Dallas Hilton (Base Case) Dallas Hilton (Restructure)

Risk free rate 5.00% Risk free rate 5.00%

Market Return 11% Market Return 11%
Beta 0.95 Beta 0.95
Cost of Equity 11% Cost of Equity 11%
Cost of Debt 4% Cost of Debt 7%
tax rate 35% tax rate 35%
After tax cost of debt 2% After tax cost of debt 4%
Weight of Equity 13% Weight of Equity 14%
Weight of Debt 87% Weight of Debt 86%
WACC 3% WACC 5%
Risk Premium 6.0% Risk Premium 3.30%
Equity 2.9 Equity 2.9
Debt 19.5 Debt 17.5
Total 22.4 Total 20.4
Adjusted WACC 9.49% Adjusted WACC 8.55%
 Carpenter (Base Case) Westheimer (Base Case)
Risk free rate 5.00% Risk free rate 5.00%
Market Return 11% Market Return 11%
Beta 0.95 Beta 0.95
Cost of Equity 11% Cost of Equity 11%
Cost of Debt 4% Cost of Debt 3%
tax rate 35% tax rate 35%
After tax cost of debt 3% After tax cost of debt 2%
Weight of Equity 14% Weight of Equity 25%
Weight of Debt 86% Weight of Debt 75%
WACC 4% WACC 4%
Risk Premium 6.0% Risk Premium 5.5%
Equity 1.3 Equity 10.7
Debt 7.7 Debt 32
Total 9 Total 42.7
Risk adjusted WACC 9.77% Risk adjusted WACC 9.86%
 Assumptions
Depreciation % of EBIT 8%
CNWC % of EBIT 6%
Terminal Gr 1.5%
WACC risk adj 9%
Cash & Cash eq % of EBIT 9%
EBIT Growth Rate 18%
tax rate 30%

Dallas Hilton Garden Inn Valuation

EBIT info
2009 (A) 2010 (A) 2011 (F) 2012 (F) 2013 (F)
EBIT 1.1 1.3 1.6 1.9 2.3
Growth rate 0.181818 0.230769 0.1875 0.210526
average growth rate 20%

Current Projection
FCFF Valuation (Base Case) 1 2 3 4 5
Details 2010 2011 2012 2013 2014 2015
EBIT 1.3 1.5 1.8 2.1 2.5 3.0
EBIT (1-tax) 0.9 1.1 1.3 1.5 1.8 2.1
Add, Depreciation 0.12272 0.14481 0.170875 0.201633 0.237927
Inv. In capital expenditure 0.2 0.2 0.2 0.2 0.2
CNWC 0.08437 0.099557 0.117477 0.138623 0.163575
FCFF 0.9 1.1 1.3 1.6 2.0
Terminal Value 24.85342
Total FCFF 0.9 1.112337 1.348558 1.627298 26.80963
Discount Factor 0.913333 0.834178 0.761882 0.695852 0.635545
PV of FCFF 0.833097 0.927887 1.027442 1.132359 17.03872
Enterprise Value 21
Add: Cash & Cash Equivalents 0.117
Value of of the firm 20.8
Less: Interest bearning debt 19.5
Value of Equity 1

FCFF Valuation (Restructuring) 1 2 3 4 5

Details 2010 2011 2012 2013 2014 2015
EBIT 1.3 1.6 1.9 2.2 2.7 3.2
EBIT (1-tax) 0.9 1.1 1.3 1.6 1.9 2.3
Add, Depreciation 0.1248 0.14976 0.179712 0.215654 0.258785
Inv. In capital expenditure 0.3 0.3 0.3 0.3 0.3
CNWC 0.0936 0.11232 0.134784 0.161741 0.194089
FCFF 0.8 1.0 1.3 1.6 2.0
Terminal Value 29.2334
Total FCFF 0.8232 1.04784 1.317408 1.64089 31.26246
Discount Factor 0.921277 0.848751 0.781934 0.720377 0.663667
PV of FCFF 0.758395 0.889355 1.030126 1.18206 20.74786
Enterprise Value 24.6
Add: Cash & Cash Equivalents 0.117
Value of Property 24.5
Less: Interest bearning debt 17.5
Value of Equity 7
 Assumptions
Dallas Inn Val - Restr
Depreciation % of EBIT 8%
CNWC % of EBIT 6%
Terminal Gr 1.5%
WACC risk adj 9%
Cash & Cash eq % of EBIT 9%
EBIT Growth Rate 20%
tax rate 30%
 Assumptions
Depreciation % of EBIT 13%
CNWC % of EBIT 9%
Terminal Gr 2.0%
WACC risk adj 9.86%
Cash & Cash eq % of EBIT 11%
EBIT Growth Rate 22%
tax rate 30%

FCFF Valuation (Base Case) 1 2 3 4 5

Details 2010 2011 2012 2013 2014 2015
EBIT 2 2.44 2.9768 3.631696 4.430669 5.405416
EBIT (1-tax) 1.4 1.7 2.1 2.5 3.1 3.8
Add, Depreciation 0.3172 0.386984 0.47212 0.575987 0.702704
Inv. In capital expenditure 0.5 0.5 0.5 0.5 0.5
CNWC 0.2196 0.267912 0.326853 0.39876 0.486487
FCFF 1.3 1.7 2.2 2.8 3.5
Terminal Value 45.4446
Total FCFF 1.3056 1.702832 2.187455 2.778695 48.9446
Discount Factor 0.910285 0.828618 0.754279 0.686608 0.625009
PV of FCFF 1.188468 1.410998 1.64995 1.907875 30.59082
Enterprise Value 37
Add, Cash & Cash Equivalents 0.22
Value of Property 37
Less, Interest bearning debt 32
Westheimer Value of Equity 4.9681
 Assumptions
Carpenter Val
Depreciation % of EBIT 16%
CNWC % of EBIT 7%
Terminal Gr 3.0%
WACC risk adj 10%
Cash & Cash eq % of EBIT 13%
EBIT Growth Rate 27%
tax rate 30%

Projection
FCFF Valuation (Base Case) 1 2 3 4 5
Details 2010 2011 2012 2013 2014 2015
EBIT 0.3 0.4 0.5 0.6 0.8 1.0
EBIT (1-tax) 0.2 0.3 0.3 0.4 0.5 0.7
Add, Depreciation 0.06096 0.077419 0.098322 0.124869 0.158584
Inv. In capital expenditure 0.5 0.5 0.5 0.7 0.8
CNWC 0.02667 0.033871 0.043016 0.05463 0.069381
FCFF -0.08471 0.027418 0.169821 0.150673 0.280355
Terminal Value 4.265367
Total FCFF -0.08471 0.027418 0.169821 0.150673 4.545721
Discount Factor 0.910996 0.829913 0.756047 0.688756 0.627454
PV of FCFF -0.07717 0.022755 0.128393 0.103777 2.85223
Enterprise Value 3
Add: Cash & Cash Equivalents 0.039
Value of Property 3
Less: Interest bearning debt 7.7
Capenter Value of Equity -5
Property value as per Bank
Half of outstanding debt 3.85
 BASE CASE

Liquidation Value Amount

Market Value of Dallas Dallas Hilton 14.44
Westheimer 25.00
NOI 1.3 Carpenter 3.33
Cap Rate 9% Liquidation Value before C 42.78
Market Value 14.44
Scenario Value
Market Value of Weatheimer Best 38.50
Base 29.79
NOI 2 worst 22.34
Cap Rate 8% Weighted avg value
Market value 25.00
Average liquidation value
Market Value of Carpenter Less: Transaction cost @ 4%
NOI 0.3 Less: Legal fees @ 3%
Cap Rate 9% Liquidation value
Market value 3.33 Less: Long term debt
Equity Value
BASE CASE BEST CASE WORST CASE
Liquidatio Liquidation Liquidation
Weight Weight Weight
n Amount Amount Amount
75% 9.75 90% 13.00 75% 7.31
78% 17.55 90% 22.50 75% 13.16
83% 2.49 90% 3.00 75% 1.87
29.79 38.50 22.34
Weighte
Weight
d value
0.14 5.39
0.70 20.85
0.16 3.57
1.00 29.82

29.82
1.19
0.89
27.73
59.20
###
Dallas Hilton
Westheimer
Carpenter
Recommendation
Accept Deutsche Bank's offer of restructuring
Disallow foreclosure of property and get Wells Fargo to cooperate with the non recourse feature
hold the nonperforming asset for another 2 years with additional capital till it becomes stable and occupancy rises;
and sell loan to one of the Songy funds to restructure partners' guarantee in a friendly manner
Total Requirement

Financing Requirement
Down payment to Deutsche Bank for 2-year extension of $17.5 mm loan
Payment of half of the $32 mm loan to Wells Fargo
Fund to stabilize the office building's occupancy
Laon repayment to Region Bank for The Carpenter Building
Total Financing Need
 26

Current Fund RequiremeFund requirement within 3 years

2 17.5
32
3.85

38 18

$ in million
2
16
4
7.7
29.7
Total Financing Need 29.7

Sources of Fund Amount ($ in MM)

Sale Proceeds from Carpenter Building 3.7
Equity investment by current investors 10
Bridge Loan for the down-payment + occupancy 6
Investment by Goldman Sachs 10
Total 29.7
Cost of Fund
0.025 (Deducing Transaction cost of 2.5%)

0.1
0.12