PKF: Current Decline Will be Deeper and Last Longer

Nationally, RevPAR Expected to Drop 13.7% in 2009

. March 18, 2009

ATLANTA, GA, March 18, 2009 - PKF Hospitality Research (PKF-HR) today announced that, according to its March 2009 edition of Hotel HorizonsSM, the current decline in the U.S. lodging industry will be deeper and last longer than the company had previously predicted. RevPAR is now expected to drop 13.7 percent in 2009, and a quarter-over-quarter gain in sales is not anticipated until the first quarter of 2011. The revised lodging forecast is based on worsening economic projections from Moody's Economy.com.

Hotel HorizonsSM is a quarterly series of reports containing five-year forecasts of performance for the U.S. lodging industry and 50 major markets across the country. The lodging forecasts presented in the March 2009 edition of Hotel HorizonsSM are based on Smith Travel Research (STR) hotel performance data through December 2009 and Moody's Economy.com's February 2009 economic forecast for the nation. The latter reflects the expected impact of the recently enacted federal legislation aimed at stimulating the economy.

"Our national forecast encompasses the aggregate performance of thousands of hotels located all across the country. At that level, the outlook for the U.S. lodging industry is grim," said R. Mark Woodworth, president of PKF Hospitality Research. "However, when analyzing the data for each of the 50 individual markets that comprise our Hotel HorizonsSM universe, it is clear that lodging behavior can vary considerably from market to market."

The Pain is Now

The PKF-HR March 2009 national forecast calls for a 13.7 percent decline in RevPAR during the current year, representing a downward revision to the 9.8 percent decline anticipated earlier this year, a time when the economic outlook was not quite as severe. The revised 2009 forecast is the result of a 7.8 percent fall off in occupancy and a 6.4 percent drop in Average Daily Rate (ADR) for the year.

U.S. Lodging Industry Forecast*

Change In Performance 2008 to 2009

Measure Change

Supply 2.6%

Demand -5.4%

Occupancy -7.8%

ADR -6.4%

Rooms RevPAR -13.7%

Unit-Level Total Revenue -13.0%

Unit Level Expenses -6.0%

Unit Level NOI** -30.1

Note: * March 2009 Hotel Horizons(SM) Report

** Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization.

Source: PKF Hospitality Research"Of most concern are declining room rates," Woodworth noted. "The 6.4 percent decrease in ADR forecast for 2009 is the largest annual decline observed by PKF-HR since the firm began compiling data in 1932. When revenue contraction is heavily influenced by declines in ADR, the downward impact on profit is amplified." PKF-HR is forecasting that the average U.S. hotel will experience a 30.1 percent decline in profits during 2009. This, too, is a level of deterioration not seen since the 1930s. Profits are defined as income before the deduction for capital reserves, rent, interest, income taxes, depreciation, and amortization.

Although double-digit declines in both revenues and profits appear certain, the new report indicates there is a small pinpoint of light at the end of the economic tunnel. The most severe declines in performance for U.S. hotel owners and operators are forecast to occur in the current quarter, and should begin to subside by mid-2009. "Fading revenues will persist throughout 2009 and 2010. However, the magnitude of RevPAR declines will taper off to single digits beginning in the fourth quarter of 2009," Woodworth said. "Continuing declines will further erode profits, but the leaching will become less painful as we move through this deep and extended trough in the business cycle."

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