MEMPHIS, Tenn. & WASHINGTON--(BUSINESS WIRE)--Nov. 29, 2000--RFS Hotel Investors, Inc. (NYSE: RFS), a hotel real estate investment trust (REIT), today announced that it has advised Hilton Hotels Corporation (NYSE: HLT) of its intent to terminate all operating leases and management contracts with respect to hotels owned by RFS. Pursuant to a previously announced agreement with Hilton, RFS intends to exercise its option to terminate the agreements in exchange for a payment of approximately $60 million. Closing is expected to occur in January 2001. In addition, RFS announced the formation of a strategic alliance with MeriStar Hotels & Resorts (NYSE: MMH), the nation's largest hotel management company.
Upon termination of the contracts with Hilton, RFS intends to enter into management agreements with Flagstone Hospitality Management (Flagstone), a newly formed company. Flagstone will be owned jointly by MeriStar and Angie Mock, currently RFS executive vice president of asset management. Ms. Mock will resign her position with RFS concurrent with the transaction's closing. Flagstone intends to employ substantially all of the existing employees of the current lessee/manager and expects no changes in either the management or franchise affiliation of any of RFS's hotels. Following this transaction, 50 hotels owned by RFS will be managed by Flagstone and 10 hotels will be operated by other third-party management companies of which five will be encumbered by long-term operating leases.
This is a watershed event for RFS, said Robert M. Solmson, RFS chairman and CEO. Strategically, this transaction will simplify our structure and eliminate the encumbrances of the existing long-term leases with Hilton. The REIT Modernization Act of 1999, effective January 1, 2001, permits hotel REITs to act as their own lessee, provided they obtain independent, third-party management. As a result, RFS will be more closely aligned with its management company to focus on hotel profitability. Operationally, the REIT will have greater control over the day-to-day operation of its hotels, in part, because of the flexible termination provisions of the management contracts. Financially, we can accomplish this without over-leveraging. Subsequent to the transaction, RFS will still be one of the least-leveraged hotel REITs.
The alliance with MeriStar is very important to Flagstone, said Angie Mock, Flagstone chief executive officer. Combined, Flagstone's and MeriStar's management portfolio will total nearly 300 properties. We expect this substantial size and distribution to provide RFS with important synergies in purchasing, marketing, insurance and energy management and assistance in such critical operational areas as human resources and technology.
Paul W. Whetsell, MeriStar chairman and CEO, noted that the agreement was MeriStar's third strategic relationship with a hotel REIT. We believe this transaction will benefit our shareholders over the long term because we will be able to deliver greater economies of scale across our entire management portfolio. This competitive advantage will enable us to deliver a better bottom line for all of our owners, which in turn positively impacts MeriStar's incentive management fees.
In January 2000, RFS announced that it had entered into an agreement to obtain the unilateral right to terminate its leases with Hilton on or before January 31, 2001 for approximately $60 million.
Additionally in January 2000, RFS announced that Hilton, through its 1999 merger with Promus Hotel Corporation, became the owner of 973,684 shares of RFS convertible preferred stock. As part of the RFS/Hilton agreement, Hilton has the option to require RFS to repurchase those shares for approximately $13 million. If Hilton exercises this option, RFS may elect to pay for the preferred shares in either cash and/or RFS common stock. RFS anticipates that the payment will be made simultaneously with termination of the leases in January 2001.
MeriStar Hotels & Resorts operates 233 hospitality and leisure properties with more than 48,000 rooms and 11 golf courses in 34 states, the District of Columbia, Canada, Puerto Rico and the U.S. Virgin Islands. BridgeStreet Accommodations, a MeriStar subsidiary, is one of the world's largest corporate housing providers, offering upscale, fully furnished corporate housing throughout the U.S., Canada, the United Kingdom and 28 additional destinations worldwide. For more information about MeriStar Hotels & Resorts, visit the company's Web site: www.meristar.com.
RFS Hotel Investors, Inc., owns 60 hotels with approximately 8,700 rooms located in 24 states. The company's portfolio is diversified by geography, brand and segment. RFS properties operate under such leading brands as Sheraton, Residence Inns by Marriott, Hilton, Doubletree, Holiday Inn, Hampton Inn and Homewood Suites by Hilton. Approximately 43 percent of RFS' lease revenues are from full-service hotels, 29 percent from extended-stay hotels and 28 percent from limited-service hotels. Additional information can be found on the company's Web site www.rfshotel.com.
This press release contains forward-looking statements about RFS Hotel Investors, Inc., and MeriStar Hotels & Resorts, Inc., including those statements regarding future operating results and the timing and composition of revenues, among others. Except for historical information, the matters discussed in this press release are forward-looking statements that are subject to certain risks and uncertainties that could cause the actual results to differ materially, including the following: the ability of the companies to successfully implement their acquisition strategies and operating strategies; the companies' ability to manage rapid expansion; changes in economic cycles; competition from other hospitality companies; and changes in the laws and government regulations applicable to the companies.
CONTACT: RFS Hotel Investors Inc., Memphis
Mimi Hall, 901/682-1360
or
MeriStar Hotels & Resorts
Melissa Thompson, 202/295-2228
or
Daly Gray Public Relations
Jerry Daly, 703/435-6293 (media)
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