Growth in demand for hotel rooms has historically shown a meaningful, long-term direct correlation to growth in United States Gross Domestic Product (GDP). From 1988-2000, demand for hotel room grew at an average annual rate of approximately 2.6% corresponding closely to the 3.2% annual growth rate in GDP. In the past several years, however, growth for demand in hotel rooms has been at a significantly lower rate than growth in GDP. In 2001, demand growth was negative 3.5% vs. positive GDP growth of 0.3%. In the past, the lodging industry experienced year over year decline only in 1991 and 2001, the years corresponding with the Gulf War and the events of September 11, 2001, respectively. During 2001, the lodging industry experienced the worst negative demand trend to have affected the industry in decades, which is due in large part to traveler concerns in the wake of the events of September 11, 2001 and to a lag in growth that typically follows periods of general economic recovery.

It is expected new hotel construction to remain at modest levels over the next several years. According to Property & Portfolio Research, construction completions in 2003 totaled 32,800 rooms, representing a 40% decline from the average level of the previous two years. Property & Portfolio Research projects completions for the upcoming two years to average 28,116 rooms annually, and supply additions to average 1.4% of inventory from 2004 to 2008. In addition, it is expected hotel demand to sustain its recent recovery. According to Property & Portfolio Research, new demand totaling nearly 30,000 rooms year-over-year as of the fourth quarter 2003 compared with negative room demand growth of 2,597 rooms for the same period a year earlier. From 2004 to 2008, Property & Portfolio Research expects demand growth to average a healthier 47,223 rooms per years. As a result, Property & Portfolio Research expects a significant increase in national occupancies, which it forecasts to rise by 5.9% from fourth quarter 2003 levels to 68% by 2008.

Total operating costs and expenses increased by $0.5 million, to $14.3 million for the three months ended March 31, 2004 from $13.8 million for the three months ended March 31, 2003.

Unallocated operating expenses amounted to $4.7 million for the three months ended March 31, 2004 and $4.3 million for the three months ended March 31, 2003.

Interest expense, net amounted to $2.3 million for the three months ended March 31, 2004 and $2.3 million for the three months ended March 31, 2003.