Double Digit Hotel Returns Likely to Continue

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. October 14, 2008

NEW YORK NY, October 11, 2006. Hotel investors, who are currently registering total hotel returns in the order of 21%, are likely to continue enjoying double digit returns until at least mid 2008 according to Hotel Investment Strategies, LLC, a lodging investment advisory firm based in New York.

Hotels recorded total returns of 20.8% for the year ended June 2006 with income and capital returns registering 8.7% and 11.4% respectively according to NCREIF. Current hotel returns are the highest returns recorded since the third quarter of 1998.

"Appreciation returns are likely to remain positive until late 2009 when they are forecast to revert to their long term average of minus 0.5%, the lowest of all the property types," said Ross Woods, Principal of Hotel Investment Strategies.

"Income returns, on the other hand, are likely to average about 8.5% for the remainder of the decade which compares with their long term average of 9% since 1981." "We believe there is about a 70% chance of achieving income returns of between 7.6% and 9.3% over the next three to four years," said Mr. Woods

The forecasts are based on an econometric forecasting model of hotel returns recently developed by Hotel Investment Strategies. The model is used to explore the trajectory of hotel prices and trends in future income and appreciation returns in a way that reflects the underlying economic assumptions that impact the returns over a complete hotel market cycle.

"The current hiatus in returns is unlikely to last as long as the previous record period of double digit returns in the late 1990s," said Mr. Woods. Investors enjoyed double digit total returns for about 21 consecutive quarters from the third quarter 1995 through to the third quarter 2000. "We expect the current run to last about fourteen quarters ending in mid 2008', said Mr. Woods. During the last upcycle between 1995 and 1999, total hotel returns peaked in 1997 at just over 30%.

"With cap rates likely to increase by about 96 basis points over the next two years and net operating income moderating, the growth in capital appreciation is expected to decline but remain positive until late 2009," said Mr. Woods.

"While many institutional investors have traditionally viewed hotels as high-risk opportunistic investments, we believe they are excellent alternative high yield investments with attractive diversification benefits", said Mr. Woods. "Many institutions that have shied away from the sector over the years are making a bee-line for the sector now."