U.S. Lodging Horizon 2008 U.S. Lodging Horizon 2008 ”What Lies Ahead?” Hotel Ezra Cornell 83 Friday, April 4, 2008 R. Mark Woodworth

Presentation Outline I.The Economy: Good and Bad for Hotels II.Historical Recessions: What Can We Learn? Some Thoughts to Take-away I.The Economy: Good and Bad for Hotels II.Historical Recessions: What Can We Learn? Some Thoughts to Take-away

Question: Are we headed for a recession? Or just a healthy correction?

Economy.com’s Current Outlook Drives our Forecasts 90% Probability of a Recession Source: Moody’s Economy.com

Much Happening in the National Economy I.Credit Crunch: Stifles Consumer & Business Activity II.High Oil Prices: ‘Fuels’ Inflation; Impacts Travel III.Low Dollar Valuation Helps In-Bound International Travel InflationIncreases Exports, Inflation IV.Employment Growth Slowing I.Credit Crunch: Stifles Consumer & Business Activity II.High Oil Prices: ‘Fuels’ Inflation; Impacts Travel III.Low Dollar Valuation Helps In-Bound International Travel InflationIncreases Exports, Inflation IV.Employment Growth Slowing

Credit Crunch: Worry, Don’t Panic! Wall Street vs. Main Street “Big banks are in more difficulty than small ones. Small business can still borrow and views the problem as affecting Wall Street, not Main Street.” Mid-West Bank Economist

Credit Crunch: Panic, Don’t Worry! The Sky Just Might be About to Fall “I sensed fear among the economists that the termites in the floor of the financial system might stop holding hands. This would trigger systemic failure across many countries, corporations and markets.” Wall Street Economist

Size of the Global Securities Markets Sub-prime Loans $0.7 Trillion

10 Year Inflation Expectations 116 bp Increase Since Q406 Source: Economist View, January 8, 2008 Inflation is Good:Inflation is Bad: Lifts ADR’s Hurts Overall Economy Increases Borrowing Costs Source: Federal Reserve Bank of Cleveland

Inflation Rarely a Problem for Hotel Profits Annual Change From 1960 to 2007 Revenue Change Greater Than CPI – 30 of 48 Years Expense Change Greater Than CPI – 30 of 48 Years PKF Hospitality Research, BLS

Consumers Are Making Tough Decisions Source: BOC

In-Bound International Travel

In-Bound International Travel Finally Back to Pre-2001 Levels

Change in Total Employment – U.S. Q109 Low Point – Recession Scenario - Mild F Source: Moody’s Economy.com

2008 Economy: Good and Bad for Hotels 2008 Economy: Good and Bad for Hotels Declining interest rates. Keeps debt costs low. Weak dollar: International travel remains strong. High commodity prices: Helps keep supply in check. Rising unemployment helps hotel labor costs. Declining interest rates. Keeps debt costs low. Weak dollar: International travel remains strong. High commodity prices: Helps keep supply in check. Rising unemployment helps hotel labor costs. Good

2008 Economy: Good and Bad for Hotels 2008 Economy: Good and Bad for Hotels Bad Uncertainty leads to inaction: Demand suffers. High cost of transportation: Discourages travel. Recession probability: Now at 90% (was at 14% Q407). Uncertainty leads to inaction: Demand suffers. High cost of transportation: Discourages travel. Recession probability: Now at 90% (was at 14% Q407).

Presentation Outline I.The Economy: Good and Bad for Hotels II.Historical Recessions: What Can We Learn? III.Some Thoughts to Take-away I.The Economy: Good and Bad for Hotels II.Historical Recessions: What Can We Learn? III.Some Thoughts to Take-away

U.S. Demand - Lagging Since 2006 Four Straight Years of Below Average Growth – A First! U.S. Demand - Lagging Since 2006 Four Straight Years of Below Average Growth – A First! LRA Demand  : 2.0% Source: PKF Hospitality Research, STR, BLS, Moody’s Economy.com Forecast

All US - Tale of Two Recessions No Big Dips This Time Around Forecast Source: PKF Hospitality Research, STR, BLS, Moody’s Economy.com

Historical Change in U.S. Lodging Demand 12 Month Moving Average Sources: PKF-HR, Smith Travel Research April November April December 2007

Historical Change in U.S. Lodging Demand – Trough is Behind Us 12 Month Moving Average Sources: PKF-HR, Smith Travel Research April November April December 2007

'88'89'90'91'92'93'94'95'96'97'98'99'00'01'02'03'04'05'06'07'08F'09F'10F High Supply Growth Preceded Last Two Downturns Not This Time Around High Supply Growth Preceded Last Two Downturns Not This Time Around Supply Demand Occupancy ADR RevPAR Annual Change Relative to Long Term Average Source: PKF Hospitality Research, Smith Travel Research

Strong ADR Growth Will Continue Superior RevPAR Performance Will Result 2008 = the Low Point Going Forward Strong ADR Growth Will Continue Superior RevPAR Performance Will Result 2008 = the Low Point Going Forward Long Term Average F 2009F2010F Supply2.0%0.4%-0.1%0.2%1.4%2.6%2.2%2.0% Demand 2.0%4.0%2.8%0.5%1.2%0.9%1.7%2.4% Occupancy 62.8%61.3%63.1%63.3%63.2%62.2%61.9%62.1% ADR 3.5%4.2%5.5%7.5%5.9%4.7%4.4%4.8% RevPAR3.5%7.9%8.5%7.8%5.7%3.0%3.9%5.2% Source: PKF Hospitality Research, Smith Travel Research 2008: 62.8%, 5.3%, 4.5%

U.S. Hotels Historical Profit* Margins Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization. Source: PKF Hospitality Research Forecast

Real RevPAR Growth 90 Days Ago… Forecast Change – Real RevPAR Growth 90 Days Ago… Forecast Change – Top 5: Anaheim Oakland Fort Lauderdale Tucson Richmond Bottom 5: Fort Worth Houston San Antonio Indianapolis Jacksonville 7.4% 7.3% 6.6% 6.4% 6.2% -3.2% -2.6% -2.4% -1.1% -1.0% Change RevPAR growing on par with CPI RevPAR growing slower than CPI RevPAR growing faster than CPI Change PKF Hospitality Research, Moody’s Economy.com

Real RevPAR Growth Today… Revised Forecast Change – Real RevPAR Growth Today… Revised Forecast Change – Top 5: Salt Lake City Austin San Francisco Fort Lauderdale Denver Bottom 5: Fort Worth San Antonio Long Island Jacksonville Houston 3.9% 3.7% 3.5% 3.3% -5.4% -3.7% -2.9% -2.8% -2.0% Change RevPAR growing on par with CPI RevPAR growing slower than CPI RevPAR growing faster than CPI Change PKF Hospitality Research, Moody’s Economy.com

Presentation Outline I.The Economy: Good and Bad for Hotels II.Historical Recessions: What Can We Learn? III.Some Thoughts to Take-away I.The Economy: Good and Bad for Hotels II.Historical Recessions: What Can We Learn? III.Some Thoughts to Take-away

Something to Take Away 1)Recession will Lead to Real RevPAR Declines in 21 U.S. Markets – Overall Landscape Remains Sound 2)NOI Deceleration Will End in 2008 – No Double Growth in Sight, However 3)Short Term Softness Will be Just That: – Above Average RevPAR Growth to Return in 2009

29 For a copy of this presentation please contact Claude Vargo (404) ext. 237