The Lodging Industry

The Ritz-CarltonNaples, Florida

Industry Scope

35,000 Hotels in U.S.

3.7 million Rooms in U.S.

Annual Revenues of $95 Billion Profit of $19 Billion

Hotel Industry ProfitsNet Profit or Loss

-10

-5

0

5

10

15

20

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98

$Billion

Changing Sentiment in theCapital Markets

General anxiety over trouble abroad and their impact on the US economy.

Concerns about overbuilding.General feeling that easy money has been

made in the sector.Growth and momentum investors have sold

their positions and have not been replaced by value investors.

Capital market response has led to equilibrium.

1992 - 1998 Lodging Equity Offerings

$122

$871$1,367

$2,783

$7,172

$4,520

$1,649

$0

$1,500

$3,000

$4,500

$6,000

1992 1993 1994 1995 1996 1997 1998

Source: NationsBanc Montgomery Securities

Key Players

Management Company e.g. Marriott, Sheraton, Hyatt

Franchisor e.g. Holiday Inn, Best Western, Sheraton

Owner - numerous possibilities REIT Hotel Co. Private Owner or Ownership Group Joint Ventures

Average Management & Franchise Fees

% of Total Rev. Per Room % of Total Rev. Per RoomLimited Service 4.8% 725$ 3.3% 481$ Suite 4.4% 1,530$ 3.9% 1,264$ Resort 3.6% 2,336$ 1.9% 1,224$ Convention 3.3% 1,753$ 1.2% 575$ Full-Service 3.1% 1,177$ 3.0% 995$

MANAGEMENT FEES FRANCHISE FEES

Public C-Corporations

Market Cap ($ Millions) P/E Ratio

Marriott Int’l 8,500 23.8

Starwood 5,800 5.1

Hilton 3,800 12.9

Promus 2,900 19.3

Four Seasons 1,400 28.2

Public REITs

($ Millions) P/E Ratio

Host Marriott 2,600 14.5

Felcor 1,600 11.9

Patriot American 1,000 NA

Meristar 971 13.8

Innkeeper USA 351 11.3

REIT Structures

Normal REIT

Paired Share

Stapled or Paper Clip REIT

Private Hotel CompaniesHyatt

Destination Hotels & Resorts

KSL Resorts

Kimpton Group

Joie de Vivre Hospitality

Structure Example #1Hyatt Regency Kauai

Owner Mgmt Co.

Hotel

Hyatt Hotels

Hyatt RegencyKauai

Structure Example #2San Francisco Marriott

Owner

Mgmt Co.

Hotel

Marriott International

Host Marriott REIT

San Francisco Marriott

Structure Example #3Best Western Victorian Inn, Monterey

Best Western

Mom & Pop

Best Western Victorian Inn

Owner/Operator

Hotel

Franchisor

Structure Example #4Los Angeles Marriott

Owner

Mgmt Co.

Hotel

MeriStar Hotel & Resorts

Meristar Hospitality Corp (REIT)

Marriott Int’l.Franchisor

Los Angeles Marriott

Structure Example #5Ritz-Carlton, Philadelphia

Owner

Mgmt Co.

Hotel

Ritz-Carlton/Marriott Int’l.

Starwood Hotels

The Ritz-Carlton Philadelphia

Renaissance Hotels Ritz-Carlton

LIMITED SERVICE

No Food & Beverage Midscale Economy Budget

Suites/Extended Stay

Food & Beverage Deluxe Luxury Upscale Midscale

Resorts Convention Suites/Extended

Stay

FULL SERVICE

Deluxe

Four SeasonsRegentRitz-CarltonThe St. Regis

Luxury Collection

The Regent Beverly Wilshire

Ritz-Carlton

Full ServiceLuxury

HiltonHotel SofitelHyattMeridien Inter-ContinentalNikkoOmniMarriott HotelsWestinRenaissanceSheratonWyndham Omni Mandalay

Las Colinas, Texas

Full ServiceUpscale

DoubletreeCrowne PlazaHotel NovotelRadissonEmbassy SuitesRed Lion

Double TreeSan Diego -Mission Valley

Full ServiceMidscale with F&B

Best WesternCourtyardSheraton Four

PointsHoliday InnHoliday Inn SelectHoward JohnsonRamada Howard Johnson’s,

Vermont

Full ServiceResort

Lots of recreational activities.

Trend towards mixing business (conferences) with pleasure.

Ritz-Carlton Kapalua

Full ServiceConference Center

Typically located near convention centers.

Large meeting and banquet areas.

High volume.

San Antonio Marriott Rivercenter

Full ServiceCasino

Cost: $1.6 Billion3005 Rooms @ $185

ADR.$300 Million Art

Collection.15 Restaurants.Estimated EBITDA of

$309 million on $950 million in revenue. Bellagio, Las Vegas

Mirage Resorts

Limited ServiceMid Scale without F&B

Comfort InnHampton InnHilton Garden InnHoliday Inn

ExpressLa Quinta

Comfort Inn, West Virginia

Limited ServiceEconomy

Days InnFairfield InnBudgetelRed Roof InnTravelodge

Red Roof Inn, Ohio

Limited ServiceBudget

Motel 6Budget Host InnBudget InnEcono LodgeGreat WesternSuper 8Knights Inn Motel 6 Prototype

Extended StayUpper Tier

Hawthorn SuitesHomewood SuitesResidence InnCandlewood Suites

Comfort Inn, West Virginia

Hotel CensusFull Service Properties Rooms

Deluxe 173 48,644Luxury 802 351,957Upscale 925 229,131Midscale with F&B 5,305 698,509

Subtotal Full-Service 7,205 1,328,241

Limited ServiceMidscale without F&B 3,656 339,195Economy 3,992 346,323Budget 4,736 346,891

Subtotal Limited-Service 12,384 1,032,409

Upper Tier Extended-Stay 435 51,060Lower Tier Extended-Stay 655 72,327

Subtotal Extended-Stay 1,090 123,387

Total All Branded Hotels 20,679 2,484,037Independents 14,496 1,196,040

Total U.S. Hotels 35,175 3,680,077As of 9/98

Hotel Lingo Average Daily Rate (ADR) = Total Room Revenue / # of Rooms x 365

Occupancy % = Total Room Nights / # of Rooms x 365

Revenue Per Available Room (RevPAR) =ADR x Occupancy %

EBITDA =Earnings before Interest, Taxes, Depreciation and

Amortization

Top Markets # of Rooms

1998 Rank Rooms Hotels 1997 Rank1 Las Vegas, NV 112,000 265 12 Orlando, FL 95,100 350 23 Los Angeles-Long Beach, CA 80,800 653 34 Atlanta, GA 77,100 561 45 Chicago, IL 73,400 418 56 Washington, DC-Metro Area 71,800 387 67 New York, NY 68,300 248 78 Dallas, TX 54,900 361 89 Houston, TX 47,700 318 1210 San Diego, CA 46,800 393 911 Phoenix, AZ 45,700 310 1412 Anaheim-Santa Ana, CA 45,400 360 1013 San Francisco-San Mateo, CA 43,100 307 1114 Miami-Hialeah, FL 41,500 255 1315 Tampa-St. Petersburg, FL 36,900 312 16

Statistics of Top 15 MSA’s

1 New York, NY 82% New York, NY $175 New York, NY $1432 San Francisco, CA 81% San Francisco, CA $130 San Francisco, CA $1053 Orlando, FL 77% Boston, MA $127 Boston, MA $964 Boston, MA 76% Chicago, IL $109 Chicago, IL $805 San Diego, CA 75% Washington, D.C. $106 Washington, D.C. $786 Washington, D.C. 73% Miami-Hialeah, FL $101 San Diego, CA $757 Chicago, IL 73% Phoenix, AZ $100 Miami-Hialeah, FL $728 Los Angeles, CA 71% San Diego, CA $99 Phoenix, AZ $669 Miami-Hialeah, FL 71% Los Angeles, CA $89 Orlando, FL $66

10 Dallas, TX 68% Orlando, FL $85 Los Angeles, CA $6311 Atlanta, GA 67% Dallas, TX $82 Dallas, TX $5612 Phoenix, AZ 66% Atlanta, GA $79 Atlanta, GA $5313 Tampa-St. Pete, FL 66% Tampa-St. Pete, FL $79 Tampa-St. Pete, FL $5214 Houston, TX 66% Houston, TX $74 Houston, TX $4915 Norfolk, VA 62% Norfolk, VA $68 Norfolk, VA $42

Occupancy RevPARADR

Hotel Organization Chart

Front Office M anager Reservations M anager Housekeeping Sw itchboard Supervisor

Room s Division Director

Restaurant M anagers Room Service M anager Executive Chef Banquet M anager

Food & Beverage Director

General Manager

Sales M anager Convention Services M anager

Director of M arketing

General Manager

The Income StatementRevenue

Rooms 67.4%Food 19.6%Beverage 5.0%Telecommunications 2.7%Other Departments 3.3%Rentals & Other Income 1.9%

Total Revenues 100%

Costs & ExpensesRooms 17.2%Food 17.1%Beverage 2.3%Telecommunications 1.3%Other Departments 2.5%

Total Costs & Expenses 40.4%

Undistributed Operating ExpensesA&G 8.3%Franchise Fees 1.6%Marketing 5.4%Property Operation and Maintenance 5.0%Utility Costs 4.1%Other Unallocated Operated Departments 0.2%

Total Undistributed Expenses 24.6%

Income Before Fixed Charges 35.0%

Mgmt. Fees, Property Taxes & InsuranceManagement Fees 2.8%Property Taxes 3.2%Insurance 1.0%

Total Mgmt. Fees, Property Taxes & Insurance7.0%

EBITDA 28.0%

Occupancy % 71.1%ADR 91.60$ Average Size (Rooms) 199

Hotel Revenues

Food20%

Telecomm3%Beverage

5%

Other Operated Departments

3%

Rentals & Other Income

2%

Rooms67%

Trends in Revenue

57.0%60.5% 61.6% 63.1% 63.7% 63.5%

67.2% 67.4%

26.1%23.5% 23.4% 21.6% 21.0% 19.7% 19.7% 19.6%

9.8% 8.9% 7.7% 5.9% 5.6% 5.5% 5.2% 5.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

1977 1982 1987 1992 1993 1994 1995 1996

% o

f T

ota

l Rev

enu

e

Rooms

Food

Beverage

Hotel Expenses

Salaries & Benefits44%

Utility Costs6%

Management Fees, Property Taxes, & Insurance10%

Cost of Sales12%

Operating Expenses28%

Payroll Costs

Rooms 35.0%Food & Beverage 32.5%Telephone 1.4%Other 2.8%A&G 13.1%Marketing 7.2%Property Operations 7.8%Other Departments 0.3%

Total Payroll 100%

Payroll Taxes & Employee Benefits 33.8%Employee Meals 1.1%

Source: PKF Hotel Industry Trends 1998

Profitability

Income Before Fixed Charges EBITDALimited Service 50.6% 42.8%Suite 44.4% 35.5%Convention 36.4% 29.3%Full-Service 31.5% 24.7%Resort 29.4% 23.5%

Fixed Charges: Management Fees, Property Taxes & Insurance

Hotel Occupancy Rate

60%

61%

62%

63%

64%

65%

66%

87 88 89 90 91 92 93 94 95 96 97 98

Occupancy % by Segment

1998 1997Upper Tier Extended-Stay 79.80% 81.80%Luxury 74.20% 75.30%Deluxe 73.90% 74.80%Upscale 69.90% 71.40%Midscale w/out F&B 68.70% 69.60%Lower Tier Extended-Stay 68.50% 70.70%Midscale with F&B 64.40% 65.30%Budget 63.20% 63.00%Economy 60.20% 60.40%

Total U.S. Hotels 66.80% 67.50%

Source: Bear, Stearns & Co. 1999

ADR & RevPAR by Segment

Source: Bear, Stearns & Co. 1999

1998 1997 1998 1997Deluxe $201 $183 $149 $137Luxury $138 $129 $102 $97Upscale $99 $94 $79 $78Upper Tier Extended-Stay $98 $95 $69 $67Midscale with F&B $70 $66 $45 $43Midscale without F&B $64 $60 $44 $42Economy $51 $49 $31 $30Lower Tier Extended-Stay $43 $38 $29 $27Budget $43 $41 $27 $26

Total U.S. Hotels $80.03 $76.35 $53.45 $51.52

Average Daily Rate RevPAR

Cap Rates

7.00%

8.00%

9.00%

10.00%

11.00%

12.00%

1988 1990 1992 1994 1996 1997

Hotel

Offi ce

Industrial

Retail

Source: PKF Consulting

Spread between 10 Year Treasury & Cap Rates

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

1986 1988 1990 1992 1994 1996 1997

Resort

Full Service

L imited Service

Source: PKF Consulting

Hotel ConstructionContracts Awarded - F.W. Dodge

0

20

40

60

80

100

80 82 84 86 88 90 92 94 96 98

Million SF

R o s e n C o n s u lt in g G ro u p

R e a l E s ta te C y c leH o te l