Contract analysis

I. Introduction and Purpose This firm represents Verimark Hospitality Group Inc. ("VHG") and its wholly owned indirect subsidiary, Coral Palms Resort Holdings LLC (the "Borrower"), in connection with the proposed $160,000,000 first mortgage loan (the "Loan") from Pinnacle Atlantic Capital, LLC (the "Lender" or "PAC") pursuant to that certain Commitment Letter dated December 9, 2022 (the "Commitment Letter"). We write

II. Summary of Valuation Discrepancy The magnitude of the gap between VHG's internal valuation and the H&W Appraisal is significant and warrants careful examination. VHG's internal valuation of the Property, which was prepared by its capital markets and asset management team and informed by current market data, independent broker opinions of value, and a detailed discounted cash flow analysis, supports a fair market

III. Property Overview and Recent Capital Investment The Coral Palms Grand Resort & Spa is a full-service luxury oceanfront resort hotel situated on an irreplaceable site at 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037. The Property is located in the Upper Florida Keys, an internationally recognized destination market characterized by extremely limited supply of comparable luxury resort accommodati

IV. Trailing Twelve-Month Operating Performance The Property's trailing twelve-month ("T-12") operating performance for the period ending September 30, 2022, demonstrates strong post-renovation financial results that validate VHG's internal valuation thesis and confirm the success of the capital improvement program. The key operating metrics for the T-12 period are as follows: These metrics reflect the first full yea

V. Objections to H&W Appraisal Methodology — Income Capitalization Approach VHG has conducted a thorough review of the income capitalization approach set forth in the H&W Appraisal and has identified the following areas of significant concern. While VHG recognizes that professional appraisers may exercise reasonable judgment in selecting assumptions and inputs, the issues identified below go beyond the bounds of reas

VI. Objections to H&W Appraisal Methodology — Sales Comparison Approach VHG has also identified significant concerns regarding the comparable sales selected by H&W in the sales comparison approach, which further undermine the reliability of the concluded value. First, several of the comparable transactions cited in the H&W Appraisal involve properties that are materially dissimilar to the Coral Palms Grand Resort & S

VII. Objections to H&W Appraisal Methodology — Cost Approach While VHG recognizes that the cost approach is typically given less weight in the valuation of income-producing hotel properties, the cost approach nonetheless provides an important reasonableness check, and the concerns identified below further support the conclusion that the H&W Appraisal understates the Property's value. The $47,000,000 renovation comple

VIII. Independent Appraisal Review In light of the significance of the valuation shortfall and the methodological concerns identified above, VHG has retained Claybourne Advisory Group LLC ("Claybourne"), an independent appraisal review and valuation consulting firm with nationally recognized expertise in the hospitality and resort sectors, effective January 24, 2023, to conduct a detailed review of the H&W Appraisal.

IX. Supplemental Data to Be Provided VHG is prepared to furnish the following supplemental materials to support a reconsideration of the appraised value and to facilitate a constructive dialogue among the parties regarding the appropriate valuation of the Property:

1. Updated trailing twelve-month operating statements through a more recent period, including preliminary unaudited results for the fourth quarter of 2022, to the extent available and in form satisfactory to PAC;

2. Detailed capital expenditure records for the $47,000,000 renovation, including a comprehensive scope of work summary, contractor invoices, change orders, completion documentation, and certificates of substantial completion;

3. Comparable transaction data for luxury waterfront resort hotel sales in South Florida and the Florida Keys, including transaction summaries, per-key metrics, implied capitalization rates, and source documentation;

4. Independent market reports and STR (Penmark Enterprises) data corroborating the Property's competitive positioning within the Upper Keys luxury resort submarket, including historical and forward-looking supply, demand, occupancy, ADR, and RevPAR trends;

5. VHG's internal discounted cash flow model and underlying assumptions supporting the $235,000,000 valuation, including revenue growth projections, operating expense assumptions, capital reserve estimates, terminal capitalization rate, and discount rate; and

6. The Claybourne Advisory Group LLC appraisal review report, when completed, including a detailed technical critique of the H&W Appraisal and, if appropriate, a supported indication of value. In addition to the foregoing materials, VHG respectfully requests the opportunity to present these materials directly to H&W and to participate in a conference call among PAC, H&W, VHG, and their respective counsel to discuss t

X. Formal Request for Relief In light of the foregoing, VHG respectfully requests that PAC take one or both of the following actions to address the valuation shortfall:

1. Reconsideration. Direct Hargrove & Whitley Valuation Services LLC to reconsider its appraised value of the Property in light of the supplemental data, comparable transaction evidence, and methodological concerns identified herein and to be further detailed by Claybourne Advisory Group LLC. VHG requests that H&W be directed to give full and fair consideration to the supplemental materials to be provided by VHG and

2. Second Appraisal. Commission a second independent appraisal of the Property by a mutually agreeable MAI-designated appraiser with demonstrated expertise in the valuation of luxury resort properties in the South Florida and Florida Keys markets. VHG is willing to bear the full cost of such second appraisal and is prepared to cooperate fully in the selection of a qualified appraiser and in providing all necessary Pr

XI. Reservation of Rights VHG and the Borrower hereby expressly reserve all rights, claims, and remedies under the Commitment Letter dated December 9, 2022, including without limitation any rights arising from or related to any proposed modification of the committed Loan terms — whether by reduction of the Loan amount, increase of the interest rate, imposition of additional conditions, or otherwise — that VHG may dee

XII. Conclusion and Request for Prompt Response VHG and the Borrower remain fully committed to the proposed refinancing transaction and are eager to work cooperatively and in good faith with PAC to resolve the valuation issue identified herein in a manner that allows the transaction to proceed expeditiously on the terms contemplated by the Commitment Letter. VHG values its relationship with PAC and appreciates the si