Hospitality VisionUS Performance Review

Contents

Overview 3 Atlanta 5 Chicago 5 Dallas 6 Fort Lauderdale 6 Las Vegas 7 Los Angeles 7 Miami 8 Minneapolis 8 New Orleans 9 New York 10 Oahu Island 10 Orlando 11 Phoenix 12 San Francisco 12 Washington DC 13 Conclusion 14 Contacts 15

Hospitality Vision US Performance Review 3

Overview

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Nov-2006 Nov-2007 Nov-2008 Nov-2009 Nov-2010

Occupancy

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Following a lengthy downturn, the hotel industry entered a recovery in 2010, with gains continuing to strengthen as the year progressed. On the heels of a three-year decline in occupancy and a two-year drop in revenue per available room (revPAR), occupancy for the first 11 months of 2010 improved 5.7 percentage points compared with the same period in 2009. RevPAR, which experienced a record 16.6% decline in 2009, rose 5.4% for the first 11 months of 2010, according to Smith Travel Research (STR). In particular, November’s 11.8% increase in revPAR was the best monthly performance for the industry since late 2005.

The global economic recovery has contributed to an improvement in the demand for hotel rooms. The Department of Commerce’s Office of Travel and Tourism Industries (OTTI) has estimated that 50.4 million international visitors traveled to the U.S. during the first 10 months of 2010, representing an 11% increase over the same period in 2009. Further, these overseas visitors spent 11% more in the U.S. than they did in 2009. OTTI also reported that total tourist (domestic and foreign) spending has been rising since the second half of 2009. And the National Business Travel Association estimated that business travel spending rose 2.3% in 2010.

Mostly as a result of the multi-year decline in demand, supply growth was limited in 2010. STR data shows that hotel room supply advanced only 2.0% in the year-to-November. This was lower than the 3.0% growth of 2009 and the 2.5% gain of 2008. Weak construction is expected to continue into 2011. The December 2010 STR/McGraw Hill Construction Dodge Pipeline report showed that the total active pipeline of hotel development was down 20.9% from a year ago. Several metropolitan areas, including New York, Dallas, Atlanta and Chicago, had room construction figures that were down 40% - 50% from their year-ago levels.

Figure 1 - Recovery in hotel metrics began in early 2010

Source: Smith Travel Research

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OccupancyPercentage point change Average Room Rate $ RevPAR $

2010 2009 % change 2010 2009 % change 2010 2009 % change

Anaheim-Santa Ana, CA 68.5 64.0 7.1 109 110 -1.2 75 70 5.8

Atlanta, GA 58.5 53.2 10 83 84 -0.8 49 45 9.1

Boston, MA 70.6 63.8 10.7 143 140 2.4 101 89 13.4

Chicago, IL 63.3 57.4 10.3 113 114 -0.8 72 66 9.4

Dallas, TX 55.4 51.9 6.8 85 87 -2.8 47 45 3.8

Denver, CO 64.5 58.9 9.4 95 94 1.0 61 55 10.4

Detroit, MI 55.0 48.2 14.2 75 79 -5.6 41 38 7.8

Fort Lauderdale, FL 67.1 62.4 7.6 108 110 -1.3 73 68 6.2

Houston, TX 55.9 56.3 -0.7 89 93 -4.1 50 52 -4.7

Las Vegas, NV 59.4 58.0 2.4 90 93 -3.4 53 54 -1.1

Los Angeles-Long Beach, CA 68.9 64.7 6.4 117 115 1.3 80 75 7.8

Miami-Hialeah, FL 69.9 64.8 8.0 143 139 2.8 100 90 11.0

Minneapolis-St. Paul, MN-WI 62.3 57.0 9.3 91 92 -0.5 57 52 8.7

Nashville, TN 59.0 55.1 7.0 86 90 -4.4 51 50 2.3

New Orleans, LA 66.0 57.8 14.1 117 113 3.3 77 65 17.9

New York, NY 81.2 76.8 5.8 228 211 7.7 185 162 14.0

Norfolk-Virginia Beach, VA 54.6 54.3 0.6 87 88 -1.0 47 48 -0.4

Oahu Island, HI 78.0 72.4 7.8 148 149 -1.0 115 108 6.8

Orlando, FL 63.0 59.6 5.7 92 94 -2.5 58 56 3.1

Philadephia, PA-NJ 65.5 62.3 5.1 108 112 -3.1 71 70 1.9

Phoenix, AZ 56.4 52.9 6.7 102 108 -5.3 58 57 1.0

San Diego, CA 68.0 64.2 5.9 123 127 -2.8 84 81 2.9

San Francisco/San Mateo, CA 76.3 72.3 5.5 136 135 1.3 104 97 6.9

Seattle, WA 67.4 62.8 7.3 111 114 -2.4 75 72 4.7

St. Louis, MO-IL 58.4 55.5 5.2 82 82 -1.0 48 46 4.2

Tampa-St. Petersburg, FL 56.1 52.6 6.6 92 100 -7.4 52 52 -1.3

Washington, DC-MD-VA 69.0 66.3 4.0 145 147 -1.4 100 97 2.6

TOTAL United States 58.7 55.5 5.7 98 98 -0.2 58 55 5.4

Figure 2 - Hotel performance in key U.S. cities: January – November 2010 versus January – November 2009

Source: Smith Travel Research

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AtlantaIn 2010, Atlanta’s hotel industry turned around appreciably, following a multi-year slump. For the first 11 months of 2010, revPAR grew 9.1% and occupancy expanded 10.0%. Both 2010 growth rates are ranked in the top one-third of all major markets followed by STR. In contrast, full-year 2009 saw occupancy drop 10.2 percentage points and revPAR decline 17.9%. The recovery in 2010 is reflected in increased convention attendance, which pushed hotel/motel tax collections up 10% over 2009, the Atlanta Convention and Visitors Bureau reported.

The Bureau also noted that the area’s hotel industry has responded to increased demand for convention facilities by adding space for meetings with 1,000 or fewer attendees – a sizable part of new hotel industry growth. The uptick in demand is in part attributed to “citywides,” conventions large enough to fill rooms in hotels throughout a metro area but not large enough to require a major convention facility. Metro Atlanta had 19 citywides on the books in 2010 compared with 12 in 2009, according to The Atlanta Journal-Constitution.

The U.S. Department of Transportation recently awarded Atlanta a $47.6 million grant to build a modern, ADA (Americans with Disabilities)-compliant, eco-friendly streetcar system. The system will be designed in part to increase Atlanta tourism by linking the city’s business, tourism, and convention destinations, and will allow a direct transfer to Metropolitan Atlanta Rapid Transit Authority (MARTA) rail and express bus services. Construction is slated to begin in 2012, and it is anticipated that the streetcars will be in service by 2013.

ChicagoIn 2009, Chicago was one of the lowest-performing metros for hotels, based on STR results. RevPAR, for example, dropped 23.4% from 2008, which in turn was down 4.9% from 2007. The market however has experienced an improvement in 2010. STR metrics show that occupancy for the year-to-date through November was 63.3%, compared with 57.4% for the same period in 2009, a 5.9 percentage point change. RevPAR was up 9.4% to $72. The year-to-date gain in revPAR was ranked among the top third for the 27 major markets followed by STR.

When “Travel + Leisure Magazine” unveiled its 2010 World’s Best Awards four Chicago hotels ranked among the top ten large-city hotels in the U.S. and Canada. These lodgings were also included in the top 100 hotels in the world.

Radisson announced that it will build the first North American hotel in its signature luxury ‘Blu’ line, atop 18 floors of an upscale Chicago high-rise. Completion of the hotel is estimated for 2011. In 2012, a new luxury hotel, the Langham Chicago, is expected to open with 330 rooms and suites in an existing riverfront mixed-use property.

The City Council approved a $1 billion bond issue for the continuing expansion of O’Hare International Airport. At year-end 2010, however, two major airline tenants were opposing the bond deal, which included two new runways and a new terminal. While the project was targeted for completion in 2014, its end date currently is uncertain.

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DallasThe Dallas hotel market in 2009 experienced double-digit declines in both occupancy and revPAR. The first 11 months of 2010 improved, with occupancy up 6.8% from the same period in 2009 and revPAR gaining 3.8%. However, the year-to-date increase in revPAR was below the average gain for the top 27 markets followed by STR.

The area’s slower recovery in hotel demand has hurt profitability. According to Foreclosure Listing Service, 94 North Texas hotel foreclosure filings were recorded in the year through September 2010. This was up from 30 filings in the same period of 2009.

Looking ahead, the picture may be brightening for the industry. Significant investments are being made including the new $1.2 billion Dallas Cowboys Stadium in nearby Arlington, allowing North Texas to serve as the host for Super Bowl XLV in February 2011. Other tourist attractions include the AT&T Performing Arts Center’s Winspear Opera House and Wyly Theatre which join the other existing venues in the city’s Arts District. The Dallas Convention Center’s new anchor hotel, the 1,000-room Omni Dallas, is scheduled to open for business in early 2012. These projects are expected to provide a boost to the city’s tourism business.

The addition of Virgin America flights to the Dallas/Fort Worth International Airport in December 2010 also was good news for the city’s tourism industry. The airline started flying nonstop between Dallas and Los Angeles or San Francisco.

Fort LauderdaleFort Lauderdale’s metrics are encouraging after two years of declines in revPAR and four years of contraction in occupancy. For the first 11 months of 2010, occupancy was up 7.6% from the same period in 2009, while revPAR improved 6.2%. Florida’s difficult economic climate is likely continuing to dampen room demand for several of the state’s coastal cities. Florida’s unemployment rate in November 2010 was 12.0%,which was higher than the 9.8% average for the entire U.S., according to the Department of Labor. And resale prices for homes in the Miami-Fort Lauderdale area have fallen by roughly half from their 2005 peak according to the National Association of Realtors.

In an effort to boost travel to the area, The Greater Fort Lauderdale Convention & Visitors Bureau has designed a $3.5 million marketing plan for 2011. Its approach emphasizes affordable luxury to attract tourism, business meetings, and convention groups.

In another effort to expand tourism, Fort Lauderdale in 2010 began looking into revamping its beach to attract tourists who want activities other than swimming and sunning. This effort, expected to cost as much as $63 million, could entail expansion and remodeling of the International Swimming Hall of Fame.1

The Atlantic Hotel was included in Travel + Leisure’s 15th annual Top 50 Resorts survey in 2010. The Atlantic was the only lodging facility in South Florida to make the list.

The new hotel group B Hotels & Resorts unveiled its flagship property in September 2010, ahead of its December opening date. The upscale lodging has 240 rooms.

The 51st Annual Fort Lauderdale International Boat Show was held from October 28 to November 1, 2010. While the show’s organizers do not release attendance figures, its prominence as the world’s largest in-water boat show and capacity to attract guests from all over the world make it a significant event for Fort Lauderdale hotels.

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Las VegasLas Vegas is one of the largest hotel markets in the world. The last several years have been very challenging for the market. Until 2008, Las Vegas experienced almost uninterrupted growth in new rooms, with the addition of several significant integrated casino resorts along the Las Vegas Strip.

The first signs of decline in visitor volumes in 2008 coincided with the global economic downturn.2 In 2009, STR metrics revealed the city’s revPAR through November 2009 had plummeted 31% from the first 11 months of 2008. The metrics in 2010 have improved for the same period, with an increase in occupancy of 2.4 percentage points to 59.4%. RevPAR declined a slight 1.1% to $53.

Las Vegas has historically enjoyed strong year-round demand as both a leisure and convention destination. The Las Vegas Convention and Visitors Authority (LVCVA) reported that visitor volume grew slightly by 2.6% year-to-November 2010. However, following the recent resort developments in Macau and additional competition from other U.S. casino destinations, there is a degree of demand pressure on Las Vegas with a large supply of room inventories. As the U.S. economy continues to recover and consumer confidence picks up, visitation to the area is expected to pick up.

The Cosmopolitan is a new luxury resort featuring 2,995 resort condos, with one-of-a-kind private terraces and designs by acclaimed interior architects David Rockwell, Jeffrey Beers, Adam D.Tihany and the Friedmutter Group. The resort has entered into an agreement with Marriott International to help steer Marriott customers its way. It will, in addition, become the largest property in Marriott International's Autograph Collection, a new brand that includes independently-owned and operated hotels seeking to tap Marriott's customer database.

MGM Resorts International expanded its multi-language web sites and booking engines to attract overseas travelers and help ensure an easy trip-planning experience. While a few Las Vegas hotels offer Spanish versions of their sites’ main pages, MGM Resorts International gives travelers the opportunity to research U.S. destinations and book rooms online in at least five languages including Japanese, Italian, German, French, Spanish and Chinese.

Las Vegas continues to be viewed favorably by travelers. An online survey by Travel-Ticker.com of 6,200 web users revealed that Las Vegas is America’s most desired summer destination. New York came in second, followed by the Caribbean, Europe, and Hawaii.

Los AngelesAfter a disappointing 2009 where occupancy declined 9.3 percentage points and revPAR was off 19.5%, Los Angeles saw a revPAR increase of 7.8% for the year-to-November 2010 to $80. The area’s hotels in 2010 managed to hold up relatively well, with occupancy gaining 6.4 percentage points to 68.9%. Average room rates rose 1.3% to $117. Considered an international gateway market for Far East visitors, Los Angeles remains a sought-after travel destination.

In 2009, tourism and travel surpassed international trade as Los Angeles’ number-one job generator.3 According to the Los Angeles Times, the region’s hotel owners in August 2010 called for the addition of a new 1.5% fee on hotel bills that would generate more money to help promote the city as a tourist destination.4 The city already levies a 14% transient occupancy tax, or bed tax, on hotel guests.5 The proposed fee of 1.5% would be imposed only on travelers staying in hotels with more than 50 guest rooms. It is estimated that the new tax would generate $10 million to $11 million annually.

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The Los Angeles Times also noted that the city already spends $11.4 million a year to attract visitors, but proponents of the new fee compare this figure to the annual advertising budgets of other major tourist towns including Las Vegas, which is spending about $71 million, San Diego (about $24 million), and Orlando (about $31 million).6 The Los Angeles Convention and Visitors Bureau has been promoting the city through a campaign tied to the slogan "That's so LA" since 2008, in an effort to strengthen the city’s brand image.

Los Angeles is also a sought-after lodging investment destination to both domestic and international investors, in particular investors from Asia.7 Recent upscale and luxury supply additions and renovations at high-profile assets are expected to boost average daily rates in the market.8

Los Angeles is a convention destination, and recently won a major convention opportunity. The NAACP (National Association for the Advancement of Colored People) chose the city as the site of its 2011 national conference; the news was announced by Mayor Antonio Villaraigosa. The conference will be held at the Los Angeles Convention Center in July 2011. Attendees are expected to fill about 13,000 hotel rooms and generate more than $11 million in revenue.9

MiamiMiami’s hotel industry was hard hit in 2009. The global economic downturn held back tourist travel to Miami. With business travel also down, Miami’s revPAR declined double digits in the year-to-November 2009. However, the market is showing signs of recovery in 2010. Along with improvements in tourism, cruise ship arrivals have also helped fill hotel rooms. According to the South Florida Business Journal, the Port of Miami reported a 10 % increase during the July-September quarter, which marked the arrival of the highly anticipated Norwegian Epic cruise ship.10 For January – November 2010, revPAR increased 11%, while occupancy grew 8 percentage points. Room rates have inched up 2.8% to $143.

Hyatt Hotels & Resorts opened the Hyatt Miami at The Blue in April 2010. The new complex includes 15 three-story villas, each with 16 terraced suites that have fully equipped kitchens. The 17-acre property also features 1,700 square feet of meeting space. Hyatt Miami at The Blue also sells

condo hotel residences to individual buyers, using a voluntary hotel rental program.11

Marriott opened in October 2010 its first JW Marriott Marquis, in downtown Miami. An upgrade of a JW Marriott, the Marriott’s Marquis brand represents one of the company’s upscale properties. The 313-room hotel has 80,000 square feet of meeting space by JW Marriott. Hotel Beaux Arts Miami, a new luxury brand within the JW Marriott Collection is an exclusive, ultra-modern hotel ascending 39 stories above Miami's skyline.

The group hotel business, a foundation of South Florida's visitor industry, began coming back slowly in 2010. As a result of the economic downturn, corporate meetings were less elaborate than they were before the recession. These events were arranged with an emphasis on keeping costs down; they were shorter and often included charitable activities to soften the image. Most hotel sales directors said that downsizing of conventions was typical, and that they were being booked with a shorter time frame, as opposed to the 12-month advance bookings of past years.12

MinneapolisMinneapolis-St. Paul hotels have rebounded from the steep downturn of 2008-2009. For the 11 months of 2010, metrics from STR show occupancy up 9.3 percentage points and revPAR advancing 8.7% from January – November 2009. Both these gains are above the 27-metro average reported by STR.

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In line with the improvement in room demand, the Minneapolis – St. Paul International Airport reported that passenger traffic for the first 11 months of 2010 was up 1% from 2009. It was the first increase in business in five years. The Hilton Minneapolis was acquired by DiamondRock Hospitality Co., a Bethesda, MD-based real estate investment trust (REIT), for about $156 million in June 2010. With 821 rooms and 77,000 square feet of meeting space, the Hilton Minneapolis is the largest hotel in Minnesota.

Also in mid-2010, a second major sale occurred: HEI Hotels & Resorts purchased a majority equity interest in the Hotel Minneapolis, a 222-room boutique-style hotel. The hotel will be converted to Marriott’s Autograph Collection brand. In September, Pebblebrook Hotel Trust acquired the 140-room Grand Hotel Minneapolis, located in downtown Minneapolis, for $33 million.

Carlson Hotels announced in September 2010 that it plans to build a 501-room Radisson Blu hotel at the Mall of America. The opening is currently slated for the end of 2012.

New OrleansHotel demand in New Orleans grew the fastest of any market followed by STR during 2010. RevPAR advanced an exceptional 17.9% for the year-to-November; while occupancy grew 14.1 percentage points. Respectively, these represented the fastest and second-fastest growth rates for the top 27 markets. In comparison, occupancy in New Orleans fell 8.1 percentage points in 2009, while revPAR decreased 11.8%.

Following the spring 2010 gulf oil spill, Greater New Orleans Inc. estimated the gross revenue loss to the 10-parish regional economy from 2011 – 2013 would be between $115 - $173 million. However, it appears that the demand for hotel rooms strengthened in 2010 due in part to an influx of cleanup workers into the area, along with increased marketing funds from the state.

In 2010, Louisiana's Office of Tourism launched “Reel Louisiana,” a user-generated marketing effort to counter the negative impact on tourism from the oil spill. Agencies are working with local businesses to encourage visitors and residents to post live videos of their experiences on YouTube, Facebook, Twitter, and other social networking

platforms. These efforts may have contributed to the improvement in hotel demand in New Orleans.

The metropolitan area began 2010 in high style with the Super Bowl win by the NFL football team, the New Orleans Saints. And in November 2010 the area saw the return of a cruise line out of the local port, according to the Times Picayune.

In step with the improvement in hotel room demand, Louis Armstrong New Orleans International Airport reported that in the first 10 months of 2010 it processed 6.8 million passengers compared with 6.5 million through the same time last year.

New Orleans officials broke ground in August 2010 for the redevelopment of the Hyatt Regency New Orleans, which has been closed since August 2005 due to extensive damage from Hurricane Katrina. The $275 million project entails redesign of the 31-story building, adjacent to the Louisiana Superdome. The Hyatt Regency New Orleans is slated to reopen in the fall of 2011.

In 2010, the New Orleans Metropolitan Convention and Visitors Bureau, in partnership with the New Orleans Ernest N. Morial Convention Center, reportedly secured six major conventions that are expected to generate nearly $80 million to the local economy between 2012 and 2014.

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New YorkWith a 14% gain, New York reported the second-highest revPAR increase of the top U.S. markets for the year-to-November 2010. New York also posted the largest ADR increase, up 7.7%, to U.S. $228. The ADR increase drove the bulk of New York’s revPAR growth. The 25.5 million room nights sold represented a record for an 11-month period, and exceeded the previous high by more than 2 million room nights, according to STR results.

Late spring 2010, the global travel market was disrupted by the volcano eruption in Iceland. Since international tourists make up 20 percent of the market’s total visitor population,13 New York tourism officials worried such travel disruptions could cost the city. According to NYC & Co., international tourist activity accounts for over half of all tourism spending. In the end, New York managed to outpace the other top markets in both ADR and revPAR gains. Additionally, the improvement in New York City’s hotel metrics has meant an upsurge in new hotel openings over the past 18 months, with the addition of 37 properties and 6,425 rooms, according to Cushman & Wakefield.

Mayor Bloomberg’s office reported over 48.7 million people visited New York City in 2010, up 6.8% from 2009 and surpassing early projections. The 2010 tourist count included 39 million U.S. visitors and 9.7 million from abroad.14 Tourists brought $31 billion into the city’s hotels, restaurants, shops and cultural institutions.

The business travel environment is also improving. In New York, the upscale, full-service hotels that have long been favored by business travelers are rebounding.15

New York City is investing time and funds in the quest for more visitors. In October 2010, NYC & Co., the city’s official marketing and tourism bureau, launched “The Live More Tour,” a partnership with Miami, Chicago, Los Angeles, and American Airlines. The campaign is intended to increase tourism and more frequent travel between the cities during the winter months through flight deals and other consumer promotions.

American Airlines plans to expand its New York network and direct presence in the city with seven new destinations that will be served by 23 additional flights to and from JFK and LaGuardia airports. Plans are also underway to upgrade aircraft and improve terminal facilities in the metropolitan area.

Oahu IslandHotel room demand on the island rose during the first 11 months of 2010, according to STR metrics. Occupancy gained 7.8 percentage points over January – November 2009 and revPAR advanced 6.8%. These gains follow a weakened 2009 when occupancy fell 2.0 percentage points and revPAR dropped a large 13.5%.

The state of Hawaii experienced an upturn in visitors in 2010, with growth rates improving as the year progressed. The Hawaii Tourism Authority (HTA) reported that for the first 11 months of 2010, arrivals to the state were up 8.6% from a year ago and expenditures were up 16%. However, for the single month of November, expenditures were up a sharp 30.4% from November 2009. It was the third consecutive month that spending rose by double digits.

A 2010 report from the University of Hawaii noted that Oahu Island would be the primary beneficiary of the state’s tourism recovery in 2011. HTA data show that a rebound in tourists from the U.S. and Japan are contributing to the upturn. Room rate discounts are also helping to draw visitors.

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Disney announced in July 2010 plans to open its first resort on Oahu, in 2011. The property, with 800-plus units and a Polynesian village design, will be called Aulani, a Disney Resort & Spa. The 21-acre leisure spot is being built in Ko Olina, in an area that has a man-made beach carved out of the rocky coastline. Aulani is a departure for Disney because it is the company’s first project not linked to a theme park or its cruise line. A new luxury hotel, the Waikiki Edition, opened in Honolulu in the fall of 2010. The 353-room Edition is the first of a new brand being offered by Marriott International, in partnership with high-end hotelier Ian Schrager.

OrlandoOrlando remains a favorite family destination. Results of the latest annual Travel Trends survey 2010 revealed that vacationers prefer the family-oriented attractions of Orlando such as Walt Disney World and Universal Studios.16 The addition of The Wizarding World of Harry Potter to Universal Studios possibly helped tourism in 2010.

While the Greater Orlando Aviation Authority reports that the Orlando International Airport saw a 7.9% increase in passenger traffic in the month of October 2010, hotel metrics remain relatively flat. Year-to-November 2010 revPAR increased a slight 3.1%, but the average room rate was down 2.5%, primarily due to an increase in supply in the marketplace.

The opening of Northwest Florida Beaches International Airport near Panama City Beach in May 2010 created a new air-travel corridor between the Panhandle and Central Florida meant to draw more tourists and conventions.17

Fourteen Orlando hotels were awarded the Green Eco-Leaf rating as of June 2010. All Green Eco-Leaf-rated properties are committed to environmentally-friendly eco-initiatives, some of which include installation of low-energy lighting and energy sensors, conservation of water, use of off-grid energy sources, and optional reuse of sheets and towels for multiple-night stays. While the number of Orlando properties that have achieved Green Eco-Leaf status may berelatively small, it is anticipated that many lodgings in the

area that are promoting eco-friendly initiatives will also seek to be rated.18

The Marriott Vacation Club announced in June 2010 the opening of Marriott's Lakeshore Reserve at Grande Lakes in Orlando. This resort is the first Marriott Vacation Club to be located with a JW Marriott and a Ritz-Carlton. For the first time in North America, a Marriott Vacation Club has introduced two-story town homes in addition to two- and three-bedroom villas.19

After a decade of planning and two-and-a-half years of construction, The Peabody Orlando in September 2010 unveiled its $450 million expansion. The upscale resort features 1,641 guestrooms and 300,000 square feet of flexible meeting space. One of the goals of the expansion was to make the Peabody a destination for more, and larger, business meetings and conventions. Guestrooms feature, among other amenities, Wi-Fi Internet access and 42-inch, high definition televisions.20

Air France announced in September 2010 that it would begin nonstop service from Orlando to Paris. Orlando tourism officials said international travel to Orlando was expected to increase in the next two years.21

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PhoenixThe state of Arizona remained weak in 2010 as it struggled through a major housing downturn. At year-end 2010, housing prices in Phoenix were down more than 50% from their high point in mid-2007, according to the S&P/Case-Shiller Home Price Index. With a depressed housing market continuing to weigh on the economy, hotel demand has experienced only a mild upturn.

In the year-to-November 2010, occupancy in the Phoenix market was 6.7 percentage points higher than the same period in 2009, but revPAR was up only 1.0%, representing one of the worst performances of the markets followed by STR. Heavy room rate discounting likely contributed to the small gain in revPAR.

Demand for rooms has been weak for several years. Occupancy rates declined 11.6 percentage points in 2009 and in 2008, and fell 2.2 percentage points in 2007. As a result, minimal new hotel construction has been taking place in the local market, although Starwood Hotels is expected to open its first Westin hotel in downtown Phoenix in February 2011. Additionally, the Hyatt Regency Phoenix completed a $15 million renovation in mid-2010. The extensive renewal included its 693 guestrooms, 37,000 square feet of meeting space, and its rooftop restaurant.

Beginning in the summer of 2010, the threat of a travel boycott in response to the state's new immigration law became a growing concern in the business community. The state’s tourism office estimated that conventions and tourists brought $16.6 billion to the state in 2009. Although there were a number of meeting cancellations, the Governor’s Task Force on Tourism noted that it was difficult to determine the true economic loss from this development. The courts eventually struck down certain aspects of the immigration bill, and several boycotts were called off by year-end 2010.

In a move to help the travel and tourism industry, the Phoenix City Council in the summer of 2010 approved a package that allows Phoenix’s Sky Harbor International Airport to provide financial support to airlines that start new international flights to the city. It also began working on financing a five-mile automated transit system linking Sky Harbor International Airport's terminal to the city's new light-rail line as well as parking and rental car facilities.

San FranciscoUnlike many other markets that began experiencing weakness in their travel sectors in 2007 or 2008, the downturn in hotel demand came later to the San Francisco market. Following increases in both those years, revPAR declined a sharp 18.8% for all of 2009. However, since February 2010 the area has enjoyed consecutive

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year-over-year gains in revPAR. For the first 11 months of 2010, revPAR was up 6.9% from the same period in 2009.In a move that is expected to attract more visitors and strengthen San Francisco’s tourism industry, the California Welcome Center at Pier 39 was expanded to be triple its original size. Aside from tripling the advertising space for major city and state names, the new Center is partnering with the U.S. Postal Service to allow visitors to more easily send souvenirs home.

Travelers to San Francisco International Airport increased by double-digit percentages in 2010 according to the airport. Part of the increase was due to the airport adding two European carriers, but visits also rose because of an increase in the number of tourists from Asia. This increase in international tourists helped improve room demand in 2010.

A rebound in the cruise industry may boost San Francisco’s tourist economy in 2011. With the economy slowly improving, the industry looks stronger in 2011, according to Peter Dailey, deputy director of the Port of San Francisco’s Maritime Department. Fifty-seven ships are planning to dock in San Francisco in 2011. That would be a 39% increase from 2010. Some of the larger ships that use the city’s port as a home base can provide a $1 million economic boost to the region, according to the Maritime Department.

In mid-2010, Pebblebrook Hotel Trust acquired San Francisco's 416-room Sir Francis Drake Hotel. And on January 1, 2011, HEI Hotels & Resorts announced the sale of the 360-room Le Meridien San Francisco for an undisclosed amount to Chesapeake Lodging Trust.

Washington, DCSTR metrics for Washington, DC indicate that the market did not fall as steeply as most other areas in 2009, and it has not recovered as strongly in 2010. In Washington DC, year-to-November occupancy improved only 4.0 percentage points from the first 11 months of 2009 and revPAR rose a slight 2.6% over the same period. The market is not impacted by the economic downturn as compared with most other cities. The changes in revPAR are due more to price elasticity than to the economic downturn. The Washington-area metro has been one of the U.S. markets most resistant to economic changes in recent years.

The city’s status as the nation’s capital and its large number of tourist attractions are among the reasons why demand has not experienced wide swings.

The city’s relatively stable travel and tourism sector has led to increased investment in hotels. A new partnership was formed in May 2010 to restore DC's Southwest waterfront. It is estimated that the project will cost $1.5 billion, making it one of Washington’s largest real estate projects. Construction is scheduled to start in 2012. The renovated 26-acre tract is expected to include three hotels, retail space, and waterfront promenades.22

After a delay of more than a decade, ground was broken in late 2010 for the 1,175-room Marriott Marquis which will be located next to the Walter E. Washington Convention Center, the area’s largest convention facility. The project is expected to be complete in 2014 at a cost of $550 million. The famed Watergate Hotel was sold in May 2010 for approximately $45 million to European investors. The new owners announced plans to restore the 251-room property, which had been vacant since 2007, to a luxury hotel that will include considerable meeting space.23

Pebblebrook Hotel Trust acquired the Monaco Washington DC hotel in September 2010 for $74 million. The upscale Monaco, which opened in 2002, was originally built between 1839 and 1842 as the United States Post Office and is said to be one of the oldest buildings in DC.

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Conclusion

Endnotes

1 South Florida Sun-Sentinel, November 20, 2010 2 LVCA3 Los Angeles Convention and Visitors Bureau official site4 Ibid5 Ibid6 Los Angeles Times, August 20107 Ibid8 Hotel News Now, September 2010 9 The Los Angeles Business Journal, July 201110 The South Florida Business Journal, October 201011 Hyatt Hotels & Resorts, April 201012 The Miami Herald, September 201013 NYC & Company, 2011

14 Bloomberg press release, 201015 NYtimes.com, July 27, 201016 Las Vegas Sun, January 201017 Orlando Sentinel, April 201018 PRWeb, June 201019 Hotel News Resource, June 2010 20 Exhibitors Daily, September 201021 Associated Press, September 201022 Washington Post, May 24, 201023 Washington Post, May 27, 201024 Bloomberg.com, January 13, 201125 Reuters, January 13, 2011

At year-end 2010, both the global and U.S. economic recoveries appeared to be strengthening. In particular, U.S. consumer spending during the important December holidays was stronger than many had expected just a few months earlier. Pent-up demand was thought to be influencing the consumer’s desire to increase spending. The U.S. recession officially began in December 2007, and while it officially ended in June 2009, consumers have mostly remained cautious about spending. Instead of spending, they have been working at lowering their debt levels and increasing their savings.

Pent-up demand also remains a factor in the U.S. hotel industry. However, despite improvements in 2010, occupancy and revPAR have a way to go before they return to prior peaks. RevPAR for example peaked in 2007 when for the year it averaged $65. For the first 11 months of 2010 it averaged only $58.

Consumer interest in travel has received a boost from the implementation of new technologies over the last two years. “LOSOMO” activities, involving LOcation, SOcial media and MObile technologies, have made it easier for travelers to research, book, and comment about their travel experiences. Additionally, online “flash sale” and “collective buying” sites

contribute to the ease with which consumers today can find low pricing on hotel rooms. For their part, many hoteliers in 2010 began to embrace mobile technologies in particular as a way of reaching out to specific customers.

In 2010, business travel also started returning, and this recovery is likely to continue. The National Business Travel Association expects business travel will rise 5% in 2011. “Companies are once again recognizing the value of face-to-face meetings with customers, prospects, partners, and colleagues to build relationships and set the state for top-line growth,” said Michael W. McCormick, NBTA’s executive director.24

Hotel sales and acquisitions are also expected to increase in 2011. Jones Lang LaSalle Hotels expects hotel deals to rise 25% this year. Real estate investment trusts and foreign investors are said to be fueling the demand for these transactions.

With many economists expecting real GDP to continue to advance in 2011, the hotel industry is expected to share in the upturn. J.P. Morgan in early 2011 reported in a note to clients that it expects “high-single-digit” revPAR growth in 2011 and 2012.25

Hospitality Vision US Performance Review 15

US leader Adam WeissenbergVice Chairman, US Tourism, Hospitality & Leisure LeaderDeloitte & Touche LLPTel: +1 973 602 6789aweissenberg@deloitte.com

Global leaderAlex KyriakidisGlobal Managing PartnerTourism Hospitality & LeisureDeloitte & Touche LLPTel: +44 20 7007 0865Alt Tel: +9714 3322 487 (Dubai)akyriakidis@deloitte.co.uk

US Functional and sector leadersMike GamachePartner, Audit & Enterprise Risk Services LeaderDeloitte & Touche LLPTel: +1 973 602 6814mgamache@deloitte.com

James C. CasconePrincipal, Restaurants Co-LeaderDeloitte & Touche LLPTel: +1 213 553 1300cjcascone@deloitte.com

Guy LangfordPrincipal, Hospitality Merger & Acquisitions LeaderDeloitte & Touche LLPTel: +1 212 436 3020glangford@deloitte.com

Jeff OrtweinDirector, Gaming LeaderDeloitte & Touche LLPTel: +1 702 893 3107jortwein@deloitte.com

Scott RosenbergerPrincipal, Tourism, Hospitality & Leisure Consulting LeaderDeloitte Consulting LLPTel: +1 404 942 6535srosenberger@deloitte.com

Shaya SchimelPartner, Tourism, Hospitality & Leisure Tax LeaderDeloitte Tax LLPTel: +1 602 234 5161sschimel@deloitte.com

Steve SteinhauserDirector, Restaurants Co-LeaderDeloitte & Touche LLPTel: +1 213 688 3231ssteinhauser@deloitte.com

John ZamoraPartner, Hospitality and Cruise Lines LeaderDeloitte & Touche LLPTel: +1 305 372 3114johnzamora@deloitte.com

Authors Adam WeissenbergVice Chairman, US Tourism, Hospitality & Leisure LeaderDeloitte & Touche LLPTel: +1 973 602 6789aweissenberg@deloitte.com

John Zamora Partner, Hospitality and Cruise Lines LeaderDeloitte & Touche LLPTel: +1 305 372 3114johnzamora@deloitte.com

Diane KutylaSenior ManagerDeloitte Services LPTel: +1 973 602 6814dkutyla@deloitte.com

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