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The EquiSource Hotel Fund The EquiSource Hotel Fund (EQHF) is tailor-made for our times. By leveraging the availability of hotel properties at historically low prices in concert with a hotel industry on the upswing, we are presenting investors a unique opportunity to partner with a demonstrated industry leader.
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Contents
An Opportunity As Unique As Our Times
4
Maximizing The Moment
6
Trend Upward With Us
8
Our Plan Is Equal To The Potential
10
The EQHF Hotel Acquisition Strategy
12
Excellence Begins At The Top
14
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occupancy %
This graph shows the upward trend in occupancy percentages. Note the significant growth since the 2008 economic downturn, paired with a stabilized occupancy through the lifetime of the Fund. Source: PwC and Smith Travel Research
ADR & RevPAR Growth %
This graph charts the percentage growth of ADR (the average daily rate room rate), along with RevPAR (the percentage change in how much revenue a single room generates) year over year. Since the downturn, note how both measures have rebounded and stabilized to healthy, positive growth (over 0). Source: PwC and Smith Travel Research
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An Opportunity As Unique As Our Times. As the global economy makes its recovery, one industry shows signs of powerful improvement: hospitality. Given that this was one of the hardest-hit segments of the downturn, this robust response also presents a significant opportunity. In fact, increased occupancy and average daily rates are driving both revenue growth and property values in key markets. The downturn began in 2007 and bottomed out in 2009, when U.S. hotels saw a national 31% decline in values.The lodging industry experienced slight recovery in 2010 and 2011, with more pronounced growth in 2012. HVS, the leader in global hospitality research, has predicted an average national increase in hotel values of 38% by 2016. In 2012, HVS produced a comprehensive Hotel Valuation Index featuring these remarks: Key Terms
The 2012 edition of the HVS U.S. Hotel Valuation Index is quite optimistic. In fact, the U.S. lodging market has recovered much of the occupancy loss it experienced during the 2009 downturn. In most markets, average rate appears to have bottomed out or is expected to do so in the near future. Demand growth and the limited new supply are anticipated to boost average rate and occupancy growth further. KEY TAKEAWAYS
Occupancy: The percentage of available rooms sold. ADR Growth Rate: The percentage change in average daily rate charged for hotel rooms from one year to the next. RevPAR Growth Rate: The percentage change in revenue generated per room for the year. NOI: Net Operating Income
1. Less buying but more selling opportunities 2. Still plenty of upside potential in value growth 3. Average rate will drive RevPAR and NOI growth 4. Extended period of increased values through 2016 5. Limited growth of new hotel supply 6. Construction financing still scarce 1
You are invited to take advantage of this singular moment. The EQHF invests in hotels in strong markets that will benefit from projected growth and value appreciation. HVS and other industry experts point toward strong revenues and NOI growth in the hotel industry throughout 2016. As a result, hotel values are expected to increase significantly over the next 4-5 years. In other words, this is an opportunity whose time has come.
HVS 2012 Hotel Valuation Index by Stephen Rushmore Jr., MAI, President and Chief Executive Officer and Katharina Kuehnle, Analyst, October 2012 Opposite Page: Occupancy, ADR, and RevPAR Growth % 2002-2013. Source: PwC and Smith Travel Research
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“In the near term, average [hotel room] rate has room to grow. With demand having seen such a fast pace of return over the past two years, occupancy in many markets also has the potential for a significant rise, especially given the halt in new supply. HVS forecasts that, nationwide, hotel occupancy will continue to rebound and average rate growth will gain momentum through 2015/16. As hotel lenders, developers, and owners begin to recognize these trends and see them substantiated at their own properties and in their home markets, the U.S. lodging industry’s long-term performance should return to, and even surpass, the heights of the past decade.” – HVS, Regional Hotel Summit Series Summary
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Maximizing The Moment.
General Partner Experience
The EquiSource Hotel Fund is a limited partnership that opportunistically invests in select service hotels in the Western United States. In order to provide industryleading returns to our Limited Partners, the EQHF takes advantage of market conditions unique to our times. These conditions include historically low prices of hotel properties, a lack of new hotel development over the past five years leading to a market ripe for enhanced and renovated hotel properties, and a current culture of overly cautious lenders that creates investment opportunities for well-capitalized funds such as ours. The Fund’s strategy is simple:
1. Purchase advantageously priced hotels in key markets 2. Increase the value of the properties through renovation and repositioning 3. Sell the properties to meet the demands of an expanding hotel industry As leading trend watchers have noted, the hotel business is poised to experience significant growth in revenue and values in the next five years. EQHF is uniquely positioned to capitalize on the current market conditions.What’s more, we can do so in a way that minimizes risk.This happens through the demonstrated expertise of the principals of the General Partner, EquiSource Management LLC (“EQM”). With decades of combined hospitality and investment experience and $6 billion in career real estate and hospitality transactions, these are the professionals who are adept at generating profits.
Holiday Inn Express, Florence, AZ. Post remodel by the General Partner The Equisource Hotel Fund | 6
The Opportunity
Limited Partners will be entitled to a 7% annual preferred return
The Limited Partners will receive 30% of the profits generated from operations and 30% of the profits generated from selling the hotel properties.
This Fund is designed for a healthy return on investment, with highly mitigated risk. The 7% annual return available to Limited Partners is a significant improvement on those garnered from the typical low-risk opportunity. The available 30% of profit share from the disposition of properties at the end of the Fund is tailored to the unique nature of our times. The Fund lifecycle corresponds directly to the projected time required to maximize acquired properties and then sell them during anticipated peak valuation.
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Super 8 Hotel, Montrose, CO. Post remodel by the General Partner
Trend Upward With Us. EquiSource Management LLC (the “General Partner”) is seeking partners (“Limited Partners”) to invest approximately $25 million in the EQHF in order to take advantage of this unprecedented moment in the hotel industry. Here is how: Limited Partners will own units of the EQHF, which will in turn own several hotel properties. Potential Limited Partners who meet SEC suitability standards are eligible to purchase units of the EQHF in $1,000 increments with a minimum investment of $5,000. Limited Partners will be entitled to a 7% annual preferred return (“Preferred Return”), which is paid from cash flow generated by the hotel operations prior to any profit distributions. EQHF presents further ways to profit as well. Limited Partners will receive 30% of the profits generated by the company through hotel operations and property sales. EQHF is a five-year fund, commencing in 2013 and closing in 2017. This timeframe coincides with the expected growth of the industry. Beyond 2017, the fund will be wound down through the responsible and advantageous disposition of remaining assets. The EQHF funding phase has already begun, and will continue until Limited Partner units are no longer available. The acquisition of hotel properties will commence in late 2013. Properties meeting the criteria of the fund have already been identified and the General Partner is in the process of evaluation and due diligence. The hotel acquisition phase will continue throughout the duration of the fund.
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Projected changes in per-room value through 2016 Rank 1. Tuscon N E VA D A
Las Vegas
% Increase 170%
2. Talahassee
94%
3. Norfolk
89%
4. Sacramento
88%
5. Las Vegas
82%
6. Hartford
76%
7. WPB - Boca Raton
74%
8. Kansas City
72%
9. Wilmington
65%
10. Phoenix
62%
ARIZONA Phoenix
Tuscon
Quality Inn & Suites, Tuscon, AZ.
Before and after lobby renovation by the General Partner
Before and after pool remodel by the General Partner. The Equisource Hotel Fund | 9
Our Plan Is Equal To The Potential. The EQHF strategic plan fully leverages current market conditions to enable the fund to take advantage of opportunities with efficiency and immediacy. The 2012 Hotel Valuation Index distributed by HVS ranks the top ten markets for projected value increases over the next five years. Of those key markets, three fall within the focused geography of EQHF. In fact, plans to acquire assets in Tucson and Phoenix are already underway.
Opposite Page: Projected changes in per-room value through 2016. Occupancy, ADR, and RevPAR Growth % 2002-2013 Source: PwC and Smith Travel Research
Note that while these 10 specific metropolitan areas are expected to experience some of the highest growth rates in the nation, the projected national average growth rate is expected to reach 38%. EQHF has identified seven key states that are anticipated to experience high growth, including California, Nevada, Utah, Arizona, Colorado, New Mexico and Texas. The projected growth rate for the market will be one factor in the evaluation process for potential acquisition, but the property itself must also meet the stringent criteria of the EQHF Hotel Acquisition Strategy.
EQHF Geographical Focus - The Southwest Region
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The EQHF Hotel Acquisition Strategy The General Partner has years of experience evaluating and purchasing hotel assets. These acquisitions occur through various methods and in various levels of “stabilization� (the extent to which the hotel is meeting its financial potential). Many of the hotels that the General Partner has purchased in recent years have been previously financially distressed. The General Partner excels at tackling the issues associated with distressed properties, and returning the property to full stabilization for resale.
Factors Influencing Acquisition Include: Location The most important factor in selecting a hotel investment is its market. The location will have a major impact on occupancy, customer type, marketing options, market conditions, and hotel type. EQHF will maintain a geographic focus on western states that have historically enjoyed strong population and economic growth – specifically Arizona, New Mexico,Texas, Colorado, Nevada, Utah and California. We focus on markets that have demonstrated high barriers to entry and relative high occupancy levels.
Holiday Inn Express, Florence, AZ. Post remodel by the General Partner
Brand
Selecting the right brand or franchise is critical in developing a successful hotel. The franchise affiliation will significantly influence rates, brand awareness and perception, marketing and royalty fees, and many other factors regarding the appearance and operation of the hotel.The General Partner has been approved for franchise ownership of “top select service hotel brands, including InterContinental Hotels Group (Holiday Inn Express and others),Wyndham Worldwide (Ramada, Super 8, Howard Johnson’s, etc.), and Choice Hotels (Comfort Inn, Quality Inn, etc.).�
Condition
The General Partner is adept at identifying hotels that experience depressed valuations along with large potential. Only hotels whose refurbishment requirements do not exceed strict criteria will be identified as potential assets.
Talent
EquiSource employs top hotel management companies to oversee operations. We work closely with the management companies to ensure that all staff and employees are dedicated, committed, and customer-service oriented.
Customer value We believe in creating value by providing a positive hotel experience that surpasses customer expectations. We will invest in economy and mid-scale hotel brands that target both the leisure and business traveler.
Howard Johnson, Austin, TX. Post remodel by the General Partner
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Excellence Begins At The Top. The General Partner, EquiSource, is a hospitality investment company focused on the acquisition and development of select services hotels in the western United States. During the past five years, the principals of the company have purchased over $40 million in hotel assets. While the company has significant experience in various asset types, they have maintained a strong track record in the hospitality segment where they have purchased, renovated and managed over 15 hotel assets totaling over 2,000 rooms since 2010 alone. The principals of EquiSource are industry veterans Andrew Jolley, Steve Byrne, Greg Herlean, and John Reiter. These experienced professionals have decades of hospitality investment and lending experience. While EquiSource will manage the EQHF, they will employ professional management companies to help manage hotel operations. Using this co-management approach, EquiSource can focus on overall strategic goals of the EQHF while the hotel management company can focus on critical daily operations. EquiSource will work shoulder-to-shoulder with management companies to ensure that the properties are being run efficiently and are creating customer value.
Andrew M. Jolley
As the cofounder of EquiSource, Mr. Jolley oversees investment analysis, underwriting, and project management. He has underwritten, acquired and managed hundreds of real estate investments ranging from portfolios of residential homes, hotels, apartments, and offices to industrial properties. In the past several years, Andrew’s primary focus has been finding and acquiring hotel properties. He is actively involved in the planning, management, and financing of hotel ventures including brand selection, renovation budgeting, and operational oversight. Prior to founding EquiSource, Mr. Jolley was an executive with a real estate development and construction company where he was responsible for acquisition and development in the Western U.S. He earned a bachelor’s of science in business administration from BYU, a master of information management from ASU, and an MBA from the WP Carey School of Business at ASU.
Steve Byrne Mr. Byrne has been in commercial real estate and hospitality lending and investments since 1979. He has funded several billion dollars in real estate loans and investments, including over five billion in hospitality and gaming deals. From 1986 to 1991, Steve was a work out manager at First Interstate Bank, where he managed the resolution for several hundred million dollars of problem commercial loans. He then transferred to the gaming and hospitality division of First Interstate Bank (later Wells Fargo) where he closed over $3 billion of hospitality and gaming loans. Later, as the president of a private commercial lending company, he made several hospitality construction loans and investments. Since he cofounded EquiSource in 2007, Steve has been intimately involved in the acquisition, renovation, and management of over 15 hotels totaling over 2,000 hotel rooms. He holds dual bachelor’s degrees in economics and accounting.
Greg Herlean Mr. Herlean has spent the last decade focused on real estate related growth opportunities, and he has been an owner of over a dozen hotels. His aptitude for business has afforded him the opportunity to provide management direction, capital restructuring, investment research analysis, business projection analysis, and capital acquisition services that governed and impacted over $500 million in transactions, including hospitality ventures. He cofounded and built his first Nevada trust custodial company in 2007. Through his efforts, the company went from inception to managing over $95 million in just over 24 months. Greg is the founder of Horizon Trust Company and is involved in many other businesses. He frequently speaks on the topics of capital development, investment growth through use of self-directed IRA vehicles, and estate planning. Greg holds a bachelor of science in business administration from the University of Phoenix.
John Reiter As Chief Financial Manager, Mr. Reiter is responsible for the financial stewardship of the company, including capital and operating budgets, financial affairs, reporting, and resource procurement. Prior to joining EquiSource in 2012, he served in both the private and public sectors as a finance executive. From 2009 to 2012, John provided executive-level finance experience as a Senior Manager, completing financial oversight and management, comprehensive financial analytics, and reporting for a publicly traded hospitality and gaming company. Prior to that, he provided similar services as a Senior Investment Analyst for a regional commercial real estate lending company. Under John’s management, the companies he has worked with have successfully secured more than $30MM in equity placements and $300MM in financing to secure various real estate investments that include residential development and construction, commercial development and construction, hotel construction, and casino acquisition and construction. Mr. Reiter is a graduate of Colorado State University, where he earned a bachelor of science in business administration, majoring in finance and real estate.
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855-880-EQHF (3743) 2009 E Windmill Lane Las Vegas, NV 89123 www.EquiSourceHotels.com
DISCLOSURE STATEMENT THIS CONFIDENTIAL PRESENTATION HAS BEEN PREPARED SOLELY FOR PROSPECTIVE INVESTORS CONSIDERING THE PURCHASE OF INTERESTS IN EQUISOURCE HOTEL FUND I, LLP (THE “FUND’). EACH PROSPECTIVE INVESTOR IN THE FUND WILL BE PROVIDED WITH THE FUND’S PROSPECTUS (THE “PROSPECTUS”), WHICH HAS BEEN FILED AS PART OF ITS REGISTRATION STATEMENT WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) FOR THE OFFERING , AND WILL BE REQUIRED TO EXECUTE A LIMITED PARTNERSHIP AGREEMENT AND SUBSCRIPTION AGREEMENT TO EFFECT AN INVESTMENT IN THE FUND. IF ANY OF THE DESCRIPTIONS OR TERMS IN THIS PRESENTATION ARE INCONSISTENT WITH SUCH DOCUMENTS, SUCH DOCUMENTS SHALL CONTROL. NO INTERESTS IN THE FUND MAY BE SOLD IN THE UNITED STATES WITHOUT REGISTRATION WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) OR AN EXEMPTION FROM SUCH REGISTRATION. THE FUND HAS FILED A REGISTRATION STATEMENT FOR THE SECURITIES TO BE OFFERED IN THE UNITED STATES. ANY PUBLIC OFFERING OF THE SECURITIES TO BE MADE IN THE UNITED STATES WILL BE MADE SOLELY BY MEANS OF THE PROSPECTUS IN THE REGISTRATION STATEMENT. THE PROSPECTUS WILL CONTAIN DETAILED INFORMATION ABOUT THE FUND AND ITS MANAGEMENT AS WELL AS THE FINANCIAL STATEMENTS OF THE FUND. THE INTERESTS WILL BE OFFERED SOLELY IN THE UNITED STATES. THE INTERESTS IN THE FUND MAY NOT BE REGISTERED FOR SALE IN ALL STATES. THE INTERESTS IN THE FUND WILL NOT BE REGISTERED UNDER THE LAWS OF ANY FOREIGN JURISDICTION. THE FUND WILL NOT BE REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940 (THE ‘‘INVESTMENT COMPANY ACT’’) AND INVESTORS WILL NOT BE AFFORDED THE PROTECTIONS OF THE INVESTMENT COMPANY ACT. THERE WILL BE NO PUBLIC MARKET FOR THE INTERESTS AND THERE IS NO OBLIGATION ON THE PART OF ANY PERSON TO REGISTER THE INTERESTS UNDER THE SECURITIES ACT OR ANY STATE OR NON-U.S. SECURITIES LAWS. EACH PROSPECTIVE INVESTOR SHOULD MAKE ITS OWN INVESTIGATION AND EVALUATION OF THE FUND, INCLUDING THE MERITS AND RISKS OF INVESTING THEREIN, AND SHOULD REVIEW THE “RISK FACTORS” SET FORTH IN THE PROSPECTUS, WHICH ARE INCORPORATED HEREIN BY REFERENCE. PRIOR TO ANY INVESTMENT, EACH PROSPECTIVE INVESTOR WILL HAVE THE OPPORTUNITY TO ASK QUESTIONS OF AND RECEIVE ANSWERS AND ADDITIONAL INFORMATION FROM THE GENERAL PARTNER OF THE FUND (THE “GENERAL PARTNER”) REGARDING THE TERMS AND CONDITIONS OF THE INVESTMENT AND OTHER RELEVANT MATTERS. EACH PROSPECTIVE INVESTOR SHOULD INFORM ITSELF AS TO THE LEGAL REQUIREMENTS APPLICABLE TO THE ACQUISITION, HOLDING AND DISPOSITION OF INTERESTS IN THE FUND, AND AS TO THE LEGAL AND TAX CONSEQUENCES OF SUCH ACQUISITION. PROSPECTIVE INVESTORS SHOULD HAVE THE FINANCIAL ABILITY AND WILLINGNESS TO ACCEPT THE HIGH RISK AND LACK OF LIQUIDITY INHERENT IN AN INVESTMENT IN THE FUND. THE GENERAL PARTNER RESERVES THE RIGHT TO MODIFY ANY OF THE TERMS HEREIN. NO ASSURANCE CAN BE GIVEN THAT THE FUND’S INVESTMENT OBJECTIVES WILL BE ACHIEVED OR THAT INVESTORS WILL RECEIVE A RETURN OF ANY CAPITAL. IN CONSIDERING THE PRIOR PERFORMANCE INFORMATION CONTAINED HEREIN, PROSPECTIVE INVESTORS SHOULD BEAR IN MIND THAT PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS, AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL ACHIEVE ANY PARTICULAR RESULTS. THE FUND HAS NO HISTORY OF OPERATIONS AND WILL MAKE INVESTMENTS HAVING CERTAIN RISK CHARACTERISTICS. THIS PRESENTATION DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, A LIMITED PARTNERSHIP INTEREST IN ANY JURISDICTION. NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE AGENCY OR NON-U.S. SECURITIES COMMISSION HAS APPROVED AN INVESTMENT IN THE FUND. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. EACH RECIPIENT OF THIS PRESENTATION ACKNOWLEDGES AND AGREES THAT THE CONTENTS HEREOF CONSTITUTE PROPRIETARY AND CONFIDENTIAL INFORMATION THAT THE GENERAL PARTNER, THE FUND, AND THEIR RESPECTIVE AFFILIATES DERIVE INDEPENDENT ECONOMIC VALUE FROM NOT BEING GENERALLY KNOWN AND ARE THE SUBJECT OF REASONABLE EFFORTS TO MAINTAIN THEIR SECRECY. THE RECIPIENT FURTHER AGREES THAT THE CONTENTS OF THIS PRESENTATION ARE A TRADE SECRET. ANY REPRODUCTION OR DISTRIBUTION OF THIS PRESENTATION, IN WHOLE OR IN PART, OR THE DISCLOSURE OF ITS CONTENTS, WITHOUT THE PRIOR WRITTEN CONSENT OF THE GENERAL PARTNER IS PROHIBITED, AND THE DISCLOSURE OF THIS PRESENTATION OR ITS CONTENTS IS LIKELY TO CAUSE SUBSTANTIAL AND IRREPARABLE COMPETITIVE HARM TO THE FUND AND ITS AFFILIATES. THIS PRESENTATION MUST BE RETURNED TO THE GENERAL PARTNER UPON REQUEST. BY ACCEPTING THIS PRESENTATION, EACH RECIPIENT AGREES TO THE FOREGOING.
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