Atlanta, GA, July 9, 2001 - The Hospitality Research Group (HRG), the
research affiliate of PKF Consulting, finds that the average U.S. hotel
posted a very healthy 10.1 percent increase in profits in 2000. However,
given the current slowdown in the lodging industry, it is estimated that the
average U.S. hotel will be less profitable in 2001. The 2000 results are
based on the firm's recently completed Trends in the Hotel Industry survey,
an annual review of U.S. hotel operations conducted by HRG and its
affiliate, PKF Consulting, since 1935.

'The 10.1 percent growth in profits achieved in 2000 is the strongest we've
seen since 1997. It was a result of moderate increases in both occupancy
and average daily room rates,' says R. Mark Woodworth, Executive Managing
Director of Atlanta-based HRG. 'In 2001, however, we are in an environment
of declining occupancies and minimal rate growth. Under these conditions,
it will be extremely challenging for hotel management to maintain their
bottom line.'

Based on an estimated 1.2 percent decline in occupancy, together with a 2.4
percent increase in average daily rates (ADR) in 2001, HRG is projecting
that the average U.S. hotel will suffer a 5.6 percent decline in operating
profits for the year. Operating profits are defined as income after
management fees, property taxes, and insurance, but before capital reserves,
rent, interest, income taxes, depreciation, and amortization.

'The ability of hotels to grow their ADR in excess of inflation was the real
driver of the record growth in profits during the 1990s,' says Woodworth.
'We've had years of declines in occupancy, yet growth in profits was
sustained because hotels were able to raise their prices two to three times
the pace of inflation. This year, the decline in occupancy is not being
offset by strong ADR growth, and the cost of operating a hotel continues to
rise above the pace of inflation.'

Surcharges And Energy Costs

Contributing to the decline in unit-level profitability projected for 2001
is a decline in 'other' revenue sources for hotels. HRG is projecting that
the revenues hotels receive from sources such as food, beverage, telephones,
and newly instituted surcharges should decline in 2001 by an average of 4.9

'With fewer guests staying at their properties, hotel owners and operators
will also see a decline in the dollars these guests would have spent in the
restaurant, lounge, or using the telephone,' explains Robert Mandelbaum,
Director of Research Information Services for HRG. 'In addition, those
guests who are traveling have much tighter budgets and are looking to
economize their other expenditures.'

On the expense side, the well-documented increase in energy costs will also
bite into the average hotel's profitability in 2001. Based on a separate
analysis conducted by HRG, a five percent increase in energy costs would
have a negative 0.5 percent impact on the typical hotel's bottom line.
'With projections of increased utility expenses ranging anywhere from 10 to
20 percent, the additional energy costs could cost the average hotel up to
2.1 percent in lost profits,' says Mandelbaum.

Reversal of Fortune

'So far in 2001, we are seeing an upheaval in the performance of the
industry,' notes Mandelbaum. 'Those hotels and markets that performed the
best in the 2000 are struggling the most in 2001. On the other hand, the
segments of the industry that were hurting in 2000 are seeing some stability
in 2001.'

According to the Trends in the Hotel Industry report, resort hotels enjoyed
the greatest increase in profits during 2000 (13.0 percent), followed by
convention hotels (12.6 percent) and full-service properties (10.4 percent).
At the other end of the spectrum, all-suite hotels were only able to grow
their profits by 5.2 percent, while limited-service hotels actually earned
1.4 percent fewer profits in 2000 compared to 1999.

'During the first half of 2001, the situation has turned completely around,'
says Mandelbaum. 'The larger, upper-end, full-service and resort hotels are
showing the significant declines in top-line performance. These declines
will most likely lead to a smaller bottom line for the year. Conversely,
the mid-market and limited-service properties, for the most part, are
holding their own in the marketplace and should be in a better position to
at least maintain their profit levels in 2001.'

Long-Term Perspective

While news of declining profitability is certainly distressing, it should be
noted that the U.S. lodging industry is still performing at high levels of
profitability compared to long-term averages. The 30.8 percent operating
profit margin estimated by HRG for 2001 is still 6.6 percentage points above
the industry average for the past 30 years. In addition, for the period
1991 through 2000, the typical hotel in the U.S. improved its profitability
an average of 11.4 percent annually, or 4.5 times the pace of inflation.

'Despite our gloomy forecast of unit-level profits, it should be noted that
most hotels are financially better prepared to face this slump than they
have been prior to previous recessions,' says Woodworth. 'Most hotel owners
have built up a bit of a cushion after 10 years of strong growth in profits.
In addition, most hotels today stand on a fiscal foundation that is much
less leveraged. We will not see the wholesale bankruptcies that plagued the
industry in the late 1980s and early 1990s.'

The Importance of Benchmarking

'Given the projected declines in revenue, we see the ability to control
costs as the primary route to maintain profitability in 2001,' says Jack
Corgel Ph.D., Managing Director of Applied Research for HRG. 'For the past
10 years, industry management has focused largely on benchmarking their
top-line performance compared to the competition. Market penetration and
RevPAR were the measurements of greatest concern. Now, the focus has
changed. Our clients have become much more refined in their analysis of
operating expenses. They are demanding from us detailed information
regarding industry expense ratios and productivity. They want to know what
the competition is doing to improve their bottom line.'

In response to this increased demand for expense data, HRG introduced its
Benchmarker product in 2000. Benchmarker is a service that allows hotel
owners and operators to compare the financial performance of their
properties against a select group of comparable properties. Hotel owners
and operators interested in HRG's Benchmarking products can contact them at
(404) 842-1150, ext 237.

The 2001 edition of Trends in the Hotel Industry will be available for
purchase later in the summer of 2001.

* * *

The Hospitality Research Group (HRG), headquartered in Atlanta, is the
research affiliate of PKF Consulting, the international consulting and real
estate firm specializing in the hospitality industry. HRG, along with PKF
Consulting and hotel brokerage affiliate Hospitality Asset Advisors
Incorporated, are wholly owned subsidiaries of Hospitality Asset Advisors
International, a U.S. Corporation. HAA International has offices in New
York, Boston, Philadelphia, Washington DC, Atlanta, Houston, Dallas, Los
Angeles, San Francisco, and Singapore.


Gary Carr Robert Mandelbaum
Director of Communications Director of Research Information Services
PKF Consulting Hospitality Research Group
425 California Street 3340 Peachtree Road
Suite 1650 Suite 580
San Francisco, CA 94104 Atlanta, GA 30326
(415) 421-5378 (404) 842-1150