Market Study & Financial...

Market Study & Financial Projections

Prepared For: Mr. Paul Gardner City Administrator City of Georgetown 1134 North Fraser Street Georgetown, South Carolina 29440 Prepared By: CBRE Hotels │ Consulting 225 Water Street, Suite 110 Jacksonville, Florida 32202 Date of Report: March 3, 2017

C O M M E R C I A L R E A L E S T A T E S E R V I C E S

CBRE, Inc. CBRE Hotels | Consulting 225 Water Street, Suite 110 Jacksonville, FL 32202 +1 904 634 1200 Office +1 904 610 9679 Mobile www.cbrehotels.com

March 3, 2017 Mr. Paul Gardner City Administrator City of Georgetown 1134 North Fraser Street Georgetown, South Carolina 29440

Dear Mr. Gardner:

In accordance with our engagement letter dated January 9, 2017, we have prepared a market

analysis and projections of occupancy, average daily rate (ADR) and cash flow for a proposed

80-unit Hotel Indigo to be located along the waterfront in Georgetown, South Carolina. We

have conducted an independent assessment of the viability of the project and have made

recommendations concerning the size and programming of the facility. For purposes of this

analysis, we have assumed that the property will be completed by January 1, 2019. The

following paragraphs present our conclusions.

EXECUTIVE SUMMARY

Georgetown Area Overview

Georgetown is the county seat of Georgetown County, located just southwest of Pawley’s Island, in the eastern coastal Lowcountry, at the convergence of the Waccamaw River (Atlantic Intra-Coastal Waterway), Great Pee Dee River, Sampit River and Winyah Bay. It is between the renowned tourist destinations of Charleston and Myrtle Beach. The vibrancy of Downtown Georgetown draws tourists with shops, restaurants, and a well-kept Historic District.

Georgetown County had an estimated population 61,400 in 2015, representing a compound annual growth rate of 0.4 percent since 2010. The projected population for 2020 is 64,900, an average annual growth rate of 1.1 percent per year. The City of Georgetown has some 9,100 residents, or 15 percent of the countywide population.

Mr. Paul Gardner March 3, 2017

2

Between 2010 and 2015, total nonagricultural employment in Georgetown County grew at a compound annual rate of 0.8 percent. 1,698 jobs were added over the past three years. Employment growth of 1.3 percent compounded annually is projected through 2025.

As of December 2016, the unemployment rate for Georgetown County was 5.7 percent, compared to the South Carolina rate of 4.3 percent, and the national rate of 4.7 percent.

Site and Neighborhood Evaluation The subject will be located in Downtown Georgetown, directly on the riverfront, with

pedestrian access to all of the restaurants, retail shops and cultural amenities offered. Upon completion it will be the only hotel in Downtown Georgetown.

On balance, the site is considered well suited to hotel development.

Recommended Facilities We recommend an 80-unit Hotel Indigo. It is assumed that the property will meet or

exceed Hotel Indigo brand standards and will include a modern expansive lobby area, a business center, an exercise room and a swimming pool. Further recommendations, upon which are our projections are based, include:

o inclusion of 3,000 to 4,000 square feet of flexible meeting space with waterfront views;

o a ground-level restaurant/bar with street access, and inclusion of a rooftop bar accessible to guests and the public;

o connecting to the existing Harborwalk; and,

o onsite, or off-site parking, free of charge to guests.

Completion of the subject is assumed to occur by January 1, 2019.

Supply and Demand Analysis There are five properties with a total of 376 guest rooms in Georgetown and Pawley’s

Island which would compete to varying degrees with the proposed Hotel Indigo. These properties represent all of the branded properties in Georgetown, along with the Hampton Inn Pawley’s Island. It should be noted that none of these properties are considered directly competitive, as all are limited service hotels.

In addition to the subject property, the 35-unit expansion of the Hampton Inn Pawley’s Island has been included as a supply addition in our analysis.

Market area occupancy and ADR for the defined competitive set is estimated to have been 63.8 percent and $96.40, respectively, for 2016. The properties garner 39 percent of their accommodated demand from corporate travelers, 46 percent from leisure guests and 15 percent from groups.


3

Considering recent trends in the market, base growth rates are expected to be moderate in the leisure and group segments and modest in the corporate segment.

Estimated Levels of Utilization The proposed Hotel Indigo is expected to achieve penetration levels in excess of its fair

market share in the corporate and group segments, and below its fair share in the leisure segment.

Projected market penetration, occupancy, ADR and revenue per available room (RevPAR) are presented in the table below:

ESTIMATED MARKET PENETRATION, OCCUPANCY, AVERAGE DAILY RATE AND REVPAR PROPOSED 80-UNIT HOTEL INDIGO GEORGETOWN, SOUTH CAROLINA

2019 THROUGH 2023

Average Daily Rate

Year Market

Penetration1

Occupancy Constant

2016 Dollars Inflated

Dollars2 RevPAR

(Inflated $)

2019 103% 62% $135.00 $147.50 $ 91.45 2020 107 66 138.00 155.25 102.47 2021 108 68 140.00 162.25 110.33 2022 107 68 140.00 167.25 113.73

2023 105 68 140.00 172.25 117.13

1 Presented as a percentage of fair market share.

2 Inflated annually at 3.0 percent and rounded to the nearest $0.25. Inflation rates were based on the results of recent investor surveys.

Financial Projections

Projected cash flows from operations before debt service and income taxes, in constant

2016 and inflated dollars, are depicted in the following table.

PROJECTED CASH FLOWS FROM OPERATIONS BEFORE DEBT SERVICE AND INCOME TAXES

PROPOSED 80-UNIT HOTEL INDIGO GEORGETOWN, SOUTH CAROLINA

2019 THROUGH 2023

Year

Constant 2016 Dollars

Inflated Dollars

2019 $ 801,000 $ 875,000 2020 939,000 1,056,000 2021 999,000 1,157,000 2022 999,000 1,194,000 2023 999,000 1,229,000


4

GEORGETOWN SOUTH CAROLINA OVERVIEW

An analysis of the economic characteristics of a given market area is critical in assessing historical

and future growth patterns and their impact on levels of lodging demand. Such an analysis also

contributes to a proper evaluation of market risks. For instance, a market heavily oriented

towards a single demand generator (e.g., a military installation) often carries a high level of

inherent risks. Conversely, a market having a diverse economy typically is less vulnerable to

downturns. Further, the sheer size of a market can impact risks through its ability to recover from

conditions of oversupply.

Founded in 1729 the City of Georgetown is the third oldest in South Carolina, and is the county

seat for Georgetown County. Georgetown is located just southwest of Pawley’s Island, in the

eastern coastal Lowcountry. The city is at the convergence of the Waccamaw River (Atlantic Intra-

Coastal Waterway), Great Pee Dee River, Sampit River and Winyah Bay. The historic downtown

area is surprisingly vibrant with an array of shops and restaurants that appeal to tourists.

Bordered by Horry and Marion Counties to the north, Charleston and Berkeley Counties to the

south, the Atlantic Ocean to the east and Williamsburg County to the west, there are three

municipalities in Georgetown County: the Town of Pawley’s Island, the Town of Andrews and the

City of Georgetown. The City of Georgetown is 30-miles southwest of Myrtle Beach, 55-miles

northeast of Charleston and 110-miles southeast of Columbia.

Population: Population growth is an important factor in determining the economic strength of a

given area. Although the growth of a local population is not related directly to room-night

demand for hotels, it does reflect employment growth and future employment concentration

which, in turn, typically influence levels of commercial room-night demand. The following table

depicts population characteristics for Georgetown County, the state and the nation.

POPULATION GEORGETOWN COUNTY, SOUTH CAROLINA AND THE UNITED STATES

2010, 2015 AND 2020 (in thousands)

2010

2015

Compound Annual Change

2010-2015

2020

Compound Annual Change

2015-2020

Georgetown County 60.2 61.4 0.4% 64.9 1.1% South Carolina 4,636.3 4,885.1 1.1 5,176.5 1.2 United States 309,347.1 321,545.1 0.8 336,690.4 0.9

Source: Woods & Poole Economics, Inc. - 2016 CEDDS

The maps on the following pages denote the subject’s location within the region and

metropolitan area.


5

REGIONAL LOCATION


6

METROPOLITAN LOCATION


7

Employment: Total employment for Georgetown County grew at a rate of 0.8 percent

compounded annually between 2010 and 2015. Following the recession, job losses persisted

through 2012. Since that time, however, there has been steady growth. Some 258 jobs were

added in 2013, 896 jobs in 2014 and 544 jobs in 2015. Georgetown County is clearly a service

based economy, though growth has been strongest in the much smaller manufacturing sector.

Employment by nonagricultural industry for Georgetown County in 2010 and 2015 is depicted in

the following table.

EMPLOYMENT BY NONAGRICULTURAL INDUSTRY GEORGETOWN COUNTY

2010 AND 2015

2010 2015 Compound Employment Employment Annual Industry Number Percent Number Percent Change

Services 14,663 42.5 15,270 42.5 0.8 Government 5,245 15.2 5,280 14.7 0.1 WRT1 4,559 13.2 4,601 12.8 0.2 Financial Activities 4,497 13.0 4,534 12.6 0.2 Other 3,551 10.3 3,686 10.3 0.7 Manufacturing 1,993 5.8 2,546 7.1 5.0

Total 34,508 100.0% 35,917 100.0% 0.8%

1 Wholesale and retail trade Source: Woods & Poole Economics, Inc. - 2016 CEDDS

Graphical depictions of 2015 employment by industry and the annual new job growth for 2010

through 2015 are presented below.

Woods & Poole Economics, Inc.’s forecast of employment through 2025 indicates compound

annual growth of 1.3 percent for Georgetown County. As of December 2016, the

unemployment rate for Georgetown County was 5.7 percent, compared to the South Carolina

state rate of 4.3 percent, and national rate of 4.7 percent.

42.5%

12.8%

22.9%

14.7%

7.1%

EMPLOYMENT BY INDUSTRY

Services

Trade

Other

Government

Manufacturing

‐400

‐200

0

200

400

600

800

1,000

2011 2012 2013 2014 2015

ANNUAL NEW JOB GROWTH


8

The county’s largest private employers are listed in the following table.

LARGEST EMPLOYERS GEORGETOWN COUNTY

Employer

Product/Service

Number of Employees

Tidelands Health Healthcare 1,900 Georgetown County School District Education 1,800 Georgetown County Government 800 International Paper Manufacturing 800 SafeRack Manufacturing 350 Santee Cooper Utility 300 Agru America Manufacturing 275 3V Chemical Manufacturing 250

Source: ULI Georgetown Briefing Book 2016

Tourism: Tourism is generated largely by leisure travelers along the coast, in addition to festivals,

concerts, and fishing tournaments. Georgetown County ranks sixth of South Carolina’s 46

counties in terms of accommodations tax revenue. The county is situated between the two

nationally recognized tourist destinations of Charleston and Myrtle Beach and can be easily

reached in a day trip from either. In Georgetown County, Pawley’s Island and the City of

Georgetown are the main tourist drivers, along with many historical and ecological sites. That

said, the proximity of Myrtle Beach and Charleston are significant factors in understanding

Georgetown’s tourist industry.

Pawley’s Island is east across the Atlantic Intra-Coastal Waterway from Georgetown and is one of

the oldest resort areas in the U.S. The seaside community offers a tranquil escape from bustling

Myrtle Beach, with restaurants and golf courses off ocean, and single-family homes lining the

ocean. This island is at the southern end of the Grand Strand, a 60-mile stretch of coastline

extending from Pawley’s Island northward to the Little River Inlet at the North Carolina border.

The latest Statistical Abstract for the Myrtle Beach Area, published in February 2015, provides

information about the effect tourism has on the Grand Strand. In 2013 (the latest data

available), total visitors totaled 16.1 million, which represented a 5.9 percent increase over 2012.

The following points further depict the strength and importance of tourism:

The Grand Strand, with over $18 million in collections, accounts for nearly one-third of the state of South Carolina’s annual revenue from the two percent accommodations tax.

Grand Strand leisure travelers spent an average of $117 per person per day in 2013 and group travelers spent an average of $277 per person per day. Most Grand Strand visitors (60 percent) stayed in hotels while 21 percent stayed in condominiums and villas. Over 40 percent of the visiting population had an


9

average family income of $75,000 or more, which continues to affirm that the visitor base is becoming more affluent.

The Charleston area attracted an estimated 5.15 million visitors in 2015, up 5.1 percent from 4.9

million in 2014. The city’s popularity as a tourist destination is due primarily to downtown

Charleston’s historic district, with its 18th and 19th century architecture, and the strategic emphasis

placed upon Charleston during the Civil War. In addition, the area’s coastal location, moderate

climate, famous gardens and renowned festivals contribute to its popularity. According to a

visitor inquiry study conducted for the Charleston Area Convention & Visitors Bureau (CACVB)

during 2015 (most recent available), visitors to Charleston spent an average of $211 per day

and generated $6.9 million in attraction admission tax and $7.9 million in lodging sales.

Georgetown County’s rich history invites tourists to discover pre-revolutionary, antebellum,

reconstruction and post reconstruction culture. Steeped in cotton, slavery, shipping and lumber

this area is historically significant. Georgetown County has 37 properties and districts listed on

the National Register of Historic Places, with three National Historic Landmarks. Within the city

limits are:

Old Market Building (Town Clock) on Front Street,

Prince George Winyah Church and Cemetery on the northeast corner of Broad and

Highmarket Streets,

Joseph Rainey House on Prince Street,

Winyah Indigo School on Prince Street,

Georgetown Historic District – includes more than 28 pre-Revolutionary War buildings

and homes spread throughout the city.

The Gullah/Geechee Cultural Historical Corridor winds through the Lowcountry from Wilmington,

North Carolina, to Jacksonville, Florida, and was established in 2006 by the U.S. Congress to

recognize the unique culture brought to the U.S. from West Africa. Many of the slaves worked on

rice plantations in Georgetown County, and there are specific heritage facilities at the Avery

Center and Penn Center in Charleston and Beaufort, respectively.

Brookgreen Gardens is a 1,600-acre wildlife preserve located just south of Murrells Inlet.

Created by Archer and Anna Hyatt Huntington to showcase sculptures, this property has

walkways, paths, and fountains on 551-acres. The collection now contains 1,400 works by 350

artists. In 2015 some 309,359 people visited Brookgreen Gardens. It was listed on the National

Register of Historic Places in 1978 and the sculpture portion as a National Historic Landmark in

1984.


10

There are several noteworthy natural resource (ecotourism) destinations in the area:

Hobcaw Barony/Belle W. Baruch Foundation – a 16,000-acre historic site and preserve

University of South Carolina’s Baruch Institute for Marine and Coastal Sciences

Clemson University’s Baruch Institute of Coastal Ecology and Forest Science

Tom Yawkey Wildlife Center Heritage Preserve – a 20,000-acre preserve

Huntington Beach State Park – a 2,500-acre preserve and campground

Events: Georgetown is host to several popular events that draw visitation. The largest is the

Georgetown Wooden Boat Show. In its 27th year, the October weekend festival hosts some

20,000 attendees. The Bassmaster Elite Series and Winyah Bay Heritage Festival are also major

draws. Other events include Music In The Park (a 10-week series with outdoor performances),

the Bridge2Bridge Marathon, the annual 4th of July parade and fireworks display, and a

Christmas parade and tree lighting.

Transportation: Access to Georgetown is facilitated by U.S. 17, which generally parallels the

eastern seaboard from northern Virginia to southwest Florida. Locally, U.S. 17 links Charleston

to Wilmington, passing through Pawley’s Island and Myrtle Beach. U.S. 521 intersects with

Interstate 95 (I-95) approximately 60 miles west of Myrtle Beach, providing convenient access to

the area from all points along the East Coast.

While predominately a drive-to destination, the county is served by Georgetown Airport (KGGE),

a general aviation facility five miles south of downtown. First opening as a marine air station in

1943 the airport now has two asphalt surface runways (6,001’ x 100’ and 4,700’ x 150’) and an

8,500 square-foot terminal. Commercial air service is provided nearby at Charleston

International Airport (CHS) and Myrtle Beach International (MYR). Charleston International

Airport is some 60-miles southwest and served 3.7 million passengers in 2016. Myrtle Beach

International Airport lies 35-miles to the northeast, and accommodated 1.9 million passengers.

Georgetown is bordered on two sides by water, and one by marsh, providing aquatic access and

recreational opportunities. Boating enthusiasts can dock at the Georgetown Landing Marina

(167-slips), Harbor Walk Marina (40-slips) and Johnson’s Marina & Campground (36-slips).

Further, Hazard Marine, located adjacent to Harbor Walk Marina, is the only marine repair and

refit facility from Myrtle Beach to Charleston.

The Port of Georgetown: The South Carolina Ports Authority (SCPA) own terminals in Charleston,

Georgetown, and Greer (inland port), with a combined economic impact of $53 billion. In fiscal

2016 the South Carolina Ports Authority handled 1,943,000 Twenty Foot Equivalent Units (TEUs)

and 1,151,000 tons of breakbulk, with 1,900 vessel calls. Operating revenues increased some


11

7.3 percent from fiscal 2015. The Port of Charleston is a major economic engine for the State of

South Carolina, feeding the inland port of Greer.

Historically, the Port of Georgetown was a significant economic driver. Throughout its history

Georgetown has been a strong port city, being designated as an official port of entry in 1732.

Indigo cotton, rice, and timber have all been exported from Georgetown. However, Charleston’s

logistical advantages surpassed Georgetown in the mid to late 1900’s and SCPA’s primary focus

is now clearly on the Port of Charleston. Georgetown contributed $936,000 of the

$211,166,000 revenue for fiscal 2016, or less than one percent. Revenues at the Port of

Georgetown declined from $1,399,000 in fiscal 2014, to $1,282,000 in fiscal 2015, to

$936,000 in fiscal 2016. Exacerbating the decline is the depth of Georgetown’s channel, now

only 19’, and well below that necessary to accommodate the majority of ships calling on U.S.

ports today. In reference, dredging has been performed in Charleston to a depth of 52’ to stay

competitive with other east coast ports. In 2014 residents of Georgetown County passed a one

percent local sales tax designated for capital projects. Included in the tax package were funds

earmarked for dredging. However, ArcelorMittal announced that they were permanently closing

their Georgetown steel mill in May of 2015, eliminating 226 jobs and further reducing port

traffic. Accordingly, dredging of the port may not occur.

The Urban Land Institute (ULI), in conjunction with Georgetown County, prepared a panel study

in 2016 focusing on the industrial waterfront parcels (the “inner harbor”). In total they studied

125-acres. Praxair’s facility occupied one of the parcels and was in place specifically to service

the ArcelorMittal steel mill. It is now idle, along with the steel mill. Further, given SPCA’s revenue

losses, there is concern for the viability of this port. Manufacturing is growing in other areas of

Georgetown County, most of which is not water dependent. City and County officials are

therefore studying how to best reposition the waterfront sites to benefit the community, with a

likelihood of redevelopment to a non-industrial use through private/public partnerships.

Conclusion: The City of Georgetown has leveraged its unique location to facilitate a shift from

being a traditionally industrial and port city, to one that includes a significant level of tourism.

This has helped mitigate the impact from the closing of the ArcelorMittal steel mill, and the poor

performance of the Port of Georgetown. Many see these changes as an opportunity to further

advance tourism initiatives and make Downtown Georgetown a cohesive destination, while

attracting a growing manufacturing base to other areas of Georgetown County. On balance, the

mid to long-term prospects for the county appear favorable.


12

SITE AND NEIGHBORHOOD EVALUATION

The neighborhood within which a hotel operates can have a significant impact on its operating

performance. Emerging neighborhoods experiencing substantial growth can generate increasing

levels of demand and provide an environment characterized by new development and, more

importantly, popular support facilities (e.g., restaurants, retail, entertainment, etc.). Conversely, a

declining neighborhood or, in some cases, a mature one relative to a nearby emerging one, can

be detrimental to a property’s operations. In this section, we address the location, access and

development characteristics of the subject neighborhood.

The subject neighborhood is generally defined as that area within the city limits of Georgetown, a

7.4 square-mile incorporated area that is divided into five distinct neighborhoods.

Willowbank/Country Club Estates is a small neighborhood east of U.S. 17, but north of

Downtown. It is home to major retail stores such as Wal-Mart and Belk, restaurants lining U.S.

17 and the Tidelands Georgetown Memorial Hospital.

Maryville is a community south of the city separated by the Sampit River, annexed from 1950 to

1954. This neighborhood has one of the highest concentrations of residential development in the

city. It is home to Maryville Elementary School, the Carroll Ashmore Campbell Marine Complex

and the Georgetown Airport.

West End district is north of the International Paper plant, south of Highmarket Street, east of

Collins Street, and west of U.S. Highway 17. Once providing housing for the working class

families employed at the port and in the steel mill, West End has struggled with gentrification.

North End/North Highmarket is adjacent to West End, across Highmarket Street, bordered by

U.S. 17 to the east. This is the location of Georgetown High School, Georgetown Middle School

and Georgetown Parks and Recreation Department’s Beck Recreation Center. Single- and multi-

family residential housing is interspersed among these land uses.

Downtown Georgetown is bound by U.S. 17 to the west, and marsh and water to the north, south

and east. Within the 60 square-block Downtown area is the “Historic District”, a 40 square-block

area designated by the National Register of Historic Places in 1971. This is home to the

commercial core of 210-properties in 14-blocks on Front Street along the Sampit River

overlooking Goat Island. A vibrant mix of restaurants, shops, and offices line the corridor, with

little vacancy. There are many pedestrian sidewalks, way markers, and historical plaques, all of

which have been implemented by the City of Georgetown in a concerted effort to bolster tourism.

The Harborwalk (boardwalk) extends from Screven Street to King Street, over the water, with boat

dockage along the way. North of Front Street are single-family residential homes with a live oak

tree canopy and sidewalks, along with community supportive uses. To the southeast of downtown


13

are East Bay and Morgan Parks, with public ball fields, courts, hiking trails and boat ramps.

Pictures of Downtown Georgetown are presented below.

There are numerous tourist attractions in the downtown area including the following:

The Rice Museum is located in the Town Clock Tower of the Old Market Building on Front Street. The museum is focused on the importance of the rice crop to South Carolina in the 1850’s. In addition, the museum features Brown’s Ferry Vessel, a 1700’s era boat which sunk in the Black River.

Kaminski House Museum is located on a hill overlooking the Sampit River between King and Wood Streets. Built in 1979 this home is one of the most representative of Georgian style architectures of its era. The museum contains a collection of American and English antiques from the 18th and 19th centuries.

The Stewart Parker House, much like the Kaminski House, was a single-family residence built in the Georgian style, although later renovated to Federal architecture. Built in 1740 it has been converted to an office, also serving as host to social functions and meetings.

Strand Theatre is an iconic structure on Front Street. Built in 1941, the building was retrofitted in 1971. The Fox Swamp Players host live performances at the facility. As a landmark the Strand Theatre has been recognized by the League of Historic American Theatres and the National Registry of Historic Places.

Gullah Museum on King Street offers tours, presentations and demonstrations of traditional Gullah and Lowcountry crafts. Art is also on display.

Winyah Auditorium is the city’s original high school on Highmarket Street. Built in 1908 as the Winyah School, the last class graduated in 1985. It reopened in 2011 and now serves as a cultural and civic center.


14

Georgetown County Museum in the Historic Masonic Lodge (built in 1740) on Prince Street was established in 2005, consisting of themed collections from slavery, military, hunting, fishing, plantation life and entertainment.

In 2011 the Harbor Historical Association opened the South Carolina Maritime Museum on Front Street, residing in the first floor of the 1920’s era Five and Dime building. This museum features photographs, documents, artifacts, and interactive exhibits related to South Carolina’s rich and remarkable maritime history. It is home to the Fresnel lens of the old North Island Lighthouse and host to the annual “Burning of the Socks” boaters celebration of the spring solstice. The museum is the launching point for a youth sailing program. In 2016 there were 20,000 visitors to the museum and 127 children entered the youth sailing program.

The subject is to be located at the southern terminus of Queen Street, directly on the Sampit River,

with water and Goat Island views. It is at the eastern end of the commercial corridor. It is

assumed that the Harborwalk will be extended to this property. Proximity to demand generators

and support facilities is considered excellent. Of paramount importance is the proposed hotel’s

location directly on the Sampit River. Views of the river and marsh are considered a distinct

advantage. In addition, Front Street provides an array of restaurants, shopping, and other

attractions that make this location very appealing to both tourists and business travelers.

Overall, the site is considered excellent for the proposed hotel.

RECOMMENDED FACILITIES

Hotel Indigo: Hotel Indigo is a brand within the InterContinental Hotels Group portfolio, and is a

boutique offering, giving guests a unique hotel experience. Every hotel is designed to capture the

essence of the neighborhood with oversized wall murals and seasonal menus reflecting local

character and culture. A flexible design concept allows for uncommon individuality and a

customized experience. Developers are allowed to creatively interpret the property design to

reflect the culture, character and history of the surrounding neighborhood. The brand is suited

for city centers, urban and strong suburban environments. Additional characteristics of the brand

include:

Plush bedding, hard-surface flooring and spa-inspired guest room bathrooms;

Restaurant dishes are prepared with a local flair, with distinctive menus that feature

seasonal ingredients from a network of local vendors; and

An “Inspired Service Culture” that includes personal touches and helpful, courteous

conversations.


15

Hotel Indigo guests are eligible to earn points for the brand’s frequent traveler awards program

(IHG Rewards Club). The brand was launched in 2004 and, as of December 2016, there were

46 Hotel Indigo properties with 5,932 rooms in the Americas region, with an additional 32

properties in the pipeline. Globally, there were 75 Hotel Indigo properties with 8,905 rooms. 75

properties are in the pipeline. As of year-end 2016, Hotel Indigo (United States) systemwide

occupancy was 72.4 percent at an ADR was $146.55, resulting in RevPAR of $106.10.

In the Georgetown/Pawley’s Island market there is a notable lack of IHG affiliated properties.

Hilton is represented with two Hampton Inns, Choice Hotels has a Rodeway Inn and a Quality Inn

& Suites, and Wyndham offers the Baymont brand.

Subject Property: Based on our evaluation of the market, we recommend approximately 80-units.

At 80-units, the property will be small for the brand, as we recognize the limited size of the

Georgetown market and the lack of upscale demand patronizing the market at present. Today,

those desiring a higher end guest experience must stay elsewhere. The two Hampton Inns are the

market leaders by a significant degree, yet they are both limited service offerings. In order for the

subject property to be successful it must attract a considerable number of guests who are not in

the market today. This phenomenon of “latent demand” is common in markets where a new

product type is introduced. A good example in the region is the Hotel Florence which opened a

few years ago in downtown Florence, South Carolina.

Based on the significant number of popular restaurants located in downtown Georgetown, we

recommend the property’s restaurant be rather low key with a focus on in-house guests.

However, the property’s waterfront location and excellent vistas suggest a roof top bar could be

highly successful. Good regional examples of successful similar venues are located at the

Bohemian and Cotton Sail hotels in Savannah.

None of the existing hotels in Georgetown offer a meaningful level of high quality meeting space

to accommodate corporate groups or social gatherings, presenting an opportunity for the subject

property. We recommend the inclusion of 3,000 to 4,000 square feet of meeting space with a

ball room approximating 2,500 square feet. Such a facility could accommodate 125 or so in a

banquet style configuration, and up to 250 with theater style seating. The meeting space,

particularly the ballroom should be positioned to allow water views.

It is assumed that the subject will meet or exceed Hotel Indigo brand standards and will include a

modern expansive lobby area, a business center, an exercise room, and a swimming pool.

Completion of the subject is assumed to occur by January 1, 2019.

SUPPLY AND DEMAND ANALYSIS

The supply and demand analysis involves a qualitative and quantitative evaluation of the lodging

facilities in Georgetown and Pawley’s Island with which the proposed Hotel Indigo would


16

potentially compete for various segments of demand. This section includes a description of the

existing supply of, and demand for, hotel rooms in the subject market area, identification of

proposed competitive properties, and a discussion of the growth potential of area demand by

segment. The analysis is for the period through the calendar year ending December 31, 2023 to

encompass the first five full years of operation for the subject following its anticipated opening by

January 1, 2019.

Understanding the relationship between supply and demand is a critical component of any

market study, particularly with respect to hotels. Unlike other property types, hotels essentially

lease their rooms on a daily basis. While this characteristic allows for an immediate response to

changes in market conditions, it also requires a high level of management intensity. There is an

inverse relationship between occupancy and ADR, and raising or lowering rates typically has an

immediate impact on room-nights sold. Effective management entails finding the proper balance

that allows for the maximization of revenue.

In this section we first identify the subject property’s competitive set (e.g., those hotels that tend to

compete for the same sources of demand). We then identify relevant demand sources, analyze

historical growth patterns and assess the potential for growth (or lack thereof) in demand by

segment. The result is a projection of future market performance. Lastly, we conclude with a

projection of occupancy and ADR for the subject property, taking into consideration its

competitive strengths and weaknesses relative to the overall market.

Obviously, some hotels are more directly competitive than others based on their locations,

facilities, branding, etc. This disparity in the level of competitiveness can be handled in a number

of ways. Some consultants assign a percentage to each property and include only a portion of

their guest rooms in the competitive set. This technique, while theoretically sound, is highly

subjective and the overall analysis can be extremely sensitive to the assumptions made.

Alternatively, we have chosen to address this issue through our projected penetration rates. For

example, the introduction of a new property that is only marginally competitive will have a limited

impact on the subject property’s penetration level, whereas a directly competitive property will

likely have a substantial effect. Regardless of the method employed, properly assessing the

relationship between supply and demand and its impact on the subject property and market

occupancy requires a level of professional judgment.

Our analysis begins with an overview of the national lodging market as presented next.

National Lodging Market Overview: CBRE Hotels owns the database for Trends in the Hotel

Industry®, the statistical review of U.S. hotel operations which first appeared in 1935 and has

been published every year since. Beginning in 2007, CBRE Hotels (formerly PKF) unveiled its

powerful Hotel Horizons®, an econometrically-developed hotel forecasting model that projects

five years of supply, demand, occupancy, ADR and RevPAR for the U.S. lodging industry with a


17

high degree of accuracy. Hotel Horizons® reports are published on a quarterly basis for 60 of the

nation’s largest markets and six national chain-scales.

CBRE Hotels has determined through econometric analysis that strong relationships exist between

employment, income, price and demand for hotel rooms. Using proprietary models developed

in the course of this research the firm produces national quarterly forecasts for demand,

occupancy, ADR, RevPAR and supply. These forecasts use baseline historical hotel operating data

from STR, and historic and forecast economic data from Moody’s Analytics.

The following table shows the national forecast for all hotels from CBRE Hotel’s Hotel Horizons®

March – May 2017 National Edition.

The U.S. lodging industry enjoyed its sixth consecutive year of growth in RevPAR during 2016.

According to STR, RevPAR grew by 3.2 percent for the year, the result of a 0.1 percent gain in

occupancy and a 3.1 percent increase in ADR. RevPAR growth was well distributed between the

chain scales in 2016, with the leader being economy brands at 3.1 percent.

The national occupancy level reached 65.5 percent in 2016. This level is greater than the long-

run average occupancy rate of 61.9 percent, and tops the 63.1 percent pre-recession peak

occupancy level reported by STR in 2006. Supply growth is slated to outpace demand growth in

2017 and in the years to follow. By year-end 2017, therefore, U.S. occupancy is forecasted to


18

decline to 65.4 percent. This will mark the first year in nine where occupancy did not grow from

the previous year.

Beyond 2017, industry occupancy is expected to gradually decline, with supply outpacing

demand levels. Still, CBRE Hotels projects continued strength in ADR from 2017 through 2021,

at annual growth rates between 2.1 and 3.1 percent, driving gains in RevPAR.

Georgetown Lodging Market Overview: Lodging products in Georgetown are sparse and there is

a very high level of brand differentiation. Two Hampton Inn properties, one in Georgetown and

one on Pawley’s Island, compete with lower rated hotels. The RevPAR of the two Hampton Inns is

far higher than that achieved by the remaining properties. Hotels in Georgetown are

concentrated along U.S. 17 between Marina Drive and St. James Street, outside of Downtown.

Existing Competitive Facilities: There are five properties with a total of 376 guest rooms located

in the area which would potentially compete with the proposed 80-unit Hotel Indigo. These

hotels represent all of the branded properties in the area. Although additional lodging facilities

are present in the market area, they are not considered to be directly competitive due to

disparities in terms of location, product, pricing, affiliation and/or quality. Accordingly, a guest

who patronizes one of the competitive properties is not likely to be the same type of traveler who,

under normal circumstances, would choose these other facilities.

The maps on the following pages depict the location of each property in relation to the subject.

The tables on the page after the maps provide a summary profile of the defined competitive

properties. Additional information on the competitors is provided in the following paragraphs.

The 98-unit Hampton Inn Georgetown Marina generates the market’s highest RevPAR, and is both the occupancy and ADR leader. Constructed in 1997, this three-story interior-corridor hotel is located in the southeast quadrant of U.S. 17 and Marina Drive, overlooking the Great Pee Dee River. It is adjacent to Georgetown Landing Marina and Eddy Chacon’s of Georgetown restaurant. The Hampton Inn Georgetown Marina features 625 square feet of meeting space, complimentary breakfast, free Wi-Fi, a fitness center and a swimming pool. It obtains the highest level of corporate business in the competitive set, a factor of its higher quality and excellent branding. The hotel has been undergoing a full renovation, with work occurring in the off seasons over the course of two years. The renovation is scheduled to be completed by the end of February of 2017.

The 61-unit Baymont Inn & Suites Georgetown/Near Georgetown Marina overlooks the marsh and the Great Pee Dee River on the northern side of U.S. 17 at the Marina Drive intersection. The two-story exterior-corridor hotel features complimentary breakfast, free Wi-Fi, a fitness center and a swimming pool. There is no meeting space. The hotel was constructed in 1997 and renovated in 2013 with paint, carpet and new FF&E. Still, it is in marginal condition. It was purchased in June of 2016 for $2,560,000.


19

The 97-unit Quality Inn & Suites is located adjacent to the Baymont Inn & Suites Georgetown/Near Georgetown Marina, on the north side of U.S. 17 at the Marina Drive intersection. This property has northern marsh views, but no river frontage. The Quality Inn & Suites features the largest amount of meeting space in the competitive set, some 3,377 square feet, allowing it to have the strongest group penetration. Groups include corporate training, youth sports, family reunions and weddings. The two-story exterior-corridor property was built in 1967, and fully renovated in 2007, with additional carpets, tubs, and beds replaced in 2015 and rooms, paint, and FF&E replaced in 2016.

The 54-unit Rodeway Inn/Harbor is located on the north side of U.S. 17, between Queen and Screven Streets, with northern marsh views. This hotel is of exterior-corridor one- and two-story design, with limited amenities offered, and no meeting space. It was built in 1980. The hotel captures the lowest amount of corporate business in the competitive set. Some 60 percent of its overall business is locally generated and includes a significant number of extended-stay guests. The closing of the steel mill has had a direct negative impact on this hotel’s performance. It is the lowest performing property in the competitive set.

The 66-unit Hampton Inn Pawley’s Island is a three-story interior-corridor hotel located at the northwest corner of U.S. 17 and Willbrook Boulevard. It is in a planned development, roughly 0.75-mile west of the Atlantic Ocean. The hotel offers complimentary breakfast, free Wi-Fi, a swimming pool and a fitness center. There is no meeting space. The Hampton Inn Pawley’s Island was recently renovated and is underwent a 35-room expansion that was completed in early 2017. It is the second highest rated performer in the competitive set, but has more leisure business than the Hampton Inn Georgetown Marina.

Supply Additions: Based on our fieldwork, we have not identified any new supply additions other

than the subject property. A 35-unit expansion of the Hampton Inn Pawley’s Island was

completed in January of 2017. Those new rooms have been included as new supply in our

analysis. Should other hotels be developed, or existing hotels be repositioned to compete with

the subject, it could have a material effect on the assumptions and results associated with this

market study and a revision might be required.


20

COMPETITIVE PROPERTIES


21

COMPETITIVE PROPERTIES IN GEORGETOWN


22

SUMMARY OF COMPETITIVE PROPERTIES GEORGETOWN, SOUTH CAROLINA PROPOSED 80-UNIT HOTEL INDIGO

Estimated 2016 Estimated 2016 Number Year Percent Average Demand Segmentation Total Sq. Ft. Name of Property of Units Open Occupancy Daily Rate RevPAR1 Corporate Leisure Group Meeting

Space Amenities

Hampton Inn Georgetown Marina 98 1997 80%-84% $125-$129 $85-$89 55% 30% 15% 625 C-D-E-F Baymont Inn & Suites Georgetown 61 1997 70 - 74 75 - 79 40 – 44 40 45 15 0 C-D-E-F Quality Inn & Suites 97 1967 80 - 84 75 - 79 50 – 54 40 40 20 3,377 C-D-E-F Rodeway Inn/Harbor 54 1980 80 - 84 55 - 59 30 – 34 10 10 10 0 E-F Hampton Inn Pawley’s Island 66 1997 50-54 120 - 124 75 – 79 35 35 10 0 C-D-E-F

Total/Averages 376 63.8% $96.40 $61.53 39% 46% 15%

Fair Market

Estimated 2016 Market Share Percentage2

Estimated 2016 Market Penetration as a Percentage of Fair Market Share3

RevPAR

Name of Property Share Total Corporate Leisure Group Total Corporate Leisure Group Penetration4

Hampton Inn Georgetown Marina 26.06% 27.36% 38.21% 17.92% 27.67% 105% 147% 69% 106% 140% Baymont Inn & Suites Georgetown 16.22 14.31 14.54 14.06 14.47 88 90 87 89 70 Quality Inn & Suites 25.80 27.46 27.89 23.99 37.03 106 108 93 144 84 Rodeway Inn/Harbor 14.36 12.72 3.23 22.23 8.58 89 22 155 60 55 Hampton Inn Pawley’s Island 17.55 18.15 16.13 21.80 12.24 103 92 124 70 129

Notes: Amenities Key

1 Occupancy × average daily rate. A = Restaurant(s) D = Exercise Room 2 Property’s accommodated demand ÷ total demand accommodated in market. B = Lounge(s) E = Complimentary Breakfast 3 Market share percentage ÷ fair market share. C = Swimming Pool F = Complimentary High-Speed 4 Property's RevPAR ÷ market RevPAR. Internet Access

Source: CBRE Hotels


23

The table on the page that follows depicts trends in occupancy, ADR, RevPAR, supply and

demand for the defined competitive supply since 2010. The market has shown consistent growth,

due largely to an improving economy. Occupancy in the competitive set has increased by some

14 percentage points since 2010, with ADR up over $14. This has led to large increases in

RevPAR.

Georgetown Airbnb: CBRE Hotels also tracks Airbnb supply and demand in markets across the

country. The following details Airbnb activity in Georgetown.

Units are generally available throughout the year, but often come on the market, or are taken off

the market, dependent upon the owner’s availability to rent. Of the 1,421 available room nights

there were some one to seven units on the market in a given month. They range from private

rooms to over four bedroom houses. Some 434 room nights were sold through Airbnb from

October 2015 through September 2016 in Georgetown. On February 28, 2017 a search of

Airbnb in Georgetown rendered six active listings from $50 to $250, with availability in in a

private bedroom within a house, to a full five-bedroom house. As is demonstrated, the

occupancy level over the course of a year is fairly low, having little impact on the hotel market.

Principal Sources of Demand: The principal sources of demand for transient lodging

accommodations for the defined competitive set are the corporate, leisure and group segments.

From our analysis of the operating performance of the existing competitive properties, it is

estimated that the total demand accommodated by these properties in 2016 will be segmented

as follows:

ESTIMATED ACCOMMODATED DEMAND SEGMENTATION DEFINED COMPETITIVE SUPPLY

GEORGETOWN, SOUTH CAROLINA 2016

Demand Segmentation

Annual Accommodated Room-Nights

Percent of Total Demand

Corporate 34,500 39% Leisure 40,100 46 Group 13,000 15

Total 87,600 100%


24

HISTORICAL OCCUPANCY, ADR, REVPAR, SUPPLY AND DEMANDDEFINED COMPETITVE SUPPLY

GEORGETOWN, SOUTH CAROLINA

Year January February March April May June July August September October November December Total Year Nov YTD % Change % Change YTD2010 33.3% 33.1% 66.6% 48.3% 50.2% 58.5% 68.9% 56.9% 50.4% 57.1% 39.2% 34.6% 49.9% 51.3% - -2011 31.9 40.1 68.5 55.4 58.6 67.0 73.3 53.6 49.2 54.7 42.8 34.4 52.6 54.2 5.3% 5.7%2012 33.0 48.1 75.2 55.5 57.9 68.1 73.3 64.4 60.1 62.1 47.0 36.0 56.8 58.7 8.1 8.32013 38.5 48.7 70.7 59.0 66.6 71.7 74.7 67.5 56.4 59.0 48.7 44.6 58.9 60.3 3.8 2.62014 38.3 58.0 73.7 70.7 70.1 76.1 79.0 70.9 57.7 65.9 50.0 39.3 62.5 64.6 6.0 7.32015 40.6 55.1 85.3 77.2 68.4 74.9 74.6 66.1 65.6 68.9 55.6 44.5 64.8 66.6 3.6 3.12016 49.5 51.8 83.3 73.5 62.4 72.4 80.1 68.6 62.7 59.2 57.2 65.6 - -1.5Avg 37.9% 47.8% 74.8% 62.8% 62.0% 69.8% 74.8% 64.0% 57.4% 61.0% 48.6% 38.9% 57.6% 60.2%

Year January February March April May June July August September October November December Total Year Nov YTD % Change % Change YTD2010 $71.89 $72.60 $79.22 $82.66 $86.73 $90.08 $94.05 $87.11 $79.83 $81.04 $75.97 $69.98 $82.41 $83.19 - -2011 74.00 75.82 83.68 83.48 89.06 92.30 98.51 91.41 85.56 82.44 75.73 69.78 85.27 86.18 3.5% 3.6%2012 75.02 74.56 84.40 86.97 92.63 93.39 100.62 92.97 84.66 83.01 78.11 74.76 86.65 87.33 1.6 1.32013 77.42 76.77 88.78 91.67 99.82 97.18 101.96 94.77 85.25 87.01 81.38 76.97 89.84 90.72 3.7 3.92014 73.20 84.52 93.51 90.06 97.14 103.64 109.88 95.08 83.82 84.80 77.79 75.16 91.22 92.13 1.5 1.62015 81.17 83.58 96.43 91.89 97.90 103.93 107.40 98.50 88.16 86.86 81.66 79.64 92.86 93.68 1.8 1.72016 74.90 83.53 97.79 98.02 103.61 101.20 111.81 102.44 96.50 96.70 88.75 97.25 - 3.8Avg $75.51 $79.44 $89.61 $89.89 $95.71 $97.77 $103.72 $94.91 $86.54 $86.02 $80.35 $74.74 $88.37 $90.45

Year January February March April May June July August September October November December Total Year Nov YTD % Change % Change YTD2010 $23.92 $24.03 $52.78 $39.91 $43.52 $52.74 $64.84 $49.58 $40.20 $46.28 $29.78 $24.18 $41.12 $42.70 - -2011 23.62 30.39 57.34 46.21 52.21 61.85 72.16 49.02 42.10 45.08 32.45 24.03 44.81 46.74 9.0% 9.5%2012 24.76 35.89 63.49 48.24 53.66 63.59 73.74 59.92 50.90 51.52 36.72 26.90 49.21 51.28 9.8 9.72013 29.78 37.40 62.78 54.05 66.53 69.72 76.16 63.95 48.05 51.36 39.60 34.34 52.94 54.66 7.6 6.62014 28.00 49.00 68.89 63.70 68.07 78.87 86.76 67.41 48.36 55.88 38.93 29.53 57.00 59.55 7.7 8.92015 32.96 46.08 82.23 70.93 66.97 77.86 80.07 65.08 57.80 59.87 45.37 35.41 60.13 62.43 5.5 4.82016 37.04 43.25 81.46 72.03 64.67 73.24 89.52 70.32 60.47 57.30 50.75 63.82 - 2.2Avg $28.58 $38.01 $67.00 $56.44 $59.38 $68.27 $77.60 $60.75 $49.70 $52.47 $39.08 $29.07 $50.87 $54.45

Year January February March April May June July August September October November December Total Year Nov YTD % Change % Change YTD2010 11,687 10,556 11,687 11,310 11,687 11,310 11,687 11,687 11,310 11,687 11,310 11,687 137,605 125,918 - -2011 11,687 10,556 11,687 11,310 11,687 11,310 11,687 11,687 11,310 11,687 11,310 11,687 137,605 125,918 0.0% 0.0%2012 11,687 10,556 11,687 11,310 11,687 11,310 11,687 11,687 11,310 11,687 11,310 11,687 137,605 125,918 0.0 0.02013 11,687 10,556 11,687 11,310 11,687 11,310 11,687 11,687 11,310 11,687 11,310 11,687 137,605 125,918 0.0 0.02014 11,687 10,556 11,687 11,310 11,687 11,310 11,687 11,687 11,340 11,718 11,340 11,718 137,727 126,009 0.1 0.12015 11,718 10,584 11,718 11,340 11,718 11,340 11,718 11,718 11,340 11,718 11,340 11,718 137,970 126,252 0.2 0.22016 11,656 10,528 11,656 11,280 11,656 11,280 11,656 11,656 11,280 11,656 11,280 125,584 - -0.5Avg 11,687 10,556 11,687 11,310 11,687 11,310 11,687 11,687 11,314 11,691 11,314 11,697 137,686 125,931

Year January February March April May June July August September October November December Total Year Nov YTD % Change % Change YTD2010 3,889 3,494 7,787 5,461 5,865 6,621 8,057 6,652 5,695 6,674 4,434 4,038 68,667 64,629 - -2011 3,731 4,231 8,009 6,261 6,851 7,578 8,561 6,267 5,565 6,390 4,846 4,024 72,314 68,290 5.3% 5.7%2012 3,857 5,081 8,791 6,273 6,770 7,701 8,565 7,532 6,799 7,253 5,316 4,205 78,143 73,938 8.1 8.32013 4,496 5,143 8,265 6,669 7,789 8,114 8,730 7,886 6,375 6,899 5,503 5,215 81,084 75,869 3.8 2.62014 4,471 6,119 8,609 8,000 8,189 8,607 9,228 8,286 6,543 7,722 5,675 4,603 86,052 81,449 6.1 7.42015 4,758 5,836 9,993 8,753 8,016 8,495 8,736 7,742 7,434 8,076 6,301 5,210 89,350 84,140 3.8 3.32016 5,764 5,451 9,709 8,289 7,275 8,163 9,332 8,001 7,069 6,906 6,450 82,409 - -2.1Avg 4,424 5,051 8,738 7,101 7,251 7,897 8,744 7,481 6,497 7,131 5,504 4,549 79,268 75,818

Source: STR, Inc.

Demand

Occupancy

ADR

RevPAR

Supply


25

Seasonality of Demand: The subject market area is seasonal with spikes in occupancy during the

spring and summer months and during special events. March is a particularly strong month due

to International Paper’s annual 10-day maintenance shutdown, which coincides with spring break

for colleges and high schools. This is also the month of the Winyah Bay Heritage Festival.

Summer months are traditionally high family leisure travel months. An uptick in October is driven

by the Georgetown Wood Boat Show and the Bridge2Bridge Run. As with most markets,

December through January are typically the weakest months of the year due to the holidays.

Group meetings are most prevalent during the spring and fall months, while social groups are

more evenly spread throughout the year.

The table and graphs below profile the trend in seasonality for the competitive set from

December 2014 through November 2016.

SEASONALITY TRENDS DEFINED COMPETITIVE SUPPLY

GEORGETOWN, SOUTH CAROLINA DECEMBER 2014 THROUGH NOVEMBER 2016

Occupancy Average Daily Rate Month 2014/2015 2015/2016 2014/2015 2015/2016

December 39.3% 44.5% $75.16 $79.64 January 40.6 49.5 81.17 74.90 February 55.1 51.8 83.58 83.53 March 85.3 83.3 96.43 97.79 April 77.2 73.5 91.89 98.02 May 68.4 62.4 97.90 103.61 June 74.9 72.4 103.93 101.20 July 74.6 80.1 107.40 111.81 August 66.1 68.6 98.50 102.44 September 65.6 62.7 88.16 96.50 October 68.9 59.2 86.86 96.70 November 55.6 57.2 81.66 88.75

Source: STR, Inc.

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Dec '14 Mar '15 Jun Sep Dec Mar '16 Jun Sep

MONTHLY OCCUPANCY

$50.00

$60.00

$70.00

$80.00

$90.00

$100.00

$110.00

$120.00

Dec '14 Mar '15 Jun Sep Dec Mar '16 Jun Sep

MONTHLY ADR


26

Due to typical commercial travel patterns, the market often reaches capacity midweek.

Weekends also can be strong due to leisure demand and SMERF group activity. The following

table presents the daily occupancy and ADR patterns for the three-year period October 2016.

OCCUPANCY AND ADR BY DAY OF THE WEEK DEFINED COMPETITIVE SUPPLY

GEORGETOWN, SOUTH CAROLINA THREE YEARS ENDED OCTOBER 2016

Day of the Week Occupancy ADR

Sunday 44.3% $89.50 Monday 59.9 90.11 Tuesday 66.8 91.36 Wednesday 67.8 92.07 Thursday 63.4 92.01 Friday 71.3 97.70 Saturday 72.4 98.58

Three-Year Average 63.7% $93.38

Source: STR, Inc.

It is estimated that the defined market reaches capacity roughly 70 nights per year and

unaccommodated demand approximates 5 to 40 percent of inventory on fill-days. Accordingly,

some 6,200 room-nights of unaccommodated demand were included in our analysis.

Future Demand: Future room-night demand for the corporate, leisure, and group segments was

estimated based upon an analysis of key economic and demographic indicators. For each

segment, relevant factors were identified and weighted according to their relative impact on

demand. The annual growth rates estimated for each segment are discussed in the following

paragraphs.

Corporate Demand: This segment consists of demand generated by vendors, service

representatives, corporate executives and other visitors to area businesses and industries.

Corporate demand is primarily generated by area businesses, various local businesses and

government offices and agencies located within the immediate area. Additionally, plant

maintenance shut downs add to corporate demand.

Transient government demand also is included here. Those commercial travelers on a per diem,

such as government employees, tend to choose lower-priced facilities offering a good price/value

relationship (and often including complimentary food and beverage), while business people on

an expense account consider the quality of the accommodations to be more important than the

price charged. The federal per diem for fiscal year 2017 in Georgetown is $91 per night, with

meals and incidentals at $51 per day. Commercial demand levels tend to reflect trends in

employment.


27

The ArcelorMittal steel mill plant cut jobs and eventually closed in 2016. The closure was

announced and known in 2015, as the plant was down to some 200 jobs at closure. The impact

of this was seen in some occupancy numbers for 2016, but should did not have a substantial

impact on the overall market. As previously mentioned, employment in Georgetown County

increased 0.8 percent compounded annually between 2010 and 2015, and Woods & Poole

forecasts employment growth of 1.3 percent annually through 2025. We have projected modest

corporate demand growth.

Leisure Demand: The leisure demand segment includes beachgoers to Pawley’s Island staying in

nearby Georgetown, tourists visiting Downtown Georgetown and historical sites in the area,

boaters, nature enthusiasts drawn to the area for outdoor recreational activities, room nights

associated with special events and fishing tournaments, and friends and relatives of local

residents. As previously noted, as a midway point between Charleston and Myrtle Beach,

Georgetown offers those visiting larger destinations a stopover to experience a small, quaint

southern city. Overall, we anticipate modest, albeit steady growth within the leisure segment.

Group Demand: Group demand accruing to the subject market area consists of small to mid-

sized corporate groups holding meetings or conducting training as well as SMERF (social,

military, educational, religious and fraternal) groups such as weddings and reunions. This

segment can be further defined as follows:

Conventions: Private groups or associations meeting to exchange ideas. National and regional associations generally prefer larger markets with activities for spouses.

Conferences: Small private groups conducting training sessions, sales presentations or exchanging ideas. These events are typically held in hotels, although some of the larger ones may accrue to the convention center.

Assemblies: These groups are typically large and usually require tiered seating. Examples are large religious events.

Trade Shows: The primary purpose of a trade show is to bring buyers and sellers together within a particular industry. These events typically require large amounts of exhibit space. In general, trade show promoters try to attract as many participants as possible; accordingly, they are often held in major cities with extensive transportation networks and large populations.

Consumer Shows: These events are organized to sell goods and/or services directly to the public and are usually space intensive. Most attendees are from the local area which serves to limit economic impact. Accordingly, few hotel room-nights are generated.

Special Events: Most of these events are entertainment oriented (e.g., athletic events, concerts, festivals, large banquets, etc.). Depending upon the event, a substantial number of room-nights can be generated.


28

Group demand during the week tends to be corporate-based, while weekend group demand is

generally leisure-based. Group activity has a small impact in the defined hotel market at present

as there is only one hotel (Quality Inn & Suites) in the competitive set with a significant amount of

meeting space. This is an older hotel and is not directly adjacent to a high selection of

restaurants, retail or event space. Much of the upper end group demand in the market is

accommodated at The Litchfield Inn, the Oceanfront Litchfield Inn, Litchfield by the Sea, Pawley’s

Plantation Golf & Country Club and True Blue Country Club. For larger groups, business flows to

Myrtle Beach or Charleston.

Latent Demand: As previously noted, there are no existing hotels in Georgetown that are

considered direct competitors to the subject property. All are of the limited service variety and

only two are even marginally competitive (the two Hampton Inns). The subject property should

appeal to those seeking a more upscale guest experience and full-service amenities. By

necessity, much of this demand must be garnered from guests currently staying in hotels outside

of the immediate area. The subject property is expected to benefit from a level of latent demand

in all segments, with the group segment being the greatest beneficiary.

Overall Demand Growth: The segmented growth rates and overall lodging demand growth anticipated for the subject lodging market area are as shown in the following table. The higher

rate of growth in 2019 reflects the absorption of the subject hotel. This property will offer a

product type and affiliation heretofore unavailable in the market area. As such, it should draw a

level of demand to the market by its presence and in-house marketing efforts.

ESTIMATED ANNUAL GROWTH RATES BY SEGMENT AND TOTAL DEMAND DEFINED COMPETITIVE SUPPLY

GEORGETOWN, SOUTH CAROLINA 2016 THROUGH 2023

Corporate Leisure Group Total Percent Percent Percent Percent Year Change Amount Change Amount Change Amount Change Amount

2016 - 37,2001 - 44,5001 - 14,2001 - 95,9001 2017 0.5 37,400 3.4 46,000 2.7 14,600 2.1 98,000 2018 1.0 37,800 3.0 47,400 2.0 14,900 2.1 100,100 2019 9.2 41,200 9.5 51,900 18.1 17,600 10.7 110,700 2020 0.9 41,600 2.8 53,400 1.7 17,900 1.9 112,900 2021 0.9 42,000 2.8 54,900 1.7 18,200 1.9 115,100 2022 0.9 42,400 2.8 56,400 1.7 18,500 2.0 117,300 2023 0.9 42,800 2.8 58,000 1.7 18,900 2.0 119,700

1 Includes unaccommodated demand as discussed herein.

Estimated Relationship of Supply to Demand: Based on the foregoing discussion of growth in

demand for transient lodging facilities in the market area, together with our analysis of existing

and foreseeable supply characteristics, the following table indicates resulting market occupancy

levels estimated for the defined competitive supply from 2016 through 2023.


29

ESTIMATED RELATIONSHIP OF SUPPLY TO DEMAND DEFINED COMPETITIVE SUPPLY

GEORGETOWN, SOUTH CAROLINA 2016 THROUGH 2023

Estimated Estimated Annual Estimated Rooms Supply Demand in Room-Nights Market Area Year Daily Annual TotalA Accommodated OccupancyB

2016 3761 137,240 95,900 87,600 64% 2017 4112 150,015 98,000 91,900 61 2018 411 150,015 100,100 93,800 63 2019 4913 179,215 110,700 108,300 60 2020 491 179,215 112,900 110,400 62 2021 491 179,215 115,100 112,500 63 2022 491 179,215 117,300 114,700 64 2023 491 179,215 119,700 117,000 65

A Includes unaccommodated demand which, due to capacity constraints, is turned away from the market.

B Based on estimated levels of accommodated demand in the market area. Rounded to the nearest whole percentage point.

1 Existing competitive supply.

2 First full year of expansion for the additional 35-units at Hampton Inn Pawley’s Island.

2 First full year of operation for the subject 80-unit Hotel Indigo.

ESTIMATED LEVELS OF UTILIZATION

Projected levels of occupancy and average daily rate for the proposed subject hotel are discussed

in detail in this section. The bases of the estimates were determined through the evaluation of the

subject property’s competitive position, future supply and demand, and fair market share

penetration rates, which also are presented.

Estimated Occupancy and Market Segmentation: Prospective levels of utilization for the subject

hotel have been analyzed for its first five full years of operation, 2019 through 2023. Our

quantitative analysis anticipated the hotel’s ability to capture future market area demand in terms

of its “fair share” percentage of the competitive room supply. Fair market share is based on the

ratio of the hotel’s available guest rooms to the total market supply.

As discussed previously, there are 376 rooms in the competitive market today. This number will

increase to 491 by 2019 following the expansion of the Hampton Inn Pawley’s Island and

opening of the subject 80-unit Hotel Indigo. Accordingly, the subject‘s fair market share will be

16.3 percent (80 ÷ 491). This fair market share is expected to remain constant through 2023

based on our assumption that no further supply additions will occur. The existing competitive

properties’ anticipated 2016 penetration as a percentage of fair market share and market

capture percentage are depicted by the following graphs.


30

The proposed Hotel Indigo is anticipated to achieve penetration levels in excess of its fair market

share in the corporate and group segments, and below its fair market share in the leisure

segment. Its overall penetration is projected to range between 103 and 108 percent of fair

market share during the period analyzed. These projections are based on the following factors:

The InterContinental Hotels Group Rewards Club frequent traveler program is among the industry’s strongest. This should render the subject appealing to guests who participate in such programs. As previously noted, there are no IHG properties in the market today.

With 80-units, the subject will be a relatively small constituent of the brand. This low room count in comparison to the Hampton Inn Pawley’s Island and Hampton Inn Georgetown Marina should enhance the property’s ability to maintain occupancy levels during non-peak periods.

With 3,000 to 4,000 square feet of meeting space, the subject’s ability to capture group business will be greatly enhanced, allowing it to pursue groups that are otherwise going to Pawley’s Island.

The subject’s location in Downtown Georgetown, along the commercial district of Front Street, and on the Sampit River, should render it appealing to all segments from an aesthetics perspective. Further, the presence of adjacent boutique stores and restaurants offer a material competitive advantage.

Boutique hotels have proven to be successful in numerous southeastern Central Business Districts.

Despite the property’s competitive attributes, Georgetown is highly seasonal, restricting performance in non-peak months.

The property’s ultimate success will be dictated by its ability to attract demand not currently in the market. While we believe this is possible, the need to do so inherently adds considerable risks to the investment.

105% 88%

106%

89%

103%

50%

70%

90%

110%

ESTIMATED 2016 PENETRATION

Hampton Inn Georgetown

Baymont Inn & Suites

Quality Inn & Suites

Rodeway Inn

Hampton Inn Pawley's Island

27.36%

14.31%

27.46%

12.72%

18.15%

2016 MARKET CAPTURE PERCENTAGE

Hampton InnGeorgetown

Baymont Inn & Suites

Quality Inn & Suites

Rodeway Inn

Hampton Inn Pawley'sIsland


31

ESTIMATED MARKET PENETRATIONPROPOSED 80-UNIT HOTEL INDIGOGEORGETOWN, SOUTH CAROLINA

2019 2020 2021 2022 2023Corporate

Market Area Accommodated Demand 40,900 41,200 41,600 42,000 42,400

Subject's Capture Percentage 17.53% 18.17% 18.81% 18.61% 18.47%

Room Nights Captured 7,200 7,500 7,800 7,800 7,800

Penetration as a Percentage of Fair Market Share 107.61% 111.54% 115.48% 114.22% 113.34%

Leisure





Group





Total





Market Segmentation

Corporate 39.6% 39.1% 39.2% 39.2% 39.2%Leisure 40.7% 41.1% 40.7% 40.7% 40.7%Group 19.8% 19.8% 20.1% 20.1% 20.1% Total 100.0% 100.00% 100.00% 100.00% 100.00%

Projected Occupancy 62% 66% 68% 68% 68%Average Daily Rate $147.50 $155.25 $162.25 $167.25 $172.25RevPAR $91.45 $102.47 $110.33 $113.73 $117.13


32

Based on the foregoing considerations and assuming competent management, the penetration

rates by segment and the resulting estimated occupancy and corresponding room-nights for the

subject were projected as shown on the previous page. The stabilized occupancy represents a

long-term average. Year-to-year fluctuations can be expected in actuality, and the property may

in fact achieve occupancies and/or rates (as discussed below) higher than those depicted here

during the period of our analysis.

Estimated Average Daily Rate: The estimates of future average daily rate for the proposed hotel

are based on the following factors:

The competitive advantages and disadvantages outlined previously;

Anticipated rate structure relative to the competitive lodging supply; and

Estimated economic inflation of 3.0 percent per annum.

Average daily rate estimates for each of the competitive properties in 2016 were as follows:

ESTIMATED 2016 AVERAGE DAILY RATES DEFINED COMPETITIVE SUPPLY

GEORGETOWN, SOUTH CAROLINA

Property

Average Daily Rate

Hampton Inn Georgetown Marina $125-$129 Baymont Inn & Suites Georgetown 75 - 79 Quality Inn & Suites 75 - 79 Rodeway Inn/Harbor 55 - 59 Hampton Inn Pawley’s Island 120 - 124

Market Average $96.40

Existing hotels in the market outperform their respective brand averages by one to eleven percent,

averaging four percent. The Hampton Inns far outperform the rest of the competitive set, by

some $44 to $69 per night. Clearly, the quality level of the subject will be a level above the

current hotel stock. Further, it will be well located in Downtown Georgetown, near shopping and

restaurants, a feature none of the competitors can replicate.

The systemwide ADR for Hotel Indigo was $148.00 in 2015 and $146.55 in 2016. It is

instructive to note, however, that there is substantial disparity among properties and the

competitive environment within which they operate must be considered. The two Hampton Inn

properties have performed well and are slightly above the average for Hampton Inns. Still, it is

important to recognize that they are the market leaders by a large degree and it will be difficult to

push the market rate ceiling much beyond the current level. The demonstrated rate ceiling for


33

hotels in Georgetown will place downward pressure on the subject’s ADR. Lastly, existing

corporate clients in the market are accustomed to paying negotiated rates.

Considering the foregoing and assuming competent management, the subject property’s ADR

has been projected as depicted in the following table. The lower rates in fiscal years 2019 and

2020 reflect discounting to induce trial.

ESTIMATED AVERAGE DAILY RATE PROPOSED 80-ROOM HOTEL INDIGO GEORGETOWN, SOUTH CAROLINA

2019 THROUGH 2023

Year

Constant 2016 Dollars

Inflated Dollars1

2019 $135.00 $147.50 2020 138.00 155.25 2021 140.00 162.25 2022 140.00 167.25 2023 140.00 172.25

1 Inflated annually at 3.0 percent and rounded to the nearest $0.25. Inflation rates were based on the results of recent investor surveys.

FINANCIAL PROJECTIONS

Estimates of cash flow before debt service and income taxes have been prepared for the

property’s first five years of operation, calendar years 2019 through 2023. All projections and

calculations were based on an analysis of the proposed facilities, operating data for comparable

hotels, the experience of the consultants and industry statistics for similar type properties.

Property taxes were based upon the assessments of comparable hotels located in Georgetown

County, along with assessment ratio analysis.

In preparing the financial projections, stabilized year amounts were projected first on the bases

presented in the following table. The fixed and variable components of each line item were then

estimated and the projections for the years prior to stabilization were prepared. The fixed and

variable components presented in the table were based on industry standards and the

consultants’ experience.


34

BASES OF PROJECTIONS AND FIXED AND VARIABLE COMPONENT PERCENTAGES

Line Item Basis Fixed Variable

Food Sales $17.00/occupied room 25% 75% Beverage Sales $20.00/occupied room 50 50 Other Food & Beverage Income $5.00/occupied room 5 95 Miscellaneous Income (Net) $0.50/occupied room 5 95 Rooms Payroll $20.00/occupied room 70 30 Rooms Other Expense $12.00/occupied room 35 65 Food Cost 38.0 % of food sales 10 90 Beverage Cost 23.0 % of beverage sales 5 95 Food & Beverage Payroll 40.0 % of food & beverage sales 70 30 Food & Beverage Other Expenses 10.0 % of food & beverage sales 35 65 Administrative & General $3,500/available room 75 25 Information & Technology $450/available room 75 25 Franchise Fees 8.5% of room revenue 0 100 Management Fees 3.0% of total revenue 0 100 Marketing $1,800/available room 75 25 Utility Costs $6.00/occupied room 65 35 Property Operation & Maintenance $1,550/available room 65 35 Property Taxes $96,000 annually 100 0 Insurance $800/available room 100 0 Replacement Reserve 4.0% of total revenues 0 100

Each line item was evaluated on the most appropriate basis for that particular revenue or

expense. For example, rooms department payroll was projected on a “per occupied room” basis

versus a percentage basis since increases in average daily rate do no result in corresponding

increases in payroll. Reserves for replacement were escalated from 2.00 percent in year one to

3.00 in year two, stabilizing at 4.00 percent, as the property will be new upon completion.

Prospective revenues and expenses were first prepared and expressed in constant 2016 dollars.

These amounts were then inflated at 3.0 percent annually and rounded to the nearest thousand

dollars. The 3.0 percent inflation rate was selected based upon the results of recent investor

surveys. Statements were then prepared in inflated dollars (see Exhibits I and I-A). If higher or

lower inflation rates are experienced, these statements would thus be affected and a revision

would be appropriate. All account classifications generally conform to the definitions prescribed

in the Uniform System of Accounts for the Lodging Industry.

TERMS AND CONDITIONS

The projections of occupancy, average daily rate and cash flow presented in this report are based

on estimates, assumptions and other information developed from research of the market as of

March 3, 2017, knowledge of the industry and other factors including certain information

provided by you. Some assumptions inevitably will not materialize, and unanticipated events and

circumstances may occur; therefore, actual results achieved during the period covered by our


35

analysis may vary from the estimates, and these variations may be material. Further, the

performance estimates assume the hotel will be professionally and effectively managed.

CBRE Hotels will make no representations or warranty as to the accuracy or completeness of the

information contained within this report, including any estimates, and shall have no liability for

any representations (expressed or implied) contained herein. This report is intended for your

internal information only. Otherwise, neither our report, nor any reference to our firm, may be

included or quoted in any offering circular or registration statement, prospectus, sales brochure

or appraisal.

♦ ♦ ♦ ♦ ♦ ♦ ♦

We appreciate your consideration of CBRE Hotels for professional services. Please contact us

should you have any questions regarding this report.

Sincerely,

CBRE Hotels A Subsidiary of CBRE, Inc.

HBS/amc (17-485JA-0004)

EXHIBIT I

PROPOSED 80-UNIT HOTEL INDIGOGEORGETOWN, SOUTH CAROLINA

PROJECTED CASH FLOW FROM OPERATIONS BEFOREDEBT SERVICE AND INCOME TAXES

EXPRESSED IN THOUSANDS OF INFLATED DOLLARS

2019 2020 2021 2022 2023Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent

Revenues: Rooms $2,670 75.4% $2,992 76.2% $3,222 76.7% $3,321 76.7% $3,420 76.7% Food and Beverage 863 24.4 922 23.5 967 23.0 996 23.0 1,026 23.0 Miscellaneous Income (Net) 10 0.3 11 0.3 12 0.3 12 0.3 12 0.3

3,544 100.0 3,925 100.0 4,200 100.0 4,329 100.0 4,458 100.0

Departmental Expenses:

Rooms 668 25.0 706 23.6 737 22.9 759 22.8 781 22.8

Food and Beverage 675 78.2 709 76.9 738 76.3 760 76.3 783 76.3

Departmental Expenses: 1,343 37.9 1,416 36.1 1,475 35.1 1,519 35.1 1,564 35.1

Gross Operating Income 2,201 62.1 2,509 63.9 2,725 64.9 2,810 64.9 2,894 64.9

Undistributed Operating Expenses: Administrative and General 298 8.4 312 8.0 325 7.7 334 7.7 344 7.7 Information & Technology 38 1.1 40 1.0 42 1.0 43 1.0 44 1.0 Management Fees 106 3.0 118 3.0 126 3.0 130 3.0 134 3.0

Franchise Fees 227 6.4 254 6.5 274 6.5 282 6.5 291 6.5

Marketing 153 4.3 161 4.1 167 4.0 172 4.0 177 4.0

Utility Costs 126 3.6 133 3.4 138 3.3 142 3.3 147 3.3

Property Operation and Maintenance 131 3.7 138 3.5 144 3.4 148 3.4 153 3.4

1,079 30.5 1,155 29.4 1,215 28.9 1,252 28.9 1,289 28.9

Cash Flow From Operations Before Fixed Charges 1,121 31.6 1,354 34.5 1,510 36.0 1,558 36.0 1,604 36.0

Fixed Charges: Property Taxes 105 3.0 108 2.8 111 2.6 115 2.6 118 2.6 Insurance 70 2.0 72 1.8 74 1.8 76 1.8 79 1.8

175 4.9 180 4.6 185 4.4 191 4.4 197 4.4

Cash Flow From Operations Before Reserve For Replacement of Fixed Assets 946 26.7 1,174 29.9 1,325 31.5 1,367 31.6 1,408 31.6

Reserve For Replacement of Fixed Assets 71 2.0 118 3.0 168 4.0 173 4.0 178 4.0

Cash Flow From Operations Before Debt Service and Income Taxes $875 24.7% $1,056 26.9% $1,157 27.5% $1,194 27.6% $1,229 27.6%

Statistics: Number of Rooms 80 80 80 80 80 Percentage of Occupancy 62% 66% 68% 68% 68% Average Daily Rate $147.50 $155.25 $162.25 $167.25 $172.25 Occupied Rooms 18,104 19,272 19,856 19,856 19,856

Notes: - Percentages of departmental expenses are to departmental revenue; all other percentages are to total revenue. - Totals may not add due to rounding.

EXHIBIT I-A

PROPOSED 80-UNIT HOTEL INDIGOGEORGETOWN, SOUTH CAROLINA

PROJECTED ROOMS ANDFOOD AND BEVERAGE DEPARTMENTAL INCOME

EXPRESSED IN THOUSANDS OF INFLATED DOLLARS

2019 2020 2021 2022 2023Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent

Rooms Department: Room Revenue $2,670 100.0% $2,992 100.0% $3,222 100.0% $3,321 100.0% $3,420 100.0% Payroll and Related Expenses 422 15.8 443 14.8 460 14.3 474 14.3 488 14.3 Other Expenses 245 9.2 263 8.8 276 8.6 285 8.6 293 8.6

Departmental Income $2,002 75.0% $2,286 76.4% $2,485 77.1% $2,562 77.2% $2,639 77.2%

Food and Beverage Department: Revenues: Food $344 39.9% $372 40.3% $391 40.5% $403 40.5% $415 40.5% Beverage 420 48.6 442 47.9 460 47.6 474 47.6 488 47.6

Other 99 11.5 109 11.8 115 11.9 119 11.9 122 11.9

863 100.0 922 100.0 967 100.0 996 100.0 1,026 100.0

Cost of Food Sales 132 38.3 142 38.1 149 38.0 153 38.0 158 38.0 Cost of Beverage Sales 97 23.0 102 23.0 106 23.0 109 23.0 112 23.0

Total Gross Profit 635 73.5 679 73.6 712 73.7 734 73.7 756 73.7

Payroll and Related Expenses 359 41.6 373 40.5 387 40.0 398 40.0 410 40.0

Other Expenses 88 10.2 93 10.1 97 10.0 100 10.0 103 10.0

Departmental Income $188 21.8% $213 23.1% $229 23.7% $236 23.7% $243 23.7%

Notes: - Percentages of departmental expenses are to departmental revenue. - Totals may not add due to rounding.

Market Study & Financial...

Documents

Transcript of Market Study & Financial...