.75 50,000 5.0% 617 2.87
Property Taxes 21,000 2.2% 259 1.20 21,000 2.1% 259 1.20
Insurance 20,000 2.1% 247 1.15 21,000 2.1% 259 1.20
Total Fixed Charges 89,000 9.2% 1,099 5.10 92,000 9.3% 1,136 5.27
------------- -------- --------- --------- ------------ -------- --------- ---------
Income Before Reserves 246,000 25.4% 3,037 14.10 251,000 25.3% 3,099 14.39
Reserves for Replacements 39,000 4.0% 481 2.24 40,000 4.0% 494 2.29
------------- -------- --------- --------- ------------ -------- --------- ---------
Net Operating Income (4) $ 207,000 21.4% $ 2,556 $ 11.87 $ 211,000 21.2% $ 2,605 $ 12.10
============= ======== ========= ========= ============ ======== ========= =========
----------------------------------------------
Calendar Years Beginning January 1 2006
----------------------------------------------
$ % PAR (1) POR (2)
----------------------------------------------
Number of Keys 81
Occupancy 59.00%
Average Daily Room Rate $56.75
Revenues
Rooms $990,000 96.4%$ 12,222 $ 56.76
Telephone 32,000 3.1% 395 1.83
Other Operated Departments 5,000 0.5% 62 0.29
------------ -------- --------- ---------
Total Revenues 1,027,000 100.0% 12,679 58.88
Departmental Expenses (3)
Rooms 232,000 23.4% 2,864 13.30
Telephone 22,000 68.8% 272 1.26
Other Operated Departments 1,000 20.0% 12 0.06
------------ -------- --------- ---------
Total Departmental Expenses 255,000 24.8% 3,148 14.62
------------ -------- --------- ---------
Departmental Profit 772,000 75.2% 9,531 44.26
Undistributed Expenses
Administrative & General 153,000 14.9% 1,889 8.77
Franchise Fee 79,000 7.7% 975 4.53
Marketing 32,000 3.1% 395 1.83
Property Operations & Mainten 77,000 7.5% 951 4.41
Energy & Utilities 74,000 7.2% 914 4.24
------------ -------- --------- ---------
Total Undistributed Expense 415,000 40.4% 5,123 23.79
------------ -------- --------- ---------
Gross Operating Profit 357,000 34.8% 4,407 20.47
Fixed Charges & Management Fee
Base Management Fee 51,000 5.0% 630 2.92
Property Taxes 21,000 2.0% 259 1.20
Insurance 21,000 2.0% 259 1.20
Total Fixed Charges 93,000 9.1% 1,148 5.33
------------ -------- --------- ---------
Income Before Reserves 264,000 25.7% 3,259 15.14
Reserves for Replacements 41,000 4.0% 506 2.35
------------ -------- --------- ---------
Net Operating Income (4) $ 223,000 21.7% $ 2,753 $ 12.78
============ ======== ========= =========
- ----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net cash flow before interest, tax, amortization, and depreciation.
==================================================================================================================================
Source:PKF Consulting
==================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
San Bernardino, California
Projected Operating Results
-------------------------------------------------------------------------------------------------
Calendar Years Beginning January 1 2007 2008
-------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-------------------------------------------------------------------------------------------------
Number of Keys 81 81
Occupancy 59.00% 59.00%
Average Daily Room Rate $58.50 $60.25
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $1,020,000 96.4%$ 12,593 $ 58.48 $1,051,000 96.4%$ 12,975 $ 60.25
Telephone 33,000 3.1% 407 1.89 34,000 3.1% 420 1.95
Other Operated Departments 5,000 0.5% 62 0.29 5,000 0.5% 62 0.29
------------- ------- --------- ---------- ------------ ------- --------- ----------
Total Revenues 1,058,000 100.0% 13,062 60.65 1,090,000 100.0% 13,457 62.49
Departmental Expenses (3)
Rooms 239,000 23.4% 2,951 13.70 246,000 23.4% 3,037 14.10
Telephone 23,000 69.7% 284 1.32 24,000 70.6% 296 1.38
Other Operated Departments 1,000 20.0% 12 0.06 1,000 20.0% 12 0.06
------------- ------- --------- ---------- ------------ ------- --------- ----------
Total Departmental Expenses 263,000 24.9% 3,247 15.08 271,000 24.9% 3,346 15.54
------------- ------- --------- ---------- ------------ ------- --------- ----------
Departmental Profit 795,000 75.1% 9,815 45.58 819,000 75.1% 10,111 46.95
Undistributed Expenses
Administrative & General 158,000 14.9% 1,951 9.06 163,000 15.0% 2,012 9.34
Franchise Fee 82,000 7.8% 1,012 4.70 84,000 7.7% 1,037 4.82
Marketing 33,000 3.1% 407 1.89 34,000 3.1% 420 1.95
Property Operations & Maintenance 79,000 7.5% 975 4.53 81,000 7.4% 1,000 4.64
Energy & Utilities 76,000 7.2% 938 4.36 78,000 7.2% 963 4.47
------------- ------- --------- ---------- ------------ ------- --------- ----------
Total Undistributed Expenses 428,000 40.5% 5,284 24.54 440,000 40.4% 5,432 25.23
------------- ------- --------- ---------- ------------ ------- --------- ----------
Gross Operating Profit 367,000 34.7% 4,531 21.04 379,000 34.8% 4,679 21.73
Fixed Charges & Management Fee
Base Management Fee 53,000 5.0% 654 3.04 55,000 5.0% 679 3.15
Property Taxes 22,000 2.1% 272 1.26 22,000 2.0% 272 1.26
Insurance 22,000 2.1% 272 1.26 22,000 2.0% 272 1.26
Total Fixed Charges 97,000 9.2% 1,198 5.56 99,000 9.1% 1,222 5.68
------------- ------- --------- ---------- ------------ ------- --------- ----------
Income Before Reserves 270,000 25.5% 3,333 15.48 280,000 25.7% 3,457 16.05
Reserves for Replacements 42,000 4.0% 519 2.41 44,000 4.0% 543 2.52
------------- ------- --------- ---------- ------------ ------- --------- ----------
Net Operating Income (4) $ 228,000 21.6% $ 2,815 $ 13.07 $ 236,000 21.7% $ 2,914 $ 13.53
============= ======= ========= ========== ============ ======= ========= ==========
- ------------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net cash flow before interest, tax, amortization, and
depreciation.
====================================================================================================================================
Source:PKF Consulting
====================================================================================================================================
</TABLE>
<PAGE>
SECTION VIII
SUPER 8 MOTEL
SANTA ROSA, CALIFORNIA
<PAGE>
===============================================================================
Summary of Important Facts and Conclusions
===============================================================================
Property Address Super 8 Motel
2632 North Cleveland Avenue
Santa Rosa, California 95403
Telephone (707) 542-5544
- -------------------------------------------- ----------------------------------
Owner
Leased Fee Interest Woodstock Properties
Leasehold Interest Super 8 Motels II, Ltd.
- -------------------------------------------- ----------------------------------
Assessor's Parcel Number 015-471-037-000
- -------------------------------------------- ----------------------------------
Effective Date of Appraisal January 1, 1998
- -------------------------------------------- ----------------------------------
Property Rights Appraised Leasehold Interest
===============================================================================
Highest and Best Use
===============================================================================
Highest and Best Use
As if Vacant Limited-service hotel
As Improved Limited-service hotel or highway
commercial use
===============================================================================
Property Description
===============================================================================
Existing Improvements
Year Built 1980
Gross Building Area 35,374 square feet
Number of Hotel Guest Rooms 100
Parking 133 spaces
Number of Floors 3 above ground (no basement)
Hotel Amenities Outdoor pool, complimentary coffee
Compliance with ADA Partial
- -------------------------------------------- ----------------------------------
Site
Area 2.03 acres (88,426 square feet)
Zoning C-3 (Highway Frontage Commercial)
Flood Zone C, Panel Number 060381-0005B dated
August 3, 1981
Wetlands Zone No
Alquist Priolo Special Studies Zone No
Historic, Natural , Cultural,
Recreational, or Scientific Value None
===============================================================================
Valuation Conclusion
===============================================================================
Cost Approach Not Applicable
- -------------------------------------------- ----------------------------------
Sales Comparison Approach $2,200,000
- -------------------------------------------- ----------------------------------
Income Capitalization Approach
Stabilized Occupancy 65.0%
Average Daily Room Rate $46.25
Stabilized Net Income $253,000
Overall Capitalization Rate 11.5%
Terminal Capitalization Rate 12.0%
Discount Rate 14.5%
Indicated Market Values
Direct Capitalization Technique $2,200,000
Discounted Cash Flow Analysis $2,200,000
- -------------------------------------------- ----------------------------------
Final Estimate of Market Value $2,200,000
- -------------------------------------------- ----------------------------------
Marketing and Exposure Period Six months or less
===============================================================================
VIII-1
<PAGE>
(Photograph deleted)
View of Hotel Looking North from Parking Lot
(Photograph deleted)
View of Typical Queen-Bed Guestroom
VIII-2
<PAGE>
A. AREA AND NEIGHBORHOOD REVIEW
1. Introduction
The subject property is located in Santa Rosa, which lies in the Sonoma County.
Covering over 1,604 square miles in area, the county has 62 miles of coastal
shoreline. Sonoma County is located 52 miles north of San Francisco and 446
miles north of Los Angeles. Santa Rosa is the county seat of Sonoma County and
is a gateway to famous wine regions, being surrounded by vineyards and mountains
and within a short drive of more than 100 wineries. Sonoma County has continued
to lead the American wine industry with the designation and establishments of
eleven distinct viticulture regions. These areas are home of more medal-winning
wines than any other US viticulture region. In part, the viticulture success in
this county is due to the weather -- warm days and cool nights.
Santa Rosa also serves as an educational, medical, financial, governmental and
shopping center for a region extending to the Oregon border. Now a center of
trade for Northern California, Santa Rosa's economic base is dominated by
high-technology manufacturing, retailing, and services. A map showing the
location of the subject in relation to the surrounding area is shown on the
following page.
2. Economic Data
Presented in the following text is a brief overview of selected economic data
that characterizes the local market area.
Population: The population of Santa Rosa was 127,700 persons in
January 1997, a 1.4 percent increase from 1996. The corresponding
population of the Sonoma County was 426,900 persons, representing a
compound average annual growth rate (CAAG) of approximately 1.0 percent
over the 1990 figure of 388,222. In comparison, the compound annual
rate of increase in the State of California was 1.3 percent since 1990.
Population in the Sonoma County area is expected to increase at 6.5
percent to 463,800 persons by 2002.
Retail Sales: Total retail sales for the Santa Rosa MSA totaled over
$4,325,254 in 1997 a 9.3 percent increase from 1996. Retail sales are
expected to reach $5,339,021 by 2001. Retail sales per household in
1996 was $26,261 and is expected to increase to $30,474 by 2001, a
percent increase of 23.4 percent.
Income: Average household effective buying income (EBI) for the Santa
Rosa MSA was $44,217 in 1996 and is expected to increase to $50,912 by
2001, an increase of 20.7 percent. Based on the 1990 census, income per
capita for Sonoma County is $23,285.
VIII-3
<PAGE>
(Regional map of the San Francisco Bay area deleted)
Regional Map
VIII-4
<PAGE>
Employment: In November 1997, the total number of persons employed in
the Santa Rosa MSA was approximately 231,200 persons. This is about a
2.7 percent increase over 1996. The corresponding unemployment rate was
3.2 percent, an annual decrease of 0.7 percent the last five years.
This is lower than the rate of 5.7 percent unemployment for California.
The largest increases in employment were experienced in two sectors:
the instruments manufacturing and food products manufacturing areas,
followed by the services industry.
The following table presents a listing of the major public and private employers
in Santa Rosa.
===================================================
Major Employers in Santa Rosa
===================================================
Number of
Company Employees
- -------------------------- ========================
County of Sonoma 4,321
Hewlett-Packard Co. 3,600
Santa Rosa Junior College 1,931
Santa Rosa School District 1,580
Kaiser Permanente 1,400
Sonoma State University 1,126
City of Santa Rosa 1,105
Santa Rosa Memorial Hospital 1,100
Sola Optical 950
Optical Coating Laboratories, Inc. 943
Pacific Gas & Electric 720
Pacific Bell 450
Press Democrat Publishing 439
===================================================
Source: Santa Rosa Chamber of Commerce 1997
===================================================
Tourism: More than eight million tourists travel to Napa and Sonoma
counties each year. Winery "hopping" has become an avid pastime, and
tasting rooms have evolved into bustling centerpieces. Sonoma has not
only gained prominence in the wine world, but has become an appealing
vacation destination. In addition to Sonoma's vineyards, the area's
rugged coastline, mountain ranges, redwood forests, fertile valleys and
state parks provide for a broad spectrum of year-round fun and
exploration for the tourist.
Transportation: Major airline transportation to the Sonoma County
includes the small Sonoma County Airport and larger the San Francisco
International Airport, a one hour away. US Highway 101 and State
Highway 12 link Santa Rosa to other major cities. The subject property
is located along US Highway 101.
VIII-5
<PAGE>
Industrial Developments: Santa Rosa's rapid growth in its service,
wholesale and industrial sectors has established the area as a visable
and major regional service center for California's North Bay counties.
Industrial land within the city's sphere of influence is adequate to
accommodate a mix of commercial and industrial growth. Santa Rosa's
nine different industrial areas provide a wide variety of industrial
and commercial sites and facilities.
3. Neighborhood Review
The subject property is located near the major freeway intersection of Highway
101 and Steele Lane, in the suburban, northwestern area of Santa Rosa. The area
immediately to the west of Highway 101 is developed as the Coddingtown Shopping
Mall, and includes a number of major retailers such as Macy's. Located to the
north, off Steele Lane, North Cleveland Avenue is developed with a number of
smaller retail shops, offices, and then residential as the street proceeds
north. Further, a number of restaurants are also located in the vicinity of the
subject property, an added attraction given that the Super 8 offers no food and
beverage service of its own. For example, an Essa's Restaurant is located
directly in front of the subject property along North Cleveland Avenue and a
10.0 percent discount is given to hotel guests.
As indicated, the immediate neighboring uses surrounding the subject are
predominantly retail, office, and restaurant. Specific developments adjoining
the subject property comprise the Essa's Restaurant in front of the subject,
bordering North Cleveland Avenue, and a Circuit City and Payless retail stores
to the south. Farther west, across North Cleveland Avenue, are located an Ethan
Allen retail store, a National Bank of the Redwoods branch office, and several
small office buildings. The site is bordered to the north by the Paulin Creek
Channel, with a Motel 6 and a Chapala Mexican Restaurant located farther north
on the other side of the drainage canal. The east side of the subject property
borders Highway 101, however, with only limited visibility of the subject
through the highway landscaping.
The proximity of the subject to the freeway intersection of Highway 101 and
Steele Lane, combined with the nearby access to retail shops and restaurants,
provides the subject property with a reasonably desirable location with regard
to a limited service hotel. The drawback, however, is the limited visibility of
the subject from the surrounding area and the somewhat circuitous access to the
property for first-time visitors.
4. Conclusion
In summary, we are of the opinion that the subject property is reasonably well
located in the northwest area of the city of Santa Rosa. Growth in nearly all
economic indicators for Sonoma County in general, and Santa Rosa in specific,
has been positive over the past several years. We forecast continued modest
growth in these areas for the foreseeable future, indicating a stable or
increasing market for the Super 8 Motel.
VIII-6
<PAGE>
B. PROPERTY DESCRIPTION
1. Introduction
The subject property is a limited-service hotel comprising 100 guestrooms.
Additional amenities at the property include an outdoor swimming pool and
24-hour coffee service. The hotel comprises a wood-frame structure of three
floors. The hotel building houses guestrooms, the lobby, the hotel laundry,
service areas, and various mechanical and electrical equipment.
The hotel was constructed in 1980, the first year of operation. The hotel is
currently owned by Super 8 Motels II Ltd, a related company to the Famous Host
Companies. We are not aware of any transactions relating to the site or the
improvements since the date of opening.
2. Site Description and Zoning
The subject property is located at 2632 North Cleveland Avenue. North Cleveland
Avenue is a two-way, four-land street with a center turn lane. The subject site
comprises 2.03 acres, or 88,426 square feet. The site is irregular in shape, but
the property is level and is at grade with North Cleveland Avenue. There is 348
feet of frontage along Highway 101, but, as indicated, only limited visibility
of the subject property is possible due to the dense growth of tall landscaping
trees along the property line.
The subject property is zoned C-3 (Highway Frontage Commercial). This zoning
allows a variety of commercial development in a highway setting and a hotel is a
permitted use in this zone. We are aware of no easements or covenants affecting
the subject property which would negatively affect the market value of the
subject property.
3. Improvements Description
The hotel building forms an approximate U-shape with the interior of the U-shape
forming a courtyard area. The courtyard is landscaped and is also the site of
the pool. The hotel offers interior corridors and one hydraulic elevator. The
building is fire sprinklered. The building has a Spanish tile cover which
appears to be in good condition. The exterior of the building is comprised of
beige stucco with dark brown trim. The total interior square footage of the
hotel is 35,374 square feet with the average interior space of a typical
guestroom being approximately 264 square feet. The overall site ground coverage
is approximately 11,791 square feet.
The Super 8 Motel provides 100 guestrooms, configured as 45 queen-size bedrooms,
55 double, queen-size bedrooms. Two rooms are equipped for disabled persons. The
guestrooms are furnished with a color television, desk, two chairs, nightstand,
VIII-7
<PAGE>
lamp, and dresser. The lobby is wood paneled with contemporary wood furniture.
Some guestrooms open to small balconies. Overall the property is in good
condition and has been maintained on a regular basis.
With regard to parking, the hotel has 133 surface parking spaces located in the
paved parking lot which surrounds the hotel building. Four of these spaces are
designated for physically challenged persons. Also located on-site for guest use
are an ice machine, soft-drink vending machine, and a snack vending machine.
4. Basic Construction and Mechanical Systems
The subject building is a wood-framed structure having foundations of
poured-in-place concrete. The exterior walls are composed of stucco and painted
wood. The exterior colors of the hotel are a uniform beige-tan paint scheme with
a contrasting dark-brown coloration. The interior walls are sheet rock and are
primarily painted or have vinyl wall covering. The roof area is slightly pitched
with Spanish tile covering. Presented on the following table is a summary of the
basic construction and mechanical systems of the property.
===============================================================================
Super 8 Motel -- Santa Rosa
Summary of Basic Construction and Mechanical Systems
===============================================================================
Foundation: Concrete slab on grade
- --------------------------- ---------------------------------------------------
Frame: Wood frame construction, type V-1 hour fire rating.
- --------------------------- ---------------------------------------------------
Walls: Exterior: stucco.
Interior: gypsum board covering an airspace between
2x4 studs. The walls in the guestrooms are painted
gypsum board and partially papered. Lobby walls
are wood paneled and painted gypsum board.
- --------------------------- ---------------------------------------------------
Floor: Floors are carpeted in guestrooms and corridor
areas. Bathrooms have vinyl tile. The lobby area
is carpeted and the vending area has ceramic
tile flooring.
- --------------------------- ---------------------------------------------------
Roof: Slightly pitched with red concrete Spanish-style
roofing tiles
- --------------------------- ---------------------------------------------------
Ceiling Heights: 8.0 feet. Ceilings are painted gypsum board and
painted wood. In the public areas the lighting is
set in incandescent light fixtures. In the
guestrooms, are table lamps.
- --------------------------- ---------------------------------------------------
Windows: Window and door sashes are bronzed anodized
aluminum. Window trim is painted wood.
- --------------------------- ---------------------------------------------------
Heating and Cooling: Each room had individual electric heating and air
conditioning units located in the wall under a
window
- --------------------------- ---------------------------------------------------
Laundry Facilities: Laundry equipment consists of two washers and three
dryers, commercial grade.
- --------------------------- ---------------------------------------------------
Sprinkler System: All public areas and guest rooms are fire
sprinklered.
- --------------------------- ---------------------------------------------------
Life Safety: There are two individual fire systems in the guest
rooms: fire sensitive sensors and independent smoke
alarms.
===============================================================================
Source: Famous Host Companies
===============================================================================
VIII-8
<PAGE>
5. Assessed Value and Property Taxes
The subject property is assessed by Sonoma County on a tax year commencing July
1 of every year. Under the provisions of Article 13-A of the State of California
(Proposition 13), properties are assessed based on their fair market value as of
the change of ownership date. The assessed value can be increased by a maximum
of 2.0 percent per year until such date as the property is subsequently sold,
substantial new construction takes place, or the use of the property is
substantially changed. The current assessed value of the property is presented
in the following table.
============================================================
Assessor's Parcel Numbers
015-471-037-000
1996/97 Assessed Value
============================================================
Land and Improvements $2,652,720
Personal Property 111,720
- -------------------------------------- ---------------------
Net Taxable Value $2,763,761
- -------------------------------------- ---------------------
For 1996/1997, total property taxes and direct assessments are $29,245.02 on the
subject property. The indicated tax rate, therefore, is 1.0580 percent.
6. Land Lease
The subject property is encumbered by a lease, dated September 1, 1979, with the
underlying land owned by Woodstock Properties. Woodstock Properties leased the
site to Philip B. Grotewohl and Dennis A Brown who then assigned the lease on
July 10, 1980 to Super 8 Motels II Ltd, a California limited partnership, as
lessees by assignment. The term of the lease extends until August 31, 2015, with
three renewal options of five years each. The base rent was established at $4.17
per square foot and is to be adjusted every three years to reflect changes in
the Consumer Price Index. The current rent is $8,016 per month as of December
31, 1997 ($96,197 annually).
7. Renovation and Capital Improvements
Recently-completed renovation work included the replacement of carpeting
throughout the property as well as the installation of a new laundry washing
machine. Routine capital replacement projects are foreseen in future years as
the property is generally considered to be in good condition. For example, as
the through-the-wall air conditioning units in each guestroom continue to age,
these units will need to be replaced. Further, as the guestroom doors are
secured with standard key locks, an upgrade to more contemporary electronic door
locks is also necessary.
VIII-9
<PAGE>
Given that the cost of such renovation work, on a project-by-project basis, is
not unusually large, annual funding for such projects on a phased-basis is
considered to be possible through a annual reserve for capital replacement of
4.0 percent of total revenue.
8. Summary of Functional Utility and Condition
It is our opinion that the hotel is adequately designed and maintained to
service the hotel market demands of the suburban Santa Rosa community.
C. HOTEL MARKET ANALYSIS
1. Competitive Supply
There are a wide variety of lodging facilities currently located in Santa Rosa
ranging from limited service motels such as the Motel 6 to full-service
properties such as the Sonoma County Hilton. Of these various hotels and motels,
we have identified six hotels, including the subject, with a total of 471
available rooms as comprising the current competitive set of the Super 8 Motel.
The selection of the competitive supply was based on location, facilities and
amenities, room rate structure, and market orientation. The competitive
properties are summarized in the following table.
<TABLE>
==================================================================================================================
Super 8 Motel -- Santa Rosa
Census of Competitive Properties
==================================================================================================================
Published Room Rates
-----------------------------
Year Number AAA
Property Opened of Rooms Single Double Amenities Rating
- ----------------------------- -------- ----------- -------------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Super 8 Motel 1980 100 $38 - $45 $55 - $63 F,H 2 star (Motel)
Motel 6 Santa Rosa North 1970's 119 $38 $41 F,H N/L
Holiday Inn Express Santa Rosa 1995 96 $69 - $99 $69 - $99 C,D,E,F,G 3 star (Motel)
Best Westren Garden Inn 1957 78 $52 - $75 $52 - $75 A,D,F,G 3 star (Motel)
Travelodge Santa Rosa 1970's 44 $48 $65 F,H 1 star (Motel)
Ramada Limited 1993 34 $50 - $63 $50 - $63 H 2 star (Motel)
- ----------------------------- -------- ----------- -------------- -------------- ----------------- ---------------
Total 471
- ----------------------------- -------- ----------- -------------- -------------- ----------------- ---------------
Amenities Codes AAA Rating
A - Restaurant 5 star - Renowned; exceptional property recognized for
B - Bar/Lounge market superiority of facilities and service
C - Complimentary Continental Breakfast 4 star - Exceptional; offers luxurious accommodations
as well as extra amenities
D - Meeting Rooms 3 star - Offers very comfortable and attractive
E - Exercise Room accommodations
F - Swimming Pool 2 star - Exceeds AAA minimum requirements in some
G - Whirlpool physical and operational categories
H - Adjacent Restaurant 1 star - Meets AAA basic requirements for recommendation
N/L Not listed
==================================================================================================================
Source: Management of Individual Properties and 1998 American Automobile Association Tour Book
==================================================================================================================
</TABLE>
VIII-10
<PAGE>
With regard to future lodging supply, there are no hotels currently under
construction in the area, and we are aware of only one project, a proposed
conference center hotel in central Santa Rosa. This 100 to 150 room project is
being studied in conjunction with the City of Santa Rosa and is expected to be
an upscale property, if constructed. In our opinion, this potential property
will not compete with the Super 8 Motel. We do not anticipate any other new
lodging properties entering the market for the foreseeable future. Therefore, no
additions to the competitive supply are projected during the next five-year
period.
2. Historical Market Performance
The following table presents a summary of the historical market performance of
the five selected competitive hotels, together with the subject, over the period
1994 to 1997.
<TABLE>
====================================================================================================================
Competitive Hotel Market
Historical Occupancy and Room Rate
1994 to 1997 (Estimated)
====================================================================================================================
Daily Rooms
Available Percent Percent Average Daily Percent
Year Change Occupancy Change Room Rate Change
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
1994 375 3.8% 64.4% - $40.55 -
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------
1995 399 6.4% 69.2% 7.4% $42.50 4.8%
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------
1996 471 18.0% 63.3% (8.5)% $47.62 12.0%
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------
1997 (Estimated) 471 0.0% 66.0% 4.3% $50.98 7.0%
- --------------------- -------------- ------------ ----------------- ------------- --------------------- ------------
CAAG 7.9% - - - 7.9% -
====================================================================================================================
Source: PKF Consulting and Smith Travel Research
====================================================================================================================
</TABLE>
As can be noted, over the past five years, the number of available rooms within
the competitive market has increased in May 1993 with the opening of 34-unit
Ramada Limited and in September 1995 with the opening of the 96-unit Holiday Inn
Express. The competitive hotel supply has remained stable since 1996. However,
during the same period, demand has increased slightly overall, even with the
addition of the new hotel supply. Since 1994, the composite occupancy has
increased from 64.4 percent in 1994 to 66.0 percent for year-end 1997, although
a dip in occupancy was observed in 1996, the first full year of operation for
the new Holiday Inn Express.
In terms of the competitive market's average room rate, we estimate that the six
competitive hotels will achieve a weighted average rate of $50.98 in 1997. This
equates to CAAG of 7.9 percent over the past four years, indicating that room
rate growth ahead of inflation, as measured by CPI, has been achieved by the
competitive supply. This room rate growth has most likely been stimulated by the
new hotel properties added to the market which can obtain a comparative premium
for their new rooms.
VIII-11
<PAGE>
3. Demand Segmentation
The primary demand segments in the Santa Rosa market are corporate and leisure
demand. Business and leisure travel are the two largest demand segments on an
annual basis. On a more seasonal basis, some group demand is the third demand
segment in the Santa Rosa market. Each hotel penetrates these three demand
segments based on the appeal of the property to the various types of travelers
in each segment. The current mix of demand at the subject property is primarily
composed of leisure travelers (80.2%) who are attracted to the subject property
because of its convenient location and clean, well-price rooms. The second
largest component of demand (14.4%) is from corporate and government travelers
who are visiting businesses and agencies in the area, as well as law enforcement
personnel who stay at the hotel. The balance of demand is generated by group
travelers (5.3%) such as athletic and school groups.
4. Projected Future Supply and Demand
Over the past five years (1994 to 1997) demand for hotel accommodations in Santa
Rosa has generally increased at a CAAG of 8.8 percent. Based on our review of
the local market, we project overall demand for hotel rooms will show
comparable, limited growth over the next five years and will stabilize, on a
composite basis, in the high 60's percent range in occupancy, resulting in an
effective market growth of only 0.6 percent from 1998 to 2002. Presented in the
table below is a summary of the projected growth in supply, demand, and the
resulting occupancy levels for the competitive market for the period 1998 to
2002.
<TABLE>
=======================================================================================================
Super 8 Motel -- Santa Rosa
Estimated Growth In Supply and Demand
Competitive Hotel Market
=======================================================================================================
Daily Annual Total
Year Available Rooms Available Rooms Demand Occupancy
- --------------------- ----------------------- --------------------- ---------------- ------------------
Actual
<S> <C> <C> <C> <C> <C>
1994 375 136,875 88,147 64.4%
1995 399 145,635 100,779 69.2%
1996 471 171,915 108,822 63.3%
1997 471 171,915 113,463 66.0%
- --------------------- ----------------------- --------------------- ---------------- ------------------
Projected
1998 471 171,915 115,200 67.0%
1999 471 171,915 116,900 68.0%
2000 471 171,915 116,900 68.0%
2001 471 171,915 116,900 68.0%
2002 471 171,915 116,900 68.0%
- --------------------- ----------------------- --------------------- ---------------- ------------------
CAAG
1994 to 1997 7.9% - 8.8% -
1997 to 2002 0.0% 0.6%
=======================================================================================================
Source: PKF Consulting and Smith Travel Research
=======================================================================================================
</TABLE>
VIII-12
<PAGE>
As can be noted above, the number of rooms available in the market grew, at 7.9
percent from 1994 to 1997, with the entry of the Ramada Limited and the Holiday
Inn Express. During that period, demand grew concurrently at a faster pace of
8.8 percent annually. No change in the number of rooms in the competitive market
is forecast during the next five years. With no growth in supply, combined with
expected market factors, modest growth in occupancy is forecast, and occupancy
is expected to grow from 66.0 percent as of year-end 1997 to 68.0 percent as of
year-end 2002. As indicated, this represents a CAAG of 0.6 percent. From 2002
onwards, a stable, composite average annual occupancy of 68.0 percent is
foreseen.
5. Market Performance of the Subject
The following table summarizes the historical occupancy levels and average room
rate for the Super 8 Motel over the past four years
===============================================================================
Super 8 Motel -- Santa Rosa
Historical Occupancy and Room Rate
1994 to 1997 (Estimated)
===============================================================================
Average Daily
Year Occupancy % Change Room Rate % Change
- --------------------- -------------- ------------- ----------------- ----------
1994 54.4% - $40.76 -
- --------------------- -------------- ------------- ----------------- ----------
1995 53.6% (1.5)% $43.16 5.9%
- --------------------- -------------- ------------- ----------------- ----------
1996 54.1% 0.9% $43.91 1.7%
- --------------------- -------------- ------------- ----------------- ----------
1997 (Estimated) 60.0% 10.9% $45.00 2.5%
- --------------------- -------------- ------------- ----------------- ----------
CAAG 3.3% - 3.3% -
===============================================================================
Source: Famous Host Companies
===============================================================================
As can be noted, occupancy rates at the subject property have been trending
upward from 54.4 percent achieved in 1994 to an estimated 60.0 percent achieved
for year-end 1997. A portion of the increase in occupancy is attributed to
management's efforts to maintain ADR in the low $40s range, thus gaining demand
from some of the competitive properties where ADR increased, on a composite
basis, at 5.4 percent over the same period. The occupancy rate at the subject is
expected to climb slightly from the year-end 1997 level in future years.
However, as with past years, the subject is expected to lag the market overall
with a penetration rate of less than 100.0 percent. This penetration
below-market is primarily attributable to the location of the subject with
limited visibility and the comparable difficult access to the site.
With regard to room rates, a 5.9 percent increase in 1995 stabilized the ADR for
both 1995 and 1996 in the $43.00 range. For year-end 1997, ADR jumped 2.5
percent to an estimated $45.00. This increase in ADR is a reflection of some
economic strength in the local market, but reflects a strategy of management to
focus more growth efforts on occupancy than on ADR.
VIII-13
<PAGE>
Based on our analysis of the local market, we are of the opinion the subject
will achieve a stable occupancy level of approximately 65.0 percent by 1999. We
project an occupancy of 62.0 percent in 1999, and an increased occupancy to 65.0
percent for 1999. For the balance of the projection period, from 2000 to 2007, a
stable occupancy level of 65.0 percent is projected.
Based on our market analysis, we project the hotel to achieve an average room
rate of $46.25 in 1998, a 3.0 percent increase from 1997. Over the balance of
our projection period, we project the hotel's average room rates to increase at
the anticipated long-term level of inflation (3.0 percent per year). We believe
that this is realistic given the projected limited growth in demand combined
with no new additions to supply.
The following table summarizes our projections for the subject property over the
first five years of the ten-year analysis period from January 1, 1998 to
December 31, 2002.
===============================================================================
Super 8 Motel -- Santa Rosa
Projected Occupancy and Average Daily Room Rate
1998 to 2002
===============================================================================
Average
Market Daily Percent
Year Occupancy Penetration Room Rate Change
- --------------- ------------------- ---------------- --------------- ----------
1997 62.0% 93.9% $45.00 -
- --------------- ------------------- ---------------- --------------- ----------
1998 65.0% 97.0% $46.25 3.0%
1999 65.0% 96.0% $47.75 3.0%
2000 65.0% 96.0% $49.25 3.0%
2001 65.0% 96.0% $50.75 3.0%
2002 65.0% 96.0% $52.25 3.0%
- --------------- ------------------- ---------------- --------------- ----------
CAAG 0.9% - 3.0% -
===============================================================================
Source: PKF Consulting
===============================================================================
D. HIGHEST AND BEST USE
Based on our analysis, we are of the opinion that the existing improvements
contribute significant overall value to the site. There is no alternative, legal
use that could economically justify the restructuring or removal of the existing
improvements at this time. Therefore, the subject property, as improved,
represents the highest and best use of the site.
VIII-14
<PAGE>
E. VALUATION -- SALES COMPARISON APPROACH
1. Introduction
We have reviewed a number of recent sales and have focused on those sales
considered most comparable in providing support for the market value of the
subject. However, due to the limited number of recent comparable hotel sales in
Santa Rosa, we have expanded our search to include other hotels located
elsewhere in Sonoma and Marin counties, and nearby Alameda County. Based on this
search, five sales were identified to use as the basis for our valuation of the
hotel component of the subject under this approach. Presented in the following
table is a summary of the selected comparable hotel sales. As can be noted,
these sales have occurred between May 1996 and February 1997.
<TABLE>
=====================================================================================================================
Comparable Hotel Sales
=====================================================================================================================
Rooms Overall
Sale Sale Year Number of Price Per Revenue Capitalization
No. Hotel Name Location Date Built Rooms Room Multiplier Rate
- -------- ----------------- ------------------ --------- --------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
1 Motel 6 Santa Rosa 2/97 1970s 119 $42,777 4.4 N/A
2 Days Inn Emeryville 2/97 1985 153 $73,856 3.2 10.6%
3 Embassy Suites San Rafael 7/96 1980's 235 $120,851 3.9 9.6%
4 Doubletree Hotel Santa Rosa 10/96 1985 246 $67,886 3.7 6.4%
5 Alvarado Inn Novato 5/96 1982 70 $23,571 2.6 N/A
=====================================================================================================================
Source: PKF Consulting
=====================================================================================================================
</TABLE>
2. Analysis of the Hotel Sales
In reviewing the preceding table, it can be noted that the sales price per room
indicates a range in value on a per-room basis from $23,571 to $120,851.
Because of the many differences between these hotels and the subject hotel, we
are of the opinion that an analysis using a rooms revenue multiplier is the most
appropriate units of comparison to value the subject, especially true in view of
the fact that sale numbers 2, 3, and 4 are superior to the subject property. A
rooms revenue multiplier measures the total revenue generated from room rentals,
the major revenue source for this type of hotel property, in relation to the
sales price. Rooms revenue multipliers do not require subjective adjustments
since most variance in properties are considered to be reflected in average
daily room rates and annual occupancies as achieved in the market. As can be
noted, indicated rooms revenue multipliers for the five sales ranged from a low
of 2.6 to a high of 4.4, with an average of 3.6.
Based on our analysis, we are of the opinion that a rooms revenue multiplier
close to the low-end of the range indicated by the comparable sales is
appropriate in valuing the subject property. Based on a selected multiplier of
3.0, and assuming a stabilized occupancy level of 65.0 percent at an average
VIII-15
<PAGE>
daily room rate of $46.25 (stated in 1998 dollars), the indicated value for
available rooms for the subject is as follows:
<TABLE>
Rooms Stabilized Stabilized Indicated Value
Revenue Average Rate Occupancy Per Room
Multiplier Level Days/Year (Rounded)
- ---------------- --- --------------- --- ----------------- --- ---------------- --- -----------------------
<S> <C> <C> <C> <C> <C>
3.0 X $46.25 X 65.0% X 365 = $32,900
- ---------------- --- --------------- --- ----------------- --- ---------------- --- -----------------------
</TABLE>
As noted above, the rooms revenue multiplier analysis produced a value
indication of $32,900 per available room. This value unit is converted into a
total value estimate by multiplying the indicated value per room by the total
number of rooms. Based on 100 rentable rooms, the indicated stabilized value of
the fee simple interest in the Super 8 Motel is $3,300,000 as calculated below:
- ----------------------- ---- ---------------- ----- ---------------------------
$32,900 X 100 Rooms = $3,300,000 (Rounded)
- ----------------------- ---- ---------------- ----- ---------------------------
F. INDICATED VALUE VIA THE SALES COMPARISON APPROACH
After concluding to our estimate of the stabilized value of the subject, the
next step in our analysis is to develop an estimate of the "as is" leasehold
market value of the subject property.
1. Income Loss
The first step to develop the value estimate is to deduct the income loss
projected to occur until the property is stabilized (as discussed in the Income
Capitalization section).
===================================================================
Sales Comparison Approach
"As Is" Fee Simple Value
===================================================================
Stabilized value Indication $3,300,000
Less: Income Loss Until Stabilization (38,000)
- ---------------------------------------------- --------------------
"As Is" Fee Simple Value $3,262,000
- ---------------------------------------------- --------------------
2. Valuation of Leased Fee Interest
After having developed an estimate of the "as is" fee simple value of the
subject under the Sales Comparison Approach, the next step is to develop an
estimate of the value of the leased fee interest in the property. This
VIII-16
<PAGE>
represents the position of the ground lessor, who benefits from the income
derived from the ground lease payments during the term of the lease, as well as
the ownership of the property in fee at the termination of the lease (the
reversion). The estimated leased fee interest in the hotel is then subtracted
from the fee simple value to arrive at our estimate of the value of the
leasehold interest.
This deduction is derived by capitalizing the land lease payment for a
stabilized year ($99,000) by an appropriate capitalization rate (9.0 percent).
This capitalization rate of 250 basis points less than the rate used to
capitalize the revenue stream from the hotel operations (as will be discussed in
the Income Capitalization Approach) is reflective of the more secure position of
the landlord as compared to the lessee. This calculation results in a leased fee
interest of $1,100,000 ($99,000 / 9.0 percent). The following table summarizes
the deduction made from the stabilized fee simple value indication.
==============================================================
Sales Comparison Approach
"As Is" Leasehold Value
==============================================================
Fee Simple Value Estimate $3,262,000
Less: Leased Fee Land Value (1,100,000)
- ------------------------------------- ------------------------
Leasehold Value $2,162,000
- ------------------------------------- ------------------------
Rounded $2,200,000
==============================================================
As a result of the foregoing analysis, we estimate the "as is" market value of
the leasehold estate interest in the subject as of January 1, 1998, through the
Sales Comparison Approach to be:
===============================================================================
TWO MILLION TWO HUNDRED THOUSAND DOLLARS
- -------------------------------------------------------------------------------
$2,200,000
===============================================================================
G. VALUATION -- INCOME CAPITALIZATION APPROACH
1. Basis for Cash Flow Projection
In order to develop an estimate of the net operating income (NOI) for the
subject for both a stabilized year of operation (direct capitalization) and each
year of the aforementioned holding period (yield capitalization), the following
have been analyzed:
1. The historical operating results for the subject for year-end 1994,
1995, 1996, year-to-date September 1997, and management's operating
budget for 1997.
VIII-17
<PAGE>
2. The operating results of the category "Limited-Service Hotels" from the
1997 issue of PKF Consulting's Trends in the Hotel Industry.
The historical operating results of the subject are presented at the end of this
section of the report.
2. Stabilized Year Operating Estimate
We first developed an estimate of the performance of the subject for a
stabilized year of operation stated in current value, 1998 dollars. This
estimate is based on our review of the historical operating results of the
subject hotel coupled with an analysis of the operating results of the selected
PKF Consulting "Trends" category. Additional key assumptions used in preparing
this stabilized year estimate are summarized below.
a) The stabilized annual occupancy of the hotel is projected to be 65.0
percent at an average daily room rate of $46.25 as stated in 1998
dollars;
b) A management fee of 5.0 percent of total revenues, a franchise fee of
8.0 percent of room revenues, and a reserve for capital replacements of
4.0 percent of total revenue have been deducted to establish the net
operating income of the subject.
c) The projection of expense for taxes on real and personal property is a
function of the market value of the property. The subject property
is in the real estate taxing jurisdiction of the Sonoma County Tax
Assessor's Office. Our estimate of the property taxes for the
subject is based on the provisions of Proposition 13. Proposition
13 limits ad valorem property taxes to 1.0 percent of the assessed
value plus assessment for city, special district, and county bonds.
The current effective tax rate is 1.0580 percent of market value.
This appraisal assumes a sale of the subject property on the effective
date of the appraisal, which will initiate a reassessment of real
estate for tax purposes. For the purpose of this analysis, the
reassessment is based on the value estimate of the subject property as
determined using the Income Capitalization Approach as if owned
in fee simple. Based on that estimated value of the hotel, a tax
rate of 1.0580 per $100 of assessed value is utilized, resulting
in real estate taxes of $32,000, rounded, in the representative or
stabilized year.
Presented below is our estimate of the subject hotel's stabilized year operating
results. As can be noted, on a stabilized basis, the subject property will
generate approximately $1,117,000 in total revenue, with a net operating income
of $253,000, or 22.6 percent of total revenue.
VIII-18
<PAGE>
<TABLE>
===============================================================================================
Super 8 Motel, Santa Rosa
Stabilized Year Operating Results (Stated in 1998 Value Dollars)
===============================================================================================
Occupancy Level 65.0%
- -------------------------------------------- --------------------------------------------------
Average Room Rate $46.25
- -------------------------------------------- --------------------------------------------------
REVPAR $31.45
- -------------------------------------------- -------------- ---------- ------------- ----------
Total Ratios POR (1) POR (2)
- -------------------------------------------- -------------- ---------- ------------- ----------
Revenues
<S> <C> <C> <C> <C>
Rooms $1,097,000 98.2% $10,970 $46.25
Telephone 15,000 1.4% 150 0.65
Other Operated Departments 5,000 0.5% 50 0.22
- -------------------------------------------- -------------- ---------- ------------- ----------
Total Revenues 1,117,000 100.0% 11,170 47.12
- -------------------------------------------- -------------- ---------- ------------- ----------
Departmental Expenses (3)
Rooms 202,000 18.4% 2,020 8.50
Telephone 8,000 53.3% 80 0.35
Other Operated Departments 1,000 20.0% 10 0.04
- -------------------------------------------- -------------- ---------- ------------- ----------
Total Departmental Expenses 211,000 18.9% 3,010 8.89
- -------------------------------------------- -------------- ---------- ------------- ----------
Departmental Income 906,000 81.1% 9,060 38.19
- -------------------------------------------- -------------- ---------- ------------- ----------
Undistributed Operating Expenses
Administrative and General 144,000 12.9% 1,442 6.07
Franchise Fees 88,000 7.9% 850 3.71
Marketing 21,000 1.8% 206 0.89
Property Maintenance 75,000 6.7% 747 3.16
Energy and Utilities 72,000 6.4% 721 3.03
- -------------------------------------------- -------------- ---------- ------------- ----------
Total Undistributed Expenses 400,000 35.8% 4,000 16.86
- -------------------------------------------- -------------- ---------- ------------- ----------
Income Before Fixed Charges 506,000 45.3% 5,060 21.33
- -------------------------------------------- -------------- ---------- ------------- ----------
Management Fees and Fixed Charges
Management Fees 56,000 5.0% 560 2.36
Property Taxes 32,000 2.9% 320 1.35
Insurance 21,000 1.9% 206 0.89
Land Lease 99,000 8.9% 990 4.17
- -------------------------------------------- -------------- ---------- ------------- ----------
Total 208,000 18.6% 2,080 8.77
- -------------------------------------------- -------------- ---------- ------------- ----------
Income Before Reserve 298,000 26.7% 2,980 12.56
- -------------------------------------------- -------------- ---------- ------------- ----------
Reserve for Replacement 45,000 4.0% 450 1.90
- -------------------------------------------- -------------- ---------- ------------- ----------
Income Before Other Charges(4) $253,000 22.6% $2,530 $10.66
===============================================================================================
(1) PAR - Per Available Room
(2) POR - Per Occupied Room
(3) Departmental expense ratios are based on the respective department's
revenue, not total revenue
(4) Income before interest, taxes, depreciation, and amortization
Source: PKF Consulting
===============================================================================================
</TABLE>
3. Ten Year Statement of Estimated Annual Operating Results
Presented at the end of this section of the appraisal report is our estimate of
the operating results for the subject for the ten-year period beginning January,
1, 1998. This forecast is based on the preceding stabilized year estimate,
adjusted to reflect effects of inflation, variations in occupancy and rate and
the impact of fixed and variable components of each revenue and expense item.
Selected key assumptions used to develop this forecast are summarized below.
VIII-19
<PAGE>
a) With the exception of property taxes, all other revenues are expenses
are projected to increase at 3.0 percent throughout the holding period.
Property taxes are projected to increase at a rate of 2.0 percent per
year as allowed by California law.
b) For the first two years of this forecast, the occupancy and rates of
the hotel were projected as previously discussed. Thereafter, the
hotel's occupancy was assumed to remain at 65.0 percent, with the
average rate increasing at 3.0 percent per year.
4. Valuation Using Direct Capitalization
Based on our evaluation of the subject, it is was concluded that an overall
capitalization rate (OAR) of 11.5 percent is appropriate to value the subject,
and properly reflects the risks associated with this hotel given the property's
age, physical features, location, market position, and leasehold estate status.
Based on the projection of net operating income for a stabilized year of
operation, and the selected overall rate of 11.5 percent, the value of the
subject as if stabilized is calculated to be as follows.
================================================== =====================
Projected Stabilized Net Operating Income $253,000
Overall Capitalization Rate 11.5%
- -------------------------------------------------- ---------------------
Stabilized Value Indication $2,200,000
================================================== =====================
From this derived stabilized value, a deduction is made for the cost required
for the hotel to achieve the projected stabilized level of income. This cost is
typically referred to as "income loss".
Income loss is the difference in projected cash flows and the cash flow which
would be available if the property were stabilized. This amount must be
subtracted from the stabilized value to reflect the risk associated with the
loss of income of a hotel property during the stabilization period. Based on our
market research and analysis, it is estimated that the subject will achieve a
stabilized level of operation in 1990. A calculation of the income loss
associated for the year prior to that period is presented on the following
table.
VIII-20
<PAGE>
===============================================================================
Income Loss to Stabilization
===============================================================================
Estimated Stabilized Year
Net Operating Net Operating Estimated Present Value
Year Income Income Income Loss @ 6.5%
- ---------------- ---------------- ------------------ ------------- ------------
1998 $213,000 $253,000 $40,000 $37,559
- ---------------- ---------------- ------------------ ------------- ------------
Rounded $40,000 $38,000
===============================================================================
Based upon the preceding calculation, the cumulative income loss over the
stabilization period is estimated to be approximately $40,000. Investors
typically discount the estimated income loss at either the internal rate of
return for the property or at a "safe rate" such as AAA bonds or short-term
treasury bills. For the purpose of this analysis, we have chosen to discount the
income loss at the safe rate, or a rate which easily could be achieved if this
additional cash flow were available for short-term reinvestment. Consequently,
if the sum of the income losses were discounted at a safe rate of 6.5 percent,
the present value of the estimated income loss would be roundly $38,000.
Presented below is our calculation of the "as is" market value of the subject
taking into account the above estimate of income loss during the projected
stabilization period.
=======================================================================
Value Conclusion -- Direct Capitalization
=======================================================================
Stabilized Value $2,200,000
Less: Income Loss During Stabilization Period (38,000)
- ---------------------------------------------------- ------------------
"As Is" Value $2,162,000
- ---------------------------------------------------- ------------------
Rounded $2,200,000
=======================================================================
Therefore, the estimated "as is" market value of the leasehold interest in the
subject using the Direct Capitalization Approach, as of January 1, 1998, is:
==============================================================================
TWO MILLION TWO HUNDRED THOUSAND DOLLARS
- ------------------------------------------------------------------------------
$2,200,000
==============================================================================
5. Discounted Cash Flow Valuation Analysis
To estimate the value of the subject using a discounted cash flow analysis, it
is assumed that the property will be sold at the end of a ten-year holding
period. The value of the property at that time is estimated by capitalizing the
expected or anticipated net operating income of the property in the eleventh
year. From this value estimate, an estimate of sales costs is deducted to arrive
at the net proceeds upon sale.
VIII-21
<PAGE>
Based on our market research, we are of the opinion that a reversionary
capitalization rate of 12.0 percent and a 14.5 percent discount rate are
appropriate to value the subject on a discounted cash flow basis.
The following table shows the present value of the projected net operating
income for the subject for the ten-year holding period, along with the present
value of the reversion, deriving a value estimate.
===============================================================================
Discounted Cash Flow Analysis
===============================================================================
Cash Flow Present Present
From Value Value
Year Operations Factor @ 14.5%
- ----------------- -------------------- ----------------------- ---------------
1998 $213,000 0.8734 $186,026
1999 $266,000 0.7628 $202,895
2000 $278,000 0.6662 $185,195
2001 $283,000 0.5818 $164,651
2002 $293,000 0.5081 $148,881
2003 $299,000 0.4438 $132,690
2004 $309,000 0.3876 $119,762
2005 $319,000 0.3385 $107,981
2006 $329,000 0.2956 $97,263
2007 $341,000 0.2582 $88,044
- ----------------- -------------------- ----------------------- ----------------
Reversion $2,882,000 0.2582 $744,113
- ----------------- -------------------- ----------------------- ----------------
Present Value $2,177,501
- ----------------- -------------------- ----------------------- ----------------
Value, Rounded $2,200,000
===============================================================================
6. Income Capitalization Approach Valuation Conclusion
The value conclusion under the Income Capitalization Approach is based on both a
direct capitalization and a discounted cash flow analysis. Both the direct
capitalization method and the discounted cash flow method indicated a value of
$2,200,000. Therefore, our conclusion as to the "as is" market value of the
leasehold interest of the subject using the Income Capitalization Approach, as
of January 1, 1998, is:
==============================================================================
TWO MILLION TWO HUNDRED THOUSAND DOLLARS
- ------------------------------------------------------------------------------
$2,200,000
==============================================================================
H. RECONCILIATION AND FINAL ESTIMATE OF VALUE
The reconciliation involves the correlation of the conclusions reached from the
two valuation methodologies applied, considering the property type and the
VIII-22
<PAGE>
requirements of the appraisal assignment. This process depends on the
appropriateness and reliability of each approach, and of the quality and
reliability of the data obtained. The results from the two approaches are as
follows:
============================================ ======================
Sales Comparison Approach $2,200,000
Income Capitalization Approach
Direct Capitalization $2,200,000
Discounted Cash Flow Analysis $2,200,000
============================================ ======================
In the Sales Comparison Approach we compared five recent hotel transactions to
the subject. The selected sales indicated a relatively wide range in value per
room. Furthermore, the sales were located in varying market areas throughout the
San Francisco Bay Area and no property was identical to the subject. These
factors make this approach less meaningful, but do act as a reference checkpoint
for the value derived from the Income Capitalization Approach methods.
The Income Capitalization Approach is undoubtedly the most commonly used method
to evaluate an income producing property such as a hotel. In this approach, we
have utilized two methods of analysis: The direct capitalization method and the
discounted cash flow method (yield capitalization). There was good market
support for both the projected cash flow of the subject as well as the
capitalization and yield rates used to convert our cash flow projections into a
value estimate. Both income methods resulted in similar values, heightening our
confidence in this approach. Accordingly, the primary reliance was placed on
this method.
Based on the facts, assumptions, and procedures outlined in this report, it is
estimated that the "as is" market value of the leasehold interest in the subject
property, as of January 1, 1998, is reasonably represented as:
===============================================================================
TWO MILLION TWO HUNDRED THOUSAND DOLLARS
- -------------------------------------------------------------------------------
$2,200,000
===============================================================================
VIII-23
<PAGE>
SUPER 8 MOTEL -- SANTA ROSA, CALIFORNIA
HISTORICAL OPERATING RESULTS
<PAGE>
<TABLE>
Super 8, Santa Rosa
Historical Operating Results
--------------------------------------------------------------------------------------------------
1994 1995
--------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
--------------------------------------------------------------------------------------------------
Number of Keys 100 100
Occupancy 54.39% 53.56%
Average Daily Room Rate (ADR) $40.76 $43.16
REVPAR $22.17 $23.12
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROOMS $ 809,186 98.5% $ 8,092 $ 40.76 $ 843,600 98.6% $ 8,436 $ 43.15
TELEPHONE 10,814 1.3% 108 0.54 10,362 1.2% 104 0.53
MISCELLANEOUS 1,608 0.2% 16 0.08 1,436 0.2% 14 0.07
----------- ------- ------- ------- --------- ------- ------- -------
TOTAL REVENUE 821,608 100.0% 8,216 41.39 855,398 100.0% 8,554 43.76
DEPT. COSTS & EXPENSES (3)
ROOMS 192,378 23.8% 1,924 9.69 174,352 20.7% 1,744 8.92
TELEPHONE 13,699 126.7% 137 0.69 11,527 111.2% 115 0.59
MISCELLANEOUS 245 15.2% 2 0.01 263 18.3% 3 0.01
----------- ------- ------- ------- --------- ------- ------- -------
TOTAL COST & EXP. 206,322 25.1% 2,063 10.39 186,142 21.8% 1,861 9.52
TOTAL OPER. DEPTS. INCOME 615,286 74.9% 6,153 30.99 669,256 78.2% 6,693 34.23
----------- ------- ------- ------- --------- ------- ------- -------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 125,331 15.3% 1,253 6.31 127,165 14.9% 1,272 6.50
MARKETING 25,386 3.1% 254 1.28 21,400 2.5% 214 1.09
FRANCHISE FEES 40,330 4.9% 403 2.03 42,201 4.9% 422 2.16
UTILITIES 80,855 9.8% 809 4.07 74,708 8.7% 747 3.82
PROPERTY OPERATIONS 67,504 8.2% 675 3.40 65,410 7.6% 654 3.35
----------- ------- ------ ------- ---------- ------- ------- -------
TOTAL 339,406 41.3% 3,394 17.10 330,884 38.7% 3,309 16.93
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 275,880 33.6% 2,759 13.90 338,372 39.6% 3,384 17.31
----------- ------- ------ ------- ----------- ------- ------- -------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES - 0.0% - - - 0.0% - -
PROPERTY TAXES 29,155 3.5% 292 1.47 29,924 3.5% 299 1.53
INSURANCE 16,841 2.0% 168 0.85 17,459 2.0% 175 0.89
RENT 89,110 10.8% 891 4.49 93,395 10.9% 934 4.78
----------- ------- ------ ------- ----------- ------- ------- --------
TOTAL 135,106 16.4% 1,351 6.81 140,778 16.5% 1,408 7.20
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 140,774 17.1% 1,408 7.09 $ 197,594 23.1% 1,976 10.11
=========== ======= ======= ======= =========== ======== ======= ========
RENOVATION PAYMENT $ 48,417 $ 71,521
----------------------------------------------------
1996
----------------------------------------------------
$ % PAR (1) POR (2)
----------------------------------------------------
Number of Keys 100
Occupancy 54.11%
Average Daily Room Rate (ADR) $43.91
REVPAR $23.76
REVENUES
ROOMS $ 869,646 98.1% $ 8,696 $ 43.91
TELEPHONE 15,538 1.8% 155 0.78
MISCELLANEOUS 1,748 0.2% 17 0.09
------------ ------ ------- ---------
TOTAL REVENUE 886,932 100.0% 8,869 44.78
DEPT. COSTS & EXPENSES (3)
ROOMS 162,730 18.7% 1,627 8.22
TELEPHONE 9,297 59.8% 93 0.47
MISCELLANEOUS 272 15.6% 3 0.01
------------ ------- ------- --------
TOTAL COST & EXP. 172,299 19.4% 1,723 8.70
TOTAL OPER. DEPTS. INCOME 714,633 80.6% 7,146 36.08
------------ ------- -------- ---------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 140,949 15.9% 1,409 7.12
MARKETING 16,704 1.9% 167 0.84
FRANCHISE FEES 43,495 4.9% 435 2.20
UTILITIES 67,342 7.6% 673 3.40
PROPERTY OPERATIONS 59,354 6.7% 594 3.00
------------ ------- -------- ---------
TOTAL 327,844 37.0% 3,278 16.55
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 386,789 43.6% 3,868 19.53
------------ ------- -------- ----------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES - 0.0% - -
PROPERTY TAXES 26,495 3.0% 265 1.34
INSURANCE 18,258 2.1% 183 0.92
RENT 93,395 10.5% 934 4.72
------------ ------- -------- -----------
TOTAL 138,148 15.6% 1,381 6.98
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 248,641 28.0% 2,486 12.55
============ ======= ======== ===========
RENOVATION PAYMENT $ 30,239
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenue, not total revenue.
(4) Net operating income before reserves, interest, depreciation,
amortization, and income taxes.
===================================================================================================================================
Source:The Famous Host Company
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
====================================================================================================================================
Super 8, Santa Rosa
Operating Results Year-to-Date September 1997 and 1997 Budget
--------------------------------------------------------------------------------------------------
September 1997 Budget 1997
--------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
--------------------------------------------------------------------------------------------------
Number of Keys 100 100
Occupancy 61.60% 53.88%
Average Daily Room Rate (ADR) $46.99 $44.87
REVPAR $28.95 $24.18
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROOMS $ 790,844 98.3% $10,603 $ 46.99 $ 882,450 98.4% $ 8,825 $ 44.87
TELEPHONE 10,029 1.2% 134 0.60 12,837 1.4% 128 0.65
MISCELLANEOUS 3,508 0.4% 47 0.21 1,185 0.1% 12 0.06
---------- ------- ------- ------- --------- ------- ------- -------
TOTAL REVENUE 804,381 100.0% 10,784 47.79 896,472 100.0% 8,965 45.58
DEPT. COSTS & EXPENSES (3)
ROOMS 136,692 17.3% 1,833 8.12 168,186 19.1% 1,682 8.55
TELEPHONE 9,738 97.1% 131 0.58 11,383 88.7% 114 0.58
MISCELLANEOUS 198 5.6% 3 0.01 200 16.9% 2 0.01
---------- ------- ------- -------- ---------- ------- -------- --------
TOTAL COST & EXP. 146,628 18.2% 1,966 8.71 179,769 20.1% 1,798 9.14
TOTAL OPER. DEPTS. INCOME 657,753 81.8% 8,818 39.08 716,703 79.9% 7,167 36.44
---------- ------- ------- -------- ----------- ------- -------- ---------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 106,697 13.3% 1,430 6.34 125,204 14.0% 1,252 6.37
MARKETING 7,944 1.0% 107 0.47 12,900 1.4% 129 0.66
FRANCHISE FEES 39,542 4.9% 530 2.35 44,123 4.9% 441 2.24
UTILITIES 53,664 6.7% 719 3.19 70,733 7.9% 707 3.60
PROPERTY OPERATIONS 50,613 6.3% 679 3.01 56,819 6.3% 568 2.89
---------- ------- ------- -------- ------------ ------- -------- ---------
TOTAL 258,460 32.1% 3,465 15.36 309,779 34.6% 3,098 15.75
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 399,293 49.6% 5,353 23.73 406,924 45.4% 4,069 20.69
---------- ------- ------- -------- ------------- -------- -------- ----------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES - 0.0% - - - 0.0% - -
PROPERTY TAXES 17,073 2.1% 229 1.01 29,496 3.3% 295 1.50
INSURANCE 13,806 1.7% 185 0.82 16,908 1.9% 169 0.86
RENT 70,661 8.8% 947 4.20 90,000 10.0% 900 4.58
---------- ------- ------- -------- ------------- --------- -------- ----------
TOTAL 101,540 12.6% 1,361 6.03 136,404 15.2% 1,364 6.94
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 297,753 37.0% 3,992 17.69 $ 270,520 30.2% $ 2,705 $ 13.76
========== ======= ======= ======== ============= ========= ======== ==========
RENOVATION PAYMENT $ 52,105 $ 26,894
- ------------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenue, not total revenue.
(4) Net operating income before reserves, interest, depreciation,
amortization, and income taxes.
====================================================================================================================================
Source:The Famous Host Company
====================================================================================================================================
</TABLE>
<PAGE>
SUPER 8 MOTEL -- SANTA ROSA, CALIFORNIA
TEN YEAR STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS
<PAGE>
<TABLE>
Super 8
Santa Rosa, California
Projected Operating Results
-----------------------------------------------------------------------------------------------
Calendar Years Ending December 31: 1998 1999
-----------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-----------------------------------------------------------------------------------------------
Number of Keys 100 100
Occupancy 62.00% 65.00%
Average Daily Room Rate $46.25 $47.75
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $1,047,000 98.1% $10,470 $46.27 $1,133,000 98.2% $11,330 $47.76
Telephone 15,000 1.4% 150 0.66 16,000 1.4% 160 0.67
Other Operated Departments 5,000 0.5% 50 0.22 5,000 0.4% 50 0.21
----------- ------- --------- --------- ------------ ------- --------- -------
Total Revenues 1,067,000 100.0% 10,670 47.15 1,154,000 100.0% 11,540 48.64
Departmental Expenses (3)
Rooms 202,000 19.3% 2,020 8.93 208,000 18.4% 2,080 8.77
Telephone 8,000 53.3% 80 0.35 8,000 50.0% 80 0.34
Other Operated Departments 1,000 20.0% 10 0.04 1,000 20.0% 10 0.04
----------- ------- --------- --------- ------------ ------- --------- -------
Total Departmental Expenses 211,000 19.8% 2,110 9.32 217,000 18.8% 2,170 9.15
----------- ------- --------- --------- ------------ ------- --------- -------
Departmental Profit 856,000 80.2% 8,560 37.83 937,000 81.2% 9,370 39.49
Undistributed Expenses
Administrative and General 143,000 13.4% 1,430 6.32 148,000 12.8% 1,480 6.24
Franchise Fees 84,000 7.9% 840 3.71 91,000 7.9% 910 3.84
Marketing 21,000 2.0% 210 0.93 21,000 1.8% 210 0.89
Property Operations and Maintenance 75,000 7.0% 750 3.31 77,000 6.7% 770 3.25
Energy and Utilities 72,000 6.7% 720 3.18 74,000 6.4% 740 3.12
----------- ------- --------- --------- ------------ ------- --------- -------
Total Undistributed Expenses 395,000 37.0% 3,950 17.45 411,000 35.6% 4,110 17.32
----------- ------- --------- --------- ------------ ------- --------- -------
Gross Operating Profit 461,000 43.2% 4,610 20.37 526,000 45.6% 5,260 22.17
Fixed Charges and Management Fees
Base Management Fees 53,000 5.0% 530 2.34 58,000 5.0% 580 2.44
Property Taxes 32,000 3.0% 320 1.41 33,000 2.9% 330 1.39
Insurance 21,000 2.0% 210 0.93 21,000 1.8% 210 0.89
Land Lease 99,000 9.3% 990 4.37 102,000 8.8% 1,020 4.30
----------- ------- --------- --------- ------------ ------- --------- -------
Total Fixed Charges 205,000 19.2% 2,050 9.06 214,000 18.5% 2,140 9.02
----------- ------- --------- --------- ------------ ------- --------- -------
Income Before Reserves 256,000 24.0% 2,560 11.31 312,000 27.0% 3,120 13.15
Reserves for Replacements 43,000 4.0% 430 1.90 46,000 4.0% 460 1.94
----------- ------- --------- --------- ------------ ------- --------- -------
Net Operating Income (4) $ 213,000 20.0% $ 2,130 $ 9.41 $ 266,000 23.1% $ 2,660 $11.21
=========== ======= ========= ========= ============ ======= ========= =======
---------------------------------------------
Calendar Years Ending December 31: 2000
---------------------------------------------
$ % PAR (1) POR (2)
---------------------------------------------
Number of Keys 100
Occupancy 65.00%
Average Daily Room Rate $49.25
Revenues
Rooms $1,172,000 98.2% $11,720 $49.26
Telephone 17,000 1.4% 170 0.71
Other Operated Departments 5,000 0.4% 50 0.21
----------- ------- --------- --------
Total Revenues 1,194,000 100.0% 11,940 50.19
Departmental Expenses (3)
Rooms 215,000 18.3% 2,150 9.04
Telephone 8,000 47.1% 80 0.34
Other Operated Departments 1,000 20.0% 10 0.04
----------- ------- --------- --------
Total Departmental Expenses 224,000 18.8% 2,240 9.42
----------- ------- --------- --------
Departmental Profit 970,000 81.2% 9,700 40.77
Undistributed Expenses
Administrative and General 153,000 12.8% 1,530 6.43
Franchise Fees 94,000 7.9% 940 3.95
Marketing 22,000 1.8% 220 0.92
Property Operations and Maintenan 79,000 6.6% 790 3.32
Energy and Utilities 76,000 6.4% 760 3.19
----------- ------- --------- --------
Total Undistributed Expenses 424,000 35.5% 4,240 17.82
----------- ------- --------- --------
Gross Operating Profit 546,000 45.7% 5,460 22.95
Fixed Charges and Management Fees
Base Management Fees 60,000 5.0% 600 2.52
Property Taxes 33,000 2.8% 330 1.39
Insurance 22,000 1.8% 220 0.92
Land Lease 105,000 8.8% 1,050 4.41
----------- ------- --------- --------
Total Fixed Charges 220,000 18.4% 2,200 9.25
----------- ------- --------- --------
Income Before Reserves 326,000 27.3% 3,260 13.70
Reserves for Replacements 48,000 4.0% 480 2.02
----------- ------- --------- --------
Net Operating Income (4) $ 278,000 23.3% $ 2,780 $11.69
=========== ======= ========= ========
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net operating income before interest, amortization,
depreciation, and income tax.
===================================================================================================================================
Source: PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
Santa Rosa, California
Projected Operating Results
--------------------------------------------------------------------------------------------
Calendar Years Ending December 31: 2001 2002
-----------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-----------------------------------------------------------------------------------------------
Number of Keys 100 100
Occupancy 65.00% 65.00%
Average Daily Room Rate $50.75 $52.25
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $1,204,000 98.2% $12,040 $50.75 $1,240,000 98.1% $12,400 $52.27
Telephone 17,000 1.4% 170 0.72 18,000 1.4% 180 0.76
Other Operated Departments 5,000 0.4% 50 0.21 6,000 0.5% 60 0.25
----------- ------- --------- -------- ----------- ------- --------- --------
Total Revenues 1,226,000 100.0% 12,260 51.68 1,264,000 100.0% 12,640 53.28
Departmental Expenses (3)
Rooms 221,000 18.4% 2,210 9.32 228,000 18.4% 2,280 9.61
Telephone 9,000 52.9% 90 0.38 9,000 50.0% 90 0.38
Other Operated Departments 1,000 20.0% 10 0.04 1,000 16.7% 10 0.04
----------- ------- --------- -------- ----------- ------- --------- --------
Total Departmental Expenses 231,000 18.8% 2,310 9.74 238,000 18.8% 2,380 10.03
----------- ------- --------- -------- ----------- ------- --------- --------
Departmental Profit 995,000 81.2% 9,950 41.94 1,026,000 81.2% 10,260 43.25
Undistributed Expenses
Administrative and General 157,000 12.8% 1,570 6.62 162,000 12.8% 1,620 6.83
Franchise Fees 96,000 7.8% 960 4.05 99,000 7.8% 990 4.17
Marketing 23,000 1.9% 230 0.97 23,000 1.8% 230 0.97
Property Operations and Maintenance 82,000 6.7% 820 3.46 84,000 6.6% 840 3.54
Energy and Utilities 79,000 6.4% 790 3.33 81,000 6.4% 810 3.41
----------- ------- --------- -------- ----------- ------- --------- --------
Total Undistributed Expenses 437,000 35.6% 4,370 18.42 449,000 35.5% 4,490 18.93
----------- ------- --------- -------- ----------- ------- --------- --------
Gross Operating Profit 558,000 45.5% 5,580 23.52 577,000 45.6% 5,770 24.32
Fixed Charges and Management Fees
Base Management Fees 61,000 5.0% 610 2.57 63,000 5.0% 630 2.66
Property Taxes 34,000 2.8% 340 1.43 35,000 2.8% 350 1.48
Insurance 23,000 1.9% 230 0.97 23,000 1.8% 230 0.97
Land Lease 108,000 8.8% 1,080 4.55 112,000 8.9% 1,120 4.72
----------- ------- --------- -------- ----------- ------- --------- --------
Total Fixed Charges 226,000 18.4% 2,260 9.53 233,000 18.4% 2,330 9.82
----------- ------- --------- -------- ----------- ------- --------- --------
Income Before Reserves 332,000 27.1% 3,320 13.99 344,000 27.2% 3,440 14.50
Reserves for Replacements 49,000 4.0% 490 2.07 51,000 4.0% 510 2.15
----------- ------- --------- -------- ----------- ------- --------- --------
Net Operating Income (4) $ 283,000 23.1% $ 2,830 $11.93 $ 293,000 23.2% $ 2,930 $12.35
=========== ======= ========= ======== =========== ======= ========= ========
---------------------------------------------
Calendar Years Ending December 31: 2003
----------------------------------------------
$ % PAR (1) POR (2)
----------------------------------------------
Number of Keys 100
Occupancy 65.00%
Average Daily Room Rate $53.75
Revenues
Rooms $1,275,000 98.2% $12,750 $53.74
Telephone 18,000 1.4% 180 0.76
Other Operated Departments 6,000 0.5% 60 0.25
----------- -------- --------- --------
Total Revenues 1,299,000 100.0% 12,990 54.75
Departmental Expenses (3)
Rooms 235,000 18.4% 2,350 9.91
Telephone 9,000 50.0% 90 0.38
Other Operated Departments 1,000 16.7% 10 0.04
----------- -------- --------- --------
Total Departmental Expenses 245,000 18.9% 2,450 10.33
----------- -------- --------- --------
Departmental Profit 1,054,000 81.1% 10,540 44.43
Undistributed Expenses
Administrative and General 167,000 12.9% 1,670 7.04
Franchise Fees 102,000 7.9% 1,020 4.30
Marketing 24,000 1.8% 240 1.01
Property Operations and Maintenanc 87,000 6.7% 870 3.67
Energy and Utilities 84,000 6.5% 840 3.54
----------- -------- --------- --------
Total Undistributed Expenses 464,000 35.7% 4,640 19.56
----------- -------- --------- --------
Gross Operating Profit 590,000 45.4% 5,900 24.87
Fixed Charges and Management Fees
Base Management Fees 65,000 5.0% 650 2.74
Property Taxes 35,000 2.7% 350 1.48
Insurance 24,000 1.8% 240 1.01
Land Lease 115,000 8.9% 1,150 4.85
----------- -------- --------- --------
Total Fixed Charges 239,000 18.4% 2,390 10.07
----------- -------- --------- --------
Income Before Reserves 351,000 27.0% 3,510 14.79
Reserves for Replacements 52,000 4.0% 520 2.19
----------- -------- --------- --------
Net Operating Income (4) $ 299,000 23.0% $ 2,990 $12.60
=========== ======== ========= ========
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net operating income before interest, amortization, depreciation,
and income tax.
===================================================================================================================================
Source: PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
Santa Rosa, California
Projected Operating Results
-----------------------------------------------------------------------------------------------
Calendar Years Ending December 31: 2004 2005
-----------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-----------------------------------------------------------------------------------------------
Number of Keys 100 100
Occupancy 65.00% 65.00%
Average Daily Room Rate $55.25 $57.00
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $1,314,000 98.1% $13,140 $55.23 $1,352,000 98.1% $13,520 $56.99
Telephone 19,000 1.4% 190 0.80 20,000 1.5% 200 0.84
Other Operated Departments 6,000 0.4% 60 0.25 6,000 0.4% 60 0.25
----------- ------- --------- -------- ----------- ------- --------- --------
Total Revenues 1,339,000 100.0% 13,390 56.28 1,378,000 100.0% 13,780 58.08
Departmental Expenses (3)
Rooms 242,000 18.4% 2,420 10.17 249,000 18.4% 2,490 10.50
Telephone 10,000 52.6% 100 0.42 10,000 50.0% 100 0.42
Other Operated Departments 1,000 16.7% 10 0.04 1,000 16.7% 10 0.04
----------- ------- --------- -------- ----------- ------- --------- --------
Total Departmental Expenses 253,000 18.9% 2,530 10.63 260,000 18.9% 2,600 10.96
----------- ------- --------- -------- ----------- ------- --------- --------
Departmental Profit 1,086,000 81.1% 10,860 45.65 1,118,000 81.1% 11,180 47.12
Undistributed Expenses
Administrative and General 172,000 12.8% 1,720 7.23 177,000 12.8% 1,770 7.46
Franchise Fees 105,000 7.8% 1,050 4.41 108,000 7.8% 1,080 4.55
Marketing 25,000 1.9% 250 1.05 25,000 1.8% 250 1.05
Property Operations and Maintenance 89,000 6.6% 890 3.74 92,000 6.7% 920 3.88
Energy and Utilities 86,000 6.4% 860 3.61 89,000 6.5% 890 3.75
----------- ------- --------- -------- ----------- ------- --------- --------
Total Undistributed Expenses 477,000 35.6% 4,770 20.05 491,000 35.6% 4,910 20.70
----------- ------- --------- -------- ----------- ------- --------- --------
Gross Operating Profit 609,000 45.5% 6,090 25.60 627,000 45.5% 6,270 26.43
Fixed Charges and Management Fees
Base Management Fees 67,000 5.0% 670 2.82 69,000 5.0% 690 2.91
Property Taxes 36,000 2.7% 360 1.51 37,000 2.7% 370 1.56
Insurance 25,000 1.9% 250 1.05 25,000 1.8% 250 1.05
Land Lease 118,000 8.8% 1,180 4.96 122,000 8.9% 1,220 5.14
----------- ------- --------- -------- ----------- ------- --------- --------
Total Fixed Charges 246,000 18.4% 2,460 10.34 253,000 18.4% 2,530 10.66
----------- ------- --------- -------- ----------- ------- --------- --------
Income Before Reserves 363,000 27.1% 3,630 15.26 374,000 27.1% 3,740 15.76
Reserves for Replacements 54,000 4.0% 540 2.27 55,000 4.0% 550 2.32
----------- ------- --------- -------- ----------- ------- --------- --------
Net Operating Income (4) $ 309,000 23.1% $ 3,090 $12.99 $ 319,000 23.1% $ 3,190 $13.45
=========== ======= ========= ======== =========== ======= ========= ========
---------------------------------------------
Calendar Years Ending December 31: 2006
-----------------------------------------------
$ % PAR (1) POR (2)
-----------------------------------------------
Number of Keys 100
Occupancy 65.00%
Average Daily Room Rate $58.75
Revenues
Rooms $1,394,000 98.2% $13,940 $58.76
Telephone 20,000 1.4% 200 0.84
Other Operated Departments 6,000 0.4% 60 0.25
----------- -------- --------- --------
Total Revenues 1,420,000 100.0% 14,200 59.85
Departmental Expenses (3)
Rooms 256,000 18.4% 2,560 10.79
Telephone 10,000 50.0% 100 0.42
Other Operated Departments 1,000 16.7% 10 0.04
----------- -------- --------- --------
Total Departmental Expenses 267,000 18.8% 2,670 11.25
----------- -------- --------- --------
Departmental Profit 1,153,000 81.2% 11,530 48.60
Undistributed Expenses
Administrative and General 182,000 12.8% 1,820 7.67
Franchise Fees 112,000 7.9% 1,120 4.72
Marketing 26,000 1.8% 260 1.10
Property Operations and Maintenance 95,000 6.7% 950 4.00
Energy and Utilities 91,000 6.4% 910 3.84
----------- -------- --------- --------
Total Undistributed Expenses 506,000 35.6% 5,060 21.33
----------- -------- --------- --------
Gross Operating Profit 647,000 45.6% 6,470 27.27
Fixed Charges and Management Fees
Base Management Fees 71,000 5.0% 710 2.99
Property Taxes 38,000 2.7% 380 1.60
Insurance 26,000 1.8% 260 1.10
Land Lease 126,000 8.9% 1,260 5.31
----------- -------- --------- --------
Total Fixed Charges 261,000 18.4% 2,610 11.00
----------- -------- --------- --------
Income Before Reserves 386,000 27.2% 3,860 16.27
Reserves for Replacements 57,000 4.0% 570 2.40
----------- -------- --------- --------
Net Operating Income (4) $ 329,000 23.2% $ 3,290 $13.87
=========== ======== ========= ========
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net operating income before interest, amortization, depreciation,
and income tax.
===================================================================================================================================
Source: PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
Santa Rosa, California
Projected Operating Results
-------------------------------------------------------------------------------------------
Calendar Years Ending December 31: 2007 2008
--------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
--------------------------------------------------------------------------------------------
Number of Keys 100 100
Occupancy 65.00% 65.00%
Average Daily Room Rate $60.50 $62.25
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $1,435,000 98.2% $14,350 $ 60.48 $1,477,000 98.1% $14,770 $ 62.26
Telephone 21,000 1.4% 210 0.89 21,000 1.4% 210 0.89
Other Operated Departments 6,000 0.4% 60 0.25 7,000 0.5% 70 0.30
----------- ------- --------- --------- ----------- -------- --------- ------
Total Revenues 1,462,000 100.0% 14,620 61.62 1,505,000 100.0% 15,050 63.44
Departmental Expenses (3)
Rooms 264,000 18.4% 2,640 11.13 272,000 18.4% 2,720 11.46
Telephone 10,000 47.6% 100 0.42 11,000 52.4% 110 0.46
Other Operated Departments 1,000 16.7% 10 0.04 1,000 14.3% 10 0.04
----------- ------- --------- --------- ----------- -------- --------- ------
Total Departmental Expenses 275,000 18.8% 2,750 11.59 284,000 18.9% 2,840 11.97
----------- ------- --------- --------- ----------- -------- --------- ------
Departmental Profit 1,187,000 81.2% 11,870 50.03 1,221,000 81.1% 12,210 51.46
Undistributed Expenses
Administrative and General 188,000 12.9% 1,880 7.92 194,000 12.9% 1,940 8.18
Franchise Fees 115,000 7.9% 1,150 4.85 118,000 7.8% 1,180 4.97
Marketing 27,000 1.8% 270 1.14 28,000 1.9% 280 1.18
Property Operations and Maintenance 97,000 6.6% 970 4.09 100,000 6.6% 1,000 4.21
Energy and Utilities 94,000 6.4% 940 3.96 97,000 6.4% 970 4.09
----------- ------- --------- --------- ----------- -------- --------- ------
Total Undistributed Expenses 521,000 35.6% 5,210 21.96 537,000 35.7% 5,370 22.63
----------- ------- --------- --------- ----------- -------- --------- ------
Gross Operating Profit 666,000 45.6% 6,660 28.07 684,000 45.4% 6,840 28.83
Fixed Charges and Management Fees
Base Management Fees 73,000 5.0% 730 3.08 75,000 5.0% 750 3.16
Property Taxes 38,000 2.6% 380 1.60 39,000 2.6% 390 1.64
Insurance 27,000 1.8% 270 1.14 28,000 1.9% 280 1.18
Land Lease 129,000 8.8% 1,290 5.44 133,000 8.8% 1,330 5.61
----------- ------- --------- --------- ----------- -------- --------- ------
Total Fixed Charges 267,000 18.3% 2,670 11.25 275,000 18.3% 2,750 11.59
----------- ------- --------- --------- ----------- -------- --------- ------
Income Before Reserves 399,000 27.3% 3,990 16.82 409,000 27.2% 4,090 17.24
Reserves for Replacements 58,000 4.0% 580 2.44 60,000 4.0% 600 2.53
----------- ------- --------- --------- ----------- -------- --------- ------
Net Operating Income (4) $ 341,000 23.3% $ 3,410 $ 14.37 $ 349,000 23.2% $ 3,490 $ 14.71
=========== ======= ========= ========= =========== ======== ========= ======
- ------------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net operating income before interest, amortization,
depreciation, and income tax.
====================================================================================================================================
Source: PKF Consulting
====================================================================================================================================
</TABLE>
<PAGE>
SECTION IX
SUPER 8 MOTEL
SOUTH SAN FRANCISCO, CALIFORNIA
<PAGE>
===============================================================================
Summary of Important Facts and Conclusions
===============================================================================
Property Address Super 8 Motel
111 Mitchell Avenue
South San Francisco, California 94080
Telephone (415) 877-0770
- ----------------------------------------- -------------------------------------
Owner
Leased Fee Poletti Trusts (dba KPR Properties)
Leasehold Super 8 Motels, Ltd.
- ----------------------------------------- -------------------------------------
Assessor's Parcel Numbers 015-123-670/680/690/700
- ----------------------------------------- -------------------------------------
Effective Date of Appraisal January 1, 1998
- ----------------------------------------- -------------------------------------
Property Rights Appraised Leasehold
===============================================================================
Highest and Best Use
===============================================================================
Highest and Best Use
As if Vacant Limited-service hotel
As Improved Limited-service hotel
===============================================================================
Property Description
===============================================================================
Existing Improvements
Year Built 1979
Gross Building Area 38,556 square feet
Number of Hotel Guest Rooms 117
Parking: 106 spaces (including four for
disabled persons)
Number of Floors Three
Hotel Amenities Lobby area with complimentary coffee
service
Compliance with ADA In compliance
- ----------------------------------------- -------------------------------------
Site
Area 2.5 acres (108,900 square feet)
Zoning PC (Planned Commercial)
Flood Zone Zone B, Panel #065062-0008B, dated
September 2, 1981
Wetlands Zone No
Alquist Priolo Special Studies Zone No
Historic, Natural , Cultural,
Recreational, or Scientific None
Value
===============================================================================
Valuation Conclusion
===============================================================================
Cost Approach Not Used
- ----------------------------------------- -------------------------------------
Sales Comparison Approach $7,600,000
- ----------------------------------------- -------------------------------------
Income Capitalization Approach
Stabilized Occupancy 80.0%
Average Daily Room Rate $60.25 (1998 value dollars)
- ----------------------------------------- -------------------------------------
Stabilized Net Operating Income $751,000 (1998 value dollars)
- ----------------------------------------- -------------------------------------
Overall Capitalization Rate 10.5%
Terminal Capitalization Rate 11.5%
Discount Rate 13.5%
- ----------------------------------------- -------------------------------------
Indicated Market Values
Direct Capitalization Technique $7,600,000
Discounted Cash Flow Analysis $7,600,000
- ----------------------------------------- -------------------------------------
Final Estimate of Market Value $7,600,000
- ----------------------------------------- -------------------------------------
Marketing and Exposure Period Six months or less
===============================================================================
IX-1
<PAGE>
(Photograph deleted)
View of the Subject Property Looking Northeast
(Photograph deleted)
View of a Typical Queen-Bed Guestroom
IX-2
<PAGE>
A. AREA AND NEIGHBORHOOD REVIEW
1. Introduction
The subject property is located in the City of South San Francisco, in the
northern portion of San Mateo County. The city is approximately ten square miles
in land area and is home to approximately 58,000 residents. San Mateo County's
principal incorporated cities are Burlingame, Daly City, Millbrae, Redwood City,
San Bruno, San Mateo, and South San Francisco. A coastal mountain range, running
north and south, divides the lightly populated western region of the county from
the heavily populated eastern corridor, which stretches from San Francisco to
Silicon Valley. The western portion of the county is primarily agricultural,
park, and watershed land. San Mateo County has developed a diverse economic
base, which is supported by an extensive transportation system, proximity to
both San Francisco to the north and Silicon Valley to the south, and a highly
educated workforce. The county's economic activity is primarily related to
trade, finance, and business services, which are particularly linked to the
biotechnology, instruments, printing, and electronics industries. A map
highlighting the subject's location in relation to the surrounding area is shown
on the following page.
2. Economic Data
Presented in the following text is a brief overview of selected economic data
that characterizes the local market area.
Population: The population of South San Francisco was
approximately 58,000 in 1997, representing a 0.8 percent compound
annual growth rate (CAAG) over 1990. The corresponding 1997
population of San Mateo County was 701,000 persons, which
represents a CAAG of approximately 0.9 percent over the 1990
figure of 656,000. As indicated, population in San Mateo County
has remained relatively stable over the past seven years, mainly
due to the lack of available land for building new homes.
Population in San Mateo County area is expected to increase at a
1.0 percent CAAG, to 737,000 persons by 2002.
Retail Sales: Total retail sales for San Mateo County were $7.4
billion in 1996, representing a 2.8 percent CAAG over 1990. Retail
sales are projected to increase to $8.6 billion by 2002, or a 3.0
percent CAAG increase over 1996. In 1996, retail sales per
household were $29,100 for the county, compared to California's
overall $24,000.
IX-3
<PAGE>
(Street map of a portion of South San Francisco deleted)
Regional map
IX-4
<PAGE>
Income: Average household effective buying income (EBI) for San
Mateo County in 1996 was $47,900, compared to South San
Francisco's $44,900. Both figures represented a CAAG of 2.5
percent and 1.7 percent over 1990, respectively. Approximately
47.0 percent of San Mateo County's population have an EBI of
$50,000 or more.
Employment: In November 1997, the total number of persons
employed in San Mateo County was approximately 378,000 persons;
the corresponding unemployment rate was 2.0 percent, one of the
lowest in California. With regard to South San Francisco, the
corresponding statistics were 30,000 and 2.5 percent,
respectively. In recent years, the largest increases in employment
have been experienced in the trade, bio-tech, and high-tech
sectors.
The following table presents a listing of the major employers in San Mateo
County.
===============================================================================
San Mateo County
Largest Employers
===============================================================================
Number
Company of Employees Products/Services
- ----------------------------------------- ----------------- -------------------
San Francisco International Airport 30,000 Air Transport
Oracle Corporation 10,000 High-Tech
Genentech 3,100 Bio-Tech
Kaiser Permanente Medical Center 1,200 Health Care
See's Candies 1,000 Candy
Cellular One 500 Communications
Spumoni/Spectravest 450 Clothing
===============================================================================
Source: Chambers of Commerce
===============================================================================
Transportation: The subject is located one mile north of San
Francisco International Airport (SFO). In fiscal year 1996/1997,
approximately 40 million passengers traveled through SFO. The CAAG
was 3.7 percent between the years 1990 to 1996. This significant
increase is attributed to a resurgence of both business and
leisure travel. With six additional international airlines
scheduled to begin air service into San Francisco, SFO is
currently undergoing a $2.4 billion expansion consisting of a new
international terminal, a $400 million monorail network linking
the airport to downtown San Francisco, and a new rental car
garage. It is forecast that this expansion will assist in
increasing passenger traffic by 20 million travelers. The SFO
expansion project is expected to be complete by 2001. U.S. Highway
101, a primary north-south thoroughfare, is easily accessible from
the subject via South Airport Boulevard.
IX-5
<PAGE>
Commercial Development: There are approximately 1,630 acres in
the city limits zoned for commercial and industrial use. Close to
280 acres (17.2 percent of the total) are currently vacant and
available for development. Voters recently approved a $525 million
sports and retail complex to be located at Candlestick Point, four
miles north of the subject. Preliminary plans include a
75,000-seat football stadium for the San Francisco Forty Niners
and an entertainment-retail mall to be potentially known as
Candlestick Mills. Class A office space in South San Francisco is
concentrated at The Gateway business park, Genentech, and Oyster
Point Business Park. The Gateway, located to the south of Oyster
Point Boulevard in northern San Mateo County and approximately one
mile northeast of the subject, is a high-end, 150-acre business
park comprised of low and medium-rise office buildings with ample
vacant land still available for commercial development. Principal
tenants in The Gateway include Brittania, Cellular One, and the
313-room Embassy Suites Hotel. Additional office/R&D/warehouse
space is located to the east and southeast of The Gateway.
Additional concentrations of commercial development in San Mateo
County are located in Redwood Shores, Burlingame, and San Bruno
towards the south.
3. Neighborhood Review
The neighborhood surrounding the subject property consists primarily of
low-rise, light industrial and commercial office space. Budget Rent-A-Car
maintains a service facility across Gateway Boulevard; across Mitchell Avenue is
a Hungry Hunter Restaurant. Traveling south along South Airport Boulevard, the
200-room TraveLodge, the 323-room Ramada Inn, and the 224-room Holiday Inn are
located on the left. The out-lying surrounding area is dominated by SFO, U.S.
Highway 101, and comprises a mixture of light-industrial, commercial, and some
retail space.
4. Conclusion
The subject property is well-situated, offering good access to U.S. Highway 101,
as well as being conveniently located in relation to SFO and principal demand
generators in the area. High-growth corporations in the area, such as Oracle and
Genentech, have added to the already-diversified local economy, which has been
fueling demand via business travelers and convention delegates. SFO itself is a
principal demand generator, especially being the fifth largest passenger airport
in the nation. In summary, the outlook for economic growth and development in
the South San Francisco area is very positive, and it is our opinion that the
area around SFO represents one of the strongest lodging markets in California,
as well as the nation.
IX-6
<PAGE>
B. PROPERTY DESCRIPTION
1. Introduction
The subject property is a limited-service hotel with 117 guestrooms. Amenities
at the property include a lobby area with complimentary coffee service, as well
as vending machines. The building provides interior corridors and a grass
courtyard at the center of the "U".
The subject property was constructed in 1979, and the leasehold interest in the
hotel is owned by Super 8 Motels, Ltd. We are not aware of any transactions
relating to the site or the improvements since the date of opening.
2. Site Description and Zoning
The subject property is located at 111 Mitchell Avenue. The property is bounded
to the east by West Harris Avenue; to the west by South Airport Boulevard; to
the south by Mitchell Avenue, and to the north by a light-industrial complex.
Visibility from South Airport Boulevard is good, with good signage at the
entrance of the driveway. Although the property is close to U.S. Highway 101, it
is not readily visible from the freeway. The property is easily accessible by
using the South Airport Boulevard exit off U.S. Highway 101, from either the
north or south bound lanes, by heading east and then turning left on Mitchell
Avenue.
The land on which the hotel is situated is approximately 2.5 acres. The property
is level, with approximately 328 feet of frontage along Mitchell Avenue, and
approximately 149 feet of frontage along West Harris Avenue.
The subject property is zoned PC (Planned Commercial) by the City of South San
Francisco. The present use of the property is permitted with this zoning
designation, and the subject is, therefore, a legal, conforming use.
We are aware of no easements or covenants which would adversely affect the value
of the subject property.
3. Improvements Description
The subject property is a three-story building constructed of wood-frame and
over-laid with stucco in a Tudor-style design. The subject is comprised of a
38,556-square-foot, U-shaped building, which houses the guestrooms,
administrative offices, and lobby area. Beyond the lobby is an area dedicated to
vending machines and an ice machine. The elevator to the upper floors is located
across a covered breezeway from the lobby. The breezeway is decorated with a
tile mural along one full wall. The entry to the breezeway from the porte
IX-7
<PAGE>
cochere is open, with a single-glass door leading to the lobby along one side.
The end of the breezeway opposite the entry has two glass doors leading to the
open courtyard. The courtyard is landscaped with trees along the perimeter.
There are no chairs or tables, and the courtyard is open to the parking lot at
the back of the building. The laundry and utility rooms are located adjacent to
the lobby area on the first floor.
With regard to parking, the hotel has 104 surface spaces located in the paved
lot which surrounds the hotel building. Four of these spaces are designated for
physically-challenged persons.
4. Basic Construction and Mechanical Systems
The subject building is a three-story wood-framed structure, with stucco finish
and exposed wood beams. The stucco is painted off-white and the beams are
painted dark brown to render a Tudor-style affect. The roof is of brown
composition shingle. Presented in the following table is a summary of the basic
construction and mechanical systems of the hotel.
===============================================================================
Super 8 Motel - South San Francisco
Summary of Basic Construction and Mechanical Systems
===============================================================================
Foundation: Concrete slab on grade.
- ------------------------------------- -----------------------------------------
Frame: Wood frame construction, type V-1 hour
fire rating.
- ------------------------------------- -----------------------------------------
Walls: Exterior: stucco with exposed wood beams.
Interior: gypsum board covering an
airspace between 2x4 studs. The
walls in the guestrooms are painted
gypsum board and partially papered.
Lobby walls are wood paneled and painted
gypsum board.
- ------------------------------------- -----------------------------------------
Floor: Floors are carpeted in guestrooms and
corridor areas. Bathrooms have
vinyl tile. The lobby area is carpeted
and the vending area has ceramic
tile flooring.
- ------------------------------------- -----------------------------------------
Roof: Composition shingle.
- ------------------------------------- -----------------------------------------
Ceiling Heights: 8.0 feet. Ceilings are painted gypsum
board and painted wood. In the
public areas the lighting is set in
incandescent light fixtures. In the
guestrooms, are table lamps.
- ------------------------------------- -----------------------------------------
Windows: Window and door sashes are bronzed
anodized aluminum. Window trim is
painted wood.
- ------------------------------------- -----------------------------------------
Heating and Cooling: Each room had individual electric heating
and air conditioning units
located in the wall under a window.
- ------------------------------------- -----------------------------------------
Laundry Facilities: Laundry equipment consists of two washers
and three dryers, commercial grade.
- ------------------------------------- -----------------------------------------
Sprinkler System: All public areas and guest rooms are fire
sprinklered.
- ------------------------------------- -----------------------------------------
Life Safety: There are two individual fire systems in
the guest rooms: fire sensitive
sensors and independent smoke alarms.
===============================================================================
Source: Famous Host Companies
===============================================================================
IX-8
<PAGE>
5. Assessed Value and Property Taxes
The subject property is assessed by the San Mateo County on a tax year
commencing July 1 of every year. Under the provisions of Article 13-A of the
State of California (Proposition 13), properties are assessed based on their
fair market value as of the change of ownership date. The assessed value can be
increased by a maximum of 2.0 percent per year until such date as the property
is subsequently sold, substantial new construction takes place, or the use of
the property is substantially changed. The current assessed value of the
property is presented in the following table.
===================================================================
Assessor's Parcel Numbers 015-123-670/680/690/700
1996/97 Assessed Value
===================================================================
Land $657,383
Improvements $2,754,067
- -------------------------------------- ----------------------------
Total Assessed Value $3,411,450
- -------------------------------------- ----------------------------
For fiscal year 1996/1997, total property taxes were $47,905.16 on the subject
property, and the tax rate is 1.0012 percent of the total assessed value.
6. Land Lease
The property upon which the subject hotel is built is owned by Poletti Trusts
(dba KPR Properties). In 1978, a lease agreement for both the Super 8 Motel and
the parking area was entered into between Poletti Trusts (as lessor) and Super 8
Motel, Ltd. (as lessee). The lease started on December 15, 1978 with a base rent
of $2,500, and runs to December 31, 2007, offering five renewal periods of five
years each on the same terms as the original lease. Adjustments to the rent are
made in proportion to increases in the consumer price index (CPI) every five
years. The next adjustment to rent is scheduled for December 15, 1998. Present
rent as stipulated by the lease agreement is $7,547 per month ($90,564 per
annum) for both the Super 8 Motel and the parking area. The lease terms are
triple-net, with no option to purchase.
7. Renovation and Capital Improvements
We understand that the following capital improvements are planned at the subject
for 1998 and 1999: re-pavement of the parking lot; painting of the building's
exterior, installation of security cameras, and new corridor carpets, at a cost
of $82,000.
8. Summary of Functional Utility and Condition
Overall, the subject property is well-maintained. The grounds are neat and
well-trimmed, and the paint both inside and outside the building is in good
condition. The parking lot, which is in need of re-striping, will be improved in
1998.
IX-9
<PAGE>
C. HOTEL MARKET ANALYSIS
1. Competitive Supply
There is a wide variety of lodging facilities currently located in South San
Francisco, ranging from limited-service motels to full-service properties. Of
these various hotels and motels, we have identified four properties, including
the subject, with a total of 616 available rooms as comprising the current
competitive set of the Super 8 Motel. The selection of the competitive supply
was based on location, number of guestrooms, facilities and amenities, room rate
structure, and market orientation. These hotels are all limited-service
properties, which cater to budget-oriented commercial and leisure travelers.
<TABLE>
================================================================================================================
Super 8 Motel - South San Francisco
Census of Competitive Properties
================================================================================================================
Published Room Rates
-----------------------------
Year Number AAA
Property Opened of Rooms Single Double Amenities Rating
- -------------------------- ----------- ----------- -------------- -------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Super 8 Motel 1979 117 $49.00 $59.00 H 2 star (Motel)
Comfort Suites 1986 165 $75.00 $85.00 C,F,G 2 star (Motel)
La Quinta Inn 1985 134 $85.00 $95.00 C,D 3 star (Motel)
TraveLodge 1960 200 $54.00 $74.00 H Not Rated
- -------------------------- ----------- ----------- -------------- -------------- ----------------- -------------
Total 616 -
- -------------------------- ----------- ----------- -------------- -------------- ----------------- -------------
Amenities Codes AAA Rating
A - Restaurant 5 star - Renowned; exceptional property recognized
B - Bar/Lounge for market superiority of facilities and
C - Complimentary Continental Breakfast service
4 star - Exceptional; offers luxurious accommodations
D - Meeting Rooms as well as extra amenities
E - Exercise Room 3 star - Offers very comfortable and attractive
F - Swimming Pool accommodations
G - Whirlpool 2 star - Exceeds AAA minimum requirements in some
H - Adjacent Restaurant physical and operational categories
1 star - Meets AAA basic requirements for
recommendation
================================================================================================================
Source: Management of Individual Properties and 1998 American Automobile Association Tour Book
================================================================================================================
</TABLE>
As can be noted above, the competitive market is characterized by smaller,
economy, national brand-affiliated products.
With regard to future lodging supply in the overall South San Francisco hotel
market, there are twelve hotel projects with a total of 2,350 rooms planned. Of
these twelve developments, only one is considered to be directly competitive
with the subject, which is the 100-room Hampton Inn. The Hampton Inn, being
developed by SRI-RAM and expected to be open by January 1999, will be located in
The Gateway business park just south of Oyster Point Boulevard.
Other planned hotel projects in the area include a: 112-room Homestead Village
in The Gateway; 111-suite hotel near Sierra Point; 169-room Hilton Garden Inn
also in The Gateway; 231-room Courtyard by Marriott and a 157-suite Residence
IX-10
<PAGE>
Inn by Marriott at Bay West Cove; 200-room new La Quinta property and a 250-room
project with no operator yet named, also at Bay West Cove; 100-room Clarion
hotel along South Airport Boulevard; three potential hotel projects at Terra Bay
totaling 340 rooms; 180-room potential project at Oyster Point Marina; and
lastly, a 400-room project at Rockport.
2. Historical Market Performance
The following table presents a summary of the historical market performance of
the four selected competitive hotels, together with the subject, over the period
1994 to 1996 as well as our estimate for 1997.
<TABLE>
========================================================================================================================
Super 8 Motel - South San Francisco
Competitive Hotel Market
Historical Occupancy and Room Rate
1994 to 1997 (Estimated)
========================================================================================================================
Daily Rooms Percent Percent Average Daily Percent
Year Available Change Occupancy Change Room Rate Change
- --------------------- ----------------- -------------- ----------------- ------------- -------------------- ------------
<S> <C> <C> <C> <C>
1994 616 - 73.8% - $55.14 -
- --------------------- ----------------- -------------- ----------------- ------------- -------------------- ------------
1995 616 0.0% 79.8% 8.1% $56.03 1.6%
- --------------------- ----------------- -------------- ----------------- ------------- -------------------- ------------
1996 616 0.3% 84.9% 6.6% $61.55 9.9%
- --------------------- ----------------- -------------- ----------------- ------------- -------------------- ------------
1997 (Estimated) 616 0.0% 87.0% 2.2% $72.00 17.0%
- --------------------- ----------------- -------------- ----------------- ------------- -------------------- ------------
CAAG 0.0% - - - 9.3% -
========================================================================================================================
Source: PKF Consulting
========================================================================================================================
</TABLE>
As can be noted, over the past four years the number of available rooms within
the competitive market has remained stable. During the same period, in turn,
demand has increased from 73.8 percent to 87.0 percent, with the strongest
growth taking place in 1995. In terms of ADR, the competitive market has
experienced significant growth, indicating a CAAG of 9.3 percent between 1994
and 1997. According to PKF Consulting's Trends in the Hotel Industry, the hotel
market surrounding SFO is currently the strongest in California and the nation
in terms of ADR growth. This surge is attributed to this market's strategic
location between the city of San Francisco to the north and Silicon Valley to
the south, and the overall economic buoyancy of the Bay Area. For 1997, we have
estimated that the four hotels achieved a weighted average rate of approximately
$72.00, equating to an increase of 17.0 percent over 1996.
On an individual property basis, the occupancy levels of the four competitive
hotels in 1997 ranged from an estimated 85.0 percent to a high of 92.0 percent.
With regard to ADRs, the properties ranged from a low of approximately $59.00 to
a high of $84.00. The subject was ranked second in occupancy in 1997 (at par
with the TraveLodge), yet the lowest in overall ADR.
IX-11
<PAGE>
3. Demand Segmentation
According to our research, the majority of demand is generated by the commercial
segment. This demand segment consists primarily of rate-sensitive individual
business travelers visiting offices, bio-technology companies (namely
Genentech), industrial plants, warehouses, and other commercial establishments
in northern San Mateo County. Secondarily, business travelers also use the
convenience of the airport area as a base from which to service their clients
throughout the area during short trips. The other market segments include
leisure and group demand. Leisure demand consists primarily of visitors to San
Francisco who are unable to find accommodation within the city. In addition,
visitors to 3Com Park (formerly the Candlestick), guests of local residents, and
layover airline passengers are also classified in this segment. Group demand is
comprised of corporate-related meetings held at the 16,500-square-foot South San
Francisco Conference Center, located near the subject property.
4. Projected Future Supply and Demand
Over the past four years (1994 to 1997), demand for hotel accommodations in the
competitive market has increased significantly, reflecting the underlying
strength of this market.
Based on our review of the local market, we project overall demand for hotel
rooms will increase at a steady rate of approximately 4.0 percent per year over
the next five years. In deriving this growth rate, we have specifically analyzed
the overall growth in manufacturing and services, employment, airline passenger
traffic, and the historical CAAG of this market. Presented in the following
table is a summary of the projected growth in supply, demand, and the resulting
occupancy levels for the competitive market for the period 1998 to 2002.
IX-12
<PAGE>
<TABLE>
=======================================================================================================
Super 8 Motel - South San Francisco
Estimated Growth In Supply and Demand
Competitive Hotel Market
=======================================================================================================
Daily Annual Total
Year Available Rooms Available Rooms Demand Occupancy
- ------------------------ -------------------- --------------------- ---------------- ------------------
Actual
<S> <C> <C> <C> <C> <C>
1994 616 224,840 166,025 73.8%
1995 616 224,840 179,520 79.8%
1996 616 225,840 191,433 84.9%
1997 (Estimated) 616 224,840 196,000 87.0%
- ------------------------ -------------------- --------------------- ---------------- ------------------
Projected
1998 616 224,840 196,000 87.0%
1999(1) 716 261,340 212,000 81.0%
2000 716 261,340 220,000 84.0%
2001 716 261,340 227,000 87.0%
2002 716 261,340 227,000 87.0%
- ------------------------ -------------------- --------------------- ---------------- ------------------
CAAG
1994 to 1997 0.0% - 5.7% -
1998 to 2002 3.8% - 3.7% -
=======================================================================================================
(1) 100-room Hampton Inn opens.
Source: PKF Consulting
=======================================================================================================
</TABLE>
As can be noted above, although we project demand in the overall market to grow
at a CAAG of 3.7 percent over the five year period. Further, due to demand
timing and capacity constraints, the competitive market occupancy is not
projected to exceed 87.0 percent. This will result in unsatisfied demand in
1998, 2001, and 2002.
5. Market Performance of the Subject
The following table summarizes the historical occupancy levels and ADR for the
Super 8 Motel over the past four years.
===============================================================================
Super 8 Motel - South San Francisco
Historical Occupancy and Room Rate
1994 to 1997 (Estimated)
===============================================================================
Average Daily
Year Occupancy % Change Room Rate % Change
- --------------------- -------------- ---------------- --------------- ---------
1994 63.8% - $48.13 -
- --------------------- -------------- ---------------- --------------- ---------
1995 69.4% 8.9% $49.43 2.7%
- --------------------- -------------- ---------------- --------------- ---------
1996 78.3% 13.1% $53.83 8.9%
- --------------------- -------------- ---------------- --------------- ---------
1997 (Estimated) 86.0% 9.5% $58.50 8.7%
- --------------------- -------------- ---------------- --------------- ---------
CAAG 10.5% - 6.7% -
===============================================================================
Source: Famous Host Companies
===============================================================================
IX-13
<PAGE>
As can be noted, the subject has experienced a significant rise in occupancy,
which is in tandem with the competitive market. The growth in ADR, however, has
been, as mentioned previously, less-than-market, equating to a CAAG of 6.7
percent compared to the market's 9.3 percent. The subject property's market
penetration rate (subject's occupancy divided by the market's occupancy) has
increased from 86.4 percent in 1994 to an estimated 99.0 percent in 1997.
Based on our analysis of the local market in South San Francisco and the SFO
area, we are of the opinion that the subject will achieve an occupancy level of
approximately 86.0 percent in 1998, similar to that estimated in 1997. Given the
strength of the SFO market, we expect the subject to achieve a similar occupancy
level in 1999 at 86.0 percent. With the completion of the previously-mentioned
100-room Hampton Inn, coupled with the indirect impact of other additional
supply in the area, we estimate that the subject property's occupancy level will
decrease gradually to 85.0 percent in 2000, 82.0 percent in 2001, then
stabilizing at approximately 80.0 percent in 2002 and onwards.
Based on our market analysis, we project the hotel to achieve an ADR of $61.50
in 1998, or an increase of approximately 5.0 percent over 1997. In 1999, we
project an increase of 4.0 percent to $63.75, and an increase of 3.0 percent in
2000. Over the balance of our projection period, we project the hotel's ADR to
increase at the anticipated long-term level of inflation (3.0 percent per year).
We believe that this is realistic given the projected growth in demand and the
numerous new additions to supply.
===============================================================================
Super 8 Motel - South San Francisco
Projected Occupancy and Average Daily Room Rate - 1998 to 2002
===============================================================================
Average
Market Daily Percent
Year Occupancy Penetration Room Rate Change
- ------------ ---------------- ----------------- ---------------- --------------
1998 86.0% 99.0% $61.50 5.0%
1999 86.0% 106.0% $63.75 4.0%
2000 85.0% 101.0% $65.75 3.0%
2001 82.0% 94.0% $67.75 3.0%
2002 80.0% 92.0% $69.75 3.0%
- ------------ ---------------- ----------------- ---------------- --------------
CAAG - - 3.2% -
===============================================================================
Source: PKF Consulting
===============================================================================
D. HIGHEST AND BEST USE
Based on our analysis, we are of the opinion that the existing improvements
contribute significant overall value to the site. There is no alternative, legal
use that could economically justify the restructuring or removal of the existing
improvements at this time. Therefore, the subject property, as improved,
represents the highest and best use of the site.
IX-14
<PAGE>
E. VALUATION - SALES COMPARISON APPROACH
1. Introduction
We have reviewed a number of recent sales and have focused on those considered
most comparable in providing support for the market value of the subject. Our
search for sales was focused on the SFO area; however, due to the limited number
of comparable transactions, our search for sales was extended to include the
East Bay area. Based on this search, four sales were identified to use as the
basis for our valuation of the subject under this approach. Presented in the
following table is a summary of the selected comparable hotel sales. As can be
noted, these sales have occurred between August 1996 and July 1997.
<TABLE>
=====================================================================================================================
Comparable Hotel Sales
=====================================================================================================================
Rooms Overall
Sale Sale Year Number of Price Per Revenue Capitalization
No. Hotel Name Location Date Built Rooms Room Multiplier Rate
- -------- ----------------- ------------------- -------- --------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
1 Holiday Inn South San Francisco 7/97 1960 224 $84,821 3.2 10.5%
2 Ramada Inn South San Francisco 7/97 1963 323 $54,179 2.2 10.5%
3 Days Inn Emeryville 2/97 1985 153 $49,683 3.2 10.6%
4 Comfort Suites South San Francisco 8/96 1985 165 $73,856 2.3 11.8%
=====================================================================================================================
Source: PKF Consulting
=====================================================================================================================
</TABLE>
2. Analysis of the Hotel Sales
In reviewing the preceding table, it can be noted that the sale prices per room
ranged between $49,683 for the 165-room Comfort Suites and $84,821 for the
224-room Holiday Inn; overall capitalization rates were between 10.5 percent and
11.8 percent.
Because of the many differences between these hotels and the subject property,
we are of the opinion that an analysis using a rooms revenue multiplier (RRM) is
the most approiate unit of comparison to value the subject. A RRM measures the
total revenue generated from room rentals in relation to the sale price. RRMs do
not require subjective adjustments since most variances in properties are
considered to be reflected in ADRs and annual occupancies achieved in the
market. As can be noted, indicated RRMs for the four sales ranged from 2.2 to
3.2, with an average of 2.7.
Strong performing, limited-service products, such as the subject property, can
command higher RRMs due to the substantially lower-risk associated with
operating a limited-service hotel. Accordingly, we are of the opinion that a RRM
of 4.0 (above the range indicated by the comparable sales) is appropriate in
valuing the subject property in this instance. Based on this multiplier, and
assuming a stabilized occupancy level of 80.0 percent at an ADR of $60.25
(stated in 1998 dollars), the indicated value per room for the fee simple
interest in the subject is as follows:
IX-15
<PAGE>
<TABLE>
===========================================================================================================
Rooms Stabilized Stabilized Indicated Value
Revenue Average Rate Occupancy Per Room
Multiplier Level Days/Year (Rounded)
- ---------------- --- --------------- --- ----------------- --- ---------------- --- -----------------------
<S> <C> <C> <C> <C> <C>
4.0 X $60.25 X 80.0% X 365 = $70,000
===========================================================================================================
</TABLE>
As noted above, the RRM analysis produced a value indication of $70,000 per
available room. This value unit is converted into a total value estimate by
multiplying the indicated value per room by the total number of rooms. Based on
117 rentable rooms, the indicated stabilized value of the fee simple interest in
the Super 8 Motel is $8,200,000 as calculated below:
===============================================================================
$70,000 X 117 Rooms = $8,200,000 (Rounded)
===============================================================================
F. INDICATED VALUE VIA THE SALES COMPARISON APPROACH
After concluding to our estimate of the stabilized value of the subject, the
next step in our analysis is to develop an estimate of the "as is" leasehold
market value of the subject property.
1. Income Gain
The first step to develop the value estimate is to add the income gain, or
surplus, projected to occur until the property is stabilized (as will be
discussed in the Income Capitalization section). The following table summarizes
this transaction:
===================================================================
Sales Comparison Approach
"As Is" Fee Simple Value
===================================================================
Stabilized value Indication $8,200,000
Plus: Income Gain Until Stabilization $431,000
- ---------------------------------------------- --------------------
"As Is" Fee Simple Value $8,600,000
===================================================================
2. Valuation of Leased Fee Interest
After having developed an estimate of the "as is" fee simple value of the
subject under the Sales Comparison Approach, the next step is to develop an
estimate of the value of the leased fee interest in the property. This
represents the position of the ground lessor, who benefits from the income
derived from the ground lease payments during the term of the lease, as well as
the ownership of the property in fee at the termination of the lease (the
reversion). The estimated leased fee interest in the hotel is then subtracted
from the fee simple value to arrive at our estimate of the value of the
leasehold interest.
IX-16
<PAGE>
This deduction is derived by capitalizing the land lease payment for a
stabilized year ($93,000) by an appropriate capitalization rate (9.0 percent).
This capitalization rate of 150 basis points less than the rate used to
capitalize the revenue stream from the hotel operations (as will be discussed in
the Income Capitalization Approach) is reflective of the more secure position of
the landlord as compared to the lessee. This calculation results in a leased fee
interest of $1,000,000 ($93,000 / 9.0 percent). The following table summarizes
the deduction made from the stabilized fee simple value indication.
==============================================================
Sales Comparison Approach
"As Is" Leasehold Value
==============================================================
Fee Simple Value Estimate $8,600,000
Less: Leased Fee Land Value $(1,000,000)
- ------------------------------------- ------------------------
Leasehold Value $7,600,000
==============================================================
As a result of the foregoing analysis, we estimate the "as is" market value of
the leasehold interest in the subject as of January 1, 1998, through the Sales
Comparison Approach to be:
===============================================================================
SEVEN MILLION SIX HUNDRED THOUSAND DOLLARS
- -------------------------------------------------------------------------------
$7,600,000
===============================================================================
G. VALUATION - INCOME CAPITALIZATION APPROACH
1. Basis for Cash Flow Projection
In order to develop an estimate of the net operating income (NOI) for the
subject for both a stabilized year of operation (direct capitalization) and each
year of the aforementioned holding period (yield capitalization), the following
have been analyzed:
1. The historical operating results for the subject for year-end 1994,
1995, 1996, year-to-date September 1997, and management's operating
budget for 1997;
2. The previously discussed market performance (occupancy levels and ADR)
of the competitive hotels; and
3. The operating results of the category "Limited-Service Hotels" from the
1997 issue of PKF Consulting's Trends in the Hotel Industry.
The historical operating results of the subject are presented at the end of this
section of the report.
IX-17
<PAGE>
2. Stabilized Year Operating Estimate
We first developed an estimate of the performance of the subject for a
stabilized year of operation stated in current value, 1998 dollars. This
estimate is based on our review of the historical operating results of the
subject hotel coupled with an analysis of the operating results of the selected
PKF Consulting's "Trends" category. Additional key assumptions used in preparing
this stabilized year estimate are summarized as follows:
a) The stabilized annual occupancy of the hotel is projected to be 80.0
percent at a $60.25 ADR (in 1998 value dollars);
b) A management fee of 5.0 percent of total revenues, a franchise fee of
8.0 percent of rooms revenue, as well as a reserve for capital
replacements of 4.0 percent of total revenue have been deducted to
establish the net operating income of the subject; and
c) The projection of expense for taxes on real and personal property
is a function of the market value of the property. The subject
property is in the real estate taxing jurisdiction of the San
Mateo County Tax Assessor's Office. Our estimate of the property
taxes for the subject is based on the provisions of Proposition 13.
Proposition 13 limits ad valorem property taxes to 1.0 percent of the
assessed value plus assessment for city, special district, and county
bonds. The current tax rate is 1.0012 percent of market value. This
appraisal assumes a sale of the subject property on the effective
date of the appraisal, which will initiate a reassessment of real
estate for tax purposes. For the purpose of this analysis, the
reassessment is based on the fee simple value estimate of the subject
property as determined using the Income Capitalization Approach.
Based on the estimated value of the hotel, a tax rate of 1.0012 per
$100 of assessed value is utilized, resulting in real estate taxes
of $86,000, rounded, in the representative or stabilized year.
Presented in the following table is our estimate of the subject hotel's
stabilized year operating results. As can be noted, on a stabilized basis the
Super 8 Motel will generate approximately $2.1 million in total revenues, with a
net operating income of $751,000, in 1998 value dollars.
IX-18
<PAGE>
<TABLE>
===================================================================================================
Super 8 Motel - South San Francisco
Stabilized Year Operating Results (Stated in 1998 Value Dollars)
===================================================================================================
Occupancy Level 80.0%
- ------------------------------------------------ --------------------------------------------------
Average Room Rate $60.25
- ------------------------------------------------ --------------------------------------------------
REVPAR $48.20
- ------------------------------------------------ -------------- ---------- ------------ -----------
Total Ratios PAR (1) POR (2)
- ------------------------------------------------ -------------- ---------- ------------ -----------
Revenues
<S> <C> <C> <C> <C>
Rooms $2,058,000 97.5% $17,593 $60.25
Telephone 35,000 1.7% 299 1.03
Other Operated Departments 18,000 0.8% 150 0.51
- ------------------------------------------------ -------------- ---------- ------------ -----------
Total Revenues 2,111,000 100.0% 18,042 61.79
- ------------------------------------------------ -------------- ---------- ------------ -----------
Departmental Expenses (3)
Rooms 410,000 20.0% 3,504 12.00
Telephone 18,000 50.0% 150 0.51
Other Operated Departments 9,000 53.0% 79 0.27
- ------------------------------------------------ -------------- ---------- ------------ -----------
Total Departmental Expenses 437,000 20.7% 3,733 12.78
- ------------------------------------------------ -------------- ---------- ------------ -----------
Departmental Income 1,674,000 79.3% 14,309 49.00
- ------------------------------------------------ -------------- ---------- ------------ -----------
Undistributed Operating Expenses
Administrative and General 169,000 8.0% 1,444 4.94
Franchise Fees 165,000 7.8% 1,409 4.82
Marketing 42,000 2.0% 361 1.24
Property Maintenance 84,000 4.0% 722 2.47
Energy and Utilities 70,000 3.3% 599 2.05
- ------------------------------------------------ -------------- ---------- ------------ -----------
Total Undistributed Expenses 530,000 25.1% 4,534 15.53
- ------------------------------------------------ -------------- ---------- ------------ -----------
Income Before Fixed Charges 1,144,000 54.2% 9,776 33.48
- ------------------------------------------------ -------------- ---------- ------------ -----------
Management Fees and Fixed Charges
Base Management Fees 106,000 5.0% 907 3.11
Property Taxes 86,000 4.1% 735 2.52
Land Lease 93,000 4.4% 795 2.72
Insurance 24,000 1.1% 202 0.69
- ------------------------------------------------ -------------- ---------- ------------ -----------
Total 309,000 14.6% 2,639 9.04
- ------------------------------------------------ -------------- ---------- ------------ -----------
Income Before Reserve 835,000 39.6% 7,136 24.44
- ------------------------------------------------ -------------- ---------- ------------ -----------
Reserve for Replacement 84,000 4.0% 722 2.47
- ------------------------------------------------ -------------- ---------- ------------ -----------
Income Before Other Charges (4) $751,000 35.6% $6,400 $22.00
===================================================================================================
(1) PAR - Per Available Room
(2) POR - Per Occupied Room
(3) Departmental expense ratios are based on the respective department's revenue, not total
revenue.
(4) Income before interest, taxes, depreciation, and amortization
Source: PKF Consulting
===================================================================================================
</TABLE>
3. Ten Year Statement of Estimated Annual Operating Results
Presented at the end of this section of the appraisal report is our estimate of
the operating results for the subject for the ten-year period beginning January
1, 1998. This forecast is based on the preceding stabilized year estimate,
adjusted to reflect effects of inflation, variations in occupancy and rate and
the impact of fixed and variable components of each revenue and expense item.
Selected key assumptions used to develop this forecast are summarized as
follows.
IX-19
<PAGE>
a) With the exception of property taxes and rooms revenues for the period
1998 to 2000, all other revenues are expenses are projected to increase
at 3.0 percent throughout the holding period. Property taxes are
projected to increase at a rate of 2.0 percent per year as allowed by
California law, and growth in ADR is expected to be above inflation for
the first two years of the analysis period as a result of market-driven
factors.
b) For the first five years of this forecast, the occupancy and ADR of the
hotel were projected as previously discussed. Thereafter, the hotel's
occupancy was assumed to remain at 80.0 percent, with the ADR
increasing at 3.0 percent per year.
4. Valuation using Direct Capitalization
Based on our evaluation of the subject, it is concluded that an overall
capitalization rate (OAR) of 10.5 percent is appropriate to value the subject,
and properly reflects the risks associated with this hotel given the property's
age, physical features, location, and market position.
Based on the projection of net operating income for a stabilized year of
operation, and the selected overall rate of 10.5 percent, the value of the
subject as if stabilized is calculated to be as follows.
========================================================================
Projected Stabilized Net Operating Income $751,000
Overall Capitalization Rate 10.5%
- -------------------------------------------------- ---------------------
Stabilized Value Indication (Rounded) $7,200,000
========================================================================
From this derived stabilized value, an adjustment must be made for any income
surplus until the property stabilizes. This adjustment is typically referred to
as an "income gain". Income gain is the difference in projected cash flows and
the cash flow which would result if the property were stabilized. This amount
must be added to the stabilized value to reflect the higher occupancy in the
first four years of the projection period. Based on our market research and
analysis, it is estimated that the subject will achieve a stabilized level of
operation by 2002. A calculation of the income gain associated with the four
years prior to stabilization is presented in the following table.
IX-20
<PAGE>
<TABLE>
========================================================================================================
Income Gain to Stabilization
========================================================================================================
Estimated Stabilized Year
Net Operating Net Operating Estimated Present Value
Year Income Income (1) Income Gain @ 13.5%
- --------------------- ------------------- -------------------- ------------------ ----------------------
<S> <C> <C> <C> <C> <C>
1998 $903,000 $751,000 $152,000 $134,000
1999 $941,000 $774,000 $167,000 $130,000
2000 $953,000 $797,000 $156,000 $107,000
2001 $917,000 $821,000 $98,000 $59,000
- --------------------- ------------------- -------------------- ------------------ ----------------------
Total Rounded $573,000 $430,000
========================================================================================================
(1) Inflated to future value dollars at 3.0 percent.
========================================================================================================
</TABLE>
Based upon the preceding calculation, the cumulative income gain over the
stabilization period is estimated to be approximately $573,000. Investors
typically discount the estimated income gain at the market-derived discount rate
for the property. Consequently, if the estimated income gain, or surplus, is
discounted at a rate of 13.5 percent, the present value of this additional
income is projected to be approximately $430,000.
Presented below is our calculation of the "as is" market value of the subject
taking into account the above estimate of income gain during the projected
stabilization period.
=======================================================================
Value Conclusion - Direct Capitalization
=======================================================================
Stabilized Value $7,200,000
Plus: Income Gain During Stabilization Period $430,000
- ------------------------------------------------------ ----------------
"As Is" Value $7,630,000
- ------------------------------------------------------ ----------------
Rounded $7,600,000
=======================================================================
Therefore, the estimated "as is" market value of the leasehold interest in the
subject using the Direct Capitalization Approach, as of January 1, 1998, is:
==============================================================================
SEVEN MILLION SIX HUNDRED THOUSAND DOLLARS
- ------------------------------------------------------------------------------
$7,600,000
==============================================================================
5. Discounted Cash Flow Valuation Analysis
To estimate the value of the subject using a discounted cash flow analysis, it
is assumed that the property will be sold at the end of a ten-year holding
period. The value of the property at that time is estimated by capitalizing the
expected or anticipated net operating income of the property in the eleventh
year. From this value estimate, an estimate of sales costs is deducted to arrive
at the net proceeds upon sale.
IX-21
<PAGE>
Based on our market research, we are of the opinion that a reversionary
capitalization rate of 11.5 percent and a 13.5 percent discount rate are
appropriate to value the subject.
The following table indicates the present value of the projected net operating
income for the subject for the ten-year holding period, along with the present
value of the reversion, deriving a value estimate.
<TABLE>
===============================================================================================
Discounted Cash Flow Analysis
===============================================================================================
Cash Flow Present Present
From Value Value
Year Operations Factor @ 13.5%
- ------------------------- -------------------- ----------------------- ------------------------
<S> <C> <C> <C> <C>
1998 $903,000 0.8811 $796,000
1999 $941,000 0.7763 $730,000
2000 $953,000 0.6839 $652,000
2001 $919,000 0.6026 $554,000
2002 $904,000 0.5309 $480,000
2003 $929,000 0.4678 $435,000
2004 $960,000 0.4121 $396,000
2005 $990,000 0.3631 $359,000
2006 $1,021,000 0.3199 $327,000
2007 $1,058,000 0.2819 $298,000
- ------------------------- -------------------- ----------------------- ------------------------
Reversion $9,313,000 0.2819 $2,625,000
- ------------------------- -------------------- ----------------------- ------------------------
Present Value $7,650,000
- ------------------------- -------------------- ----------------------- ------------------------
Value (Rounded) $7,600,000
===============================================================================================
</TABLE>
6. Income Capitalization Approach Valuation Conclusion
The value conclusion under the Income Capitalization Approach is based on both a
direct capitalization and a discounted cash flow analysis. Direct capitalization
indicated a value of $7,600,000 and the discounted cash flow analysis indicated
a value of $7,600,000 as well. Placing equal emphasis on both methods, our
conclusion for the "as is" market value of the leasehold interest of the subject
using the Income Capitalization Approach, as of January 1, 1998, is:
==============================================================================
SEVEN MILLION SIX HUNDRED THOUSAND DOLLARS
- ------------------------------------------------------------------------------
$7,600,000
==============================================================================
IX-22
<PAGE>
G. RECONCILIATION AND FINAL ESTIMATE OF VALUE
The reconciliation involves the correlation of the conclusions reached from the
two valuation methodologies applied, considering the property type and the
requirements of the appraisal assignment. This process depends on the
appropriateness and reliability of each approach, and of the quality and
reliability of the data obtained. The results from the two approaches are as
follows:
============================================ ======================
Sales Comparison Approach $7,600,000
Income Capitalization Approach
Direct Capitalization $7,600,000
Discounted Cash Flow Analysis $7,600,000
============================================ ======================
In the Sales Comparison Approach we compared four recently sold hotels to the
subject. The selected sales indicated a relatively wide range in value.
Furthermore, the sales were located in varying sub-market areas within the San
Francisco Bay Area, and no property was identical to the subject. These factors
make this approach less meaningful, but act as a reference checkpoint for the
value derived from the Income Approaches.
The Income Capitalization Approach is undoubtedly the most commonly used method
to evaluate an income producing property such as a hotel. In this approach, we
have utilized two methods of analysis: The direct capitalization method and the
discounted cash flow method (yield capitalization). There was good market
support for both the projected cash flow of the subject as well as the
capitalization and yield rates used to convert our cash flow projections into a
value estimate. Both income methods resulted in similar values, heightening our
confidence in this approach.
Based on the facts, assumptions, and procedures outlined in this report, it is
estimated that the "as is" market value of the leasehold interest in the subject
property, as of January 1, 1998, is reasonably represented as:
===============================================================================
SEVEN MILLION SIX HUNDRED THOUSAND DOLLARS
- -------------------------------------------------------------------------------
$7,600,000
===============================================================================
IX-23
<PAGE>
SUPER 8 MOTEL - SOUTH SAN FRANCISCO, CALIFORNIA
HISTORICAL OPERATING RESULTS
<PAGE>
<TABLE>
Super 8, South San Francisco
Historical Operating Results
-------------------------------------------------------------------------------------------------
1994 1995
-----------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-----------------------------------------------------------------------------------------------------
Number of Keys 117 117
Occupancy 63.75% 69.41%
Average Daily Room Rate (ADR) $48.13 $49.43
REVPAR $30.68 $34.31
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROOMS $ 1,310,362 98.0% $ 11,200 $ 48.13 $ 1,465,224 97.6% $ 12,523 $ 49.43
TELEPHONE 21,883 1.6% 187 0.80 30,796 2.1% 263 1.04
MISCELLANEOUS 5,218 0.4% 45 0.19 5,420 0.4% 46 0.18
------------ ------- -------- ------- ----------- ------ -------- -------
TOTAL REVENUE 1,337,463 100.0% 11,431 49.13 1,501,440 100.0% 12,833 50.65
DEPT. COSTS & EXPENSES (3)
ROOMS 322,212 24.6% 2,754 11.84 344,502 23.5% 2,944 11.62
TELEPHONE 10,975 50.2% 94 0.40 13,581 44.1% 116 0.46
MISCELLANEOUS 387 7.4% 3 0.01 811 15.0% 7 0.03
------------ ------- -------- ------- ----------- ------ -------- -------
TOTAL COST & EXP. 333,574 24.9% 2,851 12.25 358,894 23.9% 3,067 12.11
TOTAL OPER. DEPTS. INCOME 1,003,889 75.1% 8,580 36.87 1,142,546 76.1% 9,765 38.55
------------ ------- -------- ------- ----------- ------ -------- -------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 137,757 10.3% 1,177 5.06 139,881 9.3% 1,196 4.72
MARKETING 38,078 2.8% 325 1.40 35,097 2.3% 300 1.18
FRANCHISE FEES 65,435 4.9% 559 2.40 73,261 4.9% 626 2.47
UTILITIES 51,624 3.9% 441 1.90 59,425 4.0% 508 2.00
PROPERTY OPERATIONS 88,468 6.6% 756 3.25 69,229 4.6% 592 2.34
------------ ------- ----- ----- -------- ------ ----- -----
TOTAL 381,362 28.5% 3,260 14.01 376,893 25.1% 3,221 12.72
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 622,527 46.5% 5,321 22.87 765,653 51.0% 6,544 25.83
------------ ------- ------ ----- ----------- ------- -------- -------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 66,790 5.0% 571 2.45 75,074 5.0% 642 2.53
PROPERTY TAXES 47,214 3.5% 404 1.73 48,280 3.2% 413 1.63
INSURANCE 21,767 1.6% 186 0.80 26,637 1.8% 228 0.90
RENT 91,170 6.8% 779 3.35 90,564 6.0% 774 3.06
------------ ------- ------ ------ ----------- ------- -------- -------
TOTAL 226,941 17.0% 1,940 8.34 240,555 16.0% 2,056 8.12
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 395,586 29.6% 3,381 14.53 $ 525,098 35.0% 4,488 17.71
============ ======= ====== ====== =========== ======== ======== =======
RENOVATION PAYMENT $ 52,830 $ 89,291
---------------------------------------------------
1996
---------------------------------------------------
$ % PAR (1) POR (2)
---------------------------------------------------
Number of Keys 117
Occupancy 78.31%
Average Daily Room Rate (ADR) $53.83
REVPAR $42.15
REVENUES
ROOMS $ 1,805,049 97.2% $ 15,428 $ 53.83
TELEPHONE 38,349 2.1% 328 1.14
MISCELLANEOUS 14,232 0.8% 122 0.42
------------- ------- -------- -------
TOTAL REVENUE 1,857,630 100.0% 15,877 55.40
DEPT. COSTS & EXPENSES (3)
ROOMS 382,088 21.2% 3,266 11.39
TELEPHONE 14,237 37.1% 122 0.42
MISCELLANEOUS 7,105 49.9% 61 0.21
------------- ------- --------- --------
TOTAL COST & EXP. 403,430 21.7% 3,448 12.03
TOTAL OPER. DEPTS. INCOME 1,454,200 78.3% 12,429 43.37
------------- ------- --------- --------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 155,277 8.4% 1,327 4.63
MARKETING 37,500 2.0% 321 1.12
FRANCHISE FEES 90,275 4.9% 772 2.69
UTILITIES 61,923 3.3% 529 1.85
PROPERTY OPERATIONS 84,614 4.6% 723 2.52
------------- ------- --------- --------
TOTAL 429,589 23.1% 3,672 12.81
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 1,024,611 55.2% 8,757 30.55
------------- ------- --------- --------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 92,898 5.0% 794 2.77
PROPERTY TAXES 50,853 2.7% 435 1.52
INSURANCE 22,249 1.2% 190 0.66
RENT 90,564 4.9% 774 2.70
------------- ------- --------- --------
TOTAL 256,564 13.8% 2,193 7.65
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 768,047 41.3% 6,565 22.90
============= ======= ========= ========
RENOVATION PAYMENT $ 60,898
- ---------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenue, not total revenue.
(4) Net operating income before reserves, interest, depreciation,
amortization, and income taxes.
=================================================================================================================================
Source:The Famous Host Company
=================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8, South San Francisco
Operating Results Year-to-Date September 1997 and 1997 Budget
--------------------------------------------------------------------------------------------------
September 1997 Budget 1997
--------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
--------------------------------------------------------------------------------------------------
Number of Keys 117 117
Occupancy 85.90% 70.93%
Average Daily Room Rate (ADR) $58.54 $55.55
REVPAR $50.29 $39.40
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROOMS $ 1,605,685 86.4%$ 18,349 $ 58.54 $ 1,682,753 97.9% $ 14,383 $ 55.55
TELEPHONE 25,088 1.4% 287 0.91 30,375 1.8% 260 1.00
MISCELLANEOUS 15,348 0.8% 175 0.56 6,075 0.4% 52 0.20
------------ ------- ------- ------- ----------- ------ -------- -------
TOTAL REVENUE 1,857,630 100.0% 21,228 67.72 1,719,203 100.0% 14,694 56.76
DEPT. COSTS & EXPENSES (3)
ROOMS 307,232 19.1% 3,511 11.20 331,380 19.7% 2,832 10.94
TELEPHONE 12,531 49.9% 143 0.46 12,335 40.6% 105 0.41
MISCELLANEOUS 11,252 73.3% 129 0.41 400 6.6% 3 0.01
------------ ------- ------- ------- ----------- ------ -------- -------
TOTAL COST & EXP. 331,015 17.8% 3,783 12.07 344,115 20.0% 2,941 11.36
TOTAL OPER. DEPTS. INCOME 1,315,106 70.8% 15,028 47.94 1,375,088 80.0% 11,753 45.40
------------ ------- ------- ------- ----------- ------- -------- -------
UNDIST. OPERATING EXP.
ADMIN. & GENERAL 140,509 7.6% 1,606 5.12 138,367 8.0% 1,183 4.57
MARKETING 23,954 1.3% 274 0.87 30,696 1.8% 262 1.01
FRANCHISE FEES 80,284 4.3% 917 2.93 84,138 4.9% 719 2.78
UTILITIES 49,520 2.7% 566 1.81 56,423 3.3% 482 1.86
PROPERTY OPERATIONS 56,218 3.0% 642 2.05 61,910 3.6% 529 2.04
------------ ------- ------- ------- ----------- -------- -------- -------
TOTAL 350,485 18.9% 4,005 12.78 371,534 21.6% 3,176 12.27
INC. BEFORE MGMT. FEES
AND FIXED CHARGES 964,621 51.9% 11,023 35.17 1,003,554 58.4% 8,577 33.13
------------ ------- ------- ------- ----------- -------- -------- -------
MGMT. FEES & FIXED CHARGES
MANAGEMENT FEES 82,306 4.4% 941 3.00 85,960 5.0% 735 2.84
PROPERTY TAXES 38,288 2.1% 438 1.40 47,196 2.7% 403 1.56
INSURANCE 21,822 1.2% 249 0.80 24,048 1.4% 206 0.79
RENT 67,923 3.7% 776 2.48 92,000 5.4% 786 3.04
------------ ------- ------- ------- ----------- -------- -------- -------
TOTAL 210,339 11.3% 2,404 7.67 249,204 14.5% 2,130 8.23
INCOME BEFORE OTHER (4)
FIXED CHARGES $ 754,282 40.6% 8,619 27.50 $ 754,350 43.9% $ 6,447 $ 24.90
============ ======= ======= ======= =========== ======== ======== =======
RENOVATION PAYMENT $ 59,150 $ 59,150
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenue, not total revenue.
(4) Net operating income before reserves, interest, depreciation,
amortization, and income taxes.
===================================================================================================================================
Source:The Famous Host Company
===================================================================================================================================
</TABLE>
<PAGE>
SUPER 8 MOTEL - SOUTH SAN FRANCISCO, CALIFORNIA
TEN YEAR STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS
<PAGE>
<TABLE>
Super 8
South San Francisco, California
Projected Operating Results
-------------------------------------------------------------------------------------------------
Calendar Years Beginning January 1 1998 1999
-------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-------------------------------------------------------------------------------------------------
Number of Keys 117 117
Occupancy 86.00% 86.00%
Average Daily Room Rate $61.50 $63.75
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $ 2,259,000 97.5%$ 19,308 $ 61.51 $ 2,341,000 97.6%$ 20,009 $ 63.74
Telephone 38,000 1.6% 325 1.03 39,000 1.6% 333 1.06
Other Operated Departments 19,000 0.8% 162 0.52 19,000 0.8% 162 0.52
------------- -------- --------- --------- ------------- -------- --------- ---------
Total Revenues 2,316,000 100.0% 19,795 63.06 2,399,000 100.0% 20,504 65.32
Departmental Expenses (3)
Rooms 425,000 18.8% 3,632 11.57 438,000 19.3% 3,744 11.93
Telephone 19,000 50.0% 162 0.52 19,000 48.7% 162 0.52
Other Operated Departments 9,000 47.4% 77 0.25 10,000 52.6% 85 0.27
------------- -------- --------- --------- ------------- -------- --------- ---------
Total Departmental Expenses 453,000 19.6% 3,872 12.33 467,000 19.5% 3,991 12.72
------------- -------- --------- --------- ------------- -------- --------- ---------
Departmental Profit 1,863,000 80.4% 15,923 50.73 1,932,000 80.0% 16,513 52.61
Undistributed Expenses
Administrative & General 172,000 7.4% 1,470 4.68 177,000 7.4% 1,513 4.82
Franchise Fee 181,000 7.8% 1,547 4.93 187,000 7.8% 1,598 5.09
Marketing 42,000 1.8% 359 1.14 43,000 1.8% 368 1.17
Property Operations & Maintenance 84,000 3.6% 718 2.29 87,000 3.6% 744 2.37
Energy & Utilities 70,000 3.0% 598 1.91 72,000 3.0% 615 1.96
------------- -------- --------- --------- ------------- -------- --------- ---------
Total Undistributed Expenses 549,000 23.7% 4,692 14.95 566,000 23.6% 4,838 15.41
------------- -------- --------- --------- ------------- -------- --------- ---------
Gross Operating Profit 1,314,000 56.7% 11,231 35.78 1,366,000 56.9% 11,675 37.19
Fixed Charges & Management Fee
Base Management Fee 116,000 5.0% 991 3.16 120,000 5.0% 1,026 3.27
Property Taxes 86,000 3.7% 735 2.34 88,000 3.7% 752 2.40
Land Lease 93,000 4.0% 795 2.53 96,000 4.0% 821 2.61
Insurance 24,000 1.0% 205 0.65 25,000 1.0% 214 0.68
Total Fixed Charges 319,000 13.8% 2,726 8.69 329,000 13.7% 2,812 8.96
------------- ------ ------- --------- ------------- -------- --------- ---------
Income Before Reserves 995,000 43.0% 8,504 27.09 1,037,000 43.2% 8,863 28.24
Reserves for Replacements 92,000 4.0% 786 2.51 96,000 4.0% 821 2.61
------------- ----- ------- --------- ------------- -------- --------- ---------
Net Operating Income (4) $ 903,000 39.0% $ 7,718 $ 24.59 $ 941,000 39.2% $ 8,043 $ 25.62
============= ====== ======= ========= ============= ======== ========= ========
-------------------------------------------------
Calendar Years Beginning January 1 2000
-------------------------------------------------
$ % PAR (1) POR (2)
-------------------------------------------------
Number of Keys 117
Occupancy 85.00%
Average Daily Room Rate $65.75
Revenues
Rooms $ 2,387,000 97.5%$ 20,402 $ 65.76
Telephone 40,000 1.6% 342 1.10
Other Operated Departments 20,000 0.8% 171 0.55
------------- ------- --------- ----------
Total Revenues 2,447,000 100.0% 20,915 67.41
Departmental Expenses (3)
Rooms 448,000 18.8% 3,829 12.34
Telephone 20,000 50.0% 171 0.55
Other Operated Departments 10,000 50.0% 85 0.28
------------- ------- --------- ----------
Total Departmental Expenses 478,000 19.5% 4,085 13.17
------------- ------- --------- ----------
Departmental Profit 1,969,000 80.5% 16,829 54.24
Undistributed Expenses
Administrative & General 182,000 7.4% 1,556 5.01
Franchise Fee 191,000 7.8% 1,632 5.26
Marketing 45,000 1.8% 385 1.24
Property Operations & Mainten 89,000 3.6% 761 2.45
Energy & Utilities 74,000 3.0% 632 2.04
------------- ------- --------- ----------
Total Undistributed Expense 581,000 23.7% 4,966 16.01
------------- ------- --------- ----------
Gross Operating Profit 1,388,000 56.7% 11,863 38.24
Fixed Charges & Management Fee
Base Management Fee 122,000 5.0% 1,043 3.36
Property Taxes 90,000 3.7% 769 2.48
Land Lease 99,000 4.0% 846 2.73
Insurance 26,000 1.1% 222 0.72
Total Fixed Charges 337,000 13.8% 2,880 9.28
------------- ------- --------- ----------
Income Before Reserves 1,051,000 43.0% 8,893 28.95
Reserves for Replacements 98,000 4.0% 838 2.70
------------- ------- --------- ----------
Net Operating Income (4) $ 953,000 38.9% $ 8,145 $ 26.25
============= ======= ========= ==========
- ------------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net cash flow before interest, tax, amortization, and
depreciation.
====================================================================================================================================
Source:PKF Consulting
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
South San Francisco, California
Projected Operating Results
--------------------------------------------------------------------------------------------------
Calendar Years Beginning January 1 2001 2002
--------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
--------------------------------------------------------------------------------------------------
Number of Keys 117 117
Occupancy 82.00% 80.00%
Average Daily Room Rate $67.75 $69.75
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $ 2,372,000 97.6% $ 20,274 $ 67.74 $ 2,383,000 97.5%$ 20,368 $ 69.75
Telephone 39,000 1.6% 333 1.11 40,000 1.6% 342 1.17
Other Operated Departments 20,000 0.8% 171 0.57 20,000 0.8% 171 0.59
------------- ------- ---------- --------- ------------- ------- --------- ---------
Total Revenues 2,431,000 100.0% 20,778 69.42 2,443,000 100.0% 20,880 71.51
Departmental Expenses (3)
Rooms 453,000 19.1% 3,872 12.94 461,000 19.3% 3,940 13.49
Telephone 20,000 51.3% 171 0.57 20,000 50.0% 171 0.59
Other Operated Departments 10,000 50.0% 85 0.29 10,000 50.0% 85 0.29
------------- ------- ---------- --------- ------------- ------- --------- ---------
Total Departmental Expenses 483,000 19.9% 4,128 13.79 491,000 20.1% 4,197 14.37
------------- ------- ---------- --------- ------------- ------- --------- ---------
Departmental Profit 1,948,000 80.1% 16,650 55.63 1,952,000 79.9% 16,684 57.14
Undistributed Expenses
Administrative & General 187,000 7.7% 1,598 5.34 191,000 7.8% 1,632 5.59
Franchise Fee 190,000 7.8% 1,624 5.43 191,000 7.8% 1,632 5.59
Marketing 46,000 1.9% 393 1.31 47,000 1.9% 402 1.38
Property Operations & Maintenance 92,000 3.8% 786 2.63 95,000 3.9% 812 2.78
Energy & Utilities 76,000 3.1% 650 2.17 79,000 3.2% 675 2.31
------------- ------- ---------- --------- ------------- ------- --------- ---------
Total Undistributed Expenses 591,000 24.3% 5,051 16.88 603,000 24.7% 5,154 17.65
------------- ------- ---------- --------- ------------- ------- --------- ---------
Gross Operating Profit 1,357,000 55.8% 11,598 38.75 1,349,000 55.2% 11,530 39.49
Fixed Charges & Management Fee
Base Management Fee 122,000 5.0% 1,043 3.48 122,000 5.0% 1,043 3.57
Property Taxes 91,000 3.7% 778 2.60 93,000 3.8% 795 2.72
Land Lease 102,000 4.2% 872 2.91 105,000 4.3% 897 3.07
Insurance 26,000 1.1% 222 0.74 27,000 1.1% 231 0.79
Total Fixed Charges 341,000 14.0% 2,915 9.74 347,000 14.2% 2,966 10.16
------------- ------- ---------- --------- ------------- ------- --------- ---------
Income Before Reserves 1,016,000 41.8% 8,684 29.01 1,002,000 41.0% 8,564 29.33
Reserves for Replacements 97,000 4.0% 829 2.77 98,000 4.0% 838 2.87
------------- ------- ---------- --------- ------------- ------- --------- ---------
Net Operating Income (4) $ 919,000 37.8% $ 7,855 $ 26.24 $ 904,000 37.0% $ 7,726 $ 26.46
============= ======= ========== ========= ============= ======= ========= =========
------------------------------------------------
Calendar Years Beginning January 1 2003
-------------------------------------------------
$ % PAR (1) POR (2)
-------------------------------------------------
Number of Keys 117
Occupancy 80.00%
Average Daily Room Rate $71.75
Revenues
Rooms $ 2,451,000 97.6%$ 20,949 $ 71.74
Telephone 41,000 1.6% 350 1.20
Other Operated Departments 20,000 0.8% 171 0.59
------------- -------- --------- ---------
Total Revenues 2,512,000 100.0% 21,470 73.53
Departmental Expenses (3)
Rooms 475,000 19.3% 4,060 13.90
Telephone 20,000 48.8% 171 0.59
Other Operated Departments 10,000 50.0% 85 0.29
------------- -------- --------- ---------
Total Departmental Expense 505,000 20.1% 4,316 14.78
------------- -------- --------- ---------
Departmental Profit 2,007,000 79.9% 17,154 58.75
Undistributed Expenses
Administrative & General 197,000 7.8% 1,684 5.77
Franchise Fee 196,000 7.8% 1,675 5.74
Marketing 49,000 2.0% 419 1.43
Property Operations & Mainte 98,000 3.9% 838 2.87
Energy & Utilities 81,000 3.2% 692 2.37
------------- -------- --------- ---------
Total Undistributed Expens 621,000 24.7% 5,308 18.18
------------- -------- --------- ---------
Gross Operating Profit 1,386,000 55.2% 11,846 40.57
Fixed Charges & Management Fee
Base Management Fee 126,000 5.0% 1,077 3.69
Property Taxes 95,000 3.8% 812 2.78
Land Lease 108,000 4.3% 923 3.16
Insurance 28,000 1.1% 239 0.82
Total Fixed Charges 357,000 14.2% 3,051 10.45
------------- -------- --------- ---------
Income Before Reserves 1,029,000 41.0% 8,795 30.12
Reserves for Replacements 100,000 4.0% 855 2.93
------------- -------- --------- ---------
Net Operating Income (4) $ 929,000 37.0% $ 7,940 $ 27.19
============= ======== ========= =========
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net cash flow before interest, tax, amortization, and
depreciation.
===================================================================================================================================
Source:PKF Consulting
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
South San Francisco, California
Projected Operating Results
-------------------------------------------------------------------------------------------------
Calendar Years Beginning January 1 2004 2005
-------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-------------------------------------------------------------------------------------------------
Number of Keys 117 117
Occupancy 80.00% 80.00%
Average Daily Room Rate $74.00 $76.25
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $ 2,528,000 97.6%$ 21,607 $ 74.00 $2,605,000 97.6%$ 22,265 $ 76.25
Telephone 42,000 1.6% 359 1.23 43,000 1.6% 368 1.26
Other Operated Departments 21,000 0.8% 179 0.61 22,000 0.8% 188 0.64
------------- -------- --------- --------- ------------ -------- --------- ---------
Total Revenues 2,591,000 100.0% 22,145 75.84 2,670,000 100.0% 22,821 78.15
Departmental Expenses (3)
Rooms 489,000 19.3% 4,179 14.31 504,000 19.3% 4,308 14.75
Telephone 21,000 50.0% 179 0.61 22,000 51.2% 188 0.64
Other Operated Departments 11,000 52.4% 94 0.32 11,000 50.0% 94 0.32
------------- -------- --------- --------- ------------ -------- --------- ---------
Total Departmental Expenses 521,000 20.1% 4,453 15.25 537,000 20.1% 4,590 15.72
------------- -------- --------- --------- ------------ -------- --------- ---------
Departmental Profit 2,070,000 79.9% 17,692 60.59 2,133,000 79.9% 18,231 62.43
Undistributed Expenses
Administrative & General 203,000 7.8% 1,735 5.94 209,000 7.8% 1,786 6.12
Franchise Fee 202,000 7.8% 1,726 5.91 208,000 7.8% 1,778 6.09
Marketing 50,000 1.9% 427 1.46 52,000 1.9% 444 1.52
Property Operations & Maintenance 101,000 3.9% 863 2.96 104,000 3.9% 889 3.04
Energy & Utilities 83,000 3.2% 709 2.43 86,000 3.2% 735 2.52
------------- -------- --------- --------- ------------ -------- --------- ---------
Total Undistributed Expenses 639,000 24.7% 5,462 18.70 659,000 24.7% 5,632 19.29
------------- -------- --------- --------- ------------ -------- --------- ---------
Gross Operating Profit 1,431,000 55.2% 12,231 41.89 1,474,000 55.2% 12,598 43.14
Fixed Charges & Management Fee
Base Management Fee 130,000 5.0% 1,111 3.81 134,000 5.0% 1,145 3.92
Property Taxes 97,000 3.7% 829 2.84 99,000 3.7% 846 2.90
Land Lease 111,000 4.3% 949 3.25 114,000 4.3% 974 3.34
Insurance 29,000 1.1% 248 0.85 30,000 1.1% 256 0.88
Total Fixed Charges 367,000 14.2% 3,137 10.74 377,000 14.1% 3,222 11.04
------------- -------- --------- --------- ------------ -------- --------- ---------
Income Before Reserves 1,064,000 41.1% 9,094 31.14 1,097,000 41.1% 9,376 32.11
Reserves for Replacements 104,000 4.0% 889 3.04 107,000 4.0% 915 3.13
------------- -------- --------- --------- ------------ -------- --------- ---------
Net Operating Income (4) $ 960,000 37.1% $ 8,205 $ 28.10 $ 990,000 37.1% $ 8,462 $ 28.98
============= ======== ========= ========= ============ ======== ========= =========
------------------------------------------------
Calendar Years Beginning January 1 2006
------------------------------------------------
$ % PAR (1) POR (2)
------------------------------------------------
Number of Keys 117
Occupancy 80.00%
Average Daily Room Rate $78.50
Revenues
Rooms $2,682,000 97.6%$ 22,923 $ 78.50
Telephone 45,000 1.6% 385 1.32
Other Operated Departments 22,000 0.8% 188 0.64
------------ -------- --------- ---------
Total Revenues 2,749,000 100.0% 23,496 80.46
Departmental Expenses (3)
Rooms 519,000 19.6% 4,436 15.19
Telephone 22,000 48.9% 188 0.64
Other Operated Departments 11,000 50.0% 94 0.32
------------ -------- --------- ---------
Total Departmental Expenses 552,000 20.1% 4,718 16.16
------------ -------- --------- ---------
Departmental Profit 2,197,000 79.9% 18,778 64.31
Undistributed Expenses
Administrative & General 215,000 7.8% 1,838 6.29
Franchise Fee 215,000 7.8% 1,838 6.29
Marketing 53,000 1.9% 453 1.55
Property Operations & Mainten 107,000 3.9% 915 3.13
Energy & Utilities 89,000 3.2% 761 2.61
------------ -------- --------- ---------
Total Undistributed Expense 679,000 24.7% 5,803 19.87
------------ -------- --------- ---------
Gross Operating Profit 1,518,000 55.2% 12,974 44.43
Fixed Charges & Management Fee
Base Management Fee 137,000 5.0% 1,171 4.01
Property Taxes 100,000 3.7% 863 2.96
Land Lease 118,000 4.3% 1,009 3.45
Insurance 31,000 1.1% 265 0.91
Total Fixed Charges 387,000 14.1% 3,308 11.33
------------ -------- --------- ---------
Income Before Reserves 1,131,000 41.1% 9,667 33.11
Reserves for Replacements 110,000 4.0% 940 3.22
------------ -------- --------- ---------
Net Operating Income (4) $ 1,021,000 37.1% $ 8,726 $ 29.89
============ ======== ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net cash flow before interest, tax, amortization, and
depreciation.
====================================================================================================================================
Source:PKF Consulting
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
Super 8
South San Francisco, California
Projected Operating Results
-------------------------------------------------------------------------------------------------
Calendar Years Beginning January 1 2007 2008
-------------------------------------------------------------------------------------------------
$ % PAR (1) POR (2) $ % PAR (1) POR (2)
-------------------------------------------------------------------------------------------------
Number of Keys 117 117
Occupancy 80.00% 80.00%
Average Daily Room Rate $81.00 $83.25
Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rooms $2,767,000 97.6%$ 23,650 $ 80.99 $2,844,000 97.6%$ 24,308 $ 83.25
Telephone 46,000 1.6% 393 1.35 47,000 1.6% 402 1.38
Other Operated Departments 23,000 0.8% 197 0.67 24,000 0.8% 205 0.70
------------- ------- --------- ---------- ------------ ------- --------- ----------
Total Revenues 2,836,000 100.0% 24,239 83.01 2,915,000 100.0% 24,915 85.32
Departmental Expenses (3)
Rooms 535,000 19.3% 4,573 15.66 551,000 19.4% 4,709 16.13
Telephone 23,000 50.0% 197 0.67 24,000 51.1% 205 0.70
Other Operated Departments 11,000 47.8% 94 0.32 12,000 50.0% 103 0.35
------------- ------- --------- ---------- ------------ ------- --------- ----------
Total Departmental Expenses 569,000 20.1% 4,863 16.65 587,000 20.1% 5,017 17.18
------------- ------- --------- ---------- ------------ ------- --------- ----------
Departmental Profit 2,267,000 79.9% 19,376 66.36 2,328,000 79.9% 19,897 68.14
Undistributed Expenses
Administrative & General 222,000 7.8% 1,897 6.50 228,000 7.8% 1,949 6.67
Franchise Fee 221,000 7.8% 1,889 6.47 228,000 7.8% 1,949 6.67
Marketing 55,000 1.9% 470 1.61 57,000 2.0% 487 1.67
Property Operations & Maintenance 110,000 3.9% 940 3.22 113,000 3.9% 966 3.31
Energy & Utilities 91,000 3.2% 778 2.66 94,000 3.2% 803 2.75
------------- ------- --------- ---------- ------------ ------- --------- ----------
Total Undistributed Expenses 699,000 24.6% 5,974 20.46 720,000 24.7% 6,154 21.07
------------- ------- --------- ---------- ------------ ------- --------- ----------
Gross Operating Profit 1,568,000 55.3% 13,402 45.90 1,608,000 55.2% 13,744 47.07
Fixed Charges & Management Fee
Base Management Fee 142,000 5.0% 1,214 4.16 146,000 5.0% 1,248 4.27
Property Taxes 102,000 3.6% 880 3.01 105,000 3.6% 897 3.04
Land Lease 121,000 4.3% 1,034 3.54 125,000 4.3% 1,068 3.66
Insurance 31,000 1.1% 265 0.91 32,000 1.1% 274 0.94
Total Fixed Charges 397,000 14.0% 3,393 11.62 408,000 14.0% 3,487 11.94
------------- ------- --------- ---------- ------------ ------- --------- ----------
Income Before Reserves 1,171,000 41.3% 10,009 34.28 1,200,000 41.2% 10,256 35.12
Reserves for Replacements 113,000 4.0% 966 3.31 117,000 4.0% 1,000 3.42
------------- ------- --------- ---------- ------------ ------- --------- ----------
Net Operating Income (4) $ 1,058,000 37.3% $ 9,043 $ 30.97 $ 1,083,000 37.2% $ 9,256 $ 31.70
============= ======= ========= ========== ============ ======= ========= ==========
- ------------------------------------------------------------------------------------------------------------------------------------
Notes: (1) PAR - Per Available Room.
(2) POR - Per Occupied Room.
(3) Departmental expense ratios are based on the respective
department's revenues, not total revenues.
(4) Net cash flow before interest, tax, amortization, and
depreciation.
====================================================================================================================================
Source:PKF Consulting
====================================================================================================================================
</TABLE>
<PAGE>
ADDENDA
TABLE OF CONTENTS
A. CERTIFICATION OF THE APPRAISERS
B. STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
C. QUALIFICATIONS OF THE APPRAISERS
D. COPY OF THE APPRAISERS' STATE CERTIFICATIONS
<PAGE>
ADDENDUM A
CERTIFICATION OF THE APPRAISERS
<PAGE>
CERTIFICATION OF THE APPRAISERS
We, Thomas E. Callahan, CPA, CRE, MAI, and Kenneth Kuchman certify that, to
the best of our 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 our personal,
unbiased professional analyses, opinions, and conclusions.
We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
Our 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.
Our analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of Professional
Appraisal Practice.
Kenneth Kuchman has made a personal inspection of each property that is a
subject of this report.
Anwar R. Elgonemy provided significant professional assistance to the
persons signing this report.
This appraisal engagement was not based on a requested minimum valuation,
specific valuation or the approval of a loan.
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.
Mr. Callahan and Mr. Kuchman are Certified General Real Estate Appraisers
in the State of California.
As of the date of this report, Mr. Callahan has completed the requirements
of the continuing education program of the Appraisal Institute.
<PAGE>
Based on the scope outlined and our experience as real estate analysts and
appraisers, we are of the opinion that the "as is" market value of the fee
simple or leasehold interest in each of the eight hotels, as of January 1, 1998,
is:
===============================================================
Property Valuation
Property Rights Conclusion
Appraised
- -------------------------- --------------- --------------------
Super 8
Bakersfield, CA Fee Simple $1,300,000
- -------------------------- --------------- --------------------
Holiday Inn
Barstow, CA Leasehold $4,100,000
- -------------------------- --------------- --------------------
Super 8
Modesto, CA Leasehold $1,800,000
- -------------------------- --------------- --------------------
Super 8
Pleasanton, CA Fee Simple $7,600,000
- -------------------------- --------------- --------------------
Super 8
Sacramento, CA Leasehold $2,700,000
- -------------------------- --------------- --------------------
Super 8
San Bernardino, CA Fee Simple $1,600,000
- -------------------------- --------------- --------------------
Super 8
South San Francisco, CA Leasehold $7,600,000
- -------------------------- --------------- --------------------
Super 8
Santa Rosa, CA Leasehold $2,200,000
========================================== ====================
Sum of Individual Values $28,900,000
========================================== ====================
PKF Consulting appreciates this opportunity to be of service to you. Should you
have any questions or if we can be of further assistance, please do not hesitate
to contact us.
Respectfully submitted,
/s/ Thomas E. Callahan
By Thomas E. Callahan, CPA, CRE, MAI
Executive Vice President
California Certified General Appraiser AG9618
/s/ Kenneth Kuchman
By Kenneth Kuchman
Vice President
California Certified General Appraiser AG22842
<PAGE>
ADDENDUM B
STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
<PAGE>
===============================================================================
STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
===============================================================================
Date of Value - The conclusions and opinions expressed in this report apply to
the date of value set forth in the letter of transmittal accompanying this
report. The dollar amount of any value opinion or conclusion rendered or
expressed in this report is based upon the purchasing power of the American
dollar existing in the date of value.
Economic and Social Trends - The appraiser assumes no responsibility for
economic, physical or demographic factors which may affect or alter the opinions
in this report if said economic, physical or demographic factors were not
present as of the date of the letter of transmittal accompanying this report.
The appraiser is not obligated to predict future political, economic or social
trends.
Information Furnished by Others - In preparing the report, the appraiser was
required to rely on information furnished by other individuals or found in
previously existing records and/or documents. Unless otherwise indicated, such
information is presumed to be reliable. However, no warranty, either express or
implied, is given by the appraiser for the accuracy of such information and the
appraiser assumes no responsibility for information relied upon later found to
have been inaccurate. The appraiser reserves the right to make such adjustments
to the analyses, opinions and conclusions set forth in this report as may be
required by consideration of additional data or more reliable data that may
become available.
Title - No opinion as to the title of the subject property is rendered. Data
related to ownership and legal description was obtained from the attached title
report records and is considered reliable. Title is assumed to be marketable and
free and clear of all liens, encumbrances, easements and restrictions except
those specifically discussed in the report. The property is appraised assuming
it to be under responsible ownership and competent management, and available for
its highest and best use.
Hidden Conditions - The appraiser assumes no responsibility for hidden or
unapparent conditions of the property, subsoil, ground water or structures that
render the subject property more or less valuable. No responsibility is assumed
for arranging for engineering, geologic or environmental studies that may be
required to discover such hidden or unapparent conditions.
Hazardous Materials - The appraiser has not been provided any information
regarding the presence of any material or substance on or in any portion of the
subject property or improvements thereon, which material or substance possesses
or may possess toxic, hazardous and/or other harmful and/or dangerous
characteristics. Unless otherwise stated in the report, the appraiser did not
become aware of the presence of any such material or substance during the
appraiser's inspection of the subject property. However, the appraiser is not
qualified to investigate or test for the presence of such materials or
substances. The presence of such materials or substances may adversely affect
the value of the subject property. The value estimated in this report is
predicted on the assumption that no such material or substance is present on or
in the subject property or in such proximity thereto that it would cause a loss
in value. The appraiser assumes no responsibility for the presence of any such
substance or material on or in the subject property, nor for any expertise or
engineering knowledge required to discover the presence of such substance or
material. Unless otherwise stated, this report assumes the subject property is
in compliance with all federal, state and local environmental laws, regulations
and rules.
Zoning and Land Use - Unless otherwise stated, the subject property is appraised
assuming it to be in full compliance with all applicable zoning and land use
regulations and restrictions.
Licenses and Permits - Unless otherwise stated, the property is appraised
assuming that all required licenses, permits, certificates, consents or other
legislative and/or administrative authority from any local, state or national
government or private entity or organization have been or can be obtained or
renewed for any use on which the value estimate contained in this report is
based.
<PAGE>
STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
(Continued)
Engineering Survey - No engineering survey has been made by the appraiser.
Except as specifically stated, data relative to size and area of the subject
property was taken from sources considered reliable and no encroachment of the
subject property is considered to exist.
Subsurface Rights - No opinion is expressed as to the value of subsurface oil,
gas or mineral rights or whether the property is subject to surface entry for
the exploration or removal of such materials, except as is expressly stated.
Maps, Plats and Exhibits - Maps, plats and exhibits included in this report are
for illustration only to serve as an aid in visualizing matters discussed within
the report. They should not be considered as surveys or relied upon for any
other purpose, nor should they be removed from, reproduced or used apart from
the report.
Legal Matters - No opinion is intended to be expressed for matters which require
legal expertise or specialized investigation or knowledge beyond that
customarily employed by real estate appraisers.
Allocation Between Land and Improvements - The distribution, if any, of the
total valuation in this report between land and improvements applies only under
the stated program of utilization. The separate allocations for land and
improvements must not be used in conjunction with any other appraisal and are
invalid if so used.
Right of Publication - Possession of this report, or a copy of it, does not
carry with it the right of publication. Without the written consent of the
appraiser, this report may not be used for any purpose by any person other than
the party to whom it is addressed. In any event, this report may be used only
with properly written qualification and only in its entirety for its stated
purpose.
Testimony in Court - Testimony or attendance in court or at any other hearing is
not required by reason of rendering this appraisal, unless such arrangements are
made a reasonable time in advance of said hearing. Further, unless otherwise
indicated, separate arrangements shall be made concerning compensation for the
appraiser's time to prepare for and attend any such hearing.
Structural Deficiencies - The appraiser has personally inspected the subject
property, and except as noted in this report, finds no obvious evidence of
structural deficiencies in any improvements located on the subject property.
However, the appraiser assumes no responsibility for hidden defects or
non-conformity with specific governmental requirements, such as fire, building
and safety, earthquake or occupancy codes, unless inspections by qualified
independent professionals or governmental agencies were provided to the
appraiser. Further, the appraiser is not a licensed engineer or architect and
assumes no responsibility for structural deficiencies not apparent to the
appraiser at the time of this inspection.
Termite/Pest Infestation - No termite or pest infestation report was made
available to the appraiser. It is assumed that there is no significant termite
or pest damage or infestation, unless otherwise stated.
Income Data Provided by Third Party - Income and expense data related to the
property being appraised was provided by the client and is assumed, but not
warranted, to be accurate.
Asbestos - The appraiser is not aware of the existence of asbestos in any
improvements on the subject property. However, the appraiser is not trained to
discover the presence of asbestos and assumes no responsibility should asbestos
be found in or at the subject property. For the purposes of this report, the
appraiser assumes the subject property is free of asbestos and that the subject
property meets all federal, state and local laws regarding asbestos abatement.
<PAGE>
STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
(Continued)
Archeological Significance - No investigation has been made by the appraiser and
no information has been provided to the appraiser regarding potential
archeological significance of the subject property or any portion thereof. This
report assumes no portion of the subject property has archeological
significance.
Compliance with the Americans with Disabilities Act - The Americans with
Disabilities Act ("ADA") became effective January 26, 1992. We have not made a
specific compliance survey and analysis of this property to determine whether or
not it is in conformity with the various detailed requirements of the ADA. It is
possible that a compliance survey of the property, together with a detailed
analysis of the requirements of the ADA could reveal that the property is not in
compliance with one or more of the requirements of the Act. If so, this fact
could have a negative effect upon the value of the property. Since we have no
direct evidence relating to this issue, we did not consider possible
non-compliance with the requirements of ADA in estimating the value of the
property.
Definitions and Assumptions - The definitions and assumptions upon which our
analyses, opinions and conclusions are based are set forth in appropriate
sections of this report and are to be part of these general assumptions as if
included here in their entirety.
Utilization of the Land and/or Improvements - It is assumed that the utilization
of the land and/or improvements is within the boundaries or property described
herein and that there is no encroachment or trespass.
Encroachments - It is assumed that the utilization of the land and/or
improvements is within the boundaries or property described herein and that
there is no encroachment or trespass.
Dissemination of Material - Use and disclosure of the contents of this report is
governed by the bylaws and regulations of the Appraisal Institute. Neither all
or any part of the contents of this report (especially the conclusions as to
value, the identity of the appraiser or the firm with which they are connected,
or any reference to the Appraisal Institute or to the MAI or RM designations)
shall be disseminated to the general public through advertising or sales media,
public relations media, new media or other public means of communication without
the prior written consent and approval of the appraiser(s).
Distribution and Liability to Third Parties - The party of whom this appraisal
report was prepared may distribute copies of this appraisal report only in its
entirety to such third parties as may be selected by the party for whom this
appraisal report was prepared; however, portions of this appraisal report shall
not be given to third parties without our written consent. Liability to third
parties will not be accepted.
Use in Offering Materials - This appraisal report, including all cash flow
forecasts, market surveys and related data, conclusions, exhibits and supporting
documentation may not be reproduced or references made to the report or to PKF
Consulting in any sale offering, prospectus, public or private placement
memorandum, proxy statement or other document ("Offering Material") in
connection with a merger, liquidation or other corporate transaction unless PKF
Consulting has approved in writing the text of any such reference or
reproduction prior to the distribution and filing thereof.
Limits to Liability - PKF Consulting cannot be held liable in any cause of
action resulting in litigation for any dollar amount which exceeds the total
fees collected from this individual engagement.
Legal Expenses - Any legal expenses incurred in defending or representing
ourselves concerning this assignment will be the responsibility of the client.
<PAGE>
ADDENDUM C
QUALIFICATIONS OF THE APPRAISERS
<PAGE>
QUALIFICATIONS OF
THOMAS E. CALLAHAN, CPA, CRE, MAI
EXECUTIVE VICE PRESIDENT
PROFESSIONAL HISTORY
Present Executive Vice President, PKF Consulting
San Francisco, California
Prior Pannell Kerr Forster, Boston and Los Angeles
Partner-in-Charge
Pannell Kerr Forster, Dallas and Houston
Partner
AREAS OF EXPERTISE Economic, financial,
operational, management and valuation
consulting for the real estate, hospitality
and related service industries.
REPRESENTATIVE
PROJECTS Numerous market and economic feasibility
studies for hotels, motor hotels, and
resorts in the United States, Europe, the
Pacific, and Southeast Asia.
Acquisition studies and development planning
for numerous hotels and motor hotels.
Appraisal of the market value of all types
of income producing properties including:
hotels, restaurants, ski resorts, office
buildings, golf courses, mixed-use and
retail developments.
Market and economic feasibility studies for
retirement and long-term health care
facilities located in Texas and California.
Preparation of master plan studies for the
development of multi-use real estate
projects in the Republic of China,
Singapore, and the United States. These
studies include highest and best use
analyses for the proposed site, market and
financial feasibility analyses, economic
valuations and development of the management
structure for project implementation.
Development of reorganization plans and
expert testimony in court for bankruptcy
proceedings associated with all types of
hotels and resorts.
<PAGE>
QUALIFICATIONS OF
THOMAS E. CALLAHAN, CPA, CRE, MAI
REPRESENTATIVE
PROJECTS Evaluation of the organization structure,
financial controls and management
information systems of the Armed Forces
Recreation Center located in the Federal
Republic of Germany.
Operational reviews, financial analyses,
management evaluations and systems analyses
for hotels, resorts, restaurants, and clubs.
Valuation of large, complex real estate and
business holdings, including the Aspen
Skiing Company, Aspen Colorado; Angel Fire
Ski Company, Angel Fire, New Mexico; and the
Embarcadero Center, San Francisco,
California.
Preparation of cash flow and return on
investment calculations for proposed,
operating and distressed hotels, resorts,
restaurants, and clubs.
Appraisal of the market value of large real
estate portfolios, including all Trusthouse
Forte, Inc. hotel properties; all company
owned Hilton Hotels; all Vagabond Inns; all
Western 6 Motels; and all of the holdings of
Hotel Investors Trust.
Operational analysis, financial review and
long-range development for hotels and
resorts.
Market and economic feasibility study for a
proposed major international class hotel to
be located in Bandar Seri Begawan, Brunei.
Long-range budgeting, economic feasibility
and economic impact analysis for the
Industry Hills Civic Recreation Center
located in the City of Industry, California.
Market and economic feasibility analysis for
numerous convention and exhibit centers
including the Los Angeles Convention Center
and the Taipei World Trade Center.
Development of the organizational structure
and job descriptions and requirements for a
multi-use facility, which includes a hotel,
convention center and numerous recreational
facilities.
<PAGE>
QUALIFICATIONS OF
THOMAS E. CALLAHAN, CPA, CRE, MAI
REPRESENTATIVE
PROJECTS
(Continued) Development of procedural manuals for the
operation of major hotels.
Accounting system, internal control
procedures and management information system
design and implementation for hotel, club,
and restaurant operations.
EDUCATION WASHINGTON STATE UNIVERSITY
Bachelor of Arts in Business Administration
APPRAISAL INSTITUTE
Completed All Courses Required for Membership
PROFESSIONAL
QUALIFICATIONS Certified Public Accountant in Massachusetts,
California and Texas
Certified General Real Estate Appraiser - State of
California
PROFESSIONAL
AFFILIATIONS Member of the Appraisal Institute (MAI)
American Society of Real Estate Counselors (CRE)
International Society of Hospitality Consultants (ISHC)
American Institute of Certified Public Accountants
California Society of Certified Public Accountants
Texas Society of Certified Public Accountants
Massachusetts Society of Certified Public Accountants
American Hotel & Motel Association - Research Committee
American Institute of Certified Public Accountants - MAS
Executive Committee Member
PROFESSIONAL
ACTIVITIES Guest speaker at various industry seminars
EXPERT
TESTIMONY Admitted as an expert in both State and Federal courts
located in Massachusetts, Illinois, California, Texas
and New Mexico
<PAGE>
QUALIFICATIONS OF
KENNETH KUCHMAN
VICE PRESIDENT
PROFESSIONAL HISTORY
Present PKF CONSULTING - San Francisco
Vice President
Prior BDO SEIDMAN - San Francisco
Senior Consultant
LAVENTHOL & HORWATH - San Francisco
Consultant
THE MANDARIN ORIENTAL HOTEL GROUP
Hong Kong and San Francisco
Various Management Positions
AREAS OF EXPERTISE Operational planning and
evaluation of hospitality industry
activities. Extensive experience in the
pre-opening and on-going operations of
hotels, motels, resorts, and conference
centers.
Preparation of market feasibility
studies for hotels and related
facilities including estimated financial
income statements.
Preparation of full narrative appraisals
of lodging properties and related
facilities focusing on valuation of
projected operating income. Skills
encompass fee simple, leasehold, and
leased fee estate interest valuation.
Litigation support analysis involving
the performance of hotel management
services.
MAJOR PROJECTS Comprehensive operational
review of the lodging and food service
operating establishments located within
Yosemite National Park.
Operational review of lodging, dining,
recreation and sports facilities at nine
United States Air Force bases.
<PAGE>
QUALIFICATIONS OF
KENNETH KUCHMAN
MAJOR PROJECTS
(CONTINUED) Market feasibility studies for over 15
proposed hospitality industry projects
including golf courses and standard and
extended-stay hotels to be constructed
in Northern California and in Nevada.
Appraisals and operational analysis of
two casino hotels and a 500 room
resort-style hotel located in Las Vegas,
Nevada.
Appraisals of over 20 full-service
hotels and major resorts located
throughout the mainland United States,
Hawaii, and Bermuda. Appraisals of
numerous economy lodging facilities,
comprising 53 to 175 rooms, and adjacent
leased restaurants, in California and in
the Southwest.
Litigation support services relating to
the termination of hotel management
contracts by the owning partnerships of
several full-service hotels located in
California and Hawaii.
EDUCATION CLAREMONT GRADUATE SCHOOL
THE PETER F. DRUCKER
GRADUATE MANAGEMENT CENTER
Master of Business Administration
CORNELL UNIVERSITY
SCHOOL OF HOTEL ADMINISTRATION
Bachelor of Science, Hotel
Administration
PROFESSIONAL
ACTIVITIES Certified General Real Estate Appraiser
State of California, Certificate #AG022842
State Accredited Affiliate of the Appraisal
Institute
MAI Candidate, Appraisal Institute, Candidate
#M950161
President, Cornell Society of Hotelmen,
Northern California Chapter
<PAGE>
ANWAR R. ELGONEMY
CONSULTANT
PROFESSIONAL
HISTORY
Present PKF CONSULTING - San Francisco, California
Consultant
Prior Horwath International - Lisbon, Portugal
Consultant
Marriott International - London, England
Manager - International Market Planning and
Feasibility
Holiday Inn Hotel - Bristol, England
Management Trainee
Houston Medical Center Hilton Hotel - Houston, Texas
Internal Auditor
SUMMARY
OF PROJECTS Market studies on the potential demand for
recreational facilities and amenities throughout
Portugal. Facilities analyzed included golf courses,
camping grounds, marinas, aquatic parks, amusement
parks, and museums.
Preparation of master plan studies for the
development of multi-use real estate projects in
Southern Europe. These studies included highest and
best use analyses for the proposed site, market and
financial feasibility analyses, and economic
valuations.
Market and financial feasibility study for a 250-room
luxury hotel with a 100-berth marina, and sports and
leisure complex in Northern Portugal.
Market and financial feasibility for a 200-room
luxury hotel with a 36-hole golf course and 400
luxury villas in Southern Portugal.
Appraisal of 25 lodging facilities located in
Arizona, California, New Mexico,
Oregon and Washington
<PAGE>
QUALIFICATIONS OF
ANWAR R. ELGONEMY
CONSULTANT (Continued)
EDUCATION THUNDERBIRD - THE AMERICAN GRADUATE SCHOOL
OF INTERNATIONAL MANAGEMENT
Master of International Management
(Emphasis in Finance)
THE UNIVERSITY OF HOUSTON
Conrad N. Hilton College
Bachelor of Science in Hotel Management
CENTRE INTERNATIONAL DE GLION - Switzerland Diplome
Superior - Hotel and Tourism Administration
PROFESSIONAL
MEMBERSHIPS Affiliate Member of the Appraisal Institute (Chicago)
World Affairs Council of Northern California
(San Francisco)
Chartered Institute of Bankers (London)
Vice President - Thunderbird Northern California
Chapter
<PAGE>
ADDENDUM D
COPY OF THE APPRAISERS' STATE CERTIFICATIONS
<PAGE>
(Official state certificate issued to Thomas E. Callahan deleted)
EXHIBIT 99.3
FAIRNESS OPINION
May 19, 1998
Super 8 Economy Lodging IV, Ltd.
c/o The Famous Host Companies
2030 J Street
Sacramento, California 95814
Attn: Mr. Philip Grotewohl
Dear Mr. Grotewohl:
Pursuant to your request, we have analyzed the proposed transaction whereby
Tiburon Capital Corporation would acquire the following hotel which is owned by
Super 8 Economy Lodging IV, Ltd.
Super 8 Motel
5375 Owens Court
Pleasanton, California
As we understand it, Tiburon Capital Corporation would acquire this property on
an all cash basis for a total consideration of $7,600,000. Based on our analysis
of the above hotel property, we are of the opinion that the proposed transaction
is fair and equitable from a financial standpoint to the limited partners of the
Partnership.
If you have any questions on the foregoing, or if I can be of any further
assistance, please don't hesitate to contact me directly.
Very truly yours,
PKF Consulting
/s/ THOMAS E. CALLAHAN
-------------------------------
Thomas E. Callahan, CPA, CRE, MAI
Executive Vice President
TEC/klk
