CA Hotels Showing Signs of Life; Ernst & Young Report Shows Signs of Recovery as LA, San Diego and Orange County Hold On as Top Three Markets.

Business Editors

LOS ANGELES--(BUSINESS WIRE)--Aug. 28, 2002

The California Hospitality Services Industry is beginning to improve. After surviving what may be its toughest 12 months in the past decade, the hospitality industry is beginning to show signs of life. After absorbing the deadly combination of the dot com meltdown, energy crisis, state budget deficit, 9/11 attacks, drop in the stock market, and prolonged reductions in corporate travel, the key markets of Los Angeles, Orange County and San Diego are now improving. In a report released today, Ernst & Young's Hospitality Advisory Services Group assesses the market's improvements, ongoing challenges and solutions for hotels trying to navigate out of, what is likely the toughest economic condition faced in years.

"We are no where near out of the woods yet, but we are definitely seeing signs of improvement in the California hospitality industry," said report author Jeff Dallas of Ernst & Young. "Even though corporate travel is still down over all, the primary leisure markets in Southern California have helped to improve the performance of one of the states leading industries. San Diego, Los Angeles and Orange County heavy with theme parks, prime beaches and nice weather are leading the state in hotel performance statistics," Dallas added.

The report, a follow-up to Ernst & Young's 2002 CA Lodging Forecast, provides an updated analysis of the California lodging industry. The report is based upon market research provided by Smith Travel Research and independent interviews conducted by Ernst & Young. The full report titled, "California Mid-Year Lodging Report" is available at: www.ey.com/us/reas.com

Not surprisingly, the report found that some markets are fairing better than others. San Diego, a top tourist destination, is fairing the best, where the hotels should be recovering in the next three months. Los Angeles, more dependent on corporate travel and conventions will likely be depressed for the next ten months. The tech-bust epicenter, San Francisco, facing the toughest market in the state will be on the ropes until early 2003.

Report author, Jeffrey Dallas -- E&Y's West Coast Hospitality Practice Leader, predicted back in February that most California hotels would have to discount rates to increase their occupancy. A quick look at the major markets through the first six months of 2002 shows that hotels reduced prices on average between three and fifteen percent. San Francisco continues to struggle the worst of the major CA markets, where average daily rates were discounted 15.2 percent so far in 2002. San Diego led the CA markets with a rate discount average of 2.7 percent.

Occupancy rates, although still below normal, are improving as well. San Francisco's occupancy was down 23 percent in January of 2002; by June was only down 6.7 percent. The Los Angeles market occupancy was down as much as 9.8 percent in February and by June was only down by 5.8 percent. The Anaheim/Orange County hospitality market was down 12.7 percent in January and by June was only down 7.3 percent. San Diego the best performing market was down 10.3 percent in January and only down 1.9 percent by June. "Even though CA is still below normal in terms of rates and occupancy we are seeing steady signs of improvement," said Dallas. "I'm actually surprised that we've improved so fast," he added.

However, Dallas cautioned that CA was not out of the woods completely. "We are still dealing with some tough economic conditions and hotel operators will have to continue to find ways to improve their performance," he said. Dallas believes most operators will continue to discount room rates slightly throughout the rest of the year to help boost occupancy numbers.

The long-term health of the California hospitality market is good. "California is the most visited state in the nation," said Dallas.

The complete report which includes Ernst & Young's original research and market analysis on numbers compiled by Smith Travel Research, can be downloaded at: www.ey.com/us/reas.com

Or for more information contact report author Jeffrey Dallas at: 213/240-7099 -- [e-mail]

About Ernst & Young (E&Y) Hospitality Service Group

The Hospitality Advisory Services Group, a Real Estate Advisory Services practice of Ernst &Young is considered one of the largest and most effective advisory practices in the world. The Hospitality team is focused on delivering value-added solutions that are focused and quick to implement. Industry authorities for over 25 years, the E&Y Hospitality team provides research and analysis of worldwide industry movements and opportunities. Market research and analysis is just one component of its full range of client services. From lodging to tourism, from finance to operations, the industry looks to Ernst &Young to create value in its coordinated delivery of advisory, tax and audit solutions. The hospitality team covers markets in North America, Europe and Asia.