PricewaterhouseCoopers Revised Forecast Reflects Improving Economic Conditions

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. September 14, 2009

SEPTEMBER 14, 2009 - PricewaterhouseCoopers (PwC) LLP updated US lodging forecast reflects improved economic conditions and a resumption of economic growth in the second half of 2009. While occupancy levels and average daily rates (ADR) in the second half of 2009 are expected to remain below year ago levels, resulting in a 16.1 percent decrease in room revenue per available room (RevPAR) in 2009, PricewaterhouseCoopers expects that average daily rates (ADR) will continue to decline in 2010. This rate weakness is expected to be off-set by a 1.1 percent increase in occupancy, resulting in stable RevPAR levels in 2010.

PricewaterhouseCoopers' quarterly lodging forecast is based on updated macro-economic forecasts from Macroeconomic Advisers, LLC. After a substantial 6.4 percent decline in the first quarter of 2009, following a 5.4 percent decline in the fourth quarter of last year, real gross domestic product ("GDP") declined at an annualized pace of 1.0 percent in the second quarter of 2009, consistent with an expected turning point in the US economy. Macroeconomic Advisers LLC estimates that the US economy troughed in June 2009 and forecasts slightly above long-term trend growth in GDP during the third and fourth quarters of 2009. As a result, GDP is expected to decline at an annualized pace of 2.6 percent in 2009, followed by a 3.1 percent increase in 2010.

According to PricewaterhouseCoopers' current lodging forecast, lodging demand in the third and fourth quarters is forecast to be 4.0 percent and 0.5 percent below last year's levels, respectively, resulting in an annual decline of 5.3 percent in 2009. The year-over-year comparison in the fourth quarter of 2009 reflects the one-year anniversary of the abrupt decline in lodging demand which occurred during the fourth quarter of 2008. A deceleration of lodging supply growth is expected to result in an annual lodging supply increase of 2.4 percent in 2009. Despite slowing supply growth, this supply-demand imbalance is expected to compress occupancy levels by 8.0 percent in 2009, resulting in an average annual occupancy level of 55.5 percent. Although the economy is expected to gradually improve in the second half of the year, ADR levels are expected to continue to be compressed, resulting in an 8.7 percent decline in ADR and a 16.1 percent decrease in RevPAR in 2009. Hotels in the Luxury and Upper Upscale Chain Scale segments are expected to experience greater declines in RevPAR, due to continued pricing pressure primarily from both larger corporate accounts and meetings.

In 2010, as the US economy grows at an above-trend rate, RevPAR is forecast to remain stable, driven primarily by a 1.1 percent increase in occupancy, as increasing demand and slowing supply growth are expected to increase the average annual occupancy level to 56.1 percent in 2010. Despite increasing demand, hotels, particularly in higher-priced chain scales, are expected to continue to face pricing pressures, resulting in a further 1.1 percent decrease in ADR.

PricewaterhouseCoopers continues to monitor the pricing strategies and yield management decisions adopted by lodging operators. While the beginning of the recovery for hotels is expected to be primarily demand driven, as the recovery gains momentum, rate strategies implemented by hotels will have an increasingly important role in the magnitude and speed of this recovery.

"Although recent levels of room night demand have been more favorable, the demand environment during the second half of 2009 is expected to remain challenging," says Scott D. Berman, principal and US Industry Leader, Hospitality & Leisure, for PricewaterhouseCoopers. "This, coupled with a difficult rate environment is expected to compress RevPAR levels for the rest of 2009. In 2010, although demand is expected to start growing again, hotels are expected to face continued pricing pressures."