Hvs market study   final - proposed hotel - flower mound tx - 05 31 11
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Hvs market study   final - proposed hotel - flower mound tx - 05 31 11 Hvs market study final - proposed hotel - flower mound tx - 05 31 11 Document Transcript

  • MARKET STUDY Proposed Select-Service Hotel FLOWER MOUND, TEXAS SUBMITTED TO: PROPOSED PREPARED BY: Ms. Melissa Glasgow HVS Consulting and Valuation Services Flower Mound Economic Development Division of DFW Hospitality Consulting, LLC 2121 Cross Timbers Road 2601 Sagebrush Drive, Suite 101 Flower Mound, Texas, 75028 Flower Mound, Texas 75028 +1 972 874-6045 +1 972 899-5400May-2011
  • May 2, 2011 Ms. Melissa Glasgow Flower Mound Economic Development 2121 Cross Timbers Road Flower Mound, Texas, 75028 Re: Proposed Select-Service Hotel Flower Mound, Texas HVS Reference: 20110204672601 Sagebrush Drive, Suite 101Flower Mound, Texas 75028 Dear Ms. Glasgow:+1 972 899-5400+1 972 899-1057 FAX Pursuant to your request, we herewith submit our market study pertaining to thewww.hvs.com above-captioned property. We have inspected the real estate and analyzed the hotel market conditions in the Flower Mound, Texas area. We have studied the proposed project, and the results of our fieldwork and analysis are presented inAtlanta this report. We have also reviewed the proposed improvements for this site. OurBoston report was prepared in accordance with the Uniform Standards of ProfessionalBoulder Appraisal Practice (USPAP), as provided by the Appraisal Foundation.ChicagoDallas We hereby certify that we have no undisclosed interest in the property, and ourDenver employment and compensation are not contingent upon our findings. This study isLas Vegas subject to the comments made throughout this report and to all assumptions andMexico City limiting conditions set forth herein.MiamiNassauNew York Sincerely,Newport DFW Hospitality Consulting, LLCSan FranciscoTorontoVancouverWashingtonAthensBuenos AiresDubai Kathleen D. Donahue, Senior Project ManagerHong KongLima kdonahue@hvs.com, +1 972 890-3548LondonMadridMumbaiNew DelhiSao PauloShanghaiSingaporeSpecialists in Hotel Consulting andAppraisal Worldwide
  • Table of Contents SECTION TITLE PAGE 1. Executive Summary 1 2. Description of the Site and Neighborhood 11 3. Market Area Analysis 22 4. Supply and Demand Analysis 45 5. Description of the Proposed Project 74 6. Projection of Occupancy and Average Rate 79 7. Projection of Income and Expense 88 8. Statement of Assumptions and Limiting Conditions 109 9. Certification 112 Addenda Penetration Explanation i The Nielsen Company Demographic Snapshot ii Qualifications
  • 1. Executive SummarySubject of the The subject of the market study is a select-service lodging facility; the hotel isMarket Study expected to be affiliated with a nationally-franchised brand. The property is expected to open on January 1, 2013 and is expected to feature 130 rooms, a breakfast dining area, lobby café and lounge, 3,500 square feet of meeting space, a pool, a whirlpool, an exercise room, a guest laundry facility, a business center, a market pantry, and ice machine areas. The hotel will also feature all necessary back-of-the-house space. The proposed subject property is expected to be located within the Lakeside Business District, Flower Mounds commercial district located at the south end of Town. At the time of this study, a specific parcel of land had not been determined for the hotel site. At the request of our client, The Town of Flower Mound, we have analyzed two primary areas, the River Walk at Central Park development and the Lakeside Business District. Following analysis of both areas, our study recommends and assumes the Lakeside Business District is more suited for hotel development. Primary support for this recommendation include: • Proximity to Dallas/Fort Worth International Airport • Proximity to Lake Grapevine Shoreline • Nearby concentration of corporations • Easy access to State Highway 121 and Grapevine Mills outlet mall and surrounding uses While we have recommended the Lakeside Business District for this study, it is important to note that the River Walk at Central Park development area is expanding with medical and residential development and would also be suited for hotel use. Overall, it is our opinion a developer would choose to maximize the corporate focus of the Lakeside Business Distinct and the proximity to airport. As Flower Mound continues to grow and is recognized as a lodging market choice, it is our opinion additional hotel development will be dispersed throughout other areas of the Town. Furthermore, a specific brand was not identified by our client as the subject of our study. After a review of the market supply, we have recommended a first-class, select-service hotel facility. Given the similarly in scope of facilities and amenitiesMay-2011 Executive Summary Proposed Select-Service Hotel – Flower Mound, Texas 1
  • in nationally affiliated select-service brands, it is our opinion that the identification of one particular brand is not pertinent to our study. The subject site’s location is in or near the Lakeside Business District in Flower Mound, Texas.Pertinent Dates The effective date of the report is May 2, 2011.Ownership, Franchise, At the time of this study, the developer or specific site had yet to be determined.and Management The purpose of this report is to allow the Town of Flower Mound to review theAssumptions potential performance of a lodging property in the Town and assist in the attraction of developers. The Town will have no interest in the development of the property other than potential incentives. Given the preliminary stage of the potential development project, we have devised certain assumptions illustrated in this report pertaining to the location of the subject site, as well as to the scope of the potential proposed hotel facility. We assume that the proposed subject hotel will be managed by a professional management company that is experienced in the operation of first-class, branded, select-service hotels. Our findings and this study are based on the potential development and future operation of a first-class, select-service hotel facility. Brands within this tier include hotels such as Hyatt Place (Hyatt), Cambria Suites (Choice Hotels), and Courtyard by Marriott (Marriott International), among others. We note the potential brand would be subject to location and impact analysis of the franchisor if the brand is already represented in the greater market. The management team had not been selected as of the date of this study; therefore, details pertaining to management terms had yet to be determined. We have assumed a market-appropriate total management fee of 3.0% of total revenues in our study. We recommend that the proposed subject property be developed and operate as a first-class, select-service hotel. A specific franchise affiliation has yet to be selected. First-class, select-service products generally encompass similar facility programs including limited food and beverage operations, meeting space, and ancillary facilities. Based on expected terms, a nationally-franchised hotel is reflected in our forecasts with a royalty fee of 5% of rooms revenue, and a marketing assessment of 3% of rooms revenue. Reservations fees will also be due, and are included in the rooms expense line item of our forecast.Summary of Hotel The north-central Dallas/Fort Worth Metroplex area encompasses theMarket Trends communities of Grapevine, Flower Mound, and Lewisville, among others, offering recreational opportunities, hotels, restaurants, and retail centers. The collective market area is ideally located adjacent to the northern entrance of the Dallas/Fort Worth International Airport. Occupancy in this area increased from 2003 through 2005 as a result of an increase in corporate travel to the area. Furthermore, theMay-2011 Executive Summary Proposed Select-Service Hotel – Flower Mound, Texas 2
  • Gaylord Texan opened in the spring of 2004 and began to generate a significant amount of overflow demand for the Grapevine hotel market during its ramp-up period. Demand experienced a correction from October 2008 through October 2009, concurrent with the corporate-travel restrictions that were put into place during this time. Furthermore, overflow demand from the Gaylord minimized during this period, as group travel to that facility slowed. Demand levels have now exceeded the historic high as most travel restrictions have been lifted, the Gaylord is experiencing strong results, and the Dallas/Fort Worth area is seen as a value- driven, business-focused and appropriate destination for travel in the current economic climate. The following table provides a long-term perspective on the supply and demand trends for a selected set of hotels, as provided by Smith Travel Research.FIGURE 1-1 HISTORICAL SUPPLY AND DEMAND TRENDS (STR) Average Daily Available Room Occupied Room Average Year Room Count Nights Change Nights Change Occupancy Rate Change RevPAR Change 2002 511 186,515 — 100,555 — 53.9 % $87.44 — $47.14 — 2003 511 186,515 0.0 % 111,330 10.7 % 59.7 81.11 (7.2) % 48.42 2.7 % 2004 511 186,515 0.0 123,564 11.0 66.2 85.11 4.9 56.39 16.5 2005 663 241,979 29.7 162,443 31.5 67.1 95.61 12.3 64.18 13.8 2006 718 262,070 8.3 185,610 14.3 70.8 106.23 11.1 75.24 17.2 2007 787 287,315 9.6 195,733 5.5 68.1 115.77 9.0 78.87 4.8 2008 883 322,295 12.2 205,414 4.9 63.7 118.60 2.4 75.59 (4.2) 2009 883 322,295 0.0 187,582 (8.7) 58.2 104.30 (12.1) 60.70 (19.7) Year-to-Date Through June 2009 1,781 322,295 — 187,582 — 58.2 % $104.30 — $60.70 — 2010 1,905 344,765 7.0 % 221,852 18.3 % 64.3 95.08 (8.8) % 61.18 0.8 % Average Annual Compounded Change: 2002-2009 8.1 % 9.3 % 2.6 % 3.7 % Number Year Year Hotels Included in Sample of Rooms Affiliated Opened Fairfield Inn & Suites DFW Airport N Grapevine 80 Aug-04 Jul 1998 Hyatt Place Dallas Grapevine 125 Feb-08 Jan 2000 Hampton Inn Suites DFW Airport North Grapevine 94 Dec-00 Dec 2000 Courtyard Dallas Lewisville 122 Mar-01 Mar 2001 Holiday Inn Express & Suites Dallas Lewisville 90 Jun-06 Oct 2001 Comfort Suites Dallas Fort Worth Airport N 96 Jan-05 Jan 2005 Springhill Suites DFW Airport North Grapevine 111 Jul-05 Jul 2005 Hilton Garden Inn Dallas Lewisville 165 Aug-07 Aug 2007 Hampton Inn Suites Dallas Lewisville Vista Ridge Mall 105 Jun-10 Jun 2010 Total 988 Source: Smith Travel ResearchMay-2011 Executive Summary Proposed Select-Service Hotel – Flower Mound, Texas 3
  • The following tables reflect our estimates of operating data for hotels on an individual basis. These trends are presented in greater detail in the Supply and Demand Analysis chapter of this report.May-2011 Executive Summary Proposed Select-Service Hotel – Flower Mound, Texas 4
  • FIGURE 1-2 PRIMARY COMPETITORS – OPERATING PERFORMANCE Est. Segmentation Estimated 2008 Estimated 2009 Estimated 2010 Weighted Weighted Weighted nd l ercia Annual Annual Annual ing a p Grou re Number Room Average Room Average Room Average RevPAR Occupancy Yield Comm M eet Leisu Property of Rooms Count Occ. Rate RevPAR Count Occ. Rate RevPAR Count Occ. Rate RevPAR Change Penetration Penetration Hyatt Place Grapevine 125 65 % 15 % 20 % 125 60 % $121.00 $72.60 125 62 % $105.00 $65.10 125 80 % $86.00 $68.80 5.7 % 119.9 % 106.4 % Hampton Inn & Suites Dallas DFW Airport North Grapevine 94 65 15 20 94 67 154.00 103.18 94 60 127.00 76.20 94 76 114.00 86.64 13.7 113.9 134.0 SpringHill Suites Grapevine DFW Airport North 111 80 5 15 111 67 133.00 89.11 111 54 117.00 63.18 111 64 107.00 68.48 8.4 95.9 105.9 Fairfield Inn & Suites Grapevine DFW Airport North 80 70 5 25 80 67 133.00 89.11 80 54 117.00 63.18 80 64 107.00 68.48 8.4 95.9 105.9 Comfort Suites Grapevine 96 70 5 25 96 62 112.00 69.44 96 50 95.00 47.50 96 67 82.00 54.94 15.7 100.4 85.0 Sub-Totals/Averages 506 70 % 10 % 21 % 506 64.3 % $130.46 $83.91 506 56.3 % $112.01 $63.10 506 70.8 % $98.04 $69.36 9.9 % 106.0 % 107.3 % Secondary Competitors 482 57 % 11 % 32 % 238 62.8 % $102.54 $64.37 238 60.7 % $95.15 $57.77 282 59.5 % $94.33 $56.15 (2.8) % 89.2 % 86.9 % Totals/Averages 988 65 % 10 % 24 % 744 63.8 % $121.66 $77.65 744 57.7 % $106.33 $61.39 788 66.7 % $96.85 $64.64 5.3 % 100.0 % 100.0 %FIGURE 1-3 SECONDARY COMPETITORS – OPERATING PERFORMANCE Est. Segmentation Estimated 2008 Estimated 2009 Estimated 2010 nd Weighted Weighted Weighted l ercia Total Annual Annual Annual ing a p Gr ou re Number Competitive Room Average Room Average Room Average Comm Me e t Leisu Property of Rooms Level Count Occ. Rate RevPAR Count Occ. Rate RevPAR Count Occ. Rate RevPAR Courtyard Dallas Lewisville 122 65 % 5 % 30 % 70 % 85 63 % $99.00 $62.37 85 62 % $90.00 $55.80 85 60 % $90.00 $54.00 Hilton Garden Inn Dallas Lewisville 165 50 20 30 60 99 63 115.00 72.45 99 60 108.00 64.80 99 67 105.00 70.35 Holiday Inn Express Dallas Lewisville 90 55 5 40 60 54 62 85.00 52.70 54 60 80.00 48.00 54 60 85.00 51.00 Hampton Inn Suites Dallas Lewisville Vista Ridge Mall 105 60 5 35 70 0 0 0.00 0.00 0 0 0.00 0.00 43 41 84.00 34.44 Totals/Averages 482 57 % 11 % 32 % 65 % 238 62.8 % $102.54 $64.37 238 60.7 % $95.15 $57.77 282 59.5 % $94.33 $56.15May-2011 Executive Summary Proposed Select-Service Hotel – Flower Mound, Texas 5
  • Summary of Forecast Based on our analysis presented in the Projection of Occupancy and Average RateOccupancy and chapter, we have chosen to use a stabilized occupancy level of 70% and a base-Average Rate year rate position of $100.00 for the proposed subject property. The following table reflects a summary of our market-wide and proposed subject property occupancy and average rate projections.FIGURE 1-4 MARKET AND SUBJECT PROPERTY AVERAGE RATE FORECAST Area-wide Market (Calendar Year) Subject Property (Calendar Year) Average Rate Average Average Rate Average Average Rate Year Occupancy Growth Rate Occupancy Growth Rate Penetration Base Year 66.7 % — $96.85 — — $100.00 103.2 % 2011 69.0 -1.0 % 95.89 — -1.0 % 99.00 103.2 2012 71.4 2.5 98.28 — 2.5 101.48 103.2 2013 67.8 5.0 103.20 60.0 % 5.0 106.55 103.2 2014 69.3 6.0 109.39 65.0 6.0 112.94 103.2 2015 70.2 4.0 113.76 68.0 4.0 117.46 103.2 2016 70.9 3.0 117.18 70.0 3.0 120.98 103.2 The following table summarizes the proposed subject property’s forecast, reflecting fiscalization and opening-year rate discounts as applicable. FIGURE 1-5 FORECAST OF AVERAGE RATE Average Rate Average Rate Year Occupancy Before Discount Discount After Discount 2013 60 % $106.55 3.0 % $103.35 2014 65 112.94 1.5 111.25 2015 68 117.46 0.0 117.46 2016 70 120.98 0.0 120.98Summary of Forecast Our positioning of each revenue and expense level is supported by comparableIncome and Expense operations or trends specific to this market. Our forecast of income and expense isStatement presented in the following table.May-2011 Executive Summary Proposed Select-Service Hotel – Flower Mound, Texas 6
  • FIGURE 1-6 DETAILED FORECAST OF INCOME AND EXPENSE 2013 (Calendar Year) 2014 2015 Stabilized 2017 Number of Rooms: 130 130 130 130 130 Occupancy: 60% 65% 68% 70% 70% Average Rate: $103.35 $111.25 $117.46 $120.98 $124.61 RevPAR: $62.01 $72.31 $79.87 $84.69 $87.23 Days Open: 365 365 365 365 365 Occupied Rooms: 28,470 %Gross PAR POR 30,843 %Gross PAR POR 32,266 %Gross PAR POR 33,215 %Gross PAR POR 33,215 %Gross PAR POR REVENUE Rooms $2,942 93.5 % $22,631 $103.34 $3,431 93.9 % $26,392 $111.24 $3,790 94.1 % $29,154 $117.46 $4,018 94.1 % $30,908 $120.97 $4,139 94.1 % $31,838 $124.61 Food 125 4.0 962 4.39 138 3.8 1,060 4.47 147 3.7 1,134 4.57 156 3.6 1,197 4.68 160 3.6 1,233 4.82 Beverage 31 1.0 241 1.10 34 0.9 265 1.12 37 0.9 283 1.14 39 0.9 299 1.17 40 0.9 308 1.21 Other Income 47 1.5 358 1.63 51 1.4 396 1.67 55 1.4 425 1.71 58 1.4 449 1.76 60 1.4 462 1.81 Total Revenues 3,145 100.0 24,191 110.46 3,655 100.0 28,113 118.49 4,029 100.0 30,995 124.88 4,271 100.0 32,852 128.58 4,399 100.0 33,842 132.45 DEPARTMENTAL EXPENSES * Rooms 766 26.0 5,894 26.92 813 23.7 6,255 26.37 852 22.5 6,557 26.42 888 22.1 6,831 26.74 915 22.1 7,036 27.54 Food & Beverage 150 95.8 1,152 5.26 159 92.2 1,221 5.15 166 90.2 1,278 5.15 173 89.0 1,331 5.21 178 89.0 1,371 5.37 Other Expenses 18 38.6 138 0.63 19 36.7 145 0.61 20 35.6 151 0.61 20 35.0 157 0.61 21 35.0 162 0.63 Total 934 29.7 7,184 32.81 991 27.1 7,621 32.12 1,038 25.8 7,986 32.18 1,082 25.3 8,320 32.56 1,114 25.3 8,569 33.54 DEPARTMENTAL INCOME 2,211 70.3 17,007 77.66 2,664 72.9 20,491 86.37 2,991 74.2 23,009 92.70 3,189 74.7 24,533 96.02 3,285 74.7 25,272 98.91 UNDISTRIBUTED OPERATING EXPENSES Administrative & General 345 11.0 2,650 12.10 364 10.0 2,804 11.82 382 9.5 2,935 11.82 396 9.3 3,044 11.92 408 9.3 3,136 12.27 Marketing 119 3.8 917 4.19 126 3.5 970 4.09 132 3.3 1,016 4.09 137 3.2 1,054 4.12 141 3.2 1,085 4.25 Franchise Fee 235 7.5 1,810 8.27 274 7.5 2,111 8.90 303 7.5 2,332 9.40 321 7.5 2,473 9.68 331 7.5 2,547 9.97 Prop. Operations & Maint. 113 3.6 872 3.98 133 3.7 1,026 4.33 149 3.7 1,147 4.62 158 3.7 1,213 4.75 166 3.8 1,274 4.99 Utilities 159 5.1 1,223 5.58 168 4.6 1,294 5.45 176 4.4 1,355 5.46 183 4.3 1,405 5.50 188 4.3 1,447 5.66 Total 972 31.0 7,473 34.12 1,067 29.3 8,206 34.59 1,142 28.4 8,785 35.40 1,195 28.0 9,189 35.97 1,234 28.1 9,490 37.14 HOUSE PROFIT 1,239 39.3 9,534 43.53 1,597 43.6 12,286 51.78 1,849 45.8 14,224 57.31 1,995 46.7 15,343 60.05 2,052 46.6 15,782 61.77 Management Fee 94 3.0 726 3.31 110 3.0 843 3.55 121 3.0 930 3.75 128 3.0 986 3.86 132 3.0 1,015 3.97 INCOME BEFORE FIXED CHARGES 1,145 36.3 8,808 40.22 1,488 40.6 11,442 48.23 1,728 42.8 13,294 53.56 1,866 43.7 14,358 56.19 1,920 43.6 14,767 57.80 FIXED EXPENSES Property Taxes 180 5.7 1,384 6.32 183 5.0 1,405 5.92 186 4.6 1,433 5.77 192 4.5 1,476 5.78 198 4.5 1,520 5.95 Insurance 42 1.3 321 1.47 43 1.2 331 1.40 44 1.1 341 1.37 46 1.1 351 1.37 47 1.1 362 1.42 Reserve for Replacement 63 2.0 484 2.21 110 3.0 843 3.55 161 4.0 1,240 5.00 171 4.0 1,314 5.14 176 4.0 1,354 5.30 Total 285 9.0 2,189 10.00 335 9.2 2,579 10.87 392 9.7 3,014 12.14 408 9.6 3,141 12.29 421 9.6 3,236 12.66 NET INCOME $860 27.3 % $6,619 $30.22 $1,152 31.4 % $8,863 $37.36 $1,336 33.1 % $10,280 $41.42 $1,458 34.1 % $11,216 $43.90 $1,499 34.0 % $11,531 $45.13 *Departmental expenses are expressed as a percentage of departmental revenues.May-2011 Executive Summary Proposed Select-Service Hotel – Flower Mound, Texas 7
  • FIGURE 1-7 TEN-YEAR FORECAST OF INCOME AND EXPENSE 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Number of Rooms: 130 130 130 130 130 130 130 130 130 130 Occupied Rooms: 28,470 30,843 32,266 33,215 33,215 33,215 33,215 33,215 33,215 33,215 Occupancy: 60% 65% 68% 70% 70% 70% 70% 70% 70% 70% Average Rate: $103.35 % of $111.25 % of $117.46 % of $120.98 % of $124.61 % of $128.35 % of $132.20 % of $136.17 % of $140.25 % of $144.46 % of RevPAR: $62.01 Gross $72.31 Gross $79.87 Gross $84.69 Gross $87.23 Gross $89.85 Gross $92.54 Gross $95.32 Gross $98.18 Gross $101.12 Gross REVENUE Rooms $2,942 93.5 % $3,431 93.9 % $3,790 94.1 % $4,018 94.1 % $4,139 94.1 % $4,263 94.1 % $4,391 94.1 % $4,523 94.1 % $4,658 94.1 % $4,798 94.1 % Food 125 4.0 138 3.8 147 3.7 156 3.6 160 3.6 165 3.6 170 3.6 175 3.6 180 3.6 186 3.6 Beverage 31 1.0 34 0.9 37 0.9 39 0.9 40 0.9 41 0.9 43 0.9 44 0.9 45 0.9 46 0.9 Other Income 47 1.5 51 1.4 55 1.4 58 1.4 60 1.4 62 1.4 64 1.4 66 1.4 68 1.4 70 1.4 Total 3,145 100.0 3,655 100.0 4,029 100.0 4,271 100.0 4,399 100.0 4,531 100.0 4,667 100.0 4,808 100.0 4,951 100.0 5,100 100.0 DEPARTMENTAL EXPENSES* Rooms 766 26.0 813 23.7 852 22.5 888 22.1 915 22.1 942 22.1 970 22.1 1,000 22.1 1,030 22.1 1,060 22.1 Food & Beverage 150 95.8 159 92.2 166 90.2 173 89.0 178 89.0 184 89.0 189 89.0 195 89.0 201 89.0 207 89.0 Other Expenses 18 38.6 19 36.7 20 35.6 20 35.0 21 35.0 22 35.0 22 35.0 23 35.0 24 35.0 24 35.0 Total 934 29.7 991 27.1 1,038 25.8 1,082 25.3 1,114 25.3 1,147 25.3 1,182 25.3 1,217 25.3 1,254 25.3 1,291 25.3 DEPARTMENTAL INCOME 2,211 70.3 2,664 72.9 2,991 74.2 3,189 74.7 3,285 74.7 3,384 74.7 3,485 74.7 3,590 74.7 3,697 74.7 3,808 74.7 UNDISTRIBUTED OPERATING EXPENSES Administrative & General 345 11.0 364 10.0 382 9.5 396 9.3 408 9.3 420 9.3 432 9.3 445 9.3 459 9.3 473 9.3 Marketing 119 3.8 126 3.5 132 3.3 137 3.2 141 3.2 145 3.2 150 3.2 154 3.2 159 3.2 164 3.2 Franchise Fee 235 7.5 274 7.5 303 7.5 321 7.5 331 7.5 341 7.5 351 7.5 362 7.5 373 7.5 384 7.5 Prop. Operations & Maint. 113 3.6 133 3.7 149 3.7 158 3.7 166 3.8 174 3.8 183 3.9 188 3.9 194 3.9 200 3.9 Utilities 159 5.1 168 4.6 176 4.4 183 4.3 188 4.3 194 4.3 200 4.3 206 4.3 212 4.3 218 4.3 Total 972 31.0 1,067 29.3 1,142 28.4 1,195 28.0 1,234 28.1 1,274 28.1 1,316 28.2 1,355 28.2 1,396 28.2 1,438 28.2 HOUSE PROFIT 1,239 39.3 1,597 43.6 1,849 45.8 1,995 46.7 2,052 46.6 2,110 46.6 2,170 46.5 2,235 46.5 2,301 46.5 2,371 46.5 Management Fee 94 3.0 110 3.0 121 3.0 128 3.0 132 3.0 136 3.0 140 3.0 144 3.0 149 3.0 153 3.0 INCOME BEFORE FIXED CHARGES 1,145 36.3 1,488 40.6 1,728 42.8 1,866 43.7 1,920 43.6 1,974 43.6 2,030 43.5 2,091 43.5 2,153 43.5 2,218 43.5 FIXED EXPENSES Property Taxes 180 5.7 183 5.0 186 4.6 192 4.5 198 4.5 204 4.5 210 4.5 216 4.5 222 4.5 229 4.5 Insurance 42 1.3 43 1.2 44 1.1 46 1.1 47 1.1 48 1.1 50 1.1 51 1.1 53 1.1 55 1.1 Reserve for Replacement 63 2.0 110 3.0 161 4.0 171 4.0 176 4.0 181 4.0 187 4.0 192 4.0 198 4.0 204 4.0 Total 285 9.0 335 9.2 392 9.7 408 9.6 421 9.6 433 9.6 446 9.6 460 9.6 473 9.6 488 9.6 NET INCOME $860 27.3 % $1,152 31.4 % $1,336 33.1 % $1,458 34.1 % $1,499 34.0 % $1,541 34.0 % $1,583 33.9 % $1,631 33.9 % $1,680 33.9 % $1,730 33.9 % 1 1 1 1 1 1 1 1 1 1 *Departmental expenses are expressed as a percentage of departmental revenues.May-2011 Executive Summary Proposed Select-Service Hotel – Flower Mound, Texas 8
  • As illustrated, the hotel is expected to stabilize at a profitable level. Please refer to the Forecast of Income and Expense chapter of our report for a detailed explanation of the methodology used in deriving this forecast.Scope of Work The methodology used to develop this study is based on the market research and valuation techniques set forth in the textbooks authored by Hospitality Valuation Services for the American Institute of Real Estate Appraisers and the Appraisal Institute, entitled The Valuation of Hotels and Motels,1 Hotels, Motels and Restaurants: Valuations and Market Studies,2 The Computerized Income Approach to Hotel/Motel Market Studies and Valuations,3 Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations,4 and Hotels and Motels – Valuations and Market Studies.5 1. All information was collected and analyzed by the staff of DFW Hospitality Consulting, LLC. Information was also supplied by the client. 2. The general location of the subject site has been evaluated from the viewpoint of its access, visibility, and other relevant factors. 3. The subject propertys proposed improvements represent a recommended construction, design, and layout efficiency. 4. The surrounding economic environment, on both an area and neighborhood level, has been reviewed to identify specific hostelry-related economic and demographic trends that may have an impact on future demand for hotels. 5. Dividing the market for hotel accommodations into individual segments defines specific market characteristics for the types of travelers expected to utilize the areas hotels. The factors investigated include purpose of visit, average length of stay, facilities and amenities required, seasonality, daily demand fluctuations, and price sensitivity. 1 Stephen Rushmore, The Valuation of Hotels and Motels. (Chicago: American Institute of Real Estate Appraisers, 1978). 2 Stephen Rushmore, Hotels, Motels and Restaurants: Valuations and Market Studies. (Chicago: American Institute of Real Estate Appraisers, 1983). 3 Stephen Rushmore, The Computerized Income Approach to Hotel/Motel Market Studies and Valuations. (Chicago: American Institute of Real Estate Appraisers, 1990). 4 Stephen Rushmore, Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations (Chicago: Appraisal Institute, 1992). 5 Stephen Rushmore and Erich Baum, Hotels and Motels – Valuations and Market Studies. (Chicago: Appraisal Institute, 2001).May-2011 Executive Summary Proposed Select-Service Hotel – Flower Mound, Texas 9
  • 6. An analysis of existing and proposed competition provides an indication of the current accommodated demand, along with market penetration and the degree of competitiveness. Unless noted otherwise, we have inspected the competitive lodging facilities summarized in this report. 7. Documentation for an occupancy and average rate projection is derived utilizing the build-up approach based on an analysis of lodging activity. 8. A detailed projection of income and expense made in accordance with the Uniform System of Accounts for the Lodging Industry sets forth the anticipated economic benefits of the subject property.May-2011 Executive Summary Proposed Select-Service Hotel – Flower Mound, Texas 10
  • 2. Description of the Site and Neighborhood The suitability of the land for the operation of a lodging facility is an important consideration affecting the economic viability of a property and its ultimate marketability. Factors such as size, topography, access, visibility, and the availability of utilities have a direct impact on the desirability of a particular site. While the specific site of the proposed subject property had not been selected at the time of this study, the subject site is expected to be located in or near Flower Mounds Lakeside Business District, in the southern portion of Town. This site is in the Town of Flower Mound, Texas.AREAS OF STUDY FOR At the request of our client, we have analyzed two areas of study for the potentialSITE SELECTION development of the proposed hotel. The River Walk at Central Park is located in the northeast quadrant of the intersection formed by FM 2499 and Cross Timbers Road. The Lakeside Business District is located in the general vicinity of Lakeside Parkway and FM 2499. A summary of each area’s characteristics are presented on the following pages.May-2011 Description of the Site and Neighborhood Proposed Select-Service Hotel – Flower Mound, Texas 11
  • MAP OF AREAS OF STUDY FOR SITE RECOMMENDATIONRiver Walk at Central The River Walk at Central Park was planned as Flower Mound’s 21st centuryPark downtown, integrating commercial and residential uses within a 158-acre development. However, the turbulence of the economic climate in 2008 and 2009 affected development plans and pace. In 2010, about 149 acres of the 158-acre property were listed in foreclosure. However, The Texas Health Presbyterian Hospital opened in 2010, and ground has been broken on the three-phase River Walk Medical Park and River Walk at Central Park Apartments. The following illustration shows the concept phasing plan for the mixed-use development. A major retail grocer is rumored for development in the southwest portion of the development.May-2011 Description of the Site and Neighborhood Proposed Select-Service Hotel – Flower Mound, Texas 12
  • RIVER WALK AT CENTRAL PARK – CONCEPT PLAN PHASINGMay-2011 Description of the Site and Neighborhood Proposed Select-Service Hotel – Flower Mound, Texas 13
  • In our review of the area, we identified advantages and disadvantages for future hotel development in or near the River Walk at Central Park development. The primary advantage of this location would be the proximity to Texas Health Presbyterian Hospital, River Walk Medical Park, and other medical facilities. The site’s central location in the heart of Flower Mound is ideal for users visiting friends or relatives, local meetings and functions, and social events such as weddings. The completion of FM 2499 Section 4 (a four-lane, 4.7-mile stretch of road that includes two bridges over the far western portions of Lake Lewisville between FM 407 in Highland Village and FM 2181 in Corinth) connects the Highland Village/Flower Mound communities and the Corinth area, and the nearby cities and towns of Denton, Lake Dallas, Hickory Creek and Shady Shores. As such, the River Walk at Central Park area would be easily accessible to many communities. The proximity of a heavy retail concentration near FM 299 and FM 407 is a positive attribute of this location as well. Accessibility from the airport and major interstates and highways was also reviewed. This location is roughly seven miles north of State Highway 121 and Dallas/Fort Worth International Airport. Interstate 35E is approximately four miles to the east, while Interstate 35W is located roughly ten miles to the west. While the general location of River Walk at Central Park would be conducive to hospital demand and leisure travelers associated with local social functions and area attractions, the location is considered somewhat distanced from the area’s regional access routes. The location seven miles north of the airport could be considered a disadvantage in regard to demand related to the airport. This type of demand is a significant source for hotels in the North Dallas/Fort Worth International Airport area given their proximity to the facility and ease of accessibility.Lakeside Business Eight business centers comprise the 1,500-acre Lakeside Business District. ThisDistrict commercial district is located within three miles of the Dallas/Fort Worth International Airport and experienced an investment by the Town of Flower Mound of $25 million in public improvements that include new road construction and water and sewer extensions.May-2011 Description of the Site and Neighborhood Proposed Select-Service Hotel – Flower Mound, Texas 14
  • LAKESIDE BUSINESS DISTRICT Similar to our analysis of the River Walk at Central Park area, we identified advantages and disadvantages for future hotel development in or near the Lakeside Business District. The primary advantage of this location would be the proximity to area corporations within the Lakeside Business District and the Dallas/Fort Worth International Airport. The site’s location in the southern portion of Flower Mound also allows for easy access to State Highway 121, which connects to several of the Metroplex’s major roadways. The presence of the Grapevine Mills outlet mall and additional retail and dining uses within two miles is considered another advantage of this location. The lack of a wide range of retail and dining choices within the immediate vicinity of the Lakeside Business District has been considered a disadvantage, but the inclusion of a café and lounge in the hotel’s planned concept helps mitigate this attribute.May-2011 Description of the Site and Neighborhood Proposed Select-Service Hotel – Flower Mound, Texas 15
  • A hotel within the Lakeside Business District area would have a corporate focus stemming from nearby corporations and the airport. The stability of airport- related demand would be a positive attribute of development in this area.Conclusion of Site Area Following a review of the two areas, we have identified the Lakeside BusinessRecommendation District area as the area more suited for hotel development at the time of this study due to the anticipated corporate/commercial focus associated with this location versus a medical and leisure orientation of the River Walk at Central Park location.Physical Characteristics A specific subject site has not been determined for the project. While site size can vary with varying types of construction configuration, we would expect the hotel site to span roughly two acres. Primary vehicular access to the proposed subject property is expected to be provided by FM 2499 or a cross street of this roadway. The topography and shape of the selected site is unknown at this time due to identification of location by a general area only.Site Utility Upon completion of construction, the subject site will not contain any significant portion of undeveloped land that could be sold, entitled, and developed for alternate use. The site is expected to be fully developed with site or building improvements, which will contribute to the overall profitability of the hotel.Access and Visibility It is important to analyze the site in regard to ease of access with respect to regional and local transportation routes and demand generators. The subject site is readily accessible to a variety of local, county, state, and interstate highways.May-2011 Description of the Site and Neighborhood Proposed Select-Service Hotel – Flower Mound, Texas 16
  • MAP OF REGIONAL ACCESS ROUTES Primary regional access routes serving the Dallas/Fort Worth Metroplex include Interstates 20, 30, 35, and 45, as well as U.S. Highways 67, 75, and 287. Interstate 20 traverses the southern sector of the metro area and extends to such cities as Abilene and Midland to the west and Shreveport, Louisiana to the east. Interstate 30 commences in west Fort Worth and, after serving as a major east/west route through the metro area, extends in a northeasterly direction to Greenville and Texarkana. Interstate 35, which divides into eastern and western sections when passing through the respective Dallas and Fort Worth metro areas, provides access to Oklahoma City to the north and Austin and San Antonio to the south. Interstate 45 commences near Downtown Dallas and extends in a southeasterly direction, providing access to the Houston metropolitan area. The subject market is served by a variety of additional local highways, which are illustrated on the map. The area enjoys a well-developed network of local roadways, highways, and interstates. State Highways 114 and 121 and Interstates 635, 35W, and 35E facilitate travel between Flower Mound and the principal concentrations ofMay-2011 Description of the Site and Neighborhood Proposed Select-Service Hotel – Flower Mound, Texas 17
  • business activity and population in the region. From State Highway 121, motorists take the FM 2499 Exit and proceed north on this thoroughfare for approximately three miles before reaching the Lakeside Business District area. The proposed subject property is expected to be located near a major interchange of FM 2499 and have adequate signage at the street; thus, the proposed hotel should benefit from very good visibility from within its local neighborhood. Overall, the subject site is expected to benefit from very good accessibility, and the proposed hotel is anticipated to enjoy very good visibility attributes.Airport Access The proposed subject property will be well served by the Dallas/Fort Worth International Airport, which is located approximately three miles to the south of Flower Mound. From the airport, motorists will follow signs to State Highway 121 and travel north on this thoroughfare to FM 2499. Motorists will then proceed northbound on FM 2499, continuing to the subject site. As noted previously, the location of the subject property has only been indentified within a general area, the Lakeside Business District. The proposed subject property will also be served by Dallas Love Field, which is located approximately 15 miles to the southeast of Flower Mound.Neighborhood The neighborhood surrounding a lodging facility often has an impact on a hotels status, image, class, style of operation, and sometimes its ability to attract and properly serve a particular market segment. This section of the report investigates the subject neighborhood and evaluates any pertinent location factors that could affect its future occupancy, average rate, and overall profitability. The subject neighborhood is generally defined by Flower Mound Road to the north, Grapevine Lake to the west, Sandy Lake Road to the south, and Valley Parkway to the east. In general, this neighborhood is in the stable stage of its life cycle, with pockets of growth having occurred in the residential, special-use, and retail sectors in the past two years. Within the proximity of the proposed site area, land use is primarily commercial in nature. Anchored by the Lakeside Business District, businesses in the area include Stryker Communications, Best Buy Distribution, Ivie & Associates, and ThermoTek. There are few restaurants within immediate proximity of the Lakeside Business District. However, there is a Starbucks, Sonic, and Jack in the Box near FM 2499 and Sandy Lake Road. Additionally, The Pines of Flower shopping center, located at Flower Mound Road and Gerault Road, offers various dining choices such as Agave Azul, Lazy Dogz Grill, Straw Hat Pizza, and Subway. Newer developments in this neighborhood include the Flower Mound Community Activity Center, Verde Walk Apartments, and small strip retail centers. To the south of the neighborhood, a major change in the area is the construction of the DFW Connector, which began in February of 2010 and is intended to increase mobility along State Highways 114May-2011 Description of the Site and Neighborhood Proposed Select-Service Hotel – Flower Mound, Texas 18
  • and 121. When complete in 2014, this 14.4-mile, $1.02-billion project will have rebuilt the corridor through Southlake, Grapevine, and the north side of the Dallas/Fort Worth International Airport. In general, we would characterize the neighborhood as 40% office/retail use, 25% residential use, 25% vacant, and 10% other. The proposed subject propertys opening should be a positive influence on the area; the hotel will be in character with and will complement surrounding land uses.MAP OF NEIGHBORHOOD Overall, the supportive nature of the development in the immediate area is considered appropriate for and conducive to the operation of a hotel.Utilities The subject site is expected to be served by all necessary utilities. We assume that these will be acquired from the most cost-effective providers within the local market.May-2011 Description of the Site and Neighborhood Proposed Select-Service Hotel – Flower Mound, Texas 19
  • Soil and As the specific site has not been identified, geological and soil reports were notSubsoil Conditions available to us or made available for our review during the preparation of this report. We assume that no extraordinary conditions will be apparent prior to construction.Nuisances We assume that there will be no site-specific nuisances or hazards or toxic groundand Hazards contaminants. An independent analysis of these factors should be completed prior to construction.Flood Zone A specific subject site has not been determined; therefore, the flood zone cannot be determined. The Federal Emergency Management Agency map numbers for the area are illustrated below. A flood certification should be obtained when a specific site is identified.FEDERAL EMERGENCY MANAGEMENT AGENCY MAP PANELSMay-2011 Description of the Site and Neighborhood Proposed Select-Service Hotel – Flower Mound, Texas 20
  • Zoning We assume the zoning designation of the site will allow for most commercial uses, including small office complexes, retail centers, service industries, and hotels and motels. We assume that all necessary permits and approvals will be secured (including an appropriate liquor license if applicable) and that the subject property will be constructed in accordance with local zoning ordinances, building codes, and all other applicable regulations. The zoning designations for the Lakeside Business District, as published by the Town of Flower Mound Planning Department, are illustrated below.LAKESIDE BUSINESS DISTRICT ZONING MAP A zoning analysis should be completed before any physical changes are made to the site.Easements and We have assumed that there will be no easements attached to the property thatEncroachments would significantly affect the utility of the site or marketability of this project.Conclusion We have not analyzed the issues of size, topography, access, visibility, and the availability of utilities for a specific site. The subject site is expected to be located in the general location of the Lakeside Business District and within easy access of FM 2499, a major north/south roadway in Flower Mound. In general, the site should be well suited for future hotel use, with acceptable access, visibility, and topography for an effective operation.May-2011 Description of the Site and Neighborhood Proposed Select-Service Hotel – Flower Mound, Texas 21
  • 3. Market Area Analysis The economic vitality of the market area and neighborhood surrounding the subject site is an important consideration in forecasting lodging demand and future income potential. Economic and demographic trends that reflect the amount of visitation provide a basis from which to project lodging demand. The purpose of the market area analysis is to review available economic and demographic data to determine whether the local market will undergo economic growth, stabilize, or decline. In addition to predicting the direction of the economy, the rate of change must be quantified. These trends are then correlated based on their propensity to reflect variations in lodging demand, with the objective of forecasting the amount of growth or decline in visitation by individual market segment, e.g. commercial, meeting and group, and leisure.Market Area Definition The market area for a lodging facility is the geographical region where the sources of demand and the competitive supply are located. The subject property is located in the Town of Flower Mound, the county of Denton, and the state of Texas. We note that a small portion of the Town is located in Tarrant County. As part of the greater Dallas/Fort Worth Metropolitan area, Flower Mound derived its name from a prominent 12.5-acre mound, "The Mound," that was once covered with bluestem grasses and a variety of indigenous flowers. Flower Mound is located primarily within Denton County, with a small portion occupying and bordering Tarrant County to the south. Encompassing 46 square miles, the Town is situated 26 miles northwest of Dallas, 25 miles northeast of Fort Worth, and three miles north of the Dallas/Fort Worth International Airport. Denton County offers two major universities, Texas Womens University and University of North Texas, as well as campuses of North Texas College in Corinth and Flower Mound. Today, the Town is home to more than 1,000 businesses and continues to experience economic and neighborhood growth.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 22
  • FLOWER MOUND The proposed subject property’s market area can be defined by its Combined Statistical Area (CSA): Dallas-Fort Worth, TX. The CSA represents adjacent metropolitan and micropolitan statistical areas that have a moderate degree of employment interchange. Micropolitan statistical areas represent urban areas in the United States based around a core city or town with a population of 10,000 to 49,999; the MSA requires the presence of a core city of at least 50,000 people and a total population of at least 100,000 (75,000 in New England).The following exhibit illustrates the market area.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 23
  • MAP OF MARKET AREAEconomic and A primary source of economic and demographic statistics used in this analysis isDemographic Review the Complete Economic and Demographic Data Source published by Woods & Poole Economics, Inc. – a well-regarded forecasting service based in Washington, D.C. Using a database containing more than 900 variables for each county in the nation, Woods & Poole employs a sophisticated regional model to forecast economic and demographic trends. Historical statistics are based on census data and information published by the Bureau of Economic Analysis. Projections are formulated by Woods & Poole, and all dollar amounts have been adjusted for inflation, thus reflecting real change. These data are summarized in the following table.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 24
  • FIGURE 3-1 ECONOMIC AND DEMOGRAPHIC DATA SUMMARY Average Annual Compounded Change 1990 2000 2010 2015 1990-00 2000-10 2010-15 Resident Population (Thousands) Denton County 276.4 439.0 679.5 783.9 4.7 % 4.5 % 2.9 % Dallas-Fort Worth-Arlington, TX MSA 4,014.3 5,196.2 6,561.1 7,134.1 2.6 2.4 1.7 State of Texas 17,056.8 20,946.0 25,205.7 27,346.7 2.1 1.9 1.6 United States 249,622.8 282,172.0 310,009.2 325,343.4 1.2 0.9 1.0 Per-Capita Personal Income* Denton County $25,920 $37,070 $32,235 $34,613 3.6 (1.4) 1.4 Dallas-Fort Worth-Arlington, TX MSA 28,578 38,041 35,280 37,667 2.9 (0.8) 1.3 State of Texas 23,924 31,750 32,559 34,611 2.9 0.3 1.2 United States 26,826 33,770 35,336 37,559 2.3 0.5 1.2 W&P Wealth Index Denton County 106.0 118.6 98.8 99.4 1.1 (1.8) 0.1 Dallas-Fort Worth-Arlington, TX MSA 110.3 115.0 102.2 102.5 0.4 (1.2) 0.1 State of Texas 92.0 95.1 92.4 92.4 0.3 (0.3) (0.0) United States 100.0 100.0 100.0 100.0 0.0 0.0 0.0 Food and Beverage Sales (Millions)* Denton County $211 $449 $775 $900 7.9 5.6 3.0 Dallas-Fort Worth-Arlington, TX MSA 5,073 7,496 10,231 11,152 4.0 3.2 1.7 State of Texas 17,379 25,694 33,765 36,899 4.0 2.8 1.8 United States 257,805 341,525 409,983 434,221 2.9 1.8 1.2 Total Retail Sales (Millions)* Denton County $2,435 $5,062 $7,346 $8,956 7.6 3.8 4.0 Dallas-Fort Worth-Arlington, TX MSA 49,759 74,167 87,895 101,091 4.1 1.7 2.8 State of Texas 179,748 269,662 313,269 360,785 4.1 1.5 2.9 United States 2,620,710 3,613,909 3,880,980 4,325,045 3.3 0.7 2.2 * Inflation Adjusted Source: Woods & Poole Economics, Inc.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 25
  • The U.S. population has grown at an average annual compounded rate of 0.9% from 2000 through 2010. The county’s population has grown at a quicker pace than the nation’s population; the average annual growth rate of 4.5% between 2000 and 2010 reflects a rapidly expanding area. Following this population trend, per-capita personal income decreased slowly, at -1.4% on average annually for the county between 2000 and 2010. Local wealth indexes have remained stable in recent years, registering a relatively near average 98.8 level for the county in 2010. Food and beverage sales totaled $775 million in the county in 2010, versus $449 million in 2000. This reflects a 5.6% average annual change, which compares to the average annual change of 3.0%, which is forecast through 2015. Retail sales totaled $7,346.4 million in the county in 2010, versus $5,061.9 million in 2000. This represents an average annual change of 3.8%. A modestly slower 4.0% average annual change is expected in county retail sales through 2015.Workforce The characteristics of an areas workforce provide an indication of the type andCharacteristics amount of transient visitation likely to be generated by local businesses. Sectors such as finance, insurance, and real estate (FIRE); wholesale trade; and services produce a considerable number of visitors who are not particularly rate sensitive. The government sector often generates transient room nights, but per-diem reimbursement allowances often limit the accommodations selection to budget and mid-priced lodging facilities. Contributions from manufacturing, construction, transportation, communications, and public utilities (TCPU) employers can also be important, depending on the company type. The following table sets forth the county workforce distribution by business sector in 1990, 2000, and 2010, as well as a forecast for 2015.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 26
  • FIGURE 3-2 HISTORICAL AND PROJECTED EMPLOYMENT (000S) Average Annual Compounded Change Percent Percent Percent Percent Industry 1990 of Total 2000 of Total 2010 of Total 2015 of Total 1990-2000 2000-2010 2010-2015 Farm 2.0 2.1 % 2.8 1.7 % 2.8 1.2 % 2.8 1.0 % 3.2 % 0.1 % 0.2 % Forestry, Fishing, Related Activities And Other 0.2 0.2 0.5 0.3 0.5 0.2 0.6 0.2 8.9 1.7 1.5 Mining 0.6 0.6 0.7 0.4 2.2 0.9 2.4 0.9 1.4 12.2 1.5 Utilities 0.4 0.4 0.7 0.4 0.7 0.3 0.8 0.3 6.1 0.6 0.9 Construction 5.1 5.1 12.9 7.9 13.0 5.4 14.3 5.3 9.8 0.0 2.0 Manufacturing 12.4 12.6 14.8 9.0 12.1 5.1 12.5 4.6 1.8 (2.0) 0.6 Total Trade 17.2 17.4 30.6 18.7 38.4 16.1 42.4 15.7 5.9 2.3 2.0 Wholesale Trade 3.3 3.3 7.2 4.4 9.5 4.0 11.3 4.2 8.0 2.9 3.6 Retail Trade 13.9 14.1 23.5 14.3 28.9 12.1 31.1 11.5 5.4 2.1 1.4 Transportation And Warehousing 1.2 1.2 3.1 1.9 5.6 2.3 6.6 2.5 10.5 5.9 3.5 Information 2.5 2.5 4.3 2.6 4.3 1.8 4.7 1.7 5.5 0.2 1.4 Finance And Insurance 3.1 3.1 6.0 3.7 11.3 4.7 13.8 5.1 6.8 6.6 4.1 Real Estate And Rental And Lease 3.0 3.1 5.6 3.4 10.3 4.3 11.1 4.1 6.2 6.4 1.6 Total Services 32.9 33.3 56.1 34.3 102.6 42.9 120.5 44.7 5.5 6.2 3.3 Professional And Technical Services 4.7 4.7 7.8 4.8 16.3 6.8 20.2 7.5 5.3 7.6 4.5 Management Of Companies And Enterprises 0.2 0.2 0.2 0.1 1.2 0.5 1.4 0.5 2.9 18.0 2.9 Administrative And Waste Services 4.8 4.8 10.3 6.3 16.4 6.8 19.1 7.1 8.0 4.7 3.1 Educational Services 1.0 1.0 1.8 1.1 3.6 1.5 4.1 1.5 5.6 7.3 3.0 Health Care And Social Assistance 6.7 6.8 11.2 6.8 22.2 9.3 26.4 9.8 5.3 7.1 3.5 Arts, Entertainment, And Recreation 2.0 2.0 3.5 2.1 6.1 2.6 6.8 2.5 5.6 5.8 2.2 Accommodation And Food Services 6.3 6.4 11.3 6.9 21.4 9.0 24.8 9.2 6.0 6.6 3.0 Other Services, Except Public Administration 7.3 7.4 10.1 6.2 15.5 6.5 17.7 6.6 3.3 4.4 2.7 Total Government 18.2 18.4 25.8 15.7 35.2 14.7 37.0 13.7 3.6 3.2 1.0 Federal Civilian Government 0.7 0.8 1.2 0.7 1.6 0.7 1.8 0.7 5.1 3.0 1.4 Federal Military 1.0 1.0 1.1 0.7 1.5 0.6 1.5 0.6 1.0 2.9 0.2 State And Local Government 16.4 16.6 23.4 14.3 32.1 13.4 33.7 12.5 3.6 3.2 1.0 TOTAL 98.7 100.0 % 163.7 100.0 % 239.1 100.0 % 269.4 100.0 % 5.2 % 3.9 % 2.4 % MSA 2,509.5 — 3,423.8 — 3,956.0 — 4,324.4 — 3.2 % 1.5 % 1.8 % U.S. 138,331.0 — 165,371.0 — 174,062.6 — 186,999.8 — 1.2 0.5 1.4 Source: Woods & Poole Economics, Inc.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 27
  • Woods & Poole Economics, Inc. reports that during the period from 1990 to 2000, total employment in the county grew at an average annual rate of 5.2%. This trend was above the growth rate recorded by the MSA, and outpaced the national average, reflecting the expanding nature of the local economy during that decade. Most recently, the pace of total employment growth in the county slowed to 3.9% on an annual average from 2000 to 2010. Of the primary employment sectors, Total Services recorded the highest increase in number of employees during the period from 2000 to 2010, increasing by 46,454 people, or 82.8%, and rising from 34.3% to 42.9% of total employment. Of the various service sub-sectors, Health Care And Social Assistance and Accommodation And Food Services were the largest employers. Strong growth was also recorded in the Total Government sector, as well as the Total Trade sector, which expanded by 85.3% and 25.4%, respectively, in the period 2000 to 2010. Forecasts developed by Woods & Poole Economics, Inc. anticipate that total employment in the county will change by 2.4% on average annually through 2015. The trend is above the forecast rate of change for the U.S. as a whole during the same period.Radial Demographic The following table reflects radial demographic trends for our market areaSnapshot measured by three points of distance from a point along FM 2499 in the Lakeside Business District.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 28
  • FIGURE 3-3 DEMOGRAPHICS BY RADIUS 0.00 - 1.00 0.00 - 3.00 0.00 - 5.00 miles miles miles Population 2015 Projection 3,869 60,846 219,941 2010 Estimate 3,242 51,578 189,735 2000 Census 2,245 36,957 141,975 1990 Census 441 10,659 73,120 Growth 2010-2015 19.34% 17.97% 15.92% Growth 2000-2010 44.41% 39.56% 33.64% Growth 1990-2000 409.07% 246.72% 94.17% Households 2015 Projection 1,258 19,868 77,855 2010 Estimate 1,065 17,003 67,415 2000 Census 757 12,406 50,813 1990 Census 160 3,834 26,941 Growth 2010-2015 18.12% 16.85% 15.49% Growth 2000-2010 40.69% 37.05% 32.67% Growth 1990-2000 373.13% 223.58% 88.61% Income 2010 Est. Average Household Income $155,496 $134,376 $108,078 2010 Est. Median Household Income 131,250 113,861 87,261 2010 Est. Per Capita Income 51,161 44,382 38,475 2010 Est. Civ Employed Pop 16+ by Occupation 1,646 27,647 105,930 Architect/Engineer 32 680 2,293 Arts/Entertain/Sports 46 726 2,148 Building Grounds Maint 17 225 1,616 Business/Financial Ops 147 2,509 8,462 Community/Soc Svcs 4 166 934 Computer/Mathematical 100 1,928 5,973 Construction/Extraction 40 510 3,349 Edu/Training/Library 85 1,645 6,379 Farm/Fish/Forestry 0 1 10 Food Prep/Serving 42 833 4,312 Health Practitioner/Tec 76 1,178 3,551 Healthcare Support 6 185 1,009 Maintenance Repair 46 580 3,348 Legal 21 252 749 Life/Phys/Soc Science 24 244 877 Management 318 5,123 16,252 Office/Admin Support 229 3,394 14,767 Production 31 695 3,463 Protective Svcs 26 402 1,758 Sales/Related 261 4,485 16,456 Personal Care/Svc 42 941 3,873 Transportation/Moving 52 947 4,352 Source: Claritas, Inc.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 29
  • This source reports a population of 189,735 within a five-mile radius of the subject property, and 67,415 households within this same radius. Average household income within a five-mile radius of the subject property is currently reported at $108,078, while the median is $87,261. Within the addenda of this report, a demographic report for the entire Town of Flower Mound has been included.Roadway Projects The population growth of Flower Mound has spurred increased roadway improvements to improve traffic flow through the Town and facilitates ingress and egress from and to other parts of the Metroplex. Most recently, the completion of Section 4 of FM 2499 in Highland Village included the bridge that connects FM 2499 with FM 2181 in Corinth, traversing a portion of Lewisville Lake. This roadway improvement has improved north/south travel in the area, allowing for between exposure of businesses along FM 2499. The following bullet points highlight major roadway projects within the Town of Flower Mound: • FM 1171 - Phase 1 (under construction) of this Texas Department of Transportation project will consist of the widening of the existing two-lane roadway to a six-lane divided thoroughfare from FM 2499 to Shiloh Road. Future Phase 2 extends the improvements from Shiloh to U.S. Highway 377, and Future Phase 3 extends the improvements from U.S. Highway 377 to Interstate 35W. • Morriss Road/Gerault Road – Under construction, this project consists of the addition of two inside lanes (one northbound and one southbound) to Gerault Road between FM 2499 and FM 3040 and improving the intersections at FM 407, FM 1171, and FM 3040. Additionally, traffic signals will be added to the intersections with Spinks Road, Garden Road, Sagebrush Drive, and Buckeye Drive. This project will also add landscaping to the medians, provide for new sidewalk in locations where there previously was no existing sidewalk, widen most existing sidewalks to six feet, and replace existing wooden fences along the Morriss/Gerault corridor from FM 2499 to FM 407. • FM 2499/Gerault Road Fly-Over Bridge – Near the intersection of FM 2499 and Gerault Road, piers are under construction for a new fly-over bridge.Major Business and Providing additional context for understanding the nature of the regionalIndustry economy, the following table presents a list of the major employers in the subject property’s market.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 30
  • FIGURE 3-4 MAJOR EMPLOYERS Number of Rank Firm Employees 1 Lewisville Independent School District 1,647 2 Town of Flower Mound 466 3 Stryker Communications 315 4 Texas Health Presbyterian Hospital Flower Mound 288 5 Communication Test Design, Inc (CTDI) 205 6 Best Buy Distribution & Service Center 185 7 Ivie & Associates 180 8 Premier Manufacturing 140 9 HD Supply 132 10 Kroger 115 Source: Town of Flower Mound Economic Development, 2011 The following bullet points highlight major demand generators for this market: • Medical-related development has flourished in Flower Mound. The Texas Health Presbyterian Hospital opened on April 30, 2010 and offers 103 beds in an approximately 182,000-square-foot facility. The campus occupies a twelve- acre site and is the first development in The River Walk at Central Park, a planned development on FM 2499/Long Prairie Road near the intersection with Windsor Drive. The facility received a LEED NC 2.2 certification, which designated it as the first official “green” hospital in Texas. Located across FM 2499, the 24-hour Flower Mound Emergency Center opened in December of 2009. The center is affiliated with Medical Center of Lewisville and offers twelve beds, a trauma/code room, two negative-pressure rooms, and a laboratory with blood bank. In February of 2011, Continuum Rehabilitation Hospital opened a new 55,000-square-foot rehabilitation facility in the southwest quadrant of FM 2499 and Cross Timbers Road, along Peters Colony Road. Orthopedic Associates is developing a 45,000-square-foot office building north of the hospital at FM 2499 and College Parkway. Rainier Medical Investments purchased 21 acres adjacent to the hospital and broke ground in December of 2010 on the River Walk Medical Park I building, an 84,000-square-foot structure that will be attached to the hospital. The project is scheduled to be completed by the fall of 2011. In addition to the new hospital and other larger facilities, the area is replete with smaller medical offices that offer specialty practices and services that complement health care.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 31
  • TEXAS HEALTH PRESBYTERIAN HOSPITAL FLOWER MOUND EMERGENCY CENTERCONTINUUM REHABILITATION HOSPITAL ORTHOPEDIC ASSOCIATES • The southern border of Flower Mound serves as the communitys campus commercial district. Located within three miles of Dallas/Fort Worth International Airport, the 1,500-acre Lakeside Business District includes several business centers such as Lakeside DFW, Corporate Ridge, Lakeside Trade Center, Cornerstone, Lakeside Ranch, Lakeside International, and Lakeside Commerce Center. With an investment of $25 million in public improvements to encourage development in the district, the Town has successfully attracted high-quality development. Companies within theMay-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 32
  • complex include Stryker Communications, Best Buy Distribution, and Stacy Furniture, among others. In April of 2010, Mohawk Industries opened a new distribution, sales, and operations center in Lakeside Trade Center Building Four. In addition to housing the national distribution center, the 258,372- square-foot facility will house Mohawks south-central regional operations offices and regional sales offices. In addition to the south end of Town, Flower Mound has designated the west end of Town for mixed-use residential and commercial development. The Denton Creek District encompasses approximately 1,500 acres; future land uses are expected to include retail, office, campus commercial/industrial, and some residential. High-quality office space is also available in numerous office parks and developments in the Town, including Fountain Park, Sagebrush Office Park, and Parker Square. • The presence of Dallas/Fort Worth International Airport just south of Flower Mound/Grapevine/Lewisville generates significant levels of demand for area hotels. In addition, global and national corporations, associations, and organizations find the airport’s central location convenient for hosting planning, training, and strategy meetings in the Dallas/Fort Worth Metroplex. Recessionary influences negatively impacted several industries in the North Dallas/Fort Worth International Airport area in 2008 and 2009, similar to trends throughout the U.S. However, the Dallas/Fort Worth Metroplex economy benefits from diverse economic drivers; furthermore, indications of a recovery are manifesting as the national economic climate improves. Increased passenger traffic at Dallas/Fort Worth International Airport, new development of entertainment attractions planned for the Gaylord Texan Resort & Convention Center and Grapevine Mills Mall, and the resurgence of leisure demand to the area should contribute to this markets continued strength and expansion. Overall, the area is benefiting from an emerging recovery.Unemployment The following table presents historical unemployment rates for the proposedStatistics subject property’s market area.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 33
  • FIGURE 3-5 UNEMPLOYMENT STATISTICS Year County MSA State U.S. 2001 3.5 % 4.7 % 5.0 % 4.7 % 2002 5.0 6.5 6.4 5.8 2003 5.3 6.6 6.7 6.0 2004 4.6 5.8 6.0 5.5 2005 4.6 5.2 5.4 5.1 2006 4.2 4.8 4.9 4.6 2007 3.9 4.3 4.4 4.6 2008 4.5 5.0 4.9 5.8 2009 7.2 7.8 7.6 9.3 2010 7.5(E) 8.3(E) 8.2(D) 9.6 Recent Month - February 2010 7.7 % 8.5 % 8.4 % 9.7 % 2011 7.4 8.1 8.2 8.9 * Letters shown next to data points (if any) reflect revised population controls and/or model re-estimation implemented by the BLS. Source: U.S. Bureau of Labor Statistics The unemployment rate for the U.S. fluctuated within the narrow range of 4% to 6% in the period spanning 1997 to 2007. The recession that began in late 2007, and the subsequent financial crisis in 2008, forced many businesses to downsize or cease operations. Over seven million jobs were lost between 2008 and 2009; as a result, the national unemployment rate reached 10.0% in the fourth quarter of 2009. However, beginning in the fourth quarter of 2009, the pace of job losses slowed dramatically and the national economy began to exhibit positive trends. Job growth resumed in January of 2010, and excluding the fluctuations related to the loss of temporary jobs associated with the 2010 Census collection of data, the pace of job growth improved during the remainder of 2010, with the unemployment rate declining to 9.6 for 2010. Non-farm employment payrolls showed job growth for eight of the twelve months of 2010. Forecasts for 2011 anticipate an accelerating pace of job growth throughout the year, barring any unforeseen international economic crisis. Nevertheless, it is expected to take several years to regenerate the jobs that were lost during the recession, and most economists expect unemployment to remain heightened over the near term. Locally, the unemployment rate was 7.5(E)% in 2010; for this same area in 2011, the most recent month’s unemployment rate was registered at 7.4%, versus 7.7% for the same month in 2010.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 34
  • Unemployment rates in this area fluctuated mid-decade and then increased slightly in 2008, followed by a more notable increase in 2009, primarily due to the weakening national economy. The most recent comparative period illustrates that unemployment has decreased slightly and still falls below the national level. Within Denton County, local employment has been strong at public employers such as University of North Texas and the Lewisville Independent School District. Within the greater area, employment in the Dallas/Fort Worth International Airport area has remained strong. Our interviews with economic development officials and our research reflect an optimistic outlook as the economy is anticipated to emerge from recessionary conditions this year.Office Space Statistics Trends in occupied office space are typically among the most reliable indicators of lodging demand, because firms that occupy office space often exhibit a strong propensity to attract commercial visitors. Thus, trends that cause changes in vacancy rates or in the amount of occupied office space may have a proportional impact on commercial lodging demand, and a less direct effect on meeting demand. The following table details office space statistics for the pertinent market area.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 35
  • FIGURE 3-6 OFFICE SPACE STATISTICS Net Rentable Under Vacancy Average Asking Net Submarket Area (SF) Construction (SF) Rate Lease Rate Absorption (SF) Dallas CBD 26,638,741 0 26.3 % $21.71 (877,662) Fort Worth CBD 8,741,655 0 7.5 27.42 168,474 Central Expressway 10,411,162 0 19.4 22.63 86,776 Denton 399,047 0 10.4 19.79 5,824 East Dallas 2,392,796 0 16.7 17.51 98,610 Far North Dallas 18,391,344 0 24.9 23.71 821 Far Northeast Dallas 505,455 0 35.9 22.77 (15,823) Grapevine/Southlake 2,606,740 0 33.8 27.32 (81,296) Hurst/Euless/Bedford 3,359,130 0 23.8 18.72 97,575 Las Colinas/Irving 25,045,887 0 22.4 21.76 511,948 LBJ Freeway 22,647,068 0 26.2 21.90 (81,153) Lewisville/Flower Mound 2,970,251 0 26.4 24.50 212,772 N. Arlington/Grand Prairie 3,824,455 0 20.6 20.24 (153,395) North Fort Worth 895,003 0 8.5 17.96 8,625 Northeast Fort Worth 986,913 0 13.1 20.25 (20,237) Preston Center 3,284,885 0 13.5 31.60 (93,064) Richardson/Plano/Allen 14,474,912 0 26.5 22.02 (408,561) S. Arlington/Grand Prairie 2,316,375 0 13.2 18.99 (40,779) South Dallas 1,233,905 0 19.5 16.66 7,625 Southeast Fort Worth 154,636 0 22.8 13.58 (5,174) Stemmons 7,158,962 0 39.8 17.78 72,767 Uptown/Turtle Creek 12,125,840 0 20.6 31.08 (55,696) West Fort Worth 4,367,680 0 12.1 25.92 90,072 West Plano/Frisco 13,255,179 352,876 19.2 24.44 896,917 Totals 188,188,021 352,876 22.9 % $23.21 425,966 Source: Grubb & Ellis, Fourth Quarter 2010 Trends Report Office vacancy represented 22.9% in the greater market area, and the area’s lease rate was $23.21. The subject site is located in the Lewisville/Flower Mound submarket. This submarket reported a vacancy rate of 26.4% and a lease rate of $24.50.Airport Traffic Airport passenger counts are important indicators of lodging demand. Depending on the type of service provided by a particular airfield, a sizable percentage of arriving passengers may require hotel accommodations. Trends showing changes in passenger counts also reflect local business activity and the overall economic health of the area.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 36
  • Dallas/Fort Worth International Airport is one of the nations largest airports and serves as headquarters for American Airlines, which generates over 80% of the airport’s activity. A new international terminal and a Grand Hyatt hotel opened at the airport in the summer of 2005. A high-speed tram system, Skylink, was also completed in 2005 to transport passengers among the airports five terminals. In 2007, the airport received the prestigious “Highest in Customer Satisfaction for Large Airports” award from J.D. Power and Associates. In September of 2009, the Board of Directors approved the first major expenditure of $20.75 million for the DFW Terminal Development Program, which is an eight-year plan to improve Terminals A, B, C, and E. Updates are planned to include restroom renovations, new flight information display screens, lighting improvements, and jet bridge and ramp equipment upgrades. The renovation of Terminal A began in February of 2011 and is expected to be completed by 2014; the entire project is scheduled for completion by the end of 2017. The following table illustrates recent operating statistics for the primary airport facility serving the subject property’s submarket. FIGURE 3-7 AIRPORT STATISTICS Passenger Percent Percent Year Traffic Change* Change** 2001 55,150,693 — — 2002 52,814,185 (4.2) % (4.2) % 2003 53,253,607 0.8 (1.7) 2004 59,412,217 11.6 2.5 2005 59,176,265 (0.4) 1.8 2006 60,226,138 1.8 1.8 2007 59,802,556 (0.7) 1.4 2008 57,093,187 (4.5) 0.5 2009 56,030,457 (1.9) 0.2 2010 56,886,843 1.5 0.3 Year-to-date, January 2010 4,278,669 — — 2011 4,347,023 1.6 % — *Annual average compounded percentage change from the previous year **Annual average compounded percentage change from first year of data Source: Dallas Fort Worth International AirportMay-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 37
  • FIGURE 3-8 LOCAL PASSENGER TRAFFIC VS. NATIONAL TREND 14% 12% Change in Passenger Activity 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% 2002 2003 2004 2005 2006 2007 2008 2009 2010 Local Passenger Volume National Passenger Volume Source: HVS, Local Airport Authority This facility recorded 56,886,843 passengers in 2010. The change in passenger traffic between 2009 and 2010 was 1.5%. The average annual change during the period shown was 0.3%. The following table illustrates recent operating statistics for the secondary airport facility serving the proposed subject property’s sub-market.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 38
  • FIGURE 3-9 AIRPORT STATISTICS – SECONDARY AIRPORT Passenger Percent Percent Year Traffic Change* Change** 2001 6,685,618 — — 2002 5,622,754 (15.9) % (15.9) % 2003 5,588,930 (0.6) (8.6) 2004 5,889,756 5.4 (4.1) 2005 5,909,599 0.3 (3.0) 2006 6,874,717 16.3 0.6 2007 7,953,385 15.7 2.9 2008 8,060,792 1.4 2.7 2009 7,744,522 (3.9) 1.9 2010 7,960,809 2.8 2.0 Year-to-date, February 2010 1,113,353 — — 2011 1,190,376 6.9 % — *Annual average compounded percentage change from the previous year **Annual average compounded percentage change from first year of data Source: Dallas Love Field Dallas Love Field is a public airport located northwest of Dallas, Texas. Love Field was the primary airport for Dallas until Dallas/Fort Worth International Airport opened in 1974. Love Field was designated as a Texas State Historical Site in 2003 and celebrated 90 years in the aviation industry in 2007. Love Field is now Dallas’ secondary airport and is primarily serviced by Southwest Airlines. Other airlines serving the facility include Continental Express, American Airlines, and American Eagle. Love Field launched a $519-million capital improvement project in June of 2009. The timing of the capital projects completion will coincide with the end of federal restrictions on how far planes can fly from the airport in 2014; the project will double the airports capacity from a current four million passengers per year to eight million. Additional improvements include replacing existing terminals with a 20-gate concourse and an expanded baggage-claim area. Air traffic registered 7,960,809 passengers in 2010. The change in passenger traffic between 2009 and 2010 was 2.8%. The increase in passenger traffic can be attributed in large part to improving economic conditions, on both micro and macro scales; consumers have increased spending related to travel, while airlines have recovered from the significant decline in demand noted in 2009.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 39
  • Flower Mound Located off Gerault Road and north of Spinks Road, Flower Mound’s CommunityCommunity Activities Activity Center (CAC ) offers a variety of recreational and social facilities for Townand Organizations residents. Centrally located in Flower Mound, the $14 million, 70,000 plus square- foot CAC features a two-court gymnasium; an eight-lane indoor natatorium with a two-story slide; a outdoor pool area with lap lanes, slides, and children’s activities; an outdoor whirlpool; a full-service fitness area with a variety of cardiovascular equipment, resistance machines, and other equipment; an indoor track with three lanes; locker rooms with showers and amenities; a teen room with foosball, billiards table, air hockey, shuffle board, and electronic gaming systems; a concession stand; multi-purpose and party rooms; a child care facility; and a designated area for seniors. The facility hosts numerous art, dance, and fitness classes and programs and is home to the Youth Action Council and Seniors in Motion programs. FLOWER MOUND COMMUNITY ACTIVITY CENTER Flower Mound Youth Sports Association (FMYSA) serves as The Town’s youth baseball/softball facilitator. Flower Mound’s Bakersfield Park Phase One opened in 2004 and features eight baseball fields and six soccer fields. Phase Two, completed in 2006, includes a girls’ softball complex. FMYSA provides programming to thousands of local youth through recreational and select (competitive) teams. In addition, select tournaments create a regional draw from surrounding areas.Meeting and Banquet Meeting and banquet facilities for private functions in the Flower Mound area areFacilities somewhat limited. The CAC offers features three multi-purpose rooms, one wet multi-purpose room in the pool area, the Chill Zone teen room, and a catering kitchen for party, meeting, and activity rentals. The gymnasium and pools are also available for rent after hours. Chapelle des Fleurs is located north of FM 1171 off FM 2499 and is known as a wedding venue for ceremonies and receptions, but alsoMay-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 40
  • hosts breakfasts, luncheons, seminars, corporate events, parties, and other functions. Located to the southwest of FM 2499 and FM 1171, Circle R Ranch is a theme-oriented ranch with three separate event facilities spread across 100 acres. In addition to these Flower Mound facilities, Highland Village offers Celebrations, a banquet and event facility that offers two 4,000 square-foot-ballrooms.Tourist Attractions The Dallas/Fort Worth market benefits from a variety of tourist and leisure attractions in the area. The peak season for tourism in this area is from May to September. During other times of the year, weekend demand comprises travelers passing through en route to other destinations, people visiting friends or relatives, and other similar weekend demand generators. Within Flower Mound, visitation is primarily related to golf, youth sporting events, and annual festivals, including Wild About Flower Mound Festival and Fiesta Flower Mound. Tour 18 and Bridlewood Golf Club are both nationally recognized golf courses. While Flower Mound has frontage on Lake Grapevine, public access is limited and, therefore, is not a significant tourism draw. Nonetheless, both Lake Grapevine and Lake Lewisville offer area visitors a variety of recreational activities. Primary attractions in the Dallas/Fort Worth Metroplex include the following: • Nearby Grapevine offers the Grapevine Mills outlet mall, which features hundreds of retail-outlet stores, family-oriented entertainment venues, and dining options in several themed restaurants. The LEGOLAND Discovery Centre, a $12-million childrens attraction, opened at the mall in March of 2011, and the $15-million Sea Life aquarium is expected to open in the summer of 2011. Grapevines historic Downtown District is also a popular destination, replete with shops, restaurants, and entertainment venues. Bass Pro Shops Outdoor World, Great Wolf Lodge (indoor water park resort), and the Gaylord Texan Resort & Convention Center are also popular attractions. In the spring of 2011, the Gaylord will unveil a ten-acre water park. To the east of Flower Mound, Old Town Lewisville offers unique store fronts, some dating from the turn of the century, providing the setting for many antique shops and malls, boutiques, craft stores, and art galleries.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 41
  • GAYLORD TEXAN RESORT & CONVENTION CENTER • Connected to Interstate 35W via FM 1171, Flower Mound is within an easy drive of Fort Worth. Major attractions on the north side of Fort Worth include the Texas Motor Speedway and Cabelas. Texas Motor Speedway is a major North Texas attraction, hosting multiple events including truck auctions, car shows, and multiple major races per year. In addition, the Speedway offers driving schools along with driving and riding experiences. Cabela’s is a major retailer of hunting and camping products. Its 230,000-square-foot Forth Worth showroom features museum-quality animal displays, aquariums, and trophy animals. Other attractions in Fort Worth include the Fort Worth Stockyards (anchored by the legendary Billy Bob’s Texas honky-tonk); Downtown Fort Worth, offering many attractions including its convention center and the Bass Performance Hall, as well as Sundance Square and the Fort Worth Water Gardens; the Fort Worth Botanic Garden; Will Rogers Memorial Center, home to the annual Fort Worth Stock Show and Rodeo; and the Kimbell Art Museum. • The Metroplexs network of interstates and highways allows Dallas to be easily accessible from Flower Mound. The Dallas Arts District is a unique, 68-acre, 19-block complex that is anchored by the Dallas Museum of Art. The district also includes the Nasher Sculpture Center, the Crow Collection of Asian Art, and the Meyerson Symphony Center. The AT&T Performing Arts Center is the newest addition to the district, with the opening of the Dee and Charles Wyly Theater, the Margot and Bill Winspear Opera House, and Sammons Park in October of 2009. Ever since Neiman Marcus opened its flagship store on Main Street in 1914, Dallas has been a shopping mecca. Highland Park Village followed in 1931 and is recognized as the first shopping center in America and the prototype for centers across the country. NorthPark Center, which opened in 1965, was then the largest climate-controlled retail establishment in theMay-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 42
  • world; now, the mall attracts more than 21 million visitors per year. The Galleria Dallas features more than 200 shops and restaurants, a hotel, and an indoor ice rink. The American Airlines Center in Downtown Dallas hosts the Dallas Mavericks basketball team and the Dallas Stars hockey team, as well as many high-profile concerts, special events, and shows. • South of Dallas/Fort Worth International Airport, Arlington boasts numerous entertainment and sporting event attractions. Located on 212 acres, Six Flags Over Texas opened in 1961 and is the oldest park of the Six Flags chain. During the peak season, the amusement park attracts thousands of visitors daily. Six Flags Hurricane Harbor spans 47 acres and includes body slides, speed slides, tube slides, wave pools, lazy rivers, and shopping areas. Cowboys Stadium in Arlington is the largest NFL stadium to date and incorporates the Dallas Cowboys tradition through the stadiums iconic and modern architecture. The stadium, designed to be open or closed, measures approximately 660,800 square feet and can house up to 100,000 spectators and avid fans; when closed, the stadium becomes the largest of its kind in the world. The Rangers Ballpark in Arlington is home to the Texas Rangers major league baseball team. This 1,400,000-square-foot venue also features iconic Texas architecture and entertainment options to baseball spectators and fans.Conclusion This section discussed a wide variety of economic indicators for the pertinent market area. After a period of economic expansion, the market area entered into a period of contraction as the local economy began to experience the challenges felt across the nation associated with the recession. Our market interviews and research revealed that although the area was impacted by slowing business levels, a depressed housing market, and reduced levels of discretionary spending during the most recent recession, the Dallas/Fort Worth market benefits from a well- established, diversified economy. Primarily a bedroom community, Flower Mound is diversifying its economic base through aggressive growth within the health care, manufacturing, and distribution sectors. Aside from health care, many of the corporations that support this area are world-renowned companies working with a multitude of clients. Thus, as the national economy rebounds and strengthens, the market is anticipated to bounce back relatively quickly. Our analysis of the outlook for this specific market also considers the broader context of the national economy. The U.S. economy entered a recession in December of 2007, initially triggered by the subprime mortgage crisis that led to the collapse of the housing bubble. The recession worsened in the fall of 2008 when the financial crisis shocked the world economy. The U.S. fell into economic decline for most of 2009, but some positive trends began to emerge mid-year. The nation’s gross domestic product and corporate profits began to grow again in theMay-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 43
  • third quarter of 2009. Momentum continued to build during 2010. Stock prices and retail sales increased across the country, and real GDP in the U.S. expanded by an annual rate of 3.2% in the fourth quarter of 2010, accelerating from the 2.6% rate noted in the third quarter. The prospects for continued economic growth are tied to the expansion of the labor market. While many employment sectors, including manufacturing, are reporting improving trends, unemployment remains heightened. The construction and housing sectors continue to be challenged. Nevertheless, in January of 2011, the Federal Reserve reported that businesses were positive, although still generally cautious, about the outlook for 2011. Both political parties have made the reduction of unemployment a top priority and, at this point, expectations are for slow to moderate growth in the near term, with the potential for a period of stronger growth as the economic recovery accelerates.May-2011 Market Area Analysis Proposed Select-Service Hotel – Flower Mound, Texas 44
  • 4. Supply and Demand Analysis In the economic principle of supply and demand, price varies directly, but not proportionately, with demand and inversely, but not proportionately, with supply. In the lodging industry, supply is measured by the number of guestrooms available, and demand is measured by the number of room occupied; the net effect of supply and demand towards equilibrium results in a prevailing price, or average rate. The purpose of this section is to investigate current supply and demand trends as indicated by the current competitive market, and set forth a basis for the projection of future supply and demand growth.Definition of Subject The 130-room proposed select-service hotel will be located in Flower Mound,Hotel Market Texas. The Dallas-Fort Worth-Arlington, Texas MSA offers 950 hotels and motels, spanning 109,917 rooms. The two largest hotels are the 1,840-room Sheraton Hotel Dallas and the 1,608-room Hilton Anatole. Of this larger supply set, the proposed subject property is expected to compete with a smaller set of hotels based on various factors. These factors may include location, price point, product quality, length of stay (such as an extended-stay focus vs. non-extended-stay focus), room type (all-suite vs. standard), hotel age, or brand, among other factors. We have reviewed these pertinent attributes and established an expected competitive set based upon this review. Our review of the proposed subject property’s specific competitive set within the Flower Mound area begins after our review of national occupancy, average rate, and RevPAR trends. There are no lodging facilities that currently operate in the jurisdiction of Flower Mound. In a review of area hotels, we established a competitive set from the Grapevine and Lewisville markets. The Grapevine hotels selected represent hotels that offer a similar product to that expected of proposed subject hotel and benefit from locational attributes similar to those anticipated to be associated with the site chosen for the proposed subject property. We have also established a secondary competitive set based on the presence of quality hotels in Lewisville. While the Grapevine properties are considered to be primary competitors because of their product orientations and access to area demand generators, it is our opinion the subject property would compete with the Lewisville hotels to some degree due to the presence of demand-generating corporations along State Highway 121 between FM 2499 and Interstate 35.National Trends The proposed subject property’s local lodging market is most directly affected byOverview the supply and demand trends within the immediate area. However, individual markets are also influenced by conditions in the national lodging market. We haveMay-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 45
  • reviewed national lodging trends to provide a context for the forecast of the supply and demand for the proposed subject property’s competitive set. Smith Travel Research (STR) is an independent research firm that compiles data on the lodging industry; its published data is routinely used by typical hotel buyers. Figure 5-1 presents annual hotel occupancy and average rate data since 1987. More recent information is presented in Figures 5-2 and 5-3; this data is categorized by geography, price point, type of location, and chain scale. The statistics include occupancy, average rate, and rooms revenue per available room (RevPAR). RevPAR is calculated by multiplying occupancy by average rate, and provides an indication of how well rooms revenue is being maximized.FIGURE 4-1 NATIONAL OCCUPANCY AND AVERAGE RATE TRENDS 70.0% $120 $100 65.0% $80 60.0% $60 55.0% $40 50.0% $20 $0 45.0% 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 RevPAR Average Rate Occupancy Source: STRMay-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 46
  • FIGURE 4-2 NATIONAL OCCUPANCY AND AVERAGE RATE TRENDS – YEAR-TO-DATE DATA Occupancy - Thru March Average Rate - Thru March RevPAR - Thru March 2010 2011 % Change 2010 2011 % Change 2010 2011 % Change United States 52.0 % 54.9 % 5.7 % $96.35 $99.37 3.1 % $50.07 $54.56 9.0 % Region New England 46.5 % 48.7 % 4.7 % $101.38 $104.46 3.0 % $47.16 $50.89 7.9 % Middle Atlantic 53.1 54.3 2.1 123.30 127.42 3.3 65.52 69.14 5.5 South Atlantic 55.0 58.0 5.4 101.63 102.96 1.3 55.90 59.67 6.8 East North Central 44.0 47.2 7.1 78.47 80.88 3.1 34.56 38.15 10.4 East South Central 48.2 49.8 3.3 72.77 74.36 2.2 35.04 36.99 5.6 West North Central 45.1 46.6 3.5 74.82 77.02 2.9 33.72 35.92 6.5 West South Central 53.2 56.5 6.3 83.57 86.60 3.6 44.46 48.95 10.1 Mountain 52.7 57.2 8.5 97.01 99.93 3.0 51.11 57.12 11.8 Pacific 57.1 60.8 6.4 109.13 115.51 5.8 62.36 70.22 12.6 Price Luxury 61.1 % 64.8 % 6.0 % $145.52 $150.75 3.6 % $88.96 $97.64 9.8 % Upscale 52.5 55.3 5.4 103.47 106.07 2.5 54.34 58.71 8.0 Midprice 47.9 50.6 5.6 76.01 77.75 2.3 36.39 39.31 8.0 Economy 45.7 48.3 5.6 55.61 56.12 0.9 25.42 27.08 6.5 Budget 48.8 51.4 5.3 44.66 45.41 1.7 21.81 23.35 7.0 Location Urban 59.3 % 61.8 % 4.1 % $127.83 $133.84 4.7 % $75.84 $82.69 9.0 % Suburban 52.2 55.6 6.4 82.38 84.47 2.5 43.04 46.97 9.1 Airport 61.4 64.3 4.6 89.52 91.55 2.3 54.97 58.83 7.0 Interstate 43.8 46.0 5.0 66.88 68.08 1.8 29.28 31.30 6.9 Resort 57.4 61.1 6.4 139.27 144.75 3.9 80.00 88.49 10.6 Small Metro/Town 43.1 45.5 5.8 75.17 76.51 1.8 32.36 34.84 7.6 Chain Scale Luxury 62.9 % 67.0 % 6.5 % $241.52 $256.14 6.1 % $151.96 $171.56 12.9 % Upper Upscale 63.3 65.4 3.3 140.83 146.51 4.0 89.09 95.76 7.5 Upscale 62.1 65.4 5.3 107.00 110.34 3.1 66.42 72.13 8.6 Mid-scale w/ F&B 52.0 55.1 6.1 88.28 90.39 2.4 45.88 49.84 8.6 Mid-scale w/o F&B 45.4 47.9 5.6 70.55 70.35 (0.3) 32.00 33.69 5.3 Economy 46.0 48.5 5.4 46.51 46.89 0.8 21.39 22.72 6.2 Independents 48.5 51.5 6.2 92.92 95.33 2.6 45.06 49.11 9.0 Source: STR - March 2011 Lodging ReviewMay-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 47
  • FIGURE 4-3 NATIONAL OCCUPANCY AND AVERAGE RATE TRENDS – CALENDAR YEAR DATA Occupancy Average Rate RevPAR 2009 2010 % Change 2009 2010 % Change 2009 2010 % Change United States 54.5 % 57.6 % 5.7 % $98.17 $98.08 (0.1) % $53.50 $56.47 5.5 % Region New England 54.1 % 58.5 % 8.1 % $114.65 $115.93 1.1 % $62.00 $67.77 9.3 % Middle Atlantic 59.6 63.3 6.2 134.32 138.57 3.2 80.10 87.78 9.6 South Atlantic 53.9 57.1 5.9 98.65 97.46 (1.2) 53.18 55.64 4.6 East North Central 50.2 53.9 7.4 85.50 85.13 (0.4) 42.92 45.90 6.9 East South Central 51.2 54.0 5.3 75.23 75.08 (0.2) 38.56 40.51 5.1 West North Central 52.8 55.1 4.3 77.15 77.95 1.0 40.72 42.91 5.4 West South Central 53.4 55.1 3.2 83.74 82.71 (1.2) 44.71 45.58 2.0 Mountain 54.0 56.7 4.9 91.95 90.28 (1.8) 49.69 51.16 3.0 Pacific 59.3 63.0 6.3 112.77 112.54 (0.2) 66.86 70.89 6.0 Price Luxury 61.5 % 65.4 % 6.3 % $147.61 $146.54 (0.7) % $90.81 $95.84 5.5 % Upscale 55.9 58.9 5.4 107.21 106.44 (0.7) 59.94 62.71 4.6 Midprice 51.2 53.8 5.2 78.66 78.33 (0.4) 40.25 42.16 4.7 Economy 49.0 51.5 5.1 59.04 58.28 (1.3) 28.95 30.04 3.8 Budget 51.3 54.0 5.3 48.26 47.30 (2.0) 24.74 25.54 3.2 Location Urban 61.8 % 65.7 % 6.3 % $136.45 $139.60 2.3 % $84.32 $91.73 8.8 % Suburban 53.7 57.3 6.8 85.02 83.62 (1.6) 45.64 47.94 5.0 Airport 59.8 63.7 6.5 90.67 88.54 (2.3) 54.19 56.38 4.0 Interstate 49.5 51.4 3.8 69.43 69.93 0.7 34.38 35.95 4.6 Resort 56.8 59.4 4.6 129.86 129.30 (0.4) 73.73 76.81 4.2 Small Metro/Town 49.6 51.6 4.1 81.14 81.45 0.4 40.26 42.06 4.5 Chain Scale Luxury 61.4 % 66.2 % 7.8 % $244.52 $249.65 2.1 % $150.18 $165.29 10.1 % Upper Upscale 63.6 67.7 6.4 143.09 142.16 (0.6) 90.97 96.19 5.7 Upscale 60.9 65.4 7.3 108.63 106.97 (1.5) 66.20 69.97 5.7 Mid-scale w/ F&B 49.0 51.1 4.4 83.33 82.48 (1.0) 40.82 42.16 3.3 Mid-scale w/o F&B 55.5 58.3 5.2 85.43 84.75 (0.8) 47.39 49.44 4.3 Economy 48.9 51.3 5.1 50.95 49.38 (3.1) 24.89 25.35 1.8 Independents 52.4 55.0 4.9 95.12 95.42 0.3 49.88 52.46 5.2 Source: STR - December 2010 Lodging ReviewMay-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 48
  • The onset of the recession in December of 2007 first became evident in lodging trends in the spring of 2008 as demand levels decreased from the peak recorded in the previous year. The pace of decline sped up in the fall of 2008, as both corporate and consumer spending fell dramatically in the wake of the financial crisis and in response to intensifying recessionary pressures. Continued increases in lodging supply, which grew by 2.7% in 2008 and 3.2% in 2009, combined with demand decreases, resulted in a national average occupancy of 55.1% in 2009, an historic low. Aggressive price cuts and discounting that were implemented in the face of falling occupancy levels caused average rate to decrease by 8.8% in that same year. The resulting $53.71 RevPAR recorded in 2009 was on par with the level recorded in 2004. Demand growth resumed in 2010, led by select markets that had recorded positive growth trends in the fourth quarter of 2009. The pace of demand growth accelerated through the year, and lodging demand in the U.S. increased by 7.7% in 2010 when compared with 2009. A return of business travel and some group activity contributed to these positive trends. The resurgence in demand was partly fueled by the significant price discounts that were widely available in the first half of 2010. These discounting policies were largely phased out in the latter half of the year, balancing much of the early rate loss. Average rate decreased by only 0.1% in 2010 when compared with 2009. Moderate demand growth is forecast for 2011 and thereafter, and the commercial and meeting/group demand segments are expected to continue to strengthen. These trends, combined with the low levels of supply growth anticipated through 2012, should boost occupancy to above the 60% mark by 2012. Strengthening occupancy levels should permit hotels to further reduce and eventually eliminate the deep discounts implemented in response to the recession. The net result will be accelerated rate growth as occupancy nears stabilization.Historical Supply Smith Travel Research (STR) is an independent research firm that compiles andand Demand Data publishes data on the lodging industry, routinely used by typical hotel buyers. STR has compiled historical supply and demand data for a group of hotels considered applicable to this analysis for the proposed subject property. This information is presented in the following table, along with the market-wide occupancy, average rate, and rooms revenue per available room (RevPAR). RevPAR is calculated by multiplying occupancy by average rate and provides an indication of how well rooms revenue is being maximized.May-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 49
  • FIGURE 4-4 HISTORICAL SUPPLY AND DEMAND TRENDS Average Daily Available Room Occupied Room Average Year Room Count Nights Change Nights Change Occupancy Rate Change RevPAR Change 2002 511 186,515 — 100,555 — 53.9 % $87.44 — $47.14 — 2003 511 186,515 0.0 % 111,330 10.7 % 59.7 81.11 (7.2) % 48.42 2.7 % 2004 511 186,515 0.0 123,564 11.0 66.2 85.11 4.9 56.39 16.5 2005 663 241,979 29.7 162,443 31.5 67.1 95.61 12.3 64.18 13.8 2006 718 262,070 8.3 185,610 14.3 70.8 106.23 11.1 75.24 17.2 2007 787 287,315 9.6 195,733 5.5 68.1 115.77 9.0 78.87 4.8 2008 883 322,295 12.2 205,414 4.9 63.7 118.60 2.4 75.59 (4.2) 2009 883 322,295 0.0 187,582 (8.7) 58.2 104.30 (12.1) 60.70 (19.7) Year-to-Date Through June 2009 1,781 322,295 — 187,582 — 58.2 % $104.30 — $60.70 — 2010 1,905 344,765 7.0 % 221,852 18.3 % 64.3 95.08 (8.8) % 61.18 0.8 % Average Annual Compounded Change: 2002-2009 8.1 % 9.3 % 2.6 % 3.7 % Number Year Year Hotels Included in Sample of Rooms Affiliated Opened Fairfield Inn & Suites DFW Airport N Grapevine 80 Aug-04 Jul 1998 Hyatt Place Dallas Grapevine 125 Feb-08 Jan 2000 Hampton Inn Suites DFW Airport North Grapevine 94 Dec-00 Dec 2000 Courtyard Dallas Lewisville 122 Mar-01 Mar 2001 Holiday Inn Express & Suites Dallas Lewisville 90 Jun-06 Oct 2001 Comfort Suites Dallas Fort Worth Airport N 96 Jan-05 Jan 2005 Springhill Suites DFW Airport North Grapevine 111 Jul-05 Jul 2005 Hilton Garden Inn Dallas Lewisville 165 Aug-07 Aug 2007 Hampton Inn Suites Dallas Lewisville Vista Ridge Mall 105 Jun-10 Jun 2010 Total 988 Source: Smith Travel ResearchMay-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 50
  • FIGURE 4-5 HISTORICAL SUPPLY AND DEMAND GRAPH 350,000 100 300,000 90 Occupancy % 250,000 80 Room Nights 200,000 70 150,000 60 100,000 50 50,000 40 0 30 2001 2002 2003 2004 2005 2006 2007 2008 2009 Room Supply Room Demand Occupancy Source: Smith Travel Research It is important to note some limitations of the STR data. Hotels are occasionally added to or removed from the sample, and not every property reports data in a consistent and timely manner; these factors can influence the overall quality of the information by skewing the results. These inconsistencies may also cause the STR data to differ from the results of our competitive survey. Nonetheless, STR data provide the best indication of aggregate growth or decline in existing supply and demand; thus, these trends have been considered in our analysis. Opening dates, as available, are presented for each reporting hotel in the previous table. These data reflect an overall market occupancy level of 58.2% in 2009, which compares to 63.7% for 2008. The overall average occupancy level for the calendar years presented equates to 65.4%. The north-central Dallas/Fort Worth Metroplex area encompasses the communities of Grapevine, Flower Mound, and Lewisville, among others, offering recreational opportunities, hotels, restaurants, and retail centers. The collective market area is ideally located adjacent to the northern entrance of the Dallas/Fort Worth International Airport. Occupancy in this area increased from 2003 through 2005 as a result of an increase in corporate travel to the area. Furthermore, the Gaylord Texan opened in the spring of 2004 and began to generate a significant amount of overflow demand for the Grapevine hotel market during its ramp-up period. Demand experienced a correction from October 2008 through October 2009, concurrent with the corporate-travel restrictions that were put into place during this time. Furthermore, overflow demand from the Gaylord minimized during this period, as group travel to that facility slowed. Demand levels have now exceeded the historic high as most travelMay-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 51
  • restrictions have been lifted, the Gaylord is experiencing strong results, and the Dallas/Fort Worth area is seen as a value-driven, business-focused and appropriate destination for travel in the current economic climate. These data reflect an overall market average rate level of $104.30 in 2009, which compares to $118.60 for 2008. The average across all calendar years presented for average rate equates to $105.96. After a slight dip in 2003, average rate in the local market registered steady growth from 2004 through the third quarter of 2008. As the market reached its capacity in 2005, hotels were able to set rates higher. Moreover, during group events at the Gaylord, which commanded very high rates at the headquarters hotel, nearby hotels could set their rates just under the high Gaylord rate, which fueled rate growth further. Average rate growth began to slow in early 2008 as managers attempted to maintain negotiated rates set in better times but also benefitted from some already-set, Gaylord-driven rates. However, average rate trended downward, posting negative growth in 2009, along with the contraction of the national economy and reduced Gaylord overflow demand. Major corporate accounts also became aggressive in demanding price concessions. Rate decline continued throughout most of 2010, but average rates began to show improvement in the third quarter. The latest year-to-date data indicate that this markets average daily rate is continuing to gain ground, evidence that a recovery is underway, and hotels should regain pricing power with the forecasted increases in occupancy. These occupancy and average rate trends resulted in a RevPAR level of $60.70 in 2009.Seasonality Monthly occupancy and average rate trends are presented in the following tables.May-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 52
  • FIGURE 4-6 MONTHLY OCCUPANCY TRENDS Month 2002 2003 2004 2005 2006 2007 2008 2009 2010 January 49.0 % 51.4 % 54.5 % 59.7 % 71.8 % 71.1 % 55.7 % 53.7 % 56.2 % February 47.9 56.3 59.6 68.4 77.9 75.0 62.9 61.9 70.0 March 54.2 65.2 71.6 67.4 78.9 81.6 69.0 57.0 69.1 April 60.2 59.1 66.4 74.0 73.6 77.3 73.8 63.6 71.8 May 56.4 62.3 64.3 67.6 71.2 73.4 66.1 53.5 70.4 June 57.3 70.9 76.7 72.5 74.7 75.3 67.8 62.3 67.6 July 63.7 63.7 68.3 62.9 66.3 69.8 64.4 61.3 70.2 August 53.7 58.0 62.8 57.7 64.5 58.0 61.2 52.3 57.8 September 48.7 55.1 70.2 69.5 67.8 60.5 69.6 55.7 61.9 October 60.0 63.2 74.5 75.6 76.6 72.0 69.0 62.9 65.4 November 52.5 59.7 67.2 76.3 71.1 65.1 59.1 61.3 62.6 December 42.8 51.3 58.7 55.9 56.3 47.9 46.6 53.7 51.5 Annual Occupancy 53.9 % 59.7 % 66.2 % 67.1 % 70.8 % 68.1 % 63.7 % 58.2 % — Year-to-Date 54.2 60.9 65.6 % 68.2 % 74.7 % 75.6 % 65.9 % 58.6 % 64.3 % Source: Smith Travel ResearchMay-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 53
  • FIGURE 4-7 MONTHLY AVERAGE RATE TRENDS Month 2002 2003 2004 2005 2006 2007 2008 2009 2010 January $90.94 $84.89 $85.07 $95.31 $104.18 $115.66 $121.90 $113.03 $95.27 February 92.99 84.47 84.29 96.05 104.97 116.80 124.28 112.25 96.03 March 89.02 87.39 83.70 97.48 107.86 113.07 124.13 111.38 94.88 April 92.36 82.28 87.43 100.97 109.30 122.11 125.41 113.78 96.51 May 88.35 79.30 83.35 94.37 102.38 115.80 116.44 104.17 94.05 June 86.35 79.93 81.14 93.41 109.69 115.11 117.26 105.73 92.06 July 83.19 79.12 84.25 90.93 101.69 110.80 114.12 101.57 89.13 August 85.39 78.59 87.71 92.56 107.13 113.24 116.89 101.76 97.20 September 85.83 81.85 88.38 95.99 105.98 118.15 118.86 103.19 99.64 October 87.59 79.52 87.33 97.98 110.41 119.86 118.43 101.65 99.55 November 85.29 79.41 84.98 100.45 110.59 118.16 113.37 94.07 96.48 December 82.34 77.00 83.84 89.73 98.26 107.87 108.78 88.49 90.53 Annual Average Rate $87.44 $81.11 $85.11 $95.61 $106.23 $115.77 $118.60 $104.30 — Year-to-Date $89.89 $82.93 $84.05 $96.32 $106.43 $116.38 $121.57 $110.09 $95.08 Source: Smith Travel ResearchMay-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 54
  • The illustrated monthly occupancy and average rates patterns reflect important seasonal characteristics. We have reviewed these trends in developing our forthcoming forecast of market-wide demand and average rate.Patterns of Demand A review of the trends in occupancy, average rate, and RevPAR by the night of the week over the past three fiscal years provides some insight into the impact that the current economic conditions have had on the competitive lodging market. The data, as provided by Smith Travel Research, is set forth in the following table.May-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 55
  • FIGURE 4-8 OCCUPANCY, AVERAGE RATE AND REVPAR BY DAY OF WEEK Occupancy (%) Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Year Apr 08 - Mar 09 39.7 % 64.5 % 76.4 % 75.8 % 63.3 % 58.3 % 59.1 % 62.5 % Apr 09 - Mar 10 38.4 61.4 72.1 70.9 61.0 57.2 59.3 60.1 Apr 10 - Mar 11 42.2 66.8 78.7 78.3 66.1 58.9 61.3 64.6 Change (Occupancy Points) FY 08 - FY 09 -1.3 -3.1 -4.3 -4.9 -2.4 -1.0 0.2 -2.4 FY 09 - FY 10 3.8 5.4 6.6 7.4 5.2 1.7 2.0 4.6 ADR ($) Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Year Apr 08 - Mar 09 $110.37 $124.89 $129.33 $127.99 $120.04 $94.68 $93.39 $115.94 Apr 09 - Mar 10 94.10 108.79 111.16 110.65 103.74 82.26 81.85 100.06 Apr 10 - Mar 11 95.22 104.24 106.15 105.48 99.94 81.78 82.03 97.39 Change (Dollars) FY 08 - FY 09 -$16.27 -$16.10 -$18.17 -$17.34 -$16.30 -$12.42 -$11.54 -$15.89 FY 09 - FY 10 1.12 -4.55 -5.01 -5.17 -3.80 -0.48 0.18 -2.66 Change (Percent) FY 08 - FY 09 -14.7 % -12.9 % -14.0 % -13.6 % -13.6 % -13.1 % -12.4 % -13.7 % FY 09 - FY 10 1.2 -4.2 -4.5 -4.7 -3.7 -0.6 0.2 -2.7 RevPAR ($) Sunday Monday Tuesday Wednesday Thursday Friday Saturday Total Year Apr 08 - Mar 09 $43.83 $80.49 $98.80 $97.01 $76.01 $55.16 $55.18 $72.43 Apr 09 - Mar 10 36.16 66.77 80.18 78.40 63.23 47.08 48.54 60.10 Apr 10 - Mar 11 40.18 69.58 83.57 82.56 66.07 48.20 50.25 62.94 Change (Dollars) FY 08 - FY 09 -$7.67 -$13.72 -$18.62 -$18.61 -$12.77 -$8.08 -$6.64 -$12.32 FY 09 - FY 10 4.02 2.81 3.40 4.16 2.84 1.12 1.71 2.84 Change (Percent) FY 08 - FY 09 -17.5 % -17.0 % -18.8 % -19.2 % -16.8 % -14.6 % -12.0 % -17.0 % FY 09 - FY 10 11.1 4.2 4.2 5.3 4.5 2.4 3.5 4.7 Source: Smith Travel Research In most markets, business travel, including individual commercial travelers and corporate groups, is the predominant source of demand on Monday through Thursday nights. Leisure travelers and non-business-related groups generate a majority of demand on Friday and Saturday nights.May-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 56
  • SUPPLY Based on an evaluation of the occupancy, rate structure, market orientation, chain affiliation, location, facilities, amenities, reputation, and quality of each area hotel, as well as the comments of management representatives, we have identified several properties that are expected to be primarily competitive with the proposed subject property. If applicable, additional lodging facilities may be judged to be only secondarily competitive; although the facilities, rate structures, or market orientations of these hotels prevent their inclusion among the primarily competitive supply, they are expected to compete with the proposed subject property to some extent. The following table summarizes the important operating characteristics of the future primary competitors and the aggregate secondary competitors (if applicable). This information was compiled from personal interviews, inspections, lodging directories, and our in-house library of operating data. The table also sets forth each property’s penetration factors; penetration is the ratio between a specific hotel’s operating results and the corresponding data for the market. If the penetration factor is greater than 100%, the property is performing better than the market as a whole; conversely, if the penetration is less than 100%, the hotel is performing at a level below the market-wide average.May-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 57
  • FIGURE 4-9 COMPETITORS – OPERATING PERFORMANCE Est. Segmentation Estimated 2008 Estimated 2009 Estimated 2010 Weighted Weighted Weighted G ro u d l n er c ia Annual Annual Annual ing a p RevPAR Occupancy Yield re Number Room Average Room Average Room Average Co m m M ee t L e is u Property of Rooms Count Occ. Rate RevPAR Count Occ. Rate RevPAR Count Occ. Rate RevPAR Change Penetration Penetration Hyatt Place Grapevine 125 65 % 15 % 20 % 125 60 % $121.00 $72.60 125 62 % $105.00 $65.10 125 80 % $86.00 $68.80 5.7 % 119.9 % 106.4 % Hampton Inn & Suites Dallas DFW Airport North Grapevine 94 65 15 20 94 67 154.00 103.18 94 60 127.00 76.20 94 76 114.00 86.64 13.7 113.9 134.0 SpringHill Suites Grapevine DFW Airport North 111 80 5 15 111 67 133.00 89.11 111 54 117.00 63.18 111 64 107.00 68.48 8.4 95.9 105.9 Fairfield Inn & Suites Grapevine DFW Airport North 80 70 5 25 80 67 133.00 89.11 80 54 117.00 63.18 80 64 107.00 68.48 8.4 95.9 105.9 Comfort Suites Grapevine 96 70 5 25 96 62 112.00 69.44 96 50 95.00 47.50 96 67 82.00 54.94 15.7 100.4 85.0 Sub-Totals/Averages 506 70 % 10 % 21 % 506 64.3 % $130.46 $83.91 506 56.3 % $112.01 $63.10 506 70.8 % $98.04 $69.36 9.9 % 106.0 % 107.3 % Secondary Competitors 482 57 % 11 % 32 % 238 62.8 % $102.54 $64.37 238 60.7 % $95.15 $57.77 282 59.5 % $94.33 $56.15 (2.8) % 89.2 % 86.9 % Totals/Averages 988 65 % 10 % 24 % 744 63.8 % $121.66 $77.65 744 57.7 % $106.33 $61.39 788 66.7 % $96.85 $64.64 5.3 % 100.0 % 100.0 %May-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 58
  • The following map illustrates the locations of the proposed subject property’s future competitors.MAP OF COMPETITION Our survey of the primarily competitive hotels in the local market shows a range of lodging types and facilities. Each primary competitor was inspected and evaluated. Descriptions of our findings are presented below.May-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 59
  • PRIMARY COMPETITOR #1 - HYATT PLACE GRAPEVINEHyatt Place Grapevine FIGURE 4-10 ESTIMATED HISTORICAL OPERATING STATISTICS2220 Grapevine MillsCircle West Wtd. Annual Average Occupancy YieldGrapevine, TX Year Room Count Occupancy Rate RevPAR Penetration Penetration Estimated 2008 125 60 % $121 $73 94.0 % 93.5 % Estimated 2009 125 62 105 65 107.4 106.0 Estimated 2010 125 80 86 69 119.9 106.4 The Hyatt Place is owned and operated by the Moody National Group LLC. Facilities include a breakfast dining area (a complimentary breakfast is served), an outdoor pool, a 24/7 Guest Kitchen, a lobby host stand with Bakery Café and a grab-and-go case, a guest laundry facility, a business center, an exercise room, and 1,584 square feet of meeting space. The hotel, which was built in 2002, was completely renovated in 2008 when it was converted from an AmeriSuites property. This hotel benefits from its Hyatt brand affiliation and easy access to and from the airport. Overall, the property appeared to be in good condition.May-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 60
  • PRIMARY COMPETITOR #2 - HAMPTON INN & SUITES DALLAS DFW AIRPORT NORTH GRAPEVINEHampton Inn & Suites FIGURE 4-11 ESTIMATED HISTORICAL OPERATING STATISTICSDallas DFW AirportNorth Grapevine Wtd. Annual Average Occupancy Yield1750 North Highway Year Room Count Occupancy Rate RevPAR Penetration Penetration121 Estimated 2008 94 67 % $154 $103 105.0 % 132.9 %Grapevine, TX Estimated 2009 94 60 127 76 103.9 124.1 Estimated 2010 94 76 114 87 113.9 134.0 The Hampton Inn & Suites is owned and operated by the Moody National Group LLC. Facilities include a breakfast dining area (a complimentary breakfast is served), an indoor pool and whirlpool, an exercise room, and approximately 600 square feet of meeting space. The renovation history of the hotel, which was built in 2000, was not disclosed. This hotel benefits from its strong corporate client base and proximity to Dallas/Fort Worth International Airport. Overall, the property appeared to be in good condition.May-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 61
  • PRIMARY COMPETITOR #3 - SPRINGHILL SUITES GRAPEVINE DFW AIRPORT NORTHSpringHill Suites FIGURE 4-12 ESTIMATED HISTORICAL OPERATING STATISTICSGrapevine DFW AirportNorth Wtd. Annual Average Occupancy Yield2240 West Grapevine Year Room Count Occupancy Rate RevPAR Penetration PenetrationMills Circle Estimated 2008 111 67 % $133 $89 105.0 % 114.8 %Grapevine, TX Estimated 2009 111 54 117 63 93.5 102.9 Estimated 2010 111 64 107 68 95.9 105.9 The SpringHill Suites is owned and operated by Grapevine Lodging Partners, LP. Facilities include a breakfast dining area (a complimentary continental breakfast is served), an indoor pool and whirlpool, an exercise room, a business center, and 950 square feet of meeting space. The renovation history of the hotel, which was built in 2005, was not disclosed. This hotel benefits from its popular Marriott affiliation and location adjacent to the Grapevine Mills outlet mall. Overall, the property appeared to be in good condition.May-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 62
  • PRIMARY COMPETITOR #4 - FAIRFIELD INN & SUITES GRAPEVINE DFW AIRPORT NORTHFairfield Inn & Suites FIGURE 4-13 ESTIMATED HISTORICAL OPERATING STATISTICSGrapevine DFW AirportNorth Wtd. Annual Average Occupancy Yield2050 Highway 121 Year Room Count Occupancy Rate RevPAR Penetration PenetrationNorth Estimated 2008 80 67 % $133 $89 105.0 % 114.8 %Grapevine, TX Estimated 2009 80 54 117 63 93.5 102.9 Estimated 2010 80 64 107 68 95.9 105.9 The Fairfield Inn & Suites is owned and operated by Pineapple Management. Facilities include a breakfast dining area (a complimentary continental breakfast is served), an outdoor pool and whirlpool, an exercise room, a business library, and 600 square feet of meeting space. The hotel, which was built in 1998, was renovated in 2005/06; upgrades included new guestroom softgoods. This hotel benefits from its popular Marriott affiliation and location near the Grapevine Mills outlet mall. Overall, the property appeared to be in good condition.May-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 63
  • Secondary We have also reviewed other area lodging facilities to determine whether any mayCompetitors compete with the proposed subject property on a secondary basis. The room count of each secondary competitor has been weighted based on its assumed degree of competitiveness in the future with the proposed subject property. By assigning degrees of competitiveness, we can assess how the subject property and its competitors may react to various changes in the market, including new supply, changes to demand generators, and renovations or franchise changes of existing supply. The following table sets forth the pertinent operating characteristics of the secondary competitor(s).May-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 64
  • FIGURE 4-14 SECONDARY COMPETITOR(S) – OPERATING PERFORMANCE Est. Segmentation Estimated 2008 Estimated 2009 Estimated 2010 Weighted Weighted Weighted Gro u d l n e rc ia Total Annual Annual Annual ing a p Number Competitive Room Average Average Average re Room Room Co m m M ee t L e is u Property of Rooms Level Count Occ. Rate RevPAR Count Occ. Rate RevPAR Count Occ. Rate RevPAR Courtyard Dallas Lewisville 122 65 % 5 % 30 % 70 % 85 63 % $99.00 $62.37 85 62 % $90.00 $55.80 85 60 % $90.00 $54.00 Hilton Garden Inn Dallas Lewisville 165 50 20 30 60 99 63 115.00 72.45 99 60 108.00 64.80 99 67 105.00 70.35 Holiday Inn Express Dallas Lewisville 90 55 5 40 60 54 62 85.00 52.70 54 60 80.00 48.00 54 60 85.00 51.00 Hampton Inn Suites Dallas Lewisville Vista Ridge Mall 105 60 5 35 70 0 0 0.00 0.00 0 0 0.00 0.00 43 41 84.00 34.44 Totals/Averages 482 57 % 11 % 32 % 65 % 238 62.8 % $102.54 $64.37 238 60.7 % $95.15 $57.77 282 59.5 % $94.33 $56.15May-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 65
  • We have identified four hotels that are expected to compete with the proposed subject property on a secondary level. The Courtyard by Marriott Dallas Lewisville, the Hilton Garden Inn Dallas Lewisville, the Hampton Inn Suites Dallas Lewisville Vista Ridge Mall, and the Holiday Inn Express Dallas Lewisville are anticipated to be competitive on the basis of their select- and limited-service products; however, these hotels are located proximate to Vista Ridge Mall and near the Interstate 35 corridor and are not expected to compete directly.Supply Changes It is important to consider any new hotels that may have an impact on the proposed subject property’s operating performance. No new hotels are expected within the proposed subject propertys neighborhood at this time (aside from the proposed subject property). We note that in 2008, Flower Mound Town Council approved an $8 million incentive package for a luxury resort hotel and condominium development to be located in the Lakeside Business District on nine acres overlooking Lake Grapevine. The 18-story tower Lakeside Resort & Residences project was to be developed by The Hines Co. and was expected to have 289 guestrooms; 64 residences; an array of complementary hotel and residential facilities, amenities, and services; and significant ballroom and meeting space to attract regional and national conferences. The project was put on hold following as a result of the poor economic climate. While we have taken reasonable steps to investigate proposed hotel projects and their status, due to the nature of real estate development, it is impossible to determine with certainty every hotel that will be opened in the future, or what their marketing strategies and effect in the market will be. Depending on the outcome of current and future projects, the future operating potential of the proposed subject property may be positively or negatively affected. Future improvement in market conditions will raise the risk of increased competition. Our forthcoming forecast of stabilized occupancy and average rate is intended to reflect such risk.Supply Conclusion We have identified various properties that are expected to be competitive to some degree with the proposed subject property. We have also investigated potential increases in competitive supply in this north-central Dallas/Fort Worth Metroplex submarket. The proposed select-service hotel should enter a dynamic market of varying product types and price points. Next, we will present our forecast for demand change, using the historical supply data presented as a starting point.DEMAND The following table presents the most recent trends for the subject hotel market as tracked by HVS. These data pertain to the competitors discussed previously in this section; performance results are estimated, rounded for the competition, and inMay-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 66
  • some cases weighted if there are secondary competitors present. In this respect, the information in the table differs from the previously presented STR data and is consistent with the supply and demand analysis developed for this report.FIGURE 4-15 HISTORICAL MARKET TRENDS Accommodated Room Nights Market Market Year Room Nights % Change Available % Change Occupancy Market ADR % Change RevPAR % Change Est. 2008 173,420 — 271,706 — 63.8 % $121.66 — $77.65 — Est. 2009 156,873 (9.5) % 271,706 0.0 % 57.7 106.33 (12.6) % 61.39 (20.9) % Est. 2010 191,918 22.3 287,582 5.8 66.7 96.85 (8.9) 64.64 5.3 Avg. Annual CompoundedDemand Analysis For the purpose of demand analysis, the overall market is divided into individualUsing Market segments based on the nature of travel. Based on our fieldwork, area analysis, andSegmentation knowledge of the local lodging market, we estimate the 2010 distribution of accommodated room night demand as follows. FIGURE 4-16 ACCOMMODATED ROOM NIGHT DEMAND Marketwide Accommodated Percentage Market Segment Demand of Total Commercial 125,605 65 % Meeting and Group 19,485 10 Leisure 46,828 24 Total 191,918 100 % The market’s demand mix comprises commercial demand, with this segment representing roughly 65% of the accommodated room nights in this Flower Mound submarket. The remaining portion comprises meeting and group at 10%, with the final portion leisure in nature, reflecting 24%. Using the distribution of accommodated hotel demand as a starting point, we will analyze the characteristics of each market segment in an effort to determine future trends in room night demand.May-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 67
  • Commercial Segment Commercial demand consists mainly of individual businesspeople passing through the subject market or visiting area businesses, in addition to high-volume corporate accounts generated by local firms. Brand loyalty (particularly frequent- traveler programs), as well as location and convenience with respect to businesses and amenities, influence lodging choices in this segment. Companies typically designate hotels as “preferred” accommodations in return for more favorable rates, which are discounted in proportion to the number of room nights produced by a commercial client. Commercial demand is strongest Monday through Thursday nights, declines significantly on Friday and Saturday, and increases somewhat on Sunday night. It is relatively constant throughout the year, with marginal declines in late December and during other holiday periods. While the primary source of commercial demand in the North Dallas/Fort Worth International Airport area is related to flight safety schools at or near Dallas/Fort Worth International Airport, the areas commercial segment is diversified due to a variety of factors. Grapevine, Flower Mound, and Lewisville are easily connected to all areas of the Metroplex. The North Dallas/Fort Worth International Airport area is often a preferred lodging choice due to its offering of a multitude of restaurants and the presence of the Grapevine Mills shopping mall. Market hotels also house significant levels of demand associated with traffic utilizing the Dallas/Fort Worth International Airport, which borders Grapevine to the south. Travelers visiting Dallas/Fort Worth for a corporate purpose often choose Grapevine and Lewisville hotels for their overnight stay because of its proximity and ease of access to the airport, sometimes regardless of where their business location may be within the greater Dallas/Fort Worth Metroplex. As the economic climate improves and corporate travel picks up pace, the diversity and depth of companies in the area should provide stability over the longer term. Considering these historical trends, we project demand change rates of 7.0% in 2011, 4.0% in 2012, and 4.0% in 2013. After these first three projection years, we have forecast demand change rates of 2.5% in 2014 and 1.5% in 2015.Meeting and Group The meeting and group market includes meetings, seminars, conventions, tradeSegment association shows, and similar gatherings of ten or more people. Peak convention demand typically occurs in the spring and fall. Although there are numerous classifications within the meeting and group segment, the primary categories considered in this analysis are corporate groups, associations, and SMERFE (social, military, ethnic, religious, fraternal, and educational) groups. Corporate groups typically meet during the business week most commonly in the spring and fall months. These groups tend to be the most profitable for hotels, as they typically pay higher rates and usually generate ancillary revenues including food, beverage and banquet revenue. SMERFE groups are typically price-sensitive and tend to meet on weekends and/or during the summer months or holiday season, when greater discounts are usually available. These groups generate limited ancillaryMay-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 68
  • revenues. The profile and revenue potential of associations varies depending on the group and the purpose of their meeting or event. The group market is driven primarily by the Gaylord Texan Resort. This property draws conventions that typically require room blocks well beyond what its 1,511- room facility can hold. As a result, overflow demand is plentiful on most convention nights; however, per contractual guidelines with the City of Grapevine, group organizers utilizing the Gaylord property must negotiate room block agreements with nearby Grapevine hotels only and cannot utilize other hotels. Beyond negotiated agreements, many convention attendees will book outside of the block, making reservations on an individual basis (due to factors such as the expiration or sell-out of the room block, or the ability to obtain a better price outside of the block). Some additional group demand is housed by area hotels; the Embassy Suites DFW @ Outdoor World and Great Wolf Lodge offer sizable meeting facilities, as does the Hilton DFW Lakes, which is a certified conference center. Due to their proximity to the airport, group business at the Embassy Suites and Hilton is often nationally based, with participants easily able to access the central meeting facility from points across the nation. Meeting and group demand is now reflecting growth as the local economy improves. Considering these historical trends, we project demand change rates of 4.0% in 2011, 3.0% in 2012, and 3.0% in 2013. After these first three projection years, we have forecast demand change rates of 2.0% in 2014 and 1.0% in 2015.Leisure Segment Leisure demand consists of individuals and families spending time in an area or passing through en route to other destinations. Travel purposes include sightseeing, recreation, or visiting friends and relatives. Leisure demand also includes room nights booked through Internet sites such as Expedia, hotels.com, and Priceline; however, leisure may not be the purpose of the stay. This demand may also include business travelers and group and convention attendees who use these channels to take advantage of any discounts that may be available on these sites. Leisure demand is strongest Friday and Saturday nights and all week during holiday periods and the summer months. These peak periods represent the inverse of commercial visitation trends, underscoring the stabilizing effect of capturing weekend and summer tourist travel. Future leisure demand is related to the overall economic health of the region and the nation. Trends showing changes in state and regional unemployment and disposable personal income correlate strongly with leisure travel levels. Grapevine and the North Dallas/Fort Worth International Airport area enjoy strong weekend demand levels. In addition to Great Wolf Lodges water park serving as a primary leisure demand generator, the Grapevine Mills shopping complex is a popular retail destination for the greater northern Texas/Oklahoma region, attracting individuals, families, and leisure groups throughout the year.May-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 69
  • Grapevine Lake, nearby golf courses, area wineries, and the Old Town District and trains are also popular with tourists. Finally, weekend stays in the area are a function of Dallas/Fort Worth International Airport, as travelers utilizing the airport for weekend travel will often stay in the convenient North Dallas/Fort Worth International Airport area submarket if overnight accommodations are required. Demand in this segment has started to improve, and this strengthening should continue through the near term. Considering these historical trends, we project demand change rates of 3.0% in 2011, 2.0% in 2012, and 2.0% in 2013. After these first three projection years, we have forecast demand change rates of 1.0% in 2014 and 1.0% in 2015.Conclusion The purpose of segmenting the lodging market is to define each major type of demand, identify customer characteristics, and estimate future growth trends. Starting with an analysis of the local area, three segments were defined as representing the subject property’s lodging market. Various types of economic and demographic data were then evaluated to determine their propensity to reflect changes in hotel demand. Based on this procedure, we forecast the following average annual compounded market segment growth rates.FIGURE 4-17 AVERAGE ANNUAL COMPOUNDED MARKET SEGMENT GROWTH RATES Annual Growth Rate Market Segment 2011 2012 2013 2014 2015 2016 2017 Commercial 7.0 % 4.0 % 4.0 % 2.5 % 1.5 % 1.0 % 1.0 % Meeting and Group 4.0 3.0 3.0 2.0 1.0 0.5 0.5 Leisure 3.0 2.0 2.0 1.0 1.0 1.0 1.0 Base Demand Growth 5.7 % 3.4 % 3.4 % 2.1 % 1.3 % 1.0 % 1.0 %Latent Demand A table presented earlier in this section illustrated the accommodated room night demand in the subject property’s competitive market. Because this estimate is based on historical occupancy levels, it includes only those hotel rooms that were used by guests. Latent demand reflects potential room night demand that has not been realized by the existing competitive supply; this type of demand can be divided into unaccommodated demand and induced demand.Unaccommodated Unaccommodated demand refers to individuals who are unable to secureDemand accommodations in the market because all the local hotels are filled. These travelers must defer their trips, settle for less desirable accommodations, or stay in properties located outside the market area. Because this demand did not yield occupied room nights, it is not included in the estimate of historicalMay-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 70
  • accommodated room night demand. If additional lodging facilities are expected to enter the market, it is reasonable to assume that these guests will be able to secure hotel rooms in the future, and it is therefore necessary to quantify this demand. Unaccommodated demand is further indicated if the market is at all seasonal, with distinct high and low seasons; such seasonality indicates that although year-end occupancy may not average in excess of 70%, the market sells out many nights during the year. The following table presents our estimate of unaccommodated demand in the subject market. FIGURE 4-18 UNACCOMMODATED DEMAND ESTIMATE Accommodated Room Unaccommodated Unaccommodated Market Segment Night Demand Demand Percentage Room Night Demand Commercial 125,605 11.5 % 14,388 Meeting and Group 19,485 0.8 155 Leisure 46,828 1.7 776 Total 191,918 8.0 % 15,320 Our interviews with market participants found that the market generally sells out on Tuesday through Thursday nights during the peak travel season, as well as sporadically within other periods throughout the year. A portion of this demand, which is currently turned away, should return to the market concurrent with the supply increase. Accordingly, we have forecast 8.0% of the base-year demand to be classified as unaccommodated based upon an analysis of monthly and weekly peak demand and sell-out trends.Induced Demand Induced demand represents the additional room nights that are expected to be attracted to the market following the introduction of a new demand generator. Situations that can result in induced demand include the opening of a new manufacturing plant, the expansion of a convention center, or the addition of a new hotel with a distinct chain affiliation or unique facilities. Although increases in demand are expected in the local market, we have accounted for this growth in the determination of market segment growth rates rather than induced demand.Accommodated Based upon a review of the market dynamics in the subject property’s competitiveDemand and Market- environment, we have forecast growth rates for each market segment. Using thewide Occupancy calculated potential demand for the market, we have determined market-wideMay-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 71
  • accommodated demand based on the inherent limitations of demand fluctuations and other factors in the market area. The following table details our projection of lodging demand growth for the subject market, including the total number of occupied room nights and any residual unaccommodated demand in the market.FIGURE 4-19 FORECAST OF MARKET OCCUPANCY 2013 2014 2015 2016 2017 Commercial Base Demand 145,364 148,998 151,233 152,745 154,273 Unaccommodated Demand 16,652 17,068 17,324 17,497 17,672 Total Demand 162,016 166,066 168,557 170,243 171,945 Growth Rate 4.0 % 2.5 % 1.5 % 1.0 % 1.0 % Meeting and Group Base Demand 21,499 21,929 22,148 22,259 22,370 Unaccommodated Demand 172 175 177 178 178 Total Demand 21,670 22,103 22,324 22,436 22,548 Growth Rate 3.0 % 2.0 % 1.0 % 0.5 % 0.5 % Leisure Base Demand 50,182 50,684 51,190 51,702 52,219 Unaccommodated Demand 832 840 849 857 866 Total Demand 51,014 51,524 52,039 52,559 53,085 Growth Rate 2.0 % 1.0 % 1.0 % 1.0 % 1.0 % Totals Base Demand 217,044 221,610 224,571 226,706 228,862 Unaccommodated Demand 17,655 18,083 18,349 18,532 18,716 Total Demand 234,699 239,693 242,921 245,238 247,578 less: Residual Demand 0 0 0 0 0 Total Accommodated Demand 234,699 239,693 242,921 245,238 247,578 Overall Demand Growth 10.2 % 2.1 % 1.3 % 1.0 % 1.0 % Market Mix Commercial 69.0 % 69.3 % 69.4 % 69.4 % 69.5 % Meeting and Group 9.2 9.2 9.2 9.1 9.1 Leisure 21.7 21.5 21.4 21.4 21.4 Existing Hotel Supply 818 818 818 818 818 Proposed Hotels Proposed Select-Service Hotel ¹ 130 130 130 130 130 Available Rooms per Night 345,984 345,984 345,984 345,984 345,984 Nights per Year 365 365 365 365 365 Total Supply 948 948 948 948 948 Rooms Supply Growth 15.9 % 0.0 % 0.0 % 0.0 % 0.0 % Marketwide Occupancy 67.8 % 69.3 % 70.2 % 70.9 % 71.6 % ¹ Opening in January 2013 of the 100% competitive, 130-room Proposed Select-Service HotelMay-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 72
  • These room night projections for the market area will be used in forecasting the proposed subject propertys occupancy and average rate in Chapter 6.May-2011 Supply and Demand Analysis Proposed Select-Service Hotel – Flower Mound, Texas 73
  • 5. Description of the Proposed Project The quality of a lodging facilitys physical improvements has a direct influence on marketability, attainable occupancy, and average room rate. The design and functionality of the structure can also affect operating efficiency and overall profitability. This section investigates the subject propertys proposed physical improvements and personal property in an effort to determine how they are expected to contribute to attainable cash flows.Project Overview The proposed subject property is expected to be a select-service lodging facility containing 130 rentable units. For the purposed of this analysis. the property is expected to open on January 1, 2013. The proposed subject property is expected to be located within the Lakeside Business District, Flower Mounds commercial district located at the south end of Town. At the time of this study, a specific parcel of land had not been determined for the hotel site. At the request of our client, The Town of Flower Mound, we have analyzed two primary areas, the River Walk at Central Park development and the Lakeside Business District. Following analysis of both areas, our study recommends and assumes the Lakeside Business District is more suited for hotel development given its proximity to Dallas/Fort Worth International Airport and the nearby concentration of corporations. Furthermore, a specific brand was not identified by our client as the subject of our study. After a review of the market supply, we have recommended a first-class, select-service hotel facility. Given the similarly in scope of facilities and amenities in nationally affiliated select-service brands, it is our opinion that the identification of one particular brand is not pertinent to our study.Summary of the The following table summarizes the facilities that are expected to be available atFacilities the proposed subject property.May-2011 Description of the Proposed Project Proposed Select-Service Hotel – Flower Mound, Texas 74
  • FIGURE 5-1 PROPOSED FACILITIES SUMMARY Guestroom Configuration Estimated Number of Units King 95 Queen/Queen 35 Total 130 Food & Beverage Facilities Estimated Seating Capacity Breakfast Dining Area 36 Lobby Café and Lounge 20 Indoor Meeting & Banquet Facilities Estimated Square Footage Meeting and Banquet Room (Divisible) 2,750 Boardroom 750 Total 3,500 Amenities & Services Swimming Pool Business Center Whirlpool Market Pantry Exercise Room Ice Machine Areas Guest Laundry Facility Infrastructure Parking Spaces 137 Elevators 2 Guest Life-Safety Systems Sprinklers, Smoke Detectors Construction Details Steel Framing on Poured ConcreteSite Improvements and Once guests enter the site, ample parking should be available on the surface lotHotel Structure around the perimeter of the hotel. Site improvements should include free- standing signage, which should be located on the sides of the site with roadway frontage (additional signage should be placed on the exterior of the building). We assume that all signage will adequately identify the property and meet the to-be- determined brand standards. Planned landscaping should allow for a positive guest impression and competitive exterior appearance. Sidewalks should be present along the front entrance and around the perimeter of the hotel. Overall, the site improvements for the property should reflect an appropriate look and feel for a hotel in a suburban location.May-2011 Description of the Proposed Project Proposed Select-Service Hotel – Flower Mound, Texas 75
  • The hotel structure should comprise one single building, which is likely to be constructed of steel and reinforced concrete. The exterior of the hotel should be finished with an attractive building material, such as stucco, brick, or stone. Stairways and elevators will provide internal vertical transportation within the main structure as needed. The hotels roof should be constructed consistent with the concept of the building construction. The installation of double-paned windows will reduce noise transmission into the rooms. Heating and cooling should be provided by individual in-room systems and several large units for the public areas. Overall, the building components should meet prototype development specifications set forth by the chosen brand. We assume that this type of first-class, select-service hotel will meet the standards for this market and should complement existing, nearby improvements. We assume that all structural components will meet local building codes and that no significant defaults will occur during construction that may impact the future operating potential of the hotel or delay its assumed opening date.Lobby We have assumed the future development of a first-class, select-service hotel facility. Although facility programs and development specifications may differ among other brands and facilities being considered, the select-service programming development specifications are generally consistent. Guests should enter the hotel through a single set of automatic doors, which will open to a vestibule, and then through a second set of automatic doors. The lobby area should be appropriately sized for a select-service hotel. The lobby décor should be attractively finished with an upscale material that is in line with brand standards. The front desk should feature a granite countertop and be installed with appropriate property management and telephone systems. In many select-service hotel designs, the front desk staff provides additional customer services, such as service of the small café and lounge area. We would expect the café and lounge area to be situated adjacent to the front desk and to be operated by the same staff or be proximate to the front desk and feature limited personnel to service the modest food and beverage operations. The furnishings and finishes in this space should offer an appropriate first impression, and the design of the space should lend itself to adequate efficiency. We assume that all property management and guestroom technology will be appropriately installed for the effective management of hotel operations.Food and Beverage The hotel is expected to offer food and beverage operations at a level appropriateFacilities for a select-service hotel; these facilities should include a breakfast dining area and a small lobby café and lounge, as well as limited room service and banquet operations. The furnishings of the space are expected to be of a similar style and finish as lobby and guestroom furnishings.May-2011 Description of the Proposed Project Proposed Select-Service Hotel – Flower Mound, Texas 76
  • Overall, the hotel is expected to provide a competitive offering of food and beverage facilities for a first-class, select-service property.Meeting and Banquet The hotel should offer one large meeting room, divisible into multiple sectionsSpace with removable walls, as well as a boardroom, located on the first floor of the hotel building. The meeting space should be appropriate for a hotel of this type and is expected to meet brand standards. Public restrooms near the entrance to the meeting space should enhance the overall functionality of the area.Recreational Amenities The hotel is expected to offer a pool, a whirlpool, and an exercise room as recreational facilities.Additional Amenities Other amenities should include a business center, a market pantry, a guest laundry facility, and ice machines on each guestroom floor. Overall, the supporting facilities should be appropriate for a hotel of this type, and we assume that they will meet brand standards.Guestrooms Typical of select-service prototypes, the hotel is expected to feature an all suite- style guestroom configuration or both standard and suite-style configurations. Guestrooms should be present on all levels of the propertys proposed single building. The guestrooms should offer typical amenities for this product tier. In addition to first-class, high-quality furnishings, guestrooms are anticipated to feature an iron and ironing board, a coffeemaker, and wireless, high-speed Internet access. Guestrooms should be equipped with the newest media technology available, including flat-panel televisions, a media desk for Internet connections, an MP3 or iPod docking station, and personalized voicemail options. Overall, the guestrooms should offer a competitive product for this neighborhood. Guestroom bathrooms should be of a standard size, with a shower-in-tub, commode, and single sink with vanity area, featuring a stone countertop. The floors are anticipated to be finished with tile, and the walls should be finished with knockdown texture or vinyl wall-covering. Bathrooms should feature a hairdryer and complimentary toiletries. Overall, the bathroom design is expected to be appropriate for a product of this type. The interior guestroom corridors should be wide and functional, permitting the easy passage of housekeeping carts. Corridor carpet, wall covering, signage, and lighting are expected to be in keeping with the overall look and design of the rest of the property.Back-of-the-House, The hotel is expected to be served by the necessary back-of-the-house space,ADA, and including an in-house laundry facility, administrative offices, and a modified full-Environmental service kitchen to serve the needs of the proposed propertys select-service foodMay-2011 Description of the Proposed Project Proposed Select-Service Hotel – Flower Mound, Texas 77
  • and beverage operation. These spaces should be adequate for a hotel of this type and should allow for the efficient operation of the property under competent management. We assume that the property will be built according to all pertinent codes and brand standards. Moreover, we assume its construction will not create any environmental hazards (such as mold) and that the property will fully comply with the Americans with Disabilities Act.Capital Expenditures Our analysis assumes that, after its opening, the hotel will require ongoing upgrades and periodic renovations in order to maintain its competitive level in this market. These costs should be adequately funded by the forecasted reserve for replacement, as long as a successful, ongoing preventive-maintenance program is employed by hotel staff.Conclusion Overall, the subject property should offer a well-designed, functional layout of support areas and guestrooms. All typical and market-appropriate features and amenities should be included in the hotels design. We assume that the building will be fully open and operational on the assumed opening date and will meet all local building codes and brand standards. Furthermore, we assume that the hotel staff will be adequately trained to allow for a successful opening and that pre- marketing efforts will have introduced the product to major local accounts at least six months in advance of the opening date.May-2011 Description of the Proposed Project Proposed Select-Service Hotel – Flower Mound, Texas 78
  • 6. Projection of Occupancy and Average Rate Along with average rate results, the occupancy levels achieved by a hotel are the foundation of the propertys financial performance and market value. Most of a lodging facilitys other revenue sources (such as food, beverages, and telephone income) are driven by the number of guests, and many expense levels also vary with occupancy. To a certain degree, occupancy attainment can be manipulated by management. For example, hotel operators may choose to lower rates in an effort to maximize occupancy. Our forecasts reflect an operating strategy that we believe would be implemented by a typical, professional hotel management team to achieve an optimal mix of occupancy and average rate.Penetration Rate The subject propertys forecasted market share and occupancy levels are basedAnalysis upon its anticipated competitive position within the market, as quantified by its penetration rate. The penetration rate is the ratio of a propertys market share to its fair share. A complete discussion of the concept of penetration is presented in the addenda.Historical Penetration In the following table, the penetration rates attained by the primary competitorsRates by Market and the aggregate secondary competitors are set forth for each segment for theSegment base year.FIGURE 6-1 HISTORICAL PENETRATION RATES Gr and ial erc p ng ou ll e mm su r era eti Me Property Lei Ov Co Hyatt Place Grapevine 119 % 177 % 98 % 120 % Hampton Inn & Suites Dallas DFW Airport North Grapevine 113 168 93 114 SpringHill Suites Grapevine DFW Airport North 117 47 59 96 Fairfield Inn & Suites Grapevine DFW Airport North 103 47 98 96 Comfort Suites Grapevine 107 49 103 100 Secondary Competition 77 96 119 89 The Hyatt Place Grapevine achieved the highest penetration rate within the commercial segment. The highest penetration rate in the meeting and groupMay-2011 Projection of Occupancy and Average Rate Proposed Select-Service Hotel – Flower Mound, Texas 79
  • segment was achieved by the Hyatt Place Grapevine, while the secondary competition led the market with the highest leisure penetration rate.Forecast of Subject Because the supply and demand balance for the competitive market is dynamic,Property’s Occupancy there is a circular relationship between the penetration factors of each hotel in the market. The performance of individual new hotels has a direct effect upon the aggregate performance of the market, and consequently upon the calculated penetration factor for each hotel in each market segment. The same is true when the performance of existing hotels changes, either positively (following a refurbishment, for example) or negatively (when a poorly maintained or marketed hotel loses market share). A hotel’s penetration factor is calculated as its achieved market share of demand divided by its fair share of demand. Thus, if one hotel’s penetration performance increases, thereby increasing its achieved market share, this leaves less demand available in the market for the other hotels to capture and the penetration performance of one or more of those other hotels consequently declines (other things remaining equal). This type of market share adjustment takes place every time there is a change in supply, or a change in the relative penetration performance of one or more hotels in the competitive market. Our projections of penetration, demand capture and occupancy performance for the subject property account for these types of adjustments to market share within the defined competitive market. Consequently, the actual penetration factors applicable to the subject property and its competitors for each market segment in each projection year may vary somewhat from the penetration factors delineated in the previous tables. The following tables set forth, by market segment, the projected adjusted penetration rates for the subject property and each hotel in the competitive set.FIGURE 6-2 COMMERCIAL SEGMENT ADJUSTED PENETRATION RATES Hotel 2010 2011 2012 2013 2014 2015 2016 2017 Hyatt Place Grapevine 119 % 118 % 116 % 116 % 114 % 113 % 113 % 113 % Hampton Inn & Suites Dallas DFW Airport North Grapevine 113 112 110 110 108 108 107 107 SpringHill Suites Grapevine DFW Airport North 117 116 114 114 112 112 111 111 Fairfield Inn & Suites Grapevine DFW Airport North 103 101 100 100 98 98 97 97 Comfort Suites Grapevine 107 106 104 105 103 102 102 102 Secondary Competition 77 81 85 89 89 89 89 89 Proposed Select-Service Hotel — — — 89 95 98 100 100 Within the commercial segment, the proposed subject hotel’s penetration is positioned at an above-market-average level by the stabilized period due to itsMay-2011 Projection of Occupancy and Average Rate Proposed Select-Service Hotel – Flower Mound, Texas 80
  • location within or near the Lakeside Business District, as well as its proximity to the Dallas/Fort Worth International Airport. Given its likely select-service nature, the hotel is expected to offer limited on-site dining options, which should appeal to the corporate traveler. Furthermore, Flower Mounds expanding healthcare climate should create lodging demand for the proposed subject property. FM 2499 connects the Lakeside Business District to the River Walk at Central Park, and users can easily travel to the hospital or related medical facilities.FIGURE 6-3 MEETING AND GROUP SEGMENT ADJUSTED PENETRATION RATES Hotel 2010 2011 2012 2013 2014 2015 2016 2017 Hyatt Place Grapevine 177 % 175 % 173 % 174 % 170 % 169 % 169 % 169 % Hampton Inn & Suites Dallas DFW Airport North Grapevine 168 167 164 166 162 161 160 160 SpringHill Suites Grapevine DFW Airport North 47 47 46 46 45 45 45 45 Fairfield Inn & Suites Grapevine DFW Airport North 47 47 46 46 45 45 45 45 Comfort Suites Grapevine 49 49 48 49 48 47 47 47 Secondary Competition 96 98 100 106 109 108 108 108 Proposed Select-Service Hotel — — — 83 86 89 91 91 While select-service hotels are not known for group accommodations, this property will be proximate to both the Gaylord Texan and the Dallas/Fort Worth International Airport. Grapevine hotels will primarily benefit from overflow demand; however, we expect a modest amount of overflow would be accommodated at the proposed subject property during large events. Additionally, the lack of meeting and event facilities in Flower Mound will allow the hotel to capture demand tied to meetings for local groups and associations, weddings, and training events for area corporations. Flower Mounds Gerault Field Complex also hosts several sporting tournaments annually, and the proposed hotel is expected to benefit from groups associated with team travel. These factors should lead to a relatively strong meeting and group penetration level for a property of this type.FIGURE 6-4 LEISURE SEGMENT ADJUSTED PENETRATION RATES Hotel 2010 2011 2012 2013 2014 2015 2016 2017 Hyatt Place Grapevine 98 % 96 % 95 % 95 % 94 % 94 % 93 % 93 % Hampton Inn & Suites Dallas DFW Airport North Grapevine 93 91 90 90 90 89 88 88 SpringHill Suites Grapevine DFW Airport North 59 58 57 57 57 56 56 56 Fairfield Inn & Suites Grapevine DFW Airport North 98 96 95 95 94 94 93 93 Comfort Suites Grapevine 103 101 99 99 99 98 97 97 Secondary Competition 119 120 122 127 126 126 125 125 Proposed Select-Service Hotel — — — 87 91 95 99 99 The proposed subject property’s leisure penetration rate is positioned appropriately within the range of existing competitors, supported by the hotel’sMay-2011 Projection of Occupancy and Average Rate Proposed Select-Service Hotel – Flower Mound, Texas 81
  • convenient location and array of amenities. In addition to nearby Grapevine, Flower Mound is replete with upscale retail outlets, restaurants, and entertainment venues. The hotels location along FM 2499 is also a positive attribute in capturing demand associated with friends or relatives visiting nearby residents. The expansion of FM 2499 connects Grapevine to Corinth and Denton, with Flower Mound in between. The proposed subject property is expected to realize a leisure penetration level above fair share by the stabilized year. These positioned segment penetration rates result in the following market segmentation forecast. FIGURE 6-5 MARKET SEGMENTATION FORECAST – SUBJECT PROPERTY 2013 2014 2015 2016 2017 Commercial 70 % 70 % 70 % 70 % 70 % Meeting and Group 9 8 8 8 8 Leisure 22 21 21 22 22 Total 100 % 100 % 100 % 100 % 100 % The subject propertys occupancy forecast is set forth as follows, with the adjusted projected penetration rates used as a basis for calculating the amount of captured market demand.May-2011 Projection of Occupancy and Average Rate Proposed Select-Service Hotel – Flower Mound, Texas 82
  • FIGURE 6-6 FORECAST OF SUBJECT PROPERTYS OCCUPANCY Market Segment 2013 2014 2015 2016 2017 Commercial Demand 162,016 166,066 168,557 170,243 171,945 Market Share 12.2 % 13.0 % 13.5 % 13.7 % 13.7 % Capture 19,698 21,596 22,687 23,298 23,531 Penetration 89 % 95 % 98 % 100 % 100 % Meeting and Group Demand 21,670 22,103 22,324 22,436 22,548 Market Share 11.3 % 11.7 % 12.2 % 12.5 % 12.5 % Capture 2,456 2,595 2,725 2,815 2,830 Penetration 83 % 86 % 89 % 91 % 91 % Leisure Demand 51,014 51,524 52,039 52,559 53,085 Market Share 11.9 % 12.5 % 13.1 % 13.6 % 13.6 % Capture 6,084 6,443 6,806 7,170 7,242 Penetration 87 % 91 % 95 % 99 % 99 % Total Room Nights Captured 28,238 30,635 32,217 33,283 33,602 Available Room Nights 47,450 47,450 47,450 47,450 47,450 Subject Occupancy 60 % 65 % 68 % 70 % 71 % Marketwide Available Room Nights 345,984 345,984 345,984 345,984 345,984 Fair Share 14 % 14 % 14 % 14 % 14 % Marketwide Occupied Room Nights 234,699 239,693 242,921 245,238 247,578 Market Share 12 % 13 % 13 % 14 % 14 % Marketwide Occupancy 68 % 69 % 70 % 71 % 72 % Total Penetration 88 % 93 % 97 % 99 % 99 % Based on our analysis of the proposed subject property and market area, we have selected a stabilized occupancy level of 70%. The stabilized occupancy is intended to reflect the anticipated results of the property over its remaining economic life, given any and all changes in the life cycle of the hotel. Thus, the stabilized occupancy excludes from consideration any abnormal relationship between supply and demand, as well as any nonrecurring conditions that may result in unusually high or low occupancies. Although the subject property may operate at occupancies above this stabilized level, we believe it equally possible for new competition and temporary economic downturns to force the occupancy below this selected point of stability.May-2011 Projection of Occupancy and Average Rate Proposed Select-Service Hotel – Flower Mound, Texas 83
  • These projections reflect years beginning January 1, 2013, corresponding to the first projection year for the subject property’s forecast of income and expense. FIGURE 6-7 FORECAST OF OCCUPANCY Subject Propertys Year Occupancy 2013 60 % 2014 65 2015 68 2016 70Average Rate Analysis One of the most important considerations in estimating the value of a lodging facility is a supportable forecast of its attainable average rate, which is more formally defined as the average rate per occupied room. Average rate can be calculated by dividing the total rooms revenue achieved during a specified period by the number of rooms sold during the same period. The projected average rate and the anticipated occupancy percentage are used to forecast rooms revenue, which in turn provides the basis for estimating most other income and expense categories.Competitive Position Although the average rate analysis presented here follows the occupancy projection, these two statistics are highly correlated; in reality, one cannot project occupancy without making specific assumptions regarding average rate. This relationship is best illustrated by revenue per available room (RevPAR), which reflects a propertys ability to maximize rooms revenue. The following table summarizes the historical average rate and the RevPAR of the subject property’s future primary competitors.May-2011 Projection of Occupancy and Average Rate Proposed Select-Service Hotel – Flower Mound, Texas 84
  • FIGURE 6-8 BASE YEAR AVERAGE RATE AND REVPAR OF THE COMPETITORS Estimated 2010 Average Rooms Revenue Average Room Room Rate Per Available RevPAR Property Rate Penetration Room (RevPAR) Penetration Hyatt Place Grapevine $86.00 88.8 % $68.80 106.4 % Hampton Inn & Suites Dallas DFW Airport North Grapevine 114.00 117.7 86.64 134.0 SpringHill Suites Grapevine DFW Airport North 107.00 110.5 68.48 105.9 Fairfield Inn & Suites Grapevine DFW Airport North 107.00 110.5 68.48 105.9 Comfort Suites Grapevine 82.00 84.7 54.94 85.0 Average - Primary Competitors $98.04 101.2 % $69.36 107.3 % Average - Secondary Competitors 94.33 97.4 56.15 86.9 Overall Average $96.85 $64.64 The defined primarily competitive market realized an overall average rate of $98.04 in the 2010 base year, declining from the 2009 level of $112.01. The Hampton Inn & Suites achieved the highest estimated average rate in the local competitive market because of its strong corporate clientele, as well as its popular franchise affiliation and rewards program. When compared with the secondary competitors, the primary competitive set achieved a higher rate by a measurable margin. The presence of Grapevine Mills outlet mall, surrounding retail and restaurants, and more convenient access to the airport allow the primary competitive set to command a rate premium. The selected rate position for the proposed subject property, in base-year dollars, takes into consideration factors such as its new construction, anticipated affiliation with a strong brand, and its favorable location near the North Dallas/Fort Worth International Airport areas primary generators of demand, as well as Flower Mounds growing industry and budding healthcare facilities. We have selected the rate position of $100.00, in base-year dollars, for the proposed subject. As illustrated previously, the average rate for the primarily competitive market averaged $112.01 in 2009, before reaching $98.04 in 2010. As corporate budgets tightened and consumer spending declined, average rates for hotels in this North Dallas/Fort Worth International Airport area market weakened. Based upon our research and analysis, rates appear to have already bottomed out near the low $90s from late 2009 to early 2010. Rate growth gained momentum in the latter half of 2010; thus, we expect rate to continue to increase as the economy continues to recover.May-2011 Projection of Occupancy and Average Rate Proposed Select-Service Hotel – Flower Mound, Texas 85
  • Based on these considerations, the following table illustrates the projected average rate and the growth rates assumed. As a context for the average rate growth factors, note that we have applied a base underlying inflation rate of 3.0% annually throughout our projection period.FIGURE 6-9 MARKET AND SUBJECT PROPERTY AVERAGE RATE FORECAST Area-wide Market (Calendar Year) Subject Property (Calendar Year) Average Rate Average Average Rate Average Average Rate Year Occupancy Growth Rate Occupancy Growth Rate Penetration Base Year 66.7 % — $96.85 — — $100.00 103.2 % 2011 69.0 -1.0 % 95.89 — -1.0 % 99.00 103.2 2012 71.4 2.5 98.28 — 2.5 101.48 103.2 2013 67.8 5.0 103.20 60.0 % 5.0 106.55 103.2 2014 69.3 6.0 109.39 65.0 6.0 112.94 103.2 2015 70.2 4.0 113.76 68.0 4.0 117.46 103.2 2016 70.9 3.0 117.18 70.0 3.0 120.98 103.2 As illustrated above, a -1.0% rate of change is expected for the subject propertys positioned 2010 room rate in 2011. This is followed by growth rates of 2.5% and 5.0% in 2012 and 2013, respectively. The North Dallas/Fort Worth International Airport market should experience a slight decrease in average rate in the first projected year, followed by an increase in the second projected year and thereafter. The proposed subject propertys rate position should reflect growth similar to market trends because of the proposed subject propertys new facility, strong brand affiliation, and proximity to both Flower Mound and Grapevine demand generators. The proposed subject property’s penetration rate is forecast to reach 103.2% by the stabilized period. The North American lodging market bottomed out in late 2009 when demand started to grow once again and the supply pipeline diminished. In 2010, occupancy rebounded strongly, although average rate stabilization was not uniform throughout the U.S. In many urban markets, average rates began to show strength during the summer of 2010, while rates have yet to stabilize in select markets that are heavily dependent on group demand. Overall, HVS forecasts RevPAR to increase by 7.1% in 2011. Thereafter, HVS projects that RevPAR levels will continue to recover as a result of steady demand growth, modest increases in supply, and accelerating average rate gains. A new property must establish its reputation and a client base in the market during its ramp-up period; as such, the proposed subject property’s average ratesMay-2011 Projection of Occupancy and Average Rate Proposed Select-Service Hotel – Flower Mound, Texas 86
  • in the initial operating period have been discounted to reflect this likelihood. We forecast 3.0% and 1.5% discounts to the proposed subject property’s forecast room rates in the first two operating years, which would be typical for a new operation of this type. The following average rates will be used to project the subject propertys rooms revenue; this forecast reflects years which begin January 1, 2013 and correspond with our financial projections. FIGURE 6-10 FORECAST OF AVERAGE RATE Average Rate Average Rate Year Occupancy Before Discount Discount After Discount 2013 60 % $106.55 3.0 % $103.35 2014 65 112.94 1.5 111.25 2015 68 117.46 0.0 117.46 2016 70 120.98 0.0 120.98May-2011 Projection of Occupancy and Average Rate Proposed Select-Service Hotel – Flower Mound, Texas 87
  • 7. Projection of Income and Expense In this chapter of our report, we have compiled a forecast of income and expense for the proposed subject property. This forecast is based on the facilities program set forth previously, as well as the occupancy and average rate forecast discussed previously. The forecast of income and expense is expressed in current dollars for each year. The stabilized year is intended to reflect the anticipated operating results of the property over its remaining economic life, given any or all applicable stages of build-up, plateau, and decline in the life cycle of the hotel. Thus, income and expense estimates from the stabilized year forward exclude from consideration any abnormal relationship between supply and demand, as well as any nonrecurring conditions that may result in unusual revenues or expenses. The ten- year period reflects the typical holding period of large real estate assets such as hotels. In addition, the ten-year time frame provides for the stabilization of income streams and comparison of yields with alternate types of real estate. The forecasted income streams reflect the future benefits of owning specific rights in income-producing real estate.Comparable Operating In order to project future income and expense for the proposed subject property,Statements we have included a sample of individual comparable operating statements from our database of hotel statistics. All financial data is presented according to the three most common measures of industry performance: ratio to sales (RTS), amounts per available room (PAR), and amounts per occupied room night (POR). These historical income and expense statements will be used as benchmarks in our forthcoming forecast of income and expense.May-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 88
  • FIGURE 7-1 COMPARABLE OPERATING STATEMENTS: RATIO TO SALES Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Subject Stabilized $ Year: 2008/09 2007/08 2007 2009/10 2008/09 2010 Number of Rooms: 70 to 90 80 to 100 120 to 160 120 to 160 100 to 130 130 Days Open: 365 366 365 365 365 365 Occupancy: 69% 63% 63% 68% 70% 70% Average Rate: $110 $118 $109 $120 $107 $101 RevPAR: $76 $75 $68 $81 $74 $71 REVENUE Rooms 94.9 % 93.8 % 90.2 % 85.7 % 95.5 % 94.1 % Food & Beverage 3.3 3.8 5.8 4.8 3.0 4.6 Other Operated Departments 0.1 0.2 0.2 0.1 0.3 0.0 Other Income 1.7 2.2 3.8 9.4 1.2 1.4 Total 100.0 100.0 100.0 100.0 100.0 100.0 DEPARTMENTAL EXPENSES* Rooms 22.4 21.6 21.4 20.2 19.2 22.1 Food & Beverage 101.3 100.0 113.5 79.1 99.0 89.0 Other Expenses 81.6 84.5 43.2 48.6 52.6 35.0 Total 27.1 27.0 27.7 26.0 23.2 25.3 DEPARTMENTAL INCOME 72.9 73.0 72.3 74.0 76.8 74.7 OPERATING EXPENSES Administrative & General 11.3 10.9 7.4 8.0 9.2 9.3 Marketing 4.4 7.0 6.3 3.7 4.3 3.2 Franchise Fee 6.6 4.7 2.6 6.6 6.7 7.5 Property Operations & Maintenance 4.7 4.9 5.5 4.8 5.6 3.7 Utilities 3.1 4.2 6.3 3.7 3.8 4.3 Total 30.1 31.8 28.1 26.8 29.6 28.0 HOUSE PROFIT 42.8 41.2 44.2 47.2 47.2 46.7 Management Fee 3.5 3.5 3.1 2.5 3.5 3.0 INCOME BEFORE FIXED CHARGES 39.3 37.7 41.1 44.7 43.7 43.7 * Departmental expense ratios are expressed as a percentage of departmental revenuesMay-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 89
  • FIGURE 7-2 COMPARABLE OPERATING STATEMENTS: AMOUNTS PER AVAILABLE ROOM Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Subject Stabilized $ Year: 2008/09 2007/08 2007 2009/10 2008/09 2010 Number of Rooms: 70 to 90 80 to 100 120 to 160 120 to 160 100 to 130 130 Days Open: 365 366 365 365 365 365 Occupancy: 69% 63% 63% 68% 70% 70% Average Rate: $110 $118 $109 $120 $107 $101 RevPAR: $76 $75 $68 $81 $74 $71 REVENUE Rooms $27,641 $27,311 $24,821 $29,629 $27,188 $25,888 Food & Beverage 962 1,100 1,586 1,643 857 1,253 Other Operated Departments 38 56 57 36 80 0 Other Income 487 644 1,057 3,250 339 376 Total 29,128 29,111 27,521 34,557 28,464 27,516 DEPARTMENTAL EXPENSES Rooms 6,205 5,900 5,300 5,993 5,223 5,721 Food & Beverage 974 1,100 1,800 1,300 848 1,115 Other Expenses 397 544 457 1,579 179 132 Total 7,897 7,856 7,629 8,979 6,598 6,968 DEPARTMENTAL INCOME 21,231 21,256 19,893 25,579 21,866 20,549 OPERATING EXPENSES Administrative & General 3,282 3,178 2,036 2,779 2,607 2,550 Marketing 1,269 2,033 1,721 1,293 1,232 883 Franchise Fee 1,936 1,367 729 2,279 1,902 2,071 Property Operations & Maintenance 1,372 1,433 1,507 1,650 1,607 1,016 Utilities 910 1,233 1,743 1,264 1,089 1,177 Total 8,769 9,244 7,736 9,264 8,438 7,696 HOUSE PROFIT 12,462 12,012 12,157 16,315 13,428 12,853 Management Fee 1,026 1,022 843 871 1,000 825 INCOME BEFORE FIXED CHARGES 11,436 10,989 11,314 15,443 12,429 12,027May-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 90
  • FIGURE 7-3 COMPARABLE OPERATING STATEMENTS: AMOUNTS PER OCCUPIED ROOM Comp 1 Comp 2 Comp 3 Comp 4 Comp 5 Subject Stabilized $ Year: 2008/09 2007/08 2007 2009/10 2008/09 2010 Number of Rooms: 70 to 90 80 to 100 120 to 160 120 to 160 100 to 130 130 Days Open: 365 366 365 365 365 365 Occupancy: 69% 63% 63% 68% 70% 70% Average Rate: $110 $118 $109 $120 $107 $101 RevPAR: $76 $75 $68 $81 $74 $71 REVENUE Rooms $109.53 $118.24 $108.63 $119.55 $107.01 $101.32 Food & Beverage 3.81 4.76 6.94 6.63 3.37 4.90 Other Operated Departments 0.15 0.24 0.25 0.14 0.32 0.00 Other Income 1.93 2.79 4.63 13.11 1.34 1.47 Total 115.42 126.03 120.45 139.44 112.03 107.70 DEPARTMENTAL EXPENSES Rooms 24.59 25.54 23.20 24.18 20.56 22.39 Food & Beverage 3.86 4.76 7.88 5.25 3.34 4.36 Other Expenses 1.57 2.36 2.00 6.37 0.70 0.51 Total 31.29 34.01 33.39 36.23 25.97 27.27 DEPARTMENTAL INCOME 84.13 92.02 87.06 103.21 86.06 80.42 OPERATING EXPENSES Administrative & General 13.01 13.76 8.91 11.21 10.26 9.98 Marketing 5.03 8.80 7.53 5.22 4.85 3.45 Franchise Fee 7.67 5.92 3.19 9.19 7.49 8.10 Property Operations & Maintenance 5.44 6.21 6.60 6.66 6.33 3.98 Utilities 3.61 5.34 7.63 5.10 4.29 4.61 Total 34.75 40.02 33.86 37.38 33.21 30.12 HOUSE PROFIT 49.38 52.00 53.21 65.83 52.85 50.30 Management Fee 4.06 4.43 3.69 3.52 3.94 3.23 INCOME BEFORE FIXED CHARGES 45.32 47.57 49.52 62.31 48.92 47.07 The comparables’ departmental income ranged from 72.3% to 76.8% of total revenue. The comparable properties achieved a house profit ranging from 41.2% to 47.2% of total revenue. We will refer to the comparable operating data in our discussion of each line item, which follows later in this section of the report.Premise of Forecast In 2010, occupancy gains have been considerable on a nationwide basis and, in many markets, average rates began to show signs of recovery beginning in the second half of the year. With demand recovery established in 2010, hotel operators are expected to continue to pursue price increases for 2011. OperatorsMay-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 91
  • and investors in the market anticipate an acceleration of revenue growth thereafter as the economy and lodging market gain traction in the recovery; this outlook is reflected in our forecasts. Strong RevPAR growth and continued monitoring of expenses are anticipated to positively affect the overall net operating income.Fixed and Variable HVS uses a fixed and variable component model to project a lodging facilitysComponent Analysis revenue and expense levels. This model is based on the premise that hotel revenues and expenses have one component that is fixed and another that varies directly with occupancy and facility usage. A projection can be made by taking a known level of revenue or expense and calculating its fixed and variable components. The fixed component is then increased in tandem with the underlying rate of inflation, while the variable component is adjusted for a specific measure of volume such as total revenue. The following table illustrates the revenue and expense categories that can be projected using this fixed and variable component model. These percentages show the portion of each category that is typically fixed and variable; the middle column describes the basis for calculating the percentage of variability, while the last column sets forth the fixed percentage that has been utilized in this valuation.May-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 92
  • FIGURE 7-4 RANGE OF FIXED AND VARIABLE RATIOS Selected Category Percent Fixed Percent Variable Index of Variability Fixed Ratio Revenues Food 25 - 50 % 50 - 75 % Occupancy 15 % Beverage 0 - 30 70 - 100 Food Revenue 0 Telephone 10 - 40 60 - 90 Occupancy 10 Other Income 30 - 70 30 - 70 Occupancy 10 Departmental Expenses Rooms 50 - 70 30 - 50 Occupancy 60 Food & Beverage 35 - 60 40 - 65 Food & Beverage Revenue 55 Telephone 40 - 60 40 - 60 Telephone Revenue 60 Other Expenses 30 - 70 30 - 70 Other Income 70 Undistributed Operating Expenses Administrative & General 65 - 85 15 - 35 Total Revenue 75 Marketing 65 - 85 15 - 35 Total Revenue 75 Prop. Operations & Maint. 55 - 75 25 - 45 Total Revenue 75 Utilities 75 - 95 5 - 25 Total Revenue 75 Management Fee 0 100 Total Revenue 0 Fixed Expenses Property Taxes 100 0 Total Revenue 100 Insurance 100 0 Total Revenue 100 Reserve for Replacement 0 100 Total Revenue 0 Our fixed and variable projection model is based upon variables that we input for each revenue and expense item for a “base year,” which in this case is the year 2010. The base-year forecast sets forth the ratios to revenue, amounts per available room, or amounts per occupied room that we believe can be achieved at the stated base-year average rate and occupancy. Our input variables are derived from the comparable hotel statements. The model then calculates a base-year forecast of income and expense in these base-year dollars. The actual forecast is derived by adjusting each year’s revenue and expense by the amount fixed (the fixed expense multiplied by the inflated base-year amount) plus the variable amount (the variable expense multiplied by the inflated base-year amount) multiplied by the ratio of the projection year’s occupancy to the base-year occupancy (in the case of departmental revenue and expense) or the ratio of the projection year’s revenue to the base year’s revenue (in the case of undistributed operating expenses). Fixed expenses remain fixed, increasing only with inflation. Our discussion of the revenue and expense forecast in this report is based uponMay-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 93
  • the output derived from the fixed and variable model. This forecast of revenue and expense is accomplished through a step-by-step approach, following the format of the Uniform System of Accounts for the Lodging Industry. Each category of revenue and expense is estimated separately and combined at the end in the final statement of income and expense.Inflation Assumption A general rate of inflation must be established that will be applied to most revenue and expense categories. The following table shows inflation estimates made by economists at some noted institutions and corporations.May-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 94
  • FIGURE 7-5 INFLATION ESTIMATES Projected Increase in Consumer Price Previous Index (Annualized Rate Projections Versus 12 Months Earlier) for Dec. 10 in June December Name Firm July 10 Survey 2011 2011 Paul Ashworth Capital Economics 0.0 % 1.5 % 1.0 % Paul Ballew Nationwide 2.2 1.7 2.2 Nariman Behravesh IHS Global Insight 0.7 2.0 1.3 Richard Berner/David Greenlaw Morgan Stanley 1.5 2.5 2.5 Ram Bhagavatula Combinatorics Capital 2.0 2.0 2.6 Jay Brinkmann Mortgage Bankers Association 0.8 1.1 1.0 Michael Carey Credit Agricole CIB 1.1 1.8 1.4 Joseph Carson AllianceBernstein 1.5 1.6 2.0 Julia Coronado BNP Paribas — 1.6 1.0 Mike Cosgrove Econoclast 1.0 1.6 1.8 Lou Crandall Wrightson ICAP 1.1 3.1 3.0 J. Dewey Daane Vanderbilt University 2.0 1.5 2.0 Richard DeKaser* Woodley Park Research 0.4 — — Douglas Duncan Fannie Mae 0.8 1.7 1.3 Brian Fabbri* BNP Paribas 1.2 — — Maria Fiorini Ramirez/Joshua Shapiro MFR, Inc. 0.9 2.0 2.1 Stephen Gallagher* Societe Generale 1.1 — — Ethan Harris Bank of America Securities-Merrill Lynch 0.8 1.9 0.8 Maury Harris UBS — 1.8 1.9 Jan Hatzius Goldman Sachs & Co. 0.6 1.2 1.0 Tracy Herrick The Private Bank 2.0 1.5 3.0 Stuart Hoffman PNC Financial Services Group 1.0 2.2 1.7 Gene Huang FedEx Corp. 1.8 1.9 2.6 William B. Hummer Wayne Hummer Investments LLC 1.3 1.7 1.8 Dana Johnson Comerica Bank 0.7 2.5 1.9 Kurt Karl Swiss Re 1.3 2.1 1.5 Bruce Kasman JP Morgan Chase & Co. 0.9 1.7 1.2 Paul Kasriel The Northern Trust 0.7 1.9 1.9 Joseph A. LaVorgna Deutsche Bank Securities Inc. 1.2 1.7 2.0 Edward Leamer/David Shulman UCLA Anderson Forecast 1.1 1.9 1.8 Don Leavens/Tim Gill NEMA Business Information Services 0.7 2.2 2.4 John Lonski Moodys Investors Service 0.9 2.5 2.2 Dean Maki Barclays Capital 1.3 1.9 1.6 David Malpass Encima Global LLC 2.2 2.4 2.5 Aneta Markowska Societe Generale — 1.2 1.8 Jim Meil Eaton Corp. 2.1 1.4 1.9 Mark Nielson, Ph. D. MacroEcon Global Advisors 3.2 2.5 3.2 Michael P. Niemira International Council of Shopping Centers 2.4 2.4 2.9 Jim OSullivan MF Global 0.9 1.6 1.3 Nicholas S. Perna Perna Associates 1.2 1.8 1.7 Joel Prakken/ Chris Varvares Macroeconomic Advisers 0.7 1.7 1.1 Arun Raha Economic and Revenue Forecast Council 2.5 2.0 2.4 David Resler Nomura Securities International Inc. — 1.5 0.9 John Ryding/Conrad DeQuadros RDQ Economics 2.1 2.2 2.6 Ian Shepherdson High Frequency Economics 0.7 2.0 0.5 John Silvia Wells Fargo & Co. 0.5 2.4 2.0 Allen Sinai Decision Economics Inc. 1.0 2.4 2.6 James F. Smith Parsec Financial Management 0.2 0.7 1.0 Sean M. Snaith University of Central Florida 1.2 1.8 1.7 Sung Won Sohn California State University 1.8 1.2 2.2 Neal Soss Credit Suisse 0.8 1.5 0.4 Stephen Stanley Pierpont Securities 1.0 2.8 2.7 Susan M. Sterne Economic Analysis 2.6 1.9 2.2 Diane Swonk Mesirow Financial 0.8 1.7 1.2 Bart van Ark The Conference Board 0.8 1.7 2.0 Brian S. Wesbury/ Robert Stein First Trust Advisors, L.P. 1.9 2.4 3.0 William T. Wilson Skolkovo Inst. for Emerging Market Studies 1.7 1.4 1.8 David Wyss Standard and Poors 1.0 1.7 1.6 Lawrence Yun National Association of Realtors 1.2 2.5 2.7 1.3 % 1.9 % 1.9 % Actual Inflation for 2010 1.6 % *No forecasts submitted for January 2011 survey Source: wsj.com, January 17, 2011May-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 95
  • As the preceding table indicates, the financial analysts who were surveyed in early 2011 anticipated inflation rates ranging from 0.7% to 3.1% (on an annualized basis) for the six-month period ending June 2011; the average estimate was 1.9%. The same group forecast 1.3% inflation for the six-month period ending December 2011, and the actual inflation rate during this period was 1.6%. As a further check on these inflation projections, we have reviewed historical increases in the Consumer Price Index (CPI-U). Because the value of real estate is predicated on cash flows over a relatively long period, inflation should be considered from a long-term perspective. FIGURE 7-6 NATIONAL CONSUMER PRICE INDEX (ALL URBAN CONSUMERS) National Consumer Percent Change Year Price Index from Previous Year 2000 172.2 — 2001 177.1 2.8 % 2002 179.9 1.6 2003 184.0 2.3 2004 188.9 2.7 2005 195.3 3.4 2006 201.6 3.2 2007 207.3 2.8 2008 215.3 3.8 2009 214.5 -0.4 2010 218.1 1.6 Average Annual Compounded Change 2000 - 2010: 2.4 % 2005 - 2010: 2.2 Source: Bureau of Labor Statistics Between 2000 and 2010, the national CPI increased at an average annual compounded rate of 2.4%; from 2005 to 2010, the CPI rose by a slightly below average annual compounded rate of 2.2%. In 2010, the CPI noted a change of 1.6%, an increase from the level of -0.4% recorded in 2009. In consideration of the most recent trends, the projections set forth previously, and our assessment of probable property appreciation levels, we have applied an underlying inflation rate of 2.0% in 2013, 2.0% in 2014, and 3.0% in 2015 and thereafter. This stabilized inflation rate takes into account normal, recurring inflation cycles. Inflation is likely to fluctuate above and below this level during the projection period. Any exceptions to the application of the assumed underlyingMay-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 96
  • inflation rate are discussed in our write-up of individual income and expense items.Summary of Based on an analysis that will be detailed throughout this section, we haveProjections formulated a forecast of income and expense. The following table presents a detailed forecast through the fifth projection year, including amounts per available room and per occupied room. The second table illustrates our ten-year forecast of income and expense, presented with a lesser degree of detail. The forecasts pertain to years beginning January 1, 2013 and are expressed in inflated dollars for each year. We note that the following forecast does not consider any possible incentives a developer could potentially receive from the Town of Flower Mound.May-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 97
  • FIGURE 7-7 DETAILED FORECAST OF INCOME AND EXPENSE 2013 (Calendar Year) 2014 2015 Stabilized 2017 Number of Rooms: 130 130 130 130 130 Occupancy: 60% 65% 68% 70% 70% Average Rate: $103.35 $111.25 $117.46 $120.98 $124.61 RevPAR: $62.01 $72.31 $79.87 $84.69 $87.23 Days Open: 365 365 365 365 365 Occupied Rooms: 28,470 %Gross PAR POR 30,843 %Gross PAR POR 32,266 %Gross PAR POR 33,215 %Gross PAR POR 33,215 %Gross PAR POR REVENUE Rooms $2,942 93.5 % $22,631 $103.34 $3,431 93.9 % $26,392 $111.24 $3,790 94.1 % $29,154 $117.46 $4,018 94.1 % $30,908 $120.97 $4,139 94.1 % $31,838 $124.61 Food 125 4.0 962 4.39 138 3.8 1,060 4.47 147 3.7 1,134 4.57 156 3.6 1,197 4.68 160 3.6 1,233 4.82 Beverage 31 1.0 241 1.10 34 0.9 265 1.12 37 0.9 283 1.14 39 0.9 299 1.17 40 0.9 308 1.21 Other Income 47 1.5 358 1.63 51 1.4 396 1.67 55 1.4 425 1.71 58 1.4 449 1.76 60 1.4 462 1.81 Total Revenues 3,145 100.0 24,191 110.46 3,655 100.0 28,113 118.49 4,029 100.0 30,995 124.88 4,271 100.0 32,852 128.58 4,399 100.0 33,842 132.45 DEPARTMENTAL EXPENSES * Rooms 766 26.0 5,894 26.92 813 23.7 6,255 26.37 852 22.5 6,557 26.42 888 22.1 6,831 26.74 915 22.1 7,036 27.54 Food & Beverage 150 95.8 1,152 5.26 159 92.2 1,221 5.15 166 90.2 1,278 5.15 173 89.0 1,331 5.21 178 89.0 1,371 5.37 Other Expenses 18 38.6 138 0.63 19 36.7 145 0.61 20 35.6 151 0.61 20 35.0 157 0.61 21 35.0 162 0.63 Total 934 29.7 7,184 32.81 991 27.1 7,621 32.12 1,038 25.8 7,986 32.18 1,082 25.3 8,320 32.56 1,114 25.3 8,569 33.54 DEPARTMENTAL INCOME 2,211 70.3 17,007 77.66 2,664 72.9 20,491 86.37 2,991 74.2 23,009 92.70 3,189 74.7 24,533 96.02 3,285 74.7 25,272 98.91 UNDISTRIBUTED OPERATING EXPENSES Administrative & General 345 11.0 2,650 12.10 364 10.0 2,804 11.82 382 9.5 2,935 11.82 396 9.3 3,044 11.92 408 9.3 3,136 12.27 Marketing 119 3.8 917 4.19 126 3.5 970 4.09 132 3.3 1,016 4.09 137 3.2 1,054 4.12 141 3.2 1,085 4.25 Franchise Fee 235 7.5 1,810 8.27 274 7.5 2,111 8.90 303 7.5 2,332 9.40 321 7.5 2,473 9.68 331 7.5 2,547 9.97 Prop. Operations & Maint. 113 3.6 872 3.98 133 3.7 1,026 4.33 149 3.7 1,147 4.62 158 3.7 1,213 4.75 166 3.8 1,274 4.99 Utilities 159 5.1 1,223 5.58 168 4.6 1,294 5.45 176 4.4 1,355 5.46 183 4.3 1,405 5.50 188 4.3 1,447 5.66 Total 972 31.0 7,473 34.12 1,067 29.3 8,206 34.59 1,142 28.4 8,785 35.40 1,195 28.0 9,189 35.97 1,234 28.1 9,490 37.14 HOUSE PROFIT 1,239 39.3 9,534 43.53 1,597 43.6 12,286 51.78 1,849 45.8 14,224 57.31 1,995 46.7 15,343 60.05 2,052 46.6 15,782 61.77 Management Fee 94 3.0 726 3.31 110 3.0 843 3.55 121 3.0 930 3.75 128 3.0 986 3.86 132 3.0 1,015 3.97 INCOME BEFORE FIXED CHARGES 1,145 36.3 8,808 40.22 1,488 40.6 11,442 48.23 1,728 42.8 13,294 53.56 1,866 43.7 14,358 56.19 1,920 43.6 14,767 57.80 FIXED EXPENSES Property Taxes 180 5.7 1,384 6.32 183 5.0 1,405 5.92 186 4.6 1,433 5.77 192 4.5 1,476 5.78 198 4.5 1,520 5.95 Insurance 42 1.3 321 1.47 43 1.2 331 1.40 44 1.1 341 1.37 46 1.1 351 1.37 47 1.1 362 1.42 Reserve for Replacement 63 2.0 484 2.21 110 3.0 843 3.55 161 4.0 1,240 5.00 171 4.0 1,314 5.14 176 4.0 1,354 5.30 Total 285 9.0 2,189 10.00 335 9.2 2,579 10.87 392 9.7 3,014 12.14 408 9.6 3,141 12.29 421 9.6 3,236 12.66 NET INCOME $860 27.3 % $6,619 $30.22 $1,152 31.4 % $8,863 $37.36 $1,336 33.1 % $10,280 $41.42 $1,458 34.1 % $11,216 $43.90 $1,499 34.0 % $11,531 $45.13 *Departmental expenses are expressed as a percentage of departmental revenues.May-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 98
  • FIGURE 7-8 TEN-YEAR FORECAST OF INCOME AND EXPENSE 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Number of Rooms: 130 130 130 130 130 130 130 130 130 130 Occupied Rooms: 28,470 30,843 32,266 33,215 33,215 33,215 33,215 33,215 33,215 33,215 Occupancy: 60% 65% 68% 70% 70% 70% 70% 70% 70% 70% Average Rate: $103.35 % of $111.25 % of $117.46 % of $120.98 % of $124.61 % of $128.35 % of $132.20 % of $136.17 % of $140.25 % of $144.46 % of RevPAR: $62.01 Gross $72.31 Gross $79.87 Gross $84.69 Gross $87.23 Gross $89.85 Gross $92.54 Gross $95.32 Gross $98.18 Gross $101.12 Gross REVENUE Rooms $2,942 93.5 % $3,431 93.9 % $3,790 94.1 % $4,018 94.1 % $4,139 94.1 % $4,263 94.1 % $4,391 94.1 % $4,523 94.1 % $4,658 94.1 % $4,798 94.1 % Food 125 4.0 138 3.8 147 3.7 156 3.6 160 3.6 165 3.6 170 3.6 175 3.6 180 3.6 186 3.6 Beverage 31 1.0 34 0.9 37 0.9 39 0.9 40 0.9 41 0.9 43 0.9 44 0.9 45 0.9 46 0.9 Other Income 47 1.5 51 1.4 55 1.4 58 1.4 60 1.4 62 1.4 64 1.4 66 1.4 68 1.4 70 1.4 Total 3,145 100.0 3,655 100.0 4,029 100.0 4,271 100.0 4,399 100.0 4,531 100.0 4,667 100.0 4,808 100.0 4,951 100.0 5,100 100.0 DEPARTMENTAL EXPENSES* Rooms 766 26.0 813 23.7 852 22.5 888 22.1 915 22.1 942 22.1 970 22.1 1,000 22.1 1,030 22.1 1,060 22.1 Food & Beverage 150 95.8 159 92.2 166 90.2 173 89.0 178 89.0 184 89.0 189 89.0 195 89.0 201 89.0 207 89.0 Other Expenses 18 38.6 19 36.7 20 35.6 20 35.0 21 35.0 22 35.0 22 35.0 23 35.0 24 35.0 24 35.0 Total 934 29.7 991 27.1 1,038 25.8 1,082 25.3 1,114 25.3 1,147 25.3 1,182 25.3 1,217 25.3 1,254 25.3 1,291 25.3 DEPARTMENTAL INCOME 2,211 70.3 2,664 72.9 2,991 74.2 3,189 74.7 3,285 74.7 3,384 74.7 3,485 74.7 3,590 74.7 3,697 74.7 3,808 74.7 UNDISTRIBUTED OPERATING EXPENSES Administrative & General 345 11.0 364 10.0 382 9.5 396 9.3 408 9.3 420 9.3 432 9.3 445 9.3 459 9.3 473 9.3 Marketing 119 3.8 126 3.5 132 3.3 137 3.2 141 3.2 145 3.2 150 3.2 154 3.2 159 3.2 164 3.2 Franchise Fee 235 7.5 274 7.5 303 7.5 321 7.5 331 7.5 341 7.5 351 7.5 362 7.5 373 7.5 384 7.5 Prop. Operations & Maint. 113 3.6 133 3.7 149 3.7 158 3.7 166 3.8 174 3.8 183 3.9 188 3.9 194 3.9 200 3.9 Utilities 159 5.1 168 4.6 176 4.4 183 4.3 188 4.3 194 4.3 200 4.3 206 4.3 212 4.3 218 4.3 Total 972 31.0 1,067 29.3 1,142 28.4 1,195 28.0 1,234 28.1 1,274 28.1 1,316 28.2 1,355 28.2 1,396 28.2 1,438 28.2 HOUSE PROFIT 1,239 39.3 1,597 43.6 1,849 45.8 1,995 46.7 2,052 46.6 2,110 46.6 2,170 46.5 2,235 46.5 2,301 46.5 2,371 46.5 Management Fee 94 3.0 110 3.0 121 3.0 128 3.0 132 3.0 136 3.0 140 3.0 144 3.0 149 3.0 153 3.0 INCOME BEFORE FIXED CHARGES 1,145 36.3 1,488 40.6 1,728 42.8 1,866 43.7 1,920 43.6 1,974 43.6 2,030 43.5 2,091 43.5 2,153 43.5 2,218 43.5 FIXED EXPENSES Property Taxes 180 5.7 183 5.0 186 4.6 192 4.5 198 4.5 204 4.5 210 4.5 216 4.5 222 4.5 229 4.5 Insurance 42 1.3 43 1.2 44 1.1 46 1.1 47 1.1 48 1.1 50 1.1 51 1.1 53 1.1 55 1.1 Reserve for Replacement 63 2.0 110 3.0 161 4.0 171 4.0 176 4.0 181 4.0 187 4.0 192 4.0 198 4.0 204 4.0 Total 285 9.0 335 9.2 392 9.7 408 9.6 421 9.6 433 9.6 446 9.6 460 9.6 473 9.6 488 9.6 NET INCOME $860 27.3 % $1,152 31.4 % $1,336 33.1 % $1,458 34.1 % $1,499 34.0 % $1,541 34.0 % $1,583 33.9 % $1,631 33.9 % $1,680 33.9 % $1,730 33.9 % 1 1 1 1 1 1 1 1 1 1 *Departmental expenses are expressed as a percentage of departmental revenues.May-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 99
  • Forecast of Income and The following description sets forth the basis for the forecast of income andExpense expense. We anticipate that it will take four years for the subject property to reach a stabilized level of operation. Each revenue and expense item has been forecast based upon our review of comparable income and expense statements. Our forecast is based upon calendar years beginning January 1, 2013 and is expressed in inflated dollars for each year.Rooms Revenue Rooms revenue is determined by two variables: occupancy and average rate. We projected occupancy and average rate in a previous section of this report. The subject property is expected to stabilize at an occupancy level of 70% with an average rate of $120.98 in 2016. Following the stabilized year, the subject property’s average rate is projected to increase along with the underlying rate of inflation.Food and Beverage Food and beverage revenue is generated by a hotels restaurants, lounges, coffeeRevenue shops, snack bars, banquet rooms, and room service. In addition to providing a source of revenue, these outlets serve as an amenity that assists in the sale of guestrooms. With the exception of properties with active lounges or banquet facilities that draw local residents, in-house guests generally represent a substantial percentage of a hotels food and beverage patrons. In the case of the proposed select-service hotel, food and beverage department will include a breakfast dining area, lobby café and lounge; moreover, banquet space is expected to span 3,500 square feet. Although food and beverage revenue varies directly with changes in occupancy, the small portion generated by banquet sales and outside capture is relatively fixed. The comparable statements illustrated food and beverage revenue between 3.2% to 6.4% of rooms revenue, or $3.37 and $6.94 per occupied room. The proposed subject propertys food and beverage operation is expected to be modest, serving as a convenient alternative to a full-service hotel dining experience. Based upon our review of comparable operating statements, we have positioned this revenue at an appropriate level given its planned facility and price point. We would expect future moderate growth to occur within this category after the hotels opening. We project food and beverage revenue to be $4.39 and $1.10 per occupied room, respectively, in the first projection year, or respectively 4.3% and 1.1% of rooms revenue. These per-occupied-room amounts increase to $4.68 and $1.17 for respective food and beverage revenue categories by the stabilized year, or respectively 3.9% and 1.0% of rooms revenue. On a percentage of food revenue, beverage revenue is forecast at 25.0% in the first projection year, stabilizing at 25.0%.May-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 100
  • Other Income Other income is derived from sources other than guestrooms, food and beverage, and telephone services. Other income revenue for the comparables ranged 1.2% to 11.0% of rooms revenue or $1.34 to $13.11 on a per-occupied-room basis. Changes in this revenue item through the projection period result from the application of the underlying inflation rate and projected changes in occupancy. We forecast the proposed subject property’s other income to stabilize at $1.76 per occupied room by the stabilized year, 2016. The proposed subject propertys other income sources are expected to be generated primarily from the hotels meeting space rental, sundries counter, and in-room movie and game charges. Based on our review of operations with a similar extent of offerings, we have positioned an appropriate revenue level for the proposed subject property.Rooms Expense Rooms expense consists of items related to the sale and upkeep of guestrooms and public space. Salaries, wages, and employee benefits account for a substantial portion of this category. Although payroll varies somewhat with occupancy and managers can generally scale the level of service staff on hand to meet an expected occupancy level, much of a hotels payroll is fixed. A base level of front desk personnel, housekeepers, and supervisors must be maintained at all times. As a result, salaries, wages, and employee benefits are only moderately sensitive to changes in occupancy. Commissions and reservations are usually based on room sales, and thus are highly sensitive to changes in occupancy and average rate. While guest supplies vary 100% with occupancy, linens and other operating expenses are only slightly affected by volume. The comparables illustrated rooms expense ranging between 19.2% and 22.4% of rooms revenue; on a per-occupied-room basis, the range was between $20.56 and $25.54. We have projected rooms expense for the subject at 26.0% in the first year (or $26.92 per occupied room), stabilizing at 22.1% in 2016 (or $26.74 per occupied room). The proposed subject propertys rooms department expense has been positioned based upon our review of the comparable operating data and our understanding of the hotels future service level and price point.Food and Beverage Food expenses consist of items necessary for the primary operation of a hotelsExpense food and banquet facilities. The costs associated with food sales and payroll are moderately to highly correlated to food revenues. Items such as china, linen and uniforms are less dependent on volume. Although the other expense items are basically fixed, they represent a relatively insignificant factor. Beverage expenses consist of items necessary for the operation of a hotel’s lounge and bar areas. The costs associated with beverage sales and payroll are moderately to highly correlated to beverage revenues.May-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 101
  • The comparables illustrate food and beverage expense ranging between 79.1% and 113.5% of food and beverage revenue. We have projected a stabilized expense ratio of 89.0% in 2016. The proposed subject propertys food and beverage operation is expected to be efficiently managed and operate at an expense level that is in line with other comparable operations.Other Other income expense consists of costs associated with other income and isIncome Expense dependent on the nature of the revenue. For example, if a hotel leases its gift shop to an outside operator, the gift shop expenses are limited to items such as rental fees and commissions. If the property operates its own gift shop, both revenues and expenses will be higher, and the hotel is responsible for the cost of goods sold, payroll, and so forth. The comparables illustrated other income expense ranging between 43.2% and 84.5% of other income. We have projected a stabilized expense ratio of 35.0% in 2016. Expenses related to the proposed subject propertys other income sources should be minimal and associated with the other revenue components discussed previously.Administrative and Administrative and general expense includes the salaries and wages of allGeneral Expense administrative personnel who are not directly associated with a particular department. Expense items related to the management and operation of the property are also allocated to this category. Most administrative and general expenses are relatively fixed. The exceptions are cash overages and shortages; commissions on credit card charges; provision for doubtful accounts, which are moderately affected by the number of transactions or total revenue; and salaries, wages, and benefits, which are very slightly influenced by volume. On a percentage of total revenue basis, the comparable operations indicate an administrative and general expense range from 7.4% to 11.3%, or $2,036 to $3,282 per available room. Based upon our review of the comparable operating data and the expected scope of facility for the proposed subject property, we have positioned the administrative and general expense level at a market- and property-supported level. In the first projection year, we have projected administrative and general expense for the proposed subject property to be $2,650 per available room, or 11.0% of total revenue. By the 2016 stabilized year, these amounts change to $3,044 per available room and 9.3% of total revenue.Marketing Expense Marketing expense consists of all costs associated with advertising, sales, and promotion; these activities are intended to attract and retain customers. MarketingMay-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 102
  • can be used to create an image, develop customer awareness, and stimulate patronage of a propertys various facilities. The marketing category is unique in that all expense items, with the exception of fees and commissions, are totally controlled by management. Most hotel operators establish an annual marketing budget that sets forth all planned expenditures. If the budget is followed, total marketing expenses can be projected accurately. Marketing expenditures are unusual because although there is a lag period before results are realized, the benefits are often extended over a long period. Depending on the type and scope of the advertising and promotion program implemented, the lag time can be as short as a few weeks or as long as several years. However, the favorable results of an effective marketing campaign tend to linger, and a property often enjoys the benefits of concentrated sales efforts for many months. On a percentage of total revenue basis, the comparable operations indicate a marketing expense range from 3.7% to 7.0%, or $1,232 to $2,033 per available room. Based upon our review of the comparable operating data and the expected scope of facility for the proposed subject property, we have positioned the marketing expense level at a market- and property-supported level. In the first projection year, we have projected marketing expense for the proposed subject property to be $917 per available room, or 3.8% of total revenue. By the 2016 stabilized year, these amounts change to $1,054 per available room and 3.2% of total revenue.Franchise Fee As previously discussed, we recommend that the proposed subject property be developed and operate as a first-class, select-service hotel. A specific franchise affiliation has yet to be selected. We have included franchise fees that represent levels in line with this product tier.Property Operations Property operations and maintenance expense is another expense category that isand Maintenance largely controlled by management. Except for repairs that are necessary to keep the facility open and prevent damage (e.g., plumbing, heating, and electrical items), most maintenance can be deferred for varying lengths of time. Maintenance is an accumulating expense. If management elects to postpone performing a required repair, they have not eliminated or saved the expenditure; they have only deferred payment until a later date. A lodging facility that operates with a lower-than-normal maintenance budget is likely to accumulate a considerable amount of deferred maintenance. The age of a lodging facility has a strong influence on the required level of maintenance. A new or thoroughly renovated property is protected for severalMay-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 103
  • years by modern equipment and manufacturers warranties. However, as a hostelry grows older, maintenance expenses escalate. A well-organized preventive maintenance system often helps delay deterioration, but most facilities face higher property operations and maintenance costs each year, regardless of the occupancy trend. The quality of initial construction can also have a direct impact on future maintenance requirements. The use of high-quality building materials and construction methods generally reduces the need for maintenance expenditures over the long term. On a percentage of total revenue basis, the comparable operations indicate a property operations and maintenance expense range from 4.7% to 5.6%, or $1,372 to $1,650 per available room. We expect the proposed subject propertys maintenance operation to be well managed, and expense levels should stabilize at a typical level for a property of this type. Changes in this expense item through the projection period result from the application of the underlying inflation rate and projected changes in occupancy. In the first projection year, we have projected property operations and maintenance expense for the proposed subject property to be $872 per available room, or 3.6% of total revenue. By the 2016 stabilized year, these amounts change to $1,213 per available room and 3.7% of total revenue.Utilities Expense The utilities consumption of a lodging facility takes several forms, including water and space heating, air conditioning, lighting, cooking fuel, and other miscellaneous power requirements. The most common sources of hotel utilities are electricity, natural gas, fuel oil, and steam. This category also includes the cost of water service. Total energy cost depends on the source and quantity of fuel used. Electricity tends to be the most expensive source, followed by oil and gas. Although all hotels consume a sizable amount of electricity, many properties supplement their utility requirements with less expensive sources, such as gas and oil, for heating and cooking. On a percentage of total revenue basis, the comparable operations indicate a utilities expense range from 3.1% to 6.3%, or $910 to $1,743 per available room. The changes in this utilities line item through the projection period are a result of the application of the underlying inflation rate and projected changes in occupancy. In the first projection year, we have projected utilities expense for the proposed subject property to be $1,223 per available room, or 5.1% of total revenue. By the 2016 stabilized year, these amounts change to $1,405 per available room and 4.3% of total revenue.May-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 104
  • Management Fee Management expense consists of the fees paid to the managing agent contracted to operate the property. Some companies provide management services and a brand- name affiliation (first-tier management company), while others provide management services alone (second-tier management company). Some management contacts specify only a base fee (usually a percentage of total revenue), while others call for both a base fee and an incentive fee (usually a percentage of defined profit). Basic hotel management fees are almost always based on a percentage of total revenue, which means they have no fixed component. While base fees typically range from 2% to 4% of total revenue, incentive fees are deal specific and often are calculated as a percentage of income available after debt service and, in some cases, after a preferred return on equity. Total management fees for the subject property have been forecast at 3.0% of total revenue.Property Taxes Property (or ad valorem) tax is one of the primary revenue sources of municipalities. Based on the concept that the tax burden should be distributed in proportion to the value of all properties within a taxing jurisdiction, a system of assessments is established. Theoretically, the assessed value placed on each parcel bears a definite relationship to market value, so properties with equal market values will have similar assessments and properties with higher and lower values will have proportionately larger and smaller assessments. Depending on the taxing policy of the municipality, property taxes can be based on the value of the real property or the value of the personal property and the real property. We have based our estimate of the proposed subject propertys market value (for tax purposes) on an analysis of assessments of comparable hotel properties in the local municipality. We note Flower Mound is both in Denton and Tarrant Counties. A small portion of the Lakeside Business District is in Tarrant County. It is possible that the future hotel development could be in Tarrant County. For the purposes of positioning, we have reviewed comparable information from Denton County. We have shown the tax rates for both jurisdictions.May-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 105
  • FIGURE 7-9 COUNTY-ASSESSED VALUE OF COMPARABLE HOTELS Number Total Assessment Hotel of Rooms Land Improvements Total Courtyard Dallas Lewisville 122 $1,641,336 $2,831,513 $4,472,849 Hilton Garden Inn Dallas Lewisville 165 3,160,629 3,610,991 6,771,620 Comfort Suites Vista Ridge Mall 60 430,376 1,076,104 1,506,480 Ass essm ents per Room Courtyard Dallas Lewisville $13,454 $23,209 $36,663 Hilton Garden Inn Dallas Lewisville 19,155 21,885 41,040 Comfort Suites Vista Ridge Mall 7,173 17,935 25,108 Positioned Subject - Per Room 130 $15,000 $50,000 $65,000 Positioned Subject - Total $1,950,000 $6,500,000 $8,450,000 Source: Denton Central Appraisal District We have positioned the proposed subject propertys future assessment levels based upon the illustrated comparable data. We have positioned the assessment closest to the Courtyard Dallas Lewisville because of the expected similarities in product type; however, we have positioned it well above this hotel given the subject hotels newer construction. Overall, the positioned assessment is well supported by the market data. Tax rates are based on the Town and county budgets, which change annually. The most recent tax rate in the Denton County jurisdiction was reported at 2.15030. The most recent tax rate in the Tarrant County jurisdiction was reported at 2.50594. The following table shows changes in the tax rate during the last several years. FIGURE 7-10 TOTAL AD VALOREM TAX RATES Denton County Tarrant County Year Tax Rate Tax Rate 2008 2.06547 2.459557 2009 2.10820 2.487967 2010 2.15030 2.505937 Source: Denton County Tax Assessor/Collector, Tarrant County Appraisal DistrictMay-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 106
  • Based on comparable assessments and the tax rate information, the proposed subject propertys projected property tax expense levels are calculated as follows.FIGURE 7-11 PROJECTED PROPERTY TAX EXPENSE Assessed Value Tax Year Land Improvements Total Tax Rate Forecast Positioned $1,950,000 $6,500,000 $8,450,000 2.15 $211,752 2013 $1,950,000 $6,500,000 $8,450,000 2.17 $213,869 2014 1,950,000 6,500,000 8,450,000 2.20 217,077 2015 1,950,000 6,500,000 8,450,000 2.25 221,419Insurance Expense The insurance expense category consists of the cost of insuring the hotel and its contents against damage or destruction by fire, weather, sprinkler leakage, boiler explosion, plate glass breakage, and so forth. General insurance costs also include premiums relating to liability, fidelity, and theft coverage. Insurance rates are based on many factors, including building design and construction, fire detection and extinguishing equipment, fire district, distance from the firehouse, and the areas fire experience. Insurance expenses do not vary with occupancy. Based on comparable data and the structural attributes of the proposed project, we project the proposed subject propertys insurance expense at $351 per available room by the stabilized year (positioned at $300 on a per-available-room basis in base-year dollars). This forecast equates to 1.1% of total revenue on a stabilized basis. In subsequent years, this amount is assumed to increase in tandem with inflation.Reserve for Furniture, fixtures, and equipment are essential to the operation of a lodgingReplacement facility, and their quality often influences a propertys class. This category includes all non-real estate items that are capitalized, rather than expensed. The furniture, fixtures, and equipment of a hotel are exposed to heavy use and must be replaced at regular intervals. The useful life of these items is determined by their quality, durability, and the amount of guest traffic and use. Periodic replacement of furniture, fixtures, and equipment is essential to maintain the quality, image, and income-producing potential of a lodging facility. Because capitalized expenditures are not included in the operating statement but nevertheless affect an owners cash flow, a forecast of income and expense should reflect these expenses in the form of an appropriate reserve for replacement.May-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 107
  • The International Society of Hospitality Consultants (ISHC) undertook a major industry-sponsored study of the capital expenditure requirements for full- service/luxury, select-service, and extended-stay hotels. The most recent findings of the study were published in a report in 20076. Historical capital expenditures of well-maintained hotels were investigated through the compilation of data provided by most of the major hotel companies in the United States. A prospective analysis of future capital expenditure requirements was also performed based upon the cost to replace short- and long-lived building components over a hotels economic life. The study showed that the capital expenditure requirements for hotels vary significantly from year to year, and depend upon both the actual and effective age of a property. The results of this study showed that hotel lenders and investors are requiring reserves for replacement ranging from 4% to 5% of total revenue. Based on the results of this study, our review of the subject asset and comparable lodging facilities, and our industry expertise, we estimate that a reserve for replacement of 4% of total revenues is sufficient to provide for the timely and periodic replacement of the subject propertys furniture, fixtures, and equipment. This amount is ramped up during the initial projection period.Conclusion In conclusion, our analysis reflects a profitable operation, with net income expected to total 34.0% of total revenue by the stabilized year. The stabilized total revenue comprises primarily rooms and food and beverage revenue, with a secondary portion derived from other income sources. On the cost side, departmental expenses total 25.3% of revenue by the stabilized year, while undistributed operating expenses total 28.1% of total revenues; this assumes that the property will be operated competently by a well-known hotel operator. After a 3.0% of total revenues management fee, and 9.6% of total revenues in fixed expenses, a net income ratio of 34.0% is forecast by the stabilized year. 6 The International Society of Hotel Consultants, CapEx 2007, A Study of Capital Expenditure in the U.S. Hotel Industry.May-2011 Projection of Income and Expense Proposed Select-Service Hotel – Flower Mound, Texas 108
  • 8. Statement of Assumptions and Limiting Conditions 1. This report is set forth as a market study of the proposed subject property; this is not an appraisal report. 2. This report is to be used in whole and not in part. 3. No responsibility is assumed for matters of a legal nature, nor do we render any opinion as to title, which is assumed to be marketable and free of any deed restrictions and easements. The property is evaluated as though free and clear unless otherwise stated. 4. We assume that there are no hidden or unapparent conditions of the sub- soil or structures, such as underground storage tanks, that would impact the property’s development potential. No responsibility is assumed for these conditions or for any engineering that may be required to discover them. 5. We have not considered the presence of potentially hazardous materials or any form of toxic waste on the project site. The consultants are not qualified to detect hazardous substances, and we urge the client to retain an expert in this field if desired. 6. The Americans with Disabilities Act (ADA) became effective on January 26, 1992. We have assumed the proposed hotel would be designed and constructed to be in full compliance with the ADA. 7. We have made no survey of the site, and we assume no responsibility in connection with such matters. Sketches, photographs, maps, and other exhibits are included to assist the reader in visualizing the property. It is assumed that the use of the described real estate will be within the boundaries of the property described, and that no encroachment will exist. 8. All information, financial operating statements, estimates, and opinions obtained from parties not employed by DFW Hospitality Consulting, LLC are assumed to be true and correct. We can assume no liability resulting from misinformation. 9. Unless noted, we assume that there are no encroachments, zoning violations, or building violations encumbering the subject property. 10. The property is assumed to be in full compliance with all applicable federal, state, local, and private codes, laws, consents, licenses, and regulations (including a liquor license where appropriate), and that allMay-2011 Statement of Assumptions and Limiting Conditions Proposed Select-Service Hotel – Flower Mound, Texas 109
  • licenses, permits, certificates, franchises, and so forth can be freely renewed or transferred to a purchaser. 11. All mortgages, liens, encumbrances, leases, and servitudes have been disregarded unless specified otherwise. 12. None of this material may be reproduced in any form without our written permission, and the report cannot be disseminated to the public through advertising, public relations, news, sales, or other media. 13. We are not required to give testimony or attendance in court by reason of this analysis without previous arrangements, and only when our standard per-diem fees and travel costs are paid prior to the appearance. 14. If the reader is making a fiduciary or individual investment decision and has any questions concerning the material presented in this report, it is recommended that the reader contact us. 15. We take no responsibility for any events or circumstances that take place subsequent to the date of our field inspection. 16. The quality of a lodging facilitys on-site management has a direct effect on a propertys economic viability. The financial forecasts presented in this analysis assume responsible ownership and competent management. Any departure from this assumption may have a significant impact on the projected operating results. 17. The financial analysis presented in this report is based upon assumptions, estimates, and evaluations of the market conditions in the local and national economy, which may be subject to sharp rises and declines. Over the projection period considered in our analysis, wages and other operating expenses may increase or decrease due to market volatility and economic forces outside the control of the hotel’s management. We assume that the price of hotel rooms, food, beverages, and other sources of revenue to the hotel will be adjusted to offset any increases or decreases in related costs. We do not warrant that our estimates will be attained, but they have been developed on the basis of information obtained during the course of our market research and are intended to reflect the expectations of a typical hotel investor as of the stated date of the report. 18. This analysis assumes continuation of all Internal Revenue Service tax code provisions as stated or interpreted on either the date of value or the date of our field inspection, whichever occurs first. 19. Many of the figures presented in this report were generated using sophisticated computer models that make calculations based on numbers carried out to three or more decimal places. In the interest of simplicity,May-2011 Statement of Assumptions and Limiting Conditions Proposed Select-Service Hotel – Flower Mound, Texas 110
  • most numbers have been rounded to the nearest tenth of a percent. Thus, these figures may be subject to small rounding errors. 20. It is agreed that our liability to the client is limited to the amount of the fee paid as liquidated damages. Our responsibility is limited to the client, and use of this report by third parties shall be solely at the risk of the client and/or third parties. The use of this report is also subject to the terms and conditions set forth in our engagement letter with the client. 21. Evaluating and comprising financial forecasts for hotels is both a science and an art. Although this analysis employs various mathematical calculations to provide value indications, the final forecasts are subjective and may be influenced by our experience and other factors not specifically set forth in this report. 22. This study was prepared by DFW Hospitality Consulting, LLC. All opinions, recommendations, and conclusions expressed during the course of this assignment are rendered by the staff of DFW Hospitality Consulting, LLC as employees, rather than as individuals.May-2011 Statement of Assumptions and Limiting Conditions Proposed Select-Service Hotel – Flower Mound, Texas 111
  • 9. Certification The undersigned hereby certify that, to the best of our knowledge and belief: 1. the statements of fact presented in this report are true and correct; 2. the reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, impartial, and unbiased professional analyses, opinions, and conclusions; 3. we have no (or the specified) present or prospective interest in the property that is the subject of this report and no (or the specified) personal interest with respect to the parties involved; 4. we have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment; 5. our engagement in this assignment was not contingent upon developing or reporting predetermined results; 6. our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined result or direction in performance that favors the cause of the client, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this study; 7. our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice; 8. Kathleen D. Donahue conducted market research and fieldwork; 9. no one other than those listed above and the undersigned prepared the analyses, conclusions, and opinions concerning the real estate that are set forth in this report; 10. 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; 11. the use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives; andMay-2011 Certification Proposed Select-Service Hotel – Flower Mound, Texas 112
  • 12. as of the date of this report, Kathleen D. Donahue has completed the requirements of the continuing education program of the Appraisal Institute. Kathleen D. Donahue Senior Project Manager DFW Hospitality Consulting, LLCMay-2011 Certification Proposed Select-Service Hotel – Flower Mound, Texas 113
  • Penetration Explanation Let us illustrate the penetration adjustment with an example. A market has three existing hotels with the following operating statistics:BASE-YEAR OCCUPANCY AND PENETRATION LEVELS Number Meeting and Property of Rooms Fair Share Commercial Group Leisure Occupancy Penetration Hotel A 100 23.5 % 60 % 20 % 20 % 75.0 % 100.8 % Hotel B 125 29.4 70 10 20 65.0 87.4 Hotel C 200 47.1 30 60 10 80.0 107.5 Totals/Average 425 100.0 % 47 % 38 % 15 % 74.4 % 100.0 % Based upon each hotel’s room count, market segmentation, and annual occupancy, the annual number of room nights accommodated in the market from each market segment can be quantified, as set forth below. MARKET-WIDE ROOM NIGHT DEMAND Annual Room Market Night Percentage of Segment Demand Total Commercial 54,704 47.4 % Meeti ng and Group 43,481 37.7 Lei sure 17,246 14.9 Total 115,431 100.0 % The following discussion will be based upon an analysis of the commercial market segment. The same methodology is applied for each market segment to derive an estimate of a hotel’s overall occupancy. The table below sets forth the commercial demand accommodated by each hotel. Each hotel’s commercial penetration factor is computed by:May-2011 Penetration Explanation Proposed Select-Service Hotel – Flower Mound, Texas i
  • 1) calculating the hotel’s market share % of commercial demand (commercial room nights accommodated by subject hotel divided by total commercial room nights accommodated by all hotels) and 2) dividing the hotel’s commercial market share % by the hotel’s fair share %. The following table sets forth each hotel’s fair share, commercial market share, and commercial penetration factor. COMMERCIAL SEGMENT PENETRATION FACTORS Number Commercial Commercial Commercial Property of Rooms Fair Share Capture Market Share Penetration Hotel A 100 23.5 % 16,425 30.0 % 127.6 % Hotel B 125 29.4 20,759 37.9 129.0 Hotel C 200 47.1 17,520 32.0 68.1 Totals/Average 425 100.0 % 54,704 100.0 % 100.0 % If a new 100-room hotel enters the market, the fair share of each hotel changes due to the new denominator, which has increased by the 100 rooms that have been added to the market. COMMERCIAL SEGMENT FAIR SHARE Number of Property Rooms Fair Share Hotel A 100 19.0 % Hotel B 125 23.8 Hotel C 200 38.1 New Hotel 100 19.0 Total 525 100.0 % The new hotel’s penetration factor is projected for its first year of operation. It is estimated that the hotel will capture (penetrate) only 85% of its fair share as it establishes itself in the market. The new hotel’s market share and room night capture can be calculated based upon the hotel’s estimated penetration factor. When the market share of the existing hotels and that of the new hotel are added up, they no longer equal 100% because of the new hotel’s entry into the market. The market share of each hotel must be adjusted to reflect the change in the denominator that comprises the sum of each hotel’s market share.May-2011 Penetration Explanation Proposed Select-Service Hotel – Flower Mound, Texas ii
  • This adjustment can be mathematically calculated by dividing each hotel’s market share percentages by the new denominator of 97.1%. The resulting calculations reflect each hotel’s new adjusted market share. The sum of the adjusted market shares equals 100%, indicating that the adjustment has been successfully completed. Once the market shares have been calculated, the penetration factors can be recalculated (adjusted market share divided by fair share) to derive the adjusted penetration factors based upon the new hotel’s entry into the market. Note that each existing hotel’s penetration factor actually increases because the new hotel is capturing (penetrating) less than its fair share of demand.COMMERCIAL SEGMENT PROJECTIONS (YEAR 1) Hist./Proj. Hist./Proj. Adjusted Adjusted Number Penetration Market Market Penetration Projected Property of Rooms Fair Share Factor Share Share Factor Capture Hotel A 100 19.0 % 127.6 % 24.3 % 25.0 % 131.4 % 13,688 Hotel B 125 23.8 129.0 30.7 31.6 132.8 17,299 Hotel C 200 38.1 68.1 25.9 26.7 70.1 14,600 New Hotel 100 19.0 85.0 16.2 16.7 87.5 9,117 Totals/Average 525 100.0 % 97.1 % 100.0 % 54,704 In its second year of operation, the new hotel is projected to penetrate above its fair share of demand. A penetration rate of 130% has been chosen, as the new hotel is expected to perform at a level commensurate with Hotel A and Hotel B in this market segment. The same calculations are performed to adjust market share and penetration factors. Note that now the penetration factors of the existing hotels decline below their original penetration rates because of the new hotel’s above-market penetration. Also note that after the market share adjustment, the new hotel retains a penetration rate commensurate with Hotel A and Hotel B, though the penetration rates of all three hotels have declined by approximately nine percentage points due to the reapportionment of demand. Once the market shares of each hotel have been adjusted to reflect the entry of the new hotel into the market, the commercial room nights captured by each hotel may be projected by multiplying the hotel’s market share percentage by the total commercial room-night demand. This calculation is shown below.May-2011 Penetration Explanation Proposed Select-Service Hotel – Flower Mound, Texas iii
  • COMMERCIAL SEGMENT PROJECTIONS (YEAR 2) Hist./Proj. Hist./Proj. Adjusted Adjusted Number Penetration Market Market Penetration Projected Property of Rooms Fair Share Factor Share Share Factor Capture Hotel A 100 19.0 % 131.4 % 25.0 % 23.1 % 121.5 % 12,662 Hotel B 125 23.8 132.8 31.6 29.3 122.9 16,004 Hotel C 200 38.1 70.1 26.7 24.7 64.8 13,507 New Hotel 100 19.0 130.0 24.8 22.9 120.3 12,531 Totals/Average 525 100.0 % 108.1 % 100.0 % 54,704May-2011 Penetration Explanation Proposed Select-Service Hotel – Flower Mound, Texas iv
  • Pop-Facts: Demographic Snapshot 2011 Report Flower Mound, TX Place, (see appendix for geographies), aggregate Total Description Place %Population 2016 Projection 86,019 2011 Estimate 72,882 2000 Census 50,702 1990 Census 15,788 Growth 2011-2016 18.03% Growth 2000-2011 43.75% Growth 1990-2000 221.14%2011 Est. Pop by Single Race Class 72,882 White Alone 61,577 84.49 Black or African American Alone 3,777 5.18 Amer. Indian and Alaska Native Alone 316 0.43 Asian Alone 3,951 5.42 Native Hawaiian and Other Pac. Isl. Alone 58 0.08 Some Other Race Alone 1,442 1.98 Two or More Races 1,761 2.422011 Est. Pop Hisp or Latino by Origin 72,882 Not Hispanic or Latino 67,204 92.21 Hispanic or Latino: 5,678 7.79 Mexican 3,746 65.97 Puerto Rican 556 9.79 Cuban 90 1.59 All Other Hispanic or Latino 1,286 22.652011 Est. Hisp or Latino by Single Race Class 5,678 White Alone 3,630 63.93 Black or African American Alone 48 0.85 American Indian and Alaska Native Alone 58 1.02 Asian Alone 56 0.99 Native Hawaiian and Other Pacific Islander Alone 6 0.11 Some Other Race Alone 1,396 24.59 Two or More Races 484 8.52 Prepared On: Fri Apr 29, 2011 Page 1 Of 12 Prepared By: Nielsen Solution Center 1 800 866 6511 Prepared For: © 2011 The Nielsen Company. All rights reserved.
  • Pop-Facts: Demographic Snapshot 2011 Report Flower Mound, TX Place, (see appendix for geographies), aggregate Total Description Place %2011 Est. Pop. Asian Alone Race by Cat 3,951 Chinese, except Taiwanese 600 15.19 Filipino 288 7.29 Japanese 67 1.70 Asian Indian 1,552 39.28 Korean 628 15.89 Vietnamese 345 8.73 Cambodian 6 0.15 Hmong 0 0.00 Laotian 3 0.08 Thai 26 0.66 All Other Asian Races Including 2+ Category 436 11.042011 Est. Population by Ancestry 72,882 Pop, Arab 267 0.37 Pop, Czech 461 0.63 Pop, Danish 281 0.39 Pop, Dutch 630 0.86 Pop, English 7,972 10.94 Pop, French (except Basque) 1,428 1.96 Pop, French Canadian 327 0.45 Pop, German 11,708 16.06 Pop, Greek 238 0.33 Pop, Hungarian 189 0.26 Pop, Irish 6,803 9.33 Pop, Italian 2,295 3.15 Pop, Lithuanian 107 0.15 Pop, United States or American 3,691 5.06 Pop, Norwegian 1,096 1.50 Pop, Polish 1,472 2.02 Pop, Portuguese 100 0.14 Pop, Russian 617 0.85 Pop, Scottish 1,698 2.33 Pop, Scotch-Irish 1,084 1.49 Pop, Slovak 38 0.05 Pop, Subsaharan African 539 0.74 Pop, Swedish 935 1.28 Pop, Swiss 154 0.21 Pop, Ukrainian 118 0.16 Pop, Welsh 601 0.82 Pop, West Indian (exc Hisp groups) 183 0.25 Pop, Other ancestries 20,203 27.72 Prepared On: Fri Apr 29, 2011 Page 2 Of 12 Prepared By: Nielsen Solution Center 1 800 866 6511 Prepared For: © 2011 The Nielsen Company. All rights reserved.
  • Pop-Facts: Demographic Snapshot 2011 Report Flower Mound, TX Place, (see appendix for geographies), aggregate Total Description Place %2011 Est. Population by Ancestry Pop, Ancestry Unclassified 7,647 10.492011 Est. Pop Age 5+ by Language Spoken At Home 65,831 Speak Only English at Home 57,258 86.98 Speak Asian/Pac. Isl. Lang. at Home 1,683 2.56 Speak IndoEuropean Language at Home 2,314 3.52 Speak Spanish at Home 4,281 6.50 Speak Other Language at Home 295 0.452011 Est. Population by Sex 72,882 Male 36,087 49.51 Female 36,795 50.492011 Est. Population by Age 72,882 Age 0 - 4 7,051 9.67 Age 5 - 9 6,546 8.98 Age 10 - 14 6,709 9.21 Age 15 - 17 3,889 5.34 Age 18 - 20 2,569 3.52 Age 21 - 24 3,229 4.43 Age 25 - 34 7,071 9.70 Age 35 - 44 13,031 17.88 Age 45 - 54 11,978 16.43 Age 55 - 64 7,316 10.04 Age 65 - 74 2,523 3.46 Age 75 - 84 720 0.99 Age 85 and over 250 0.34 Age 16 and over 51,159 70.19 Age 18 and over 48,687 66.80 Age 21 and over 46,118 63.28 Age 65 and over 3,493 4.792011 Est. Median Age 34.122011 Est. Average Age 32.30 Prepared On: Fri Apr 29, 2011 Page 3 Of 12 Prepared By: Nielsen Solution Center 1 800 866 6511 Prepared For: © 2011 The Nielsen Company. All rights reserved.
  • Pop-Facts: Demographic Snapshot 2011 Report Flower Mound, TX Place, (see appendix for geographies), aggregate Total Description Place %2011 Est. Male Population by Age 36,087 Age 0 - 4 3,544 9.82 Age 5 - 9 3,366 9.33 Age 10 - 14 3,410 9.45 Age 15 - 17 1,976 5.48 Age 18 - 20 1,371 3.80 Age 21 - 24 1,673 4.64 Age 25 - 34 3,377 9.36 Age 35 - 44 6,064 16.80 Age 45 - 54 5,965 16.53 Age 55 - 64 3,624 10.04 Age 65 - 74 1,345 3.73 Age 75 - 84 303 0.84 Age 85 and over 69 0.192011 Est. Median Age, Male 33.002011 Est. Average Age, Male 32.002011 Est. Female Population by Age 36,795 Age 0 - 4 3,507 9.53 Age 5 - 9 3,180 8.64 Age 10 - 14 3,299 8.97 Age 15 - 17 1,913 5.20 Age 18 - 20 1,198 3.26 Age 21 - 24 1,556 4.23 Age 25 - 34 3,694 10.04 Age 35 - 44 6,967 18.93 Age 45 - 54 6,013 16.34 Age 55 - 64 3,692 10.03 Age 65 - 74 1,178 3.20 Age 75 - 84 417 1.13 Age 85 and over 181 0.492011 Est. Median Age, Female 35.072011 Est. Average Age, Female 32.70 Prepared On: Fri Apr 29, 2011 Page 4 Of 12 Prepared By: Nielsen Solution Center 1 800 866 6511 Prepared For: © 2011 The Nielsen Company. All rights reserved.
  • Pop-Facts: Demographic Snapshot 2011 Report Flower Mound, TX Place, (see appendix for geographies), aggregate Total Description Place %2011 Est. Pop Age 15+ by Marital Status 52,576 Total, Never Married 11,702 22.26 Males, Never Married 5,972 11.36 Females, Never Married 5,730 10.90 Married, Spouse present 34,569 65.75 Married, Spouse absent 1,041 1.98 Widowed 1,283 2.44 Males Widowed 205 0.39 Females Widowed 1,078 2.05 Divorced 3,981 7.57 Males Divorced 1,540 2.93 Females Divorced 2,441 4.642011 Est. Pop. Age 25+ by Edu. Attainment 42,889 Less than 9th grade 193 0.45 Some High School, no diploma 798 1.86 High School Graduate (or GED) 5,331 12.43 Some College, no degree 9,886 23.05 Associate Degree 3,499 8.16 Bachelors Degree 16,808 39.19 Masters Degree 5,513 12.85 Professional School Degree 522 1.22 Doctorate Degree 339 0.792011 Est Pop Age 25+ by Edu. Attain, Hisp. or Lat 2,847 Less than 9th grade 107 3.76 Some High School, no diploma 138 4.85 High School Graduate (or GED) 630 22.13 Some College, no degree 640 22.48 Associate Degree 237 8.32 Bachelors Degree 766 26.91 Graduate or Professional Degree 329 11.56 Prepared On: Fri Apr 29, 2011 Page 5 Of 12 Prepared By: Nielsen Solution Center 1 800 866 6511 Prepared For: © 2011 The Nielsen Company. All rights reserved.
  • Pop-Facts: Demographic Snapshot 2011 Report Flower Mound, TX Place, (see appendix for geographies), aggregate Total Description Place %Households 2016 Projection 27,102 2011 Estimate 22,758 2000 Census 16,179 1990 Census 5,113 Growth 2011-2016 19.09% Growth 2000-2011 40.66% Growth 1990-2000 216.43%2011 Est. Households by Household Type 22,758 Family Households 19,839 87.17 Nonfamily Households 2,919 12.832011 Est. Group Quarters Population 1692011 HHs by Ethnicity, Hispanic/Latino 1,361 5.982011 Est. HHs by HH Income 22,758 Income Less than $15,000 407 1.79 Income $15,000 - $24,999 402 1.77 Income $25,000 - $34,999 468 2.06 Income $35,000 - $49,999 1,355 5.95 Income $50,000 - $74,999 3,041 13.36 Income $75,000 - $99,999 3,843 16.89 Income $100,000 - $124,999 3,874 17.02 Income $125,000 - $149,999 3,206 14.09 Income $150,000 - $199,999 3,136 13.78 Income $200,000 - $499,999 2,602 11.43 Income $500,000 and more 424 1.862011 Est. Average Household Income $133,6482011 Est. Median Household Income $112,0232011 Est. Per Capita Income $41,835 Prepared On: Fri Apr 29, 2011 Page 6 Of 12 Prepared By: Nielsen Solution Center 1 800 866 6511 Prepared For: © 2011 The Nielsen Company. All rights reserved.
  • Pop-Facts: Demographic Snapshot 2011 Report Flower Mound, TX Place, (see appendix for geographies), aggregate Total Description Place %2011 Median HH Inc by Single Race Class. or Ethn White Alone 113,810 Black or African American Alone 100,312 American Indian and Alaska Native Alone 83,203 Asian Alone 107,184 Native Hawaiian and Other Pacific Islander Alone 141,250 Some Other Race Alone 86,436 Two or More Races 93,519 Hispanic or Latino 101,132 Not Hispanic or Latino 112,8222011 Est. Family HH Type, Presence Own Children 19,839 Married-Couple Family, own children 11,207 56.49 Married-Couple Family, no own children 6,460 32.56 Male Householder, own children 386 1.95 Male Householder, no own children 189 0.95 Female Householder, own children 1,098 5.53 Female Householder, no own children 499 2.522011 Est. Households by Household Size 22,758 1-person household 2,066 9.08 2-person household 6,215 27.31 3-person household 4,909 21.57 4-person household 5,842 25.67 5-person household 2,689 11.82 6-person household 767 3.37 7 or more person household 270 1.192011 Est. Average Household Size 3.20 Prepared On: Fri Apr 29, 2011 Page 7 Of 12 Prepared By: Nielsen Solution Center 1 800 866 6511 Prepared For: © 2011 The Nielsen Company. All rights reserved.
  • Pop-Facts: Demographic Snapshot 2011 Report Flower Mound, TX Place, (see appendix for geographies), aggregate Total Description Place %2011 Est. Households by Presence of People 22,758Households with 1 or more People under Age 18: 13,090 57.52 Married-Couple Family 11,464 87.58 Other Family, Male Householder 420 3.21 Other Family, Female Householder 1,176 8.98 Nonfamily, Male Householder 27 0.21 Nonfamily, Female Householder 3 0.02Households no People under Age 18: 9,668 42.48 Married-Couple Family 6,196 64.09 Other Family, Male Householder 152 1.57 Other Family, Female Householder 416 4.30 Nonfamily, Male Householder 1,363 14.10 Nonfamily, Female Householder 1,541 15.942011 Est. Households by Number of Vehicles 22,758 No Vehicles 139 0.61 1 Vehicle 3,176 13.96 2 Vehicles 13,986 61.46 3 Vehicles 4,166 18.31 4 Vehicles 973 4.28 5 or more Vehicles 318 1.402011 Est. Average Number of Vehicles 2.17Family Households 2016 Projection 23,644 2011 Estimate 19,839 2000 Census 14,262 1990 Census 4,393 Growth 2011-2016 19.18% Growth 2000-2011 39.10% Growth 1990-2000 224.65%2011 Est. Families by Poverty Status 19,839 2011 Families at or Above Poverty 19,384 97.71 2011 Families at or Above Poverty with Children 12,621 63.62 2011 Families Below Poverty 455 2.29 2011 Families Below Poverty with Children 371 1.87 Prepared On: Fri Apr 29, 2011 Page 8 Of 12 Prepared By: Nielsen Solution Center 1 800 866 6511 Prepared For: © 2011 The Nielsen Company. All rights reserved.
  • Pop-Facts: Demographic Snapshot 2011 Report Flower Mound, TX Place, (see appendix for geographies), aggregate Total Description Place %2011 Est. Pop Age 16+ by Employment Status 51,159 In Armed Forces 19 0.04 Civilian - Employed 37,604 73.50 Civilian - Unemployed 1,794 3.51 Not in Labor Force 11,742 22.952011 Est. Civ Employed Pop 16+ Class of Worker 38,644 For-Profit Private Workers 31,370 81.18 Non-Profit Private Workers 1,881 4.87 Local Government Workers 2,143 5.55 State Government Workers 825 2.13 Federal Government Workers 665 1.72 Self-Emp Workers 2,926 7.57 Unpaid Family Workers 73 0.192011 Est. Civ Employed Pop 16+ by Occupation 38,644 Architect/Engineer 891 2.31 Arts/Entertain/Sports 862 2.23 Building Grounds Maint 281 0.73 Business/Financial Ops 3,494 9.04 Community/Soc Svcs 328 0.85 Computer/Mathematical 2,390 6.18 Construction/Extraction 546 1.41 Edu/Training/Library 2,450 6.34 Farm/Fish/Forestry 5 0.01 Food Prep/Serving 1,351 3.50 Health Practitioner/Tec 1,646 4.26 Healthcare Support 351 0.91 Maintenance Repair 934 2.42 Legal 311 0.80 Life/Phys/Soc Science 438 1.13 Management 7,601 19.67 Office/Admin Support 4,692 12.14 Production 669 1.73 Protective Svcs 520 1.35 Sales/Related 6,183 16.00 Personal Care/Svc 1,504 3.89 Transportation/Moving 1,197 3.10 Prepared On: Fri Apr 29, 2011 Page 9 Of 12 Prepared By: Nielsen Solution Center 1 800 866 6511 Prepared For: © 2011 The Nielsen Company. All rights reserved.
  • Pop-Facts: Demographic Snapshot 2011 Report Flower Mound, TX Place, (see appendix for geographies), aggregate Total Description Place %2011 Est. Pop 16+ by Occupation Classification 38,644 Blue Collar 3,346 8.66 White Collar 31,286 80.96 Service and Farm 4,012 10.382011 Est. Workers Age 16+, Transp. To Work 38,178 Drove Alone 31,874 83.49 Car Pooled 2,537 6.65 Public Transportation 172 0.45 Walked 191 0.50 Bicycle 62 0.16 Other Means 418 1.09 Worked at Home 2,924 7.662011 Est. Workers Age 16+ by Travel Time to Work * Less than 15 Minutes 6,322 15 - 29 Minutes 11,334 30 - 44 Minutes 11,167 45 - 59 Minutes 4,784 60 or more Minutes 2,1172011 Est. Avg Travel Time to Work in Minutes 29.582011 Est. Tenure of Occupied Housing Units 22,758 Owner Occupied 21,252 93.38 Renter Occupied 1,506 6.622011 Owner Occ. HUs: Avg. Length of Residence 132011 Renter Occ. HUs: Avg. Length of Residence 6 Prepared On: Fri Apr 29, 2011 Page 10 Of 12 Prepared By: Nielsen Solution Center 1 800 866 6511 Prepared For: © 2011 The Nielsen Company. All rights reserved.
  • Pop-Facts: Demographic Snapshot 2011 Report Flower Mound, TX Place, (see appendix for geographies), aggregate Total Description Place %2011 Est. All Owner-Occupied Housing Values 21,252 Value Less than $20,000 149 0.70 Value $20,000 - $39,999 187 0.88 Value $40,000 - $59,999 146 0.69 Value $60,000 - $79,999 69 0.32 Value $80,000 - $99,999 141 0.66 Value $100,000 - $149,999 2,218 10.44 Value $150,000 - $199,999 5,297 24.92 Value $200,000 - $299,999 6,790 31.95 Value $300,000 - $399,999 3,922 18.45 Value $400,000 - $499,999 1,087 5.11 Value $500,000 - $749,999 894 4.21 Value $750,000 - $999,999 241 1.13 Value $1,000,000 or more 111 0.522011 Est. Median All Owner-Occupied Housing Value $235,6282011 Est. Housing Units by Units in Structure 23,152 1 Unit Attached 263 1.14 1 Unit Detached 21,822 94.26 2 Units 69 0.30 3 or 4 Units 70 0.30 5 to 19 Units 403 1.74 20 to 49 Units 180 0.78 50 or More Units 53 0.23 Mobile Home or Trailer 286 1.24 Boat, RV, Van, etc. 6 0.032011 Est. Housing Units by Year Structure Built 23,152 Housing Unit Built 2000 or later 6,857 29.62 Housing Unit Built 1990 to 1999 11,187 48.32 Housing Unit Built 1980 to 1989 3,824 16.52 Housing Unit Built 1970 to 1979 982 4.24 Housing Unit Built 1960 to 1969 150 0.65 Housing Unit Built 1950 to 1959 84 0.36 Housing Unit Built 1940 to 1949 21 0.09 Housing Unit Built 1939 or Earlier 47 0.202011 Est. Median Year Structure Built ** 1995 *This row intentionally left blank. No total category data is available.**1939 will appear when at least half of the Housing Units in this reports area were built in 1939 or earlier. Prepared On: Fri Apr 29, 2011 Page 11 Of 12 Prepared By: Nielsen Solution Center 1 800 866 6511 Prepared For: © 2011 The Nielsen Company. All rights reserved.
  • Pop-Facts: Demographic Snapshot 2011 Report Flower Mound, TX Appendix: Area ListingArea Name:Type: List - Place Reporting Detail: Aggregate Reporting Level: Place Geography Code Geography Name Geography Code Geography Name 4826232 Flower Mound town Project Information: Site: 1 Order Number: 969905342 Prepared On: Fri Apr 29, 2011 Page 12 Of 12 Prepared By: Nielsen Solution Center 1 800 866 6511 Prepared For: © 2011 The Nielsen Company. All rights reserved.