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TWST: David, what drove the rally in the lodging stocks that kicked off in March 2000, and was that rally sustained through the second half of the year?

Mr. Anders: What really drove lodging stocks in 2000 were strong fundamentals. When you look back, GDP growth was extremely strong and GDP growth is the primary driver of lodging demand. As GDP growth accelerated through the second and third quarters of 2000, hotels’ RevPAR growth, or revenue per available room growth, which is this industry’s pricing metric, accelerated, providing upside earnings surprises. It really did carry the stocks well through 2000. Fourth quarter was a little choppier as the slowing economy became an issue. However, investors then began anticipating an interest rate reduction, which then sustained the rally.

TWST: To what extent are people trading down, and if they are, who benefits?

Mr. Anders: It’s interesting, because at the Marriott analysts meeting last week, they indicated that they didn’t believe people were trading down. Their best customers in the Marriott Rewards program were apparently continuing to stay at the same brands as they did the previous year. However, when you look at industry-wide RevPAR numbers for the mid-scale without food and beverage, as well as the economy segment, they tend to be holding up a little better than the upper-upscale category.

TWST: Moving on, is there a rule of thumb, David, or some “common wisdom,” if you prefer, regarding the best time in the business cycle to buy lodging stocks and the time to sell them? And where do we stand today in relation to that time?

Mr. Anders: We believe that investors generally want to buy the stocks in anticipation of demand outstripping supply growth, which results in accelerating RevPAR growth. Lodging is a lot like retail or restaurants from that perspective in that investors tend to reward companies that maintain accelerating pricing. Right now demand growth is declining dramatically owing to the economy. However, by the first quarter of 2002 demand growth should begin to outstrip supply growth.

TWST: David, what’s your single best idea?

Mr. Anders: We just recently upgraded both Marriott International (NYSE:MAR) and Starwood (NYSE:HOT). Let me highlight Marriott, for which we are carrying a 12-month price target of $55. Our estimate for 2001 EPS is $2.10 and for 2002 is $2.45. Our Buy rating is based on several key points: (1) Marriott is the dominant manager/franchiser of lodging properties in the US and is picking up significant market share; (2) Marriott’s brands are associated with less than 1% of the hotel rooms in Europe, Middle East and Africa, offering great growth potential; (3) The company’s time-share business is a natural adjunct and is estimated to grow 15% per year; (4) Management has become increasingly focused on ROIC; (5) Our price target is based on a relative p/e multiple on 2002 EPS of 1.1 times, which is in line with historical levels following an economic slowdown.