The U.S. hotel industry stabilized in 2003, after two consecutive years of declining performance in 2001 and 2002, which followed a period of sustained growth during the economic expansion of the 1990s as the following information from STR demonstrates. It is believed that this decline was caused by the severe contraction of the financial markets following market highs of 2000, a deterioration of general economic activity and consumer sentiment, reduced travel following the events of September 11, 2001, and, to a lesser degree, by new supply.

It is believed that continued improvement in the U.S. economy will drive increases in occupancy. It is also believed that occupancy will benefit from overall demand increases in the lodging industry, as new supply slows.

The Hilton Philadelphia Airport is contiguous to the Philadelphia Airport and located approximately eight miles south of Philadelphia’s central business district at 4509 Island Avenue in Philadelphia, Pennsylvania. The property is located within three miles of the new Lincoln Financial Field, Wachovia Spectrum Center and the new Citizens Bank Park which are homes to Philadelphia’s professional football, basketball, ice hockey, and baseball franchises.

The Hilton Philadelphia Airport generates its corporate demand from transient travelers and corporate meetings. Companies that have held meetings at the hotel include UPS, Atlantic Aviation, Boeing, NetJets, Cintas Corporation, SAP America and First Horizon Pharmaceutical Corporation. The hotel also benefits from large conventions at the Philadelphia Convention Center. The hotel’s locations near the Philadelphia professional sports complexes generates leisure demand for hotel rooms.

The Holiday Inn Downtown Williamsburg, is located one-half mile from Colonial Williamsburg and three and one-half miles from the Busch Gardens amusement and recreation park, at 814 Capitol Landing Road in Williamsburg, Virginia. The Holiday Inn Downtown Williamsburg was built in 1969, and in 1986, the hotel went through major reconstruction adding an indoor pool and tiered dining, among other amenities. The hotel also is convenient to the historic sites of Yorktown and Jamestown, shopping, dining and local golf courses.

The Holiday Inn Downtown Williamsburg is an established full-service hotel. Local demand generators include Colonial Williamsburg, Busch Gardens, Jamestown, Yorktown, College of William & Mary, local destination golf courses and outlet shopping. Group business is generated through tour and travel, government, and through the reunion and religious related segments.

The Holiday Inn Brownstone is located near the central Raleigh business district and adjacent to North Carolina State University, at 1707 Hillsborough Street in Raleigh, North Carolina. The Holiday Inn Brownstone was built in 1971 as an independent property and operated as a Hilton for 20 years.

The hotel leases land adjacent to the hotel for use as a parking lot. The lease provides for annual rent of $76,104 and expires in August 2016 with options to renew for up to three additional 10-year periods with an option to purchase the leased property at fair market value at the end of the original lease term in August 2016, subject to payment of an annual fee of $9,000 and other conditions.

Net loss from turnkey activities was $94,000 for the first six months of 2004. This compares to net income of $642,000 for the corresponding period in 2003.

Oil and gas sales from marketing activities increased $6,000 in the first six months of 2004 to $2.8 million, a nominal increase compared to the same period last year.

The gross profit from marketing activities for the first six months of 2004 was $71,000 as compared to $58,000 in the same period last year.