text: foot Snow Globe with artificial slopes for skiing and snowboarding as well as an ice skating rink and winter themed village for shopping and eating. The snow park will also feature ice caverns designed to provide a climbing and exploring adventure for children. • Mississippi Eye The Mississippi Eye attraction will be a 475 foot tall observation wheel offering 79 themed viewing capsules with a 360 degree view of the surrounding landscape. The Mississippi Eye will be the tallest wheel in the world and according to the developer will be the biggest attraction at the Myriad World Resort. • Family Entertainment Center The Family Entertainment Center will be a fully integrated and themed indoor theme park which will contain a wide array of attractions to keep its guests thrilled, excited and entertained throughout the entire day. This 100,000 square foot facility will include a 20 lane bowling alley, full scale roller coaster, ice rink, an interactive horror attraction called "The Krypt", a 2,000m2 skate park for inline roller blades and skateboarders and a 40m drop ride that will blast riders up and down for a birds eye view of the theme park and a themed round ride for kids to enjoy. The facility will also include a multi level play structure, Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 26 interactive video game area, a two seater robot arm that rotates 360 degrees, an 8 route auto belay climbing wall, a go karting circuit, a bumper car arena and a rocking tug boat ride. • Myriad LUCID Myriad LUCID will be a world class music and entertainment venue playing host to world class parties and events in the Myriad World Resort. An encompassing and innovative world full service entertainment complex identified as the definitive venue for corporate and business by day and by night a seductive, revolutionary night club showcasing the latest in audio visual technology and artistic performance. This facility will include a Plaza Bar and Restaurant, Warehouse Lounge, The Basement and the VIP Lounge. Each of these venues will offer a different environment ranging from a multi-purpose events center to a high energy dance club. • Botanical Learning Center The Botanical Grown Center will be a 35,000 square foot test facility and be designed to educate students, interns and international guests about how the botanicals are grown, and the specific technologies used in the resort. This will be a major effort on the part of the leadership and management of the resort. Myriad will enlist major universities in a wide range of disciplines in soil and water management to assist in accomplishing the botanical education center. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 27 Myriad officials already have started communicating with local universities in this regard. • Cultural Events Since the Myriad Botanical Resort will be the world's largest indoor botanical resort, it will feature four major time frames, or seasons for festivals – winter, spring, summer and fall throughout the resort. They will celebrate the seasons of romantic, fantastic, and authentic theming and utilizing botanicals that are casted for each festival timeframe. These seasons will be international, national and regional in participation. The resort will bring in the cultures of the world for each festival event. For example, if it is the Japanese Cherry Festival, then Myriad will bring in all the delights of that culture. It will present food, clothing, talent acts, etc. for each festival season in an authentic venue. • Pet Hotel/Dog Kennel Pet owners will be able to house their pets at the resort in the Pet Hotel. This will be a 10,000 square foot mini resort for the "Pampered Pet". The 7,500 square foot facility will house the 60 heated and cooled units ranging in size according to the pet (40/50/60 sq ft). The Pet Hotel will be located near, but not within the main hotel. It will have grooming staff, handlers and a veterinarian. Outdoor walking and exercise areas will surround the Pet Hotel. In addition to the features listed above, the project may include an ice feature with various trails and skating rinks, a water feature with aquariums and lagoons, and a large observation wheel and ride. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 28 The differing elements of the project will be linked by an indoor waterway transportation system. Other infrastructural needs will be supported by the state-of-the- art technology such as solar power, climate control and air-filtration technologies, as well as security and maintenance technology. The resort also has expansion space available for the development of vacation villas along the golf course. This ambitious resort planned for Tunica County, should target a broad set of visitors, including: • Casino players • Families • Conventions, exhibitions and trade shows (particularly botanical shows) • Golf enthusiasts • Tourists • Local and regional residents The following table contains an estimate of attendance by venue that has been provided by the developer for the proposed Myriad Botanical Resort. These attendance numbers include duplication of attendance by venue. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 29 MYRIAD BOTANICAL RESORT PROJECTED VISITORS BY VENUE Venue # Visitors Botanical Gardens & Festivals 1,600,000 Convention Hotel 1,200,000 Mississippi Eye Observation Wheel 1,500,000 Myriad Casino 1,000,000 Arena 370,000 Caves of Music 350,000 Lucid Night Club 100,000 Covered Golf Course 40,000 Resort Tours & Boat Tours 800,000 Snow Park 400,000 Ice Palace & Festivals 400,000 Xqua Waterpark 400,000 Aquaria Waterpark 200,000 Otium Luxury Spa 100,000 Agricultural Learning Center 400,000 Retail 350,000 Food & Beverage 550,000 Source: Property Developer Project Overview The management of Myriad World Resorts has assembled a team of professionals who represent the best in their fields -- from one of America's top resort theme developer to some of the biggest names in hospitality, casino development and management. No detail has been overlooked to ensure that when Myriad opens its doors, visitors will experience a destination unlike any other on earth. As mentioned earlier in this report, the development and design team includes a variety of talented individuals with vast experience in similar development projects around the world. A site plan for the Myriad Botanical Resort is presented on the following page followed by a map of the immediate area: Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 30 Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 31 The following map illustrates the location of the Myriad Botanical Resort in relation to Interstate 69, the Tunica airport and the proposed road improvements in the area relating to the proposed resort. Interstate 69 is an important link between the Canadian border at Port Huron, Michigan to the Mexican border at Laredo, McAllen and Brownsville, Texas, the route running through Michigan, Indiana, Kentucky, Tennessee, Mississippi, Arkansas Louisiana and Texas has been designated by Congress as a highway corridor with national significance to be included in the National Highway System. Currently under development, the I-69 corridor will include the construction of new roadways combined with the upgrading of existing highways. Hotel and Convention Center The site for the proposed hotel and convention center will be in the northwest corner of the Myriad Botanical Resort, adjacent to the parking deck and Myriad Resort Casino. To be called the Myriad Palace Hotel, the hotel will include 1,200 guest rooms and suites, spa and fitness center, five food outlets, three lounges, retail, business center and travel desk. The convention center will be located adjacent to the hotel and will include exhibit and meeting space, ample prefunction and storage space, a full banquet kitchen and all necessary back of the house space. The hotel and convention center will have ample parking in an adjacent parking garage. The property will have excellent visibility and easy access from area transportation routes. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 32 The following are representative drawings of the hotel and resort transportation system: Convention Facilities The proposed hotel will be a nine story structure containing 1,200 guest rooms and suites and a 10,000 square foot spa, a fitness center and approximately 4,530 square feet Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 33 of retail space. Meeting and banquet facilities (Mississippi Blossoms Convention Center) adjacent to the hotel will include approximately 400,000 square feet of function space in phase I of the project. The initial space allocation program provided by the developer offered the following configuration of meeting and banquet space: TUNICA, MISSISSIPPI MISSISSIPPI BLOSSOMS CONVENTION CENTER MEETING ROOM CONFIGURATION Square Total # of Rooms Feet Sq Ft Grand Ballroom 1 80,000 80,000 Junior Ballroom 1 20,000 20,000 Banquet Rooms 15 3,200 48,000 Meeting Rooms 10 1,700 17,000 Meeting Rooms 10 1,500 15,000 Exhibit Hall 1 100,000 100,000 Total Meeting Space 280,000 Prefunction Space 65,000 Storage & Miscellaneous Space 47,990 Total Function Space 392,990 Source: Pinkowski & Company; Space Allocation Program Phase II will include the addition of approximately 200,000 square feet of exhibit and prefunction space. Phase II will be developed to help accommodate additional group demand once the facility has established a position in the group meetings and exhibit market. Phase II is scheduled to open by the beginning of the fourth full year of operation for the resort, by January 1, 2013. Based on our analysis and review of the competitive market place for the proposed facility and our discussions with those responsible for the sales and marketing efforts for the proposed property, we recommend revising the configuration for the convention center function space to the following: Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 34 TUNICA, MISSISSIPPI MISSISSIPPI BLOSSOMS CONVENTION CENTER MEETING ROOM CONFIGURATION Square Feet Grand Ballroom 50,000 Junior Ballroom #1 30,000 Junior Ballroom #2 15,000 Breakout Space(1) 70,000 Exhibit Hall 165,000 Total Meeting Space 330,000 Prefunction Space 65,000 Total Function Space 395,000 (1) includes several board rooms (2) storage space is in addition to the square footage listed in this table Source: Pinkowski & Company A 200,000 square foot expansion of the convention center is planned for the Myriad Resort. Expected to open by January 2013, the additional exhibit and prefunction space would allow the facility to capitalize on the increased awareness of the facility and enable the property to cater to more groups and/or multiple functions with less down time due to event set-up and tear-down. The additional function space would also allow the facility to create additional demand by hosting a variety of in-house events that would utilize the expanded function space. This function space should have features including: Ample storage and miscellaneous space Variety of breakout rooms/sizes and configurations Tiered lecture hall Latest high tech equipment and features Several board rooms Include some meeting facilities that meet IACC (International Association of Conference Centers) standards such as: o Purpose built for smaller meetings with dedicated, single purpose conference space o Designed to maximize the productivity of smaller meetings o Specially engineered, designed and furnished with ergonomic chairs, tables with a non-glare, hard writing surface, appropriate lighting and acoustics, tackable wall surfaces, etc. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 35 o Offer and promote complete meeting packages o Dedicated conference services department Guest Rooms and Suites According to the space allocation program, each guest bay will contain 600 square feet. Guest room configuration included in the space allocation program provided by the developer for the proposed hotel is illustrated in the following table: TUNICA, MISSISSIPPI MYRIAD PALACE HOTEL ROOM CONFIGURATION Number of Room Type Bays Rooms King 349 349 Double/Double 348 348 Executive Suite 180 90 Deluxe Suite 600 400 Hospitality Suite 21 7 Presidential Suite 4 1 Governor Suite 20 4 Club Lounge 8 1 Total 1,530 1,200 Source: Pinkowski & Company; Space Allocation Program Following our review and analysis of the competitive marketplace, our discussions with those responsible for the sales and marketing efforts for the proposed property and the type of demand we anticipate the facility to capture, we recommend the following revised guest room configuration for the proposed hotel: TUNICA, MISSISSIPPI MYRIAD PALACE HOTEL ROOM CONFIGURATION Room Type Rooms Double Queen 840 Multi-bedroom Suites 120 Junior Suites 120 Kings 120 Total 1,200 Source: Pinkowski & Company; Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 36 Future expansion plans for the development include another 2,000 room convention hotel, the Bayou Cove Hotel, to be located adjacent to the 1,200 room hotel structure. The timing of this proposed development is not known at the present time and will be dependent on the level of success of the original hotels. Food and Beverage Facilities The hotel and convention center will include the following food and beverage outlets that have been identified in the space allocation program provided by the developer: TUNICA, MISSISSIPPI MYRIAD BOTANICAL RESORT RESTARUANT & LOUNGE SEATING CAPACITY Outlet # of Seats Coffee Express 150 3 Meal Restaurant 300 Specialty Restaurant 200 Theme Restaurant 150 Pool Snack Bar 35 Total 835 Lobby Lounge 200 Bar/Lounge 150 Entertainment Lounge 175 Total 525 Source: Pinkowski & Company; Space Allocation Program LUCID-An Entertainment Venue Also included in the hotel will be LUCID, a 25,000 square foot world class music and entertainment venue playing host to parties and events. LUCID will be a full service entertainment complex that will be identified as the definitive venue for corporate and business use by day including product launches and corporate entertainment. By night it will be a revolutionary night club showcasing the latest in audiovisual technology, Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 37 digitized media and artistic performance. LUCID will have three different public spaces and two distinctly different function rooms offering different styles of presentation and entertainment. The design of the facility should allow for separation of guests so there will be limited distraction from the various entertainment activities for meeting guests and event attendees. Flexible Accommodations The hotel will offer several different room types that can accommodate families and groups. The property also will offer an upscale executive level catering to upscale clientele seeking premium lodging accommodations in the market. The flexibility of the proposed guest room design and layout should enable the hotel to sell to various customers in a variety of market segments and price levels. Because the property will be a high rise hotel catering to a mix of convention and leisure demand, the design of the facility will be a critical factor for its success. Maintaining a distinction and physical separation between leisure family business and group meeting demand will be very important. In addition, the property will offer the following advantages in attracting room night demand: Unique themed destination resort State of the art spa and fitness center Wide variety of year round attractions Upscale retail shopping Award winning restaurants Variety of room types that can accommodate families and groups Flexible technologically advanced meeting space ECONOMIC RESEARCH ASSOCIATES Myriad World Resorts of Tunica, LLC commissioned Economic Research Associates (ERA) to prepare an analysis of the proposed Myriad Botanical Resort planned for Tunica, Mississippi. The analysis is to be prepared in several phases, two of which have already been completed. The Phase I analysis – Myriad Botanical Resort Preliminary Market Analysis, the Final Report – Case Studies of Tourist Destination Areas, Volume III Myriad Botanical Resorts-Profiles of Attractions and Project Report-Market Analysis for Myriad Casino & Hotel have been incorporated into our analysis for the hotel and convention center. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 38 Phase I was a preliminary evaluation and market assessment of the Tunica market area. In the initial phase of the project, ERA traveled to Tunica to study the area's current visitor market and existing resorts and attractions. In the second phase of the analysis, ERA reviewed selected case studies of tourist destinations. The case studies reviewed represented key examples of destination tourism development in the U. S. The case studies reviewed included: Branson, Missouri Myrtle Beach, South Carolina Wisconsin Dells, Wisconsin Gatlinburg/Pigeon Forge, Tennessee Nashville, Tennessee Atlantic City, New Jersey Gulf Coast, Mississippi The following data recaps the ERA findings of their analysis by phase: Phase I Key Findings-Myriad Botanical Resort Preliminary Market Analysis In the past 13 years, Tunica County has transformed from one of the poorest counties in the United States to a $1.5 billion gaming destination that attracts over 10 million visitors annually. The current market is mature, with the rapid growth of the 1990's replaced by a stabilization of revenue generation and visitation. The past few years have seen small declines in revenue and visitation. Consolidation within the gaming industry has concentrated ownership of the existing properties with Harrah's owning three properties overall and the top two revenue generating properties in the market. The county tax windfall generated by the gaming revenues was initially invested in infrastructure improvements to better support the growing number of casino patrons driving into the area. These improvements further cemented the casinos' dominance in the area. The market is dominated by day trip visitors to the casinos (70 percent – 80 percent) and Tunica is currently not perceived as an attraction or entertainment destination. More recently, tax revenues have been invested in new attractions and meeting facilities. However, these venues have not significantly expanded the typical visitor profile or extended the visitors' length of stay. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 39 With current visitation above 10 million, a primary resident population (50 mile radius) of over 1.2 million, and a 400 mile drive-in population of almost 48 million, Tunica is positioned well to draw a broader visitor base with new high quality attractions that can differentiate their product relative to the current successful casino hotel program. Myriad's effort to expand Tunica's destination appeal beyond gaming will benefit from the area's current visitation. Scheduled infrastructure improvements will make the area more accessible. Other major gaming destinations have successfully diversified beyond gaming and introduced casino patrons to new amenities and attractions that extended their length of stay and expanded the resorts revenue opportunities. Currently, Las Vegas' gaming revenues account for less than 50 percent of overall revenues. A significant challenge to a resort of Myriad's scale may be competition from reinvestment and expansion by the current properties. Final Report-Case Studies of Tourist Destinations A review of selected case studies of tourist destinations that represented key examples of destination tourist developments in the U.S. Many of the destinations have common success factors which were reviewed, and which have application for the future development of Tunica as a destination. Five regional tourist destinations and two gaming based projects were reviewed. The seven markets were: • Branson, Missouri • Myrtle Beach, South Carolina • Wisconsin Dells, Wisconsin • Gatlinburg/Pigeon Forge, Tennessee • Nashville, Tennessee • Atlantic City, New Jersey • Gulf Coast, Mississippi Based on the review of the selected case studies of tourism development, ERA concluded that the markets studied have many similarities in their growth as successful tourist destinations. Implications for Tunica – As indicated in Phase I of the ERA research, ERA stated that while it is difficult to predict, it appears that Tunica may be progressing from the rapid growth to maturation stage of the destination development cycle. If this is the case, one Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 40 means for revitalizing the market and sustaining growth would be through reinvestment into new and diverse products. Based on the observations and analysis of the Tunica market combined with the case studies included in Phase II of their analysis, the following components are needed for the success of the market: Improved infrastructure including road access from Memphis and the airport (this currently is underway) An opportunity to diversify the product offering beyond gaming An opportunity to move upmarket in the gaming and hospitality offering A need for expansion of the overnight market A need to expand the younger age cohort market A need for a new product to broaden market appeal, extend drawing ability, and extend length of stay According to ERA's evaluation and analysis, the proposed Myriad Resort development appears, on a preliminary basis, to be generally in keeping with the needs of the market. This preliminary conclusion is based on the following factors: The proposed Myriad product mix appeals to the specific needs of the market expressed previously. The resort's attractions appeal to a broader market than that currently represented (golfers, young people, families, etc.). The proposed quality of the casinos in the project would draw more upmarket visitors. An integrated destination resort development incorporating attractions, retail and casinos would extend visitor length of stay by inducing overnight visitation. Such a resort should compete effectively with existing properties and gain a significant market share as well as attract new business to the area. The proposed Myriad resort is consistent with the nature of properties developed in other mature markets, which have met with success and served to revitalize tourism markets in the mature stage of the destination development cycle. Volume III-Myriad Botanical Resort-Profiles of Attractions ERA analyzed the proposed Myriad Botanical Resort planned for Tunica County considering the proposed elements of the resort. This review presented the history and background of the industries as well as case studies of prime examples for each major component. The widely varying components that comprise the Myriad Botanical Resort have been constructed and operated successfully in different capacities around the Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 41 world. While they have never been combined in one locations nor integrated holistically as proposed in the Myriad design, each component has exemplary projects upon which lessons can be drawn. The elements and their industries that were examined as part of the Myriad Botanical Resort included: • Botanical Gardens • Observation Wheels and Towers • Snow Domes • Waterparks • Entertainment Retail Complexes • Luxury Spas • Family Entertainment Centers Project Report-Market Analysis for Myriad Casino & Hotel This ERA study provided specific market analysis for the proposed casino element of the project. The study addressed the following items: • Available markets and current status of the Tunica County gaming market • Comparable case studies of key developments added to existing gaming markets • Potential market growth and capture by the Myriad Casino element • Market potential assuming the development of additional resort elements The study focused on the market support and performance of the casino and casino hotel element of the resort project. According to ERA, the preliminary indications are that the Myriad project would be well suited to the needs of the Tunica market. The next steps would be a detailed analysis of the demand for individual project components (hospitality, casinos, attractions, etc.) and the development of a market driven program. This program should be tested economically in a subsequent phase of analysis. MARKET OVERVIEW The Preliminary Evaluation-Market Assessment prepared by ERA in August 2005 provided the basis for the following market overview for Tunica, Mississippi. Area History Tunica County is located in northwest Mississippi, 36 miles south of Memphis, Tennessee. Set along the Mississippi River, Tunica is located at the northernmost end of the "Delta Region" of the river in a wide floodplain protected by levies. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 42 Prior to 1992, Tunica County was one of the poorest counties in the United States. The local economy was largely defined by the agricultural production of cotton and soybeans and the few residents that lived in the county suffered from high unemployment. Tunica received national attention in 1985 when the television news magazine "60 Minutes" produced a segment on "Sugar Ditch," an impoverished area of Tunica County with dilapidated homes overlooking open sewers. In March of 1992, however, the Mississippi Gaming Commission approved the development of a riverboat casino, The Splash Casino, close to the town of Tunica. Soon after the opening of the Splash Casino in October of 1992 near Mhoon Landing, the county was quickly transformed by "The Tunica Miracle." The overwhelming success of the Splash Casino quickly attracted the attention of major gaming corporations and by August of 1994, eleven other casinos had opened. Competition and migration of the new casinos northward along the river to Robinsonville, closer to core day-trip casino patrons from nearby Memphis, forced some of the original casinos to close. Today, the county has nine casinos and is the third largest gaming destination in the US, based on gaming revenues, following Las Vegas, Nevada and Atlantic City, New Jersey. The introduction of gaming in Tunica County has resulted in the following economic impacts: Area investments of over $2 billion since 1992 Construction of some 6,000 hotel rooms along with convention facilities, golf courses, and RV parks Retail sales increases of more than 250 percent since 1992 (from $26.4 million in 1992 to $69.6 million in 2004) Lower unemployment -- from an average of 26 percent in 1992 to an average of 8 % in 2004 Gross gaming revenues of approximately $1.5 billion in 2004 Increases in tourism with an estimated 10 million annual visitors and 25 million casino visits Growth in the Tunica County budget -- from $3.5 million in 1992 to $69.9 million in 2004 Area Description Tunica County is located along the Mississippi River in northwest Mississippi and has a population of approximately 10,000 residents. The nearest city with a population greater than 20,000 is Memphis, Tennessee, with a city population of approximately 672,000 and 1.2 million in the greater Memphis metropolitan area, according to the 2000 US Census. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 43 Area Access Currently the most common access to Tunica County is via US Highway 61 south from Memphis. While this highway has been improved and expanded since the introduction of casinos to Tunica County in 1992, visitors still drive through the blighted, low- income area of South Memphis and face approximately 15 traffic lights along the route to Tunica. Memphis is located approximately 36 miles north of Tunica, providing for a total drive time from Memphis to the casino destinations in Tunica of approximately 40 minutes. With the development of Interstate 69, Tunica County will be connected to Interstate 55, the principal interstate connecting Chicago, Illinois to New Orleans, Louisiana By connecting Tunica to Memphis via the interstate system: Total drive time from Memphis will be reduced to about 25-30 minutes The route should be perceived as safer The expected completion of the I-69 connection to I-55 is early October 2006. The closest commercial airport is the Memphis International Airport. There is public transportation between Memphis International Airport and Tunica County via the Tunica Shuttle and Unique Travel, which provides two-way transportation between the Tunica County casino hotels and the airport. The Tunica airport recently has lengthened it runway to 7,700 ft. and added all weather landing support and communication systems. These two components support introduction of direct commercial flights to Tunica. However, the airport lacks a control tower and without the tower, airlines will not schedule flights into the uncontrolled air space in Tunica. The county is prepared to build the tower, but plans to secure assistance from the FAA to operate the tower prior to investing in tower construction. Resident Market Approximately 10,000 people live in Tunica County. Within 50 miles of Tunica, the population increases dramatically to 1.2 million with the addition of the Memphis market area. For a multi-attraction destination resort, the resident market segment typically extends beyond the immediate community to encompass an area within a one hour drive (approximately 50 miles in this region). Over one quarter of the population is 50 years or older and approximately 44% is between the ages of 21 and 49 years of age. Within this profile, 70 percent of the population is old enough to gamble. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 44 According to the "Survey of Buying Power", published by Sales and Marketing Management, 2004, the median effective buying income (EBI) for households in Tunica County is lower than the median for Memphis and the United States. EBI is a measurement of disposable income that is personal income less personal tax and non- tax payments. Because of the relatively small local resident market coupled with the relatively lower income levels, the Tunica area economy, and its resorts and attractions in particular, rely heavily on the visitor market. Visitor Market The visitor market provides the majority of casino, hotel and attraction patrons in Tunica County. Without a commercial airport, most Tunica visitors arrive by car or bus (almost 85 percent). Source Markets Tunica County is located centrally within the United States and has the opportunity to draw visitors from many regional cities and nearby states. Within 100 miles of the site, the population more than doubles to 2.45 million. Nashville, Atlanta, New Orleans and St. Louis are within 400 miles of the site as well as parts of Oklahoma, Kansas, Missouri, Illinois, Indiana, Kentucky, Tennessee, Florida, Georgia, Alabama, Louisiana, and Texas. ERA estimates the population within a 400-mile radius to be almost 48 million and projects that the population will increase to almost 51 million by 2009. Because Tunica is currently a drive-in destination, the regional and super-regional markets encompassed within these rings are critical source markets for Tunica casinos, resorts, and attractions. With gaming as the dominant attraction in the area, the origins of casino patrons from within a 400 mile radius represent the current distribution source markets for the majority of visitors to Tunica today. Tennessee and Arkansas send the most visitors to the area, more than Mississippi, which has additional gaming centers in the southern part of the state. Illinois, Missouri, Alabama, and Oklahoma also are well represented among casino patrons. In a survey prepared for the Tunica Convention and Visitors Bureau by TNS that excluded Memphis residents, the top metropolitan area contributors to Tunica visitation are Nashville, Tennessee and Little Rock, Arkansas. Although Memphis residents were not included in the survey, 9 percent of visitors to North River Region casinos were visiting Memphis, which indicates that tourists to Memphis make trips to Tunica as well. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 45 Visitor Volume The Tunica Convention and Visitors Bureau estimates an annual visitor volume to Tunica County of over 10 million. This estimate was supported by estimates of casino operators that put the number of visitors at 30,000 per day (or 10.95 million annually). Of the 10+ million annual visitors, approximately 70 to 80 percent are on day trips. The casinos draw the overwhelming majority of visitation to the area. The Mississippi Gaming Commission estimates the total number of visits to casinos in the North River Region of Mississippi (primarily Tunica County's casinos, but including a casino south of Tunica in Lula, Mississippi) at approximately 25 million. While growth in casino visits have slowed in recent years, visitation is still increasing with a compound annual growth rate (CAGR) of 3.3 percent from approximately 22 million in 2000. With its position as primarily a drive-in market, Tunica did not suffer a significant drop in visitation following the events of 9/11. Visitation experienced a slight decrease in 2002, but has slowly risen since then. Visitor Seasonality Visitation to Tunica County does not seem to shown any significant seasonality. Casino patrons represent the majority of the areas visitors and based on the typical casino patron profile exhibit limited seasonality. In general, there are the fewest visitors in the last quarter of the year (October to December). The largest numbers of visitors patronize the casinos in the second and third quarters of each year. Visitor Characteristics Gambling is consistently the primary reason for visiting Tunica. In the first quarter of 2005, 72 percent of the respondents to the survey conduct by TNS of non-Memphis residents visitors stated that gambling was their primary purpose for their trip and a total of 95% of respondents considered gambling to be either their primary or secondary reason for visiting Tunica. Shopping, as a secondary reason for visiting Tunica, has increased from 5 percent in 2004 to 10 percent in 2005. According to the same survey results, fine dining comprised nearly one quarter of visitors' secondary purposes for visiting Tunica in the first 3 months of 2005. Also indicated by the survey, Tunica continues to attract new, first time visitors with 20 percent of visitors in 2005 being first time visitors. The majority of visitors, about 80 percent, are still repeat visitors. Repeat visitors have visited Tunica an average of 15 times over the last three years, which is approximately five trips per year. With the survey focused on non-Memphis residents, the majority of respondents in 2005 have stayed overnight (85 percent) with a trip average of about 2.6 nights. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 46 Consistent with the increasing average income of visitors to Tunica ($53.7 in 2003 to $57.4 in 2005), the average spending per trip has increased. The average expenditures per trip in Economics Research Associates Market Analysis – Myriad Entertainment 2003 were $471 and have increased over the past two years to $585 in 2005 (an increase of 24 percent). Gambling consistently has comprised the largest segment of expenditures. However, the percentage of expenditures for gambling has decreased in relation to food and beverage and shopping. Based on interviews with local casino hotel operators, an estimated 20 percent to 30 percent of all casino patrons stayed overnight. The inclination of visitors to stay overnight increases slightly the further south the casino visited is located. For example, the proportion of visitors that stay overnight at the casino cluster located furthest south along the river is larger than that at the cluster located furthest north. The Tunica market is still primarily a day-trip market, but has potential to develop into a more diversified attraction destination. Local Area Attractions Local attractions and activities offered in proximity to a destination help draw a greater number of attendees, increase the average party size via additional accompanying persons, and augment the average trip length. The primary attractions and activities in Tunica County include the nine casinos offering an array of gaming activities and live entertainment venues, three golf courses, fishing lakes, a retail outlet shopping center, an arena and exposition center, a heritage museum, a riverboat cruise and a river park. The factory outlet mall seems to have the greatest visitation compared to other local attractions in Tunica. Out of the survey respondents (non-Memphis residents), 84 percent are aware of the factory outlet mall and 23 percent have either shopped or have plans to visit the mall. Shopping has also increased as a secondary purpose for visiting Tunica. Tunica River Park and Tunica Queen Among other local attractions, the Tunica River Park is the next most highly visited. A $23 million complex, The River Park, is an attraction that was completed in 2003 and includes a 37,000 square foot interpretive center with an outdoor observation platform, harbor, dock facility, aquarium, walking trails and a 400-passenger riverboat offering river excursions. Almost 70 percent are aware of the River Park, but only 10 percent of which have visited or have plans to visit the Tunica River Park. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 47 Tunica Arena and Exposition Center In 2000, the $22 million Tunica Arena and Exposition Center opened specifically to accommodate rodeos, livestock shows and trade shows and went through a $4 million expansion in 2002. The arena is the largest indoor arena in Mississippi with 48,000 square feet of arena/exhibition space on the arena floor and a seating capacity of over 5,000, including 14 luxury skyboxes. The expo center also is used for conventions such as the South Central Manufactured Home Show, which draws approximately 2,000 people. Casino Hotel Operations Since the advent of gaming in Tunica County in 1992, three general areas of casino development have appeared. The first area, situated the farthest north, consists of the Grand Casino, which is currently the largest casino hotel in Tunica. The Grand Casino currently operates 1,356 rooms and has 136,000 square feet of gaming space. The second area of casinos is located on Casino Center Drive and consists of three casinos: the Gold Strike Casino Resort, the Horseshoe Casino and Hotel, and the Sheraton Casino Tunica. The Gold Strike is one of the largest casino hotels in Tunica with almost 1,200 rooms. The Horseshoe also has a high profile hotel with 506 rooms and a relatively new entertainment venue, Bluesville. The Sheraton Casino Hotel is slightly older and smaller with 130 rooms. The Bally's Casino and Hotel is located by itself just north of the Casino Center area and is a smaller property with the casino and 240-room hotel separated by the levy. The Fitzgerald's Casino and Hotel is also in an isolated location. The third area is the Casino Strip with the Resorts Tunica (formerly Harrah's Casino) with 200 rooms, Sam's Town with 1,076 rooms and the Hollywood Casino, with almost 500 rooms. This area of casino hotels is situated south and further west from Highway 61, making it slightly less accessible compared to the other two clusters. The revenues generated by the nine area casinos are not evenly distributed. The top 4 casinos generate an estimated 70 percent of the gaming revenues in Tunica County. The top two revenue-generating casinos, The Grand Casino and The Horseshoe, are owned and operated by Harrah's which, after the merger with Caesars, will own 39 casinos around the United States. The Gold Strike, the third largest revenue generator, is owned by MGMMirage, which owns 26 gaming facilities, 21 of which are located in Las Vegas, Nevada, the largest gaming destination in the US. The fourth largest revenue generator in Tunica is Hollywood, which is owned by Penn National, which owns eight gaming facilities across the nation. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 48 NEW DEVELOPMENT At the present time, there are two projects under consideration that may have an impact on the Tunica market area. Both of these projects are in the early stages of development either or both of them may be developed in the future. Due to the preliminary nature of these projects we have not included in our future supply and demand analysis. The following paragraphs briefly describe each of these projects. Paradise Cove at Mhoon Landing – A 256 acre riverfront and gaming development located at Mhoon Landing in Tunica County, this project includes up to five casinos with on-site hotels, a boardwalk, entertainment venues including a 4,000 seat performing arts center, golf course, waterpark, amphitheater, an upscale retail mall and restaurant services. Riverbend Crossing – Located in DeSoto County at the Tunica County line and US Highway 61, this 4,500 acre proposed development has received local planning commission approval and a variety of financial incentives provided by the state. The proposed $3 billion development would include 6,750 single family homes, 2,750 multi-family housing unites, a 300 acre technology/light industrial park, 200 acre MGM entertainment district, three hotels four golf courses and a 600 acre lake. It is expected to take 12 to 15 years to complete and would provide more than 12,000 permanent jobs when completed. MegaSite - The Tunica Economic Development Foundation and the Tunica County Chamber of Commerce are spearheading an effort to develop the Tunica Metro Mega Site. Located at the intersection of Highway 304 and US Highway 61 in Tunica, this 2,650 acre site is being promoted as a single use tenant site such as an automobile manufacturing facility. COMPARABLE SUPPLY AND DEMAND The comparable supply for the proposed Myriad Palace Hotel and the Mississippi Blossoms Convention Center consist of a variety of properties located throughout the southeast United States. Each of these properties may be competitive for a portion of the demand that could be captured by the proposed hotel, but may not be directly competitive for, or comparable with each other or for all segments of the demand identified. These properties represent a sampling of the hotels that would be expected to compete for the same type and sources of demand that the proposed hotel is anticipated to capture. These categories of demand are: Group – Corporate group, association, local social and SMERF related demand utilizing meeting and banquet space; primarily local and regional in scope Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 49 Tourist/Leisure – Demand not included in commercial or group demand segments that is specifically identified with the entertainment facilities at the resort, area casinos or other leisure activities in the area Comparable Supply The hotels identified are a small sampling of the national market for the proposed Myriad development. The overall competitive market for the proposed hotel and convention center is identified later in this report. The hotels listed below provide a good indication of the type of properties, size, facilities and overall performance levels that are potentially achievable by the proposed project. The seven properties identified as comparable for the proposed Myriad Palace Hotel and the Mississippi Blossoms Convention Center include: Marriott Orlando World Center – Orlando, Florida Hilton Atlanta & Towers – Atlanta, Georgia Hilton Hotel (Wyndham Anatole) – Dallas, Texas Westin Peachtree Center – Atlanta, Georgia Sheraton Hotel Walt Disney World Dolphin – Lake Buena Vista, Florida Gaylord Palms Resort Convention Center – Kissimmee, Florida Gaylord Texan Resort & Convention Center – Grapevine, Texas The properties located in Tunica have not been included in the comparable supply due to their primary sources of demand, dependence on casino related demand, quality of facilities and the relatively limited amount of available function space at these hotels. The following table summarizes these comparable hotels: Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 50 TUNICA, MISSISSIPPI MYRIAD PALACE HOTEL NON-CASINO COMPARABLE PROPERTY PROFILE Hilton Marriott Gaylord Gaylord Hilton Westin Sheraton Anatole Orlando Palms Texan Atlanta Peachtree Dolphin Dallas WorldCenter Orlando Grapevine Towers Atlanta Orlando # Of Rooms 1,609 2,000 1,406 1,511 1,226 1,068 1,509 Year Opened 1979 1986 2002 2004 1976 1976 1990 FACILITIES AVAILABLE Total Meeting Space (square feet) 341,000 350,000 400,000 400,000 105,278 71,000 329,000 Square Foot per Guest Room 212 175 284 265 86 66 218 Largest Ballroom 73,000 39,506 46,748 49,025 18,570 15,121 54,238 Largest Exhibit Space 128,000 105,000 178,500 179,520 41,000 0 110,500 2006 PUBLISHED RATES Single/Double $129-219 $219-329 $199-439 $159-269 $99-374 $105-385 $339-499 Marriott WorldCenter adding meeting space of approximately 150,000, included in current total Source: Property Management, Pinkowski & Company The comparable supply for the proposed hotel and conference center includes: Hilton Anatole – Located in Dallas, this 1,609 room property features about 341,000 square feet of meeting space, several restaurants and lounges, two indoor and one outdoor pool, tennis courts, access to the nearby 80,000 Veranda Club and Spa. The property was recently purchased by Hilton and will be renamed the Hilton Anatole. Marriott Orlando WorldCenter – This 2,000 room property contains approximately 214,000 square feet of meeting space, ten restaurants and lounges, spa and fitness center, four outdoor swimming pools including a 600,000 gallon feature pool, tennis and volleyball, and an on-site golf course. A current addition is planned that would increase the total meeting space to about 350,000 square feet and will include a 105,000 square foot multi-use ballroom. Gaylord Palms – Part of the Gaylord family of three properties, this resort and convention center reflects the geographical heritage of Florida with regional themes and attractions that have been designed for this location. This 1,406 room property contains about 400,000 square feet of meeting space, seven restaurants and lounges, a 20,000 square foot Canyon Ranch Spa and fitness center, two outdoor pools, a variety of retail outlets and access to a nearby golf course. Gaylord Texan – Like the Gaylord Palms, this facility is designed to reflect the geographical heritage of Texas with a regional theme. The 1,511 room Gaylord Texan Resort features approximately 400,000 square feet of meeting space, six restaurants and lounges, a 25,000 square foot spa and fitness center, outdoor Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 51 pool, available golf and marina facilities and an 80,000 square foot outdoor event lawn. Hilton Atlanta Towers – This 1,226 room property is located in downtown Atlanta and features about 105,278 square feet of meeting space, fitness center, indoor pool and several restaurants and lounges. Westin Peachtree – Located in downtown Atlanta, this 1,068 room property features about 71,000 square feet of meeting space, indoor and outdoor pools, fitness center and health club, and access to nearby golf and tennis facilities. Sheraton Dolphin – Located in the heart of the Walt Disney World Resort, this 1,509 room property offers about 329,000 square feet of meeting space, 17 onsite restaurants and lounges, five pools, a variety of retail outlets, four tennis courts and a spa and fitness center. Historical and Current Demand Characteristics According to Smith Travel Research, The U.S. lodging market has experienced a 1.6 percent increase in occupancy, a 6.8 percent increase in average rate and a 8.5 percent increase in RevPAR through the end of July 2006 compared to the same period in 2005. During this period, room supply has increased 0.3 percent while room demand is up 1.9 percent. Room occupancy for the U.S. lodging market for 2005 was up 2.9 percent to 63.1 percent compared to 2004, while average daily rates were up 5.3 percent to $90.84. For the year, the total room supply was up 0.4 percent while rooms occupied are up 3.5 percent. Although the national data has shown consistent decline since 2001, the year of the terrorist bombings, the lodging industry has begun to experience a turnaround in late 2003, 2004 and through 2005. The conventional wisdom is that this demand should continue to recover through 2006. It should be noted that these data reflect the national lodging market taken as a whole, and there are considerable variations from market to market. The following table shows data for the U.S. lodging industry on an annualized basis from 1993 through July 2006. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 52 U.S. LODDGING INDUSTRY ANNUALIZED DATA 1993-2005 Average RevPAR Year Occupancy Daily Rate RevPAR Change YTD 7/31/06 64.7% $96.74 $62.57 8.5% YTD 7/31/05 63.7% $90.55 $57.66 n/a 2005 63.1% $90.84 $57.34 8.4% 2004 61.3% $86.26 $52.88 7.8% 2003 59.2% $83.28 $49.34 0.2% 2002 59.0% $83.19 $49.04 -2.6% 2001 59.8% $84.45 $50.52 -7.1% 2000 63.5% $85.24 $54.13 5.5% 1999 63.1% $81.29 $51.29 2.7% 1998 63.9% $78.15 $49.94 5.3% 1997 64.5% $73.52 $47.42 3.8% 1996 65.7% $69.56 $45.70 4.2% 1995 65.1% $67.34 $43.84 5.5% 1994 64.7% $64.24 $41.56 7.0% 1993 63.7% $60.99 $38.85 - Source: Pinkowski & Company; Smith Travel Research TUNICA LODGING MARKET The local lodging market in Tunica consists of a variety of full service and limited service facilities. These properties range from small, independent limited service facilities to large full service casino oriented properties. According to Smith Travel Research, there are 20 properties with 6,184 room located in Tunica County. These properties range in size from 19 rooms to 1,200 rooms. The following table identifies the properties located in Tunica County, the number of rooms and year open: Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 53 TUNICA, MISSISSIPPI HOTEL ROOM SUPPLY Property # Rooms Year Open Casino Hotels Gold Strike Casino Resort 1,200 1997 Sams Town Hotel 843 1994 Grand Terrace Hotel & Spa 600 1999 Grand Veranda Hotel 568 1997 Fitzgerald Hotel & Casino 507 1996 Horseshoe Casino & Hotel 507 1995 Hollywood Hotel & Casino 506 1994 Hilton Bally's Saloon 239 1993 Harrah's Robinsonville 200 1996 Grand Casino Hotel 188 1996 Sheraton Hotel & Casino 140 1997 Total Casino Hotel Rooms 5,498 Non Casino Hotels Americas Best Inn 106 1993 Microtel Inn & Suites 102 u/c Americas Best Value Inn 100 1995 Treasure Town Inn 88 n/a Best Western 80 1994 Delta Plantation Inn 80 1994 Kings Inn 67 1994 Key West Inn 44 1995 Cottage Inn 19 n/a Total Non Casino Hotel Rooms 686 Source: Pinkowski & Company; Smith Travel Research The following table contains the historical performance of the Tunica lodging market from October 1999 through May 2006 per data provided by the Tunica Convention and Visitors Bureau: TUNICA, MISSISSIPPI LODGING MARKET PERFORMANCE 10/1999 to 10/2000 to 10/2001 to 10/2002 to 10/2003 to 10/2004 to 10/2005 to 09/2000 09/2001 09/2002 09/2003 09/2004 09/2005 5/2006 Occupancy 88.70% 88.80% 84.80% 84.10% 84.20% 82.30% 81.40% Average Rate $56.21 $53.20 $53.23 $51.49 $52.84 $54.63 $58.32 Source: Tunica Convention & Visitors Bureau; Pinkowski & Company The performance of the local lodging market in Tunica is influenced heavily by the casino hotels and the type and timing of the demand accommodated in the market. As Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 54 a result of the discounting and casino comp related demand, average rates achieved in the local market have remained low while occupancy levels have remained high. For the purposes of this study, we have identified the previously listed seven hotels that are considered comparable with the proposed hotel and convention center based on the facilities offered and the type of demand captured. These hotels are located in Dallas, Orlando and Atlanta and offer facilities, amenities or locations that represent the type of property and facilities that the proposed Tunica facility would compete with for group demand. The following paragraphs and tables contain information relating to the performance of these properties. Data available from Smith Travel Research (STR) provides the basis for the operating performance of these comparable properties. This data is presented in the following table: MYRIAD BOTANICAL RESORT COMPARABLE LODGING MARKET HISTORICAL PERFORMANCE Occupancy Average Daily Room Year % Rate REVPAR Supply Demand Revenue 2005 67.8% $155.06 $105.13 10,329 7,005 $1,086,195 2004 65.6% $147.44 $96.72 9,900 6,495 $957,623 2003 61.5% $150.35 $92.47 8,777 5,402 $812,191 2002 63.8% $155.43 $99.16 8,818 5,630 $875,071 2001 62.3% $154.07 $95.99 7,412 4,618 $711,495 2000 71.2% $154.68 $110.13 7,206 5,132 $793,818 CAG -1.0% 0.0% -0.9% 7.5% 6.4% 6.5% YTD 7/31/2006 75.2% $164.39 $123.62 10,329 7,766 $1,276,653 YTD 7/31/2005 70.5% $156.96 $110.66 10,329 7,283 $1,143,140 Growth 6.7% 4.7% 11.7% 0.0% 6.6% 11.7% CAG = Compound Annual Growth Source: Smith Travel Research, Pinkowski & Company The historical market performance summarized in the preceding table indicates a dramatic decline in occupancy from 2000 through 2003. According to STR, year end occupancy for 2002 for the competitive supply is down almost ten occupancy points from the performance achieved in 2000. This decline is a result of a combination of factors including the economic slowdown and the terrorists attacks in September 2001. From 2000 to 2005 the supply increased 7.4 percent annually while demand increased only 6.4 percent annually. Average rates in the competitive market remained relatively flat between 2000 and 2003 before declining in 2004. The drop in average rate reflects the increased competitive nature of the market and the impact of new rooms entering Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 55 the market during this period. Average rates increased 5.2 percent in 2005, reflecting the continuing improvement is occupancy and more aggressive sales and marketing efforts. Year to date occupancy in the competitive market has increased 6.7 percent from 70.5 percent to 75.2 percent reflecting the continuing increase in demand and the renewed strength of the group meetings market. Year to date, demand is up 6.6 percent with no increase in supply during the year. Average rates have increased 4.7 percent for the year to date period, continuing a trend in strong rate increases in 2005 and reflecting the increased pricing power in the market. The preceding table summarizes the performance of the seven comparable properties which offer similar facilities and cater to the same major sources of demand as the proposed property. These properties represent a sampling of the type, quality, size and location of the primary competition for the proposed hotel and convention center to be included as part of the Myriad Botanical Resort development. The performance of these hotels offers a significant insight on the projected occupancy and average daily rate estimate for the proposed hotel. The following table summarizes the breakdown of the weekday/weekend performance of the comparable lodging market. Weekdays are defined as Sunday through Thursday. Weekends are Friday and Saturday. MYRIAD BOTANICAL RESORT COMPARABLE LODGING MARKET HISTORICAL PERFORMANCE WEEKDAY / WEEKEND COMPARISON Weekday Weekend Year Occupancy Average Rate Revpar Occupancy Average Rate Revpar 2005 67.6% $156.86 $106.07 68.3% $150.64 $102.88 2004 65.2% $150.14 $97.94 66.5% $140.86 $93.73 2003 61.7% $153.53 $94.72 61.2% $142.30 $87.04 2002 63.6% $158.54 $100.87 64.4% $147.70 $95.10 CAG 2.1% -0.4% 1.7% 2.0% 0.7% 2.7% YTD 7/31/2006 75.8% $164.98 $125.06 73.6% $162.84 $119.91 YTD 7/31/2005 70.3% $158.95 $111.82 70.9% $152.06 $107.81 % Change 7.8% 3.8% 11.8% 3.8% 7.1% 11.2% Source: Smith Travel Research; Pinkowski & Company While there is little difference in weekday and weekend occupancies, the average rate is higher for the weekday period reflecting the discounting required and the type of business accommodated during the weekend period. Average rates have experienced a Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 56 drop for both the weekday and weekend segments while occupancies have increased for both segments. Year to date, the weekend occupancy levels has increased 3.8 percent compared to 7.8 percent for the weekday level. Average rates have increased 7.1 percent for the weekend demand versus 3.8 percent for the weekday period. The performance of the properties included in the previous table reflects the influence of group and leisure demand and the limited strength of the commercial demand at these selected hotels. Unlike the subject property, several of these hotels do not have the entertainment component to capture substantial amounts of tourist demand. These particular hotels offset this by capturing commercial demand due to their locations and market orientation. Because of the substantial entertainment feature, the proposed hotel will be able to capture a large portion of leisure demand at a rate premium, especially during weekends and holiday periods throughout the year. As a result, the proposed hotel will have a higher weekend average rate and occupancy compared to the weekday average rate. CONVENTION AND MEETINGS INDUSTRY OVERVIEW In order to provide an understanding of market growth and the factors that are shaping the future of the meeting and event industries, this section provides a current overview of trends and developments that are impacting meeting and convention facilities, and this should be reviewed in context with the proposed project in Tunica. Conventions, exhibitions, and trade shows are conducted for the purposes of exchanging information, conducting business transactions, and for educational, cultural, and social enrichment. The increasing need to carry out these purposes is driving the growth of the meetings industry. As developments occur in the larger economy, simultaneous developments occur in the meetings market. Number of Events The following table shows the growth in the number of events, net square feet used, exhibiting companies, and attendees by decade, from 1972 through 2004. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 57 Average Annual Growth in Convention Industry by Decade 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% 1972 - 1979 1980 - 1989 1990 - 1999 2000 - 2004 Net Square Feet of Paid Exhibit Space Number of Exhibiting Companies Attendees As the preceding table shows, annual average demand increased at significant levels through the 1970s and 1980s. The first Gulf War and short recession tempered growth at the beginning of the 1990s, but the decade still showed strong year-over-year growth of 4 percent in every category. The industry showed its first serious negative change in demand as a result of the dot-com bust, economic recession in the US and abroad, and the travel depression following 9/11. Supply and Demand for Exhibit Space As the following table shows, while the impact on demand was real, there appears to be a return to growth, with a noticeable rebound in attendee traffic. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 58 Growth in Convention Industry Demand 700 600 500 Index 400 300 200 100 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 Source: Tradeshow Week, Johnson Net Square Feet of Paid Exhibit Space Number of Exhibiting Companies Attendees C lti As shown, long-term demand trends show a greater need for space with fewer companies and attendees. This has been a trend since the 1970's as companies continue to merge (limiting growth in the number of companies in any given industry) and there is continuing pressure on doing more with fewer employees. Where an entire sales force might have been dispatched to several conventions in decades past, now it is expected that a handful of people will represent a company at a convention or tradeshow. Yet, these trends have not stopped growth in attendance. The following table shows the comparison of supply and demand annual growth beginning in 1987. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 59 Exhibit Space Supply & Demand 190 180 170 160 150 Index 140 130 120 110 100 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: Tradeshow Week Exhibit Space Supply Growth Net Square Feet of Paid Exhibit Space The figure shows a very compelling and rational picture of supply growth in response to demand growth. From 1987 to 1989, demand outpaced supply. By the time supply caught up, a recession was on and it took until 1996 for demand growth to catch up to supply. What is stunning is the rate of growth in demand from 1993 through 2000, with an average increase of 5.1 percent. Supply stagnated during much of this period. By the mid-1990s, cities saw that there was economic impact to be had by capturing growth that was not being adequately captured. Plans were put into place and new facilities and expansions began opening with force in 2000 – just as a recession was about to begin. With the long time horizon for developing facilities, the increase in supply continued unabated through 2004, as long-held plans were finally brought to fruition. Projections for future supply growth show a tempered situation. The following table displays this data, according to Trade Show Week's Major Exhibit Hall Directory. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 60 Projected Additional Exhibit Space in North America 3,500,000 3,000,000 SF of Exhibit Space 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 2004-05 2005-06 2006-2007 2007+ New Facilities 730,300 278,700 750,000 280,000 Expansions 826,200 675,900 442,000 2,776,400 Source: Major Exhibit Hall Directory, Johnson Consulting As the previous table shows, more than 1.5 million square feet of new and expanded exhibit and meeting space are expected to be added between August 2004 and July 2005. The 2005-2006 fiscal year will see a smaller amount of new facilities with 279,000 square feet and 675,900 square feet of expansions. The vast majority of expansions and new facilities are to be US facilities, as approximately 85 percent of the exhibition market is in the US. It should be noted that some of the projected additions are in various stages of planning – such as feasibility study, design, and construction. Some of the proposed facilities are only being studied and may not actually be developed. Ownership and Management Demand for meeting and exhibition space allowed many communities in the United States to develop successful convention and trade show facilities during the 1970s and 1980s. Public sector involvement in these developments was motivated primarily by the desire to capture the economic benefits of the events they accommodate in their communities. The following table summarizes the ownership and management structure of US-based exhibit halls. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 61 Ownership and Management of US Exhibit Halls Type of Entity Ownership Management Private 36% 58% City 34% 22% County 10% 5% State 8% 5% Combination Government 5% 2% Non-Profit Organization 0% 0% Other 5% 8% Source: Tradeshow Week - Major Exhibit Hall Directory, Johnson Consulting As the table shows, approximately one-third of US exhibition halls are privately owned, but almost 60 percent are operated by a private management company. Public ownership of exhibit hall facilities often occurs because they usually do not generate profits to an owner, but the public sector will take ownership as a service in order to capture the related economic benefits within its jurisdiction. Private management is common because, unlike governments, these companies have professional expertise in managing and operating facilities, and often have longstanding relationships with vendors, suppliers, and other industry organizations. In addition, a private management company's experience and efficiency can help insulate a facility's operations from political issues and can help to reduce annual deficits as much as possible. PricewaterhouseCoopers (PwC) has conducted an annual survey for the past 20 years of event characteristics at convention centers throughout the U.S. The survey may not be representative of the entire industry as an indeterminate number of convention centers responded to the survey and results may not mitigate potential regional trends. However, results of the survey are presented by size of facility and are useful in outlining differences in trends between small, mid, and large convention facilities. In terms of PwC survey responses small convention centers are defined as having less than 100,000 square feet of exhibit space, mid-sized 100,000 to 500,000 square feet of exhibit space, and large as having greater than 500,000 square feet of exhibit space. The following table presents the percentage of survey respondents by type of management utilized by their convention facility. Convention Center Management Type Quasi-Public Dept. of Private Size Conv. Center Municipal Other Total Company Auth. Government Less than 100,000 square feet 24% 28% 36% 12% 100% 100,000 to 500,000 square feet 38% 11% 35% 16% 100% More than 500,000 square feet 29% 36% 36% 0% 100% Source: PricewaterhouseCoopers Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 62 In terms of survey respondents, small convention centers are primarily managed as a department of a municipal government at 36 percent with private management companies and quasi-public authorities managing an approximate equal portion of the remaining respondents at 24 percent and 28 percent, respectively. Mid-sized convention center respondents were primarily managed by private companies at 38 percent, with management through a department of municipal government followed closely at 35 percent. Large convention facility respondents were equally divided at 36 percent each between a department of a municipal government and a quasi-public authority, with the remaining, at 29 percent, being managed by private companies. Management by public or quasi-public organizations by far out paced private management; however, private management has captured a considerable portion of the mid-sized convention center market. Exhibit Hall Utilization Exhibit hall occupancy can be difficult to measure as it is impossible to have 100 percent occupancy due to days required for set-up and tear-down. As defined by PwC, a maximum occupancy rate for an exhibit hall would be approximately 70 percent; however, 50 percent to 60 percent occupancy is considered to be an efficient range of occupancy. Rates below 50 percent would indicate the potential for increased marketing of the facility, with occupancy of more than 60 percent possibly indicating an increased number of lost business due to insufficient available dates. The following table presents the occupancy rates, by exhibit hall size for respondents to the PwC survey. Exhibit Hall and Ballroom Occupancy Rates Conventions / Consumer Total Ex. Hall Size Ballroom Trade Shows Shows Occupancy Less than 100,000 square feet 19.0% 16.7% 35.7% 40.3% 100,000 to 500,000 square feet 22.0% 14.9% 36.9% 45.5% More than 500,000 square feet 44.5% 8.5% 53.0% 52.1% Source: PricewaterhouseCoopers Based on the PwC benchmarks, only large size convention center respondents are within the range determined to be efficient with 53.0 percent. Small to mid-sized convention centers fared better in terms of occupancy rates for consumer shows at approximately 15 percent versus nine percent for large convention centers. Interestingly, ballroom occupancy rates for small and mid-sized convention centers were considerably higher, approximately five to ten percent, than that of their exhibit halls. Ballroom occupancy for large convention centers is fairly close to total exhibit hall occupancy at 52.1 percent versus 53 percent. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 63 The following tables present information on the total attendance, number of events, and average attendance of events held at the convention centers of the PwC survey respondents. This table presents total attendance for convention/trade shows and consumer shows events. Exhibit Hall Attendance Conventions / Consumer Size Total Trade Shows Shows Less than 100,000 square feet 53,000 82,000 135,000 100,000 to 500,000 square feet 173,000 286,000 459,000 More than 500,000 square feet 645,000 383,000 1,028,000 Source: PricewaterhouseCoopers As shown by the table, small and mid-size convention centers generate a higher portion of their total attendance from consumer shows versus convention and trade shows. Conversely, the majority of attendance for large convention centers is generated from conventions and trade shows. In terms of attendance, small and mid-sized convention centers have been more successful and generated higher demand from their consumer show events. The next table displays the number of convention/trade show and consumer show events hosted by survey respondents. Exhibit Hall Number of Events Conventions / Consumer Size Total Trade Shows Shows Less than 100,000 square feet 33 23 56 100,000 to 500,000 square feet 43 26 69 More than 500,000 square feet 49 21 70 Source: PricewaterhouseCoopers All three convention center size respondents receive the majority of their demand from conventions and trade shows. Large convention centers have a higher percentage of convention and trade shows as a percent of their total exhibit hall business at approximately 70 percent versus approximately 62 percent and 60 percent for mid-size and small convention centers, respectively. When compared with large convention centers, small and mid-size convention centers draw larger crowds for consumer shows even with a fewer number of events than conventions and trade shows. This relationship is further shown in the following table: Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 64 Exhibit Hall Events - Average Attendance Conventions / Consumer Size Trade Shows Shows Less than 100,000 square feet 1,606 3,565 100,000 to 500,000 square feet 4,023 11,000 More than 500,000 square feet 13,163 18,238 Source: PricewaterhouseCoopers As described previously, small and mid-size convention centers host more convention and trade show events, but receive more total attendees from consumer shows, as is more clearly evident by average attendance for type of event as displayed in the table. Both small and mid-size convention centers have almost three times as higher average attendance for consumer show events than convention and trade show events. Although large convention centers have both a greater number of attendees and number of events of the convention and trade show type, the average attendance for consumer type show events is also higher as with small to mid-size convention centers. Average attendance for large convention centers for consumer shows was approximately 18,000 versus approximately 13,000 for conventions and trade shows. In addition to convention, trade show, and consumer show events within their exhibit halls, convention centers also host a variety of other events at ballrooms and meeting rooms located on site. The next table shows the average event count and attendance for survey respondents by facility size. Convention Centers - All Event Characteristics Average Event Average Total Size Count Attendance Less than 100,000 square feet 364 282,000 100,000 to 500,000 square feet 309 714,000 More than 500,000 square feet 170 1,178,000 Source: PricewaterhouseCoopers The following table shows the average number of room nights generated annually by respondents to the convention center survey. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 65 Convention Centers - Hotel Room Nights Average Size Number of Nights Less than 100,000 square feet 36,000 100,000 to 500,000 square feet 166,000 More than 500,000 square feet 947,000 Source: PricewaterhouseCoopers TYPES OF MEETING AND FACILITIES NEEDS The meeting industry includes a variety of meeting types, ranging from large trade and exhibition events to corporate meetings and conferences. As one can imagine, there are countless meetings occurring nationally and Tunica has to identify its potential niche or niches and then develop a competitive product with which to compete. Each type of event has unique facility needs, with some requiring large amounts of contiguous space and others requiring many smaller meeting rooms. Often, a single event will use many different types of spaces, including exhibit halls, banquet facilities, and breakout meeting rooms. Well-designed multi-purpose facilities offer the proportions of different types of spaces that are appropriate for their market. In addition, they offer the flexibility to host multiple events at one time. The following table summarizes the key attributes of various types of meetings, including facility requirements, as well as the Tunica area's current capacity to host these types of events. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 66 Meeting Types and Related Facility Requirements Major Facility Tunica's Current Capacity Meeting Type Attendance Range Primary Purpose Typical Facility Used Requirement to Host Training and Meeting space Hotels/Conference Corporate & Other Meetings Less than 100 information Fair (minimal) Centers exchange Hotels/Conference Information Meeting space and Conferences 50 to 2,000 Centers and Convention Fair exchange banquet space Centers Hotels/Conference Information Meeting space and Conventions 300 to 15,000 Centers and Convention Poor exchange banquet space Centers Exhibition, breakout Information Conventions with Exhibits 2,000 to 20,000 meeting space, and Convention Centers None exchange and sales banquet space Exhibition and Convention breakout meeting Trade Shows 300 to 50,000 Sales Centers,Trademarts, Poor space for some Fairgrounds events Advertising and Convention Centers, Consumer Shows 10,000 to 1,000,000 Exhibition Space None sales Trademarts, Fairgrounds Stage, seating, Convention Centers, Information Assemblies 5,000 to 50,000 breakout meeting Arenas, Stadiums, Poor exchange rooms Fairgrounds Community, Entertainment, Social and Banquet or multi- Convention Centers, and 50 to 10,000 Poor and Social Entertainment purpose space Multipurpose Facilities Source: Johnson Consulting The various types of meeting events are described below: Corporate and Other Meetings – Corporate meetings include training seminars, professional and technical conferences, incentive trips, and management meetings. Attendance generally ranges from 10 to 100, with an average of fewer than 50. These meetings are held in city-center hotels, specially-designed conference centers, and resort hotels. Corporate meeting planners and attendees demand high-quality facilities. Conferences – Conferences are meetings typically held by associations, professional groups, and other membership organizations. Educational institutions also host conferences, which attract an average of 300 attendees. These events do not usually require exhibit space, but otherwise their facility demands are similar to those of conventions—such as meeting space for general sessions, food service facilities, and breakout rooms. Hotels and conference centers typically serve as venues for conferences. Conventions and Trade Shows – Associations, professional groups, and other membership organizations hold conventions and trade shows, with attendance ranging from 300 to 50,000 attendees. The larger of these meetings take place in convention centers with exhibit halls of 100,000, but as a Center for Exhibition Industry Research (CEIR) survey indicates, the vast majority of events require less than 50,000 square feet. Conventions and trade shows may feature a single meeting, but they usually offer a number of concurrent meetings and exhibitions. Facility needs include assembly space Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 67 for general sessions and displays, banquet facilities, and numerous breakout-meeting rooms. Two-thirds of conventions and trade shows use exhibit space as a means to communicate ideas and to display products. Conventions are high-impact events economically because a large percentage of attendees originate from outside the local area, typically stay several nights in the host city, and spend money on accommodations, food, transportation, retail goods, and entertainment. Spouses, family, or companions typically accompany 40 percent of attendees. Trade Show Characteristics Like conventions, trade shows offer a forum for exchanging industry ideas. They vary slightly from conventions in that they are more product- and sales-oriented. Trade shows are exhibit-intensive, and exhibitors prefer column-free, single-story, open-space facilities in which they construct temporary custom booths for product display. Trade shows typically attract a large number of attendees, who originate from outside the host city but tend to have a shorter average stay than convention attendees. Meeting programming is increasing as trade shows attempt to educate buyers about products. The following table displays the most common event categories for conventions with exhibits and trade shows. Top Event Categories- Conventions with Exhibits and Tradeshows Aerospace & Aviation Home & Garden Furnishings & Supplies Agriculture & Farming Libraries Apparel & Fashion Manufacturing & Industrial Art & Architecture Medical & Health Care Associations Military Building & Construction Ocean Supplies & Equipment Business & Finance Police & Fire Fighters Chemicals Printing & Graphics Communications Radio, TV & Cable Computers & Computer Applications Religious Education Safety & Security Electrical & Electronics Sanitation & Waste Management Energy & Mining Science Facilities, Engineering & Maintenance Stores & Store Fittings Food & Beverage Textiles Forest Products Transportation Funeral Industry Travel Industry Government Veterinary Source: Tradeshow Week Data Book Like conventions, trade shows offer a forum for exchanging industry ideas. They differ from conventions, however, because they are more product and sales oriented. Trade Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 68 shows are exhibit intensive, and exhibitors prefer column free, single story, open space facilities in which they construct temporary custom booths for product display. Trade shows typically attract a large number of attendees, who originate from outside the host city but tend to have a shorter average stay than convention attendees. Therefore, individual attendees may have less impact on the host city's economy. Meeting programming is increasing as trade shows attempt to educate buyers about products. Consumer Show Characteristics Consumer shows are public, ticketed events featuring exhibitions of merchandise for sale or display. Consumer shows provide a means of product distribution and advertising. Some, such as auto and boat shows, have a recreational and entertainment function as well. Consumer shows range in size from small local and specialized shows with a few hundred attendees to large shows with thousands of attendees. The larger consumer shows may occur in convention centers, shopping malls, fairgrounds, and other public-assembly facilities with large exhibition areas. The majority of attendees are local, but exhibitors often come from out of town. Site selection considerations for consumer shows include the size and income of the local population, availability of facilities, and the number of competitive shows in the market. The next table displays a summary of the most prevalent types of consumer shows. Top Event Categories- Consumer Shows Antique Jewelry & Gem Art Jobs, Career & College Auto Motorcycle Boat Outdoor Sports Computer Pets Ethnic RV & Camping Film Sewing & Needlework Flower Sporting Goods & Guns Gift & Craft Super Sale Golf Toys & Hobbies Health & Beauty Travel Holiday Weddings Home & Garden Woodworking Source: Johnson Consulting This list displays traditional consumer show events, but does not include the growing subset of specialty fairs, festivals, and agricultural events. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 69 Assembly Characteristics Assembly events are social, military, educational, religious, and fraternal (SMERF) events. They attract larger numbers of people and require arena or stadium seating. Similar to conventions, attendees originate from outside the host city, but, unlike conventions, these events do not usually require large amounts of exhibit and meeting room space. Community, Social, and Entertainment Event Characteristics Entertainment events are ticketed events that are typically held in arenas by outside promoters. This includes many types of events, including sporting events, touring concerts, and family shows. Community and social events are similar, and include gatherings such as graduations. Most attendees are local residents, and attendance is limited to the fixed seating area of the arena, including floor seats for concerts. Entertainment events require concessions with numerous points of sale throughout a facility. Size of Events The majority of convention and trade show events are held in facilities with moderate space capacity. While there are a number of events that require more than 100,000 net square feet of exhibit space, a majority of events are held in facilities with 10,000 to 49,999 net square feet of space. (Gross square footage is considered to be the total amount of space within a room or facility, as measured from wall to wall, while the net square footage measures the amount of space that is actually used by exhibits, booths, and other items, not including aisles and other areas. Net square footage is generally 50 percent of gross square footage.) The following table shows the distribution of event size for events of 3,000 net square feet or more and ten or more exhibitors. The figure also graphs the cumulative share of the events market that is included within each segment and all smaller segments. By definition, this does not consider the entire events market, as meetings without exhibitions, for example, are not included in this sample. However, events that require 100,000 net square feet of space (or 200,000 gross square feet) comprise only 7 percent of these events, while 60 percent of events require 25,000 net (50,000 gross) square feet or less. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 70 Size of Exhibitions (in Net Square Feet Used) 35% 100% 90% 30% Cumulative % of Total 80% 25% 70% % of Total % of Total 20% 60% Cumulative % of Total 50% 15% 40% 10% 30% 20% 5% 10% 0% 0% 3,000 - 9,999 10,000 - 24,999 25,000 - 49,999 50,000 - 99,999 100,000 or more Source: Center for Exhibition Industry Research As the table shows, approximately 80 percent of the exhibition market (which is represented in the first three bars from the left of the table) can be accommodated with less than 50,000 net (100,000 gross) square feet of exhibit space. The next table shows the seasonality of the convention calendar across the US. Seasonality of Conventions 20% 18% 16% Percent of Conventions Occurring 14% 12% 10% 8% 6% 4% 2% 0% January February March April May June July August September October November December Source: 2004 Meetings Market Report Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 71 The heaviest month for conventions in the U.S. is October, with June, September and November also sharing a high percentage of convention demand. MEETING INDUSTRY DATA Convention and Meetings Magazine issued a 2004 Meetings Market Report that provided data on the meetings and conventions industry, as well as the opinions of meeting planners. The following table shows the total number of meetings over the 1993 through 2003 period, by category. Total Number of Meetings (000s) 1,100 1,050 1,000 155.6 950 177.7 174.2 206.5 900 175.6 12.2 189.5 850 11.8 11.6 11.8 10.9 800 11.3 750 891 835.7 844.1 700 801.3 797.1 783.9 Association 650 Convention Corporate 600 1993 1995 1997 1999 2001 2003 Source: 2004 Meetings Market Report The majority of meetings were corporate meetings, followed by association meetings. Conventions represented a small portion of total meetings. The following table shows the total number of attendees per category of meetings. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 72 Total Number of Attendees (millions) 100 90 80 15.8 18.7 15.6 15.9 70 15.1 17.9 12.4 60 10.7 12.3 12.5 13 11.7 50 40 30 55.1 56.4 49.3 49.9 51 51.5 20 Association 10 Convention Corporate 0 1993 1995 1997 1999 2001 2003 Source: 2004 Meetings Market Report Corporate meetings had the most attendees by far, followed by association attendance and convention attendance. Total attendance was approximately 80 million for all categories throughout the period, except for 1993 and 2003, when attendance spiked to nearly 85 million in each year. The following table shows total expenditures on meetings during the periods. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 73 Total Expenditures ($ billions) $45 $40 $13.7 $35 $14.3 $14.3 $13.7 $13.9 $12.0 $30 $25 $16.0 $20 $16.7 $16.6 $15.5 $16.3 $16.8 $15 $10 $15.0 $5 $10.6 $10.8 $10.2 $10.3 $8.6 $0 1993 1995 1997 1999 2001 2003 Source: 2004 Meetings Market Report Corporate Convention Association Total expenditures on meetings were estimated to have increased from approximately $40 billion to $45 billion over the period. In 2003, conventions and corporate meetings spent the most, at $16 billion and $15 billion, respectively. The following table shows the average number of attendees at each type of meeting. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 74 Average Number of Attendees 1,193 1200 Corporate Convention 1,060 1,059 1,035 1,016 Association 1000 907 800 600 400 200 91 86 94 90 89 102 69 62 64 61 61 63 0 1993 1995 1997 1999 2001 2003 Source: 2004 Meetings Market Report The average number of attendees is highest at conventions, with an average of just over 1,000. This has varied over the years, but since 1997, the range has been within 5 percent over or under. Association meetings are the next largest in terms of average attendance with approximately 90 attendees per meeting. Corporate meetings are about one-third smaller at 60 attendees per event. Both association and corporate meetings are the day- to-day bread and butter business of many hotels and even convention centers. The next table shows the estimated breakdown of association and corporate meetings by type. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 75 Estimated Meetings Market Breakdown (Data from 2001) Events % of Avg. Type Number Total Attendance Corporate Meetings Training and Education Seminars 253,200 30% 22 Sales and Marketing Meetings 177,300 21% 90 Management Meetings 151,900 18% 34 Professional & Technical Meetings 76,000 9% 142 New Product Introductions 59,100 7% 96 Group Incentive Meetings 59,100 7% 96 Individual Incentive Meetings 42,200 5% 12 Stockholder Meetings 16,900 2% 61 Other Meetings 8,400 1% 123 Total 844,100 100% 61 Association Meetings Training and Education Seminars 65,700 37% 99 Board Meetings 33,800 19% 80 Professional & Technical Meetings 30,200 17% 95 Regional/Local Chapter Meetings 30,200 17% 37 Other Off-Premises Meetings 17,800 10% 152 Total 177,700 100% 89 Source: 2002 Meetings Market Report Of the nearly 850,000 corporate meetings, 30 percent were training and education seminars, 21 percent were sales and marketing meetings, and 18 percent were management meetings. The largest single type of corporate meeting (by average attendance) was professional and technical, with 142 attendees. The smallest type was individual incentive with 12 attendees. Association events were comprised of training and education seminars (37 percent), with an average of 99 attendees, followed by board meetings, with an average of 80 attendees. Overall, the 2002 Meetings Market Report shows over one million corporate and association meetings. The following table shows the facility type where an association's annual meeting and/or convention was held. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 76 Facility Where Last Major Convention was Held Other 10% Convention Center 30% Hotel 60% Source: 2004 Meetings Market Report While convention centers hold 30 percent of conventions, hotels actually host approximately twice as many, with 60 percent. Resorts and other facilities host a total of 10 percent of annual meetings and/or conventions. This again shows the relative importance of hotels. The next table shows the types of facilities used for all conventions and meetings (respondents could give more than one answer). Types of Facilities Used Downtown Hotels 81% Resort Hotels (excluding golf resorts) 60% Suburban Hotels 54% Convention Centers 52% Airport Hotels 45% Golf Resorts 37% Suites Hotels 31% Gaming Facilities 18% Residential Conference Centers 13% Nonresidential Conference Centers 11% Cruise Ships 4% Source: 2004 Meetings Market Report Downtown hotels were used by over 80 percent of corporate meetings, a persuasive figure for the enduring appeal of these types of facilities. Resort and suburban hotels and convention centers were used by over half of all meetings. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 77 This table shows the important factors when choosing a meeting destination/city. Important Factors when Selecting a Destination Association Corporate Convention Meeting Meeting Availability of hotels and/or other facilities suitable for meetings 83% 79% 74% Affordability of Destination 77% 81% 77% Safety and Security of Destination 46% na na Ease of Transporting Attendees to/from Location 43% na 62% Transportation Costs 43% na na Source: 2004 Meetings Market Report Among convention, association, and corporate meeting planners, there was little differentiation in the factors driving their decision. The top criterion for convention planners was the availability of hotels and/or other facilities suitable for meetings. It was the second-most important item for both association and corporate planners. Affordability was the most important factor for convention planners and the second most important for association and corporate planners, although based on our experience, convenience is key for state association planners. Once a destination is selected, planners must then choose a hotel. The following table shows the important factors for selecting hotels within the destination. Important Factors when Selecting a Hotel within a Location Item Convention Association Corporate Number, Size and Quality of Meeting Rooms 88% 81% 84% Number, Size and Quality of Sleeping Rooms 86% 68% 74% Cost of Hotel or Meeting Facility 84% 86% 82% Negotiable Food, Beverage and Room Rates 83% 73% 79% Quality of Food Service 71% 65% 76% Source: 2004 Meetings Market Report The most important factor for convention and corporate planners when selecting a hotel is the number, size and quality of meeting rooms. This speaks to the power of full- service properties versus limited-service, or rooms-only hotels. This criterion is second most important for association planners. Association and corporate planners share Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 78 number, size and quality of meeting rooms and affordability of the facility as their two most important factors, which highlights the balance that must be struck between quality and affordability. Cost of the meeting facility is an important criterion for convention planners as well. Note that while the number, size and quality of sleeping rooms is very important for convention planners, it is considerably less important for association and corporate planners, showing convention planners are more concerned with the availability of quality versus affordable hotels. The ability to negotiate food and beverage and room rates is the third most important factor for association and corporate planners, but does not rank nearly as high percentage wise as meeting room amenities and affordability of facilities. This table shows the breakdown of hotel rates paid by groups. Average Room Rates Paid $0 to $70 1% $71 to $90 9% $91 to $100 12% $101 to $120 10% $121 to $140 17% $141 to $150 14% $151 or more 37% Average Daily Room Rate $151 Source: 2004 Meetings Market Report While groups have a reputation for obtaining the lowest room rates, the rates paid by many groups (37 percent) are over $151. These are usually in resort or popular urban destinations like New York, Chicago, Boston, San Francisco, or Miami. However, for all meetings, only 22 percent paid less than $100 per room. The other 78 percent were willing to pay more than $100 per night. PROJECTED CONVENTION DEMAND Based on our analysis, the proposed facilities and the competitive nature of the group meetings market, we have established base competitive market for the proposed hotel and convention center. It was necessary to establish this competitive market in order to estimate the level of annual demand for function space and to estimate the amount of demand that the proposed hotel could possibly capture. The competitive market established for the proposed hotel and convention center meets the following general criteria: Located within 900 miles of Tunica Typically located in the southeastern U. S. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 79 Total facilities with 75,000 to 500,000 square feet Includes hotels and convention centers Includes both individual hotels, convention centers as well as markets with more than one hotel or convention center We have identified 17 markets with more than one competitive function space/facility as well as 34 individual facilities that meet the above referenced criteria as offering competitive function space for the proposed facilities to be located in Tunica. The following table identifies the competitive function space identified for the proposed hotel and convention center: TUNICA, MISSISSIPPI MYRIAD PALACE HOTEL COMPETITIVE FUNCTION SPACE Total Property/Market # Facilities Function Space Atlanta 8 1,000,154 Birmingham 1 298,451 Charlotte 1 362,254 Cincinnati 3 485,404 Dallas 6 1,347,032 Greensboro/Highpoint 3 688,612 Houston 2 388,749 Kansas City 4 771,067 Knoxville 3 379,449 Louisville 2 415,318 Miami/Ft. Lauderdale 7 1,573,709 Nashville 2 779,315 New Orleans 3 300,923 Orlando 7 1,275,204 Tulsa 1 130,300 Virginia Beach 2 341,268 Palm Beach 1 148,316 Individual Properties/Centers 34 6,620,768 Total 90 17,306,293 Source: Pinkowski & Company; HSP These facilities include both hotels with function space as well as convention centers, exhibit halls, coliseums, arenas and conference centers. The following table illustrates the breakdown of facilities between hotels and other facilities containing function space: Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 80 TUNICA, MISSISSIPPI MYRIAD PALACE HOTEL COMPETITIVE FUNCTION SPACE ANALYSIS # of Facilities 94 # Hotels 32 # Convention Centers 62 Total Function Space 17,306,293 Total GSFD* 10,179,643,045 Estimated Occupancy 48.7% GSFD Demand 4,954,419,170 % Exhibit Space/Total Space 62.0% % Ballroom Space/Total Space 18.5% % Meeting Space/Total Space 19.2% * GSFD-Gross Square Food Days Source: Pinkowski & Company; HSP The 94 facilities identified as competitive include a variety of function space as detailed below: TUNICA, MISSISSIPPI MYRIAD PALACE HOTEL COMPETITIVE INVENTORY OF FUNCTION SPACE Type Square Feet GSFD* % of Total Exhibit Space 10,735,000 3,918,275,000 62.0% Ballroom Space 3,176,000 1,159,240,000 18.4% Meeting Room Space 3,395,000 1,239,175,000 19.6% Total 17,306,000 6,316,690,000 100.0% * Gross Square Foot Days Source: Pinkowski & Company; HSP The data contained in the following table contains an estimate on the total annual demand for function space for the competitive function space for the proposed hotel and convention center: Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 81 TUNICA, MISSISSIPPI MYRIAD PALACE HOTEL ESTIMATED ANNUAL DEMAND FOR FUNCTION SPACE IN COMPETITIVE INVENTORY Type GSFD* Occupancy % Exhibit Space 1,688,487,628 43.1% Ballroom Space 716,656,458 61.8% Meeting Room Space 613,267,397 49.5% Total 3,018,411,483 46.0% * Gross Square Foot Days Source: Pinkowski & Company; HSP Based on our analysis of the proposed facilities at the Myriad Palace Hotel and the Mississippi Blossoms Convention Center as well as the competitive market for the proposed facilities, we have estimated the potential demand that could be captured by the proposed development. A breakdown of the potential demand by type of function space is contained in the following table: TUNICA, MISSISSIPPI MYRIAD PALACE HOTEL POTENTIAL DEMAND CAPTURABLE BY PROPOSED DEVELOPMENT Captured From GSFD* GSFD/Day Exhibit Space 344,441,855 943,676 Ballroom Space 146,193,834 400,531 Meeting Room Space 125,103,055 342,748 Total 615,738,744 1,686,955 * Gross Square Foot Days Source: Pinkowski & Company; HSP Utilizing the previous data, we have prepared an estimate of the potential group demand that could be captured by the proposed facility to be located in Tunica. This estimate is based on an analysis of the current competitive function space identified and the size and type of facilities planned for the project in Tunica. The following table recaps the supply and demand for the competitive function space as well as the level of demand necessary for the meeting space at the proposed facility to achieve a 70 percent occupancy level. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 82 TUNICA, MISSISSIPPI MYRIAD PALACE HOTEL SUMMARY OF SUPPLY, CAPTURABLE DEMAND, & INDUCED DEMAND Square Feet GSFD* Total Existing Supply 17,306,000 6,316,690,000 Total Estimated Demand 3,018,411,483 Capturable Demand 615,738,743 Net New Demand (Induced, Unaccommodated) 55,416,487 Total Potential Demand 671,155,230 Proposed New Supply 600,000 219,000,000 New Supply as a % of Existing Competitive Set 3.5% 3.5% Capturable Demand vs. New Supply 306.5% Amount of Demand Necessary for 70% Occupancy 153,300,000 % of Existing Demand 5.1% % of Capturable Demand 24.9% % of Total Potential Demand 22.8% *Gross Square Foot Days Source: Pinkowski & Company; HSP Based on the previous analysis, the 70 percent occupancy level illustrated in the previous table represents a 146 percent penetration rate compared to the total competitive function space in the market. The estimated occupancy rate for the competitive facilities ranges from 25 percent to 79 percent, depending on the type of facility, size and location. An occupancy level in excess of 50 percent is considered good for function space at these facilities. The high penetration rate for the project compared to the market average is a result of the advantages of the destination including the unique facilities offered and the variety and number of components included in the proposed resort compared to the competitive set. Maps on the following pages illustrate the locations of the supply and demand of the competitive function space identified in this report. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 83 Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 84 PROJECTED HOTEL PERFORMANCE We have prepared a projection of lodging demand for the proposed hotel from 2010 through 2014. The projection includes group and leisure demand. We considered the performance of the competitive function space identified previously in calculation the amount of group demand captured by the subject property as well as the size and type of attractions that will be part of the Myriad Botanical Resort development in calculating the amount of leisure demand that could be captured by the proposed facility. The following table summarizes our estimate of future demand that would be captured by the proposed property: MYRIAD PALACE HOTEL ESTIMATED MIX OF DEMAND 2010 2011 2012 2013 2014 Rooms Available Daily 1,200 1,200 1,200 1,200 1,200 Rooms Available Annually 438,000 438,000 438,000 438,000 438,000 Rooms Occupied 324,120 341,640 350,400 354,780 354,780 Estimated Occupancy 74.0% 78.0% 80.0% 81.0% 81.0% Segment Group Demand 97,236 136,656 175,200 177,390 177,390 Percent Group 30.0% 40.0% 50.0% 50.0% 50.0% Leisure Demand 226,884 204,984 175,200 177,390 177,390 Percent Leisure 70.0% 60.0% 50.0% 50.0% 50.0% Total 324,120 341,640 350,400 354,780 354,780 Source: Pinkowski & Company The demand for lodging accommodations at the proposed hotel will be influenced by the type of facilities available, the timing of the tourist demand and the amount of group demand attracted to these facilities. The mix of demand is expected to shift during the first several years of operation as a result of the advanced booking needs of many segments of group demand expected to be captured by the hotel and convention facilities. The expected mix of business at the property will be heavily weighted toward group demand from Sunday through Wednesday and shift to primarily leisure demand from Thursday through Saturday. For the purposes of our research, we have analyzed the performance of comparable properties in order to establish a basis for our conclusions. The proposed facilities have an opportunity to capture less price conscious demand seeking accommodations in the market area, visitors to the resorts attractions and Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 85 meeting attendees at the convention facilities. The hotel will be able to attract group and meetings business to the area that is either seeking accommodations in other markets due to facility limitations or due to the added attraction of the resort concept of the development. Also, the entertainment facilities at this development will enable the hotel to attract new leisure demand to the market. The subject property will benefit from its facilities and resort amenities in attracting room night demand. Group Demand Group demand for the property at the proposed facility includes a variety of group sources including: State, regional and national association conventions and trade shows Regional corporate conferences and meetings Incentive group activity Motorcoach and tour/travel group demand Group demand typically occurs on a year round basis and is influenced by the amount of meeting space available, location and available amenities. The room rates paid by these groups vary depending on the type of group and may range from $110 to $185 per night. In addition to capturing group demand from corporate groups, local, regional and national associations and social activities, the Myriad development will run numerous public/trade shows that would be either owned or controlled by the resort. These events would include boats shows, gun shows, agribusiness exhibits, builder and lawn and garden shows, Christmas shows and flea markets. These type of events would utilize exhibit space and generate significant traffic for the resort while generating room night demand from event exhibitors. The demand in this segment is expected to increase over the next several years as a result of the increase in the supply and the continued improvement in the national economy. Tourist Demand Tourist demand captured by the proposed facility will include visitors to the resorts attractions, casino patrons, visitors to other Tunica attractions and casinos and other transient travelers visiting the area. These travelers may be somewhat more rate sensitive but would be willing to pay a rate premium for the experience of staying within the Myriad Botanical Resort complex. A majority of the tourist demand utilizing the hotel facilities will do so because of the unique features of the hotel and resort and the convenience of the hotel's location within the resort. This demand may be more Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 86 year round in nature due to the type and variety of entertainment features included at the resort. Tourist demand is expected to increase in the market as a result of the development of the Myriad Botanical Resort and the continuing improvement of the national economy. The addition of resort will attract demand not only from the immediate midsouth area but also will draw from a much larger radius of 400 to 500 miles. In addition, the synergy of multiple attractions within the resort will increase the typical length of stay for many visitors to the hotel. The multitude of attractions offered within the resort will limit the seasonal nature of the leisure demand captured at the proposed hotel. Tourist demand will include visitors to the resorts entertainment venues including the Mississippi Eye, family entertainment center, water and snow park, spa, championship golf course and entertainment venue. Each of these unique attractions will create demand from area, national and international tourists and will generate a significant amount of room night demand for the subject property. Tourist demand for the resort will include both regional drive-in and targeted fly-in demand seeking resort experienced offered at the Myriad Botanical Resort. Demand in this segment will also include casino related demand. Casino demand will originate from the adjacent Myriad Resort casino and will include casino "comped" and discounted casino related demand. This demand will occur throughout the year but is primarily concentrated during the weekend period. The Economics Research Associates Report for the Market Analysis for Myriad Casino & Hotel indicated that the Myriad Casino hotel ratio of rooms per position was low. The undersized casino hotel capacity of the resort would benefit the subject property by enabling the 1,200 room hotel to capture a significant amount of this unsatisfied casino related demand. Based on estimates provided by the developer referenced earlier in this report, the resort's various venues and facilities are expected to attract millions of visitors a year. Induced Demand A new convention hotel can induce demand to a market, which is the primary goal of this type of development. In addition, the added facilities and attractions associated with the Myriad Botanical Resort will result in the addition of a tremendous amount of tourist demand to the area. The group market, whether convention, association event, trade of corporate is the market segment where hotels can have a significant inducement capability. The majority of group meetings are held in hotels and when they outgrow hotels, they often move to convention facilities. Groups look for hotels that accommodate all of their Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 87 meeting needs onsite, including function space, food and beverage options, hospitality suites, and sleeping rooms. A convention hotel has its largest inducement capability with this segment. Hotels have some ability to induce new leisure demand to a market based on their unique characteristics or in conjunction with other leisure demand generators. Hotels with leisure amenities such as pools, spas, destination restaurants or other attractions or attractive features can generate additional leisure demand. Resort hotels and specialty boutique and historic hotels have this ability as well. The leisure demand in the Tunica market is expected to grow as more investment is made and new attractions are added such as the proposed Myriad Botanical Resort. The hotel and convention center should appeal to each of the demand sources for the following reasons: The proposed property and planned facilities available should represent an appeal to a variety of the sources of group demand in the country. The convenient location in the southeast will provide easy access to a majority of the sources of group demand. The entertainment facilities and amenities planned as part of the Myriad Botanical Resort represent an excellent potential to attract demand to the proposed property. The hotel and convention center should benefit from the synergies that result from the components of the resort complex. Projected Average Daily Rate On the basis of our analysis of the comparable lodging market and a review of the comparable market over the last year, we have prepared our average rate projection for the proposed property. We estimate the subject property will be capable of achieving a $157 average rate stated in current value 2006 dollars, assuming a stabilized occupancy of 81 percent. The following table contains our estimate of projected average rates for the subject property: Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 88 TUNICA, MISSISSIPPI MYRIAD PALACE HOTEL PROJECTED AVERAGE DAILY RATE Average Rate Inflation Premium/ Project Year Inflated $ Rate Discount ADR 2006 $157.00 - - 2007 $161.71 3.0% 0.0% - 2008 $166.56 3.0% 0.0% - 2009 $171.56 3.0% 0.0% - 2010 $164.69 3.0% -6.8% $165.00 2011 $173.02 3.0% 2.0% $173.00 2012 $181.78 3.0% 2.0% $182.00 2013 $187.23 3.0% 0.0% $187.00 2014 $192.85 3.0% 0.0% $193.00 Source: Pinkowski & Company The inflation rate reflects the impact of the local lodging supply, changes in economic conditions, and pricing power of the subject property in the market. The average rate calculation includes an initial year discount in order to successfully market the property during the first year of operation. A rate premium has been added in the second and third year. This rate reflects the potential average rate achievable at the property given the assumptions stated earlier in this report. PROJECTED OPERATING RESULTS We have projected operating results for the proposed 1,200 room hotel and convention center to be located in Tunica, Mississippi. These projections are based on: Research conducted relative to this project The subject property will open by January 1, 2010 Competent and experienced management of the property Operation and management by The property will be part of the Myriad Botanical Resort An inflation rate of 3 percent While detailed plans outlining specific hotel components such as the number of seats in various food and beverage outlets, concepts and hours of operation, the type of retail outlets, and detailed spa information, we used trends of other comparable hotels as an indication of the performance levels that could be achieved at the proposed hotel. The preparation of a representative year statement of operating results stated in 2006 dollars was the first step in the process of the financial projections for the proposed Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 89 hotel and convention center. Using this representative year as a basis, we then applied the estimates of occupancy and average rate, the impact of inflation on revenues and expenses, and assumptions as they relate to improved operational efficiencies. The following summarizes the basis for our financial projections. Room Revenue – Room revenue is defined as revenue derived from the rental of sleeping rooms at the hotel, net of any rebates and discounts and is based on the following average rates and occupancies for the property: TUNICA, MISSISSIPPI MYRIAD PALACE HOTEL OCCUPANCY AND ADR Year Occupancy ADR REVPAR 2010 Projected 74% $165.00 $121.69 2011 Projected 78% $173.00 $134.51 2012 Projected 80% $182.00 $145.14 2013 Projected 81% $187.00 $151.00 2014 Projected 81% $193.00 $155.85 Source: Pinkowski & Company Food and Beverage Revenue – Based on combined food and beverage sales of $123.60 per occupied guest room during the representative year. This revenue includes food and beverage sales in the hotels restaurants and lounge, banquet food and beverage sales and room service at the property. Food and beverage sales are based on the comparable properties identified in this report and similar type facilities operated across the country. Food and beverage revenue increases from $139.11 to $156.57 per occupied room over the five year projection period. Telephone Revenue - Based on an average of $3.50 per occupied room in the typical year and inflated at 3 percent annually. The projected telephone revenue reflects the changing trends in telephone revenues and the performance of the comparable hotels as well as similar hotels across the country. Telephone revenue is derived from guest use of telephones in the hotel, including local and long distance calls, service charges, and commissions. Telephone revenue increases from $3.94 to $4.43 per occupied room over the five year projection period. Other Revenue - Includes revenue from a variety of sources in the hotel including rental income from LUCID, spa revenue, retails sales and vending, parking and valet, special events, convention services and audio/visual equipment rentals. Other income also includes income from rentals of space for Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 90 business purposes, including concessions in any of the minor operated departments and is based on $48.14 per occupied room during the representative year. Other income increases from $54.18 to $60.98 per occupied room over the projection period. The following table provides a breakdown of other income by source for the hotel and convention center: TUNICA, MISSISSIPPI MYRIAD PALACE HOTEL OTHER INCOME $ POR PAR Lucid Rent $915,332 $2.58 $763 Spa $1,369,451 $3.86 $1,141 Retail & Vending $5,676,480 $16.00 $4,730 Parking & Valet $354,780 $1.00 $296 Special Events $3,547,800 $10.00 $2,957 Convention Services $3,547,800 $10.00 $2,957 Audio/Visual Rental $1,596,510 $4.50 $1,330 Miscellaneous $70,956 $0.20 $59 Total $17,079,109 $48.14 $14,233 Source: Pinkowski & Company Rooms Department Expense - Based on 24.5 percent of rooms revenue for the representative year. Rooms departmental expense include labor costs such as salaries and wages for front desk, housekeeping, reservations, bell staff, and laundry, plus employee benefits. Other operating expenses in the rooms department include linen, cleaning supplies, guest supplies, uniforms, reservation expenses, equipment leases, and travel agent commissions. The rooms department expense is based on the experience of other similarly operated hotels and was adjusted for fixed and variable costs associated with occupancy levels and are expected to remain constant over the five year projection period. Food and Beverage Expense - Food and beverage expense for the property is estimated at $86.10 per occupied room or 69.7 percent of food and beverage revenue during the representative year. Food and beverage departmental expenses include the cost of goods sold (food and beverage), labor and related benefits, and other operating expenses. Labor costs include departmental management, cooks and kitchen personnel, service staff, banquet staff, and bartenders. Other operating expenses include china, silverware, linens, restaurant and kitchen supplies, menus and printing, and special promotions. Food and beverage expense has been adjusted for fixed and variable costs associated with occupancy levels and increases in line with occupancy levels Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 91 over the projection period. Food and beverage expense remains constant at 69.7 percent of food and beverage sales over the projection period. Telephone Expense - Based on a departmental cost of 125 percent of telephone revenue and adjusted for fixed and variable costs associated with occupancy levels. Telephone departmental expenses include costs of calls, labor cost of operators, and other related expenses. The expense assumes a minimal charge for local calls and a reasonable surcharge on long distance. Other Expenses - Based on an operating expense of 60 percent of other revenue, this expense takes into consideration the cost associated with the cost of the spa operation, retail outlets, special events and convention services as well as audio/visual equipment rentals and other minor operated departments and remains constant over the projection period. Administrative and General Expense - Based on 7.1 percent of total revenue in the representative year and adjusted for fixed and variable costs. Included in this category are payroll and related expenses for the general manager, personnel and trainings, security, clerical staff, controller, and accounting staff. Other administrative expenses include office supplies, computer services, accounting and legal fees, liability insurance, travel insurance, and credit card commissions. Administrative and general expenses is estimated at 7.5 percent of total revenue in the first year of operation and remains constant at 7.1 percent in years two through five. Management Fees - Basic management fee based on 3 percent of total revenue. This does not include any incentive management fee. Marketing Expense - Based on a marketing expense of 5.7 percent or $5,599 per available guest room during the representative year. Marketing expense includes payroll and related expenses for the sales and marketing staff, direct sales expenses, advertising and promotion, travel expenses for the sales staff, and civic and community projects. The marketing expense ranges from $6,302 to $7,093 over the projection period. As a percentage of total revenue, marketing expense is higher during year one as a result of increased marketing expense during the partial year of operation. Energy Expense - Based on the expense of comparable properties, energy expense is estimated at $3,350 per available room, or $11.33 per occupied room in current value dollars. Energy expenses typically include electricity, fuel and water. This expense ranges from $12.75 to $14.35 per occupied guest room during the projection period and is adjusted for fixed and variable costs associated with changes in occupancy levels at the subject property. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 92 Maintenance Expense - Property operations and maintenance is based on an average of $4,263 per available guest room for a representative year. This category includes payroll and related expenses for maintenance personnel, cost of maintenance supplies, cost of repairs and maintenance of the building, furniture and equipment, the grounds and the removal of waste material. This expense ranges from $3,624 to $4,941per available room over the five year projection period and is adjusted for fixed and variable costs associated with changes in occupancy levels. The maintenance expense reflects a discount in the first two years of operation to reflect the new construction of the property and the associated cost savings of the new facility. Property Taxes - Estimated to be $2,100 per available room based on local tax incentives for the project and inflated at 3 percent annually. Insurance Expense - Estimated at $900 per available guest room based on comparable property data and inflated at 3 percent annually. Reserve for Replacement – Reserve for replacement has been calculated at 2 percent of total revenue in years one and two, 3 percent in the third year, and 4 percent in years four and five. The projected five year operating statement is presented on the following page. The five year statement is in inflated dollars, assuming 2010 as the opening year of operations. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 93 TUNICA, MISSISSIPPI MYRIAD PALACE HOTEL FIVE YEAR FINANCIAL PROJECTION Year 1 Year 2 Year 3 Year 4 Year 5 2010 2011 2012 2013 2014 Number of Rooms 1200 1200 1200 1200 1200 Rooms Available 438,000 438,000 438,000 438,000 438,000 Rooms Occupied 323,020 340,540 349,300 353,680 353,680 Occupancy 74% 78% 80% 81% 81% Average Room Rate $165.00 $173.00 $182.00 $187.00 $193.00 $ % $ % $ % $ % $ % REVENUE Rooms 3,298,300 45.6% 58,913,420 46.0% 63,572,600 46.5% 66,138,160 46.5% 68,260,240 46.5% Food and Beverage 44,936,245 38.4% 48,794,708 38.1% 51,551,393 37.7% 53,763,749 37.8% 55,376,662 37.7% Telephone 1,272,743 1.1% 1,382,028 1.1% 1,460,106 1.1% 1,522,767 1.1% 1,568,450 1.1% Other 17,501,756 15.0% 19,004,549 14.8% 20,078,222 14.7% 20,939,889 14.7% 21,568,086 14.7% Total Revenue 117,009,044 100% 128,094,705 100% 136,662,321 100% 142,364,566 100% 146,773,438 100% DEPARTMENTAL EXPENSES Rooms 13,324,575 25.0% 14,139,221 24.0% 15,257,424 24.0% 15,873,158 24.0% 16,382,458 24.0% Food and Beverage 31,302,676 69.7% 33,990,489 69.7% 35,910,800 69.7% 37,451,932 69.7% 38,575,490 69.7% Telephone 1,590,929 125.0% 1,727,535 125.0% 1,825,133 125.0% 1,903,459 125.0% 1,960,563 125.0% Other 10,501,054 60.0% 11,402,729 60.0% 12,046,933 60.0% 12,563,934 60.0% 12,940,852 60.0% Total Departmental Expenses 56,719,233 48.5% 61,259,973 47.8% 65,040,290 47.6% 67,792,483 47.6% 69,859,362 47.6% GROSS OPERATING PROFIT 60,289,811 51.5% 66,834,732 52.2% 71,622,031 52.4% 74,572,083 52.4% 76,914,076 52.4% GENERAL & UNDISTRIBUTED Administrative & General 8,775,678 7.5% 9,094,724 7.1% 9,703,025 7.1% 10,107,884 7.1% 10,420,914 7.1% Management Fees 3,510,271 3.0% 3,842,841 3.0% 4,099,870 3.0% 4,270,937 3.0% 4,403,203 3.0% Marketing 7,562,294 6.5% 7,789,163 6.1% 8,022,837 5.9% 8,263,523 5.8% 8,511,428 5.8% Energy 4,119,156 3.5% 4,472,848 3.5% 4,725,544 3.5% 4,928,344 3.5% 5,076,194 3.5% Repairs & Maintenance 4,348,600 3.7% 4,860,200 3.8% 5,589,230 4.1% 5,756,907 4.0% 5,929,614 4.0% Total General & Undistributed 28,315,999 24.2% 30,059,776 23.5% 32,140,506 23.5% 33,327,594 23.4% 34,341,353 23.4% HOUSE PROFIT 31,973,812 27.3% 36,774,956 28.7% 39,481,525 28.9% 41,244,488 29.0% 42,572,722 29.0% OTHER CAPITAL EXPENSES Real Estate Taxes 2,836,282 2.4% 2,921,371 2.3% 3,009,012 2.2% 3,099,282 2.2% 3,192,261 2.2% Insurance 1,215,550 1.0% 1,252,016 1.0% 1,289,576 0.9% 1,328,264 0.9% 1,368,112 0.9% Total Other 4,051,832 3.5% 4,173,387 3.3% 4,298,588 3.1% 4,427,546 3.1% 4,560,372 3.1% PROFIT BEFORE RID 27,921,980 23.9% 32,601,569 25.5% 35,182,936 25.7% 36,816,942 25.9% 38,012,350 25.9% Capital Reserve 2,340,181 2.0% 2,561,894 2.0% 4,099,870 3.0% 5,694,583 4.0% 5,870,938 4.0% CASH AVAIL FOR DEBT SVC 25,581,799 21.9% 30,039,675 23.5% 31,083,067 22.7% 31,122,360 21.9% 32,141,413 21.9% Source: Pinkowski & Company Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 94 APPENDIX I RESORT STORY (Prepared by Developers of Myriad Botanical Resort) The Myriad Botanical Resort has an extraordinary story to tell, it is an alluring story that makes long journeys and longer stays worthy and pleasurable endeavors. Our story is an inseparable chapter in Mark Twain's 'wonderful book' that is the Mississippi: a river with 'a new story to tell every day'. Our story begins with a few twists and turns. Where the Mighty Mississippi River first coils into the State of Mississippi from Arkansas, a series of magical bends there manifest a well hidden cove. Around Whiskey Bend, Walnut Bend to Mhoon Bend, the river meanders to a storied place that is Old River Cove. Generously formed by fertile sediments from the river, Old River Cove is a phenomenon of flowers and greenery unseen to the world but a family of cotton farmers. This family farmed around Old River Cove and shielded the landside of the cove with an apron of oak trees. An ever-powerful river flow coupled with the dense oak forest made Old River Cove unapproachable to all but the family. The heavy rains of winter though meant an overflowing Mississippi River and the magical bends around Old River Cove cannot spare it from uninvited waters and visitors. The first visitors were also the last visitors because they never left. Marooned here while traversing the river during a winter's storm, the visitors were quick to find nature's life-giving sustenance and nurturing companionship. Both of those were qualities that they appreciated and decided to become caretakers of. Where the cotton farming family wanted to preserve Old River Cove, the visitors sought to enhance it. As fate would have it, the human dimensions of the Cove didn't evolve as no social contact ever occurred between these people. Then another rainstorm happened; a barge was made to take an unhappy full circle spin at Whiskey Bend and unwillingly deposited a container of exotic plant cuttings into Old River Cove. This event changed everything. After weathering their worst rainstorm ever, the caretakers of Old River Cove stepped into the warm Mississippi sun and were delighted at what they saw. As if a craft from some faraway place had landed carrying dignitaries of plant life, their hidden nature's microcosm was suddenly transformed by colors and textures heretofore unimagined and unimaginable. In the words of the caretakers: this is far out! From that moment on, every concern, whether living or inert, that touches Old River Cove is embraced by this spirited existential experience, thanks to the inspired caretakers. The expanding pages between the book covers of the Mighty Mississippi River is caused by our chapter exploring the illustrious story of Old River Cove and its hosting of the Myriad Botanical Resort. Rooted in the incredible history of this far-out place, the Myriad Botanical Resort draws on a creative soul that is unconditionally fun and quintessentially American. Many have turned pages in the Mighty Mississippi River book but the chapter about Old River Cove is elusive. Most readers miss this section of Twain's 'wonderful book'. This may be due to missing a Mark Twain suggestion: the wonders of the River are as much in stories told as in there being a boundless flow of storytelling. That is the real fun and the American way. What a story for a resort! Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 95 The Myriad Botanical Resort consists of: OLD RIVER COVE CASINOS COVE CARETAKERS' GARDENS VILLAGE FAIRGROUNDS Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 96 Meetings, OLD RIVER COVE Weddings & Events The Myriad Botanical Resort sits on the banks of Old River Lake. With all its bends and turns, the Mighty Mississippi River takes an occasional shortcut during high waters in winter. One of the most well known detours was Old River Lake. Years of accommodating the overflow from the river have channeled the contours of the lake and now the river eases to and though Old River Lake without panic while the main body of the river twists around the long way. Resort boats of varying sizes carry guests and visitors from one end of the lake to the other, serving champagne and fruit juice while they view the beauty of these waterways in Myriad Botanical Resort. If you happen to be on the lakeshore, you can cozy into a fine dining chair with your companions at many a culinary offering and toast your fellow resort folks on those boats as they cruise by. The long side banks along Old River Lake fed off water and nutrients from the lake and nourished large coves delineated by flowering vines and shade trees. These sweeping natural screens conceal even more beautiful gardens behind them, some set in completely secluded lagoons. In these sanctuaries, unique strains of horticultural jewels have evolved and the most precious ones can be found in a truly special place: Old River Cove. The flowers of Old River Cove are amazing and deepen our appreciation for them in shape, color, scent, touch, and taste, some are even edible and delicious. A resort academy has been established for visitors discovering and learning about all the horticultural treasures in Old River Cove. What is even more amazing is to find this to be the setting of the Convention Facilities in the Myriad Botanical Resort. Affectionately know to the world as Mississippi Blossoms, these all-engaging encirclements of flowers delight and enhance every celebration or gathering be it a meeting, wedding or special event. Even Fight Night is approached along promenades of blossoms that excel beneath the translucent cover maintaining the gentle ecology of Old River Cove. Experiencing Mississippi Blossoms is to find Myriad Botanical Resort's Convention Center and its Arena and Exhibition Area. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 97 CASINOS COVE Immediately facing and mirroring Old River Cove is Casinos Cove. 'Casino' is the original name given to pleasure pavilions set in Italian villa gardens. The caretakers of Old River Cove emulated Italian villa garden designs by building a procession of Casinos across the lake, each being a landmark for a different surrounding of plants and theme. The Casinos have now taken on greater expression, as have the gardens around them, but the original intent to provide pleasure and recreation remains strong and meaningful. Walking from Casino to Casino is like touring the gardens of noble settlers along the Mighty Mississippi Enclaves of rich cultural dimensions extend their unrestrained embraces to make you smile and welcomed. The impact of Casinos Cove is in its contrasts but its steady and romantic cadence has a calming effect for all, especially with there being no streets to cross, no cars to avoid, no rains to run from and, respectfully, no need to step into a gaming hall if not so inclined. The protocols of the Myriad Botanical Resort are designed to cater to families young and old and its unconditional hospitality underlies the guest interface for all facilities in the resort. All gaming destinations seek to achieve a design that ascribes to being a Casino Strip, Casino Row, or formalistic derivations that string a group of gaming experiences together. Casinos Cove is the ultimate and most elegant version of what is indeed a most successful gaming design standard. Experiencing Casinos Cove is to find Myriad Botanical Resort's gaming attractions with their individual hotels and gardens. Hotel, Spa & CARETAKERS' GARDENS Golf Emerging from the floral sanctuaries of Old River Cove in a direction away from Old River Lake are more surprises. Here, you find the definitive works of the loving caretakers of these phenomenal grounds – the gorgeous gardens that Myriad Botanical Resort is blessed with. The day the Caretakers stood in the sun and gasped at he remarkable specimens of exotic plant life that suddenly appeared on their grounds marked the beginning of an alchemic-like program of cultivation that culminated in Myriad Botanical Resort's most famous icons: the Myriad Greens and the Myriad Palace Hotel & Spa. From faraway lands came what can only be called far-out plants, such was the acclamation as our ancient Caretakers had no names for them. One was unusually fast sprouting and growing, it has leafy long stems and took to the fertile soils quickly taking over an enormous area. It took an even more enormous structure to cover this bamboo forest. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 98 The Caretakers did manage to carve a great opening through the thickets that looked unbelievably like a great cathedral's nave. Later, someone from Scotland visited with a small ball and stick and hit that tiny object down the center of the bamboo clearings. He managed to convince the Caretakers to make 18 such clearings but each clearing was uniquely and meticulously trimmed posing many different visual compositions for contemplation and thought. Such is the legacy that is today's Myriad Botanical Resort golf course, and indoor sporting adventure that is as much 18 holes of golf as 18 experiential episodes to challenge one's mind, body and soul. What we know now to be Bamboo was not the only far-out plant to flourish in the Caretakers' Gardens. One that did particularly well was actually a family of vines: all flowering that filled the air with sweetness. The vines family started out climbing the garden shed, took over the sides of the grand conservatory where the exotic resides, and today, they weave a tantalizing skirt around the base of the finest hotel at Myriad Botanical Resort: the Myriad Palace Hotel & Spa. The Myriad Palace Hotel towers above the Caretakers' Gardens with its collection of cupolas, each recalling the cupules of a resident exotic plant. The stunningly adorned architecture of the hotel devotedly announces its interior chambers of hospitality. Room after room, facilities and protocols match perfectly, this is the Caretakers' legacy. Nowhere is this perfection more evident than in the Myriad Palace Spa. Nowhere is this perfection more evident than in the Myriad Palace Spa. The Spa is world renowned for two special things: knowledge and healing. From providers to products, knowledge and rejuvenation underlie the botanic construct of the Spa. Here, the healing arts are understood to root in the benevolence of nature and the best healer is emboldened to be oneself. The catalytic agents that stimulate such realizations and actualizations are bestowed in the elixirs that are made in the Spa's garden conservatory. All cruces of our spa essence cannot be ingrained without the nourishment of time. Mounting requests by Myriad Palace Spa guests for more time to indulge in and evolve with their spa experience have sprung an ownership program with luxury residences and accommodations. People simply want to be here for longer periods of time. Experiencing Caretakers' Gardens is to discover Myriad Botanical Resort's 'out- of-this-world' Myriad Palace Hotel & Spa and its 'beyond-this-world' golf course. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 99 VILLAGE FAIRGROUNDS Retail & Entertainment Traversing in the opposite direction to Caretakers' Gardens, across Old River Lake and by Casinos Cove is Village Fairgrounds. Entertainment, Retail-tainment, Edu-tainment and any 'tainment' you want to at- tain is but for the asking at Village Fairgrounds. It all goes back to that one day when those Farmers, who for the longest time thought they were the sole gatekeepers of Old River Lake's secrets, had a surprise encounter with the Caretakers. A day out in the Mississippi weather can be pretty grueling when hot, cold, raining, storming or insect-fighting, that's why you put a cover over your head so you can enjoy the things you do. The Villagers were well familiar with this; they wanted to cover all of the Old River Lake because everything they enjoyed doing happened there. One day, the Villagers came to install their favorite playing gizmo together with a covering contraption for the whole of Old River Lake. Needless to say, the Caretakers were surprised by a sudden change in the micro- climate as they never really got to see above the canopies of their sun-seeking plants. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 100 APPENDIX II RESORT SERVICES (Prepared by Developers of Myriad Botanical Resort) Emergency Services of the Resort Fire protection, medical emergency, and security will be an added component to the resort. This will reduce insurance cost and will be added value to those that come to the resort. In this day when anything can happen Myriad will hire the best consultants in the industry to address the issues of safety and security. Because the Myriad Botanical Resort will have such a large number of guests and employees on the property, our resort plan is to prepare for all anticipated emergency situations. The resort will have its own emergency staff and fire department. This will be part of the Master Plan as it is completed before construction begins. Employee Day Care Employee day care will be a facility at the resort that is staffed and is a service for the employees that work for the resort. It should be described as facility that is staffed with trained child care professionals. The day care facility will be fitted with high security technology for the benefit of the children to assure the highest standards of protection. This day care center will provide a high level of care for infant to kindergarten age children. It will have nap areas, play areas and teaching areas appropriate for this age group. The facility will have a nursing room for mothers that work for the resort but need to breast feed their children. Flex-time will be part of the employment environment for those that want to work at the resort. This reduces stress and the driving time for the parents who work at the resort. Employees will focus better at work knowing that their children close by and safe. Because this service is rare in the current market place Myriad will benefit from a human resource hiring advantage for those that need to work but have children. Single mothers who need work will also benefit from this program. Myriad will reap employee loyalty as a result. This facility will be 10,000 sq ft with security check in and identification for the responsible caretakers for each child. Employee Dry Cleaners Myriad Resort will maintain dress codes. Uniforms will be worn by the staff. These uniforms will, of course, require cleaning. Myriad will provide in-house dry cleaning for Myriad attire. Some uniforms may be of a special design to enhance the appearance of a theme. Such uniforms may be damaged by dry-cleaners that are not familiar with special fabrics. An in-house dry-cleaner will ensure quality control while also reducing lost time for the employee. This will increase the confidence of being job-ready. This no- Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 101 charge service to the employee would otherwise be an expense that takes away for their paycheck. This program will enhance employee loyalty. Resort Elementary School It is anticipated that the resort will have 5000 employees, and the future 6 casino sites will require an additional 5000 employees. This would justify the building of an elementary school. This facility would accommodate 500 plus students from first grade to sixth grade. We anticipate utilizing the Teach America Program. This is a program that is designed to jump start education in places where education has been underserved. Some of the brightest students in some of America's most prestigious schools are in this program as interns. We will seek certification from the state and hire the appropriate leaders and teachers to maintain this resort educational system. This will be part of the human resource program that will be considered during the final planning stage. This program will be a considerable challenge but will benefit the families that work at the resort. It will also bolster residential development. It is difficult to stimulate housing without schools. By providing an education complex, Myriad Botanical Resort will make a contribution to the growth of the State and County. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 102 APPENDIX III PINKOWSKI & COMPANY BACKGROUND INFORMATION Pinkowski & Company is a consulting firm established in April of 1987 for the purpose of providing professional consulting services to companies, individuals and other entities involved in the hospitality industry. Mr. Charles G. Pinkowski, founder of the company, offers more than thirty years of consulting experience with a most diversified profile of clients. Since establishing the company, Mr. Pinkowski has been involved in client consultation of the following nature: Evaluation of possible acquisition of luxury hotels, destination resorts and commercial hotels. Development planning for a group of ten extended stay all-suite hotels. Market demand analysis for hotel development in major markets. Financial review of the possible acquisition of a worldwide luxury hotel chain. Market position studies for nationally franchised hotels in the transitional stage of franchise and/or the lease expiration. Acquisition and new development due diligence for hotel real estate investment trusts. Evaluation of the quality level of guest services for a major, all- suite hotel company. Several litigation support assignments representing plaintiffs and defendants for a variety of issues in the hospitality industry including foreclosures, infringement of franchise rights, construction and management contract violations, breach of restrictive covenants, etc. Impact analyses for nationally franchised hotels potentially affected by the addition of new or converted hotels proposed to operate under the same franchise. Review of internal control procedures for major convention/resort properties. Pinkowski & Company has serviced clients on a nationwide basis for assignments located from coast to coast. The following is a sample list of clients and their corporate office location: Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 103 American West Bank Spokane, Washington Ameristar Casinos Las Vegas, Nevada BankOne New Orleans, Louisiana Best Western International Phoenix, Arizona The Broadmoor Colorado Springs, Colorado Cendant Corporation Parsippany, New Jersey City of Memphis Memphis, Tennessee City of Pompano Beach Pompano Beach, Florida Choice Hotels International Silver Spring, Maryland Davidson Hotel Company Memphis, Tennessee Exchange National Bank Jefferson City, Missouri Gaylord Entertainment Company Nashville, Tennessee InterContinental Hotels Group Atlanta, Georgia John Q. Hammons Hotels, Inc Springfield, Missouri Hilton Hotels Corporation Beverly Hills, California La Quinta Inns, Inc Dallas, Texas MMI Hotel Group Jackson, Mississippi Opryland Hospitality & Attractions Nashville, Tennessee Peabody Hotel Group Memphis, Tennessee Pyramid Advisors, LLC Boston, Massachusetts Regions Bank Monroe, Louisiana RFS Hotel Investors, Inc. Memphis, Tennessee Richfield Hospitality Services Denver, Colorado Starwood Hotels & Resorts White Plains, New York USAA Real Estate Company San Antonio, Texas University of Massachusetts Amherst, Massachusetts Vista Host, Inc. Houston, Texas Prior to establishing Pinkowski & Company, Mr. Pinkowski was Vice President of Development Market Planning for Holiday Corporation (now The Hilton Hotels Corporation). During his tenure at Holiday Corporation, he held responsibilities for short and long range strategic development planning for four distinctive hotel brands including Holiday Inns, Hampton Inns, Embassy Suites and Residence Inns. The development planning process included a review of strategic market fit for each individual product, the economic viability and inter-brand impact of all development projects to be considered for franchise action. Before joining Holiday Corporation, Mr. Pinkowski was with an international management consulting and accounting firm. With more than 17 years of experience with the firm, he was responsible for the management consulting practice in Memphis and directing consulting practices in Dallas, Houston, New Orleans, and Mobile. Mr. Pinkowski managed many hospitality industry engagements including operational review, conceptual design and planning, internal control review, employee food service Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 104 design and implementation, as well as numerous market feasibility studies, for development of all types of lodging facilities. Mr. Pinkowski is a Charter Member and founding Chairman of the International Society of Hospitality Consultants, a member of the Tennessee Hotel and Lodging Association, member of the American Hotel and Lodging Association, member of the Metropolitan Memphis Hotel and Lodging Association, and numerous other social and civic organizations. He has been a visiting lecturer for the University of Tennessee and a frequent lecturer for hospitality industry conferences, seminars and national conventions. Pinkowski & Company Proposed Hotel & Convention Center, Tunica, MS 105