Attachment J to Agenda Sheet No. 4 - Voice of San Diego · 5/4/2013 · PKF Consulting USA | 865...

PKF Consulting USA | 865 S. Figueroa Street, Suite 3500 | Los Angeles, CA 90017

TEL: 213-680-0900 | FAX: 213-623-8240| www.pkfc.com

November 9, 2011 Ms. Karen Weymann Assistant Director, Real Estate Port of San Diego 3165 Pacific Highway San Diego, California 92101 Dear Ms. Weymann: In accordance with our agreement, we have concluded our analysis of potential development scenarios in Downtown San Diego including the potential expansion of the San Diego Convention Center (SDCC) and/or a 500-room expansion of the Hilton San Diego Bayfront. The conclusions reached are based on our present knowledge of the competitive lodging market, a review of relevant market data and third-party reports, understanding of current expansion plans, and the completion of our limited fieldwork in November 2011. The following report summarizes our findings and reflects the conclusion of our analysis. This report was prepared for your internal use to assist you in evaluating future development planning in the Downtown San Diego area. As is customary in assignments of this type, neither our name nor the material submitted may be included in any prospectus or as part of any printed material or used in offerings or representations in connection with the sale of securities or participation interest to the public without our prior written consent. This report is subject to the attached Statement of Assumptions and Limiting Conditions. We appreciate the opportunity to work on this assignment and look forward to answering any questions you may have regarding our preliminary findings and conclusions presented herein. Sincerely, PKF Consulting USA

By Bruce Baltin Senior Vice President

Attachment J to Agenda Sheet No. 4

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San Diego, California

INTRODUCTION We have completed our analysis relative to the impact of the potential expansion of hospitality facilities in Downtown San Diego, specifically the San Diego Convention Center and the Hilton Bayfront Hotel. In the course of our analysis we evaluated the impact, or lack thereof, of four distinct development scenarios and the impact of each on Downtown hotels, and by extension future revenues the Port of San Diego would receive given its extensive land holdings in the Downtown Waterfront area. At your request, we specifically undertook this analysis to determine future projected revenues of Downtown’s three largest hotels: Hilton Bayfront, Manchester Grand Hyatt, and Marriott Marquis & Marina for the 10-year period from 2012 to 2121. Our analysis focused specifically on the following four potential development scenarios:

A. Existing conditions remain the same with no expansion of the San Diego Convention Center or the Hilton Bayfront Hotel; also referred to herein as the baseline scenario.

B. The San Diego Convention Center and Hilton Bayfront Hotel expansions are developed simultaneously and open on or about January 2016.

C. The San Diego Convention Center expansion opens January 2016 and the Hilton expansion is built at a later, but underdetermined date.

D. The Hilton Bayfront Hotel expansion opens with appropriate market timing based on demand but the San Diego Convention Center does not expand. In this scenario we have assumed that the 500-room Hilton expansion would open January 2016.

METHODOLOGY In conducting our analysis we discussed the project with you and met with members of your organization to better familiarize ourselves with the potential developments planned for the Downtown Waterfront area. In addition, to a meeting and conversations with the Port of San Diego, we also specifically completed the following actions:

Compared the SDCC to other markets and drew conclusions as to positioning of SDCC, existing events, and reasonableness of future projections.

Prepared ten-year revenue projections for the Hilton Bayfront, Manchester Grand Hyatt, and Marriott Marquis & Marina hotels in distinct revenue line items: rooms, food and beverage, parking, and other revenues.

In preparing our revenue projections we evaluated a 3.0 percent surcharge on the total number of rooms sold. We also evaluated compression on room rates and occupancy levels under the scenarios

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and the impact of potential additional supply in the immediate downtown market area.

In addition to the preceding we also reviewed the following studies at your request, which were previously completed for the San Diego Convention Center Corporation and the San Diego Unified Port District:

EPS’s San Diego Convention Center Expansion Impacts on San Diego Unified Port District Revenues (September 29, 2011).

AECOM’s Refined Analysis of Additional Business Capture Derived from a Potential Expansion of the San Diego Convention Center (November 15, 2010).

Mayor’s Citizen Task Force on the San Diego Convention Center Project Final Report (September 2009).

CIC Research Inc.’s Summary Profile of SDCC Primary Business Event Visitors to San Diego (August, 10, 2009).

OVERVIEW OF SDCC The SDCC is located in Downtown San Diego along the waterfront of the San Diego Bay. It is approximately two miles from the San Diego International Airport and is within walking distance of downtown’s popular Gaslamp District. After its original construction in 1989, the facility was under sufficient demand to warrant an expansion in September 2001, which more than doubled the facility’s original size. Currently, the SDCC contains 525,700 square feet of prime exhibit hall space in eight contiguous halls, as well as 90,000 square feet within the Sails Pavilion, which is not considered “prime” because it has lower floor weight maximums. There are also two ballrooms totaling 81,700 square feet, and 63 meeting rooms. The SDCC also contains outdoor terraces with ocean views that are used for receptions and as comfortable relaxation space for event attendees. The table below details the characteristics of the SDCC.

San Diego Convention Center Facilities Plan

Description Number Exhibit Halls 8 Prime Exhibit Space 525,700 Sails Pavilion 90,000 Total Exhibit Space 615,700 Ballrooms 2 Largest Ballroom 41,000 Total Ballroom Space 81,700 Meeting Rooms 63 Total Meeting Room Space 122,453 Total Indoor Rentable Space 819,856 Source: San Diego Convention Center

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Since opening in 1989, the San Diego Convention Center has attracted 17.2 million visitors, generated nearly $21 billion in regional economic impact, $400 million in tax revenues, 12.4 million hotel room nights and hosted 4,684 events. The convention center is credited with helping to fuel the rapid growth in the city’s transient occupancy tax imposed on hotel and motel rooms. Besides filling local hotel rooms and providing customers for convention-related businesses, supporters say the convention center has become an asset for the entire city. Its car and boat shows and other popular events attract thousands of locals, and the center’s proximity to the historic Gaslamp Quarter helped convert that district into a lively restaurant and entertainment mecca.

San Diego Convention Center Historical Performance (Fiscal Years) Item 2003 2004 2005 2006 2007 2008 2009 2010 Average Annual Events Convention 46 52 42 60 56 60 61 62 55 Corporate/Incentive 12 15 13 11 11 7 10 4 10 Local Trade Show 12 8 11 12 9 10 9 7 10 Consumer Shows 5 11 9 15 13 17 16 13 12 Meetings and Community Events 156 147 149 183 131 140 152 79 142 Attendees Convention 360,395 445,704 441,151 462,762 568,829 628,788 505,964 545,837 494,929 Corporate/Incentive 44,218 49,691 52,999 49,119 48,260 19,371 33,626 11,400 38,586 Local Trade Show 22,184 17,120 21,861 31,379 24,166 27,576 20,163 19,133 22,948 Consumer Shows 154,765 203,057 171,155 184,108 207,980 187,347 163,466 124,555 174,554 Meetings and Community Events 229,222 179,786 172,892 223,392 134,471 133,145 139,250 85,478 162,205 Average Attendance per Event Convention 7,835 8,571 10,504 7,713 10,158 10,480 8,294 8,804 9,045 Corporate/Incentive 3,685 3,313 4,077 4,465 4,387 2,767 3,363 2,850 3,613 Local Trade Show 1,849 2,140 1,987 2,615 2,685 2,758 2,240 2,733 2,376 Consumer Shows 30,953 18,460 19,017 12,274 15,998 11,020 10,217 9,581 15,940 Meetings and Community Events 1,469 1,223 1,160 1,221 1,026 951 916 1,082 1,131 Roomnights per Attendee Convention 1.67 1.32 1.22 1.17 1.11 1.09 1.21 1.23 1.25 Corporate/Incentive 2.25 2.47 2.16 1.91 2.05 2.12 1.68 2.96 2.20 Local Trade Show 0.16 0.10 0.32 0.07 0.01 0.01 0.02 0.02 0.09 Consumer Shows 0.01 0.00 0.00 0.01 0.01 0.01 0.01 0.00 0.01 Meetings and Community Events 0.01 0.02 0.08 0.04 0.05 0.03 0.06 0.04 0.04 Source: AECOM, Economic & Planning Systems, San Diego Convention Center

As noted in the preceding table, the Convention Center has demonstrated a high level of success in capturing convention demand, though the 2008-2009 downturn impacted this market along with every other convention market. According to the San Diego Convention and Visitors Bureau, the events of 2010 generated 703,686 hotel room nights and $567 million in direct attendee spending. A study completed by CIC Research indicated that 30 to 40 percent of hotel room nights that attendees' book are not part of the official block. These patterns are projected to continue as travelers are more price sensitive amidst the economic downturn. As will be noted and utilized as point of comparison further herein, in addition to the total roomnights generated by the SDCC, we specifically note roomnights trends per event type. Primary events, as one would suspect, are by far the largest generators of roomnights per attendee. Corporate/Incentive events generated the longest average stay at 2.2 roomnights per attendee, followed by Conventions with 1.25 roomnights per attendee. Most secondary events (Local Trade Shows, Consumer Shows, and Meeting and Community Events) do not

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generally result in overnight accommodations, with each of these three secondary categories resulting in less than 0.1 roomnights per attendee. The following presents historical and current bookings as of the September 2011 Sales Activity Report. Please note, projected bookings comprise definite plus tentative and reflect the most current data available from SDCCC.

San Diego Convention Center Actual and Advanced Bookings

Fiscal Year Room Nights

Total Goal Definite Tentative 2000 502,000 N/A 502,000 475,000 2001 519,000 N/A 519,000 475,000 2002 564,000 N/A 564,000 550,000 2003 736,000 N/A 736,000 600,000 2004 741,000 N/A 741,000 650,000 2005 826,000 N/A 826,000 700,000 2006 730,000 N/A 730,000 760,000 2007 738,000 N/A 738,000 760,000 2008 678,000 N/A 678,000 760,000 2009 741,000 N/A 741,000 760,000 2010 696,000 N/A 696,000 760,000

2011* Def + Tentative 704,000 760,000 2012* Def + Tentative 747,000 760,000 2013* Def + Tentative 651,000 760,000 2014* Def + Tentative 620,000 760,000 2015* 2016* 2017*

Def + Tentative Def + Tentative Def + Tentative

650,000 687,000 709,000

760,000 760,000 760,000

*Based on current convention bookings as of September 2011 Source: San Diego Convention Center Corporation

The following figure presents an aerial view of the SDCC.

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SDCC LOST BUSINESS According to the Mayor’s Citizen Task Force on the San Diego Convention Center Project Final Report, for the past several years market demand has surpassed the current supply of space the building offers. In fact, 39.7 percent of prospective customers that do not book the San Diego Convention Center attribute that decision to “Center Unavailable” or lack of space. As a result, San Diego loses approximately a year’s worth of business every year to competitor cities, or approximately $1 billion in economic impact. Over the last five years between 2006 and 2010 this equates to total lost business of nearly 4.5 million roomnights. The following table presents the identified amount of recent lost business in terms of annual roomnights as quoted by the San Diego Convention Center Corporation.

San Diego Convention Center Lost Business (in total roomnights)

2006 810,000 2007 975,000 2008 705,000 2009 983,000 2010 1,011,000

Source: San Diego Convention Center Corporation

In addition, the aforementioned report notes that these losses are not only existing business outgrowing the building, but fresh, new business that would like to come to San Diego, but simply cannot be accommodated because the building is too small. While it is not assumed that all lost business would eventually be captured as a result of the proposed expansion, the additional space would allow the San Diego Convention Center to aggressively

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compete for new business from among a pool of customers desiring (demanding) to come to San Diego. Further, as noted in the report, there are over 100 major shows that need between 600,000 and at least 800,000 gross square feet of exhibit space (expanded size) that average an attendance of 20,000 or more persons. Annually booking only three to five of these types of new events alone would make the expansion successful in terms of new economic impact. Proposed SDCC Expansion An expansion of the San Diego Convention Center has been under evaluation for some time. In 2009, San Diego Mayor Jerry Sanders created the Citizens’ Task Force on the San Diego Convention Center Project, and appointed Stephen Cushman and San Diego Convention Center Corporation Board Chair Cheryl Kendrick to co-chair the task force. The group was charged with evaluating the feasibility of expanding the Center. After conducting extensive research and holding 11 public meetings, the task force concluded that an expanded Center would attract additional and larger conventions to San Diego. Because of the limited size of the current Center, San Diego loses out on hundreds of thousands of hotel room visits, as well as the accompanying visitor spending at restaurants, shops, and visitor attractions. If approved, the $550 million project is slated to begin in 2013 and be completed by 2016. On April 6, 2010, the Board of Port Commissioners granted its consent to the San Diego Convention Center Corporation to acquire Fifth Avenue Landing's leasehold that was needed to pursue entitlements for the Convention Center's expansion. The Board approved a resolution consenting to a $12.5 million Deed of Trust secured by the leasehold interest. Additionally, the Board granted an amended lease to the San Diego Convention Center Corporation that expires June 30, 2024. Financing continues to be evaluated, with a May 12th meeting where the Mayor called for hotels to establish a Convention Center Assessment District that would assess a one to three percent surcharge which would raise as much as $30 million annually that would be applied towards funding the expansion. Collectively, these actions provide a framework for the Convention Center to work with the Port to design and entitle the expansion project, including its environmental review. The Mayor's Citizen Task Force estimated that the expansion is expected to generate $698 million of economic activity annually in addition to the $1.3 billion a year the Convention Center already generates. The table below provides a brief overview of the proposed SDCC expansion plan, and the total net facilities available following the completion of the proposed expansion.

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San Diego Convention Center Existing Square Footage Proposed Expansion Phase III Upon Completion

Description Number Number Number Prime Exhibit Space 525,701 225,000 750,701 Sails Pavilion 90,000 - 90,000 Total Ballroom Space 81,700 80,000 161,700 Total Meeting Room Space 118,700 100,100 218,000 Total Indoor Rentable Space 816,101 405,100 1,221,201 Source: San Diego Convention Center

When completed, San Diego’s bayside Convention Center will have the largest contiguous exhibit hall on the West Coast with 750,701 square feet of space, as well as the largest ballroom in a convention facility on the West Coast with 80,000 square feet. The following presents additional detail on the expansion: Convention Center Program:

Exhibition Space: Add 225,000 square feet of sub-dividable space with 30-foot clear ceilings that connects to the existing Phase 2 exhibit halls with direct access and the ability to accommodate a single trade show.

Meeting Rooms: Add 101,000 square feet of new space, located on a single level with a ceiling height of 27 feet.

Multi-Purpose/Ballroom: Add 80,000 square feet divisible into approximately six smaller rooms and with a ceiling height of 35 feet.

Total New Leasable Area: 405,100 square feet.

Support area (circulation, pre-function, food service, exiting, vertical circulation, restrooms, storage, staging, support, AN, electric & mechanical rooms, other B.O.H) as required, including kitchen of approximately 13,000 to 17,000 square feet adjacent to the ballroom. A net increase of 22 truck docks to serve the expansion.

Freight Elevators: approximately eight large, trade show elevators for the expansion.

Expansion Hotel Program:

500 new guest rooms.

Parking provided by a combination of an on-site parking garage and parking nearby, at Port-owned parking facilities including the Hilton Bayfront adjacent parking structure or beneath Phase I of the existing Convention Center.

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Include banquet and conference rooms, ballroom, restaurants, cocktail lounges, approximately 50,000 square feet of retail shops, and related development.

The expansion would also add a beautiful public park on top of the building, as well as additional pedestrian access through the center and to the waterfront park. A rendering of the SDCC and its Phase III proposed expansion (including the proposed 500-room hotel) are presented below.

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SAN DIEGO OVERVIEW The San Diego Metropolitan Statistical Area (MSA), which consists of San Diego County, is located approximately 125 miles south of Los Angeles and is immediately north of the Mexican border. The San Diego community, once dominated by the presence of nearby Naval, Air Force, and Marine bases, as well as the defense-related aerospace industry, has diversified. San Diego has developed into one of America’s foremost centers of technology, particularly in the emerging biomedical field. Manufacturing has shifted towards elec-tronics, computers, instrumentation and other high technology products, and development of such sectors as services, research and development, and health services has been strong. San Diego is home to LEGOLAND, the San Diego Wild Animal Park, SeaWorld, and the San Diego Zoo. Additional activities in the region include beaches, casinos, racetracks, numerous shopping venues, dozens of golf facilities, and the San Diego Convention Center. These attractions provide for a popular destination amongst international/ domestic tourists and business travelers. Throughout the periods of economic growth and decline, these sources continue to be major drivers of tourism activity and, ultimately, hotel demand. San Diego is one of the most populous counties in California and in the United States. The State of California’s Department of Finance reported that San Diego County had an estimated aggregate population of approximately 3.2 million persons as of 2010. The following table illustrates the historical population growth for San Diego County from 1999 to 2010.

Population Growth San Diego County

Year Persons 1999 2,889,900 2000 2,864,408 2001 2,921,273 2002 2,972,832 2003 3,011,526 2004 3,038,579 2005 3,064,113 2006 3,098,269 2007 3,100,132 2008 3,146,274 2009 3,208,466 2010 3,224,432

CAAG1 1.0% 1CAAG = Compound Average Annual Growth Source: California Department of Finance

Employment San Diego has become increasingly known as an education, technology, and research-and-development center. The county has campuses of the University of California and the state college system, as well as at least five privately supported colleges and universities. In addition, the Scripps Clinic and Research Foundation, the Salk Institute, U.S. Medical

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Center, and the Veterans Administration Hospital, all are located in the North City area and have spawned numerous research and development firms in the health sciences. The area also boasts more than 100 firms connected with oceanographic research. For many years, the San Diego area economy was heavily dependent on military spending and aerospace contracts. Although the military influence remains strong, aerospace employment plunged from 43,900 jobs in 1990 to 16,300 jobs in 1995. Two out of every three aerospace jobs disappeared. These losses were made up for by increases in trans-portation, public utilities services, and government, as well as in high-technology manu-facturing and services. Changes in the overall economic climate in Southern California and the Greater United States pushed the unemployment rate to a record annual high of 10.6 percent in 2010 for San Diego County. Year-to-date 2011 unemployment is down from the same period last year, with September resulting in a 9.7 percent rate, which is down 0.8 percent from September 2010.

San Diego Employment Statistics Year Labor Force Employment Unemployment Rate 1998 1,313,300 1,266,900 46,400 3.5% 1999 1,351,900 1,309,800 42,100 3.1 2000 1,376,000 1,322,200 53,800 3.9 2001 1,409,700 1,350,700 59,000 4.2 2002 1,450,500 1,375,800 74,700 5.2 2003 1,468,200 1,391,700 76,500 5.2 2004 1,484,200 1,413,900 70,300 4.7 2005 1,492,600 1,427,900 64,700 4.3 2006 1,525,800 1,469,100 56,800 4.0 2007 1,542,500 1,471,600 70,900 4.6 2008 1,587,900 1,469,600 118,300 7.5 2009 1,552,000 1,402,400 149,600 9.6 2010 1,557,500 1,393,200 164,300 10.6

CAAG 1.4% 0.8% 11.1% YTD 9/10 10.5% YTD 9/11 9.7

Source: California Employment Development Department, Bureau of Labor Statistics

Regional Infrastructure Transportation within San Diego County includes an efficient and expanding freeway system, various railroad lines, and public transportation featuring a light rail transit system, an international airport, as well as smaller general aviation airports and the deep-water port of San Diego.

Highways The San Diego area enjoys a superior system of public highways. There are four major freeways running north to south in San Diego and three running east-west. The major north-south routes are Interstate 5, Interstate 15, Interstate 805, and State Highway 163. The three main east-west routes are Interstate 8, Highway 52, and State Highway 94.

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Interstate 5 originates from the south at the Mexican border and is a major artery through the South Bay, downtown, Mission Bay, La Jolla, and North County areas of San Diego. The freeway continues northward through Los Angeles, Central California, and the north coastal states before terminating in Vancouver, Canada. State Route 163 runs north-south, connecting the northeastern suburbs of the city with the downtown area where the route terminates. Highway 52 connects Interstate 5 from La Jolla with Interstate 15 and east San Diego County, and forms the bottom of the “Golden Triangle” of University City. Highway 94 originates on the eastern edge of downtown at 17th Avenue and G Street and extends east across most of the state. Currently under planning and development is State Route 56, which is planned to connect the inner cities along the I-15 to the I-5. This route will provide access to and from the developing regions of inland San Diego County and will be the only east-west route between Highways 52 and 76.

San Diego International Airport The San Diego International Airport (Lindbergh Field) provides primary air transportation to and from the subject’s market area. The following carriers provide regular flights to and from San Diego International Airport: American, Continental, Delta, JetBlue, Northwest, United, and USAir. These airlines offer direct flights to Los Angeles, San Francisco, Boston, New York, Phoenix, Las Vegas, Dallas, Chicago, Seattle, and many other cities.

San Diego International Airport at Lindbergh Field Passenger Counts

Year Enplaned Deplaned Total 2000 7,915,899 7,904,443 15,820,342 2001 7,613,593 7,570,739 15,184,332 2002 7,471,644 7,460,210 14,931,854 2003 7,637,193 7,623,598 15,260,791 2004 8,200,687 8,176,617 16,377,304 2005 8,692,694 8,679,827 17,372,521 2006 8,759,668 8,722,273 17,481,941 2007 9,040,280 9,016,691 18,056,971 2008 9,061,155 9,064,478 18,125,633 2009 8,472,781 8,501,391 16,974,172 2010 8,456,176 8,433,446 16,889,622 CAAG 0.7% 0.6% 0.7%

YTD 09/10 6,271,962 6,266,349 12,538,311 YTD 09/11 6,197,177 6,196,761 12,393,938

CAAG -1.2% -1.1% -1.2% Source: San Diego County Regional Airport Authority

On any given day, approximately 45,000 domestic and international passengers arrive or depart San Diego International Airport. The Airport accommodates approximately 521 arrivals and departures each day, 96.0 percent of which are for passenger service. Southwest maintains the largest passenger numbers, at 38.5 percent of total passengers. It is estimated that visitors arriving by air to San Diego spend $2 billion each year in the region. San Diego International Airport at Lindbergh Field had approximately 16.9 million airport passengers in 2010, a 0.5 percent decline from 2009. September 2011 year-to-date passenger counts are down 1.2 percent over the same period in 2011.

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Additionally, as the number of passengers at Lindbergh Field is expected to reach 22 million by 2020, and potentially double over the next 20 years, the San Diego County Regional Airport Authority began work last year on a $1 billion expansion. As the largest improvement project in the airport’s history, The Green Build will help meet the airport’s current and future demand for travel, while improving customer service and serving as an economic stimulus for the San Diego region. Project highlights of the expansion to be completed in 2013 include: ten new gates to reduce terminal congestion; enhanced curbside check-in, dual-level roadway to relieve curb-front traffic congestion; more security lanes to improve flow of passengers through the terminal; and an expanded concession area providing more dining and shopping options. Tourism San Diego’s temperate climate, ocean-side location, and numerous tourist attractions have made the city a popular destination. In recent years, San Diego has been able to increase visitor traffic in its off-season, which occurs from September to May, in order to complement the peak summer months.

Downtown and Gaslamp During the past decade, downtown San Diego has emerged as an important tourist destination with the development of Seaport Village, Horton Plaza, Balboa Park, the Convention Center, and the evolution of the Gaslamp Quarter. The Del Mar Fairgrounds and Racetrack and LEGOLAND also attract visitors to the northern part of the county.

The 26 square block revitalization of Downtown is the biggest redevelopment project in the history of San Diego. It is in the process of revitalizing a long-neglected section of downtown, with the ballpark as the anchor attraction to draw more than three million visitors annually and stimulate other developments such as restaurants, shops, offices, galleries, parking, housing, parks and promenades. Overall, the development has trans-formed an area of long-abandoned warehouses and vacant lots into a vibrant “Ballpark District” with bistros and boutiques, renovated lofts, a variety of businesses and entertainment attractions and public amenities.

Visitor Activity The San Diego visitor industry is the third largest industry in San Diego County, employing approximately 152,300 San Diegans. Visitors spend approximately $7 billion annually at thousands of businesses in the County. This equates to $16 billion in economic impact for the region, and thus a very important piece of the economic health of the region. San Diego’s temperate climate, ocean-side location, and numerous tourist attractions have made the city a popular destination. Today, San Diego is one of the top five leisure vacation destinations in the U.S. and a top 10 business destination as measured by visitor-days. Over the last several decades, San Diego has been able to increase visitor traffic in the off-season (September to May) to complement the peak summer months. Several national events brought San Diego into the spotlight, which had the effect of positively

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impacting the area’s tourism industry including the America’s Cup, which began in late 1994 and extended into 1995, the Republican National Convention which was held in August 1996, and the Super Bowl which was held in January 1998 and again in January 2003. Downtown San Diego has emerged as an important tourist destination with the development of Seaport Village, Horton Plaza, the Convention Center, and the evolution of the Gaslamp Quarter. The Del Mar Fairgrounds and Racetrack also attract visitors to the northern part of the county. LEGOLAND, which opened in March 1999 in Carlsbad, is the first paid admission attraction introduced in several decades. Due to the great recession in 2008 and 2009, overnight visitors, visitor spending and attraction attendance in San Diego County dipped in 2009. The following table presents a summary of the most recent data available for visitor activity between 2002 and 2010 and year-to-date 2011 as of the month of June. As shown, although suffering declines in 2009 and 2010, visitor spending has seen a 4.3 percent compound average annual increase over the eight year period. Year-to-date as of June 2011 overnight visitors, visitor spending, and attraction attendance have recorded increases of 4.0, 4.3, and 5.5 percent respectively over the same period last year.

Year Overnight

Visitors Visitor spending

(millions) Attraction Attendance

2002 15,045,000 $5,037 11,979,297 2003 15,369,000 5,332 11,755,109 2004 15,672,000 5,517 11,786,992 2005 15,724,000 7,224 12,858,628 2006 15,812,000 7,718 13,435,612 2007 14,138,000 7,289 12,678,208 2008 15,160,000 7,916 13,572,384 2009 14,435,000 6,958 13,185,402 2010 15,080,000 7,080 12,695,468 CAAG 0.0% 4.3% 0.7%

YTD 06/11 7,338,000 $3,583 6,220,960 YTD Change +4.0% +4.3% +5.5%

Source: San Diego Convention and Visitors Bureau; CIC Research SDCC EXPANSION SUPPORT In addition to our own expertise in the hospitality industry, in the course of our analysis we have also utilized the findings of firms which were contracted previously by San Diego governmental agencies. The analysis and findings of AECOM and Economic & Planning Systems (EPS) relative to additional roomnights attributable to the expansion of the SDCC are presented in the following paragraphs. PRIOR THIRD PARTY REPORTS

AECOM November 2010 In 2010, AECOM was retained by the San Diego Convention Center Corporation (SDCC Corporation) to conduct additional research and analysis investigating the potential return

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on investment for the San Diego hospitality industry and community at large from an expansion of the San Diego Convention Center (SDCC). Their work builds upon the AECOM analysis presented May 26, 2009 in the report titled “Market, Feasibility & Impact Analysis for the Proposed San Diego Convention Center Expansion.” The goal of their work was to provide guidance to the San Diego community and the selected physical design team regarding the optimum size of expansion project and the types and features of spaces included in that expansion to maximize return on investment. In the course of their engagement AECOM polled meeting and event executives responsible for a combined 830,000 roomnights. This substantial pool of potential business was then analyzed for the ideal sizes of spaces meeting executives want for their events, weighted by the room nights embodied in each of their events. It was then possible to apportion the above measures of return on investment among the expansion options for three major classes of space: exhibit space, breakout meeting room total space, and ballroom (defined as the single largest space it could be opened up to). Assuming two of the space types were built out to the full specifications in the baseline expansion program, variations in the third space type were then analyzed for the amount of market share they could accommodate (as measured by the percentage of total room nights embodied in those groups). In addition to providing a return on investment for the SDCC Corporation, AECOM also projected the number of groups that could be captured under alternative scenarios of expansion vs. no expansion as a result of this baseline building program was projected. The following tables present these estimates.

San Diego Convention Center - AECOM Projected Utilization Healthy Recession Economy Economy 2003-2008 2009-2010 No Build Expansion Averages Averages Scenario Scenario Number of Primary Events Convention 53 62 55 75 Corporate/Incentive 12 7 10 15 Total Primary Business 65 69 65 90 Number of Secondary Events Local Trade Show 10 8 10 12 Consumer Shows 12 15 10 13 Meetings and Community Events 151 116 150 170 Total Secondary Business 173 139 170 195 Total Number of Events 238 208 235 285 Source: San Diego Convention Center, AECOM

In order to simplify their analysis AECOM focused only on the two types of primary events that fill hotel rooms and create economic returns for the San Diego community. As shown in the following two tables.

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AECOM AVERAGE Attendance by Primary Event Types Healthy Recession Economy Economy 2003-2008 2009-2010 No Build Expansion Averages Averages Scenario Scenario Average Attendance at Primary Events Convention 9,210 9,549 11,085 11,085 Corporate/Incentive 3,985 3,431 5,032 5,032 Source: San Diego Convention Center, AECOM

AECOM AVERAGE Attendance by Primary Event Types Healthy Recession Economy Economy 2003-2008 2009-2010 No Build Expansion Averages Averages Scenario Scenario Total Attendance at Primary Events Convention 484,605 525,901 609,672 831,371 Corporate/Incentive 43,943 22,513 50,324 75,486 Total Primary 528,548 548,414 659,996 906,857 Source: San Diego Convention Center, AECOM

Therefore, based on AECOM’s analysis attendance at the SDCC is projected to increase by 246,861 persons with the expansion of the facility. If we apply the average roomnights generated by each of these primary events as noted in the table on page three of this report we can determine the estimated total number of additional roomnights generated by utilizing AECOM’s projected attendance figures. To recap, Corporate/Incentive events generate 2.20 roomnights per attendee, while Conventions generate 1.25 roomnights per attendee. These calculations are detailed in the table below.

PKF CONSULTING Extrapolated Roomnights Generated by Primary Event Types No Build Expansion Scenario Scenario Attendees Roomnights Attendees Roomnights Convention 609,672 762,090 831,371 1,039,214 Corporate/Incentive 50,324 110,713 75,486 166,069 Total Primary 659,996 872,803 906,857 1,205,283 Source: San Diego Convention Center, AECOM, and PKF Consulting

Therefore, utilizing AECOM’s projected attendance figures assuming the expansion of the SDCC, as well as the SDCC Corporation’s average roomnights per primary event data, we are able to extrapolate that the expansion will result in an additional 332,480 net new roomnights based on primary events alone. EPS - September 2011 Report In addition to AECOM’s analysis and findings we also reviewed Economic & Planning Systems’ Report, which was prepared for the San Diego Unified Port District. The report prepared by EPS builds upon the analysis and findings presented in AECOM’s report, and takes into account two additional factors affecting roomnight projections for the expansion of the SDCC. Specifically, the EPS methodology includes not only projecting hotel

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roomnight demand by primary event type, but also by secondary event type, as well as applying an out of block multiplier to the average roomnights per attendee figures reported by the SDCC. As noted in the report hotel bookings fall into two major categories – those provided through room blocks that are set aside for SDCC-related events and those that are not booked through the SDCC. Based on SDCC estimates as much as 30 percent of attendees stay in hotels outside of room blocks. Therefore, based on the estimates of EPS, the number of potential net new roomnights attributable to the expansion of the SDCC is 435,679 roomnights when taking into account primary events, secondary events, and the estimated number of rooms booked outside of the official block.

EPS Attendance and Hotel Demand Projections by Event Types Primary Secondary

Item Convention Corporate/ Incentive Local Trade Show Consumer Shows

Meetings and Community Events

Net Increases in Annual Events 20 5 2 3 20 Average Attendance per Event 11,085 5,032 3,025 20,296 1,440 Net New Attendees 221,700 25,160 6,050 60,887 28,805 Hotel Nights in Room Block per Attendee 1.25 2.2 0.09 0.01 0.04 Hotel Nights Outside of Room Block @ 30% 0.38 0.066 0.03 0.00 0.01 Total Hotel Nights per Attendee 1.63 2.266 0.12 0.01 0.05 Net New Annual Room Nights 360,983 71,958 698 495 1,545 Source: San Diego Convention Center, AECOM, Economic & Planning Systems

SAN DIEGO CONVENTION CENTER HOTEL MARKET In order to determine the projected market performance of the Hilton Bayfront, Manchester Grand Hyatt, and Marriott Marquis & Marina for the 10-year period from 2012 to 2121 under each of the potential scenarios outlined on page one of this report we must first establish the set of hotels, which are considered to be competitive to the abovementioned hotels. The hotels that are the subject of this analysis typically generate the majority of their business from the group segment, including both convention related and self-contained meeting groups. The highest rated group business is incentive business related to the medical community while professional or specific industry-related associations comprise the greater part of this market. Downtown San Diego has been successful in attracting these types of groups nationwide based on its quality hotels, Convention Center, and area amenities. Secondarily, these hotels also capture a sizeable amount of leisure demand given San Diego’s temperate climate, their proximity to beaches and the area’s tourist attractions. Southern California residents make up a significant portion of this demand, and in recent years the coastal resort market has gained popularity. Secondarily, international tourism has benefited San Diego, and this market has been gaining market share in recent years. The

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smallest portion of demand for these hotels is derived from the commercial segment. Commercial demand in the downtown market is generated by medical and biotech uses, high-tech defense contractors located along the perimeter of the San Diego International Airport, and the naval installations west of the airport. Based on the preceding discussion and the market orientation of the three convention center hotels we have determined the following set of hotels to be primary competitors. The three subject hotels are also listed in the table for reference. A map of these competitive hotels detailing their location relative to the subject hotels is presented on the following page.

San Diego Convention Center Hotel Market Current Competitive Supply

Map Code Property

Number of Rooms

1 Hilton San Diego Bayfront 1,190 2 Manchester Grand Hyatt 1,625 3 Marriott Marquis & Marina 1,362 4 Sheraton Hotel & Marina 1,053 5 Omni Ballpark 511 6 Hilton Gaslamp 282 7 Hard Rock Hotel 419 8 Embassy Suites Downtown 337 9 Marriott Gaslamp 306

10 Hotel Solamar 251 11 Residence Inn Gaslamp 240

Competitive Market 7,576 Source: PKF Consulting

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Competitive Supply Map

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ADDITIONS TO SUPPLY According to city officials and various developers, there are several proposed hotel projects that are being evaluated for development. Slow supply growth is largely a result of rising development costs and lack of financing, as well as the lower rates currently being achieved in downtown versus the 2007 highpoint. While several projects such as Navy Field and new lodging properties around the ball field and Gaslamp Quarter are projected to become feasible at some future point, the current RevPAR needs to experience additional growth to reach that point. While we recognize some of these projects will come to fruition, we have not incorporated them as additions to supply due to their tentative nature amidst the current development environment. Historical and Projected Performance of the Competitive Supply – BASE CASE The aggregate average annual available and occupied rooms, resulting occupancy levels, average daily rate, and RevPAR (revenue per available room) for the competitive supply from 2006 to 2010 and year to date through August 2010 and 2011 are presented in the following table.

Historical Market Performance of the Competitive Supply Annual Percent Occupied Percent Market Average Percent Percent

Year Supply Change Rooms Change Occupancy Daily Rate Change REVPAR Change 2006 2,128,680 N/A 1,662,520 N/A 78.1% $204.02 N/A $159.34 N/A 2007 2,243,290 5.4% 1,759,214 5.8% 78.4% 210.70 3.3% 165.23 3.7% 2008 2,279,425 1.6% 1,708,360 -2.9% 74.9% 211.60 0.4% 158.59 -4.0% 2009 2,692,240 18.1% 1,893,869 10.9% 70.3% 183.70 -13.2% 129.23 -18.5% 2010 2,765,240 2.7% 2,026,951 7.0% 73.3% 177.60 -3.3% 130.19 0.7%

CAAG 6.8% 5.1% -3.4% -4.9% 8/10 ytd 1,843,615 N/A 1,375,512 N/A 74.6% $176.72 N/A $131.85 N/A 8/11 ytd 1,843,615 0.0% 1,489,942 8.3% 80.8% 181.94 3.0% 147.04 11.5% Source: PKF Consulting

As noted in the preceding table, the supply within the competitive set during the preceding five years has grown by a compound average annual growth rate of 6.8 percent. This is as a result of the Hard Rock opening in 2006 and the Hilton Bayfront opening in December 2008. During the same five-year period, demand, as measured in occupied room nights, increased at a compound annual growth rate (CAAG) of 5.1 percent. Following a dismal year in 2009, the competitive market began to rebound in 2010, ending with a composite occupancy of 73.3 percent, reflecting a 7.0 percent increase in demand amidst no change in supply. In 2009, supply growth outpaced demand growth by 18.1 percent to 10.9 percent respectively, leading to the decline to 70.3 percent, which was the lowest occupancy experienced during the period. August 2011 year-to-date occupied rooms grew by 8.3 percent over the same period in 2010, reflecting additional pick-up in the recovery and demand returning to the market. Prior to the economic downturn in 2008, the market maintained occupancy levels in the high 70 to low 80 percentile range. Given the historical and recent strength in this market, we anticipate the return of strong occupancy levels by year’s end.

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Following ADR growth in 2007 and 2008, the market declined in 2009 and 2010 amidst the recession and subsequent impacts. The market ended 2010 at $177.60, down from the high point in 2008 of $211.60. Year to date through August 2011, ADR equates to $181.94, a 3.0 percent increase over the same period in 2010. Revenue per available room (RevPAR), a combination of occupancy and average daily room rate, decreased at an average of 4.9 percent annually over the five-year period. RevPAR growth prior to 2008 coincided with ADR’s positive year-over-year growth. Following two years of RevPAR decline, 2010 posted the first positive RevPAR growth, albeit minor, at 0.7 percent. Year to date through August, RevPAR is up 11.5 percent, reflecting the strength of the economic recovery and strong convention calendar. Downtown San Diego has undergone a significant expansion in recent years, including hotel, residential, entertainment, and supporting amenities and facilities. While this market has historically absorbed new supply at a healthy rate, 2008 and 2009 brought the culmination of economic woes, including an impacted convention calendar with reduced pickup, contraction of corporate and leisure demand, and a reduction in airline travel as well as travel in general. In 2010, signs of a recovery were realized, albeit slower than Los Angeles and Orange County. With a smaller commercial segment, San Diego has experienced some additional impacts as the group market, especially social groups, continue to lag in the recovery. However, with a strong 2011 and 2012 convention calendar and several newly renovated or constructed properties in areas such as Gaslamp and on the waterfront, San Diego is poised to ride the recovery wave. Based on our analysis of the economic conditions, we have estimated growth in market supply and rooms demand. Using the historical growth in the market as a base, we have estimated future growth in overall market demand. We estimate that the competitive set will end 2011 at approximately 79.0 percent occupancy based on year to date trends and discussions with area hoteliers. This level of occupancy is above what the market has historically achieved and it is anticipated to decline slightly in 2012 as hotels within the competitive set continue to aggressively push rates, thereby pricing out the most price sensitive corporate and group accounts. In addition to the above, we have also estimated the average daily rate of the competitive market over the projection period. We have estimated that the average daily rate of the competitive market will increase by 2.5 percent in 2011 to $182.00 based upon year to date growth of 3.0 percent, with a strong focus on increases in future years as the market operates at or near a stabilized level in terms of occupancy. As such, we have estimated future average rate growth at above inflationary levels in 2012 through 2015, followed by approximately 3.0 percent annually thereafter. The following table illustrates the projected occupancy and average daily rate levels of the competitive market.

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Projected Market Performance of the Competitive Supply Annual Percent Occupied Percent Market Average Percent Percent Year Supply Change Rooms Change Occupancy Daily Rate Change REVPAR Change 2011 2,765,240 0.0% 2,184,500 7.8% 79% $182.00 2.5% $143.78 10.4% 2012 2,765,240 0.0% 2,156,900 -1.3% 78% 193.00 6.0% 150.54 4.7% 2013 2,765,240 0.0% 2,156,900 0.0% 78% 205.00 6.2% 159.90 6.2% 2014 2,765,240 0.0% 2,156,900 0.0% 78% 217.00 5.9% 169.26 5.9% 2015 2,765,240 0.0% 2,156,900 0.0% 78% 226.00 4.1% 176.28 4.1% 2016 2,765,240 0.0% 2,156,900 0.0% 78% 232.00 2.7% 180.96 2.7% 2017 2,765,240 0.0% 2,156,900 0.0% 78% 239.00 3.0% 186.42 3.0% 2018 2,765,240 0.0% 2,156,900 0.0% 78% 247.00 3.3% 192.66 3.3% 2019 2,765,240 0.0% 2,156,900 0.0% 78% 255.00 3.2% 198.90 3.2% 2020 2,765,240 0.0% 2,156,900 0.0% 78% 262.00 2.7% 204.36 2.7% 2021 2,765,240 0.0% 2,156,900 0.0% 78% 270.00 3.1% 210.60 3.1% CAAG 0.0% -0.1% 4.0% 3.9% Source: PKF Consulting

Historical and Projected Performance of the Subject Hotels

Historical Performance For the most part the historical performance of the Hyatt and Marriott Hotels has mirrored that of the overall competitive market as described previously. Occupancies were generally at a peak level in 2007 and average daily rate growth remained positive through 2008. However, both properties were not only negatively affected by the recession in 2009, they were also affected by the opening of the Hilton Bayfront, which based on its convention adjacent location and similar facilities and amenities, was in direct competition for business across all segments. However, as the Hilton has been extremely well received in the marketplace, reaching more than its fair share of penetration in only its second full year, the Marriott and Hyatt in particular, have nearly returned to peak occupancy levels that were realized before the opening of the Hilton. The following tables present the aggregate average annual available and occupied rooms, resulting occupancy levels, average daily rate, and RevPAR for the subject hotels from 2006 to 2010 and year to date through August 2010 and 2011 which are presented in the following table. In the case of the Hilton, its historical performance is presented beginning in December 2008 corresponding with its opening, through August 2011.

Manchester Grand Hyatt Historical Market Performance of the Manchester Grand Hyatt

Annual Percent Occupied Percent Occupancy Market Average Percent Year Supply Change Rooms Change Percentage Penetration Daily Rate Change REVPAR Yield 2006 593,125 N/A 447,216 N/A 75.4% 97% $206.88 N/A $155.99 98% 2007 593,125 0.0% 474,500 6.1% 80.0% 102% 209.47 1.3% 167.58 101% 2008 593,125 0.0% 459,672 -3.1% 77.5% 103% 214.65 2.5% 166.35 105% 2009 593,125 0.0% 431,795 -6.1% 72.8% 103% 189.61 -11.7% 138.04 107% 2010 593,125 0.0% 427,050 -1.1% 72.0% 98% 185.70 -2.1% 133.70 103% CAAG 0.0% -1.1% -2.7% -3.8%

8/10 ytd 395,295 N/A 284,415 N/A 72.0% 96% $187.96 N/A $135.24 103% 8/11 ytd 395,295 0.0% 324,379 14.1% 82.1% 102% 191.72 2.0% 157.33 107% Source: PKF Consulting

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Marriott Marquis Hotel & Marina

Historical Market Performance of the Marriott Marquis Hotel & Marina Annual Percent Occupied Percent Occupancy Market Average Percent

Year Supply Change Rooms Change Percentage Penetration Daily Rate Change REVPAR Yield 2006 497,130 N/A 408,939 N/A 82.3% 105% $211.24 N/A $173.77 109% 2007 497,130 0.0% 405,608 -0.8% 81.6% 104% 221.26 4.7% 180.53 109% 2008 497,130 0.0% 384,281 -5.3% 77.3% 103% 226.11 2.2% 174.78 110% 2009 497,130 0.0% 352,962 -8.2% 71.0% 101% 203.70 -9.9% 144.63 112% 2010 497,130 0.0% 342,025 -3.1% 68.8% 94% 198.80 -2.4% 136.77 105% CAAG 0.0% -4.4% -1.5% -5.8%


Hilton Bayfront

Historical Market Performance of the Hilton Bayfront Annual Percent Occupied Percent Occupancy Market Average Percent

Year Supply Change Rooms Change Percentage Penetration Daily Rate Change REVPAR Yield 2008 36,135 N/A 7,480 N/A 20.7% 28% 120.83 N/A 25.01 16% 2009 434,350 1102.0% 277,984 3616.4 64.0% 91% 185.15 53.2% 118.50 92% 2010 434,350 0.0% 323,808 16.5% 74.6% 102% 187.36 1.2% 139.68 107% CAAG 246.7% 558.0% 24.5% 136.3%


Projected Performance

As detailed previously and shown in the preceding tables, we are of the opinion that the Hilton and Hyatt Hotels are at or above their long-term stabilized level of occupancy. It should also be further noted that the Marriott’s recent historical performance has been artificially, but nonetheless negatively impacted by significant renovations at the property. However, as much of the renovation has been completed we anticipate that the Marriott’s performance will return to near prior peak occupancy levels in approximately three years. Given prior discounting in the market and the steep decline in average daily rates in 2009, we are projecting that rates will not return to prior peak levels until approximately 2015, but between now and that time they are projected to increase at above inflationary levels and at or above the level of the competitive market, which is reflective of the quality and level of facilities offered, proximity to the SDCC, strength of the respective brands, and large degree of repeat patronage. In addition based on our discussions with hoteliers in the competitive market we do not believe that 3.0 percent surcharge on rooms revenue would have a material effect on our projections for the subject hotels in any of the assumed scenarios detailed herein The following tables present the projected performance of the three hotels.

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Manchester Grand Hyatt Projected Market Performance of the Manchester Grand Hyatt

Annual Percent Occupied Percent Occupancy Average Percent Percent Market Revenue Year Supply Change Rooms Change Percentage Daily Rate Change REVPAR Change Penetration Yield 2011 593,125 0.0% 478,000 11.9% 81% $190.00 2.3% $153.12 14.5% 102% 106% 2012 593,125 0.0% 474,600 -0.7% 80% 200.00 5.0% 160.03 4.5% 103% 106% 2013 593,125 0.0% 469,900 -1.0% 79% 215.00 8.0% 170.33 6.4% 102% 107% 2014 593,125 0.0% 470,600 0.1% 79% 233.00 8.0% 184.87 8.5% 102% 109% 2015 593,125 0.0% 470,500 0.0% 79% 244.00 5.0% 193.55 4.7% 102% 110% 2016 593,125 0.0% 470,500 0.0% 79% 252.00 3.0% 199.90 3.3% 102% 110% 2017 593,125 0.0% 470,500 0.0% 79% 259.00 3.0% 205.45 2.8% 102% 110% 2018 593,125 0.0% 470,500 0.0% 79% 267.00 3.0% 211.80 3.1% 102% 110% 2019 593,125 0.0% 470,500 0.0% 79% 275.00 3.0% 218.15 3.0% 102% 110% 2020 593,125 0.0% 470,500 0.0% 79% 283.00 3.0% 224.49 2.9% 102% 110% 2021 593,125 0.0% 470,500 0.0% 79% 292.00 3.0% 231.63 3.2% 102% 110% CAAG 0.0% -0.2% 4.4% 4.2% Source: PKF Consulting

Marriott Marquis Hotel & Marina

Projected Market Performance of the Marquis Hotel & Marina Annual Percent Occupied Percent Occupancy Average Percent Percent Market Revenue Year Supply Change Rooms Change Percentage Daily Rate Change REVPAR Change Penetration Yield 2011 497,130 0.0% 358,500 4.8% 72% $200.00 0.6% $144.23 5.4% 91% 100% 2012 497,130 0.0% 372,600 3.9% 75% 212.00 6.0% 158.89 10.2% 96% 106% 2013 497,130 0.0% 386,100 3.6% 78% 225.00 6.0% 174.75 10.0% 100% 110% 2014 497,130 0.0% 399,400 3.4% 80% 238.00 6.0% 191.21 9.4% 103% 114% 2015 497,130 0.0% 399,400 0.0% 80% 248.00 4.0% 199.25 4.2% 103% 114% 2016 497,130 0.0% 399,400 0.0% 80% 255.00 3.0% 204.87 2.8% 103% 114% 2017 497,130 0.0% 399,400 0.0% 80% 263.00 3.0% 211.30 3.1% 103% 114% 2018 497,130 0.0% 399,400 0.0% 80% 271.00 3.0% 217.72 3.0% 103% 114% 2019 497,130 0.0% 399,400 0.0% 80% 279.00 3.0% 224.15 3.0% 103% 114% 2020 497,130 0.0% 399,400 0.0% 80% 287.00 3.0% 230.58 2.9% 103% 114% 2021 497,130 0.0% 399,400 0.0% 80% 296.00 3.0% 237.81 3.1% 103% 114% CAAG 0.0% 1.1% 4.0% 5.1% Source: PKF Consulting

Hilton Bayfront

Projected Market Performance of the Hilton Bayfront Annual Percent Occupied Percent Occupancy Average Percent Percent Market Revenue Year Supply Change Rooms Change Percentage Daily Rate Change REVPAR Change Penetration Yield 2011 434,350 0.0% 348,800 7.7% 80% $195.00 4.1% $156.59 12.1% 102% 109% 2012 434,350 0.0% 348,200 -0.2% 80% 207.00 6.0% 165.94 6.0% 103% 110% 2013 434,350 0.0% 348,500 0.1% 80% 223.00 8.0% 178.92 7.8% 103% 112% 2014 434,350 0.0% 349,100 0.2% 80% 237.00 6.0% 190.48 6.5% 103% 114% 2015 434,350 0.0% 349,100 0.0% 80% 246.00 4.0% 197.72 3.8% 103% 113% 2016 434,350 0.0% 349,100 0.0% 80% 253.00 3.0% 203.34 2.8% 103% 113% 2017 434,350 0.0% 349,100 0.0% 80% 261.00 3.0% 209.77 3.2% 103% 113% 2018 434,350 0.0% 349,100 0.0% 80% 269.00 3.0% 216.20 3.1% 103% 113% 2019 434,350 0.0% 349,100 0.0% 80% 277.00 3.0% 222.63 3.0% 103% 113% 2020 434,350 0.0% 349,100 0.0% 80% 285.00 3.0% 229.06 2.9% 103% 113% 2021 434,350 0.0% 349,100 0.0% 80% 294.00 3.0% 236.30 3.2% 103% 113% CAAG 0.0% 0.0% 4.2% 4.2% Source: PKF Consulting

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PROJECTED REVENUES OF THE SUBJECT HOTELS The respective occupancy and average daily rate levels derived in the preceding analysis have been utilized in the following to determine the total projected revenues for the subject hotels. As noted in the introduction we have estimated the total revenues for each hotel including rooms, food and beverage, parking and all other revenues for the 10-year period from 2012 to 2012. The baseline scenario assuming no additional expansion of the Convention Center or the Hilton Bayfront Hotel is presented first. Scenario A - Baseline In the baseline scenario we have projected anticipated revenues levels for the three subject hotels assuming that the status quo is maintained and that the SDCC nor the Hilton Bayfront Hotel are expanded. As mention in the above the occupancy and average daily rates derived from the preceding analysis are utilized as the starting point for our projections in the baseline scenario. In addition, we have calculated food and beverage, parking and all other revenues for each of the hotels. Departmental revenues typically vary with occupancy, and therefore based on industry standards, are generally analyzed on a per occupied room (POR) or ratio basis. Based on reported sales revenue provided by the Port of San Diego we have consolidated the historical revenue figures for the subject hotels on a POR basis. These revenue figures for the three-year period from 2008 through 2010 are presented below.

Manchester Grand Hyatt TOTALS 2008 2009 2010 AVG

Rooms Occupied 460,929 431,987 429,890 440,935 F&B 62,612,127 44,120,630 45,451,293 50,728,017 PARKING 4,408,376 4,537,563 4,546,848 4,497,596 OTHER 8,369,942 6,450,978 5,889,480 6,903,467

POR Basis 2008 2009 2010 AVG F&B $ 135.84 $ 95.72 $ 98.61 $ 110.06 PARKING $ 9.56 $ 9.84 $ 9.86 $ 9.76 OTHER $ 18.16 $ 14.00 $ 12.78 $ 14.98 Source: San Diego Convention Center and PKF Consulting

Based on the above historical information, as well as our knowledge and expertise regarding the Manchester Grand Hyatt, and the competitive market we have utilized the following POR inputs for the baseline scenario.

Food and Beverage - $120.00 Parking - $10.00 Other Revenues - $15.00

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Marriott Marquis Hotel & Marina TOTALS 2008 2009 2010 AVG

Rooms Occupied 390,578 352,058 340,392 361,009 F&B 33,956,235 37,646,139 29,721,737 33,774,704 PARKING 4,358,503 4,743,889 4,265,104 4,455,832 OTHER 11,459,636 11,168,740 8,355,312 10,327,896


Based on the above historical information, as well as our knowledge and expertise regarding the Marriott Marquis Hotel & Marina, and the competitive market we have utilized the following POR inputs for the baseline scenario.


Hilton Bayfront TOTALS 2008 2009 2010 AVG

Rooms Occupied 7,369 278,004 323,797 203,057 F&B 872,021 29,025,847 34,786,206 21,561,358 PARKING 139,490 3,270,155 3,891,040 2,433,562 OTHER 242,015 1,943,977 3,014,653 1,733,548


Based on the above historical information, as well as our knowledge and expertise regarding the Hilton Bayfront, and the competitive market we have utilized the following POR inputs for the baseline scenario.


We have reviewed the above detailed historical revenue information for the subject hotels and utilized it on a POR basis to determine other departmental revenues in addition to total rooms revenue which was calculated prior and is presented herein in order to determine

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revenues on a POR basis during each year of the projection period. In addition to the preceding, we note the following assumptions.

For each of the hotels each individual line item is projected on a POR basis given the respective historical performance of each hotel, as well as future market opportunities based upon improving economic conditions and/or a return to historical levels.

Unless otherwise noted all revenue figures are projected to grow by 3.0 percent per annum. This rate reflects the current long-term outlook for the future movement of prices and is consistent with the historical inflation rates.

The table on the following page presents the projected revenues for the Manchester Grand Hyatt, Marriott Marquis Hotel & Marina, and Hilton Bayfront on a line item by line item basis for the period from 2012 to 2021 utilizing the assumptions detailed herein for Scenario A. On the final two pages of this report we have presented the net new revenues for each of the scenarios as compared to the base case.

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Manchester Grand Hyatt

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Rooms Avail 1,625 1,625 1,625 1,625 1,625 1,625 1,625 1,625 1,625 1,625 Annual Available 593,125 593,125 593,125 593,125 593,125 593,125 593,125 593,125 593,125 593,125 Projected Occupancy 80.0% 79.0% 79.0% 79.0% 79.0% 79.0% 79.0% 79.0% 79.0% 79.0% Rooms Occupied 474,500 468,569 468,569 468,569 468,569 468,569 468,569 468,569 468,569 468,569 ADR $200.00 $215.00 $233.00 $244.00 $252.00 $259.00 $267.00 $275.00 $283.00 $292.00 ROOMS $ 94,900,000 $ 100,742,281 $ 109,176,519 $ 114,330,775 $ 118,079,325 $ 121,359,306 $ 125,107,856 $ 128,856,406 $ 132,604,956 $ 136,822,075

$120.00 $123.60 $127.31 $131.13 $135.06 $139.11 $143.29 $147.58 $152.01 $156.57 F&B $ 56,940,000 $ 57,915,098 $ 59,652,550 $ 61,442,127 $ 63,285,391 $ 65,183,952 $ 67,139,471 $ 69,153,655 $ 71,228,265 $ 73,365,113

$10.00 $10.30 $10.61 $10.93 $11.26 $11.59 $11.94 $12.30 $12.67 $13.05 PARKING $ 4,745,000 $ 4,826,258 $ 4,971,046 $ 5,120,177 $ 5,273,783 $ 5,431,996 $ 5,594,956 $ 5,762,805 $ 5,935,689 $ 6,113,759

$15.00 $15.45 $15.91 $16.39 $16.88 $17.39 $17.91 $18.45 $19.00 $19.57 OTHER $ 7,117,500 $ 7,239,387 $ 7,456,569 $ 7,680,266 $ 7,910,674 $ 8,147,994 $ 8,392,434 $ 8,644,207 $ 8,903,533 $ 9,170,639 TOTAL REVENUES $ 163,702,500 $ 170,723,024 $ 181,256,684 $ 188,573,345 $ 194,549,172 $ 200,123,249 $ 206,234,717 $ 212,417,073 $ 218,672,443 $ 225,471,586

Hilton Bayfront 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Rooms Avail 1,190 1,190 1,190 1,190 1,190 1,190 1,190 1,190 1,190 1,190 Annual Available 434,350 434,350 434,350 434,350 434,350 434,350 434,350 434,350 434,350 434,350 Projected Occupancy 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% Rooms Occupied 347,480 347,480 347,480 347,480 347,480 347,480 347,480 347,480 347,480 347,480 ADR $207.00 $223.00 $237.00 $246.00 $253.00 $261.00 $269.00 $277.00 $285.00 $294.00 ROOMS $ 71,928,360 $ 77,488,040 $ 82,352,760 $ 85,480,080 $ 87,912,440 $ 90,692,280 $ 93,472,120 $ 96,251,960 $ 99,031,800 $ 102,159,120

$108.00 $111.24 $114.58 $118.01 $121.55 $125.20 $128.96 $132.83 $136.81 $140.92 F&B $ 37,527,840 $ 38,653,675 $ 39,813,285 $ 41,007,684 $ 42,237,915 $ 43,505,052 $ 44,810,204 $ 46,154,510 $ 47,539,145 $ 48,965,319

$13.00 $13.39 $13.79 $14.21 $14.63 $15.07 $15.52 $15.99 $16.47 $16.96 PARKING $ 4,517,240 $ 4,652,757 $ 4,792,340 $ 4,936,110 $ 5,084,193 $ 5,236,719 $ 5,393,821 $ 5,555,635 $ 5,722,304 $ 5,893,974


Marriott Marquis Hotel & Marina 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021


$90.00 $92.70 $95.48 $98.35 $101.30 $104.33 $107.46 $110.69 $114.01 $117.43 F&B $ 33,556,275 $ 35,945,482 $ 37,973,176 $ 39,112,371 $ 40,285,742 $ 41,494,314 $ 42,739,144 $ 44,021,318 $ 45,341,958 $ 46,702,216

$12.00 $12.36 $12.73 $13.11 $13.51 $13.91 $14.33 $14.76 $15.20 $15.66 PARKING $ 4,474,170 $ 4,792,731 $ 5,063,090 $ 5,214,983 $ 5,371,432 $ 5,532,575 $ 5,698,552 $ 5,869,509 $ 6,045,594 $ 6,226,962

$29.00 $29.87 $30.77 $31.69 $32.64 $33.62 $34.63 $35.67 $36.74 $37.84 OTHER $ 10,812,578 $ 11,582,433 $ 12,235,801 $ 12,602,875 $ 12,980,961 $ 13,370,390 $ 13,771,502 $ 14,184,647 $ 14,610,186 $ 15,048,492 TOTAL REVENUES $ 127,886,693 $ 139,566,961 $ 149,925,619 $ 155,560,821 $ 160,052,656 $ 164,993,432 $ 169,986,982 $ 175,034,890 $ 180,138,786 $ 185,698,054 Source: San Diego Convention Center, and PKF Consulting

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Scenario B - SDCC & Hilton Bayfront Expansion In Scenario B, we have projected anticipated revenues levels for the three subject hotels assuming that the San Diego Convention Center and Hilton Bayfront Hotel expansions are developed simultaneously and open on or about January 2016. The occupancy and average daily rates derived from the preceding analysis are utilized as the starting point for our projections in Scenario B, however these projections have been reanalyzed and recalculated based on the expansion scenario beginning in 2016. In addition, we have calculated food and beverage, parking and all other revenues for each of the hotels, but these revenue figures have also been modified beginning in 2016 to reflect changing market conditions following the expansion of the SDCC & Hilton Bayfront. We have reviewed the historical revenue information for the subject hotels and utilized it on a POR basis to determine other departmental revenues in addition to total rooms revenue which was calculated prior. In addition to the preceding, we note the following assumptions.


Projected room, food and beverage, parking, and other revenues are not projected to be materially different from those presented in Scenario A for the period from 2012 to 2015.

Beginning in 2016 the subject hotels are anticipated to realize revenue increases above the level of inflation with the expansion of the SDCC and the Hilton Bayfront.

Specifically, average daily rates for the Hyatt and Marriott Hotels are projected to increase by 5.0 percent in 2016, 6.0 percent in 2017, and 7.0 percent in 2018 as additional convention business allows the hotels to yield higher rated self-contained groups, particularly those associated with the pharmaceutical industry.

Additionally, based on the anticipated increase in convention roomnights coupled with the opening of the Hilton expansion, the Hyatt and Marriott Hotels are projected to experience minor decreases in occupancy in 2016 and 2017, but ultimately return to their base case levels of stabilization 79.0 and 80.0 percent, respectively by 2018.

Food and beverage revenues are also anticipated to benefit from this subtle shift in business, increasing by 4.0 percent in 2016, 5.0 percent in 2017, and 6.0 percent in 2018.

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All other revenues are anticipated to increase slightly above the level of

inflation, or at 4.0 percent during the period from 2016 to 2018.

With the expansion of the Hilton, the current 1,190 guestrooms are anticipated to maintain a stabilized occupancy level of 80.0 percent throughout the projection period and average daily rate is anticipated to grow at 3.0 percent.

However, a significant portion of the newly created demand is anticipated to be captured by the 500-room expansion given its proximity to the SDCC and the near stabilized levels of the Hyatt and Marriott Hotels. We project that the expansion portion of the Hilton will achieve an occupancy level of 68.0 percent in 2016, increase to 74.0 percent in 2017, and stabilize at 78.0 percent in 2018.

Therefore, based on the above the 1,690-room expanded Hilton Bayfront Hotel is projected to achieve an overall stabilized occupancy of 79.4 percent beginning in 2018.

Overall, with the expansion of the SDCC and the Hilton, we have estimated that approximately 142,400 net new roomnights will be absorbed by the three subject hotels between 2016 and 2018. This equates to approximately 43 percent of the total roomnights anticipated to be generated by the expansion of the SDCC as presented in the AECOM and EPS reports.

The average daily rate of the 500-room expansion is calculated to be $253.00 upon opening, and thereafter grow at a rate of 3.0 percent. The expansion’s rate in 2016 represents a premium of 5.0 percent over the average daily rate of the existing hotels, including the existing Hilton.


The table on the following page presents the projected revenues for the Manchester Grand Hyatt, Marriott Marquis Hotel & Marina, and Hilton Bayfront on a line item by line item basis for the period from 2012 to 2021 utilizing the assumptions detailed herein for Scenario B.

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Manchester Grand Hyatt 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021


$120.00 $123.60 $127.31 $131.13 $136.37 $143.19 $151.78 $156.34 $161.03 $165.86 F&B $ 56,940,000 $ 57,915,098 $ 59,652,550 $ 61,442,127 $ 62,282,095 $ 66,245,501 $ 71,120,491 $ 73,254,105 $ 75,451,729 $ 77,715,281

$10.00 $10.30 $10.61 $10.93 $11.36 $11.82 $12.29 $12.66 $13.04 $13.43 PARKING $ 4,745,000 $ 4,826,258 $ 4,971,046 $ 5,120,177 $ 5,190,175 $ 5,467,883 $ 5,759,503 $ 5,932,288 $ 6,110,257 $ 6,293,564


Hilton Bayfront 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Rooms Avail 1,190 1,190 1,190 1,190 1,690 1,690 1,690 1,690 1,690 1,690 Annual Available 434,350 434,350 434,350 434,350 616,850 616,850 616,850 616,850 616,850 616,850 Projected Occupancy 80.0% 80.0% 80.0% 80.0% 76.4% 78.2% 79.4% 79.4% 79.4% 79.4% Rooms Occupied 347,480 347,480 347,480 347,480 471,580 482,530 489,830 489,830 489,830 489,830 ADR $207.00 $223.00 $237.00 $246.00 $ 257.00 $ 265.00 $ 274.00 $282.00 $290.00 $299.00 ROOMS $ 71,928,360 $ 77,488,040 $ 82,352,760 $ 85,480,080 $ 121,196,060 $ 127,870,450 $ 134,213,420 $ 138,132,060 $ 142,050,700 $ 146,459,170

$108.00 $111.24 $114.58 $118.01 $121.55 $125.20 $128.96 $132.83 $136.81 $140.92 F&B $ 37,527,840 $ 38,653,675 $ 39,813,285 $ 41,007,684 $ 57,322,884 $ 60,413,528 $ 63,167,325 $ 65,062,344 $ 67,014,215 $ 69,024,641

$13.00 $13.39 $13.79 $14.21 $14.63 $15.07 $15.52 $15.99 $16.47 $16.96 PARKING $ 4,517,240 $ 4,652,757 $ 4,792,340 $ 4,936,110 $ 6,899,977 $ 7,271,999 $ 7,603,474 $ 7,831,579 $ 8,066,526 $ 8,308,522




$90.00 $92.70 $95.48 $98.35 $102.28 $107.39 $113.84 $117.25 $120.77 $124.39 F&B $ 33,556,275 $ 35,945,482 $ 37,973,176 $ 39,112,371 $ 39,151,483 $ 41,642,941 $ 45,273,352 $ 46,631,552 $ 48,030,499 $ 49,471,414

$12.00 $12.36 $12.73 $13.11 $13.64 $14.18 $14.75 $15.19 $15.65 $16.12 PARKING $ 4,474,170 $ 4,792,731 $ 5,063,090 $ 5,214,983 $ 5,220,198 $ 5,499,512 $ 5,866,146 $ 6,042,131 $ 6,223,395 $ 6,410,097


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Scenario C - SDCC Expansion In Scenario C, we have projected anticipated revenues levels for the three subject hotels assuming that the San Diego Convention Center expansion is completed as described herein and open for business on or about January 2016. The occupancy and average daily rates derived from the preceding analysis are utilized as the starting point for our projections in Scenario C, however these projections have been reanalyzed and recalculated based on the assumption the SDCC is expanded and operational beginning in 2016. In addition, we have calculated food and beverage, parking and all other revenues for each of the hotels, but these revenue figures have also been modified beginning in 2016 to reflect changing market conditions following the expansion of the SDCC and the resulting opportunities thereof. We have reviewed the historical revenue information for the subject hotels and utilized it on a POR basis to determine other departmental revenues in addition to total rooms revenue which was calculated prior. In addition to the preceding, we note the following assumptions.



Beginning in 2016 all three subject hotels are anticipated to realize revenue increases above the level of inflation with the expansion of the SDCC, as these hotels are operating at or near capacity and are unable to accommodate much more demand.

Specifically, average daily rates for the Hilton, Hyatt, and Marriott Hotels are projected to increase by 6.0 percent in 2016, 7.0 percent in 2017, and 8.0 percent in 2018 as additional convention business allows the hotels to yield higher rated self-contained groups, particularly those associated with the pharmaceutical industry.

Additionally, based on an anticipated increase of approximately 30,500 convention roomnights, the Hilton, Hyatt, and Marriott Hotels are projected to gradually increase occupancy levels by approximately two percentage points from previously stabilized levels by 2017, ultimately stabilizing at 82.0, 81.0, and 82.0 percent, respectively.

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As noted in the preceding, assuming the expansion of the SDCC we have estimated that approximately 30,500 net new roomnights will be absorbed by the three subject hotels. This equates to approximately nine percent of the total roomnights anticipated to be generated by the expansion of the SDCC as presented in the AECOM and EPS reports.


The table on the following page presents the projected revenues for the Manchester Grand Hyatt, Marriott Marquis Hotel & Marina, and Hilton Bayfront on a line item by line item basis for the period from 2012 to 2021 utilizing the assumptions detailed herein for Scenario C.

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$120.00 $123.60 $127.31 $131.13 $135.06 $139.11 $143.29 $147.58 $152.01 $156.57 F&B $ 56,940,000 $ 57,915,098 $ 59,652,550 $ 61,442,127 $ 64,086,472 $ 66,834,179 $ 68,839,204 $ 70,904,381 $ 73,031,512 $ 75,222,457

$10.00 $10.30 $10.61 $10.93 $11.26 $11.59 $11.94 $12.30 $12.67 $13.05 PARKING $ 4,745,000 $ 4,826,258 $ 4,971,046 $ 5,120,177 $ 5,340,539 $ 5,569,515 $ 5,736,600 $ 5,908,698 $ 6,085,959 $ 6,268,538


Hilton Bayfront 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021


$108.00 $111.24 $114.58 $118.01 $121.55 $125.20 $128.96 $132.83 $136.81 $140.92 F&B $ 37,527,840 $ 38,653,675 $ 39,813,285 $ 41,007,684 $ 42,765,888 $ 44,592,678 $ 45,930,459 $ 47,308,372 $ 48,727,624 $ 50,189,452

$13.00 $13.39 $13.79 $14.21 $14.63 $15.07 $15.52 $15.99 $16.47 $16.96 PARKING $ 4,517,240 $ 4,652,757 $ 4,792,340 $ 4,936,110 $ 5,147,746 $ 5,367,637 $ 5,528,666 $ 5,694,526 $ 5,865,362 $ 6,041,323




$90.00 $92.70 $95.48 $98.35 $101.30 $104.33 $107.46 $110.69 $114.01 $117.43 F&B $ 33,556,275 $ 35,945,482 $ 37,973,176 $ 39,112,371 $ 40,789,314 $ 42,531,672 $ 43,807,622 $ 45,121,851 $ 46,475,506 $ 47,869,772

$12.00 $12.36 $12.73 $13.11 $13.51 $13.91 $14.33 $14.76 $15.20 $15.66 PARKING $ 4,474,170 $ 4,792,731 $ 5,063,090 $ 5,214,983 $ 5,438,575 $ 5,670,890 $ 5,841,016 $ 6,016,247 $ 6,196,734 $ 6,382,636


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Scenario D - Hilton Bayfront Expansion In Scenario D, we have projected anticipated revenues levels for the three subject hotels assuming that the Hilton Bayfront Hotel is expanded by 500 guestrooms and opens on or about January 2016. The occupancy and average daily rates derived from the preceding analysis are utilized as the starting point for our projections in Scenario D, however these projections have been reanalyzed and recalculated based on the expansion scenario beginning in 2016. In addition, we have calculated food and beverage, parking and all other revenues for each of the hotels, but these revenue figures have also been modified beginning in 2016 to reflect changing market conditions following the expansion of the Hilton Bayfront to 1,690 guestroom beginning in 2016. We have reviewed the historical revenue information for the subject hotels and utilized it on a POR basis to determine other departmental revenues in addition to total rooms revenue which was calculated prior. In addition to the preceding, we note the following assumptions.



Beginning in 2016 the Hyatt and Marriott are anticipated to be materially affected by the expansion of the Hilton Bayfront, assuming that the SDCC is not also expanded. Based on our review of historical data pertaining to the time period immediately following the opening of the Hilton, it is anticipated that both occupancy and average daily rate levels will decline in the short-term.

Specifically, it is anticipated that the annual occupancy level of the Hyatt will decline from 79.0 percent in 2015 to 74.0 percent in 2016 with the opening of the 500-room Hilton Bayfront expansion. Occupancy levels are anticipated to slowly build back to stabilized levels between 2017 and 2019 as new sources of business are derived through marketing and sales efforts to replace lost convention roomnights.

For the Marriott, it is anticipated that annual occupancy levels will decline from 80.0 percent in 2015 to 75.0 percent in 2016 with the opening of the 500-room Hilton Bayfront expansion. Similar to the Hyatt, the Marriott’s occupancy levels are anticipated to slowly build back to

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stabilized levels between 2017 and 2019 as new sources of business are derived through marketing and sales efforts to replace lost convention roomnights.

Given the expansion of the Hilton Bayfront, average daily rates for the Hyatt and Marriott Hotels are projected to decrease by 3.0 percent in 2016, remain flat in 2017, and then grow by 3.0 percent in 2018.

Given the 500-room guestroom expansion, it is anticipated that the average daily of the existing rooms at the Hilton Bayfront will increase at the level of inflation throughout the projection period.

With the expansion of the Hilton, the current 1,190 guestrooms are anticipated to maintain a stabilized occupancy level of 80.0 percent throughout the projection period and average daily rate is anticipated to grow at 3.0 percent.

As expanded, it is anticipated that the Hilton Bayfront will cannibalize a portion of the demand, especially convention demand captured by the Hyatt and Marriott Hotels in the baseline scenario. This convention demand along with self-contained group meetings, families and leisure travelers, as well individual corporate accounts are anticipated to make up the bulk of the business for the 500-room expansion. Therefore, we project that the expansion portion of the Hilton will achieve an occupancy level of 65.0 percent in 2016, increase to 71.0 percent in 2017, and stabilize at 74.0 percent in 2018.

Therefore, based on the above the 1,690-room expanded Hilton Bayfront Hotel is projected to achieve an overall stabilized occupancy of 78.2 percent beginning in 2018.

As noted in the preceding, assuming the expansion of the Hilton Bayfront we have estimated that approximately 111,900 net new roomnights will be absorbed by the three subject hotels between 2016 and 2018. This equates to approximately 33.0 percent of the total roomnights anticipated to be generated by the expansion of the SDCC as presented in the AECOM and EPS reports.

The average daily rate of the 500-room expansion is calculated to be $253.00 upon opening, and thereafter grow at a rate of 3.0 percent. The expansion’s rate in 2016 is consistent with the projected 2016 rate of the existing Hilton Bayfront.

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All other revenue categories for the 500-room expansion (food and beverage, parking, and other) are anticipated to be similar to the existing Hilton Bayfront on a POR basis.


The table on the following page presents the projected revenues for the Manchester Grand Hyatt, Marriott Marquis Hotel & Marina, and Hilton Bayfront on a line item by line item basis for the period from 2012 to 2021 utilizing the assumptions detailed herein for Scenario D.

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$120.00 $123.60 $127.31 $131.13 $135.06 $139.11 $143.29 $147.58 $152.01 $156.57 F&B $ 56,940,000 $ 57,915,098 $ 59,652,550 $ 61,442,127 $ 59,279,986 $ 62,708,613 $ 66,289,604 $ 70,029,018 $ 72,129,888 $ 74,293,785

$10.00 $10.30 $10.61 $10.93 $11.26 $11.59 $11.94 $12.30 $12.67 $13.05 PARKING $ 4,745,000 $ 4,826,258 $ 4,971,046 $ 5,120,177 $ 4,939,999 $ 5,225,718 $ 5,524,134 $ 5,835,751 $ 6,010,824 $ 6,191,149


Hilton Bayfront 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Rooms Avail 1,190 1,190 1,190 1,190 1,690 1,690 1,690 1,690 1,690 1,690 Annual Available 434,350 434,350 434,350 434,350 616,850 616,850 616,850 616,850 616,850 616,850 Projected Occupancy 80.0% 80.0% 80.0% 80.0% 75.6% 77.3% 78.2% 78.2% 78.2% 78.2% Rooms Occupied 347,480 347,480 347,480 347,480 466,105 477,055 482,530 482,530 482,530 482,530 ADR $207.00 $223.00 $237.00 $246.00 $ 253.00 $ 261.00 $ 269.00 $277.00 $285.00 $294.00 ROOMS $ 71,928,360 $ 77,488,040 $ 82,352,760 $ 85,480,080 $ 117,924,565 $ 124,511,355 $ 129,800,570 $ 133,660,810 $ 137,521,050 $ 141,863,820

$108.00 $111.24 $114.58 $118.01 $121.55 $125.20 $128.96 $132.83 $136.81 $140.92 F&B $ 37,527,840 $ 38,653,675 $ 39,813,285 $ 41,007,684 $ 56,657,371 $ 59,728,049 $ 62,225,934 $ 64,092,712 $ 66,015,493 $ 67,995,958

$13.00 $13.39 $13.79 $14.21 $14.63 $15.07 $15.52 $15.99 $16.47 $16.96 PARKING $ 4,517,240 $ 4,652,757 $ 4,792,340 $ 4,936,110 $ 6,819,869 $ 7,189,487 $ 7,490,159 $ 7,714,863 $ 7,946,309 $ 8,184,699




$90.00 $92.70 $95.48 $98.35 $101.30 $104.33 $107.46 $110.69 $114.01 $117.43 F&B $ 33,556,275 $ 35,945,482 $ 37,973,176 $ 39,112,371 $ 37,767,883 $ 39,938,277 $ 41,670,665 $ 44,021,318 $ 45,341,958 $ 46,702,216

$12.00 $12.36 $12.73 $13.11 $13.51 $13.91 $14.33 $14.76 $15.20 $15.66 PARKING $ 4,474,170 $ 4,792,731 $ 5,063,090 $ 5,214,983 $ 5,035,718 $ 5,325,104 $ 5,556,089 $ 5,869,509 $ 6,045,594 $ 6,226,962

$29.00 $29.87 $30.77 $31.69 $32.64 $33.62 $34.63 $35.67 $36.74 $37.84 OTHER $ 10,812,578 $ 11,582,433 $ 12,235,801 $ 12,602,875 $ 12,169,651 $ 12,869,001 $ 13,427,214 $ 14,184,647 $ 14,610,186 $ 15,048,492 TOTAL REVENUES $ 127,886,693 $ 139,566,961 $ 149,925,619 $ 155,560,821 $ 144,829,500 $ 150,384,796 $ 156,818,795 $ 165,489,994 $ 170,593,890 $ 175,755,454 Source: Port of San Diego and PKF Consulting

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Base Case - No Expansions 2012 2013 2014 2015 2016 Rooms Avail 4,177 4,177 4,177 4,177 4,177 Annual Available 1,524,605 1,524,605 1,524,605 1,524,605 1,524,605 Rooms Occupied 1,194,828 1,203,810 1,213,753 1,213,753 1,213,753 ROOMS $245,872,030 $265,476,636 $286,182,831 $298,441,447 $307,406,285 F&B $128,024,115 $132,514,254 $137,439,012 $141,562,182 $145,809,047 PARKING $13,736,410 $14,271,746 $14,826,476 $15,271,270 $15,729,408 OTHER $21,404,878 $22,400,864 $23,378,785 $24,080,149 $24,802,553 TOTAL REVENUES $409,037,433 $434,663,501 $461,827,103 $479,355,048 $493,747,294

Convention Center & Hotel Expansion - Net New Revenues 2012 2013 2014 2015 2016 Rooms Avail - - - - 500 Annual Available - - - - 182,500 Rooms Occupied - - - - 97,324 ROOMS $0 $0 $0 $0 $30,232,001 F&B $0 $0 $0 $0 $12,947,415 PARKING $0 $0 $0 $0 $1,580,941 OTHER $0 $0 $0 $0 $905,861 TOTAL REVENUES - - - - $45,666,218

Convention Center Expansion - Net New Revenues 2012 2013 2014 2015 2016 Rooms Avail - - - - - Annual Available - - - - - Rooms Occupied - - - - 15,246 ROOMS $0 $0 $0 $0 $13,218,752 F&B $0 $0 $0 $0 $1,832,627 PARKING $0 $0 $0 $0 $197,452 OTHER $0 $0 $0 $0 $311,284 TOTAL REVENUES $0 $0 $0 $0 $15,560,115

Hotel Expansion - Net New Revenues 2012 2013 2014 2015 2016 Rooms Avail - - - - 500 Annual Available - - - - 182,500 Rooms Occupied - - - - 64,112 ROOMS $0 $0 $0 $0 $4,396,790 F&B $0 $0 $0 $0 $7,896,193 PARKING $0 $0 $0 $0 $1,066,177 OTHER $0 $0 $0 $0 $23,149 TOTAL REVENUES $0 $0 $0 $0 $13,382,309 Source: PKF Consulting

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Base Case - No Expansions 2017 2018 2019 2020 2021 Rooms Avail 4,177 4,177 4,177 4,177 4,177 Annual Available 1,524,605 1,524,605 1,524,605 1,524,605 1,524,605 Rooms Occupied 1,213,753 1,213,753 1,213,753 1,213,753 1,213,753 ROOMS $316,647,738 $326,357,760 $336,067,782 $345,777,804 $356,701,579 F&B $150,183,319 $154,688,818 $159,329,483 $164,109,367 $169,032,648 PARKING $16,201,290 $16,687,329 $17,187,949 $17,703,588 $18,234,695 OTHER $25,546,630 $26,313,029 $27,102,420 $27,915,492 $28,752,957 TOTAL REVENUES $508,578,977 $524,046,936 $539,687,634 $555,506,251 $572,721,879

Convention Center & Hotel Expansion - Net New Revenues 2017 2018 2019 2020 2021 Rooms Avail 500 500 500 500 500 Annual Available 182,500 182,500 182,500 182,500 182,500 Rooms Occupied 119,176 142,350 142,350 142,350 142,350 ROOMS $43,619,621 $61,063,277 $63,068,350 $65,073,423 $66,354,573 F&B $18,118,652 $24,872,349 $25,618,519 $26,387,075 $27,178,687 PARKING $2,038,103 $2,541,795 $2,618,048 $2,696,590 $2,777,487 OTHER $1,539,527 $2,351,573 $2,422,120 $2,494,784 $2,569,627 TOTAL REVENUES $65,315,903 $90,828,993 $93,727,038 $96,651,871 $98,880,374

Convention Center Expansion - Net New Revenues 2017 2018 2019 2020 2021 Rooms Avail - - - - - Annual Available - - - - - Rooms Occupied 30,492 30,492 30,492 30,492 30,492 ROOMS $30,351,006 $48,014,370 $49,502,552 $50,990,734 $52,509,407 F&B $3,775,211 $3,888,467 $4,005,121 $4,125,275 $4,249,033 PARKING $406,751 $418,954 $431,522 $444,468 $457,802 OTHER $641,244 $660,482 $680,296 $700,705 $721,726 TOTAL REVENUES $35,174,212 $52,982,273 $54,619,491 $56,261,181 $57,937,969

Hotel Expansion - Net New Revenues 2017 2018 2019 2020 2021 Rooms Avail 500 500 500 500 500 Annual Available 182,500 182,500 182,500 182,500 182,500 Rooms Occupied 96,867 119,176 140,981 140,981 140,981 ROOMS $6,949,706 $12,491,187 $18,107,048 $19,234,898 $19,631,525 F&B $12,191,621 $15,497,385 $18,813,565 $19,377,972 $19,959,311 PARKING $1,539,018 $1,883,052 $2,232,175 $2,299,140 $2,368,114 OTHER $691,322 $1,162,047 $1,770,365 $1,823,476 $1,878,180 TOTAL REVENUES $21,371,667 $31,033,671 $40,923,153 $42,735,486 $43,837,131 Source: PKF Consulting

Addendum

STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS

This report is made with the following assumptions and limiting conditions:

Economic and Social Trends - The consultant assumes no responsibility for economic, physical or demographic factors which may affect or alter the opinions in this report if said economic, physical or demographic factors were not present as of the date of the letter of transmittal accompanying this report. The consultant is not obligated to predict future political, economic or social trends.

Information Furnished by Others - In preparing this report, the consultant was required to rely on information furnished by other individuals or found in previously existing records and/or documents. Unless otherwise indicated, such information is presumed to be reliable. However, no warranty, either express or implied, is given by the consultant for the accuracy of such information and the consultant assumes no responsibility for information relied upon later found to have been inaccurate. The consultant reserves the right to make such adjustments to the analyses, opinions and conclusions set forth in this report as may be required by consideration of additional data or more reliable data that may become available.

Hidden Conditions - The consultant assumes no responsibility for hidden or unapparent conditions of the property, subsoil, ground water or structures that render the subject property more or less valuable. No responsibility is assumed for arranging for engineering, geologic or environmental studies that may be required to discover such hidden or unapparent conditions.

Hazardous Materials - The consultant has not been provided any information regarding the presence of any material or substance on or in any portion of the subject property or improvements thereon, which material or substance possesses or may possess toxic, hazardous and/or other harmful and/or dangerous characteristics. Unless otherwise stated in the report, the consultant did not become aware of the presence of any such material or substance during the consultant’s inspection of the subject property. However, the consultant is not qualified to investigate or test for the presence of such materials or substances. The presence of such materials or substances may adversely affect the value of the subject property. The value estimated in this report is predicated on the assumption that no such material or substance is present on or in the subject property or in such proximity thereto that it would cause a loss in value. The consultant assumes no responsibility for the presence of any such substance or material on or in the subject property, nor for any expertise or engineering knowledge required to discover the presence of such substance or material. Unless otherwise stated, this report assumes the subject property is in compliance with all federal, state and local environmental laws, regulations and rules.

Zoning and Land Use - Unless otherwise stated, the projections were formulated assuming the hotel to be in full compliance with all applicable zoning and land use regulations and restrictions.

Licenses and Permits - Unless otherwise stated, the property is assumed to have all required licenses, permits, certificates, consents or other legislative and/or administrative authority from any local, state or national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimate contained in this report is based.

Engineering Survey - No engineering survey has been made by the consultant. Except as specifically stated, data relative to size and area of the subject property was taken from sources considered reliable and no encroachment of the subject property is considered to exist.

Subsurface Rights - No opinion is expressed as to the value of subsurface oil, gas or mineral rights or whether the property is subject to surface entry for the exploration or removal of such materials, except as is expressly stated.

Maps, Plats and Exhibits - Maps, plats and exhibits included in this report are for illustration only to serve as an aid in visualizing matters discussed within the report. They should not be considered as surveys or relied upon for any other purpose, nor should they be removed from, reproduced or used apart from the report.

STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS (continued)

Legal Matters - No opinion is intended to be expressed for matters which require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate consultants.

Right of Publication - Possession of this report, or a copy of it, does not carry with it the right of publication. Without the written consent of the consultant, this report may not be used for any purpose by any person other than the party to whom it is addressed. In any event, this report may be used only with proper written qualification and only in its entirety for its stated purpose.

Testimony in Court - Testimony or attendance in court or at any other hearing is not required by reason of rendering this appraisal, unless such arrangements are made a reasonable time in advance of said hearing. Further, unless otherwise indicated, separate arrangements shall be made concerning compensation for the consultant's time to prepare for and attend any such hearing.

Archeological Significance - No investigation has been made by the consultant and no information has been provided to the consultant regarding potential archeological significance of the subject property or any portion thereof. This report assumes no portion of the subject property has archeological significance.

Compliance with the American Disabilities Act - The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We assumed that the property will be in direct compliance with the various detailed requirements of the ADA.

Definitions and Assumptions - The definitions and assumptions upon which our analyses, opinions and conclusions are based are set forth in appropriate sections of this report and are to be part of these general assumptions as if included here in their entirety.

Dissemination of Material - Neither all nor any part of the contents of this report shall be disseminated to the general public through advertising or sales media, public relations media, news media or other public means of communication without the prior written consent and approval of the consultant(s).

Distribution and Liability to Third Parties - The party for whom this report was prepared may distribute copies of this appraisal report only in its entirety to such third parties as may be selected by the party for whom this report was prepared; however, portions of this report shall not be given to third parties without our written consent. Liability to third parties will not be accepted.

Use in Offering Materials - This report, including all cash flow forecasts, market surveys and related data, conclusions, exhibits and supporting documentation, may not be reproduced or references made to the report or to PKF Consulting in any sale offering, prospectus, public or private placement memorandum, proxy statement or other document ("Offering Material") in connection with a merger, liquidation or other corporate transaction unless PKF Consulting has approved in writing the text of any such reference or reproduction prior to the distribution and filing thereof.

Limits to Liability - PKF Consulting cannot be held liable in any cause of action resulting in litigation for any dollar amount, which exceeds the total fees collected from this individual engagement.

Legal Expenses - Any legal expenses incurred in defending or representing ourselves concerning this assignment will be the responsibility of the client.

Attachment K to Agenda Sheet No. 4

Attachment J to Agenda Sheet No. 4 - Voice of San Diego · 5/4/2013 · PKF Consulting USA | 865...

Documents

Transcript of Attachment J to Agenda Sheet No. 4 - Voice of San Diego · 5/4/2013 · PKF Consulting USA | 865...