OWNER'S BRIEFING Welcome to our new hotel leadership- We hope the following information will provide a clear picture of our current situation and future expectations for the property. CURRENT SITUATION Our property, along with the other hotels in our competitive set, has experienced a steady performance decline over the last two years. A soft economy, along with increased competition from other cities, has combined to erode occupancy, average daily rate, and gross operating prot- Finance and credit have been nearly impossible to obtain. It is clearly a 'buyer's market' , where both Individual and group clients expect exceptional value at discounted prices. The erosion over the last three years has been: Previous Year Last Year This Year 78% 296 54% 180 1 70 160 31% 24% 17% In the absence of available financing, and with dramatic decreases in prots from operations, area hotels have been unable to fund refurbishment or capital investment projects, which would add the value required to compete with neighboring market areas. As is the case with other hotels these days, our lending bank closely observes our operations, requesting both monthly reports and financial statements. While they recognize the area-wide revenue challenges, they nonetheless remain critical of our operating cost structure. FUTURE OUTLOOK Fortunately, developments in key three areas - the economy, our market area, and our hotel - are all indicating opportunities for better business performance this year. The Economy: Four of the key economic indicators are on the rise. Rptail Kala: lnh Growth Energy Equities DIFFERENTIATING POINTS There are several things that can be leveraged to differentiate the hotel from its competitors. While traditional in nature, the architecture is superb and lends itself to a successful decor combination of the "old" and the "new". If the hotel positioning statement is executed well, the facility will be attractive to all market segments. The guest rooms are the largest in the immediate competitive set. Unlike competitors, the F&B facilities have direct access from the street and excellent exterior exposure for signage. The public and F&B areas are spacious and lend themselves to flexibility in reconfiguration. It is the only hotel immediately adjacent to underground public transport. . It is a landmark meeting place. Its history is simply waiting to be re-established through many photographs and memorabilia and connected to the hotel positioning statement. The main entrance is set back from the street, providing a sense of arrival not available to competitors.Positive Market Area Developments: I Last year's government tax incentives have successfully attracted twelve companies to move into the area this year. I The airport authority has announced increased regional jet services through contracts with one new legacy carrier and one new discount airline- I The regional hospital will double in size and services this year. I Following last year's successful funding vote, the new Civic and Conference Center will open in June. I The Tourism Authority and Hotel Association have joined resources to triple the regional promotional budget for leisure travelers- Positive Property Developments: I In light of the positive economic developments ownership will do its part to improve the hotels competitive position by making Replacement Reserve funds available in three ways: 1. There is a carry-over balance in the Replacement Reserve fund which you may use immediately to begin improving the value of the hotel. 2. Each month the Finance ofce will deposit 5% of the previous month's revenue into the Replacement Reserve fund for you to use as you see fit. 3. lfthe hotel has improved it protability picture by midyear, we will consider adding additional development funds either through the Replacement Reserve or from a Bank Loan. I The bank has also agreed to provide a line of credit to smooth out periods where an additional short term cash loan is needed to meet payroll and vendor bills. I Our new property leadership brings needed experience in revenue management, cost control, capital budgeting, marketing and advertising, and service delivery. I Our new hotel accounting software is now installed, which will nally provide us with the useful monthly reports, nancial statements, and trend analysis that have been lacking in the past. Annual Plan and Ownership Priorities: Once you have completed a site visit to the property and read the information available about our property and our market place, we would ask you to start your leadership year by estimating the revenue for January. In doing so. please keep our annual ownership priorities in mind: I Achieve and maintain an above-fairmarket room share and a RevPar equal to or higher than our competitors. I Generate an annual Gross Operating Prot in excess of 25% and a Return on Equity in excess of 10%. Please call on us at any time for assistance. PROPERTY DESCRIPTION MARKET PROFILE Lead line: \"...restore yourself at the city center of culture and heritage. \" Market Image: Unpretentious luxury and charm, integrating the best in technology and comfort. 8 years old Book value: Building $20M + FFE $11.25M = $31.25M or $125K per room. Full service City Center - waterfront site 3-4 Star Servicing business, leisure, tour, contract, large group, and small group segments Very similar footprint, facilities, and services as competitors- FAClllTlES 250 guest rooms: 50 premium and 200 standard One restaurant 125 seats with adjoining 50-seat bar lounge section 2,000 square feet of conference and event space in flexible congurations for up to 200 persons One hay exercise room Small pool and outdoor recreation area. SERVICES For-fee parking ramp Digital national and international telephone service Guest laundry and dry cleaning Guest room digital entertainment Room Service. REFURBISHMENT With the exception of general upkeep and maintenance, the hotel facilities have not been refurbished since opening. The refurbishment planned for two years ago had to be postponed due to the softening economy and subsequent lack of funds. At the present time, none of the 3-4 star properties in the area has any advantage in facilities or refurbishment. While there have been some minor refurbishment projects at other hotels in the competitive set, the quality of all the properties is very similar