LE Revises Supply Side Forecast Downward for '06 and '07

Identifies Trend Setting Markets

. October 14, 2008

PORTSMOUTH, NH, October 23, 2006. Lodging Econometrics (LE), the Industry Authority for Hotel Real Estate, in its third quarter report to the Lodging Industry reduced its Supply Side Forecast for New Hotel Openings in 2007 to 1,087 projects having 115,956 rooms, a decrease of 3,470 rooms over its most recent estimate, said Patrick Ford President. LE also reduced its final estimate for '06 to 775 projects having 80,951, a decrease of 4,796 rooms.

"The forecast reductions are a result of ongoing discussions with developers where they reported continued problems completing projects on budget and on time," said Ford. Although cost pressures on some building materials are abating and more construction crews are available there is still considerable redesign and reengineering required to make projects fit within original budgetary estimates."

These delays in New Supply coming on-line create a "silver lining" for the industry, and mean that 2007 should be another strong record breaking revenue and profit year. It furthers means that it will not be until '08 before growing pipeline totals have any meaningful impact on industry wide operating results, albeit from very high levels. As is typical late in a development cycle, '08 will see a larger flow of luxury, upper upscale and casino projects come on line - mostly in CBD locations, the suburbs of larger cities, and in resort destinations.

New Project Announcements into the Pipeline rose to 521 projects/70,466 rooms in 3Q; a quarter over quarter (QoQ) increase of 147 projects. After accounting for cancellations and postponements and 188 New Openings in 3Q, the Total Pipeline grew to a cyclical high of 3,570 projects with 489,380 rooms. That's a near doubling off the low established in 4Q03.

Ford said, "Many developers commented on an improved outlook for development. They were encouraged by the Fed holding steady on interest rates and with the recent declines in the price of oil, both of which serve to offset some concerns about a retreat in consumer spending brought about by sharp declines in the residential housing market.

These are positive signals for developers and suggest that Development Pipeline growth may extend further into the decade even as they remain cognizant that projects announced today won't open until late in the operating cycle.

The industry-wide rate of growth for both ADR and RevPar will peak in '06 and then begin to moderately taper. However, the rate of demand growth has already peaked in '04.

Year to date (YTD) operating results through August show that seven significant markets are nearing historical occupancy highs. Many first lead the recovery, are now beginning to experience modest declines in demand growth and will rely most on ADR increases for improved financial results in the future. Yet, they will have stronger than average pipelines to absorb through the end of the decade.

Accordingly, LE has identified these bellwether markets to monitor: Las Vegas, Miami, New York, Orlando, Philadelphia, Tampa and Washington.

Some are resort destinations, but they all rely on leisure travel and are, therefore, dependent on the discretionary spending of consumers. If not already experiencing some fall off in leisure demand, they are likely to in the future and will necessarily begin to make pricing adjustments.

They are bellwether markets to monitor because changes in leisure demand and/or difficulty absorbing new supply will pinpoint the peak of the industry wide operating cycle, and signal the shift towards a soft landing for operations.

Lodging Econometrics (LE) of Portsmouth, NH is the industry authority for hotel real estate.+ LE's Development Pipeline databases contain individual project records for Hotel, Condo Hotel and Timeshare development worldwide.

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