U.S. Lodging Horizon 2008 ” What Lies Ahead? ”

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

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

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

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

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

6. 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.”

7. 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.”

8. Size of the Global Securities Markets Government/Banks Asset-backed Securities Corporate $70.7 Trillion $67.7 Trillion $10.7 Trillion Sub-prime Loans $0.7 Trillion Sub-prime Loans $0.7 Trillion

9. 10 Year Inflation Expectations 116 bp Increase Since Q406 Source: Economist View, January 8, 2008 Inflation is Good: Inflation is Bad: • HurtsOverall Economy • Increases Borrowing Costs • Lifts ADR’s Source: Federal Reserve Bank of Cleveland

10. 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

11. Consumers Are MakingTough Decisions Source: BOC

12. In-Bound International Travel

13. In-Bound International TravelFinally Back to Pre-2001 Levels

14. Change in Total Employment – U.S. Q109 Low Point – Recession Scenario - Mild 1988 - 2012F Source: Moody’s Economy.com

15. 2008 Economy: Good and Bad for Hotels Good • 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.

16. 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).

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

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

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

20. Historical Change in U.S. Lodging Demand 12 Month Moving Average December 2007 April 2007 - <0.2%> November 1991 - <1.2%> April 2002 - <4.8%> Sources: PKF-HR, Smith Travel Research

21. Historical Change in U.S. Lodging Demand – Trough is Behind Us 12 Month Moving Average December 2007 April 2007 - <0.2%> November 1991 - <1.2%> April 2002 - <4.8%> Sources: PKF-HR, Smith Travel Research

22. HighSupply Growth Preceded Last Two Downturns Not This Time Around Annual Change Relative to Long Term Average Supply Demand Occupancy ADR RevPAR Source: PKF Hospitality Research, Smith Travel Research

23. Strong ADR Growth Will Continue Superior RevPAR Performance Will Result 2008 = the Low Point Going Forward 2008: 62.8%, 5.3%, 4.5% Source: PKF Hospitality Research, Smith Travel Research

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

25. Real RevPAR Growth 90 Days Ago… Forecast Change – 2007-2008 Top 5: Anaheim Oakland Fort Lauderdale Tucson Richmond Bottom 5: Fort Worth Houston San Antonio Indianapolis Jacksonville Change 7.4% 7.3% 6.6% 6.4% 6.2% Change -3.2% -2.6% -2.4% -1.1% -1.0% RevPAR growing faster than CPI RevPAR growing on par with CPI RevPAR growing slower than CPI PKF Hospitality Research, Moody’s Economy.com

26. Real RevPAR Growth Today… Revised Forecast Change – 2007-2008 Top 5: Salt Lake City Austin San Francisco Fort Lauderdale Denver Bottom 5: Fort Worth San Antonio Long Island Jacksonville Houston Change 3.9% 3.7% 3.5% 3.3% 3.3% Change -5.4% -3.7% -2.9% -2.8% -2.0% RevPAR growing faster than CPI RevPAR growing on par with CPI RevPAR growing slower than CPI PKF Hospitality Research, Moody’s Economy.com

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

28. Something to Take Away • Recession will Lead to Real RevPAR Declines in 21 U.S. Markets – Overall Landscape Remains Sound • NOI Deceleration Will End in 2008 – No Double Growth in Sight, However • 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) 842 1150 ext. 237 Claude.Vargo@pkfc.com 29