Contract analysis

I. Executive Summary The purpose of this memorandum is to compile and analyze publicly available and proprietary market data on capitalization rates ("cap rates") and discount rates applicable to luxury full-service hotel properties located on or near Florida's Gulf Coast, as of a valuation date of December 31, 2022. The data and analysis presented herein are intended to support the reasonableness of the appraisal me

1. Whitfield Realty Advisors LLC (Gerald K. Whitfield, MAI), retained by PCG: Concluded a fair market value of $118.0 million. Mr. Whitfield employed a 9.5% capitalization rate in the direct capitalization method and a 10.75% discount rate in his discounted cash flow ("DCF") analysis, blending the income approach (weighted at 40%) with the sales comparison approach (weighted at 60%) to arrive at his final value concl

2. Beacon Valuation Group Inc. (Dr. Priya Ramanathan, CFA, ASA), retained by MSH: Concluded a fair market value of $151.5 million. Dr. Ramanathan employed an 8.5% discount rate in her DCF analysis and a 7.75% terminal capitalization rate. Beacon relied exclusively on the income approach and did not perform a sales comparison approach.

3. Linden Park Advisory LLC (Thomas Carraway, MAI, FRICS), jointly retained by both parties on June 1, 2023, as a neutral appraiser: Provided a preliminary indication of value of $130.0–$138.0 million. Mr. Carraway's report was never finalized, as the neutral appraisal process was suspended following MSH's objections to the scope of Mr. Carraway's work. The gap between the Whitfield and Beacon conclusions — $33.5 mil

II. Scope and Methodology of This Survey A. Data Sources Consulted To ensure a thorough and defensible analysis, this survey draws upon multiple categories of market data. The following published hotel investment research reports and databases were consulted: • Harborview Capital Research — Annual U.S. Luxury Hotel Investment Report (2022 edition). Harborview is a nationally recognized hotel investment research firm

III. Cap Rate Analysis — Gulf Coast Luxury Hotel Market A. Published Cap Rate Data (Year-End 2022) The following table summarizes the published cap rate ranges for luxury and upper-upscale full-service hotel properties reported by the sources identified in Section II.A, as of or near year-end 2022: Several observations emerge from this data: First, as the geographic focus narrows from the national level to the Southe

IV. Discount Rate Analysis — DCF Methodology A. Published discount Rate Data (Year-End 2022) The following table summarizes the published discount rate ranges for luxury and upper-upscale full-service hotel properties as of or near year-end 2022: Several observations follow from this data: Whitfield's discount rate of 10.75% falls near the center of the published ranges for luxury Gulf Coast hotel assets. It is well

V. Sensitivity Analysis — Impact of Rate Assumptions on Indicated Value The following sensitivity analyses illustrate the magnitude of the valuation impact attributable to differences in cap rate and discount rate assumptions. These analyses demonstrate that the $33.5 million gap between the Whitfield and Beacon conclusions is driven primarily by rate selection, not by material differences in underlying property econ

VI. Implications for the Linden Park Preliminary Indication Although the Linden Park neutral appraisal was never finalized, Mr. Carraway's preliminary indication of value of $130.0–$138.0 million provides a useful data point for assessing the relative reasonableness of the Whitfield and Beacon conclusions. Reverse-engineering the Linden Park range to derive implied rate assumptions yields the following: • A value of

VII. Critique of Beacon Appraisal Rate Selections The market evidence compiled in this memorandum supports a comprehensive critique of the Beacon appraisal's rate assumptions. The following subsections summarize the principal grounds for challenge. A. Below-Market discount Rate (8.5%) Beacon's selection of an 8.5% discount rate for its DCF analysis of The Palmetto Grand is not supported by market evidence for the fol

1. The 8.5% rate falls below every published survey range for Gulf Coast luxury hotel discount rates identified in this survey. It is at the absolute floor of the broadest national range (Institutional Real Estate Review, 8.5%–13.0%) and 100 basis points below the low end of the most geographically relevant range (Pinnacle Gulf Coast, 9.5%–12.5%).

2. The rate fails the build-up analysis by approximately 112 or more basis points. The build-up analysis in Section IV.B yields a minimum indicated discount rate of 9.63%, even under the most favorable assumptions for each risk component. Beacon's 8.5% rate implies a total risk premium over the risk-free rate of only 462 basis points, which is insufficient to compensate for the cumulative risk profile of a single-ass

3. No comparable transaction identified in this survey supports an implied yield as low as 8.5% for a single-asset resort hotel in this submarket. The lowest implied cap rate in the comparable transaction set is 8.8% (Pelican Bay Club Resort, September 2020), and cap rates and discount rates have generally moved upward since that date due to rising interest rates.

4. An 8.5% discount rate appears to reflect the return expectations applicable to a stabilized, institutional-grade, diversified real estate portfolio — not a single-property rate appropriate for a luxury resort hotel. Dr. Ramanathan's rate selection is more consistent with the discount rates observed in large-scale portfolio transactions involving diversified hotel REITs or core-quality commercial real estate funds,

1. The 7.75% terminal cap rate violates the general appraisal convention that the terminal cap rate should be set at a level equal to or, more commonly, 50–100 basis points above the going-in cap rate. Beacon's terminal cap rate is not only below the market-supported going-in cap rate range of 8.75%–9.75% but is also at or below even Beacon's own implicit going-in cap rate of approximately 7.5%–7.8%. This implies tha

2. The 7.75% terminal cap rate implies that the Property will appreciate in value per dollar of NOI over the hold period, meaning that a hypothetical buyer at the reversion date will accept a lower yield than a buyer at the valuation date. This is counterintuitive for a property whose improvements will be approximately 13–15 years post-renovation at the end of a 10-year hold period (assuming the 2017–2019 renovation

3. The extraordinary circumstances that might justify a negative terminal cap rate premium — such as a planned major redevelopment, a pending rezoning or entitlement that would unlock additional development density, or a fundamental repositioning of the asset into a higher-value use — are not present in this case. The Palmetto Grand is and will remain a luxury beachfront resort hotel; there is no basis for assuming t

4. Adjusting the terminal cap rate from 7.75% to the market-supported 9.0% — while leaving all other Beacon assumptions unchanged — would reduce the Beacon appraised value by an estimated $16.5–$22 million. This single adjustment alone would close a substantial portion of the $33.5 million gap between the Whitfield and Beacon conclusions. C. Absence of Sales Comparison Approach In addition to the rate-specific critiq

1. Beacon relied exclusively on the income approach (DCF) and did not perform a sales comparison approach. This is a significant omission, particularly in light of the availability of comparable sales data. As catalogued in Section III.B of this memorandum, eight comparable luxury/upper-upscale hotel transactions on the Florida Gulf Coast closed between September 2020 and October 2022 — a robust comparable set by hot

2. The Uniform Standards of Professional Appraisal Practice ("USPAP"), which govern the professional practice of real estate appraisers, encourage the use of multiple valuation approaches when sufficient data is available. USPAP Standards Rule 1-4 requires appraisers to "collect, verify, and analyze all information necessary for credible assignment results" and to develop each approach to value for which sufficient r

3. Whitfield's use of both the income approach (weighted at 40%) and the sales comparison approach (weighted at 60%) is methodologically sound and provides an important market-data check on the DCF conclusions. By incorporating actual transaction evidence — prices paid by real buyers and accepted by real sellers in arm's-length transactions — the sales comparison approach anchors the valuation in observed market beha

4. The absence of a sales comparison approach in the Beacon appraisal has the effect of amplifying the impact of Dr. Ramanathan's discount rate and terminal cap rate selections. Because the entire Beacon value conclusion is derived from a single DCF model, the rate assumptions are essentially dispositive. If Beacon had performed a sales comparison approach, the implied cap rates from comparable transactions — which,

VIII. Conclusions and Recommendations A. Summary of Findings Based on the comprehensive market survey and analysis presented in this memorandum, the following conclusions are supported:

1. Whitfield's rate assumptions are market-supported. Gerald K. Whitfield's selection of a 9.5% capitalization rate and a 10.75% discount rate for the valuation of The Palmetto Grand Resort & Spa as of December 31, 2022 is supported by published survey data, comparable transaction evidence, and build-up analysis. The 9.5% cap rate falls within the observed range of 8.8%–9.7% from comparable transactions and within th

2. Beacon's rate assumptions are below-market outliers. Dr. Priya Ramanathan's selection of an 8.5% discount rate and a 7.75% terminal capitalization rate is not supported by any identified comparable transaction or published survey for Gulf Coast luxury hotel assets as of year-end 2022. The 8.5% discount rate falls at or below the bottom of every published range, fails the build-up analysis by approximately 112+ bas

3. Quantified overvaluation. The combined effect of Beacon's below-market rate assumptions results in an overstatement of the fair market value of The Palmetto Grand Resort & Spa by an estimated $25–$35 million relative to the market-supported value range. This overvaluation is further compounded by the $8.2 million deferred-maintenance adjustment and the absence of a sales comparison approach that would have provide

4. Linden Park's preliminary range confirms market-supported rates. The Linden Park Advisory preliminary indication of $130.0–$138.0 million is consistent with cap rates of approximately 8.6%–9.1% and discount rates of approximately 9.5%–10.25%, both of which fall within the market-supported range and align far more closely with Whitfield's assumptions than with Beacon's. B. Strategic Recommendations Based on the fin

1. Incorporation into Comparative Appraisal Analysis. This research memorandum should be incorporated into the Comparative Appraisal Analysis Memorandum currently being prepared by Laroche and Park (targeted completion: August 2023). The market data and analysis presented herein will provide the empirical grounding for the section of that memorandum addressing the critique of Beacon's rate assumptions and the defense

2. Deposition preparation for Dr. Priya Ramanathan (September 18, 2023). The deposition of Beacon's lead appraiser is scheduled for September 18, 2023 and represents the most important opportunity to challenge the Beacon rate assumptions on the record. Deposition questioning should specifically probe the following topics: (a) Dr. Ramanathan's justification for selecting an 8.5% discount rate, including whether she pe

3. Coordination with Whitfield Realty Advisors. The comparable transaction data compiled in this memorandum should be provided to Gerald K. Whitfield of Whitfield Realty Advisors to confirm alignment between his proprietary comparable data and the transactions identified herein, and to enable Mr. Whitfield to prepare any rebuttal analysis that may be needed in response to the Beacon appraisal or to any supplemental m

4. Hearing preparation. If this matter proceeds to an evidentiary hearing before the Hon. Margaret Liu Chen (Ret.), the analysis presented in this memorandum provides the evidentiary foundation for challenging Beacon's rate assumptions as unsupported by market data. The published survey data, comparable transaction evidence, build-up analysis, and sensitivity matrices should be prepared as demonstrative exhibits for

IX. Appendices (Referenced) The following appendices are referenced in this memorandum and are being compiled concurrently with this document. They will be circulated separately upon completion. Appendix A: Comparable Transaction Detail Sheets Appendix A contains a one-page summary sheet for each of the eight comparable transactions identified in Section III.B of this memorandum. Each summary sheet includes: (i) a br

1. The Seaside Monarch Resort — Naples, FL (October 2022)

2. Gulf Breeze Grand Hotel — Sarasota, FL (June 2022)

3. Isla Bonita Beach Club & Spa — Marco Island, FL (March 2022)

4. The Harborlight Resort — St. Pete Beach, FL (August 2021)

5. Coral Ridge Luxury Collection — Fort Lauderdale, FL (November 2021)

6. Suncoast Pinnacle Hotel — Clearwater Beach, FL (January 2021)

7. Marisol Grand Resort — Destin, FL (December 2020)

8. Pelican Bay Club Resort — Sanibel Island, FL (September 2020) Appendix B: Published Survey Excerpts Appendix B contains the relevant pages from the following published research reports, reproduced for reference purposes: • Harborview Capital Research — Annual U.S. Luxury Hotel Investment Report (2022 edition), including the national and regional cap rate and discount rate summary tables • Pinnacle Hospitality Anal