The Total Development Pipeline at 1,919 Projects and 266,712 Rooms decreased by 35 Projects and 5,819 Rooms in 4Q 02, a 2.1% quarter over quarter decline. It is the 12 th consecutive quarterly decline and the 16 th out of the last 18.  In the 4 th quarter, there were 260 new projects announced while 132 completed projects opened and exited the Pipeline. Reflecting the sluggish economy and the growing threat of war, developers cancelled or postponed 167 projects and another 50 fell backwards into a later stage of development as developers slowed their pace of activity and lengthened their timelines. Together 217, or one of every 9 projects in the 3Q Pipeline, became inactive or had timelines extended by up to a year.

At 4Q 02:

• Rooms Under Construction were down 24.8% for the year and 1.8% for the quarter.
• Starts in the Next 12 Months were down 16.1% for the year and 8.5 % for the quarter.
• Early Planning increased quarter over quarter by 4,461 rooms. This is not of significance, according to LE, because 2,000 rooms were attributed to a single resort planned by Opryland in suburban Washington, DC, and to 40 projects that fell back from Starts in the Next 12 Months to Early Planning.

As LE accurately predicted in previous Guidance Memos, 753 hotels opened in 2002 with 86,488 rooms, a supply increase of 2% prior to removals. LE forecasts 71,000 new rooms for 03 for a 1.7% increase. If 2003 finishes with the expected demand growth of 2.5%, the Supply/Demand imbalances of the last two years will have ended. A more favorable growth trend�of rising demand over declining supply�will begin, lasting for at least 3 � 4 years.

LE foresees a modest lodging recovery ahead followed by a modest development upswing.

Industry occupancy for 02 will once again finish below 60%, and Average Daily Rate will have declined for two years in a row. LE noted that, speaking historically, it is a deep downtrend from which to bounce back, and LE does not expect developers to be outright bullish for awhile.

The early beginnings of the Development turn will likely be seen in late 03 or early 04, and it will start in the Upscale and Limited Service segments. Early activities will begin along the Sunbelt, in the Southwest up to Las Vegas and in the South Atlantic region.  For the most part, there should be few new announcements of significant size in CBDs or destination resorts in the early part of the Development recovery. Major market activity from the tail end of the last development cycle is still flowing through the Pipeline.

Nineteen of the Top 25 markets had supply growth in excess of declining demand in 02.  Nine more are expected to have supply growth in excess of the 2.5% demand growth benchmark in 03, and 8 more in 04. In the next two years, Orlando, San Diego, Houston, Boston, Detroit, Miami, St. Louis and Seattle are the cities with the most rooms coming on line as a percentage of existing supply.

The Total Pipeline will continue to decline for 2 � 3 more quarters guaranteeing new openings will be well below 2% in the next three years, giving rising demand and rates a much needed window for consolidation so the recovery can begin.  Lodging Econometrics (LE), of Portsmouth, NH, the industry authority for hotel real estate, monitors 177 Markets and 579 Sub-markets throughout the country, continuously reporting and updating development activity�projects, room counts and percentage growth rates�analyzing absorption three years backward and forecasting supply growth three years forward. In addition to the Development Pipeline, it reports on Conversion/Reflaggings, announced Renovation programs, the Census of Open and Operating Hotels, and the Sale and Transfer of all Hotel Real Estate. LE reports can be customized for any company, portfolio or market.