Contract analysis

From: Simone Laroche <slaroche@calderwoodharkness.com> To: Adriana Pellegrino-Voss <apellegrino-voss@pellegrinocapital.com> Cc: Francesca Morano <fmorano@calderwoodharkness.com> Date: Sat, 15 Jul 2023 04:47:00 -0000 Subject: Linden Park Preliminary Indication of Value — Confidential / Attorney-Client Privileged

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I hope this finds you well. I am writing to report a significant development in the PGV buyout matter. Please see below for our summary and preliminary analysis.

**1. Receipt of Linden Park Preliminary Indication of Value**

On July 14, 2023, we received a preliminary indication of value from Linden Park Advisory LLC, prepared by Thomas Carraway, MAI, FRICS. As you will recall, Linden Park was jointly retained by PCG and MSH on June 1, 2023, as the neutral third appraiser pursuant to Section 12.4(c) of the Operating Agreement, following the parties' inability to reconcile the divergence between their respective party appraisals.

The preliminary indication covers 100% of PGV's real property and operating assets as of the December 31, 2022 valuation date. Carraway's letter provides an **indicated value range of $130.0 million to $138.0 million**. Importantly, this is characterized as a preliminary indication, not a final report — Carraway notes that the range is pending completion of certain additional analyses, including what appears to be fu

**2. Context — Comparison to Party Appraisals**

To frame the significance of the Linden Park indication, it is helpful to review where it falls relative to the two party appraisals:

- **Whitfield Realty Advisors (PCG's appraiser, Gerald K. Whitfield, MAI):** Concluded a value of **$118.0 million** (completed February 10, 2023). Whitfield employed a blended income approach — direct capitalization at a 9.5% cap rate and a discounted cash flow analysis at a 10.75% discount rate — together with a sales comparison approach, weighting the two at 40% income / 60% sales comparison.

- **Beacon Valuation Group (MSH's appraiser, Dr. Priya Ramanathan, CFA, ASA):** Concluded a value of **$151.5 million** (completed April 14, 2023). Dr. Ramanathan relied exclusively on an income approach using a DCF at an 8.5% discount rate and a 7.75% terminal capitalization rate. Her valuation also incorporated an $8.2 million deferred-maintenance adjustment and attributed additional value to what she characterized

The divergence between the two party appraisals was 28.4%, which far exceeded the 10% threshold under Section 12.4(c) that triggers appointment of the neutral appraiser. That mechanism is, of course, what brought us to the Linden Park engagement.

**Linden Park's range of $130.0–$138.0 million sits between the two party appraisals but is notably closer to Whitfield's $118.0 million than to Beacon's $151.5 million.** The midpoint of the Linden Park range is $134.0 million — $16.0 million above Whitfield, but $17.5 million below Beacon.

Critically, under Section 12.4(c), fair market value is determined by averaging the two closest appraisals. If Linden Park finalizes anywhere within the $130.0–$138.0 million range, the two closest appraisals would be **Whitfield ($118.0M) and Linden Park**, meaning **Beacon's $151.5 million would be the outlier excluded from the averaging calculation**. This is a favorable structural outcome for PCG.

**3. Implications for Buyout Price Calculation**

Using the midpoint of Linden Park's preliminary range ($134.0 million) for illustrative purposes, the buyout price calculation under the Operating Agreement would work as follows:

| Component | Amount | |---|---| | Gross asset value (average of two closest: Whitfield $118.0M + Linden Park midpoint $134.0M ÷ 2) | $126.0 million | | Less outstanding debt (GANB loan) | ($48.6 million) | | Net JV equity | $77.4 million | | MSH's 35% share | $27.09 million | | Plus MSH's accrued preferred return (stipulated) | $17.01 million | | **Implied buyout price** | **≈ $44.1 million** |

However, if we look at the Linden Park midpoint value on a standalone basis (i.e., before the averaging mechanism is applied, to understand the full implied equity), the math is as follows:

| Component | Amount | |---|---| | Gross asset value (Linden Park midpoint) | $134.0 million | | Less outstanding debt (GANB loan) | ($48.6 million) | | Net JV equity | $85.4 million | | MSH's 35% share | $29.89 million | | Plus MSH's accrued preferred return (stipulated) | $17.01 million | | **Implied buyout price at Linden Park midpoint** | **≈ $46.9 million** |

- **PCG's tendered buyout price:** $41.3 million (based on Whitfield's $118.0 million valuation) - **MSH's demand:** $70.0 million (based on Beacon's $151.5 million valuation plus MSH's bad-faith penalty claim)

The Linden Park-based figure of approximately $46.9 million is roughly **$5.6 million above PCG's tender** but **$23.1 million below MSH's demand**. This represents a significant validation of PCG's position that the $70.0 million demand was excessive and commercially unreasonable.

I should note, however, that this analysis does not account for the bad-faith penalty claim under Section 12.7. MSH continues to assert the $16.975 million penalty, which would need to be resolved separately — either through negotiation or in the arbitration proceedings.

We view this development as materially strengthening PCG's negotiating posture for several reasons:

- **Undercuts the Beacon valuation.** The fact that the neutral appraiser's preliminary range excludes Beacon as an outlier suggests that Dr. Ramanathan's discount rate (8.5%) and terminal cap rate (7.75%) may have been too aggressive relative to prevailing market conditions for Gulf Coast luxury hospitality assets. It also raises questions about whether the $8.2 million deferred-maintenance adjustment and the below-

- **Validates Whitfield's methodology.** While Whitfield's $118.0 million conclusion is at the lower end, the Linden Park indication supports the argument that Whitfield's approach was not unreasonable or conducted in bad faith — an important point given MSH's bad-faith penalty claim.

- **Weakens the Section 12.7 bad-faith penalty claim.** That claim becomes considerably harder for MSH to sustain if the neutral appraiser's indication is closer to Whitfield than to Beacon. The 28.4% divergence between the party appraisals appears to have been driven more by Beacon's outlier methodology than by any deficiency in Whitfield's approach.

- **Informs potential settlement discussions.** We recommend that PCG consider this data point carefully as it evaluates its willingness to engage in settlement discussions. A resolution in a range reasonably above the midpoint-based calculation could avoid the expense and uncertainty of continued arbitration proceedings before Hon. Margaret Liu Chen (Ret.) in JAMS Ref. No. 1440032871, while still representing a subs

Jeffrey Park is currently preparing a cap rate and discount rate market survey memorandum that will further contextualize Linden Park's findings against comparable Gulf Coast luxury hotel transactions. Once our team has had sufficient time to review the preliminary indication in detail, we will prepare a comprehensive comparative appraisal analysis memorandum comparing the methodologies and conclusions of all three a

- **Strategy call.** Francesca Morano and I will coordinate on timing for a call with you and Dominic to discuss strategy in light of this development. Please let us know your availability over the next several days. - **Cap rate market survey.** Jeffrey Park will finalize the cap rate and discount rate market survey memorandum. - **Comparative appraisal analysis.** Our team will begin preparing the comprehensive com

Adriana, please feel free to circulate this to Dominic and Marcus Thiel as you see fit, but I would ask that you remind them of its privileged and confidential nature and that distribution be limited accordingly.

I am happy to schedule a call at your convenience to discuss any of the above. Please do not hesitate to reach out.

**Simone Laroche** Associate Calderwood & Harkness LLP 801 Brickell Avenue, Suite 2800 Miami, FL 33131 T: (305) 555-0147 | F: (305) 555-0100 slaroche@calderwoodharkness.com

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