Supply Side Forecast for 2007 Shows 100,000 New Guestrooms to Open; '07 Expected to be a Second Record-breaking Profit Year in a Row

Business Wire, July 14, 2005

PORTSMOUTH, N.H. -- Lodging Econometrics (LE), the Industry Authority for Hotel Real Estate, has released for the first time, its supply growth forecast for 2007 in its mid-year report to the lodging industry. Additionally, LE revised its forecast for supply growth in both '05 and '06 after reviewing over 3,000 project records in the Development Pipeline with individual Developers and re-verifying anticipated start and completion dates with various Brand Managers.

Patrick Ford, President, said, "LE forecasts that 917 hotels with 100,559 guestrooms will open in '07. That's the highest total for new openings since '01, but far removed from the peak set in 1998 when 1,532 hotels with 156,471 rooms opened. Because the supply increase forecasted for '07 is modest - just 16,101 more rooms than '06 - and because the industry has already seen 26 consecutive months of improved demand, which is expected to continue well into the expansionary phase of the present cycle - 2007 is on track to become the second record-breaking profit year in a row. It's expected to exceed the record $26 billion anticipated for '06."

NEW CONSTRUCTION OPENINGS
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                             Hotels                Guestrooms
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  '07 (E)                      917                    100,559
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  '06 (E)                      778                     84,458
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  '05 (E)                      701                     70,646
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  '04 (A)                      555                     58,420
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                                  Source: Lodging Econometrics
                  The Industry Authority for Hotel Real Estate
                                         Portsmouth, NH  03801

Ford said, "There are few New Hotel Project Announcements entering the Pipeline in CBD's of major cities. We're still too early in the cycle. In many markets the economic recovery has not been broad enough to produce sufficient job growth, so business travel, although improving, has not as yet fully recovered or pricing power completely returned. LE estimates that by the end of 2005, between 10 and 12 markets of the Top 25 will still not have fully recovered to pre-9/11 operating levels. That indicates that there is still room for additional industry profitability growth towards the back end of the decade."

The majority of Planned Construction growth is scheduled to take place at highway locations, in smaller cities, and in the outer suburbs of larger cities - mostly in the Upscale, Midscale w/o F&B, and Economy segments. The leading Upscale brands are Marriott's Courtyard, Residence Inn and SpringHill Suites with a combined 50% Construction Pipeline share within the chain scale, and Hilton's Garden Inn and Homewood Suites with a 33% share. Holiday Inn Express, with a 29% share, and Hampton Inn and Suites, with 22%, are the fastest-growing brands, along with Comfort Inn and Suites in the Midscale w/o F&B segment, while Microtel, with a 46% share, is the Economy leader.

Guestroom Supply is Actually Shrinking in Some Markets

58,240 new guestrooms were added in 2004, resulting in a reported 1% net supply increase, after guestroom removals from the Census inventory. Although 70,646 rooms will be added in 2005, early indications are that net new supply growth will actually finish below 1% this year.

Ford said, "Despite a modest flow of New Hotel Openings, 11 of the Top 25 Markets actually show negative supply growth through the first half of '05, up from six markets in '04. The reason is that a significant number of guestrooms are going 'off market.' In many markets, hotels are temporarily closed because they are being reflagged and/or are undergoing extensive renovation programs. In the Southeast, it's because of damage incurred during last year's hurricane season."

A large number of functionally obsolete properties from the '50's and '60's - particularly in resort communities and in many smaller markets - are being forced to close by a newer generation of products in the Midscale w/o F&B and Economy segments that are more contemporary and have greater consumer appeal.

In larger tourist destinations, like Anaheim, Orlando, Phoenix, and Hawaii, along with the Florida and California coasts, and at golf and ski destinations, old properties with prime locations are sometimes being demolished for new hotel construction, but more often than not, for condominium projects that will serve as primary or secondary residences.

In urban centers - financial and technology centers are the best examples - in cities like Washington, DC, New York, Boston, Miami, San Francisco, and Los Angeles - some hotels are converting a portion of their guestrooms into residences. Ford said, "Across the country, there are 28 existing hotels known to be joining the Condo Hotel bandwagon. Seventeen are converting a percentage of their guestrooms into residences, while another 11 are completely converting to 'Condo Hotels,' selling their entire guestroom inventory as individual condominium investments."