2004 Economic Forecast for Innkeepers U.S. Lodging Industry Historical Perspective and Future Forecast

1. 2004 Economic Forecast for Innkeepers U.S. Lodging Industry Historical Perspective and Future Forecast Presented to:Massachusetts Lodging Association Geoff Baekey November 6, 2003

2. Topics • Recent lodging trends • Why is this cycle so different? • U.S. lodging industry forecasts

3. Recent Lodging Trends 1.

4. U.S. 2002 Occupancy Was The Lowest In The Past 31 Years Occupancy Percentage Long-Term Average, 1975-2001: 64.8% 200159.7% 2002 59.1% Sources: PricewaterhouseCoopers L.L.P. (1975 to 1986), Smith Travel Research (1987 to 2002)

5. 2002 U.S. Lodging Occupancy • 2002 occupancy was 59.1% • Occupancy has been lower in only: • 5 of the past 75 years • 2 of the past 35 years Sources: PricewaterhouseCoopers L.L.P. based on Smith Travel Research data

6. Annual Average Daily Rate Declines In 2001 and 2002 Were The First In The Past 24 Years Percentage Change From Prior Year Nominal ADR 20012.8% CPI 20021.6% 2001-1.0% 2002-1.5% Sources: PricewaterhouseCoopers L.L.P. (1967 to 1986), Smith Travel Research (1987 to 2002)

7. Relevant Performance Year to Date September 2003U.S. Lodging Market Sources: PricewaterhouseCoopers L.L.P. (1967 to 1986), Smith Travel Research (1987 to 2002)

8. Performance of Top 25 Markets Sources: PricewaterhouseCoopers L.L.P. (1967 to 1986), Smith Travel Research (1987 to 2002)

9. Profits Declined 25.3 Percent In 2001 And 15.5 Percent In 2002 Income Before Income Taxes, Billions of Dollars $22.5 $16.8 $14.2 Note: Smith Travel Research has a different calculation method for 2001 and 2002. Sources: PricewaterhouseCoopers L.L.P. (2002 to 2004), Smith Travel Research (1998 to 2001)

10. Room Starts Declined, But Less Than Previous Trough Room Starts Long-Term Average, 1967-2002: 92,608 Sources: PricewaterhouseCoopers L.L.P. (2003 to 2004), PricewaterhouseCoopers L.L.P. based on F.W. Dodge data (1967 to 2002)

11. Why Is This Cycle So Different? 2.

12. By Many Measures, The 2001 Recession Has Been Mild… Source: PricewaterhouseCoopers L.L.P.

13. More Robust Economic Growth Ahead While Inflation Remains Low Percentage Change from Prior Year Real GDP Inflation Source: Macroeconomic Advisers L.L.C.

14. Capital Costs Will Remain Low, Re-hiring Will Lag Percentage Change from Prior Year Unemployment Rate 10-Year Treasury Yield Inflation Real GDP Fed Funds Rate Sources: Macroeconomic Advisers L.L.C. Source: Macroeconomic Advisers L.L.C.

15. Daily U.S. Occupancy Performance Jun. 30 Alert Oct. 12 Bali Bomb May 20 Alert Nov. 12 A/A Crash Oct. 11 Alert Mar. 17 Alert Sep. 10 Alert Oct. 29 Alert Nov. 14 Alert May 21 Alert Feb. 7 Alert Feb. 12 Alert Occupancy Percentage Change Seven-Day Moving Average of Occupancy Percentage Change From Prior Year Sources: PricewaterhouseCoopers L.L.P. based on Smith Travel Research data

16. Factors Promoting Faster Growth • Stock market recovery • Expanding manufacturing and non-manufacturing activity • Improving corporate profits • Low interest rates, amid higher loan to values are narrowing financing gaps • Strong productivity growth • Fiscal stimulus

17. U.S. Lodging Industry Forecasts 3.

18. The Concept of the “Demand and ADR Gap” 2,800 ADR Gap 2,700 Demand Gap RevPAR Gap 2,600 Long-Run Demand Trend Long-Run ADR Trend Long-Run RevPAR Trend 2,500 Actual Demand 2,400 Actual ADR 2,300 Actual RevPAR 2,200 2,100 2,000 1,900 1,800 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 Nominal ADR (Seas. Adj.) Room Nights Sold in Thousands (Seas. Adj.) Nominal RevPAR (Seas. Adj.) Sources: PricewaterhouseCoopers L.L.P. based on Smith Travel Research data through June 2003

19. U.S. Macroeconomic Assumptions Source: Macroeconomic Advisers L.L.C. as of August 2003

20. Forecast Uncertainties Geopolitical Duration of military action in Iraq and post military action resolution Further terrorist actions against U.S. interests Macroeconomic Sustainability of corporate profit performance and investment spending Effect of lack of job growth on consumer spending growth • Travel Concerns • Personal safety • Inconvenience of travel • Substitute effect • Lower expenditures • Others • Resurge in SARS cases in the winter season

21. U.S. Lodging Industry Forecasts Sources: PricewaterhouseCoopers L.L.P. (2003 to 2005), Smith Travel Research (1999 to 2002)

22. Emerging Acceleration In Lodging Demand In Late Summer Room Nights Sold in Thousands (Seas. Adj.) FORECAST Sources: PricewaterhouseCoopers L.L.P. (2003 Q3 to 2005 Q4), Smith Travel Research (1997 Q1 to 2003 Q2)

23. Historical and Estimated Future Travel Demand Sources: PricewaterhouseCoopers L.L.P. (2003 to 2004), Smith Travel Research (2001 to 2002)

24. Little Occupancy Recovery in 2003 Change in Occupancy Points From Prior Year Sources: PricewaterhouseCoopers L.L.P. (2003 to 2005), Smith Travel Research (1999 to 2002)

25. Robust Demand Growth For All Segments In 2004 Change in Demand From Prior Year Sources: PricewaterhouseCoopers L.L.P. (2003 to 2005), Smith Travel Research (1999 to 2002)

26. Rate Growth Will Return in 2004 Percentage Change in Nominal ADR From Prior Year Sources: PricewaterhouseCoopers L.L.P. (2003 to 2004), Smith Travel Research (2001 to 2002)

27. RevPAR Will Exceed Inflation For All Segments By 2004 Percentage Change in Nominal RevPAR From Prior Year Sources: PricewaterhouseCoopers L.L.P. (2003 to 2005), Smith Travel Research (1999 to 2002)

28. Nominal RevPAR Losses For 2001 To 2002 Will Exceed 2003 And 2004 Increase For Four Segments Cumulative Percentage Change in RevPAR Increase between 2003 and 2004 Decline between 2001 and 2002 Sources: PricewaterhouseCoopers L.L.P. (2003 to 2004), Smith Travel Research (2001 to 2002)

29. Conclusions • Most severe occupancy and rate declines in 75 years • Profits exceeded what would have been achieved in any prior cycle • 2004 will be the year of robust demand growth in this cycle • Higher than historical supply growth with constrain ADR and RevPAR growth • Not until 2004 Q4 will RevPAR equal 1999 Q4 levels

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