MARKET SNAPSHOT: SOUTHERN CALIFORNIA - HOT FOR HOTEL DEVELOPMENT AS VALUES EXCEED COST

MARKET SNAPSHOT: SOUTHERN CALIFORNIA - HOT FOR HOTEL DEVELOPMENT AS VALUES EXCEED COST Leah Dauer Murphy Vice President www.hvs.cm HVS Cnsulting and Valuatin 879 West 190 th Street, Suite 400, Ls Angeles, CA 90248 USA

Market Snapsht: Suthern Califrnia - HOT fr Htel Develpment as Values Exceed Cst Suthern Califrnia is undersupplied with mdern ldging prducts. Numerus prjects currently underway indicate that the ecnmic envirnment in Suthern Califrnia is ready fr new htel develpment. Htel transactins in 2012 attained high prices per-rm, demnstrating the cntinued strng demand fr Suthern Califrnia htels by investrs and the feasibility f building new htels, as values f existing prduct start t exceed develpment csts. Suthern Califrnia is ne f the mst desirable markets fr htel investrs, given the area s diverse amunt f crprate demand generatrs, numerus leisure and recreatinal attractins, extensive netwrks f transprtatin rutes, ample airlift frm several internatinal airprts, three majr cnventin centers, and pleasant year-rund weather. Spanning ver 56,000 square miles and cvering 10 different cunties (Ls Angeles, San Dieg, Orange, Riverside, San Bernardin, Kern, Ventura, Santa Barbara, San Luis Obisp, and Imperial), Suthern Califrnia is hme t mre than 22 millin residents, r apprximately 7% f the ttal United States ppulatin. Given the expansive land area and large ppulatin base, Suthern Califrnia is hme t a wide variety f htel prducts. The chart belw breaks dwn the ttal number f guestrms available in Suthern Califrnia. FIGURE 1 SOUTHERN CALIFORNIA HOTEL SUPPLY Cunty Number f Htels Number f Rms Percent f Ttal Rms Supply Ls Angeles 1,139 98,432 34% San Dieg 538 58,533 20% Orange 494 54,154 19% Riverside 299 23,958 8% San Bernardin 286 18,838 6% Kern 137 9,864 3% Ventura 94 8,250 3% Santa Barbara 143 9,210 3% San Luis Obisp 163 8,576 3% Imperial 46 2,627 1% Suthern Califrnia Ttal 3,339 292,442 100% US Ttal 51,304 4,839,427 Surce: Smith Travel Research With ver 3,300 htels and rughly 292,000 guestrms, the Suthern Califrnia guestrm supply represents 6% f the ttal number f guestrms available in the United States. This percentage is belw the regin s share f the United States ppulatin and reflects that Suthern Califrnia is underserved in terms f guestrms, especially given the regin s large number f attractins that draw millins f visitrs annually frm all ver the wrld. One particular market that is underserved by guestrms is the area immediately surrunding the Ls Angeles Cnventin Center (LACC) in dwntwn Ls Angeles. As an example, the LACC s majr cnventin center cmpetitrs in Anaheim, San Dieg, and San Francisc ffer between 15 and 25 htels (r apprximately 7,800 t 19,000 htel rms) within a ne-half-mile radius f their MARKET SNAPSHOT: SOUTHERN CALIFORNIA - HOT FOR HOTEL DEVELOPMENT AS VALUES EXCEED COST PAGE 2

respective cnventin centers. While the LACC ffers nly 11 htels with rundly 5,900 htel rms within a tw-mile radius f the cnventin center, and nly five htels with apprximately 1,600 guestrms within a ne-half mile radius f the cnventin center. Althugh the additin f the dual-prduct Residence Inn by Marritt and the Curtyard by Marritt htels, which are scheduled t pen in 2014 with a cmbined ttal f 393 guestrms, will help the LACC s shrtage f guestrms, pprtunities exist in this market fr additinal htel develpment. Besides the verall shrtage f guestrms in Suthern Califrnia, several majr prjects are underway thrughut Suthern Califrnia that shw the ecnmic envirnment is right t begin the next wave f htel cnstructin in the area. Here are a few examples f the mst-ntable develpments in Suthern Califrnia: Ls Angeles Dwntwn Ls Angeles Renaissance - The strng success f LA Live, which cntains the JW Marritt and Ritz-Carltn Htels within, has cntinued t spur Dwntwn s evlutin and expansin. Several prjects are underway in Dwntwn, including the fllwing: A majr prject, knwn as the Grand Avenue Develpment, is scheduled fr Bunker Hill, adjacent t the Disney Cncert Hall. The develpment has been designed t mirrr the Time Warner Center in New Yrk and includes a prpsed luxury htel, cndminiums, mre than 280,000 square feet f retail space, and a 16-acre park cnnecting City Hall t the Disney Music Center. The develpment has been prpsed fr sme time, hwever, the scale f the prject has been reduced due t the recent ecnmic recessin. A 19-stry apartment twer, adjacent t the Brad Museum, brke grund in January 2013 and is anticipated t be cmpleted by the end f 2014. The Wilshire Grand Htel was clsed in December 2011 fr redevelpment. The demlitin f the existing htel imprvements began in Octber 2012, and are planned t be replaced with a 70-stry twer t include 900 htel rms, 400,000 square feet f ffice space, and several new restaurants. Upn cmpletin, the 70-stry twer will be the secnd-tallest building in Ls Angeles. A prpsed 72,000-seat NFL stadium, nw referred t as Farmer s Field, is scheduled t break grund in March 2013 n the site f the existing West Hall f the Ls Angeles Cnventin Center (LACC). Based n infrmatin prvided by cnventin center representatives and the stadium s develpment team, the West Hall is t be demlished fr the cnstructin f the stadium and replaced with a new West Hall. The new West Hall will replace sme f the LACC s dated facilities and prvide the cnventin center with a larger, mre cntiguus space. In additin, the LACC is anticipated t underg a general enhancement prgram. The prpsed Farmer s Field is als planned t be used by the LACC fr future events. With the mdernizatin f the LACC and the additin f the stadium, Dwntwn Ls Angeles is hping t becme ne f the tp-five cnventin and meeting destinatins in the United States. Century Plaza Redevelpment On January 15, 2013, the Ls Angeles City Cuncil unanimusly apprved a 15-year develpment agreement and an envirnmental MARKET SNAPSHOT: SOUTHERN CALIFORNIA - HOT FOR HOTEL DEVELOPMENT AS VALUES EXCEED COST PAGE 3

impact reprt fr the $2 billin plan t redevelp the Hyatt Regency Century Plaza and build tw 46-stry residential twers as part f a 1.5-millin-square-ft, mixed-use redevelpment prject. The develpers, New Century Assciates, had riginally acquired the Hyatt in 2008 and had planned n demlishing the htel fr the cnstructin f a new mixed-use develpment. Hwever, fllwing strng ppsitin frm city fficials and residents, the develpers presented a new design in August 2010 that included the htel building with 394 mdernized guestrms and 63 high-end apartments; tw residential twers; a 100,000-square-ft shpping plaza; and tw acres f pen space with funtains and walkways. Cnstructin n this prject is estimated t begin in early 2014. Tech Grwth in West Ls Angeles Silicn Beach - Santa Mnica has grwn ver the last several years t becme ne f the mst ppular cities in Suthern Califrnia fr start-up scial media cmpanies and has gained the nickname Silicn Beach. Yah! Media Grup was the first majr tech firm t mve t the area in 2005, and ther majr tech firms such as eharmny (late 2010), Rit Games (May 2011), BeachMint (June 2011), and Hulu (late 2012), have fllwed suit and have als pened ffices in Santa Mnica. Tech driven demand has been s strng that surrunding cities have started t see an increased presence f tech/scial media firms, with Ggle relcating frm Santa Mnica t a new ffice in Venice Beach (late 2011); Facebk pening an ffice in Playa Vista (late 2011); and 72andSunny and YuTube acquiring ffice space in Marina Del Rey (late 2012). Ls Angeles Internatinal Airprt s New Tm Bradley Internatinal Terminal - In February f 2010, cnstructin began n the Bradley West Prject, a lng-awaited majr mdernizatin f the Tm Bradley Internatinal Terminal. The $1.5 billin prject will create a new wrld-class terminal that will ffer travelers the very best in airprt amenities, adding ver 1,179,000 square feet f shps, restaurants, and passenger lunges, as well as new security screening, custms and immigratin, and baggage claim facilities. The terminal's existing tw cncurses will be demlished and replaced with a larger pair, inclusive f 18 gates. The first phase f the new Tm Bradley Terminal is scheduled fr cmpletin in spring 2013 and the secnd phase in winter 2014. Orange Cunty Anaheim Cnventin Center s Grand Plaza - The Anaheim Cnventin Center, the West Cast s largest cnventin center, expanded its utdr and special-event space by 100,000 square feet int a new multi-use venue area called the Grand Plaza. This prject was cmpleted in January 2013 and features expansive walkways, dramatic water features and funtains, seating areas, special lighting, and infrastructure necessary t supprt a variety f special events. The cnventin center develped the Grand Plaza t imprve the arrival-experience at the center, as well as t prvide a unique multi-functinal utdr space that can be used yearrund. Disney s Imprvements t Califrnia Adventure - The Califrnia Adventure Park has undergne majr renvatins and imprvements since 2008. The remaining renvatins were cmpleted in the summer f 2012, and included several new attractins, including The Little Mermaid Ariel s Undersea Adventure, Gfy s Ski Schl, and Cars Land, an area inspired by the Disney-Pixar mvie Cars. MARKET SNAPSHOT: SOUTHERN CALIFORNIA - HOT FOR HOTEL DEVELOPMENT AS VALUES EXCEED COST PAGE 4

San Dieg These new attractins reprtedly bsted visitatin in 2012 and are anticipated t help be strng drivers fr visitatin in 2013. San Dieg Cnventin Center Expansin - In early 2010, the San Dieg Cnventin Center acquired six acres f land alng the bay and adjacent t the current facility, thus allwing a Phase III expansin t mve frward. In Octber 2012, the Prt f San Dieg and the City f San Dieg apprved the Final Envirnmental Impact Reprt. The final apprval left is t cme frm the Califrnia Castal Cmmissin, which is anticipated t take place in early 2013. The prpsed cnventin center expansin is anticipated t include mre than 220,000 square feet f exhibit hall space, 101,500 square feet f meeting rms, and 78,000 square feet f ballrm space. In additin, the prject is expected t include a five-acre rftp park/plaza, 45,000 square feet f retail space, and a 500-rm expansin f the Hiltn San Dieg Bayfrnt Htel. Fllwing apprval frm the Califrnia Castal Cmmissin, this expansin is estimated t be cmpleted in 2016. San Dieg Internatinal Airprt s Green Build - In July 2009, the San Dieg Airprt Authrity apprved a $1 billin expansin f the airprt, the largest expansin in the airprt s histry. Referred t as the Green Build, the prpsed expansin plans include the additin f 10 new jetways in Terminal 2, a cnversin t a bi-level departures and arrivals terminal, expanded dining and shpping ptins, and imprved security gates. The prject is currently under cnstructin and is anticipated t be cmpleted by summer 2013. Additinally, the expansin prject is being planned with materials and designs with the gal f attaining silver certificatin with leadership in energy and envirnmental design (LEED). All f these develpments are anticipated t help supprt new htel develpment in each f their respective markets, as well as imprve the ecnmic envirnment fr the verall Suthern Califrnia regin. In additin t the imprving ecnmic cnditins fr new htel develpment, majr htel transactins in Suthern Califrnia cntinue t remain active and achieve high prices n a per-rm basis. Accrding t the transactins that HVS cnfirmed as f the date f this article, Figure 2 belw shws the majr htel transactins (greater than $10 millin) between 2000 and 2012. MARKET SNAPSHOT: SOUTHERN CALIFORNIA - HOT FOR HOTEL DEVELOPMENT AS VALUES EXCEED COST PAGE 5

Number f Majr Htel Sales 40 35 30 25 20 15 10 5 FIGURE 2 MAJOR HOTEL SALES TRANSACTIONS IN SOUTHERN CALIFORNIA Number f Transactins Average Sales Price Per Rm $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 Average Price Per Rm 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Surce: HVS $0 Based n preliminary data, Suthern Califrnia recrded $931 millin in majr htel transactins in 2012. The distributin f the 2012 majr transactin is presented in Figure 3 belw. FIGURE 3 2012 MAJOR HOTEL SALES TRANSACTIONS IN SOUTHERN CALIFORNIA Market $ Vlume (Millins) $/Rm N. Prperties San Dieg Cunty 494 213,822 9 Ls Angeles Cunty 362 252,021 7 Ventura Cunty 35 83,696 2 Orange Cunty 26 114,865 1 Santa Barbara Cunty 15 222,059 1 Suthern Califrnia Ttal 931 209,109 20 Surce: HVS Similar t ther parts f the United States, majr transactins in Suthern Califrnia declined in 2012 ver 2011. Nnetheless, 2012 s average price per rm was the secnd highest ever recrded by Suthern Califrnia, secnd nly t the average price per rm f $240,000 recrded previusly in 2011. This can be attributed t cntinued imprvement in htel perfrmance, a lw cst f capital and htel investrs strng desire t gain assets in the Suthern Califrnia market. The fllwing figure presents the market s ten largest htel transactins in 2012, based n ttal price. MARKET SNAPSHOT: SOUTHERN CALIFORNIA - HOT FOR HOTEL DEVELOPMENT AS VALUES EXCEED COST PAGE 6

FIGURE 4 SOUTHERN CALIFORNIA HOTEL TRANSACTIONS 2012 S LARGEST HOTEL TRANSACTIONS Prperty Name City Cunty Rm Cunt Price $/Rm Lews Hllywd Hllywd Ls Angeles 632 $169,000,000 $267,405 W Ls Angeles Westwd Ls Angeles Ls Angeles 258 125,000,000 484,496 Westin San Dieg San Dieg San Dieg 436 115,500,000 264,908 Curtyard by Marritt San Dieg Missin Valley Htel Circle San Dieg San Dieg 317 85,000,000 268,139 L'Auberge Del Mar Resrt & Spa Del Mar San Dieg 120 76,900,000 640,833 Marritt San Dieg Del Mar San Dieg San Dieg 284 66,000,000 232,394 Hyatt Regency Missin Bay Spa & Marina San Dieg San Dieg 429 62,000,000 144,522 Hiltn San Dieg Del Mar Del Mar San Dieg 257 32,278,686 125,598 Inn At Ranch Santa Fe Ranch Santa FSan Dieg 87 28,000,000 321,839 Embassy Suites Anaheim Nrth Anaheim Orange 222 25,500,000 114,865 Surce: HVS Additinal details regarding sme f the mst ntable majr transactins in 2012 include: The transactin largest price f 2012 was the June 2012 sale f the Lews Hllywd (frmerly the Renaissance Hllywd Htel) at a purchase price f $169 millin, r apprximately $171,000 per rm. Lews Htels & Resrts purchased this prperty frm CIM Grup as part f a strategic plan t further expand the Lews brand. LaSalle Htel Prperties added a fifth San Dieg htel t its prtfli by acquiring the L'Auberge Del Mar Resrt & Spa in late 2012 fr $76.9 millin, r rundly $641,000 per rm, at a reprted verall cap rate f 6.0%. The riginal wners, Lwe Enterprises Investrs, spent rundly $25.8 millin ($215,000 per rm) n extensive renvatins between 2007 and 2009. The L Auberge sale represented the highest price paid n a perrm basis fr the year in all f Suthern Califrnia. One f San Dieg Cunty s mst ntable 2012 transactins included the Hyatt Regency Missin Bay Spa & Marina. The Hyatt is subject t a lng-term grund lease with the City f San Dieg and was sld t Chesapeake Ldging Trust in September 2012 fr $62 millin, r rundly $145,000 per rm, with a reprted verall cap rate f 5.7%. It shuld be nted that the sellers f the prperty, an affiliate f Bentall Kennedy, had riginally purchased the prperty in early 2006 fr $60 millin, r rundly $140,000 per rm, and invested an additinal $67 millin t cnduct a prperty-wide renvatin and refurbishment in 2006 and 2007. Hwever, the timing f the renvatin and the recent ecnmic recessin prevented the seller frm recuping their ttal investment. Cnclusin Suthern Califrnia is ne f the natin s mst diverse ldging markets, but is underserved in terms f rms supply relative t its ppulatin base, numerus demand generatrs, and millins f annual visitrs. Suthern Califrnia has rebunded frm the previus ecnmic recessin, with majr htel transactin prices remaining high and several develpments in the regin helping t pave the way fr a new era f ecnmic grwth and htel develpment. With htel values nw exceeding the cst f cnstructing new ldging prduct in several sub-markets, investrs are faced with varius ptins fr entering in the lucrative Suthern Califrnia regin. MARKET SNAPSHOT: SOUTHERN CALIFORNIA - HOT FOR HOTEL DEVELOPMENT AS VALUES EXCEED COST PAGE 7

Abut HVS HVS is the wrld s leading cnsulting and services rganizatin fcused n the htel, restaurant, shared wnership, gaming, and leisure industries. Established in 1980, the cmpany perfrms mre than 2,000 assignments per year fr virtually every majr industry participant. HVS principals are regarded as the leading prfessinals in their respective regins f the glbe. Thrugh a wrldwide netwrk f 30 ffices staffed by 400 seasned industry prfessinals, HVS prvides an unparalleled range f cmplementary services fr the hspitality industry. Fr further infrmatin regarding ur expertise and specifics abut ur services, please visit www.hvs.cm. Abut the Authr Leah Dauer Murphy is a Vice President with the HVS Ls Angeles ffice. She is a Califrnia state-certified general appraiser and als hlds tw degrees with Washingtn State University, including an M.B.A. frm the Cllege f Business and a B.A. frm the Schl f Hspitality Business Management. At HVS, Leah perfrms appraisals, feasibility studies, and cnsulting assignments n htels and resrts thrughut the United States and abrad. Ms. Murphy can be cntacted at: +1 (424) 208-1261 direct ldmurphy@hvs.cm www.hvs.cm HVS Cnsulting and Valuatin 879 West 190th Street, Suite 400, Ls Angeles, CA 90248 USA