HomeMy WebLinkAboutCT 03-02; CARLSBAD RANCH PLANNING AREA 5; POTENTIAL MARKET DEMAND ANALYSIS; 2002-09-26r
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File No. 50374
Study of Potential Market Demand and
Statements of Estimated
Annual Operating Results
For the Proposed Carlsbad Resort
to be Located in
Carlsbad, California
Prepared for:
Mr. Tim Stripe
Grand Pacific Resorts
5900 Pasteur Court
Suite 200
Carlsbad, California 92008
Prepared by:
PKF Consulting
Los Angeles, California
September 2002
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September 26, 2002
Mr. Tim Stripe
Grand Pacific Resorts
5900 Pasteur Court
Suite 200
Carlsbad, California 92008
Dear Mr. Stripe:
PKF
CONSULTING
865 South Figueroa Street
Suite 104
Los Angeles CA 90017
Telephone (213) 680-0900
Telefax {213) 623-8240
In accordance with our agreement, we have concluded our analysis of the potential market
demand for a proposed resort hotel to be located in Carlsbad, California, in conjunction
with a timeshare development and proximate to the LEGOLAND amusement park. We
have evaluated the potential development under three scenarios to reflect the construction
of the property in three phases: a 125-room hotel, a 250-room hotel, and a 350-room hotel.
We have also prepared statements of estimated annual operating results for the first ten
years of operation. The conclusions reached are based on our present knowledge of the
lodging market in the competitive area as of the completion of our fieldwork in September
2002. The following report summarizes our findlngs and reflects the conclusion of our
analysis.
As in all studies of this type, the estimated results are based upon competent and efficient
management and assume no significant change in the competitive position of the hotel
industry in the immediate area from that set forth in this report.
Since the estimated annual operating results are based on estimates and assumptions that
are subject to uncertainty and variation, we do not represent them as results that will
actually be achieved.
It is expressly understood that the scope of our study and report thereon do not include the
possible impact of zoning or environmental regulations, licensing requirements or other
restrictions concerning the project, except where such matters have been brought to our
attention and are disclosed in the report. It is expected that development of the project will
adhere to all such legislative or other restrictions. This report is also subject to the attached
Statement of Assumptions and Limiting Conditions.
This report has been prepared primarily for your use and guidance in determining the
market feasibility of the operation of the project. Our report and the material submitted
may not be included in any printed material used in connection with the sale of securities
or participation interests to the public. ·
A wholly owned subsidiary of Hospitality Asset Advisors International, Inc.
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Mr. Tim Stripe
Grand Pacific Resorts ii
We appreciate the opportunity of working on this assignment and look forward to
answering any questions you may have regarding our findings and conclusions presented
herein.
Sincerely,
(
Bruce Baltin
Senior Vice President
PKF Consulting
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Table of Contents
SECTION I
iii
Page
Number
EXECUTIVE SUMMARY ................................................................................................... 1-1
INTRODUCTION ............................................................................................................. 1-1
SCOPE AND METHODOLOGY ....................................................................................... 1-1
Area Review ......................................................................................................... 1-1
Market Research ................................................................................................... 1-1
Preparation of Supply and Demand Estimates ....................................................... 1-1
Subject Occupancy and Average Daily Rate Projections ....................................... 1-1
Statements of Estimated Annual Operating Results ................................................ 1-2
SUMMARY OF CONCLUSIONS ....................................................................................... I-2
SECTION 11
ANALYSIS OF THE SITE LOCATION .............................................................................. 11-1
LOCATION AND SITE ENVIRONS .................................................................................. 11-1
Access and Visibility ............................................................................................ II-1
Relationship to Demand Generators .................................................................... 11-2
SECTION Ill
SAN DIEGO AREA ANALYSIS ....................................................................................... 111-2
INTRODUCTION ........................................................................................................... 111-2
Population .......................................................................................................... 11I-2
Economic and Demographic Overview .............................................................. 111-3
Income ................................................................................................... 111-4
Retail Sales ............................................................................................. 111-4
Eating and Drinking Place Sales .............................................................. 111-4
Employment ....................................................................................................... 111-4
Unemployment .................................................................................................. 111-5
Major Employers ................................................................................................ 111-6
Transportation .................................................................................................... 111-7
Highways ............................................................................................... 111-7
San Diego International Airport .......................................................................... 111-7
Area Attractions .................................................................................................. 111-8
Seasonality ......................................................................................................... 111-9
Transient Occupancy Tax (TOT) Revenues ........................................................ III-10
San Diego Convention Center .......................................................................... 111-11
Commercial Office Space ................................................................................. 111-13
REGIONAL CONCLUSIONS ........................................................................................ 111-15
NEIGHBORHOOD ANALYSIS .................................................................................... 111-18
CARLSBAD ................................................................................................................... III-18
lntroduction ...................................................................................................... III-18
Area Environs .................................................................................................... 111-18
Transportation .................................................................................................. 111-18
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Table of Con.ten.ts
Page
Number
Demographic Profile .............................................................. _ .......................... 111-19
Economy .......................................................................................................... 111-19
Commercial Office Space ................................................................................. 111-20
Tourist Attractions ............................................................................................ 111-21
LEGOLAND ......................................................................................... 111-21
Flower Fields ........................................................................................ 111-21
Carlsbad Company Stores ..................................................................... 111-22
Neighborhood Conclusion ............................................................................... 111-22
I
SECTION IV
HOTEL MARKET ANALYSIS .......................................................................................... IV-1
INTRODUCTION ........................................................................................................... IV-1
THE COMPETITIVE HOTEL MARKET ........... : .......... .' ...................................................... IV-1
Existing Supply ................................................................................................... IV-1
Additions to Supply ............................................................................................ IV-8
MARKET PERFORMANCE OF THE COMPETITIVE MARKET ........................................... IV-9
Hotel Rooms Demand ........................................................................................ IV-9
Historical Performance of the Competitive Supply .............................................. IV-9
Mix of Demand ................................................................................................ IV-10
Commercial Market Segment ................................................................ lV-10
Leisure Market Segment ........................................................................ lV-11
Group Market Segment ......................................................................... lV-11
PROJECTED MARKET CONDITIONS ........................................................................... IV-11
ESTIMATED PERFORMANCE OF THE SUBJECT ........................................................... IV-13
Penetration Analysis ......................................................................................... IV-14
Penetration of Subject. ...................................................................................... IV-14
Commercial Segment. ........................................................................... lV-14
Leisure Segment. ................................................................................... lV-15
Group Segment. .................................................................................... lV-15
Overall Market Mix, Penetration, and Occupancy ............................................ IV-15
PROJECTED AVERAGE DAILY RATE AND YIELD ANALYSIS ........................................ IV-18
Revenue Yield Analysis .................................................................................... IV-18
SECTION V
STATEMENTS OF ESTIMATED ANNUAL OPERATING RESULTS ................................... V-1
BASIS OF PROJECTIONS ................................................................................................. V-1
ACCOUNT CLASSIFICATION ......................................................................................... V-1
INFLATION ..................................................................................................................... V-1
INCOME AND EXPENSE ESTIMATES ............................................................................... V-2
ESTIMATED ANNUAL OPERATING RESULTS FOR A 125-ROOM PROPERTY .............. V-3
Departmental Revenues and Expense ............................... , .................................. V-5
Rooms Revenue and Expense .................................................................. V-5
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Table of Contents
V
Page
Number
Food and Beverage Revenue and Expense ................................................ V-6
Telecommunications Revenue and Expense ............................................. V-7
Other Operated Departments Revenue and Expense ................................ V-8
Rentals and Other Income ....................................................................... V-9
UNDISTRIBUTED OPERATING EXPENSES ...................................................................... V-9
Administrative and General Expenses .................................................................. V-9
Marketing Expense ............................................................................................. V-10
Franchise Fees ....................................................................................... V-10
Property Operations and Maintenance Expense ................................................. V-11
Utilities Expense ................................................................................................ V-11
FIXED CHARGES ........................................................................................................... V-12
Management Fee ............................................................................................... V-12
Property Taxes ................................................................................................... V-12
Insurance ........................................................................................................... V-12
Reserves for Replacement .................................................................................. V-12
PRESENTATION OF ESTIMATED OPERATING RESULTS IN A REPRESENTATIVE
YEAR OF OPERATION FOR THE SUBJECT AT 125 ROOMS ..................................... V-13
ESTIMATED ANNUAL OPERATING RESULTS FOR A 250-ROOM PROPERTY .............. V-15
Departmental Revenues and Expense ................................................................ V-1 7
Rooms Revenue and Expense ................................................................ V-17
Food and Beverage Revenue and Expense .............................................. V-17
Telecommunications Revenue and Expense ........................................... V-18
Other Operated Departments Revenue and Expense .............................. V-19
Rentals and Other Income ..................................................................... V-20
UNDISTRIBUTED OPERATING EXPENSES .................................................................... V-20
Administrative and General Expenses ................................................................ V-20
Marketing Expense ............................................................................................ V-20
Franchise Fees ....................................................................................... V-21
Property Operations and Maintenance Expense ................................................. V-21
Utilities Expense ................................................................................................ V-21
FIXED CHARGES ........................................................................................................... V-22
Management Fee ............................................................................................... V-22
Property Taxes ................................................................................................... V-22
Insurance ........................................................................................................... V-22
Reserves for Replacement .................................................................................. V-22
PRESENTATION OF ESTIMATED OPERATING RESULTS IN A REPRESENTATIVE
YEAR OF OPERATION FOR THE SUBJECT AT 250 ROOMS ..................................... V-23
ESTIMATED ANNUAL OPERATING RESULTS FOR A 350-ROOM PROPERTY .............. V-25
Departmental Revenues and Expense ................................................................ V-27
Rooms Revenue and Expense ................................................................ V-27
Food and Beverage Revenue and Expense .............................................. V-27
Telecommunications Revenue and Expense ........................................... V-28
Other Operated Departments Revenue and Expense .............................. V-29
Rentals and Other Income ..................................................................... V-29
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Table of Contents
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Page
Number
UNDISTRIBUTED OPERATING EXPENSES ..................................................................... V-30
Administrative and General Expenses ................................................................ V-30
Marketing Expense ............................................................................................ V-30
Franchise Fees ....................................................................................... V-30
Property Operations and Maintenance Expense ................................................. V-30
Utilities Expense ................................................................................................ V-30
FIXED CHARGES ........................................................................................................... V-30
Management Fee ............................................................................................... V-30
Property Taxes ................................................................................................... V-30
lnsurance ........................................................................................................... V-30
Reserves for Replacement .................................................................................. V-30
PRESENTATION OF ESTIMATED OPERATING RESULTS IN A REPRESENTATIVE
YEAR OF OPERATION FOR THE SUBJECT AT 350 ROOMS ..................................... V-30
PRESENTATION OF ESTIMATED ANNUAL OPERATING RESULTS ............................... V-30
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Grand Pacific Resort
Section I
EXECUTIVE SUMMARY
Proposed Carlsbad Resort, Carlsbad, California
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Section I -Executive Su111ma1y /-1
EXECUTIVE SUMMARY
INTRODUCTION
PKF Consulting was retained by Grand Pacific Resorts to perform a study of potential
market demand and prepare statements of estimated annual operating results for the
proposed Carlsbad Hotel to be located in Carlsbad, California proximate to the
LEGOLAND amusement park. The hotel will be part of a resort and timeshare development
and is anticipated to be affiliated with a major franchise chain. For the purposes of this
study, we have assumed that the hotel will have an opening date of January 1, 2006. As
indicated by a current facilities program, the hotel will be constructed in three phases and
have a total of 125 rooms in Phase I, 250 rooms in Phase II, and 350 rooms in Phase Ill.
This report represents the culmination of our market research, analysis, and assessments
relative to the market demand for the subject property.
SCOPE AND METHODOLOGY
Area Review
We gathered and analyzed relevant economic data to ascertain the economic environment
in which the subject would operate to determine trends and to project likely future
economic conditions as they relate to the hotel market in Carlsbad and San Diego County.
Market Research
We reviewed our database and conducted primary research relative to the relevant sub-
market and prepared a three-year history of occupancy and average daily rate trends for
that market. To obtain data on current conditions, market mix, and likely future results, we
conducted primary market research in the area, including interviews with the management
of key competitive hotels. Data on proposed projects was also researched and reviewed to
determine the likelihood of future additions to supply.
Preparation of Supply and Demand Estimates
We analyzed historical growth and the characteristics of each of the principal segments of
demand. We considered the impact of potential additions to supply. Then, using the
information gathered in our research, we projected the growth in demand for three
different periods to reflect the three phases of construction from 2006 through 2014. We
then combined the estimated future supply and demand to reach our conclusions on the
overall market potential.
Subject Occupancy and Average Daily Rate Projections
After completing our estimates of the market area's supply and demand, we estimated the
share of the market that the subject hotel should be able to capture during the first years of
operation. From this, we derived the annual occupancy percentage. After considering the
current average room rates in the market, the subject's average daily rate was projected for
the period 2006 through 2014. We tested the reasonableness of our occupancy and
Grand Pacific Resort
Proposed Carlsbad Resort, Carlsbad, California
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Section I -Executive Summa,y 1-3
Proposed Carlsbad Hotel
Estimated Rooms Revenue
Average Annual Rooms
Year Daily Rate Occupancy Revenue
Subject@ 125 Rooms
2006 $129.00 60.0% $3,532,000
2007 133.00 67.0% 4,066,000
2008 137.00 72.0% 4,500,000
Subject@ 250 Rooms
2009 $141.00 70.0% $9,007,000
2010 146.00 73.0% 9,725,000
2011 150.00 76.0% 10,403,000
Subject@ 350 Rooms
2012 $155.00 75.0% $14,851,000
2013 159.00 77.0% 15,641,000
2014 164.00 77.0% 16,133,000
Grand Pacific Resort
Proposed Carlsbad Resort, Carlsbad, California
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Section II
ANALYSIS OF SITE LOCATION
Grand Pacific Resort
Proposed Carlsbad Resort, Carlsbad, California
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Section II -Analysis of the Site Location
ANALYSIS OF THE SITE LOCATION
LOCATION AND SITE ENVIRONS
II-I
The proposed hotel will be situated on a 56-acre lot near the coastline in the city of
Carlsbad, California. The site is bordered by Cannon Road to the north, agricultural fields
to the west, the LEGOLAND theme park to the south, and vacant land to the east. The
subject site is proximate to natural landscapes as well as a variety of residential and
commercial developments that include the Pacific Ocean, Carlsbad Company Stores,
Gemological Institute of America, Flower Fields, and the Grand Pacific Resorts Palisades
hotel. In addition, the site is only a short commute to downtown Carlsbad, where visitors
can delight in a selection of restaurants as well as antique and other unique shops.
Slightly further north and south of the subject, along the Interstate 5 Freeway, are the three
famous lagoons of Carlsbad: Buena Vista Lagoon, Agua Hedionda Lagoon, and Batiquitos
Lagoon. Here, visitors can participate in a variety of recreational activities that include bird
watching, nature walks, fishing, water skiing, and sailing. Further east of the proposed
hotel, on the city's eastern border, is the site for the world-class motorcross racing, which
will be closed down soon for the possible development of an industrial office park.
The subject's location is favorable as a hub to other tourist attractions in Orange County
and San Diego County. From Carlsbad, there is convenient access to Disneyland to the
north, San Diego Wild Animal Park to the east, and Sea World and San Diego Zoo to the
south. By staying in Carlsbad and traveling to the other attractions, visitors can reduce the
amount of time they spend in the traffic congestion that is typical of Southern California.
Discussions are also underway for the possible development of two 18-hole golf courses
proximate to the subject site. The first proposed course is to be located off of Hidden
Valley Road southwest of the site and is undergoing reviews by the California Coastal
Commission and consideration of the city council. A second course has been proposed to
be located northwest of the subject site and will straddle Cannon Road. The possibility of
the two courses still remains speculative; however, if ultimately developed, the courses will
serve as attractive amenities for guests at the subject hotel.
Access and Visibility
The location of the subject property offers convenient access via Cannon Road and Hidden
Valley Road. Visitors to the north and south of Carlsbad can reach the site via the San
Diego Freeway (Interstate 5). Southbound travelers can take the Cannon Road exit, while
northbound travelers can take the Palomar Airport Road exit, which connects to Hidden
Valley Road. Access for travelers from the east of the city is via Vista Way (Highway 78) by
taking the San Marcos Boulevard exit to connect to Palomar Airport Road. Future plans call
for an extension of Cannon Road to connect to Faraday Drive, which will provide an
additional access route for visitors coming from the east.
From its position atop a hill, the subject property will offer a panoramic view of the Pacific
Ocean and the coastline. There is also clear visibility of the LEGOLAND theme park,
Gremel Pacijlc Resort
Proposed Carlsbad Resort, Carlsbad, California
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Section II -Analysis of the Site Location II-2
agricultural fields, and various commercial developments in the vicinity. Travelers
commuting on Cannon Road, Hidden Valley Road, and Lego Drive will have an
unobstructed view of the subject; however, there will only be limited visibility from
Palomar Airport Road due to the sloping hillsides and Interstate 5.
Relationship to Demand Generators
The subject site is located next to the LEGOLAND theme park, a major demand generator
for the property. As the subject will be marketed as the exclusive hotel of LEGOLAND
along with the Grand Pacific Palisades hotel, it is expected to appeal to LEGOLAND
visitors desiring overnight accommodations.
The local population base and out-of-town leisure travelers will also provide additional
sources of demand for the property. The site's location overlooking the Pacific Ocean will
make it an attractive destination for individuals who are looking for a relaxing retreat or
wanting to host a small gathering for social events. The site is conveniently located
proximate to many of the area attractions in Carlsbad and San Diego County. In addition,
Carlsbad is a shorter commute from the Orange County and Los Angeles areas than to
other areas in San Diego, allowing the subject to attract visitors looking for a quick mini-
vacation.
Lastly, the subject is well situated with respect to one of its primary demand generators -
local businesses. Many firms host corporate functions and events throughout the year and
often require large blocks of rooms at a time in addition to the meeting facilities. Some of
the commercial developments in the vicinity include lnvitrogen, Denso, Carlsbad Ranch
Corporate Center, and the Gemological Institute of America. Key corporations located in
the area include Palomar Technologies, DJ Orthopedic, and Lego Corporate.
Advantages and Disadvantages of the Site
The key advantages of the site include:
• The site's adjacency to LEGOLAND theme park allows for convenient access by
guests staying at the subject property.
• A panoramic view of the Pacific Ocean and the rolling hills of Carlsbad.
• The property's location relative to the Interstate 5 Freeway permits easy access for
visitors from Los Angeles, Orange and San Diego counties.
• The proximity of the subject to a number of commercial developments, which
accounts for a high level of demand generated.
• The subject's convenient location relative to the Flower Fields, Carlsbad Company
Stores, and recreational facilities such as beaches and golf courses.
Disadvantages
Grand Pacific Resort
Proposed Carlsbad Resort, Carlsbad, Califomia
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Section II -Analysis of the Site Location II-3
Some key disadvantages of the site include:
• The location of the water tank adjacent to the site which offers an unattractive view.
■ The site's limited visibility from Palomar Airport Road, one of the high traffic arteries
for westbound travelers.
The following page presents a map of the subject site and pictures of the project site.
Schematics and plans of the project are also included.
Grand Pacific Resort
Proposed Carlsbad Resort, Carlsbad, California
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July 1996
1.000•
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REGIONAL PARK
OPEN SPACE
ENCINAS CREEK OPEN SPACE
Illustration No. 4
Section II -Analysis of the Site Location II-5
Photographs of the Proposed Carlsbad Hotel Site
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Grand Pacific Resort
Proposed Carlsbad Resort, Carlsbad, California
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Grand Pacific Resorts
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Section Ill
Area Review and Neighborhood Analysis
Gremel Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, Califomia
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Section III -Area Review and Neighborhood Analysis
SAN DIEGO AREA ANALYSIS
INTRODUCTION
m-2
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 MSA is ranked number 13 in the United States in terms of
land area. The county demonstrated substantial growth in all sectors of its economy until
the national recession in the 1990's affected Southern California. For San Diego, the
recession began in 1990, bottomed out in 1993, and rebounded to pre-recessionary levels
of growth by 1996. San Diego experienced a successful year in 2000. The number of
employed persons reached a new high in 2000, and unemployment was at its lowest level
in the decade. Unemployment levels for 2001, however, rose as a result of the national
economic slowdown.
The San Diego community, once dominated by the presence of the U.S. Navy and then by
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 electronics, computers, instrumentation and other high
technology products, and development of such sectors as services, research and
development, and health services has been strong. International trade has also increased in
importance for San Diego. This diversification has provided a broader foundation for San
Diego's economic expansion and reduced its vulnerability to economic declines. San
Diego is expected to hold its position as a leader in the national trend towards service, high
technology and information-oriented industries, and away from traditional heavy industry.
San Diego County felt a moderate easing in the pace of growth in 2001, due to a variety of
forces ii:icluding the California energy crisis, an unexpected tech sector crash, the effects of
a mild recession, and the aftermath of the September 11 terrorist attacks. The University of
San Diego's Index of Leading Economic Indicators for San Diego County reported a 0.3
percent decrease compared to last year according to a May 2002 report. Yet, due to the
diversity of San Diego County, the economy as a whole has remained stable with a net
positive employment growth, even in the face of well-published layoffs and shutdowns of
high-tech. Due to the positive forces of the recently completed expansion of the
Convention Center and the continuous growth of overnight visitors and visitor spending,
San Diego County remains an attractive location for both business and leisure travel.
Population
San Diego is one of the most populous cities in California and in the United States. The
State of California's Department of Finance reported that San Diego County had an
aggregate population of approximately 2.9 million persons in 2001. The following table
illustrates the historical population growth for San Diego County during the past ten years.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section III -Area Review and Neighborhood Analysis III-3
Population Growth
San Die~o Count}:'.
Year Persons Households
1991 2,604,400 920,600
1992 2,651,400 931,800
1993 2,656,700 928,600
1994 2,673,600 929,200
1995 2,722,700 940,100
1996 2,732,200 942,700
1997 2,766,700 958,600
1998 2,794,800 991,100
1999 2,889,900 1,005,600
2000 2,835,400 1,037,100
2001 2,883,600 1,050,100
CAAG1 1.0% 1.3%
1CAAG = Compound Average Annual Growth
Source: California De12artment of Finance
Economic and Demographic Overview
In our assessment of the economic climate of the San Diego area, we have considered
trends in the following economic indicators: effective buying income (EBI), retail sales, and
eating and drinking place sales. The following table outlines the growth in key economic
indicators for the San Diego MSA and State of California between 1995 and 2000. Income
data has been provided by Sales and Marketing Management magazine, and Retail and
Eating and Drinking Sales statistics have been provided by the California State Board of
Equalization.
Economic and Demographic Profile
San Diego MSA' and the State of California
1995-2000
Compound
Annual
1995 1996 1997 1998 1999 2000 Change
Total EBl2 -($000s)
San Diego County $39,777,129 $40,913,543 $43,212,824 $46,056, 143 $49,907,828 $54,337,662 6.4%
State of California 477,640,503 492,516,991 524,439,600 551,999,317 590,376,663 653,190,282 6.5
Median household EBI
San Diego County $33,679 $34,445 $35,725 $36,296 $39,213 $44,292 5.6%
State of California 34,533 35,216 36,483 37,091 39,492 44,464 5.2
Retail sales -($0005)
San Diego County $16,181,283 $17,141,385 $18,402,311 $19,936,526 $22,235,683 $24,953,089 9.0%
State of California 300,956,449 321,076,250 341,091,634 358,858,978 394,736,245 441,854,416 8.0
Eating and drinking place
sales -($000s)
San Diego County $2,271,296 $2,385,143 $2,523,340 $2,714,916 $2,929,084 $3,211,306 7.1%
State of California 25,461,372 26,093,321 28,253,848 30,046,028 32,456,606 35,461,731 6.9
'Metropolitan Statistical Area.
'Effective buying income.
Source: PKF Consultin!JJ Sales and MarketinfJ_ ManafJ_ement, and the California State Board of Egualization
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Section Ill -Area Review and Neighborhood Analysis III-4
Income
The total effective buying income (EBI) for the San Diego County MSA was $54.3 billion in
2000, ranking it among the top 210 major markets evaluated in Sales and Marketing
Management's Metro Market Ranking. The compound average annual growth rate in EBI
during the period 1995 to 2000 was 6.4 percent for San Diego County, as compared with
6.5 percent for the State of California.
The median household effective buying income was $44,292 for the county, similar to the
state average of $44,464. During the period 1995 to 2000, the County of San Diego
achieved a compound average annual growth rate in median household effective buying
income of 5.6 percent, as compared with a growth rate of 5.2 percent for the state as a
whole.
Retail Sales
During the period 1995 to 2000, retail sales in the County of San Diego grew at a
compound average annual growth rate of 9.0 percent, as compared with a rate of 8.0
percent for the state as a whole.
Eating and Drinking Place Sales
Eating and Drinking Place Sales have exhibited some growth in the County of San Diego,
at a compound average annual growth rate of 7.1 percent between 1995 and 2000,
compared to 6.9 percent for the state .
Employment
For many years, the San Diego area economy was heavily dependent on military spending
and aerospace contracts. Although the military influence remains strong, aerospace
employ·ment 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
transportation and public utilities services and government as well as in high-technology
manufacturing and services.
According to the State of California Economic Development Department, approximately
70,900 jobs were created in the San Diego MSA during the period 1995 -1997, with the
largest gains occurring in construction and services. The Economic Development
Department estimated that the service industry alone created 92,300 jobs during 1997 -
2000. San Diego has become increasingly known as an education 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
Center, and the Veterans Administration Hospital, all located in the North City area, have
spawned numerous research and development firms in the health sciences. The area also
boasts more than 100 firms connected with oceanographic research.
The following table presents the number of persons employed between 1996 and 2001 in
various sectors in San Diego County.
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Section III -Area Review and Neighborhood Analysis III-5
San Diego Metropolitan Area
Employment Distribution by Industry
Number of Persons Compound 2001
Industry 1996 1997 1998 1999 2000 2001 1 Growth Ratio to Total
Farm 11,000 10,800 10,600 11,200 11,400 11,000 0.0% 0.9%
Mining 400 400 300 300 400 300 0.0 0.0
Construction 45,500 53,000 61,800 67,000 70,000 73,400 10.0 6.0
Manufacturing 117,500 123,100 127,600 128,100 129,200 130,600 2.1 10.4
Transportation/Public Utilities 38,300 41,600 47,000 51,300 50,800 52,000 6.3 4.2
Wholesale & Retail Trade 235,900 244,000 249,400 256,500 268,100 271,100 2.8 22.0
Financial/Insurance/Real Estate 57,400 60,900 65,300 68,700 69,500 70,800 4.3 5.7
Service 321,200 339,300 359,600 381,700 399,200 409,500 5.0 33.2
Government 190,100 192,000 194,500 199,300 206,600 213,900 2.4 17.4
Total 1,017,300 1,065,100 1,116,100 1,164,100 1,205,200 1,232,600 3.9% 100.0%
'Preliminary.
Source: U.S. Department of Labor, Bureau of Labor Statistics
In 2001, employment levels reached a high of 1,232,600, which is a 2.2 percent increase
over 2000. Overall, the compound average annual growth rate from 1996 to 2001 was 3.9
percent. According to the Employment Development Department, San Diego County's
non-agricultural employment is expected to grow by 211,200 jobs during the period 1998 -
2006.
Unemployment
The Economic Development Department reports that the unemployment rate peaked in
1993. The following chart presents the annual average unemployment rate for San Diego
County and the State of California between 1993 and 2001.
Unemployment Rates
Year San Diego County State of California
1993 7.7% 9.4%
1994 7.0 8.6
1995 6.4 7.8
1996 5.3 7.2
1997 4.2 6.3
1998 3.6 5.9
1999 3.1 5.2
2000 3.0 4.9
2001 3.2 5.3
Source: State of California, Employment Development Department
In 2000, the unemployment rate in San Diego County declined to a level well below its
seven-year high of 7.7 percent in 1993, dropping to 3.0 percent. The overall unemploy-
ment rate in San Diego County has consistently been lower than the state's as a whole. The
state did report a significant drop in the unemployment rate for 2000 to 4.9 percent, its
lowest in over eight years.
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Section III -Area Review and Neighborhood Analysis l//-6
As the economy softened last year, unemployment rates for 2001 increased over year-end
2000. Unemployment in San Diego County rose from 3.0 percent in 2000 to 3.2 percent in
2001. Similarly, the unemployment rate in the State of California rose from 4.9 percent in
2000 to 5.3 percent in 2001.
Major Employers
The San Diego area has developed into one of the nation's foremost pockets of technology,
particularly in the biomedical engineering field. This has occurred because of the presence
of the following four major research institutions.
► The University of California, San Diego;
► The Scripps Institute of Oceanography;
► The Scripps Institute Hospital; and
► The Salk Institute
A summary of the major employers within San Diego County is presented in the following
table.
Company
OVER 10,000 EMPLOYEES
San Diego Unified School District
City of San Diego
County of San Diego
Federal Government State of California
University of California, San Diego
5,000 to 9,999 Employees
QUALCOMM, Inc.
Sharp Health Care
Scripps Health
Kaiser Permanente
Pacific Bell
U.S. Postal Service, San Diego Division
3,000 to 4,999 Employees
Major Employers
San Diego County
Science Applications International Corp.
Albertson's Inc.
Sempra Energy
San Diego State University
Sony Technology Center
Palomar Pomerado Health System
United Parcel Service
National Steel and Shipbuilding Co.
Ace Parking Management, Inc.
Source: Greater San Diego Chamber of Commerce
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, Cal(/omia
Education
Government
Government
Government
Education
Industry
Telecommunications
Healthcare
Healthcare
Healthcare
Telecommunication
Government
Research and Development, Technical
Grocer
Utility
Education
Electronics
Health Technology
Shipper
Ship Builders
Parking Management
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Section III -Area Review and Neighborhood Analysis III-7
Transportation
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-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.
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 development is State Route 56, which is
planned to connect the inner cities along the 1-15 to the 1-5. 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 froin the subject's market area. The airport is served by carriers that include American,
Continental, Delta, Northwest, TransWorld Airways, United, and USAir. These airlines
offer direct flights to Los Angeles, San Francisco, Boston, New York, Phoenix, Las Vegas,
Dallas, Chicago, Seattle, London and many other cities.
The San Diego International Airport is constantly being expanded and upgraded.
Construction of the Terminal 2 East Improvement Project has been underway since July
2000 and is now complete. Work for Phase II began on March 26, 2001 and consists of
building a tunnel and installing a new conveyor system that will be used by Northwest
Airlines. Presented in the following table is a summary of airport activity at Lindbergh
Field.
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Section III -Area Review and Neighborhood Analysis
San Diego International Airport at Lindbergh Field
Year
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Compound Average
Annual Rate
Passenger Counts
Enplaned Deplaned Total
5,750,710 5,672,357 11,423,067
6,048,781 5,952,117 12,000,898
5,972,548 5,978,078 11,950,626
6,494,223 6,457,792 12,952,015
6,686,144 6,598,278 13,284,422
6,929,285 6,859,472 13,788,757
7,188,736 7,160,373 14,349,109
7,453,186 7,423,691 14,876,877
7,655,808 7,646,108 15,301,916
7,915,899 7,904,443 15,820,342
7,613,593 7,570,739 15,184,332
2.8 % 2.9% 2.9%
YTD June 2002 3,606,846 3,611,275 7,218,121
YTD June 2001 3,920,928 3,900,866 7,821,794
Percent Change -8.0 % -7.4% -7.7%
Source: San Diego Unified Port District Airport Operations Department
III-8
San Diego International Airport at Lindbergh Field had approximately 15.8 million airport
passengers in 2000, a record number at the airport and a 3.4 percent increase over 1999.
Airline passenger traffic at San Diego International Airport, however, decreased in 2001 to
15.2 million passengers, a 4.0 percent decrease when compared to the passenger traffic
count in 2000. The decrease in air traffic can be attributed to a softening economy and the
effects that the September 11 events had on the airline industry. According to the San
Diego Airport, the number of passengers decreased approximately 30 percent for the
month of September compared to last year, due to the days following the terrorist attacks
when the airport was ordered to shut down operations. Activity overall at the airport is
slower than prior to the attacks, due to heightened security and reduced flights which have
prevented the San Diego International Airport from operating at its pre-September 11
capacities. The total numbers of passengers between 1991 and 2001 grew at a
compounded average annual rate of 2.9 percent. Through June 2002, San Diego Airport
has reported a decrease in passenger activity at a rate of 7.7 percent as compared to the
same period in 2001.
Area Attractions
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 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 impacting the area's tourism industry -America's Cup began in late 1994 and
extended into 1995, the Republican National Convention was held in August 1996, and
San Diego was the site of the Super Bowl in January 1998. San Diego will play host again
to the Super Bowl in January 2003.
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Section III -Area Review and Neighborhood Analysis III-9
During the past decade, 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 seyeral decades.
The visitor industry is San Diego's third largest economic sector in terms of dollars brought
into the region. Visitors to San Diego spent an estimated $5.1 billion in the regional
economy in 2001, a 4.8 percent compound average annual increase from the $4.0 billion
spent in 1996. According to the San Diego Convention & Visitors -Bureau, there were
approximately 14.8 million overnight visitors to San Diego County in 2001, a decrease of
3.5 percent over 2000 performance. The total number of annual overnight visitors to San
Diego increased at a compound average annual growth rate of 1.2 percent between 1996
and 2001.
Recognizing the slowdown of the national economy, authorities of the San Diego
Convention and Visitor's Bureau have forecasted modest growth for 2002. It is projected
that San Diego will receive approximately 15.1 million overnight visitors in 2002 and
visitor spending will reach $5.3 billion dollars. The table below presents a summary of
visitor activity between 1996 and 2001, year to date 2002, and the San Diego Convention
and Visitors Bureau's forecast for year-end 2002.
Visitor Activity
CAAC1 YTD June 2002
1996 1997 1998 1999 2000 2001 (1996-2001) 2002 Forecast
Overnight 13,982,000 14,366,000 14,551,000 14,692,000 15,217,000 14,807,000 1.2% 7,010,000 15,100,000 Visitors
Visitor
Spending • $4,048,600 $4,388,300 $4,703,400 $4,881,800 $5,230,000 $5,118,000 4.8% $2,449,500 $5,310,000
(000s)
Attraction 18,244,593 18,410,095 19,165,133 19,450,303 21,062,418 19,226,215 1.1% 8,797,321 N/A Attendance
1Compound Average Annual Change.
Source: San Diego Convention and Visitors Bureau; CIC Research
Seasonality
The monthly distribution of overnight visitors peaks during the summer months, with a lull
during December and January. Information pertaining to average temperature, an estimate
of the monthly occupancy and average room rates experienced by all ·hotels in the San
Diego area, and monthly airport passenger counts are provided in the table below. It
should be noted that the following statistics do not represent only the competitive market,
but all of the lodging properties within San Diego County.
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Section III -Area Review and Neighborhood Analysis III-JO
San Diego Monthly Hotel Trends -2001 & 2002
Average High Market Market Average Passenger
Month Temeerature OccueanC}:'. Dail}:'. Room Rate Counts
July 76° 76.8% $141.17 1,555,445
August 770 77.8 140.06 1,592,487
September 770 59.3 124.22 8f>5,378
October 74° 78.5 98.01 1,099,947
November 720 66.7 127.32 1,138,396
December 66° 53.3 111.03 1,110,885
January 2002 68° 65.1 127.02 1,193,260
February 64° 73.0 135.31 1,007,335
March 65° 77.0 128.65 1,272,683
April 68° 75.2 141.75 1,241,740
May 68° 69.0 129.84 1,268,612
June 720 78.4 128.37 1,356,777
Source: San Diego International Aiq~ort and PKF Consulting
Transient Occupancy Tax (TOT) Revenues
As a measure of growth in tourism by the City of San Diego, the following table contains
transient occupancy taxes collected for the past ten fiscal years.
City of San Diego
Transient Occupancy Tax
Revenue Collections
1991-2001 Fiscal Years
In Millions of Dollars
Year Amount
1991 $41.9
1992 44.7
1993 45.1
1994 46.1
1995 57.2
1996 64.2
1997 74.0
1998 84.3
1999 91.2
2000 96.6
2001 108.9
CAAG 10.0%
Source: Cit}:'. of San Diego
The transient occupancy taxes collected have increased 10.0 percent annually over the past
ten years, growing from $41.9 million in fiscal year 1991 to $108.9 million in the 2001
fiscal year.
San Diego Convention Center
In 1989, the San Diego Port Authority completed a 1,715,600 square foot convention
facility to accommodate the increasing demand for large-scale meeting facilities. This
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Section III -Area Review and Neighborhood Analysis III-I I
facility accommodates groups from 3,000 to 10,000 attendees and the average group size
for the facility is approximately 7,000 attendees. The facility was built on 11 acres at the
foot of Fifth Avenue in downtown San Diego, just south of Seaport Village. The center
capitalizes on San Diego's temperate climate by featuring a 90,000 square foot tented
outdoor special events pavilion. Typically hotels benefit from the opening of a Convention
Center, which can cater to national and association groups.
Since opening in 1989, the San Diego Convention Center has drawn millions of
convention delegates into the city and has generated billions of dollars in economic
benefits for the San Diego Region. 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 ce·nter's
proximity to the historic Gaslamp Quarter helped convert that district into a lively
restaurant and entertainment mecca.
A major expansion of the San Diego Convention Center nearly doubling its size was
completed in September 2001. Construction began in 1998 on the 902,590 square foot
addition to the existing center. The new building's square footage is comprised of 277,000
square feet of exhibit halls, 100,000 square feet of meeting space (40 meeting rooms), a
41,000 square foot upscale ballroom, 170,000 square feet of pre-function and lobby space
and 284,000 square feet of service and support spaces. Improvements were also made to
the existing 90,000 square foot Sails Pavilion. In addition, the expansion includes extensive
architectural site work, large sculptural forms, and landscaping of approximately two acres
of land adjacent to the convention center expansion site, which are ideal for outdoor
special -events. The exterior features a Grand Staircase that traverses over the midpoint of
the Convention Center to allow for convenient public access to the San Diego bayfront and
connect the Gaslamp Quarter to the bay.
The following table details the square footage of the San Diego Convention Center prior to
and after the expansion.
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San Diego Convention Center
Square Footage Summary
Seace Tyee Prior to Exeansion Exeansion
Exhibit Halls 249,338 276,363
Special Events 90,000 0
Meeting/Ballroom 103,781 100,333
(32 meeting rooms) (40 meeting rooms)
Prefunction, Lobby & Registration 114,200 170,294
Service/Support Areas 374,600 284,967
TOTAL GROSS INTERIOR 931,919 831,957
Outdoor Terrace 113,881 53,020
Skywalk 0 17,613
TOTAL OUTDOOR SPACE 113,881 70,633
Parking 669,800 0
TOTAL GROSS 1,715,600 902,590
Source: San Diego Convention Center Coreoration
III-12
Current Total Area
525,701
90,000
204,114
(72 meeting rooms)
284,494
659,551
1,763,876
166,901
17,613
184,514
669,800
2,618,190
The economic impact of the expanded Convention Center is expected to be $1.5 billion
annually. The Convention Center is able to attract larger conventions and high-end users
that produce greater economic impact. The expansion also created the ability to hold
simultaneous mid-size conventions, thereby increasing occupancy levels. The new
building will create an additional 6,000 permanent jobs.
According to the San Diego Convention and Visitors Bureau, the expansion is expected to
increase the number of attendees by 60 percent and increase the number of room nights
from a current annual goal of 475,000 to a new goal of 760,000 within four to five years
after the expansion is completed. The annual room nights goal has been exceeded every
year since 1994. The Convention Center expansion will positively impact the downtown
San Diego hotel market and surrounding markets by increasing the number of conven-
tioneers, and the associated hotel room night demand. However, to satisfy this increasing
demand, additional hotel rooms will be needed in the market. The Bureau has estimated
that the expansion will induce 300,000 room nights into San Diego over its first two years
of operation.
The Convention Center has demonstrated a very high level of success in capturing
convention demand, as reflected in the facility's advance bookings. The following table
presents the actual and advanced bookings for the center in terms of room nights through
2010. The room night goal has already been exceeded through 2003. Year-end 1999
bookings were approximately 82,000 lower than the 1998 year-end bookings, due in part
to 64,000 room nights in 1998 coming from the Super Bowl. Approximately 502,000 room
nights were consumed in 2000, which superceded the Convention Center's goal of
475,000 room nights. It should be noted that the construction of the expansion was in full
progress in 2000. Actual and advanced bookings are summarized in the following table.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section III -Area Review and Neighborhood Analysis
Year
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
CAAC
(1992-2001)
2002
2003
2004
2005
2006
2007
2008
2009
2010
San Diego Convention Center
Actual and Advanced Bookings
Through August 2002
Definite
Room Nights
416,000
334,000
455,000
508,000
522,000
540,000
645,000
563,000
502,000
535,000
568,000
814,000
562,000
595,000
545,000
567,000
343,000
438,000
264,000
Tentative
Room Nights
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
NIA
0
12,000
36,000
49,000
108,000
70,000
189,000
78,000
186,000
Total
416,000
334,000
455,000
508,000
522,000
540,000
645,000
563,000
502,000
535,000
2.83%
568,000
826,000
598,000
634,000
653,000
637,000
532,000
516,000
450,000
Goal
378,000
378~000
400,000
475,000
475,000
475,000
475,000
475,000
475,000
475,000
2.31%
550,000
600,000
650,000
700,000
760,000
760,000
760,000
760,000
760,000
Source: San Diego Convention and Visitor's Bureau and Convention Center
Corporation
III-13
The San Diego Convention Center was not immune from the effects of the September 11
events on the tourism industry. The Convention Center reported several cancellations and
postponements for several booked conventions in late 2001. Despite the slowing of the
travel industry coupled with the slowing of the economy and the need for another
convention headquarters hotel, officials of the Convention Center retain a positive outlook;
through 2022, there are 278 events booked into the new wing of the Convention Center
and they are confident that San Diego's diverse economy will help the center get beyond
the tragedy.
Commercial Office Space
Industrial and commercial developments are dispersed throughout the city and county, but
the densest land uses are generally found in the following four areas -downtown, La Jolla/
University Towne Centre, Kearny Mesa, and Mission Valley. An analysis of the historical
and expected future growth in the area's office market is an important element in
understanding the strength of the local commercial hotel market. The table below presents
the growth in office space for all of San Diego County between 1992 and 2001.
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Proposed Carlsbad Resort, Carlsbad, Calijomia
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Section III -Area Review and Neighborhood Analysis III-14
San Diego County Commercial Office Market
1992 -2001
Net Under
Total Existing Vacancy Absorbed/(Deleted) Construction
Year (Sguare Feet) Rate (Square Feet) (Square Feet)
1992 40,502,000 25.0% 484,669 39,119
1993 40,470,000 22.0 1,116,120 0
1994 40,580,000 18.7 1,173,000 0
1995 40,741,000 17.7 550,000 NIA
1996 41,473,000 15.9 1,207,000 N/A
1997 42,598,528 13.0 1,353,063 487,830
1998 44,204,000 10.2 1,960,000 1,812,000
1999 47,279,927 8.5 2,390,315 3,044,195
2000 48,166,164 4.1 4,014,343 2,240,763
2001 50,945,302 8.2 142,798 1,545,486
Source: Grubb & Ellis
During the period 1992 to 2001, available office space has increased at a compound
average annual growth rate of 2.6 percent, while the vacancy rate improved from 25
percent in 1992 to 4.1 percent in 2000. This is the lowest vacancy rate the county has
experienced in nearly 20 years. Overall vacancy, however, rose in 2001 to 8.2 percent,
which can be attributed to the increase in supply and the slowed economy in 2001 when
downsizing became necessary for many companies. The following table highlights the first
quarter 2002 office occupancy for the various San Diego County sub-markets.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section Ill -Area Review and Neighborhood Analysis Ill-15
Fourth Quarter 2001 Office Market Overview
Rentable Vacant Square Percent Net Absorbed Under
Sguare Feet* Feet* Vacant YTD* Construction*
Downtown 8,968 777 8.7 (298) 0
Carlsbad 2,293 299 13.1 (33) 143
Del Mar 3,205 222 6.9 156 155
East County · 1,036 79 7.6 (13) 0
Encinitas 490 49 10.1 (4) 30
Escondido 679 43 6.3 1 0
Governor Park 811 99 12.2 (79) 0
Kearny Mesa 5,37S 349 6.5 1 382
Lajolla 835 38 3.3 (14) 0
Miramar 648 57 8.8 (32) 0
Mission Valley 6,001 376 6.3 106 220
Oceanside 448 30 6.7 13 0
Old Town 387 8 2.1 (3) 0
Rancho Bernardo 1,999 176 8.8 (30) 0
Rose Canyon 400 29 7.2 (20) 0
San Marcos 513 56 10.8 (6) 0
Scripps Ranch 1,080 129 12.0 (14) 340
Solana Beach 440 36 8.2 (33) 0
Sorrento Mesa 5,448 699 12.8 95 0
South Bay 627 47 7.4 17 284
Torrey Pines 2,866 31 1.1 453 0
University City 4,090 418 10.2 (103) 0
Uptown 983 86 8.8 (41) 0
Vista 509 27 5.3 37 0
Other 815 48 5.9 (26) 0
San Diego County Total 50,945 4,198 8.2 143 1,545
*Sguare feet in 1,000s.
Source: Grubb & Ellis
When comparin_g the fourth quarter of 2001 to the record year in 2000, it is evident that a
dramatic slowing is taking place in the San Diego office market. While the county has
absorbed more than 143,000 square feet through the fourth quarter of 2001, a vacancy rate
of 8.2 percent was reported, up from the year-end 2000's 3.8 percent.
REGIONAL CONCLUSIONS
Despite the slowing of the economy in 2001, historical trends in economic and
demographic data suggest that the long-term future prospects for the San Diego area are
favorable. After undergoing restructuring between 1991 and 1993, economic diversifica-
tion and the impact of national events resulted in significant improvements during the
period 1995 to 2000. Additionally, natural amenities, such as the weather and attractive
coastal characteristics, will continue to attract entrepreneurial employers and a well-
educated work force to the area.
Foreign trade (including NAFTA related trade), tourism and entertainment, and professional
services are also expected to have a leading role for the region's new economy, sectors
which the Center for Continuing Study of the California Economy (CCSCE) considers are
the high growth sectors of the statewide economy. CCSCE projects that San Diego will
outperform state and national economic growth because of the share of its economic base
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section Ill -Area Review and Neighborhood Analysis III-16
devoted to these growth sectors. The long-term result is projected to be a stronger regional
economy that is less dependent on the injection of Federal defense and aerospace dollars.
San Diego's economy has mirrored the national economic slowdown, but still remains
relatively stable. The same attributes that make San Diego a desirable place to live or locate
a business also make San Diego a very appealing tourist and convention destination. The
number of overnight visitors has grown over the past six years. Convention Center
attendance has exceeded expectations. With the expansion of the Convention Center and
the economic recovery of Los Angeles, San Diego's largest single source market, long-term
prospects for growth in tourism are positive.
Gremel Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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NEIGHBORHOOD ANALYSIS
CARLSBAD
Introduction
lll-18
Carlsbad boasts the best of a scenic coastal community with a thriving business
environment. The city was incorporated on July 16, 1952, but its history dates back to
more than a century ago when it first became famous for its mineral water. Historically an
agricultural community, Carlsbad has evolved into a growing business community that is
home to corporations from a variety of sectors -technology, biomedical, light manu-
facturing and tourism, to name a few. Despite the modernization, however, this coastal
community has retained much of its natural beauty and small village charm, which
contributes to a higher quality of life for residents. This approach to economic growth is in
keeping with the city's Growth Management Plan to ensure the preservation of the
environment as new developments occur.
Area Environs
Known as the "Village by the Sea", Carlsbad is situated along North County's scenic
coastline and surrounded by mountains, lagoons, and the Pacific Ocean. It is bordered on
the north by Oceanside, on the east by Vista and Lake San Marcos, and on the south by
Encinitas. The driving distance to downtown San Diego and Orange County is approxi-
mately 35 miles, and the distance to Los Angeles is approximately 90 miles.
Carlsbad encompasses approximately 42 square miles of land. Approximately 40 percent
of this area will always remain open space as stipulated in Carlsbad's Growth Management
Plan to safeguard the natural landscapes. In addition, roughly 2,500 acres of land is zoned
for industrial and commercial use, but only 82 percent of it has already been built-out.
Transportation
Carlsbad is most popularly accessed by car via the San Diego Freeway (Interstate 5) and
Vista Way (Highway 78), two major access roads to Carlsbad. Construction is also
underway for the extension of Cannon road, a major throughway in Carlsbad.
Carlsbad also has the Amtrak train which provides service to and from the coastal areas.
Amtrak has a stop to the north of Carlsbad in the City of Oceanside/Solano Beach. From
this stop, the train runs parallel to the coast into downtown San Diego. Furthermore, the
possibility of a future rail network (LOSSAN) that will link Los Angeles, Riverside, San
Bernardino, Orange, and San Diego counties, with connections to Carlsbad, is being
reviewed.
New to San Diego County is the San Diego Coaster, which runs along the same tracks as
Amtrak but stops more frequently. The San Diego Coaster is a commuter train linking
North County to downtown San Diego. Carlsbad has two stops for the San Diego Coaster
with in its boarders.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section III -Area Review and Neighborhood Analysis IIJ-19
Also within Carlsbad is the Palomar Airport that opened in March 1959. This regional
airport offers daily commuter flights on propeller planes to Los Angeles International
Airport and Phoenix, Arizona. Flights have gradually increased due to flights received from
large carriers. In 1996, the airport gained United Express, which provides service to Los
Angeles International Airport. In 1999, America West joined the airport with service to
Phoenix, Arizona. In addition to the Palomar Airport, air service is provided by the San
Diego Airport, which is located approximately 35 miles south of Carlsbad.
Demographic Profile
The 2002 population of Carlsbad is approximately 83,500 persons compared to 78,247
persons in the year 2000, according to statistics provided by the State of California's
Department of Finance. The median age has remained closed to 38 years for the past two
years. In 2000, the average household consisted of 2.46 persons per dwelling unit, which
is similar to that in 1990. Over 90 percent of residents 25 years of age and above have
completed at least high school education.
Economy
The total employment in Carlsbad increased from 32,815 persons in 1990 to 38,763
persons in 2000. Carlsbad's business community is supported by a number of corporations
that have made this city its home. A large percentage of these companies are from the
technology, biomedical, and services sectors, with a smaller percentage from other
industries. The following table identifies some of the major employers in Carlsbad.
Carlsbad Major Employers
Westfield Shoppingtown/Plaza Camino Real 3,000
Callaway Golf 2,000
Union-Tribune San Diego 1,700
LEGOLAND 1,100
Four Seasons Resort Aviara 1,100
Mira Costa College 1,000
La Costa Resort & Spa
Carlsbad Company Stores
Mallinckrodt
Carlsbad Unified School District
Source: Carlsbad Chamber of Commerce
950
850
800
800
Between 1990 and 2000, the city's unemployment rate declined from 3.0 percent to 2.5
percent. The median household income rose from $46,226 in 1990 to $65,145 in 2000,
with more than 50 percent of residents employed in professional, managerial, and
administrative occupations. The median household effective buying income for 2000 was
$48,785, an increase of nearly 3.0 percent from 1999.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Total taxable retail sales increased from $1.23 billion in 1999 to $1.38 billion in 2000. For
this same time period, total taxable sales for eating and drinking places alone increased
from $98,645 to $111,695.
Additionally, the city generates revenues through the collection of transient occupancy tax
(TOT) from guests staying at hotels and motels. The following tab.le presents transient
occupancy tax revenues collected by the city.
City of Carlsbad
Transient Occupancy Tax (TOT) Revenues
Fiscal Years
Fiscal Year Carlsbad
1998-1999 $6,985,843
1999-2000
2000-2001
2001-2002
CAAG
$8,287,813
$9,235,409
$8,445,042
6.5%
* Includes unincorporated areas
North County*
$43,204,986
$47,201,466
$52,565,426
$47,939,271
3.5%
CAAG ~ Compound Average Annual Growth
Source: San Diego North County CVB
The City of Carlsbad imposes a 10.0 percent room tax, slightly lower than the 10.5 percent
imposed by the City of San Diego. Carlsbad and North County experienced significant
increases in the TOT revenues collected during 1998 to 2001, primarily due to the increase
in room supply and overall growth in the area. Revenues collected for the 2001-2002 fiscal
year reflect the decline in overall travel.
Commercial Office Space
Carlsbad has experienced a tremendous year with the increase in commercial office space.
Historically, available office space has increased at a rate of 11.9 percent. Carlsbad's
occupied office space has increased at an annual average rate of 9.7 percent between 1997
and 2001, which is below the growth rate of available space. In 2000, the vacancy rate
reached its lowest point in five years at 5.1 percent, only to increase to 13.1 percent in
2001. The following table exhibits the growth of the commercial office space in Carlsbad.
Commercial Office Space
Carlsbad
1997-2001
Existing Office Occupied Office Vacancy
Year Seace (SF) Seace (SF) Rate
1997 1,464,000 1,378,000 5.9%
1998 1,458,000 1,376,000 5.6
1999 2,028,000 1,722,000 15.1
2000 2,190,000 2,178,000 5.1
2001 2,293,000 1,993,000 13.1
CAAC 11.9% 9.7%
Source: Grubb & Ellis
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
Under
Construction (SF)
567,000
236,000
204,000
143,000
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Section III -Area Review and Neighborhood Analysis IIl-21
In recent years, Carlsbad has experienced very little growth from new external investments.
Rather, the growth has primarily been internal as local companies expand their existing
facilities. The major expansions are from biotechnology and Research and Development
firms. lnvitrogen, a biotechnology firm, has recently added over 60,000 square feet of
space to its facilities, leased another 350,000 square foot building, and purchased an eight-
acre lot.
Tourist Attractions
Carlsbad plays host to many cultural and recreational events throughout the year. Some of
the attractions that the city offers include the LEGOLAND theme park, PGA golf
tournaments, the Museum of Making Music, Company Stores, annual Flower Fields, and
the bi-annual Carlsbad Village Faire. In addition, the city offers over seven miles of pristine
beaches and over 150 acres of parks for a variety of outdoor and nautical activities. The
following paragraphs describe major tourist attracts located within the city.
LEGOLAND
The largest tourist attraction in Carlsbad is LEGOLAND, which opened in Spring of 1999.
LEGOLAND is an amusement park themed after the popular toy building blocks. The target
age for this park is children between the ages of 2 and 12 years old. The park rests on 128-
acres and includes the recently developed a 4.4-acre parcel, which encompasses the new
ride "LEGO Technic Coaster". It is anticipated that the proposed hotel will be promoted as
the exclusive hotel of LEGOLAND along with the Grand Pacific Palisades, and will be able
to benefit from the joint marketing efforts and branding of the theme park and hotel.
The park is planned as a phased development with three more expansions expected in the
future. The total amount of additional expansion area is 15-acres of land located directly
next to the theme park. At this time, it is unknown when the future expansions will take
place. Each of the three remaining expansions will require approval from the City of
Carlsbad.
Flower Fields
Located just west of the subject site is the Carlsbad Flower Fields. The Flower Fields are SO-
acres of Giant Tecolote Ranunculus flowers that are located on a hillside east of Interstate
5. The flowers bloom seasonally from early March to early May and attract over 200,000
visitors annually.
Carlsbad Company Stores
With over 70 stores ranging from restaurants to Polo and Tommy Hilfiger, the Carlsbad
Company Stores are located off of Interstate 5. The stores are open daily from 10:00 am to
8:00 pm and offer outlet shopping .
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Neighborhood Conclusion
Despite the slowdown in the national economy in 2001, Carlsbad has remained stable as
supported by a strong economy with low unemployment rates and construction of both
commercial office space and industrial space. The area is also seeing a large amount of
new home construction to support with the creation of new jobs from new development.
The future of Carlsbad appears to be positive with the continued planned developments of
homes, commercial office space, and industrial space. With existing base of tourist
amenities including LEGOLAND, the hotel industry within Carlsbad will also see future
growth and is expected to remain strong.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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HOTEL MARKET ANALYSIS
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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HOTEL MARKET ANALYSIS
INTRODUCTION
IV-1
In order to identify the competitive market of the proposed Carlsbad hotel, we have
analyzed the overall North San Diego County hotel market with emphasis on the
surrounding Carlsbad area. We have selected five properties that we feel will offer primary
competition to the subject hotel. The selection of the competitive hotels was based on each
property's location, quality level of facilities and amenities, room rate structure, market
orientation, and discussions with management of the competitive properties. There are
numerous other properties located in the geographic market area; however, many have
been excluded from our analysis due to different rate structures, market orientation, and/or
nature and level of the facilities.
THE COMPETITIVE HOTEL MARKET
Existing Supply
The following chart presents the competitive supply for the subject hotel. Presented on the
following page is a map detailing the location of each of the selected competitive hotels
relative to the subject, followed by a profile of each property.
Competitive Supply
Map Property Number of
Code Rooms
1 Grand Pacific Palisades 90
2 Hilton Del Mar 245
3 Residence Inn Carlsbad 121
4 Courtyard by Marriott Carlsbad 145
5 Hilton Garden Inn Carlsbad 161
Competitive Market Total 762
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, Califomia
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Competitive Property Number One
Grand Pacific Palisades Hotel
Location: 5835 Armada Drive, Carlsbad, California 92008
Number of Rooms: 90
AAA Rating: ♦ ♦ ♦
Facilities and Amenities: Business center, fitness center with sauna, gift shop, and
approximately 12,000 square feet of meeting space
IV-3
The Grand P~cific Palisades is a hotel-timeshare development situated above the Carlsbad
Flower Fields. Located just northwest of the subject site, the property offers 90 guestrooms
and 125 timeshare villas. The location of this property is within walking distance from
many tourist attractions such as the Flower Fields, LEGOLAND Theme Park, and Carlsbad
Company Stores. Amenities available to both hotel and timeshare guests include several
swimming pools and spas, separate children/family swimming pool, childcare, massage
therapy, and activity center with game room. Foodservice is provided by the Karl Strauss
Brewery & Restaurant, which offers a casual dining environment serving lunch and dinner.
Hotel rooms offer irons with ironing boards, coffee makers, televisionNCR, and data ports.
Villas are equipped with a full kitchenette that contains cookware, silverware, and
stemware as well as other small appliances for home cooking. The Grand Pacific Palisades
can accommodate a variety of group functions with its 12,000 square feet of meeting
space.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Competitive Property Number Two
Hilton Del Mar Hotel
Location: 15575 Jimmy Durante, Del Mar, California 92014
Number of Rooms: 245
AAA Rating: ♦ ♦ ♦
Facilities: Business center, fitness center, full-service restaurant and bar,
gift shop, swimming pool, and approximately 15,000 square
feet of meeting space
IV-4
The 245-room Hilton Del Mar opened in 1988 and is located approximately 13 miles
south of the subject. The site of the Hilton De.I Mar is directly across the street from the Del
Mar Fairgrounds and proximate to the beach and various golf courses. Each guestroom is
furnished with a fully stocked mini-bar, two phones, data ports, and cable TV with free
HBO. The soft goods in the guestrooms at this property were renovated in 2000, and
renovations for the meeting space are scheduled for the end of 2002. The full-service
restaurant offers breakfast, lunch, and dinner in a casual environment. The Polo Lounge
also offers a relaxed atmosphere and serves a more limited menu for lunch and dinner.
Hilton Del Mar's flexible meeting space can accommodate group functions of varying sizes
ranging from 10 to 1,000 people. In addition, the hotel can host outdoor functions in the
Garden Terrace for groups up to 350 people.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Competitive Property Number Three
Residence Inn Carlsbad
Location: 2000 Faraday Avenue, Carlsbad, California 92008
Number of Rooms: 121
MA Rating: Not listed
Facilities and Amenities: Fitness center, swimming pool and jacuzzi, and 1,200 square
feet of meeting space
IV-5
Residence Inn Carlsbad is an all-suite hotel that offers studio suites as well as one and two
bedroom suites. This property is situated approximately four miles east of the subject and is
central to various commercial developments that generate demand for the property's
commercial segment. In addition, its location is only a short driving distance from
downtown Carlsbad and other popular local attractions. Some amenities offered by the
Residence Inn Carlsbad include complimentary daily deluxe breakfast buffet, valet dry
cleaning, and complimentary grocery shopping service. Each guestroom provides separate
living and sleeping areas, and is furnished with a fully equipped kitchen, iron with ironing
board, dual telephone lines with data ports, and cable/satellite TV.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Competitive Property Number Four
Courtyard by Marriott Carlsbad
Location: 5835 Owens Avenue, Carlsbad, California 92008
Number of Rooms: 145
AAA Rating: ♦ ♦ ♦
Facilities and Amenities: Fitness center, heated swimming pool and spa, limited-service
restaurant, sundry shop, and 973 square feet of meeting space
IV-6
The 145-room Courtyard by Marriott Carlsbad opened in 2000 and is situated
approximately four miles east of the subject property. The location of this property is not
highly developed, with only a few business parks nearby. Local area attractions such as
LEGOLAND Theme Park and the Flower Fields are a short driving distance away. Some
facilities and services offered at the Courtyard include a lounge for Happy Hour,
complimentary high speed Internet access, valet dry cleaning, complimentary newspapers,
and 973 square feet of meeting space. Each guestroom offers a hair dryer, iron with ironing
board, coffee maker, dual-line phone with data ports and conference capability, and
television with in-room movies and Sony Playstation. The restaurant is only open for
breakfast and serves a complete breakfast buffet with made-to-order items. Evening room
service is made available by outsourcing to local foodservice establishments.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Competitive Property Number Five
Hilton Garden Inn Carlsbad
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Location: 6450 Carlsbad Boulevard, Carlsbad, California 92009
Number of Rooms: 161
MA Rating: ♦ ♦ ♦
Facilities: Complimentary business center, fitness center, restaurant,
heated outdoor swimming pool and whirlpool, and approxi-
mately 1,400 square feet of meeting space
IV-7
Opened in 2000, the Hilton Garden Inn Carlsbad is located approximately two miles
southwest of the subject. Its waterfront location makes it an attractive destination for many
beach-goers. This property is also within a short commutable distance from LEGOLAND
Theme Park, Flower Fields, and other area attractions in Carlsbad. Visibility of the entrance
to the property is slightly obstructed due to signage limitations established by the City of
Carlsbad. All the public areas as well as various other design features of this property are
upgrades from the standard Hilton Garden Inn. The restaurant offers service during
breakfast, lunch, and dinner. The hotel's breakfast service is popular with the local
residents as well as in-house guests. Many of the hotel's 161 rooms offer ocean views,
along with such amenities as complimentary high speed Internet access, telephones with
data ports, coffee makers, microwave ovens, and small refrigerators. This property has
indoor and outdoor facilities to accommodate small group events.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section IV-Afarket Analysis IV-8
Additions to Supply
In conducting our investigations regarding the potential for additions to supply that may
potentially contribute to the existing competitive market, we interviewed various
developers and planning officials. Based on these discussions, we have identified the
following potential additions to supply, which we have included in our analysis:
• A 250-room Embassy Suites is currently in the planning stage. This property is to be
located on Paseo Del Norte Road between Cannon Road and Palomar Airport Road.
The location is proximate to the Carlsbad Company Stores and the existing Holiday
Inn. We have included this addition to supply beginning in 2005.
• According to developers and city officials, another possible addition to supply
includes a full-service resort hotel, which has been proposed on a four-acre lot
proximate to the intersection of Ponto Road and the 101 Freeway. There are various
residential developments bordering the eastern and southern limits of the site. The
property is anticipated to be a full-service hotel of between 160 to 200 rooms. For
the purpose of our analysis, we have assumed the property to include 175 rooms,
which we have added to the existing supply beginning in 2006.
In addition to the aforementioned projects, we have identified other projects in the
Carlsbad area. We have not specifically included these properties in our analysis due to the
stage of development, financing issues, market segmentation, location, and/or rate
structure.
• According to city officials, there are discussions about a potential hotel
development on a proposed 12-acre site. This site is bordered on the north by
residential developments and is located on Avenida Encinitas, near the 101 Freeway
and Ponto Drive. The specifics of this development have yet to be determined.
• A 98-room Extended Stay America is schedule to open in the end of September
2002. The property is located just off of the Interstate 5 freeway. Due to the lower
rate extended stay nature of this property, it is not anticipated to be competitive with
the proposed subject.
• A 98-room Inns of America and Suites opened in late 2001 and is located just off of
the Interstate 5 freeway at Cannon Road. Due to the lower rate extended stay nature
of this property, we have not considered it to be competitive with the proposed
subject.
Grand Pacific Resorts
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MARKET PERFORMANCE OF THE COMPETITIVE MARKET
Hotel Rooms Demand
Demand for hotel rooms is categorized in three ways:
IV-9
• Demonstrated Demand: the demand already captured at competitive hotels;
• Induced Demand: the demand that does not presently seek accommodations in
the competitive market, but could be persuaded to do so through marketing
efforts, room rates, facilities, services, and amenities.
• Unsatisfied Demand: the demand that seeks accommodations in the market but
is not satisfied due to one of a number of factors: sell-outs during peak season,
lack of a particular type of accommodation, lack of meeting space, or high room
rates.
Historical Performance of the Competitive Supply
The aggregate average annual available and occupied rooms, resulting occupancy levels,
average daily room rate, and RevPAR (revenue per available room) for the competitive
supply from 1999 to 2001 is presented in the following table.
Proposed Carlsbad Hotel
H' ' I M k t P f f h C ·r S 1stonca are er ormance o t e ompet1 ave upp 1y
Annual Percent Occupied Percent Market Average Percent Percent
Year Suooly Change Rooms Change Occupancy Daily Rate Change REVPAR Change
1999 133,833 NIA 105,148 NIA 78.6% $103.21 NIA $81.08 NIA
2000 231,593 73.0% 187,432 78.3% 80.9% 109.19 5.8% 88.37 9.0%
2001 278,130 20.1% 218,737 16.7% 78.6% 114.49 4.9% 90.04 1.9%
CAAG 44.2% 44.2% 5.3% 5.4%
6-01 ytd 139,065 NIA 113,485 NIA 81.6% $111.68 NIA $91.14 NIA
6-02 vtd 139,065 0.0% 110,251 -2.8% 79.3% 113.08 1.2% 89.65 -1.6%
Source: PKF Consulting
As noted in the above table, the competitive supply has seen a significant increase in
available rooms since 1999 with a compound annual average growth rate of 44.2 percent.
This growth can be attributed to the opening of the Grand Pacific Palisades and Residence
Inn Carlsbad in 1999, and Courtyard by Marriott Carlsbad and Hilton Garden Inn Carlsbad
in 2000. Over the three-year period, the market has demonstrated phenomenal
performance in occupancy by consistently remaining above 78.0 percent. The occupied
rooms nights increased during the same period, resulting in a compound annual rate of
44.2 percent. The increase can be attributed to the unsatisfied demand that existed in the
market, a relatively strong economy, and the completion of additional commercial office
and industrial space within Carlsbad. In 2001, due to the economic slowdown fueled by
the meltdown of the technology sector and decreased air travels, the Carlsbad hotel market
experienced slower growth than in the previous year.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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In 2000 and 2001, the market's growth in average daily rate outpaced the rate of inflation.
Average daily rate grew from $103.21 in 1999 to $114.49 in 2001. This equates to a
compound annual average growth rate of 5.3 percent. RevPAR, a combination of
occupancy and average daily rate, increased at a rate of 5.4 percent over the three-year
period.
Year to date through June 2002, the competitive market has seen a decline in performance
compared to last year as a result of the nationwide recession. The market achieved an
aggregate occupancy of 79.3 percent through June 2002 compared to the 81.6 percent
achieved during the same period the previous year. This decline represents a 2.8 percent
decrease in occupied room nights. In contrast, average daily rate increased by 1.2 percent
to $113.08 over year to date 2001. RevPAR stumbled to $89.65, equating to a 1.6 percent
drop over the previous year.
Mix of Demand
The demand captured by the competitive supply is derived primarily from the commercial
market segment. The following table summarizes the mix of demand for the competitive
market in 2001.
Proposed Carlsbad Hotel
Competitive Market
2001 Mix of Demand
Market Segment
Commercial
Leisure
Group
Total
Room Nights
125,900
48,000
44,800
219,000
Source: PKF Consulting
Ratio
58%
22%
20%
100%
Each market segment is discussed in the following paragraphs, followed by a summary
table setting forth our estimated growth in demand by market segment.
Commercial Market Segment
In 2001, the commercial segment accounted for 58.0 percent, or approximately 125,900
room nights of captured demand in the market. The demand for this segment is derived
from office and retail space, research and development, biotech, and service firms located
in Carlsbad and North San Diego County. Companies seem to be attracted to this region
primarily because of its affordability and the fact that there is less traffic congestion than in
the south. In Carlsbad, a number of firms have relocated to the area from some of its more
expensive southern neighbors, such as Del Mar Heights, Torrey Pines, and La Jolla. Based
upon our analysis of future office space absorption, local economic, and development
trends as well as discussions with management of the competitive hotels, we have
estimated an annual growth rate of 3.0 percent beginning in 2003.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, Ca!ifomia
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Leisure Market Segment
The leisure segment consists primarily of travelers visiting various tourist attractions within
Carlsbad and San Diego including LEGOLAND, the Flower Fields in the Spring, Carlsbad
Company Stores, the beach, and the San Diego Zoo, and Wild Animal Park. This segment
comprises a significant amount of domestic weekend travel as well as some international
travel. In 2001, the leisure market segment accounted for 22.0 percent of total demand, or
approximately 48,000 room nights of captured demand. Southern California residents
make up a significant portion of this demand. Throughout the projection period, the leisure
market segment is projected to grow 3.0 percent annually, commencing in 2003. In
addition to this growth, it is anticipated that the opening of the 250-room Embassy Suites
will induce approximately 15,000 leisure room nights into the market in 2005. The
opening of the 160-200 room resort hotel and the first phase of the subject in 2006 is
anticipated to induce approximately 20,000 room nights of leisure demand into the
market. The additional 125 and 100 rooms of the second and third phase of the subject's
project will induce approximately 15,000 room nights of leisure demand in 2009 and
2012.
Group Market Segment
The group market segment generated approximately 44,800 room nights in 2001,
representing roughly 20.0 percent of captured demand. Group meeting demand in the
competitive market is typically characterized by corporate groups that hold annual
meetings, usually for the purposes of educating their members, promoting their products,
or discussing legislation that may affect the organization. For the projection period, we
have forecasted growth in the group market segment to be 3.0 percent annually, beginning
in 2003. Furthermore, in 2005 and 2006, it is estimated that approximately 12,000 and
15,000 group room nights respectively will be induced into the market by the new
additions to supply.
PROJECTED MARKET CONDITIONS
The competitive market ended 2001 with an occupancy level of 78.6 percent. Market
occupancy is expected to only increase slightly to 79.0 percent in 2002, and will grow to
80.0 percent in 2003 and 2004. With the addition of the 250-room Embassy Suites in
2005, occupancy will decrease to 72.0 percent. This decline is further compounded by the
addition of the subject's 125 rooms and the proposed 160-200-room full-service hotel in
2006, resulting in an occupancy level of 65.0 percent. In the subsequent years, market
occupancy will rebound to 68.0 percent by 2008. Market occupancy will continue to
experience this fluctuating trend throughout the projection period as additional rooms are
introduced in 2009 and 2012. Due to the cyclical seasonal patterns and weekday versus
weekend trends in the market in addition to the projected new supply, it is unlikely that the
market will exceed the 80.0 percent level over the long term. The projected future growth
in supply and demand is presented in the table on the following page.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section JV -Market Analysis IV-12
Proposed Carlsbad Resort (2006)
Competitive Market
Estimated Future Growth in Lodging Supply and Demand
2001 -2014
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
ROOMS SUPPLY 635
Additionsl(Deletions) to Supply
Proposed Carlsbad Resort (2006) 125 125 100
Courtyard by Marriott Carlsbad (612000) 60
Hilton Garden Inn Carlsbad (612000) 67
Embassy Suites (2005) 250
160-200 Room Resort {Bill Caneepa's Site) 175
Cumulative Rooms Supply 762 762 762 762 1,012 1,312 1 312 1,312 1,437 1,437 1,437 1,537 1,537 1,537
Total Annual Rooms Supply 278,130 278,130 278,130 278,130 369,380 478,880 478,880 478,880 524,505 524,505 524,505 561,005 561,005 561,005
Growth Over the Prior Year 20.1% 0.0% 0.0% 0.0% 32.8% 29.6% 0.0% 0.0% 9.5% 0.0% 0.0% 7.0% 0.0"/o 0.0%
DEMONSTRATED DEMAND IN BASE YR
Commercial 125,904 58%
leisure 48,022 22%
Group 44 812 20%
TOTAL DEMONSTRATED DEMAND 218,737 100%
INDUCEOl(UNSATISFIED) DEMAND
Commercial 0 0 0 0 0 0 0 0 0 0 0 0 0
Leisure 0 0 0 15,000 20,000 0 0 10,000 0 0 5,000 0 0
Group 0 0 0 12,000 15,000 0 0 0 0 0 0 0 0
TOTAL INDUCEDl(UNSATISFIED) DEMAND 0 0 0 27,000 35,000 0 0 10,000 0 0 5,000 0 0
GROWTH RATES
Commercial 0.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Leisure 0.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Group 0.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
PROJECTED DEMAND
Commercial
Demonstrated 125,904 125,904 129,681 133,571 137,578 141,706 145,957 150,336 154,846 159,491 164,276 169,204 174,280 179,509
lnduced/(Unsatisfied) 0 0 {1,609) {5,499) 0 0 0 0 0 0 0 0 0 0
Total 125,900 125,900 128,100 128,100 137,600 141,700 146,000 150,300 154,800 159,500 164,300 169,200 174,300 179,500
Growth Over Prior Year NIA 0.0% 1.7% 0.0% 7.4% 3.0% 3.0% 2.9% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Leisure
Demonstrated 48,022 48,022 49,463 50,946 52,475 69,499 92,184 94,950 97,798 111,032 114,363 117,794 126,478 130,272
lnduced/{Unsatisfied) 0 0 (614) {2,098) 15,000 20,000 0 0 10,000 0 0 5,000 0 0
Total 48,000 48,000 48,800 48,800 67,500 89,500 92,200 94,900 107,800 111,000 114,400 122,800 126,500 130,300
Growth Over Prior Year NIA 0.0% 1.7% 0.0% 38.3% 32.6% 3.0% 2.9% 13.6% 3.0% 3.1% 7.3% 3.0% 3.0%
Group
Demonstrated 44,812 44,812 46,156 47,541 48,967 62,796 80,130 82,534 85,010 87,560 90,187 92,892 95,679 98,550
lnduced/{Unsatisfied) 0 0 (573) {1,957) 12 000 15,000 0 0 0 0 0 0 0 0
Total 44,800 44,800 45,600 45,600 61,000 77,800 80,100 82,500 85,000 87,600 90,200 92,900 95,700 98,500
Growth Over Prior Year NIA 0.0% 1.8% 0.0% 33.8% 27.5% 3.0% 3.0% 3.0% 3.1% 3.0% 3.0% 3.0% 2.9%
Total Market Demand 218,700 218,700 222,500 222,500 266,100 309,000 318,300 327,700 347,600 358,100 368,900 384,900 396,500 408,300
Growth Over Prior Year NIA 0.0% 1.7% 0.0% 19.6% 16.1 % 3.0% 3.0% 6.1% 3.0% 3.0% 4.3% 3.0% 3.0%
Market Occuoancv 79% 79% 80% 80% 72% 65% 66% 68% 66% 68% 70% 69% 71% 73%
Source: PKF Consulting
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section IV -Market Analysis IV-13
We have also estimated the average daily room rate based upon our analysis of the
historical rates achieved within the market, interviews with management of the competitive
properties, the anticipated impact of the new supply entering the market, and the changing
economic conditions.
Year to date data indicate that rate is experiencing minimal growth as a result of the recent
setbacks in the market. As a result, properties have discounted rates in order to attract back
lost demand. It can reasonably be expected that 2002 average daily rates will be slightly
below levels achieved last year as indicated by our projections. We have estimated a 2.2
percent decline in average daily rate in 2002 over 2001 at $112.00. It is expected that
average daily rate will grow at a compound average annual rate of 2.6 percent between
2002 and 2014. Since average daily rates grew 5.3 percent annually between 1999 and
2001, it is reasonable that the market can achieve a growth rate of 2.6 percent. Given
current economic factors and the amount of new supply anticipated to enter the market, it
is expect that rates will be competitive.
Based on the foregoing analysis, the following table summarizes our estimates of future
supply, accommodated demand, occupancy, average daily rate, and RevPAR for the
competitive market from 2002 to 2014.
Proposed Carlsbad Hotel
P . t d M k t P f f th C ff S roJec e are er ormance o e ompe 11ve UPDIY
Annual Percent Occupied Percent Market Average Percent Percent
Year Suooly Change Rooms Change Occupancy Daily Rate Change REVPAR Change
2002 278,130 0.0% 218,700 0.0% 79% $112.00 -2.2% $ 88.07 -2.2%
2003 278,130 0.0% 222,500 1.7% 80% 115.00 2.7% 92.00 4.5%
2004 278,130 0.0% 222,500 0.0% 80% 119.00 3.5% 95.20 3.5%
2005 369,380 32.8% 266,100 19.6% 72% 122.00 2.5% 87.89 -7.7%
2006 478,880 29.6% 309,000 16.1 % 65% 126.00 3.3% 81.30 -7.5%
2007 478,880 0.0% 318,300 3.0% 66% 130.00 3.2% 86.41 6.3%
2008 478,880 0.0% 327,700 3.0% 68% 134.00 3.1% 91.70 6.1%
2009 524,505 9.5% 347,600 6.1% 66% 139.00 3.7% 92.12 0.5%
2010 524,505 0.0% 358,100 3.0% 68% 143.00 2.9% 97.63 6.0%
2011 524,505 0.0% 368,900 3.0% 70% 147.00 2.8% 103.39 5.9%
2012 561,005 7.0% 384,900 4.3% 69% 152.00 3.4% 104.29 0.9%
2013 561,005 0.0% 396,500 3.0% 71% 156.00 2.6% 110.26 5.7%
2014 561,005 0.0% 408,300 3.0% 73% 161.00 3.2% 117.18 6.3%
CAAG 6.0% 4.8% 2.6% 1.4%
Source: PKF Consulting
ESTIMATED PERFORMANCE OF THE SUBJECT
In order to project the occupancy level of the proposed hotel, we have estimated the level
of patronage by market segment that can reasonably be captured by the subject. We then
performed a penetration analysis to determine the extent to which the subject property
could capture demand from each market segment. For purposes of this analysis, we have
assumed that the subject will open in 2006 with 125 rooms and. add an additional 125
rooms in 2009 and 100 rooms in 2012.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section IV -Market Analysis IV-14
Penetration Analysis
This section presents an estimation of the subject hotel's future market position, with
respect to total demand that can reasonably be captured by the property. The extent to
which the subject property could capture demand within the market is estimated by
performing a fair share penetration analysis, expressed quantitatively, as a percentage of
demand. A hotel's fair share of the market is defined as the number of available rooms
within the subject hotel divided by the total supply of available rooms within the
competitive market, including the subject property. Factors indicating that a hotel possesses
competitive advantages suggest a market penetration in excess of 100 percent of fair
market share, while competitive weaknesses or marketing strategies reflect penetration
levels below 100 percent.
It should be noted that the actual penetration of each market segment by the subject might
deviate from fair market share for the following reasons:
• The competitive advantages or disadvantages of the proposed hotel
versus the competition taking into consideration such factors as location,
room rate structure, chain affiliation, quality of management, marketing
efforts, and image;
• The characteristics, composition, and needs of each market segment;
• The restraint on demand captured due to capacity constraints during
certain periods of the week or times of the year; and
• Management decisions concerning target markets.
Estimated occupancy levels for the subject hotel have been projected on the basis of a
penetration analysis. Our estimate of the subject's performance assumes that the subject
property will enter the competitive market in January 1, 2006 and that the anticipated
nature and quality level of facilities will be consistent with those as presented in this report.
Penetration of Subject
We have estimated that the subject hotel will open January 1, 2006 with 125 rooms and
will achieve a first year occupancy of 60 percent. We have estimated occupancy at the
property will grow to 67 percent in its second year of operation, and 72 percent in its third
year. With an additional 125 rooms to enter the market in 2009, occupancy at the subject
is expected to fall to 70 percent that year, and grow to 76 percent in 2011 before adding
the additional 100 rooms in 2012. With the additional rooms supply at the property,
occupancy is expected to decline to 75 percent that year and grow to 77 percent where it
will stabilize. The subject's overall penetration rate in a stabilized year will be between
1 06 and 1 09 percent.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section IV -Market Analysis IV-15
Commercial Segment
Due to the quality of the proposed subject's facilities and amenities, it is anticipated that
the hotel will be able to capture demand from the commercial segment. The Carlsbad area
has a strong commercial base, and the subject site is well located with convenient access
to several corporate office parks and major access roads through Carlsbad. Further, the
subject is anticipated to offer a number of amenities specifically targeted to the business
traveler.
Due to the heavy commercial orientation of several of the hotels in the competitive set,
however, it is estimated that the subject will achieve less than its fair share of demand in
this market segment. Accordingly, we have estimated the subject's penetration in the
commercial market segment to be 75 percent in its first year of operation, grow to 80
percent in its second year of operation, and reach 85 percent in its third year of operation
and remain at this rate throughout the projection period. This equates to approximately 35
percent of the subject's business generated from the commercial segment.
Leisure Segment
The proposed facilities of the subject will offer resort type amenities and cater specifically
to vacationing families and tourists visiting the beach and LEGOLAND. Thus, the subject is
anticipated to over penetrate the leisure segment.
In its first year of operation at 125 rooms, the subject is anticipated to achieve a leisure
segment penetration rate of 115 percent, which will grow and fluctuate between 120 and
125 percent throughout the projection period. The leisure segment is anticipated to
represe.nt roughly 35 percent of the subject's business in a stabilized year.
Group Segment
The subject property will offer approximately 9,000 square feet of meeting space plus
additional outdoor space. Plans indicate that additional meeting space of approximately
2,000 square feet will be added to the subject in subsequent phases. Due to the amount of
proposed meeting space at the subject relative to the limited facilities offered by some of
the properties in the competitive set, the subject is anticipated to over penetrate its fair
share of the market in the group segment.
We estimate that the subject will achieve a 100 percent penetration rate in 2006.
Penetration of the group market segment is anticipated to grow and fluctuate throughout
the projection period until achieving a stabilized group penetration rate of between 125
and 130 percent. This equates to roughly 30 percent of the subject's occupied room nights
being generated from the group market segment.
Overall Market Mix, Penetration, and Occupancy
The estimated stabilized market mix and penetration for the subject hotel are presented in
the following table.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section IV -Market Analysis
Proposed Carlsbad Hotel
Stabilized Mix of Demand and
Market Penetration
Market Segment Ratio Penetration
Commercial 35% 85%
Leisure 35% 125%
Group 30% 130%
Total 100% 106%-109%
Source: PKF Consulting
IV-16
Based on the foregoing analysis by segment, we have estimated that the subject property
can achieve a penetration rate of 93 percent in 2006, its first year of operation. We expect
that its penetration will grow and fluctuate as rooms are added at the subject and new
supply enters the market until it reaches a stabilized level of between 106 and 109 percent.
The table on the following page presents our estimate of future market penetration and
resulting occupancies for the subject property.
Gremel Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
-Section IV -Market Analysis IV-17
Proposed Carlsbad Resort (2006)
Competitive Market
Estimated Future Growth in Lodging Supply and Demand
2001 -2014
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
ROOMS SUPPLY 635
Additions/(Deletions) to Supply
Proposed Carlsbad Resort (2006) 125 125 100
Courtyard by Marriott Carlsbad (6/2000) 60
Hilton Garden Inn Carlsbad (6/2000) 67
Embassy Suites (2005) 250
160-200 Room Resort (Bill Caneepa's Site) 175
Cumulative Rooms Supply 762 762 762 762 1,012 1,312 1,312 1,312 1,437 1,437 1,437 1,537 1,537 1,537 ----------------------------
Total Annual Rooms Supply 278,130 278,130 278,130 278,130 369,380 478,880 478,880 478,880 524,505 524,505 524,505 561,005 561,005 561,005
Growth Over the Prior Year 20.1% 0.0% 0.0% 0.0% 32.8% 29.6% 0.0% 0.0% 9.5% 0.0% 0.0% 7.0% 0.0% 0.0%
DEMONSTRATED DEMAND IN BASE YR
Commercial 125,904 58%
leisure 48,022 22%
Group 44,812 20%
TOTAL DEMONSTRATED DEMAND 218,737 100%
INDUCED/(UNSATISFIED) DEMAND
Commercial 0 0 0 0 0 0 0 0 0 0 0 0 0
Leisure 0 0 0 15,000 20,000 0 0 10,000 0 0 5,000 0 0
Group 0 0 0 12,000 15,000 0 0 0 0 0 0 0 0
TOTAL INDUCED/(UNSATISFIED) DEMAND 0 0 0 27 000 35,000 0 0 10,000 0 0 5,000 0 0
GROWTH RATES
Commercial 0.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Leisure 0.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Group 0.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
PROJECTED DEMAND
Commercial
Demonstrated 125,904 125,904 129,681 133,571 137,578 141,706 145,957 150,336 154,846 159,491 164,276 169,204 174,280 179,509
lnduced/(Unsatisfied) 0 0 (1,609) (5 499) 0 0 0 0 0 0 0 0 0 0
Total 125,900 125,900 128,100 128,100 137,600 141,700 146,000 150,300 154,800 159,500 164,300 169,200 174,300 179,500
Growth Over Prior Year N/A 0.0% 1.7% 0.0% 7.4% 3.0% 3.0% 2.9% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
leisure
Demonstrated 48,022 48,022 49,463 50,946 52,475 69,499 92,184 94,950 97,798 111,032 114,363 117,794 126,478 130,272
lnduced/(Unsatisfied) 0 0 (614) (2,098) 15,000 20,000 0 0 10,000 0 0 5,000 0 0
Total 48,000 48,000 48,800 48,800 67,500 89,500 92,200 94,900 107,800 111,000 114,400 122,800 126,500 130,300
Growth Over Prior Year N/A 0.0% 1.7% 0.0% 38.3% 32.6% 3.0% 2.9% 13.6% 3.0% 3.1% 7.3% 3.0% 3.0%
Group
Demonstrated 44,812 44,812 46,156 47,541 48,967 62,796 BO, 130 82,534 85,010 87,560 90,187 92,892 95,679 98,550
lnduced/(Unsatisfied) 0 0 (573) (1,957) 12,000 15,000 0 0 0 0 0 0 0 0
Total 44,800 44,800 45,600 45,600 61,000 77,800 80,100 82,500 85,000 87,600 90,200 92,900 95,700 98,500
Growth Over Prior Year NIA 0.0% 1.8% 0.0% 33.8% 27.5% 3.0% 3.0% 3.0% 3.1% 3.0% 3.0% 3.0% 2.9%
Total Market Demand 218,700 218,700 222,500 222,500 266,100 309,000 318,300 327,700 347,600 358,100 368,900 384,900 396,500 408,300
Growth Over Prior Year N/A 0.0% 1.7% 0.0% 19.6% 16.1% 3.0% 3.0% 6.1% 3.0% 3.0% 4.3% 3.0% 3.0%
Market Occupancv 79% 79% 80% 80% 72% 65% 66% 68% 66% 68% 70% 69% 71% Eql Source: PKF Consulting
Grand Pacific Resorts
P,·nnn<:Pd r.nrlshnd Resort. Carlsbad. California
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Section IV -Market Analysis IV-18
PROJECTED AVERAGE DAILY RATE AND YIELD ANALYSIS
Based on the anticipated quality level and nature of the facilities relative to the
competition, we estimate the subject will achieve a stabilized average daily rate of
$118.00, stated in current value dollars. This will position the proposed hotel above the
Grand Pacific Palisades, Hilton Del Mar, and Courtyard by Marriott and below the
Residence Inn and Hilton Garden Inn. For purposes of this analysis, average daily rates are
estimated to increase at three percent annually.
Revenue Yield Analysis
Presented below is a summary of projected growth in average rate for the market and the
subject and our average rate projections for both. To test our revenue projections for
reasonableness, we have also employed a variation of the penetration analysis, called a
revenue yield analysis. This analysis takes into account both the occupancy and average
daily rate performance. Presented in the following table is a summary of the subject's
projected performance with regard to revenue yield and the effective revenue yield
percentages that are derived from our occupancy and average daily rate forecasts.
Proposed Carlsbad Hotel
evenue le naIys1s R Y' ldA I •
Market Percent Subject Percent Market Subject Revenue
Year Occupancy ADR Change Occupancy ADR Change REVPAR REVPAR Yield
2006 65% $127.00 N/A 60% $133.00 N/A $81.95 $ 79.58 97%
2007 66% 131.00 3.1% 67% 137.00 3.0% 87.07 91.58 105%
2008 68% 135.00 3.1% 72% 141.00 3.0% 92.38 101.67 110%
2009 66% 139.00 3.0% 70% 145.00 3.0% 92.12 101.70 110%
2010 68% 143.00 2.9% 73% 149.00 3.0% 97.63 109.08 112%
2011 70% 147.00 2.8% 76% 154.00 3.0% 103.39 117.46 114%
2012 69% 152.00 3.4% 75% 159.00 3.0% 104.29 118.61 114%
2013 71% 157.00 3.3% 77% 163.00 3.0% 110.96 125.81 113%
2014 73% 162.00 3.2% 77% 168.00 3.0% 117.90 130.04 110%
CAAG 2.3% 2.3% 3.1% 5.1%
Source: PKF Consulting
While it is possible that the proposed subject property will experience growth in
occupancy and average daily rates above those estimated in this report, it is also possible
that sudden economic downturns, unexpected additions to the room supply, or other
external factors will force the property below the selected point of stability. Consequently,
the estimated occupancy and average daily rate levels are representative of the most likely
potential operations of the subject hotel over the projection period based on our analysis of
the market as of the date of this report.
We have also based our conclusions without the impact of the marketing and operation of
the adjacent timeshare development. During the marketing period, the subject hotel
expected to capture a substantial amount of timeshare related occupied room nights,
increasing the proposed subject's occupancy. While we have· not considered these
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section IV -Market Analysis !V-19
additional room nights in our analysis, we have assumed certain economies of scale in the
proposed subject's expense items, as presented in the following section.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, Califomia
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STATEMENTS OF ESTIMATED ANNUAL OPERATING RESULTS
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Proposed Carlsbad Resort, Carlsbad, California
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Section V -Statements of Estimated Annual Operating Results
STATEMENTS OF ESTIMATED ANNUAL OPERATING RESULTS
BASIS OF PROJECTIONS
V-1
To prepare estimates of potential operating results for the proposed hotel to be located in
Carlsbad, California, the starting point or basis is the best estimate of results that could be
achieved with competent management in a representative year of operation calculated in
2002 dollars for each of the three phases of the project at 125-rooms, 250-rooms, and 350-
rooms.
We estimated stabilized occupancy levels and average daily rates for the subject as a full-
service, resort hotel. From this basis, we considered the effects of inflation, development,
and occupancy levels for a ten-year period beginning in 2006, the subject's projected first
year of operation:. The underlying rationale and assumptions used in preparing these
estimates are presented in the following section.
The estimates of revenues, costs and expenses are based on the proposed facilities and the
anticipated operational characteristics of those facilities. The basis for our projections is the
operating results of similar lodging properties that are believed to operate with efficient
management and proper control over costs and expenses.
In estimating potential operating results for the period from 2006 to 2015, expense ratios
were adjusted from the stabilized year of operation to account for inflation, variable
income and expenses, and corresponding efficiencies relating to fixed expenses at different
occupancy levels.
ACCOUNT CLASSIFICATION
The Uniform System of Accounts for Hotels, recommended by the American Hotel and
Motel Association and in general use throughout the industry, has been used in the
classification of income and expenses in this report. In conformity with this system of
account classification, only direct operating expenses are charged to the operating
departments of the property.
The general overhead items, which are applicable to operations as a whole are classified as
deductions from income and include administrative and general expenses, management
fee, marketing fees, property operations and maintenance, and energy costs.
We assume that the subject property will be marketed and managed in a competent and
efficient manner and that the quality of the facilities and level of service will remain
commensurate with those at comparable properties.
INFLATION
To portray price level changes, we have assumed a 3.0 percent annual inflation rate over
the ten-year estimation period. This rate reflects the current long-term outlook for the future
movement of prices. On the basis of the forecasts of leading banks in major U.S. cities, our
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section V -Statements of Estimated Annual Operating Results V-2
assumption of an annual 3.0 percent inflation factor is intended only to portray an
expected long-term price movement (over the projection period) rather than of a point in
time.
INCOME AND EXPENSE ESTIMATES
Data from the following sources have been used as a basis for the income and expense
estimates:
► The market performance (average daily rate and occupancy levels) of the
primary competitive hotels; and
► Comparable data from twelve selected competitive properties located
throughout the state of California referred to as comparables "A", through "L".
Comparables "A" through "D" were used to estimate income and expense items
for the 125 room scenario, comparables "E" through "H" were used for the for
the 250 room estimates, and comparables "I" through "L" were used to derive
estimates for the 350 room scenario.
Comparable data was obtained primarily from confidential information submitted in
compilation of the 2002 and 2001 (2001 and 2000 year-end data) of PKF Consulting's
publication Trends in the Hotel Industry. Our composite used for comparison purposes is
comprised of full-service and resort hotels considered comparable to the subject due to
their facilities, performance, size, and market orientation.
We have presented our rationale for the income and expense estimates for each of the
three scenarios in the following pages.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section V -Statements of Estimated Annual Operating Results V-3
ESTIMATED ANNUAL OPERATING RESULTS FOR A 125-ROOM PROPERTY
The 2001 and 2000 financial statements for the comparable hotels used to derive estimates
for the subject at 125 rooms are summarized in the next pages. For reasons of
confidentiality, we are unable to disclose the identity of the comparabl~ hotels.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section V -Statements of Estimated Annual Operating Results
Proposed Carlsbad Resort (125 rooms)
0 erating Results of Comparable Hotels
Revenues
Rooms
Food & Beverage
Telecommunications
Garage and Parking
Other Operated Departments
Rentals and Other Income
Total Revenues
Departmental Expenses
Rooms
Food & Beverage
Telecommunications
Other Operated Departments
Total Departmental Expenses
/ Departmental Profit
Undistributed Exoenses
Administrative & General
Marketing
Franchise Fees
Property Operation and Maintenance
Utility Costs
Total Undistributed Operating Expenses
I Gross Operating Profit
Base Management Fee
Fixed Exoenses
Property Taxes
Insurance
Total Fixed Exoenses
I Net Operating Income
I FF&E Reseive
I Net Operating Income After Reseive
!source: PKF Consulting
Grand Pacific Resorts
Hotel A
Ratio Per Room P.O.R.
79.8% $26,325 $87.47
1.7% 557 1.85
1.7% 559 1.86
5.7% 1,865 6.20
10.9% 3,598 11.95
0.3% 95 0.31
100.0% 32,998 109.65
29.1% 7,661 25.46
0.0% 0 0.00
91.9% 513 1.71
69.6% 2,504 8.32
32.4% 10,678 35.48
67.6% I 22,3201 74. 17 I
4.5% 1,485 4.93
11.6% 3,836 12.75
0.0% 0 0.00
5.7% 1,889 6.28
4.7% 1,546 5.14
26.5% 8,756 29.10
41.1%1 13,5641 45.071
4.3%1 1,4091 4.681
6.0% 1,981 6.58
2.0% 653 2.17
8.0% 2,634 8.75
28.9%1 9,5221 31.641
0.0%1 oj o.ooj
28.9%1 $9,5221 $31.64i
Proposed Carlsbad Resort, Carlsbad, California
Hotel B
Ratio Per Room P.O.R.
50.9% $29,908 $118.21
25.3% 14,845 58.68
1.9% 1,132 4.47
0.0% 0 0.00
21.1% 12,397 49.00
0.8% 457 1.81
100.0% 58,739 232.16
22.5% 6,739 26.64
81.3% 12,071 47.71
34.8% 394 1.56
78.7% 9,760 38.58
49.3% 28,964 114.48
50.7%) 29,7751 117.681
9.4% 5,504 21.75
6.7% 3,956 15.64
2.7% 1,610 6.36
6.1% 3,571 14.11
5.5% 3,234 12.78
30.4% 17,876 70.65
20.3% 1 11,8991 47.031
2.5%1 1,4551 5.751
0.6% 364 1.44
0.7% 402 1.59
1.3% 766 3.03
16.5%1 9,6781 38.251
0.0%1 ol o.ool
16.5%1 $9,6781 $38.251
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Hotel C Hotel D Weighted Average
Ratio Per Room P.O.R. Ratio Per Room P.O.R. Ratio Per Room P.O.R.
79.1% $31,073 $122.73 84.9% $21,890 $101.62 69.5% $27,308 $110.19
15.4% 6,051 23.90 8.1% 2,080 9.66 16.2% 6,355 25.64
1.2% 486 1.92 4.6% 1,185 5.50 2.2% 878 3.54
0.0% 0 0.00 0.0% 0 0.00 0.6% 1,865 6.20
4.2% 1,653 6.53 1.2% 309 1.44 10.8% 4,258 17.18
0.0% 0 0.00 1.2% 308 1.43 0.6% 322 1.31
100.0% 39,264 155.09 100.0% 25,772 119.65 100.0% 39,271 158.47
26.8% 8,328 32.89 25.3% 5,541 25.72 25.5% 6,970 28.13
87.7% 5,306 20.96 77.5% 1,611 7.48 81.8% 5,996 25.02
115.3% 560 2.21 23.4% 278 1.29 48.3% 424 1.71
27.9% 462 1.82 86.6% 268 1.24 71.9% 3,063 12.36
37.3% 14,656 57.89 29.9% 7,697 35.74 39.9% 15,656 63.18
62.7% I 24,6081 97.201 70.1 % 1 18,0751 83.91 I 60.1"/ol 23,6151 95.291
9.8% 3,852 15.22 12.2% 3,150 14.63 9.5% 3,745 15.11
6.6% 2,588 10.22 7.7% 1,973 9.16 7.4% 2,916 11.76
6.2% 2,432 9.60 0.0% 0 0.00 2.9% 2,054 8.11
5.3% 2,079 8.21 3.9% 1,003 4.66 5.4% 2,105 8.49
3.8% 1,475 5.83 4.1% 1,064 4.94 4.6% 1,810 7.30
31.6% 12,426 49.08 27.9% 7,189 33.38 29.8% 11,722 47.30
31.0%1 12,1821 48.121 42.2% 1 10,885 I 50.541 30.3%1 11,893/ 47.991
2.5%1 9821 3.881 0.0%1 01 0.001 2.2%1 1,2401 4.73j
1.2% 480 1.90 4.4% 1,124 5.22 2.2% 849 3.42
0.4% 152 0.60 2.0% 512 2.38 1.0% 394 1.59
1.6% 633 2.50 6.3% 1,636 7.60 3.2% 1,243 5.01
26.9%1 10,5681 41.741 35.9%1 9,2491 42.941 24.9%j 9,793j 39.52i
o.o¾I ol o.ooj O.O%j 01 o.ooj 0.0%1 ol o.ool
26.9%1 $10,5681 $41.741 35.9%/ $9,2491 $42.94i 24.9%1 $9,7931 $39.52 I
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Section V -Statements of Estimated Annual Operating Results V-5
Departmental Revenues and Expense
In the Uniform System of Accounts for Hotels, revenues to the facility are categorized by
the department from which they are derived. In the case of the subject, these will include
income from rooms, food and beverage, telephone, other operated departments, and
rentals and other income. In the Uniform System of Accounts for Hotels, only direct
operating expenses associated with each department are charged to the operating
departments. General overhead items, which are applicable to the overall operation of the
facility, are classified as undistributed operating expenses.
Direct or departmental revenues and expenses, which typically vary with occupancy, are
generally analyzed on a per occupied room (POR) or ratio basis, while undistributed
expenses, which are more fixed in nature, are typically analyzed on a per available room
(PAR) basis.
Rooms Revenue and Expense
Rooms revenue is generated by the estimated occupancy of the hotel multiplied by the
average daily room rate. We have based our estimates of occupancy on our survey of
competitive properties, an analysis of the segmentation of demand in the market area, and
our assessment of the subject property's market position. In estimating the average daily
room rates for the subject, we looked at the average daily room rates achieved at
competitive properties in the market area. Next, consideration was given to future trends
impacting the market and an analysis of the subject property's market mix.
At 125 rooms, we estimated that the stabilized occupancy rate of the subject hotel would
be 72.0 percent with an average daily rate of $118.00 (expressed in 2002 dollars).
Therefore, gross rooms revenue at the subject property at 125 rooms in a stabilized year of
operation is as calculated below.
125 rooms x 365 days x 72% occupancy x $118.00/day = $3,876,000 (rounded)
Rooms expense consists of salaries and wages, employee benefits, commissions, contract
cleaning, guest transportation, laundry and dry cleaning, linen, operating supplies,
reservations costs, uniforms, and other items related to the room division.
The composite operating results for the comparable hotels ranged from 22.5 percent to
29.1 percent. On a per occupied room basis, the comparable properties ranged from
$25.46 to $32.89 per occupied room. Based on our analysis of the comparable properties,
we estimate that for a stabilized year of operation, the rooms department expense for the
subject will be $26.50 per occupied room or 23.0 percent of total rooms revenue. This is
within the range of the comparables on a per occupied room basis as well as on a ratio to
total rooms revenues basis.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section V -Stateme11ts of Estimated Annual Operating Results V-6
Subject @ 125 Rooms
R E ooms xpense
Per Occupied Room Ratio to Rms Revenue
Comparables
A $25.46 29.1%
B 26.64 22.5%
C 32.89 26.8%
D 25.72 25.3%
Weighted Average 28.13 25.5%
Subject @ 125 Rooms Stab ii ized Year $26.50 23.0%
Food and Beverage Revenue and Expense
Food and beverage revenue is generated by the sale of meals to both hotel guests and also
outside patrons in the food and beverage outlets, the sale of soft drinks, liquor, and wine in
the restaurants and lounge, room service, and other associated revenues. Food and
beverage revenue vary depending on the number of food and beverage outlets, and the
amount of meeting space. With an onsite restaurant and approximately 9,000 square feet of
banquet and meeting space in the first phase of the project, the subject property is
projected to accommodate a moderate amount of banquet, catering, and food and
beverage sales.
Based on the specific food and beverage outlets at the subject hotel in relation to the
comparables, we have estimated that the subject can achieve food and beverage revenue
of $40.00 per occupied room in a stabilized year of operation for the subject at 125-rooms.
On a per occupied room basis, this is higher than the weighted averages of the comparable
hotels, but is still within the range of the comparables.
Subject@ 125 Rooms
00 evera, e F d & B R evenue
Total Amount Per Occupied Room
Com parables
A $ 50,120 $ 1.85
B 2,583,082 58.68
C 1,234,425 23.90
D 434,685 9.66
Weighted Average N/A 25.64
Subject@ 125 Rooms Stabilized Year $1,314,000 $40.00
Food and beverage expense includes the cost of food and beverage, payroll and related
expenses, and other items such as laundry, linen, china, glassware, silverware, uniform
costs, supplies, as well as other miscellaneous items.
The food and beverage expense percentage to total food and beverage revenue for the
comparable properties ranged from 0.0 percent to 87.7 percent with a weighted average of
81.8 percent. Considering the financial comparables and the type of food and beverage
operations proposed for the subject property, we believe a food and beverage expense
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section V -Statements of Estimated Annual Operating Results V-7
percentage to total food and beverage revenue of 78.0 percent is appropriate for the
subject property at 125 rooms. This is within the range of the comparables on a percentage
to total food and beverage revenues basis and in line with currently industry standards.
Comparables
A
B
C
D
Subject @ 125 Rooms
Food & Beverage Expense
Weighted Average
Subject@ 125 Rooms Stabilized Year
Telecommunications Revenue and Expense
Ratio to F&B Rev.
0.0%
81.3%
87.7%
77.5%
81.8%
78.0%
Telecommunications revenue is derived from the use of telephones within guest rooms.
Telephone revenues are highly dependent on the surcharges imposed by the property.
Telecommunications revenue at the comparable properties ranged from $1.86 to $5.50 per
occupied room with a weighted average of $3.54 per occupied room. Telecommunications
revenues are highly variable and tend to correlate directly to occupancy. We estimated
telecommunication revenue at the property to be $2.00 per occupied room for the subject
at 125 rooms in 2002 dollars, which is within the range of the comparable properties.
Subject @ 125 Rooms
Telecommunications Revenue
Per Occupied Room
Comparables
A
B
C
D
Weighted Average
Subject@ 125 Rooms Stabilized Year
$1.86
4.47
1.92
5.50
3.54
$2.00
Telecommunications expense includes the cost of calls, operation of the telephone
switchboard, and any telephone service charges.
Telecommunication expense ranged from 23.4 percent to 115.3 percent at the comparable
properties with a weighted average of 48.3 percent. For a representative year of operation,
we have estimated expenses at approximately 50.0 percent of revenues for the subject at
125 rooms, which is within the range of the comparable hotels' performance and on par
with current industry standards.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Subject@ 125 Rooms
Telecommunications Expense
Ratio to T-Comm. Rev.
Corn parables
A
B
C
D
Weighted Average
Subject@ 125 Rooms Stabilized Year
Other Operated Departments Revenue and Expense
91.9%
34.8%
115.3%
23.4%
48.3%
50.0%
V-8
Other operated department revenue can vary significantly among the comparable
properties and the subject depending on the nature of the additional revenue generators.
Other operated department revenue is typically generated from spa services, guest laundry,
vending, pay movies, and other miscellaneous sources. It is anticipated that other operated
department revenues at the subject will be generated from conference services, laundry
services, vending, pay movies, on site activities, business services, and other miscellaneous
departments.
Other operated department revenue at the comparable properties ranged from $1.44 to
$49.00 with a weighted average of $17.18. This wide range is attributed to the varying
services offered at the individual hotels. Based on the proposed subject's facilities and
amenities against that of the comparable properties, we have estimated other operated
department revenue at $10.00 per occupied room in a representative year of operation for
the subject at 125 rooms.
Subject@ 125 Rooms
Other Operated Departments Revenue
Comparables
A
B
C
D
Weighted Average
Subject@ 125 Rooms Stabilized Year
Per Occupied Room
$11.95
49.00
6.53
1.44
17.18
$10.00
Other Operated Department Expense for the comparable hotels ranged from 27.9 percent
to 86.6 percent at the comparable hotels. Taking into account the nature of other operated
departments of the subject, we have estimated other operated department expense to be
70.0 percent of departmental revenues for the 125-room property in a stabilized year of
operation, which is within the range of comparables and on par with current industry
standards.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, Califomia
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Section V -Statements of Estimated Annual Operating Results
Subject @ 125 Rooms
Other Operated Departments Expense
Comparables
A
B
C
D
Weighted Average
Subject@ 125 Rooms Stabilized Year
Rentals and Other Income
Ratio to 0.0.D. Rev.
69.6%
78.7%
27.9%
86.6%
71.9%
70.0%
V-9
Rentals and Other Income generally reflects the net revenues associated with the rental of
offices and stores, concessions, commissions, cash discounts earned, forfeited advance
deposits, service charges, interest income, cancellation charges, and other.
For the comparable hotels, rentals and other income ranged from $0.00 to $1.81 per
occupied room. For a representative year of operation, we have estimated rentals and other
income of approximately $1.00 per occupied room for the subject at 125 rooms.
Subject@ 125 Rooms
Rentals and Other Income
Per Occupied Room
Comparables
A $0.31
B 1.81
C 0.00
D 1.43
Weighted Average 1.31
Subject@ 125 Rooms Stabilized Year $1.00
UNDISTRIBUTED OPERATING EXPENSES
Per Dav
$ 23
218
0
176
104
$90
Operating expenses that are not chargeable to a particular operating department are
presented as undistributed operating expenses, in accordance with the Uniform System of
Accounts for the Lodging Industry. These expenses include administrative and general,
marketing, franchise fees, property operations and maintenance, and energy and utilities.
These expenses are relatively unaffected by fluctuations in occupancies and average daily
rate. Excluding management and franchise fees, which are a fixed percentage based on a
contract agreement and market parameters, these expenses are analyzed primarily on a
dollar amount per available room (PAR) basis.
Administrative and General Expenses
This category includes the salary and wages of the general manager and office staff, cash
overages and shortages, credit card commissions, bad debt expense, security, data
processing costs, accounting payroll expense, and professional fees. It should be noted
that, according to the ninth and revised edition of the Uniform Systems of Accounts for the
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section V -Statements of Estimated Annual Operating Results V-10
Lodging Industry, general liability insurance is no longer included in this line item. Instead,
it is included under the fixed charges "insurance" line item.
The comparable properties indicated a range of administrative and general expenses from
$1,485 to $5,504 per available room with a weighted average of $3,745 per available
room. For a representative year of operation for the 125-room subject, we have estimated
administrative and general expenses at $3,000 per available room or 6.7 percent of total
revenues, which is within the range of the comparables.
Com parables
A
B
C
D
Weighted Average
Subject @ 125 Rooms
Administrative and General
Per Available Room
$1,485
5,504
3,852
3,150
3,745
Subject@ 125 Rooms Stabilized Year $3,000
Marketing Expense
Ratio to Total Rev.
4.5%
9.4%
9.8%
12.2%
9.5%
6.7%
This expense includes the cost of advertising, printing of brochures, salary associated with
sales and marketing personnel, and other costs associated with an ongoing sales and
promotion program.
The comparable properties indicated a relatively wide range of marketing expenses from
$1,973 to $3,956 per available room with a weighted average of $2,916 per available
room or 7.4 percent of total revenues. For a representative year of operation, we have
estimated marketing expenses at $3,200 per available room or 7.1 percent of total revenue
for the subject at 125 rooms, which is within the range of the comparables.
Subject @ 125 Rooms
M k . ar etmg
Per Available Room Ratio to Total Rev.
Comparables
A $3,836 11.6%
B 3,956 6.7%
C 2,588 6.6%
D 1,973 7.7%
Weighted Average 2,916 7.4%
Subject@ 125 Rooms Stabilized Year $3,200 7.1%
Franchise Fees
We have assumed that the subject property will operate under a franchise agreement with
a franchiser, such as Hilton or Sheraton, and that the franchise agreement will remain in
effect throughout the projection period.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section V -Statements of Estimated Annual Operating Results V-11
Based on industry standards, we have estimated that, for a stabilized year for the subject at
125 rooms, the franchise fees will be 4.5 percent of rooms revenue.
Property Operations and Maintenance Expense
This category includes the maintenance of the building, grounds and' landscape, electrical
and mechanical equipment, salaries, wages, and benefits of the engineering department
staff, refrigeration, operating supplies, cleaning, waste removal, and uniforms.
The comparable properties indicated a range of property operations and maintenance
expenses from $1,003 to $3,571 per avai I able room with a weighted average of $2,105 per
available room. For a representative year of operation for the property at 125 rooms, we
have estimated property operations and maintenance expenditures at $2,000 per available
room in 2002 dollars, or 4.4 percent of total revenues, which is similar to the expenses
achieved at the comparable properties on a per available rooms.
Subject @ 125 Rooms
Prooertv Ooeration an d Maintenance
Per Available Room Ratio to Total Rev.
Comparables
A $1,889 5.7%
B 3,571 6.1%
C 2,079 5.3%
D 1,003 3.9%
Weighted Average 2,105 5.4%
Subject @ 125 Rooms Stabilized Year $2,000 4.4%
Utilities Expense
Utilities expenses are generally particular to the location, climate, and type of hotel
structure. Utility expense includes electricity, gas, water and sewer charges. These are
property and utility district specific .
Utility costs at the comparable properties ranged from $1,064 to $3,234 per available room
with a weighted average of $1,810 per available room. For a representative year of
operation, we have estimated utility costs of $1,600 per available room for the subject
property at 125 rooms or 3.6 percent of total revenue, which is within the range of the
comparable properties.
Subject@ 125 Rooms
Ut11itv Costs
Per Available Room Ratio to Total Rev.
Comparables
A $1,546 4.7%
B 3,234 5.5%
C 1,475 3.8%
D 1,064 4.1%
Weighted Average 1,810 4.6%
Subject@ 125 Rooms Stabilized Year $1,600 3.6%
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section V -Statements of Estimated Annual Operating Results
FIXED CHARGES
Management Fee
V-12
Typical base management fees for hotels of this caliber and size rc\nge from 2.0 to 4.0
percent of total revenues. We have utilized a base management fee of 3.0 percent of gross
revenues throughout the projection period. This base management fee estimate is in line
with industry standards.
Property Taxes
The subject property is in the real estate taxing jurisdiction of the City of Carlsbad Tax
Assessor's Office. In California, Proposition 13 limits property taxes to one percent of the
assessed value plus city, special district, and county bonds. Assessed values are further
limited to a two percent increase per year, except upon sale or major alterations of the
property.
Based on discussions with the City of Carlsbad Tax Assessor's Office, we have applied a tax
rate of 1.02353 percent to derive a representative property tax base in a representative year
of operations for the property at 125 rooms. This figure has been inflated at two percent per
year in accordance with the Jarvis-Gann Amendment.
Insurance
Included in this category are insurance premiums relating to general and building and
contents insurance.
Insurance expense ranged from $152 to $653 at the comparable properties. We have
estimated the 125-room subject's insurance expense at $400 per available room in a
representative year of operation, which is within the range of the comparables and in line
with the comparables' weighted average .
Comparables
Subject @ 125 Rooms
Insurance
Per Available Room
A $653
B 4~
C 152
D 512
Weighted Average 394
Subject@ 125 Rooms Stabilized Year $400
Reserves for Replacement
We have deducted a percentage of the total revenue from each year of the projection
period to provide a reserve fund to cover the replacement of short'and long lived building
components, including furniture, fixtures, and equipment and other structural repairs.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section V -Statements of Estimated Annual Operating Results V-13
Based upon prevailing practices in the industry, we have estimated a 4.0 percent reserve
for replacement annually in the representative year of operation, with a buildup to that
ratio.
PRESENTATION OF ESTIMATED OPERATING RESULTS IN A REPRESENTATIVE YEAR
OF OPERATION FOR THE SUBJECT AT 125 ROOMS
The statement on the following page represents our estimate of annual operating results for
the subject property at 125 rooms for a representative year of operation stated in 2002
dollars. The statement is subject to the following qualifications:
► Each departmental profit ratio is based on the department's estimated revenue
and does not add to the total departmental expense ratio; and
► Income before other deductions does not include interest, amortization,
depreciation, and income taxes.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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,\'ection V -Statements c!f' Estimated Annual Operating Results
Proposed Carlsbad Resort (125 rooms)
Representative Year of Operation
Number of Units:
Annual Occupancy:
Average Daily Rate:
Revenue Per Available Room:
Revenues
Rooms
Food & Beverage
Telecommunications
Other Operated Departments
Rentals and Other Income
Total Revenues
Depa1tmental Expenses
Rooms
Food & Beverage
Telecommunications
Other Operated Departments
Total Departmental Expenses
Departmental Profit
Undistributed Expenses
Administrative & General
Marketing
Franchise Fees
Property Operation and Maintenance
Utility Costs
Total Undistributed Operating Expenses
\ Gross Operating Profit
I Base Management Fee
Fixed Expenses
Property Taxes
Insurance
Total Fixed Expenses
I Net Operating Income
I FF&E Reserve
I Net Operating Income After Rese1ve
I Source: PKF Consulting
Urwul Pac{/ic: Resorts
Proposed ( 'arfshwl Resort. Car/shad. Clll{/im1ia
V-14
Stated in 2002 Dollars
125
72.0%
$118.00
$84.96
Amount Ratio Per Room P.O.R.
$3,876,000 69.0% $31,008 $117.99
1,314,000 23.4% 10,512 40.00
66,000 1.2% 528 2.01
329,000 5.9% 2,632 10.02
33,000 0.6% 264 1.00
5,618,000 100.0% 44,944 171.02
871,000 22.5% 6,968 26.51
1,025,000 78.0% 8,200 31.20
33,000 50.0% 264 1.00
230,000 69.9% 1,840 7.00
2,159,000 38.4% 17,272 65.72
3,459,ooo I 61.6% 27,672 1 105.30 I
375,000 6.7% 3,000 11.42
400,000 7.1% 3,200 12.18
174,000 3.1% 1,392 5.30
250,000 4.4% 2,000 7.61
200,000 3.6% 1,600 6.09
1,399,000 24.9% 11, 192 42.59
2,060,000 1 36.7% 16,4so 1 62.71
169,ooo 1 3.0% 1,352 1 s.14 1
146,000 2.6% 1,168 4.44
50,000 0.9% 400 1.52
196,000 3.5% 1,568 5.97
1,695,000 1 30.2% 13,s6o 1 51.60 1
225,ooo 1 4.0% 1,aoo 1 6.85 1
$1,470,000 1 26.2% $11,760 1 $44.75 1
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Section V -Statements of Estimated Annual Operating Results V-15
ESTIMATED ANNUAL OPERATING RESULTS FOR A 250-ROOM PROPERTY
The 2001 and 2000 financial statements for the comparable hotels used to derive estimates
for the subject at 250 rooms are summarized in the next pages. For reasons of
confidentiality, we are unable to disclose the identity of the comparable hotels.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, Califomia
-Section V -Statements of Estimated Annual Operating Results
Proposed Carlsbad Resort (250 rooms)
Operating Results of Comparable Hotels
Revenues
Rooms
Food & Beverage
Telecommunications
Other Operated Departments
Rentals and Other Income
Total Revenues
Departmental Expenses
Rooms
Food & Beverage
Telecommunications
Other Operated Departments
Total Departmental Expenses
Ratio
63.1%
32.5%
1.4%
1.8%
1.2%
100.0%
21.1%
76.3%
44.9%
93.2%
40.4%
Hotel E
Per Room P.O.R.
$36,734 $128.17
18,924 66.03
821 2.86
1,067 3.72
699 2.44
58,245 203.22
7,750 27.04
14,434 50.36
369 1.29
994 3.47
23,546 82.15
._I D_e_p_a_rtm_e_n_ta_l_Pr_o_fit _______ ~I I 59.6% I 34,6991 121.06 I
Undistributed Expenses
Administrative & General 8.7% 5,086 17.75
Marketing 4.3% 2,523 8.80
Franchise Fees 3.3% 1,914 6.68
Property Operation and Maintenance 3.3% 1,894 6.61
Utility Costs 4.3% 2,521 8.80
Total Undistributed Operating Expenses 23.9% 13,939 48.63
1..I G_ro_ss_O_pc..e_ra_ti_n..:..g_P_ro_fit ______ ___.l j 35.6% I 20,760 I 72.43 I
,__B_a_se_M_a_n_ag_e_m_e_nt_F_ee ______ ~I I 3.0% I 1,769 I 6.17 I
Fixed Expenses
Property Taxes
Insurance
Total Fixed Expenses
I Net Operating Income
I FF&E Reserve
I Net Operating Income After Reserve
j 5ource: PKF Consulting
Grand Pacific Resorts
2.9%
1.0%
3.9%
I I 20.7% I
I I 0.0% 1
I I 28.7% I
I
Prnnnsed Car/shad Resort. Carlsbad. California
1,687 5.89
561 1.96
2,248 7.84
16,7431 58.42 I
ol o.oo 1
$16,743 j $58.42 I
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Hotel F
Ratio Per Room P.O.R.
62.5% $32,228 $113.12
31.8% 16,390 57.53
2.0% 1,052 3.69
2.3% 1,164 4.09
1.5% 754 2.65
100.0% 51,589 181.07
24.9% 8,021 28.15
76.0% 12,450 43.70
57.6% 606 2.13
16.0% 187 0.66
41.2% 21,263 74.63
58.8% I 30,326 I 106.441
9.6% 4,948 17.37
4.7% 2,448 8.59
2.2% 1,125 3.95
4.7% 2,433 8.54
5.1% 2,648 9.29
26.4% 13,602 47.74
32.4% I 16,724 I 58.70 1
3.8% I 1,9451 6.831
2.7% 1,402 4.92
1.5% 789 2.77
4.2"/, 2,191 7.69
24.4% I 12,588 I 44.181
0.0% I 01 o.oo I
24.4% I $12,588 I $44.18 I
--V-16
Hotel G Hotel H Weighted Average
Ratio Per Room P.O.R. Ratio Per Room P.O.R. Ratio Per Room P.O.R.
70.0% $24,999 $110.75 58.8% $29,352 $116.38 63.1% $31,188 $117.86
25.2% 9,015 39.94 35.8% 17,884 70.91 31.9% 15,757 59.55
2.5% 900 3.99 1.5% 736 2.92 1.8% 883 3.34
2.3% 820 3.63 1.8% 912 3.61 2.0% 1,002 3.79
0.0% 0 0.00 2.0% 1,009 4.00 1.3% 809 2.93
100.0% 35,734 158.30 100.0% 49,893 197.83 100.0% 49,456 186.90
22.1% 5,535 24.52 24.3% 7,145 28.33 23.0% 7,186 27.16
79.1% 7,129 31.58 74.8% 13,374 53.03 76.2% 12,002 45.36
19.6% 176 0.78 69.1% 509 2.02 47.7% 421 1.59
43.3% 355 1.57 100.5% 916 3.63 61.0% 612 2.31
36.9% 13,196 58.46 44.0% 21,944 87.01 40.9% 20,221 76.42
63.1 % 1 22,538 I 99.841 56.o"lo I 27,9491 110.821 59.1% 29,235 110.48
9.8% 3,512 15.56 9.0% 4,478 17.75 9.2% 4,555 17.21
5.2% 1,861 8.24 6.8% 3,387 13.43 5.2% 2,548 9.63
4.2% 1,496 6.63 3.1% 1,559 6.18 3. 1 .,. 1,524 5.76
5.6% 2,008 8.90 4.1% 2,021 8.01 4.2% 2,095 7.92
3.9% 1,391 6.16 2.9% 1,452 5.76 4.2% 2,059 7.78
28.7% 10,268 45.49 25.8% 12,897 51.14 25.8% 12,782 48.30
34.3% 1 12,270 1 54.36 I 30.2% I 15,052 I 59.68 I 33.3% 1 16,453 I 62.18 1
0.0% I o I o.oo 1 3.0% I 1,4831 5.001 2.7% 1 1,7401 6.33 I
2.0% 714 3.16 0.7% 353 1.40 2.2% 1,088 4.11
1.7°/o 613 2.72 0.8% 391 1.55 1.2% 597 2.26
3.7% 1,328 5.88 1.5% 744 2.95 3.4% 1,685 6.37
30.6% 1 10,9431 48.481 2s.7% 1 12,825 I so.051 27.1% 1 13,416 I 5o.7o 1
0.0% 1 ol o.oo 1 0.0% 1 01 o.oo I 0.0% 1 01 o.oo 1
30.6% 1 $10,943 I $48.481 25.7% 1 $12,82s 1 $50.85 I 27.1% 1 $13,416 I $50.701
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Section V -Statements of Estimated Annual Operating Results V-17
Departmental Revenues and Expense
Rooms Revenue and Expense
At 250 rooms, we estimated that the stabilized occupancy rate of the subject hotel would
be 74.0 percent with an average daily rate of $118.00 (expressed in 2002 dollars).
Therefore, gross rooms revenue at the subject property at 250 rooms in a stabilized year of
operation is as calculated below.
250 rooms x 365 days x 76% occupancy x $118.00/day = $8,183,000 (rounded)
Rooms expense at the comparable hotels ranged from 21.1 percent to 24.9 percent. On a
per occupied room basis, the comparable properties ranged from $24.52 to $28.33 per
occupied room. Based on our analysis of the comparable properties, we estimate that for a
stabilized year of operation, the rooms department expense for the subject at 250 rooms
will be $26.00 per occupied room or 22.6 percent of total rooms revenue. This is within
the range of the comparables on a per occupied room basis as well as on a ratio to total
revenues basis.
Subject @ 250 Rooms
R E ooms xoense
Per Occupied Room Ratio to Rms Revenue
Com parables
E $27.04 21.1%
F 28.15 24.9%
G 24.52 22.1%
H 28.33 24.3%
Weighted Average 27.16 23.0%
Subject@ 250 Rooms Stabilized Year $26.00 22.6%
Food and Beverage Revenue and Expense
Food and beverage revenue for the subject at 250 rooms is estimated at $40.00 per
occupied room in a stabilized year of operation. On a per occupied room basis, this is
lower than the weighted average of the comparable hotels, but is still within the range of
the comparables.
Comparables
E
F
G
H
Weighted Average
Subject @ 250 Rooms
Food & Beverage Revenue
Total Amount
$5,677,319
4,851,477
2,217,795
4,381,690
N/A
Subject@ 250 Rooms Stabilized Year $2,774,000
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
Per Occupied Room
$66.03
57.53
39.94
70.91
59.55
$40.00
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Section V -Statements of Estimated Annual Operating Results V-18
Food and beverage expense percentage to total food and beverage revenue for the
comparable properties ranged from 74.8 percent to 79.1 percent with a weighted average
of 76.2 percent. Considering the financial comparables and the type of food and beverage
operations proposed for the subject property, we believe a food and beverage expense
percentage to total food and beverage revenue of 78.0 percent is. appropriate for the
subject property at 250 rooms. This is within the range of the comparables on a percentage
to total food and bev~rage revenues basis and in line with currently industry standards.
Comparables
Subject @ 250 Rooms
Food & Beverage Expense
Ratio to F&B Rev.
E 76.3%
F ~~%
G 79.1%
H 74.8%
Weighted Average 76.2%
Subject@ 250 Rooms Stabilized Year 78.0%
Telecommunications Revenue and Expense
Telecommunications revenue at the comparable properties ranged from $2.86 to $3.99 per
occupied room with a weighted average of $3.34 per occupied room. We estimated
telecommunication revenue at the property to be $3.00 per occupied room for the s_ubject
at 250 rooms in 2002 dollars, which is within the range of the comparable properties.
Subject @ 250 Rooms
Telecommunications Revenue
Per Occupied Room
Corn parables
E
F
G
H
Weighted Average
Subject@ 250 Rooms Stabilized Year
$2.86
3.69
3.99
2.92
3.34
$3.00
Telecommunications expense ranged from 19.6 percent to 69.1 percent at the comparable
properties with a weighted average of 47.7 percent. For a representative year of operation,
we have estimated expenses at approximately 50.0 percent of revenues for the subject at
250 rooms, which is within the range of the comparable hotels' performance and on par
with current industry standards.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section V -Statements of Estimated Annual Operating Results
Subject @ 250 Rooms
Telecommunications Expense
Ratio to T-Comm. Rev.
Comparables
E
F
G
H
Weighted Average
Subject@ 250 Rooms Stabilized Year
Other Operated Departments Revenue and Expense
44.9%
57.6%
19.6%
69.1%
47.7%
50.0%
V-19
Other operated department revenue at the comparable properties ranged from $3.61 to
$4.09 with a weighted average of $3.79. We have estimated other operated department
revenue at $8.00 per occupied room in a representative year of operation for the subject at
250 rooms. Though our estimate is above the range of the comparables, the estimate is
considered to be achievable based on. the proposed subject's facilities and amenities
against that of the comparable properties.
Subject@ 250 Rooms
Other Operated Departments Revenue
Comparables
E
F
G
H
Weighted Average
Subject@ 250 Rooms Stabilized Year
Per Occupied Room
$3.72
4.09
3.63
3.61
3.79
$8.00
Other Operated Department Expense for the comparable hotels ranged from 16.0 percent
to 100.5 percent at the comparable hotels. Taking into account the nature of other
operated departments of the subject, we have estimated other operated department
expenses to be 70.0 percent of departmental revenues for the 250 room property in a
stabilized year of operation, which is within the range of comparables.
Subject @ 250 Rooms
Other Operated Departments Expense
Grand Pacific Resorts
Comparables
E
F
G
H
Weighted Average
Subject@ 250 Rooms Stabilized Year
_Proposed Carlsbad Resort, Carlsbad, California
Ratio to 0.0.D. Rev.
93.2%
16.0%
43.3%
100.5%
61.0%
70.0%
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Section V -Statements of Estimated Annual Operating Results V-20
Rentals and Other Income
Rentals and Other Income for the comparable hotels, rentals and other income ranged
from $0.00 to $4.00 per occupied room. For a representative year of operation, we have
estimated rentals and other income of approximately $1.50 per occupied room for the
subject at 250 rooms.
Subject@ 250 Rooms
Rentals and Other Income
Com parables
E
F
G
H
Weighted Average
Subject@ 250 Rooms Stabilized Year
UNDISTRIBUTED OPERATING EXPENSES
Administrative and General Expenses
Per Occupied Room
$2.44
2.65
0.00
4.00
2.93
$1.50
Per Dav
$574
612
0
677
466
$285
The comparable properties indicated a range of administrative and general expenses from
$3,512 to $5,086 per available room with a weighted average of $4,555 per available
room. For a representative year of operation for the subject at 250 rooms, we have
estimated administrative and general expenses at $3,500 per available room or 7.4 percent
of total revenues, which is at the lower end of the range of the comparables.
Comparables
E
F
G
H
Weighted Average
Subject @ 250 Rooms
Administrative and General
Per Available Room
$5,086
4,948
3,512
4,478
4,555
Subject@ 250 Rooms Stabilized Year $3,500
Marketing Expense
Ratio to Total Rev.
8.7%
9.6%
9.8%
9.0%
9.2%
7.4%
The comparable properties indicated a relatively wide range of marketing expenses from
$1,861 to $3,387 per available room with a weighted average of $2,548 per available
room or 5.2 percent of total revenues. For a representative year of operation, we have
estimated marketing expenses at $3,000 per available room or 6.3 percent of total revenue
for the subject at 250 rooms, which is within the range of the comparables.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section V -Statements of Estimated Annual Operating Results V-21
Subject @ 250 Rooms
M k . ar etmg
Per Available Room Ratio to Total Rev:-
Comparables
E $2,523 4.3%
F 2,448 4.7%
G 1,861 5.2%
H 3,387 6.8%
Weighted Average 2,548 5.2% -Subject@ 250 Rooms Stabilized Year $3,000 6.3%
Franchise Fees
We have estimated that, for a stabilized year for the subject at 250 rooms, the franchise
fees will be 4.5 percent of rooms revenue.
Property Operations and Maintenance Expense
The comparable properties indicated a range of property operations and maintenance
expenses from $1,894 to $2,433 per available room with a weighted average of $2,095 per
available room. For a representative year of operation for the property at 250 rooms, we
have estimated property operations and maintenance expenditures at $2,000 per available
room, or 4.2 percent of total revenues, which is similar to the expenses achieved at the
comparable properties on a per available rooms basis as well as on a ratio to total revenues
basis.
Subject @ 250 Rooms
Procertv Ooerat1on and Maintenance
Per Available Room Ratio to Total Rev.
Comparables
E $1,894 3.3%
F 2,433 4.7%
G 2,008 5.6%
H 2,021 4.1%
Weighted Average 2,095 4.2%
Subject@ 250 Rooms Stabilized Year $2,000 4.2%
Utilities Expense
Utility costs at the comparable properties ranged from $1,391 to $2,648 per available room
with a weighted average of $2,059 per available room. For a representative year of
operation, we have estimated utility costs of $1,500 per available room for the subject
property at 250 rooms or 3.2 percent of total revenue, which is within the range of the
comparable properties.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section V -Statements of Estimated Annual Operating Results
Subject @ 250 Rooms
UT C b 1ty osts
Per Available Room
Com parables
E
F
G
H
Weighted Average
Subject@ 250 Rooms Stabilized Year
FIXED CHARGES
Management Fee
$2,521
2,648
1,391
1,452
2,059
$1,500
V-22
Ratio to Total Rev.
4.3%
5.1%
3.9%
2.9%
4.2%
3.2%
Consistent with management fees estimated for the subject at 125 rooms, we have utilized
a base management fee of 3.0 percent of gross revenues throughout the projection period.
Property Taxes
We have applied a tax rate of 1.02353 percent to derive a representative property tax base
in a representative year of operations for the property at 250 rooms, consistent with the tax
rate used for the 125 room scenario.
Insurance
Insurance expense ranged from $391 to $789 at the comparable properties. We have
estimated the insurance expense at the subject at 250 rooms to be $400 per available room
in a representative year of operation, which is within the range of the comparables and in
line with the comparables' weighted average.
Com parables
E
F
G
H
Weighted Average
Subject@ 250 Rooms
Insurance
Subject@ 250 Rooms Stabilized Year
Reserves for Replacement
Per Available Room
$561
789
613
391
597
$400
We have estimated a 4.0 percent reserve for replacement annually in the representative
year of operation.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section V -Statements of Estimated Annual Operating Results V-23
PRESENTATION OF ESTIMATED OPERATING RESULTS IN A REPRESENTATIVE YEAR
OF OPERATION FOR THE SUBJECT AT 250 ROOMS
The statement on the following page represents our estimate of annual operating results for
the subject property at 250 rooms for a representative year of operation stated in 2002
dollars.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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5,'ecrion V -Srare111e11fs <!fEsrimarecl ..l111111al Operaring Results
Proposed Carlsbad Resort (250 rooms)
Representative Year of Operation
Number of Units:
Annual Occupancy:
Average Daily Rate:
Revenue Per Available Room:
Revenues
Rooms
Food & Beverage
Telecommunications
Other Operated Departments
Rentals and Other Income
Total Revenues
Departmental Expenses
Rooms
Food & Beverage
Telecommunications
Other Operated Departments
Total Departmental Expenses
Depa1tmental Profit
Undistributed Expenses
Administrntive & General
Marketing
Franchise Fees
Prope1ty Operation and Maintenance
Utility Costs
Total Undistributed Operating Expenses
\ Gross Operating Profit
I Base Management Fee
Fixed Expenses
Property Taxes
Insurance
Total Fixed Expenses
Net Operating Income
FF&E Rese1ve
Net Operating Income After Reserve
\ Source: PKF Consulting
vl'uml F'uc(fic Resol'/s
f'mposecl Car/shad Resort, Car/shad. Ca/ijim1ia
V-24
Stated in 2002 Dollars
250
76.0%
$118.00
$89.68
Amount Ratio Per Room P.O.R.
$8,183,000 69.2% $32,732 $118.00
2,774,000 23.5% 11,096 40.00
208,000 1.8% 832 3.00
555,000 4.7% 2,220 8.00
104,000 0.9% 416 1.50
11,824,000 100.0% 47,296 170.50
1,803,000 22.0% 7,212 26.00
2,164,000 78.0% 8,656 31.20
104,000 50.0% 416 1.50
388,000 69.9% 1,552 5.59
4,459,000 37.7% 17,836 64.30
7,36s,ooo 1 62.3% 29,460 I 106.20 I
' 875,000 7.4% 3,500 12.62
750,000 6.3% 3,000 10.81
368,000 3.1 % 1,472 5.31
500,000 4.2% 2,000 7.21
375,000 3.2% 1,500 5.41
2,868,000 24.3% 11,472 41.36
4,497,ooo 1 38.0% 17,988 1 64.84 1
3ss,ooo 1 3.0% 1,420 s.12 I
336,000 2.8% 1,344 4.84
100,000 0.8% 400 1.44
436,000 3.7% 1,744 6.29
3,706,000 31.3% 14,a24 I s3.44 I
473,000 4.0% 1,892 6.s2 1
$3,233,000 27.3% $12,932 $46.62 I
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Section V -Statements of Estimated Annual Operating Results V-25
ESTIMATED ANNUAL OPERATING RESULTS FOR A 350-ROOM PROPERTY
The 2001 and 2000 financial statements for the comparable hotels used to derive estimates
for the subject at 350 rooms are summarized in the next pages. For reasons of
confidentiality, we are unable to disclose the identity of the comparable hotels.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
--'
Section V -Statements of Estimated Annual Operating Results
Proposed Carlsbad Resort (350 rooms)
Operating Results of Comparable Hotels
Revenues
Rooms
Food & Beverage
Telecommunications
Other Operated Departments
Rentals and Other Income
Total Revenues
Departmental Expenses
Rooms
Food & Beverage
Telecommunications
Other Operated Departments
Total Departmental Expenses
Ratio
55.2%
40.5%
2.6%
0.7%
0.9%
100.0%
22.6%
74.3%
44.5%
0.0%
43.7%
Hotel I
Per Room P.O.R.
$36,712 $132.41
26,939 97.16
1,740 6.28
471 1.70
627 2.26
66,490 239.80
8,292 29.91
20,020 72.21
774 2.79
0 0.00
29,087 104.91
j'--D_e_p_a_rtm_e_n_ta_l_P_ro_fil _______ _.l I 56.3% I 37,403 I 134.90 I
Undistributed Expenses
Administrative & General 5.7% 3,789 13.67
Marketing 6.3% 4,215 15.20
Franchise Fees 0.0% 0 0.00
Property Operation and Maintenance 6.6% 4,385 15.82
Utility Costs 1.8% 1,172 4.23
Total Undistributed Operating Expenses 20.4% 13,562 48.91
I,_ G_r_o_ss_O_p_e_ra_tin_g_P_ro_fi_t -----~' I 35.9% I 23,841 j 85.99 j
~B_a_se_M_an_a_g_em_en_t_F_ee _____ ~j I 5.2% I 3,480 I 12.551
Fixed Expenses
Property Taxes
Insurance
Ground Rent
Total Fixed Expenses
I Net Operating Income
I FF&E Reserve
I Net Operating Income After Reserve
I Source: PKF Consulting
Grand Pacific Resorts
1.2%
0.6%
0.0%
1.8%
I I 28.8% I
I I 0.0% I
I I 28.8% 1
Prnnn<:Pt1 rnrl<:hn,l RP<:n1•f r.m•lshnd rnlifnrnia
828 2.99
387 1.40
0 0.00
1,215 4.38
19,1461 69.051
01 o.oo I
$19,146 I $69.05 I
-
Hotel J
Ratio Per Room P.O.R.
51.0% $38,034 $149.02
42.4% 31,595 123.79
1.2% 930 3.64
4.4% 3,279 12.85
0.9% 671 2.63
100.0% 74,509 291.92
23.8% 9,063 35.51
70.4% 22,238 87.13
51.6% 480 1.88
27.1% 889 3.48
43.8% 32,670 128.00
56.2% I 41,8401 163.93 I
8.1% 6,055 23.73
6.1% 4,522 17.72
5.8% 4,293 16.82
3.9% 2,943 11.53
2.7% 2,048 8.02
26.7% 19,861 77.81
29.5% 1 21.9191 86.11 I
2.0% 1 1,490 I 5.84 I
1.8% 1,327 5.20
1.0% 777 3.05
0.0% 0 0.00
2.8% 2,105 8.25
24.7% 1 18,384 j 72.03 I
0.0% 1 01 o.oo 1
24.7% I $18,384 j $72.03 I
---V-26
Hotel K Hotel L Weighted Average
Ratio Per Room P.O.R. Ratio Per Room P.O.R. Ratio Per Room P.O.R.
58.9% $42,724 $177.20 71.2% $37,441 $114.88 58.0% $38,481 $139.37
36.3% 26,301 109.08 20.6% 10,827 33.22 36.2% 24,023 87.01
1.6% 1,183 4.91 2.7% 1,396 4.28 2.0% 1,337 4.84
0.0% 0 0.00 1.2% 625 1.92 1.7% 1,407 4.93
3.2% 2,316 9.60 4.4% 2,315 7.10 2.1% 1,405 5.09
100.0% 72,524 300.79 100.0% 52,604 161.40 100.0% 66,358 240.34
23.1% 9,876 40.96 19.9% 7,459 22.89 22.4% 8,612 31.19
69.5% 18,287 75.85 83.5% 9,046 27.76 72.9% 17,523 63.47
49.3% 583 2.42 54.2% 756 2.32 49.1% 656 2.38
0.0% 0 0.00 92.6% 579 1.78 32.7% 736 2.53
39.6% 28,746 119.23 33.9% 17,840 54.74 40.9% 27,156 98.36
60.4% I 43,778 I 181.511 66.1% 1 34.764 I 106.66 I 59.1% 1 39,2021 141.981
9.0% 6,493 26.93 8.0% 4,182 12.83 7.6% 5,019 18.18
5.5% 4,014 16.65 5.3% 2,765 8.48 5.9% 3,894 14.10
4.0% 2,888 11.98 2.3% 1,225 3.76 3.0% 2,809 10.19
4.5% 3,291 13.65 5.0% 2,621 8.04 5.1% 3,363 12.18
4.0% 2,869 11.90 2.8% 1,461 4.48 2.7% 1,817 6.58
27.0% 19,555 81.11 23.3% 12,254 37.60 24.2% 16,072 58.21
33.4% 1 24,222 j 100.461 I 42.8% I 22,510 69.07 34.9% 23,130 83.77
3.0% I 2,175 j 9.02 I I 0.0% I 0 0.00 2.8% 2,459 9.46
1.9% 1,366 5.66 2.1% 1,106 3.39 1.7% 1,133 4.11
1.9% 1,348 5.59 1.9% 981 3.01 1.3% 832 3.01
1.0% 726 3.01 0.0% 0 0.00 0.2% 726 3.01
4.7% 3,440 14.27 4.0% 2,087 6.40 3.2% 2,117 7.67
25.7% 1 18,608 I 11.181 38.8% 1 20,423 I 62.661 28.9% 1 19,156 I 69.38 I
0.0% 1 oj o.oo 1 0.0% 1 o I o.oo 1 0.0% 1 o I o.oo 1
25.7% I $18,608 j $77.181 38.8% I $20,423 j $62.66 I 28.9% 1 $19,156 I $69.381
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Section V -Statements of Estimated Annual Operating Results V-27
Departmental Revenues and Expense
Rooms Revenue and Expense
At 350 rooms, we estimated that the stabilized occupancy rate of the subject hotel would
be 77.0 percent with an average daily rate of $118.00 (expressed in 2002 dollars).
Therefore, gross rooms revenue at the subject property at 350 rooms in a stabilized year of
operation is as calculated below.
350 rooms x 365 days x 77% occupancy x $118.00/day = $11,607,000 (rounded)
Rooms expense at the comparable hotels ranged from 19.9 percent to 23.8 percent. On a
per occupied room basis, the comparable properties ranged from $22.89 to $40.96 per
occupied room. Based on our analysis of the comparable properties, we estimate that for a
stabilized year of operations, the rooms department expense for the subject at 350 rooms
will be $25.50 per occupied room or 22.2 percent of total rooms revenue. This is within
the range of the comparables on a per occupied room basis as well as on a ratio to total
revenues basis.
Subject @ 350 Rooms
R E ooms xoense
Per Occupied Room Ratio to Rms Revenue
Corn parables
I $29.91 22.6%
J 35.51 23.8%
K 40.96 23.1%
L 22.89 19.9%
Weighted Average 31.19 22.4%
Subject@ 350 Rooms Stabilized Year $25.50 22.2%
Food and Beverage Revenue and Expense
Food and beverage revenue for the subject at 350 rooms is estimated at $45.00 per
occupied room in a stabilized year of operation. On a per occupied room basis, this is
lower than the weighted averages of the comparable hotels, but is still within the range of
the comparables.
Subject@ 350 Rooms
00 everai e F d &B R evenue
Total Amount Per Occupied Room
Com parables
I $11,018,222 $ 97.16
) 10,931,975 123.79
K 7,627,264 109.08
L 3,670,477 33.22
Weighted Average NIA 87.01
Subject@ 350 Rooms Stabilized Year $4,427,000 $45.00
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, Califomia
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Section V -Statements of Estimated Annual Operating Results V-28
Food and beverage expense percentage to total food and beverage revenue for the
comparable properties ranged from 69.5 percent to 83.5 percent with a weighted average
of 72.9 percent. Considering the financial comparables and the type of food and beverage
operations proposed for the subject property, we believe a food and beverage expense
percentage to total food and beverage revenue of 75.0 percent is. appropriate for the
subject property at 350 rooms. This is within the range of the comparables on a percentage
to total food and beverage revenues basis and in line with currently industry standards.
Corn parables
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Subject@ 350 Rooms
Food & Beverage Expense
Weighted Average
Subject@ 350 Rooms Stabilized Year
Telecommunications Revenue and Expense
Ratio to F&B Rev.
74.3%
70.4%
69.5%
83.5%
72.9%
75.0%
Telecommunications revenue at the comparable properties ranged from $3.64 to $6.28 per
occupied room with a weighted average of $4.84 per occupied room. We estimated
telecommunication revenue at the property to be $4.00 per occupied room for the subject
at 350 rooms, which is within the range of the comparable properties.
Subject @ 350 Rooms
Telecommunications Revenue
Per Occupied Room
Comparables
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Weighted Average
Subject@ 350 Rooms Stabilized Year
$6.28
3.64
4.91
4.28
4.84
$4.00
Telecommunications expense ranged from 44.5 percent to 54.2 percent at the comparable
properties with a weighted average of 49.1 percent. For a representative year of operation,
we have estimated expenses at approximately 50.0 percent of revenues for the subject at
350 rooms, which is within the range of the comparable hotels' performance and on par
with current industry standards.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section V -Statements of Estimated Annual Operating Results
Subject@ 350 Rooms
Telecommunications Exoense
Ratio to T-Comm. Rev.
Com parables
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Weighted Average
Subject@ 350 Rooms Stabilized Year
Other Operated Departments Revenue and Expense
44.5%
51.6%
49.3%
54.2%
49.1%
50.0%
V-29
Other operated department revenue at the comparable properties ranged from $0.00 to
$12.85 with a weighted average of $4.93. We have estimated other operated department
revenue at $8.00 per occupied room in a representative year of operation for the subject at
350 rooms.
Subject@ 350 Rooms
Other Ooerated Deoartments Revenue
Com parables
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Weighted Average
Subject@ 350 Rooms Stabilized Year
Per Occuoied Room
$ 1.70
12.85
0.00
1.92
4.93
$8.00
Other Operated Department Expense for the comparable hotels ranged from 0.0 percent
to 92.6 percent at the comparable hotels. Taking into account the nature of other operated
departments of the subject, we have estimated other operated department expenses to be
70.0 percent of departmental revenues for the 350 room property in a stabilized year of
operation.
Subject @ 350 Rooms
Other Ooerated Deoartments Exoense
Grand Pacific Resorts
Com parables
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Weighted Average
Subject@ 350 Rooms Stabilized Year
Proposed Carlsbad Resort, Carlsbad, California
Ratio to 0.0.D. Rev.
0.0%
27.1%
0.0%
92.6%
32.7%
70.0%
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Section V -Statements of Estimated Annual Operating Results V-30
Rentals and Other Income
Rentals and Other Income for the comparable hotels, rentals and other income ranged
from $2.23 to $9.60 per occupied room. For a representative year of operation, we have
estimated rentals and other income of approximately $2.00 per occupied room for the
subject at 350 rooms.
Subject @ 350 Rooms
Rentals and Other Income
Per Occupied Room
Comparables
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Weighted Average
Subject@ 350 Rooms Stabilized Year
UNDISTRIBUTED OPERATING EXPENSES
Administrative and General Expenses
$2.26
2.63
9.60
7.10
5.09
$2.00
Per Dav
$702
636
1,840
2,150
1,332
$539
The comparable properties indicated a range of administrative and general expenses from
$3,789 to $6,493 per available room with a weighted average of $5,019 per available
room. For a representative year of operation for the subject at 350 rooms, we have
estimated administrative and general expenses at $3,800 per available room or 7.6 percent
of total revenues, which is at the lower end of the range of the comparables.
Comparables
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Weighted Average
Subject @ 350 Rooms
Administrative and General
Per Available Room
$3,789
6,055
6,493
4,182
5,019
Subiect@ 350 Rooms Stabilized Year $3,800
Marketing Expense -
Ratio to Total Rev. -
5.7%
8.1%
9.0%
8.0%
7.6%
7.6% -
The comparable properties indicated a relatively wide range of marketing expenses from
$2,765 to $4,522 per available room with a weighted average of $3,894 per available
room or 5.9 percent of total revenues. For a representative year of operation, we have
estimated marketing expenses at $2,900 per available room or 5.8 percent of total revenue
for the subject at 350 rooms, which is at the lower end of the range of comparables.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section V -Statements of Estimated Annual Operating Results V-31
Subject@ 350 Rooms
M k f are mg
Per Available Room Ratio to Total Rev.
Comparables
I $4,215 6.3%
j 4,522 6.1%
K 4,014 5.5%
L 2,765 5.3%
Weighted Average 3,894 5.9%
Subject@ 350 Rooms Stabilized Year $2,900 5.8%
Franchise Fees
We have estimated that the franchise fees will be 4.5 percent of rooms revenue for a
stabilized year for the subject at 350 rooms.
Property Operations and Maintenance Expense
The comparable properties indicated a range of property operations and maintenance
expenses from $2,621 to $4,385 per available room with a weighted average of $3,363 per
available room. For a representative year of operation for the property at 350 rooms, we
have estimated property operations and maintenance expenditures at $2,500 per available
room in 2002 dollars, or 5.0 percent of total revenues. While this estimate is below the
range of the comparables, it is comparable to the weighted average on a ratio to total
revenue basis.
Subject @ 350 Rooms
P t O . dM"t roperty ,perat1on an am enance
Per Available Room Ratio to Total Rev.
ComQarables
I $4,385 6.6%
j 2,943 3.9%
K 3,291 4.5%
L 2,621 5.0%
Weighted Average 3,363 5.1%
Subject@ 350 Rooms Stabilized Year $2,500 5.0%
Utilities Expense
Utility costs at the comparable properties ranged from $1,172 to $2,869 per available room
with a weighted average of $1,817 per available room. For a representative year of
operation, we have estimated utility costs of $1,500 per available room for the subject
property at 350 rooms or 3.0 percent of total revenue, which is within the range of the
comparable properties.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section V -Statements of Estimated Annual Operating Results
Subject @ 350 Rooms
·1 Ut1 ity Costs
Per Available Room
Comparables
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Weighted Average
Subject@ 350 Rooms Stabilized Year
FIXED CHARGES
Management Fee
$1,172
2,048
2,869
1,461
1,817
$1,500
V-32
Ratio to Total Rev.
1.8%
2.7%
4.0%
2.8%
2.7%
3.0%
Consistent with management fees estimated for the subject at 125 rooms and 250 rooms,
we have utilized a base management fee of 3.0 percent of gross revenues throughout the
projection period.
Property Taxes
We have applied a tax rate of 1.02353 percent to derive a representative property tax base
in a representative year of operations for the property at 350 rooms, consistent with the tax
rate used for the prior scenarios.
Insurance
Insurance expense ranged from $387 to $1,348 at the comparable properties. We have
estimated the insurance expense at the subject at 350 rooms to be $400 per available room
in a representative year of operation, which is at the lower end of the range of
com parables.
Comparables
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Weighted Average
Subject @ 350 Rooms
Insurance
Subject@ 350 Rooms Stabilized Year
Reserves for Replacement
Per Available Room
$ 387
777
1,348
981
832
$ 400
We have estimated a 4.0 percent reserve for replacement annually in the representative
year of operation.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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Section V -Statements of Estimated Annual Operating Results V-33
PRESENTATION OF ESTIMATED OPERATING RESULTS IN A REPRESENTATIVE YEAR
OF OPERATION FOR THE SUBJECT AT 350 ROOMS
The statement on the following page represents our estimate of annual operating results for
the subject property at 350 rooms for a representative year of operation stated in 2002
dollars.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
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S'ectiun I-' -Statements ,!f' Estimated Annual Operating Results
Proposed Carlsbad Resort (350 rooms)
Representative Yec1r of Operation
Number of Units:
Annual Occupancy:
Average Daily Rate:
Revenue Per Available Room:
Revenues
Rooms
Food & Beverage
Telecommunications
Other Operated Departments
Rentals and Other Income
Total Revenues
Departmental Expenses
Rooms
Food & Beverage
Telecommunications
Other Operated Depa,tments
Total Depa1tmental Expenses
Departmental Profit
Undistributed Expenses
Administrative & General
Marketing
Franchise Fees
Prope1ty Operation and Maintenance
Utility Costs
Total Undistributed Operating Expenses
l Gross Operating Profit
I Base Management Fee
Fixed Expenses
Property Taxes
Insurance
Total Fixed Expenses
Net Operating Income
FF&E Reserve
Net Operating Income After Reserve
I Source: PKF Consulting
(,'rand Pw:{fic Resorts
Proposed Carlsbad Resort, Carlsbad, Cal{fi1rnia
/1-34
Stated in 2002 Dollars
350
77.0%
$118.00
$90.86
Amount Ratio Per Room P.O.R.
$11,607,000 66.7% $33,163 $118.00
4,427,000 25.4% 12,649 45.00
393,000 2.3% 1,123 4.00
787,000 4.5% 2,249 8.00
197,000 1.1% 563 2.00
17,411,000 100.0% 49,746 177.00
2,508,000 21.6% 7,166 25.50
3,320,000 75.0% 9,486 33.75
197,000 50.1% 563 2.00
551,000 70.0% 1,574 5.60
6,576,000 37.8% 18,789 66.85
10,a3s,ooo 1 62.2% 30,957 1 110.15 1
1,330,000 7.6% 3,800 13.52
1,015,000 5.8% 2,900 10.32
522,000 3.0% 1,491 5.31
875,000 5.0% 2,500 8.90
525,000 3.0% 1,500 5.34
4,267,000 24.5% 12, 191 43.38
6,56a,ooo I 37.7% 18,766 1 66.77 1
5?2,000 I 3.0% 1,491 5.31
513,000 2.9% 1,466 5.22
140,000 0.8% 400 1.42
653,000 3.8% 1,866 6.64
5,393,ooo 1 31.0% 15,409 54.83 I
696,ooo 1 4.0% 1,989 1 7.08 I
$4,697,ooo I 27.0°lu $13,420 I $47.7s I
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Section V -Statements of Estimated Annual Operating Results V-35
PRESENTATION OF ESTIMATED ANNUAL OPERATING RESULTS
Our estimates of the annual operating results of the subject property for the representative
year and the projection period commencing January 1, 2006, the projected date of
opening, are presented on the following pages.
Grand Pacific Resorts
Proposed Carlsbad Resort, Carlsbad, California
---Section V -Statements of Estimated Annual Operating Results
Proposed Carlsbad Resort (125 rooms)
Projected Operating Results
Calendar Years
Number of Units:
Annual Occupancy:
Average Daily Rate:
Revenue Per Available Room:
Revenues
Rooms
Food & Beverage
Telecommunications
Other Operated Departments
Rentals and Other Income
Total Revenues
Departmental Expenses
Rooms
Food & Beverage
Telecommunications
Other Operated Departments
Total Deoartmental Exoenses
Departmental Profit
Undistributed Expenses
Administrative & General
Marketing
Franchise Fees
Property Operation and Maintenance
Utility Costs
Total Undistributed Operating Expenses
Gross Operating Profit
Base Management Fee
Fixed Exoenses
Property Taxes
Insurance
Total Fixed Expenses
Net Operating Income
FF&E Reserve
Net Operating Income After Reserve
Source: PKF Consulting
Grand Pacific Resorts
Prnnnsr>.d r.arlshad Resort. Carlsbad. California
,2006
125
60.0%
$133.00
$79.80
Amount
$3,642,000
1,233,000
62,000
308,000
31,000
5,276,000
898,000
1,038,000
31,000
216,000
2,183,000
3,093,000
422,000
450,000
164,000
281,000
225,000
1,542,000
1,551,000
158,000
158,000
56,000
214,000
1,179,000
106,000
$1,073,000
Full Year of Operation
V-36
2007 2008
125 125
67.0% 72.0%
$137.00 $141.00
$91.79 $101.52
Ratio Amount Ratio Amount Ratio
69.0% $4,188,000 69.0% $4,632,000 69.0%
23.4% 1,418,000 23.4% 1,569,000 23.4%
1.2% 71,000 1.2% 78,000 1.2%
5.8% 354,000 5.8% 392,000 5.8%
0.6% 35,000 0.6% 39,000 0.6%
100.0% 6,066,000 100.0% 6,710,000 100.0%
24.7% 974,000 23.3% 1,039,000 22.4%
84.2% 1,139,000 80.3% 1,224,000 78.0%
50.0% 35,000 49.3% 39,000 50.0%
70.1% 248,000 70.1% 275,000 70.2%
41.4% 2,396,000 39.5% 2,577,000 38.4%
58.6% 3,670,000 60.5% 4,133,000 61.6%
8.0% 435,000 7.2% 448,000 6.7%
8.5% 464,000 7.6% 478,000 7.1%
3.1% 188,000 3.1% 208,000 3.1%
5.3% 290,000 4.8% 299,000 4.5%
4.3% 232,000 3.8% 239,000 3.6%
29.2% 1,609,000 26.5% 1,672,000 24.9%
29.4% 2,061,000 1 34.0% 2,461,000 36.7%
3.0% rn2,ooo 1 3.0% 201,000 3.0%
3.0% 174,000 2.9% 178,000 2.7%
1 .1 % 58,000 1.0% 60,000 0.9%
4.1% 232,000 3.8% 238,000 3.5%
22.3% 1,647,000 27.2% 2,022,000 30.1%
2.0% 182,000 3.0% 268,000 4.0%
20.3% $1,465,000 24.2% $1,754,000 26.1%
---Section V -Statements of Estimated Annual Operating Results
Proposed Carlsbad Resort (250 rooms)
Projected Operating Results
Calendar Years
Number of Units:
Annual Occupancy:
Average Daily Rate:
Revenue Per Available Room:
Revenues
Rooms
Food & Beverage
Telecommunications
Other Operated Departments
Rentals and Other Income
Total Revenues
Departmental Expenses
Rooms
Food & Beverage
Telecommunications
Other Operated Departments
Total Departmental Expenses
Departmental Profit
Undistributed Expenses
Administrative & General
Marketing
Franchise Fees
Property Operation and Maintenance
Utility Costs
Total Undistributed Operating Expenses
Gross Operating Profit
Base Management Fee
Fixed Expenses
Property Taxes
Insurance
Total Fixed Expenses
Net Operating Income
FF&E Reserve
Net Operating Income After Reserve
Source: PKF Consulting
Grand Pacific Resorts
PrnnnsP.d Car/shad Resort. Carlsbad. California
2009
250
70.0%
$145.00
$101.50
Amount
$9,263,000
3,143,000
236,000
629,000
118,000
13,389,000
2,130,000
2,535,000
118,000
440,000
5,223,000
8,166,000
1,076,000
922,000
417,000
615,000
461,000
3,491,000
4,675,000
402,000
386,000
123,000
509,000
3,764,000
536,000
$3,22s,ooo I
Full Year of Operation
-
Ratio
69.2%
23.5%
1.8%
4.7%
0.9%
100.0%
23.0%
80.7%
50.0%
70.0%
39.0%
61.0%
8.0%
6.9%
3.1%
4.6%
3.4%
26.1%
34.9%
3.0%
2.9%
0.9%
3.8%
28.1%
4.0%
24.1%
--V-37
2010 2011
250 250
73.0% 76.0%
$149.00 $154.00
$108.77 $117.04
Amount Ratio Amount Ratio
$9,925,000 69.1% $10,680,000 69.2%
3,375,000 23.5% 3,619,000 23.5%
253,000 1.8% 271,000 1.8%
675,000 4.7% 724,000 4.7%
127,000 0.9% 136,000 0.9%
14,355,000 100.0% 15,430,000 100.0%
2,239,000 22.6% 2,353,000 22.0%
2,676,000 79.3% 2,823,000 78.0%
127,000 50.2% 136,000 50.2%
473,000 70.1% 507,000 70.0%
5,515,000 38.4% 5,819,000 37.7%
8,840,000 61.6% 9,611,000 62.3%
1,108,000 7.7% 1,142,000 7.4%
950,000 6.6% 979,000 6.3%
447,000 3.1% 481,000 3.1%
633,000 4.4% 652,000 4.2%
475,000 3.3% 489,000 3.2%
3,613,000 25.2% 3,743,000 24.3%
5,227,000 36.4% 5,868,000 38.0%
431,000 3.0% 463,000 3.0%
452,000 3.1% 461,000 3.0%
127,000 0.9% 130,000 0.8%
579,000 4.0% 591,000 3.8%
4,217,000 29.4% 4,814,000 31.2%
574,000 4.0% 61?,000 I 4.0%
$3,643,000 25.4% $4,197,000 27.2%
--Section V -Statements of Estimated Annual Operating Results
Proposed Carlsbad Resort (350 rooms)
Projected Operating Results
Calendar Years
Number of Units:
Annual Occupancy:
Average Daily Rate:
Revenue Per Available Room:
Revenues
Rooms
Food & Beverage
Telecommunications
Other Operated Departments
Rentals and Other Income
Total Revenues
Deoartmental Exoenses
Rooms
Food & Beverage
Telecommunications
Other Operated Deoartments
Total Deoartmental Expenses
Departmental Profit
Undistributed Expenses
Administrative & General
Marketing
Franchise Fees
Property Operation and Maintenance
Utility Costs
Total Undistributed Operating Exoenses
Gross Operating Profit
Base Management Fee
Fixed Expenses
Property Taxes
Insurance
Total Fixed Expenses
Net Operating Income
FF&E Reserve
Net Operating Income After Reserve
Source: PKF Consulting
Grand Pacific Resorts
Prooosed Carlsbad Resort, Carlsbad, California
2012
350
75.0%
$159.00
$119.25
Amount
$15,234,000
5,794,000
515,000
1,030,000
258,000
22,831,000
3,327,000
4,392,000
258,000
721,000
8,698,000
14,133,000
1,787,000
1,364,000
686,000
1,176,000
706,000
5,719,000
a,414,ooo I
685,000
625,000
188,000
813,000
6,916,000
913,000
$6,003,000
Full Year of Operation
Ratio
66.7%
25.4%
2.3%
4.5%
1.1%
100.0%
21.8%
75.8%
50.1%
70.0%
38.1%
61.9%
7.8%
6.0%
3.0%
5.2%
3.1%
25.0%
36.9%
3.0%
2.7%
0.8%
3.6%
30.3%
4.0%
26.3%
--~
V-38
2013 2014
350 350
77.0% 77.0%
$163.00 $168.00
$125.51 $129.36
Amount Ratio Amoont Ratio
$16,034,000 66.6% $16,526,000 66.6%
6,128,000 25.5% 6,311,000 25.4%
545,000 2.3% 561,000 2.3%
1,089,000 4.5% 1,122,000 4.5%
272,000 1.1% 281,000 1.1%
24,068,000 100.0% 24,801,000 100.0%
3,472,000 21.7% 3,576,000 21.6%
4,596,000 75.0% 4,733,000 75.0%
272,000 49.9% 281,000 50.1%
763,000 70.1% 785,000 70.0%
9,103,000 37.8% 9,375,000 37.8%
14,965,000 62.2% 15,426,000 62.2%
1,841,000 7.6% 1,896,000 7.6%
1,405,000 5.8% 1,447,000 5.8%
722,000 3.0% 744,000 3.0%
1,211,000 5.0% 1,248,000 5.0%
727,000 3.0% 749,000 3.0%
5,906,000 24.5% 6,084,000 24.5%
9,059,000 37.6% 9,342,000 I 37.7%
722,000 3.0% 744,000 3.0%
778,000 3.2% 793,000 3.2%
194,000 0.8% 200,000 0.8%
972,000 4.0% 993,000 4.0%
7,365,ooo 1 30.6% 7,605,000 30.7%
963,000 4.0% 992,000 4.0%
$6,402,000 26.6% $6,613,000 26.7%
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STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
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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.
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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, opm1ons 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.