Long-term room night demand has historically been positively correlated with gross domestic product (GDP) growth. During the past 20 years, hotel demand growth was negative at only three points, most notably during the recent recession, which the industry refers to as the “Great Recession”. However, hotel demand rose steadily during periods of economic growth, especially during the late 1990s and mid-2000s. As a result, many industry experts project a continued increase in hotel demand. The hospitality industry has been in a period of under-supply since 2001, with the exception of 2008 and 2009. The current slowdown in new supply is due to both the unavailability of new financing and the downturn in hotel rates experienced during the Great Recession. New hotel projects often take several years to complete, especially in the current environment with lenders still being cautious about approving new projects. Smith Travel Research projects new hotel supply will grow at a slower pace than the 20-year average of 1.9% per year. As a result, existing operators should experience the full benefit of the impending hotel recovery because the new supply is not projected to equal the growth in demand. The Demand The Supply -8% -7% -6% -5% -4% -3% -2% -1% 0 1% 2% 3% 4% 5% 6% 7% 8% 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Demand (1)(2) Real GDP(3)(4) U.S. Market Demand: Lodging Demand vs GDP (1988-2016) -3% -2% -1% 0 1% 2% 3% 1988 1991 1994 1997 2000 2003 2006 2009 2012 2016 U.S. Market Supply: Hotels Supply Deviation from Average (1988-2016) The table above is based upon the following sources: n Historical Total Supply/Demand Percent Change: STR Trend Report for 1987 through December 2014 n Forecast Total Supply/Demand Percent Change: PKF Hotel Horizons Econometrics of U.S. Lodging Markets - August 2015 Ed. n Historical GDP: http://www.bea.gov/national/xls/gdpchg.xls n Forecast GDP: http://www.ers.usda.gov/datafiles/ International_Macroeconomic_Data/Baseline_Data_Files/ ProjectedRealGDPValues.xls The table above is based upon the following sources: n Historical Total Supply/Demand Percent Change: STR Trend Report for 1987 through December 2014 n Forecast Total Supply Demand Percent Change: PKF Hotel Horizons Econometrics of U.S. Lodging Markets - August 2015 Ed. n Average Supply Growth: http://www.hospitalitynet.org/ news/4053788.html Lodging demand eclipsed supply growth beginning in 2010, as noted below. From 2010 to 2015, hotel demand increased 23.5% as compared with a 4.9% growth in supply, according to CBRE Hotels. As a result of this imbalance, RevPAR (Revenue per Available Room) is expected to see continued growth following an increase of 6.8% in 2015. The combination of strong demand growth and suppressed supply should result in pricing power for hotel operators and asset appreciation for hotel investors. CBRE Hotels- Hotel Horizons Econometrics of US Lodging Markets September-November 2016 Edition Why Hotels?—The Imbalance -20% -15% -10% -5% 0 5% 10% 1988 1991 1994 1997 2000 2003 2006 2009 2012 2016 Supply RevPAR Demand U.S. Hotel Supply, Demand, & RevPAR Trends RevPAR vs. Supply vs. Demand (1988 - 2016) -20% -15% -10% -5% 0 5% 10% 1988 1991 1994 1997 2000 2003 2006 2009 2012 2016 U.S. Market RevPAR RevPAR Growth (1988 - 2016) Ashoteldemandincreasesatafasterratethannewsupply, the anticipated result will be pricing power. As a result, hotel property owners are expected to have the ability to increase room rates dramatically due to the under-supply of hotel rooms. Due to this expectation, hospitality industry experts anticipate a rise in pricing power, increased revenues and asset appreciation during the near-term. The RevPAR growth chart below and to the left reflects historical and projected trends in RevPAR. While some investors purchase and sell hotel properties based on the timing of market fundamentals and therefore would be less inclined to sell into a market with rising rates and occupancies, there are other factors such as loan maturities that motivate sellers. Specifically, we think many hotel investors will consider selling hotel properties due to the number of 10-year loans coming due between 2014 and 2017. These loan maturities will, in many instances, create situations in which owners are motivated to sell their hotels, even at discounted values, in order to avoid paying off a maturing loan. Owners may also face pressure to return invested funds to investors within the time frame they originally expected. The table above is based upon the following sources: n Historical RevPAR: STR Trend Report for 1987 through December 2014 n Forecast RevPAR: PKF Hotel Horizons Econometrics of U.S. Lodging Markets - August 2015 Ed. n Historical Total Supply/Demand Percent Change: STR Trend Reports for 1987 through December 2014 n Forecast Total Supply/Demand Percent Change: PKF Hotel Horizons Econometrics of U.S. Lodging Markets - August 2015 Ed The table above is based upon the following sources: n Historical RevPAR: STR Trend Report for 1987 through December 2014 n Forecast RevPAR: PKF Hotel Horizons Econometrics of U.S. Lodging Markets - August 2015 Ed M O O D Y N A T I O N A L R E I T I I , I N C . M O O D Y N A T I O N A L R E I T I I , I N C . *All properties shown are owned by Moody National REIT II, Inc.