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Three analysts and top management from eight sector firms examine the lodging sector in this special 47-page Lodging Industry issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info557.htm

TWST: Brian, what’s your take on the performance of these stocks in the second half of 2001 and first half of 2002?

Mr. Egger: We began to observe some weakness in the stocks even before September 11 because we were beginning to see incipient indications of deterioration in transient business travel, which still remains relatively weak. In fact, we had begun to see signs of a rather harsh fall-off in business travel even before September 11. The terrorist attacks of September 11 precipitated a very sharp and very abrupt selloff in lodging stocks. Since that time, we’ve all been surprised by the degree to which the stocks have started to discount initial signs of a demand recovery in the hotel sector. That demand recovery has been more evident in certain segments of the lodging business than others. In fact, since September 2001, we’ve experienced a rather remarkable comeback for both gaming and lodging stocks. Investors seem to have been willing to look beyond the disruption of September 11 to what is going to happen going forward. We’re now in the final throes of a classic cyclical downturn in hotel demand. Barring the occurrence of another tragic event, it appears the stock and the fundamentals are peering beyond the events of last September.

TWST: Brian, how well have the lodging companies in general weathered the economic downturn and the decline in travel post-September 11?

Mr. Egger: They have suffered, although the general consensus seems to be that they’ve done a good job on the cost side and have tried to stay lean and mitigate the deterioration in the owned hotel margins that inevitably accompanies severe RevPAR declines. Industry-wide RevPAR fell about 7% in 2001. We estimate that RevPAR will increase moderately in 2002. Hotel companies cannot withstand that magnitude of RevPAR deterioration, particularly the very pronounced declines observed immediately after September 11, without suffering significant margin erosion. RevPAR was down in the neighborhood of 20% or so November and December of 2001, once business travel started to normalize after the severe downturn following September 11. But in view of the severity of declines in owned hotel margins and evaporation of management incentive fees, the leading hotel companies did a reasonably good job in stemming the erosion in margins.

TWST: What are the reasons why you particularly like Host Marriott (NYSE:HMT)?

Mr. Egger: Host Marriott is another well-managed company with significant real estate ownership by virtue of its status as a REIT. Against the backdrop of a recovery in RevPAR, exposure to real estate owners, as opposed to managers, might be a more optimal investment stance. Moreover, when the company reinstates its common stock dividend, the stock will become an interesting story from a total return perspective.

This special issue includes:

1) Lodging Industry - In an in-depth (12,400 words) Analyst Roundtable, Brian Egger, Director in the Equity Research Department at Credit Suisse First Boston, Michael A. Happel, Principal of Morgan Stanley Dean Witter & Co. and Bryan A. Maher, Director and Senior Equity Analyst at Credit Lyonnais Securities (USA), Inc., examine the outlook for the sector including impact of September 11, margin erosion and share specific stock recommendations.

2) CEO interviews (average 2,500 words). Top management of eight sector firms examine the outlook for their firm and the sector.