December 1, Tim Martin Executive Director Stephens County Development Authority 31 W. Doyle Street Toccoa, GA

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1 December 1, 2017 Tim Martin Executive Director Stephens County Development Authority 31 W. Doyle Street Toccoa, GA Dear Mr. Martin, We are pleased to present this summary letter report on potential hotel development in Toccoa, Georgia. Recommendations in this study result from research of the lodging market, area tours, interviews with local generators of hotel demand, meetings with economic development authorities and analysis of economic data. We have done our best to obtain accurate information for you. However, since we relied on interviews as well as other sources, some information may vary from actual. Conclusions are based on research ended November 28, 2017 and we cannot be responsible for events occurring subsequent to that date, or not foreseen. Our projections are based on assumptions, and we do not warrant that they will be achieved West Paces Ferry Rd. #148 Atlanta, Georgia (404)

2 Summary of Conclusions Stephens County and the City of Toccoa are undergoing an effort to attract businesses and tourism. According to NextSite, there was over $72 million spent on retail in 2016 in Toccoa; and after identifying similar communities based on population and average household income, there is potential to increase these expenditures. Additionally, Toccoa has received strategic advice from the State of Georgia Tourism Product Development Resource which when put into force could increase opportunity for tourism to several of its venues. The table following shows projections for a 72-room Quality Branded Limited Service Hotel developed on a recommended site in Toccoa, considering assumptions and risks listed below and with an open date of fiscal year Projected Operating Results Quality Branded Limited Service Toccoa Hotel Average Room Year Occupancy Rate (1) RevPar (1) % $125 $ % $129 $ % $134 $ % $137 $ % $140 $91 Note: (1) Adjusted for inflation Source: The Highland Group Assumptions Visitation to Toccoa from larger demand generators remains stable There are no other hotels developed within the projection period The hotel is of good quality, easily accessed and visible to Hwy 17 Progress is made to attract restaurants and retail to the City of Toccoa Progress continues to attract tourism to the City of Toccoa 2

3 The hotel is developed with necessary amenities and no more than 72 rooms Risks Low overall hotel occupancy RevPar (Occupancy X Average Daily Rate) is strongest for quality branded hotels at Interstate 85 There are limited good quality restaurants nearby Site Recommendation The first recommended hotel site would be at Hwy 17 and the entrance to the Walmart Supercenter provided there is easy access and strong visibility. Currently there is not enough demand and supporting services in downtown Toccoa to support a quality branded limited service hotel. However, the efforts of NextSite and the implementation of Tourism Product Development recommendations could make downtown Toccoa a more desirable location for a hotel in the future. 3

4 Market Research Economic data from Woods & Poole Economics shows projected growth in key areas for Toccoa Stephens County, Georgia as shown in the table following. Historic and Projected Economic Indicators Toccoa, GA Micro Stephens County Population (000's) CAG (1) 0.1% 0.3% 0.1% 0.3% Employment (000's) CAG (1) -0.3% 0.7% -0.3% 0.7% Accommodation & Food Services Employment (000's) CAG (1) -0.3% 1.4% -0.3% 1.4% Gross Regional Product ($ millions) (2) $747 $832 $934 $747 $832 $934 CAG (1) 1.1% 1.2% 1.1% 1.2% Total Retail Sales ($ millions) (2) $ $ $ $ $ $ CAG (1) -1.1% 0.9% -1.1% 0.9% Wealth Index (3) 67.0% 70.8% 71.4% 67.0% 70.8% 71.4% CAG (1) 0.5% 0.1% 0.5% 0.1% Note: (1) Compound Annual Change (2) 2005 constant dollars (3) US = 100% Source: Woods & Poole Economics Positive changes in employment, specifically accommodation & food services employment, and gross regional product are good indicators of future trends in hotel demand and are forecast to increase through

5 According to the Georgia Department of Transportation (GDOT), traffic on US 17 just northwest of Interstate 85 has increased at a compound annual average of 7.5 percent from 2010 through US 17 (or the Toccoa Bypass) takes travelers from Interstate 85 past the Walmart Supercenter & recommended site area, and eventually northwest through North Georgia s Chattahoochee National Forest where it terminates in the tourist destination City of Helen, Georgia. Growth in traffic volume is a good indicator of area growth and potentially demand for hotels, as indicated in the table following. Traffic US 129-Walmart Supercenter Year AADT , , , , , , ,320 (1) CAG 7.5% Note: (1) Compound Annual Average Source: Georgia Department of Transportation Demand Interview Analysis Telephone interviews were conducted to determine the need for a quality branded limited service hotel in the City of Toccoa. Total estimated room nights of 3,352 were calculated from 12 out of 16 demand generators contacted. The largest amount of room nights generated in Toccoa based on the demand interviews were from companies including First Franklin, ASI and Toccoa Falls College. 5

6 Other results of the demand interviews indicate: Approximately 3,190 room nights or 95 percent of total room nights would find a nightly hotel room rate of $ reasonable. All establishments contacted would consider using a good quality limited service hotel in the City of Toccoa because of its convenience to their location. All responses state they currently use hotels in Lavonia and Cornelia. Amenities most preferred include complimentary breakfast, free Wi-Fi service and a fitness center. The table following shows historical operating performance of participating hotels in the overall competitive area of Toccoa from 2011 through The data is collected from the following eleven hotels - In Toccoa a 40-room Country Hearth Inn; in Lavonia a 65-room Rodeway Inn, 50- room EconoLodge, 45-room Days Inn, 60-room Super 8, 81-room Hampton Inn & Suites, and a 72-room Holiday Inn Express & Suites; and in Cornelia a 60-room Super 8, 57-room Baymont Inn & Suites, 81-room Hampton Inn, and a 40-room Days Inn. Room Night Toccoa, GA - Overall Competitive Area Hotel Operating History Change Room Change Change in Night in Average in Change in Year Supply Supply Occupancy Demand Demand Rate Rate RevPar RevPar , % 82,212 $69.57 $ , % 42.4% 83, % $ % $ % , % 43.3% 74, % $ % $ % , % 47.3% 81, % $ % $ % , % 48.0% 92, % $ % $ % , % 51.5% 114, % $ % $ % CAG (1) 1.1% 6.8% 5.0% 10.9% Note: (1) Compound Annual Growth Source: Smith Travel Research Over a five-year period, supply has fluctuated as lower quality hotels have either closed or rebranded which is typical of this type of product. However, in May 2015 the Hampton Inn & 6

7 Suites in Lavonia opened increasing demand over 13 percent that year and contributing to continued demand growth in 2016 as the hotel was absorbed in conjunction with the Days Inn conversion from an independent Regency Inn & Suites. This growth indicates the demand in the overall market for branded, better quality hotels. Demand increased for this group of hotels at a compound annual average of 6.8 percent from 2011 through 2015, however occupancies remained in the 40 percent range from 2012 until 2016 when it reached 52 percent. Average daily rate increased almost $19 from 2011 through 2016 at a compound annual average of 5 percent, contributing to an annual average RevPar of 10.9 percent. Average daily rate peaked for the overall competitive market in 2016 at $ The table below shows operating performance for the competitive hotels year to date through October Room Night Toccoa, GA - Overall Competitive Area Hotel Operating History YTD (1) Change Room Change Change In Night In Average In Change In Year Supply Supply Occupancy Demand Demand Rate Rate RevPar RevPar , % 97,333 $89.34 $ , % 49.0% 97, % $ % $ % Note: (1) Year-to-Date through October Source: Smith Travel Research Supply increases are due to the remaining rooms coming on line from the Days Inn in Demand and average daily rate declined slightly in 2017 compared to the same time period in We expect the overall market to achieve an occupancy of 48 percent and maintain an average daily rate of $89 by year end Weekends are slightly more visited days in the competitive hotel market than weekdays. The table below shows the competitive hotel performance by day of the week with slightly higher average daily rates on the weekends. According to Stephens County, there were just over 179,000 visitors to Toccoa in 2016 to venues including Camp Fire Toccoa, Camp Toccoa Currahee, Currahee Military Museum, Georgia Baptist Conference Center, Toccoa Falls and Travelers Rest. Competitive Hotel Market Operating Performance by Day of Week-11/ /2017 7

8 Sun Mon Tue Wed Thu Fri Sat Occupancy 32.6% 47.0% 50.3% 51.4% 45.8% 54.8% 53.4% ADR $ $ $ $ $ $ $ RevPar $ $ $ $ $ $ $ Source: Smith Travel Research The best quality hotels in the overall competitive area are the Hampton Inn & Suites and Holiday Inn Express & Suites in Lavonia and the Hampton Inn in Cornelia. These hotels are within a 17- mile drive from Toccoa proper and would be directly competitive with a good quality limited service hotel in the City of Toccoa. Direct competitors achieve 73 percent higher RevPar (Occupancy X Average Daily Rate) than the overall competitive set. Below is a summary of directly competitive hotel performance from 2014 through 2016, and projected performance in Competitors Total Competitive Market Summary Occupancy Average Daily Rate Direct Rooms Hampton Inn & Suites Lavonia % 55-59% 65-69% $ $ $ Holiday Inn Exp Lavonia % 75-79% 70-74% 65-69% $ $ $ $ Hampton Inn Cornelia % 70-74% 70-74% 70-74% $85-89 $95-99 $ $ TOTAL % 66% 67% 68% $97 $107 $111 $116 Source: The Highland Group Average occupancy for this group of hotels dropped from 73 percent to 66 percent when the Hampton Inn & Suites Lavonia opened in May However, the Holiday Inn Express and Hampton Inn Cornelia maintained occupancies in the 70 percent range through As the Hampton Inn & Suites Lavonia continues to ramp up, directly competitive occupancies are expected to reach 68 percent by year end Average rates increased for this group of hotels at 15 percent from $97 in 2014 to $111 in Growth in average rates are expected to continue another $5 dollars to $116 in

9 The table below shows projected operating performance for the directly competitive set. Increased supply in 2015 and 2016 is the result of the 81-room Hampton Inn & Suites Lavonia opening mid Increased supply in 2020 is the result of the proposed 72 room hotel in Toccoa. Projection of Supply and Demand by Segment Actual Projected Segment Corporate 26,392 32,274 37,324 37,623 37,999 38,379 44,136 47,667 49,097 49,588 49,588 Percent Change 22% 16% 1% 1% 1% 15% 8% 3% 1% 0% Segment Demand 26,392 32,274 37,324 37,623 37,999 38,379 44,136 47,667 49,097 49,588 49,588 Leisure 14,211 17,378 20,098 20,259 20,461 20,666 23,766 25,667 26,437 26,701 26,701 Percent Change 22% 16% 1% 1% 1% 15% 8% 3% 1% 0% Segment Demand 14,211 17,378 20,098 20,259 20,461 20,666 23,766 25,667 26,437 26,701 26,701 Total Demand 40,603 49,652 57,422 57,882 58,461 59,045 67,902 73,334 75,534 76,289 76,289 Total Supply 55,845 75,285 85,410 85,410 85,410 85, , , , , ,690 Total Demand Percent Change 22% 16% 1% 1% 1% 15% 8% 3% 1% 0% Total Supply Percent Change 35% 13% 0% 0% 0% 31% 0% 0% 0% 0% Competitive Set Occupancy 73% 66% 67% 68% 68% 69% 61% 66% 68% 68% 68% Source: The Highland Group Competitive hotel room supply is projected to increase by a compound annual average of 3.9 percent from 2017 through The corresponding increase in demand is projected to be 4 percent. The proposed 72-room hotel in Toccoa is expected to be absorbed within 3 years. The table below shows the competitive market penetration by demand segment for the proposed hotel in Toccoa. 9

10 Segment Quality Branded Limited Service Hot Fair Share Demand 24% 24% 24% 24% 24% Corporate Fair Share Demand 10,385 11,216 11,552 11,668 11,668 Penetration 90% 95% 95% 95% 95% Capture 9,346 10,655 10,975 11,084 11,084 Mix 65% 65% 65% 65% 65% Leisure Fair Share Demand 5,592 6,039 6,220 6,283 6,283 Penetration 90% 95% 95% 95% 95% Capture 5,033 5,737 5,909 5,969 5,969 Mix 35% 35% 35% 35% 35% Total Fair Share Demand 15,977 17,255 17,773 17,950 17,950 Penetration 90% 95% 95% 95% 95% Capture 14,379 16,392 16,884 17,053 17,053 Occupancy 55% 62% 64% 65% 65% Source: The Highland Group Quality Branded Limited Service Hotel Penetration Analysis A penetration analysis was performed to assess how well a proposed Quality Branded Toccoa Hotel would compete in each segment of demand. The formula for penetration is room nights of demand captured by a hotel divided by that hotel s fair share of demand. Fair share is the ratio of the hotel s rooms to the number of competitive rooms in the market area. All else being equal, each hotel would have 100 percent penetration; however, hotels differ in their degree of competitiveness across the segments. Strong potential performance is reflected in penetration rates above 100 percent. Penetration in each segment of demand is discussed in the paragraphs following. 10

11 A Quality Branded Limited Service Hotel in the City of Toccoa would be expected to penetrate the corporate segment 90 percent in its first year of operation; increasing to 95 percent by 2021 and throughout the projection period. The corporate segment is comprised of transient business travelers conducting business near or within Stephens County. The business traveler typically books 1 to 2 nights. The location of the Quality Branded Hotel is not on a heavily traveled interstate; therefore, most corporate business would likely be secured through a reservation system before arrival. Corporate guests are expected to account for 65 percent of overall room nights at the proposed hotel. Guests affiliated with Toccoa Falls College are expected to prefer a quality Toccoa lodging option due to convenience. Demand interviews indicated at least 660 annual room nights are generated from Toccoa Falls College. Other leisure guests visiting the area to experience amenities which include Tallulah Falls, Currahee Vineyards and the Currahee Military Museum would benefit from a hotel closer to these destinations. Therefore, a Quality Branded Limited Service Hotel in Toccoa is expected to penetrate the Leisure segment 90 percent in 2020; increasing to 95 percent in 2021 and throughout the projection period, as marketing efforts are realized. This segment is projected to account for 35 percent of overall room nights at the proposed hotel. Although the proposed hotel is smaller than the competitive Hilton products, it s overall penetration is not expected to reach 100 percent because directly competitive hotels are located at Interstate 85 or in a location in Cornelia within close proximity to a variety of full service restaurants. Overall penetration in the competitive market for the proposed Quality Branded Limited Service Hotel ranges from 90 to 95 percent. The table following shows average rate by demand segment for the proposed hotel in Toccoa. Quality Branded Limited Service Hotel Average Rate by Segment 11

12 Segment Corporate Room Nights 9,346 10,655 10,975 11,084 11,084 Rate $119 $121 $123 $123 $123 Leisure Room Nights 5,033 5,737 5,909 5,969 5,969 Rate $115 $117 $119 $119 $119 Current Dollar Average Rate $118 $120 $122 $122 $122 Inflation 2% 2% 2% 2% 2% Inflated Average Rate $125 $129 $134 $137 $140 Source: The Highland Group According to Smith Travel Research, there is little variation in average rates charged for corporate and leisure guests in the overall hotel market. As the proposed hotel would not be located at Intestate 85, however proximate to most business sources in Toccoa, we expect a slightly higher rate for corporate travelers. Average rates are expected to reflect current daily rates paid as indicated through demand interviews. According to the interviews, corporate and leisure guests typically reserve rooms for $100 to $125 per night in Stephens County. Interviews also indicated their use of the competitive set of hotels which are listed in the table following. As the proposed Quality Branded Limited Service Hotel would be 72-rooms and brand new, rates are projected to be positioned $5 to $10 higher than the Hampton Inn Cornelia. Competitive Hotel Average Rate Projections Hotel Hampton Inn & Suites Lavonia $ $ $ $ $ $ $ $ $ Holiday Inn Exp Lavonia $ $ $ $ $ $ $ $ $ Quality Branded Toccoa Hotel $125 $129 $134 $137 $140 Hampton Inn Cornelia $ $ $ $ $ $ $ $ $ Source: The Highland Group 12

13 Hotel Brand Availability Listed below are brands available, as of the writing of this report, for the recommended hotel site in Toccoa, GA and their representative contact information. Marriott Fairfield Inn & Suites Tim Sponsler, Franchise Development Director Choice Hotels Comfort Suites, Sleep Inn Hermant Patel, Director of Franchise Development Wyndham Hotels Wingate Inn Joe Stokes, Regional Director of Franchise Sales LaQuinta Inn & Suites Mike Davis, Franchise Development Director Best Western Fran Taloricco, Director of Franchise Sales Country Inn & Suites BH Horn, Director of Franchise Sales 13