New York City, October 02, 2002 -- Moody's Investors Service commented that recent announcements by several lodging REITs that third quarter 2002 results will be lower than had been expected underscore the weak operating environment faced by lodging REITs -- particularly in the full-service, mid- and upscale segments.

Moody's near-term rating outlook for the lodging REIT sector remains negative overall. Although year-over-year revenue per available room (RevPAR) performance for all lodging segments is expected to be positive in the fourth quarter 2002 compared to the post-9/11period of 2001, Moody's anticipates that recovery in lodging REITs' operating performance to more normalized levels will be delayed well into 2003. No immediate rating actions are contemplated. Moody's says that lodging REITs, for the most part, have some cushion available at their current rating levels to withstand current weak hotel market conditions. However, some REITs' ratings could be lowered if there is not a pick-up in operating results over the next few quarters.

The dual challenges of an economic downturn combined with cutbacks in corporate travel are pressuring room rates (ADR, or average daily rates) and are resulting in shortfalls in operating performance for several lodging REITs. Firms such as RFS Hotels, FelCor Lodging Trust and MeriStar Hospitality have made announcements again revising downward their quarterly earnings expectations in light of continued difficult operating conditions. These property owners' portfolios consist primarily of full-service mid- and upscale lodging portfolios, with some concentrations in vulnerable hotel markets, such as Northern California.

At the same time, REITs such as Equity Inns and Winston Hotels, that focus on the limited-service lodging segment, have been more resilient in their performance; these REITs' lower price points, drive-to locations and lower reliance on corporate travel have proved to be a plus.

REITs such as Host Marriott, that have larger hotel properties with well-established brands, are benefiting from stronger demand recovery in group and convention business.

Even in the face of a difficult operating environment, some lodging REITs have maintained, if not strengthened, their balance sheets through debt reduction and equity issuance. Moody's views these firms' efforts positively. Moody's recently revised its outlook on the ratings of La Quinta Properties to stable, from negative, reflecting the company's substantial progress in de-levering.

Moody's rates the following lodging REITs:

Equity Inns, Inc.--Preferred stock at B3 with a negative outlook.

FelCor Lodging Trust, Inc.--Senior unsecured debt at Ba3 with a negative outlook.

Hospitality Properties Trust--Senior unsecured debt at Baa3 with a stable outlook.

Host Marriott Corporation--Senior unsecured debt at Ba3 with a negative outlook.

La Quinta Properties, Inc.--Senior unsecured debt at Ba3 with a stable outlook.

MeriStar Hospitality Corp.--Senior unsecured debt at B1 with a negative outlook.

RFS Hotel Investors, Inc.--Senior unsecured debt at B1 with a stable outlook.

Winston Hotels, Inc.--Preferred stock at B3 with a stable outlook.

New York
John J. Kriz
Managing Director
Real Estate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Lesia Bates Moss
Senior Vice President
Real Estate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Copyright 2002 by Moody's Investors Service
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