MeriStar Hospitality Corporation Reports Fourth-Quarter, Full-Year Results

• The company's net loss was $(62) million, or $(0.97) per share, for the 2003 fourth quarter, compared to a net loss of $(125) million, or $(2.76) per share in the 2002 fourth quarter. Net loss for full-year 2003 was $(389) million, or $(7.65) per share, compared to a net loss of $(161) million, or $(3.59) per share, for the previous year. The company's net loss included the effect of asset impairment charges, net of additional income tax benefits, of $(32) million and $(316) million for the fourth quarter and full-year 2003, compared to $(79) million for both the 2002 fourth quarter and full year.
• Total revenues from continuing operations were $200 million in the 2003 fourth quarter and $844 million for the full year, compared to $204 million and $866 million for the same periods in 2002.
• Funds from operations (FFO) was $(40) million, or $(0.59) per share, for the 2003 fourth quarter, compared to $(90) million, or $(1.83) per share in the 2002 fourth quarter. Full-year 2003 FFO was $(298) million, or $(5.55) per share, compared to $(35) million, or $(0.72) per share, for the same 2002 period. FFO included the effect of asset impairment charges, net of additional income tax benefits, of $(32) million, or $(0.47) per share, and $(316) million, or $(5.88) per share for the fourth quarter and full year 2003, respectively, compared to $(79) million or $(1.61) per share for both the 2002 fourth quarter and full year.
• Adjusted EBITDA (earnings before interest, income taxes, depreciation, amortization and other items) was $30 million and $164 million for the fourth quarter and full-year 2003, respectively, compared to $43 million and $216 million for the same periods in 2002. Adjusted EBITDA and FFO are non-GAAP financial measures that should not be considered as alternatives to any measures of operating results under GAAP. See note (b) for further discussion of these non-GAAP financial measures.
• Fourth-quarter 2003 comparable revenue per available room (RevPAR) for the company's 73 core hotels declined 2.2 percent to $61.56. Occupancy increased 0.9 percent to 63.9 percent and average daily rate (ADR) decreased 3.1 percent to $96.37.
• Full-year 2003 comparable RevPAR for the company's 73 core hotels declined 3.0 percent to $68.61. Occupancy increased 0.7 percent to 68.1 percent and ADR decreased 3.7 percent to $100.76.
"We continued to see occupancy gains in the fourth quarter and achieved RevPAR growth in some of our key markets such as the Mid-Atlantic," said Paul W. Whetsell, chairman and chief executive officer. "However, average daily rate continued to lag the prior year resulting in declining RevPAR for the quarter. As we move further into 2004, we expect to see RevPAR improve with the strengthening of the economy and anticipate increases in both average rate and occupancy."

Whetsell noted that the company's hotel operating margins continued to face pressure in the fourth quarter. "We are closely monitoring all hotel costs, but maintaining margins is very difficult when RevPAR declines. We expect to see operating margins stabilize or increase slightly in the second half of 2004 if RevPAR improves as anticipated."

Acquisitions and Dispositions
The company sold nine hotels during the 2003 fourth quarter and 15 for the full year, for total gross proceeds of $128 million. "Since the close of the year, we have sold three additional assets for aggregate proceeds of $28 million," Whetsell said. "In addition, we withdrew eight assets from our planned disposition list because our liquidity has greatly improved and we expect to realize greater value by holding them as we move into an economic recovery. These hotels generate stronger cash flow than the average of hotels on our disposition list, and we believe we will benefit more from holding these hotels than by selling them." The company currently has 16 hotels with 4,131 rooms remaining in its disposition program and expects to complete the majority of the sales during the 2004 first quarter. The 16 properties are expected to generate gross proceeds of $110 million to $130 million.

"We are monitoring the acquisition market and have an active pipeline of opportunities," Whetsell said. "We have created substantial liquidity with $273 million of cash on hand and now have the flexibility to make accretive acquisitions. We are focusing mainly on larger properties located in major urban markets or high-end resort destinations with strong brand affiliations and significant meeting space."

Renovation Program
During 2003, the company invested approximately $36 million in hotel renovations and upgrades. "We will dramatically ramp up our renovation program in the next two years, investing an estimated additional total of $225 million by the end of 2005, including approximately $125 million in 2004," Whetsell noted. "We have implemented a unique, streamlined design and purchasing program that we believe will reduce our renovation costs by at least 15 percent, speed up the renovation process by approximately 20 weeks and minimize the time rooms are out of service."

Operating Performance in Significant Markets
The company reported positive RevPAR in six of its 12 major markets in the 2003 fourth quarter, led by a 3.4 percent gain in the Mid-Atlantic, which accounts for nearly 13 percent of total revenues. "We are seeing continued strength in leisure travel and stabilization and improvements in certain markets, but markets such as New Jersey and Chicago have not yet fully recovered," Whetsell said.

Comparable RevPAR contributions in significant markets for the fourth quarter and full year 2003 were:

                             Three months ended       Year ended

                             December 31, 2003     December 31, 2003

                                      Percentage            Percentage

                             RevPAR    of Total    RevPAR    of Total

                             Change    Revenue     Change    Revenue

                           ---------- ---------- ---------- 

 Mid-Atlantic                    3.4%      12.7%      -2.1%      11.8%

 Atlanta                         2.4%       3.3%      -2.2%       3.2%

 Northern California             1.7%       5.6%      -5.3%       5.7%

 Orlando                         1.2%       5.1%      -5.1%       5.2%

 Southern California             0.4%       6.7%      -4.4%       6.3%

 Southwest Florida               0.3%       7.4%       1.6%       9.3%

 Colorado                       -0.4%       2.5%      -4.8%       2.6%

 Tampa/Clearwater               -2.9%       4.8%       2.1%       5.2%

 New Jersey                     -3.4%       7.0%      -4.5%       6.5%

 Chicago                       -11.1%       4.3%      -3.1%       4.2%

 Houston                       -11.6%       4.3%     -10.7%       4.0%

 Dallas                        -17.3%       2.8%      -7.7%       3.0%

Capital Structure
The company completed the following capital markets transactions during the 2003 fourth quarter:

• Underwriters exercised their over-allotment option of 1.8 million shares in connection with an equity issuance of 12 million shares the company completed late in the third quarter, generating $12.4 million of additional proceeds. Total proceeds from the equity issuances were $95.4 million.
• The company closed on a new $50 million senior credit facility, secured by six of the company's hotels, and concurrently terminated an existing $50 million credit facility, which had no borrowings outstanding. The new three-year facility will carry an annual interest rate of LIBOR plus 450 basis points.
• The company repurchased $81 million of senior subordinated notes reducing the balance outstanding on the notes to $83 million.
"We made significant strides in improving our balance sheet in the fourth quarter," said Donald D. Olinger, chief financial officer. "As of year-end 2003, we had $273 million of cash and $50 million available on our credit facility. To date in 2004, we have repurchased $35 million of senior notes and $14 million of senior subordinated notes. We will continue to seek opportunities to further improve our balance sheet in 2004."

Long-Term Debt

Long-term debt as of December 31, 2003 and December 31, 2002 consisted

 of the following (in 000's):



                                                   Interest

                           12/31/03    12/31/02      Rate     Maturity

                         ----------- ----------- ------------ 

Convertible Notes            $3,705    $154,300      4.75%       2004

Senior Subordinated Notes    82,768     203,205      8.75%       2007

Senior Unsecured Notes      299,459     299,325      9.00%       2008

Senior Unsecured Notes      248,848     248,637     10.50%       2009

CMBS                        309,035     314,626      7.76%       2009

Convertible Notes           170,000           -      9.50%       2010

Senior Unsecured Notes      396,437     395,978      9.13%       2011

Mortgage Debt and Other      27,011      38,031      8.89%    Various

CMBS                        100,765           -      6.88%       2013

                         $1,638,028  $1,654,102



Average Maturity         5.79 years  5.94 years

Average Interest Rate          8.9%        8.6%

Outlook
The company provides the following range of estimates for the 2004 first quarter and full year based on first-quarter projected 2004 RevPAR of flat to an increase of 2 percent and full-year 2004 RevPAR increase of 3 percent to 4 percent (includes the effect of anticipated asset sales but excludes any acquisition or future debt repurchase assumptions):

• Net loss of $(25) million to $(27) million for the first quarter and $(79) million to $(84) million for the full year;
• Net loss per diluted share of $(0.36) to $(0.40) for the first quarter and $(1.15) to $(1.22) for the full year;
• FFO per diluted share (a) of $(0.02) to $(0.07) for the first quarter and $0.10 to $0.17 for the full year; and
• Adjusted EBITDA (a) of $35 million to $38 million for the first quarter and $150 million to $155 million for the full year. Adjusted EBITDA and FFO are non-GAAP financial measures that should not be considered as alternatives to any measures of operating results under GAAP. See note (b) for further discussion of these non-GAAP financial measures.

(a) See reconciliations of net loss to FFO per diluted share and net loss to Adjusted EBITDA included in the operating statement tables of this press release.
(b) This press release includes various references to FFO and Adjusted EBITDA. Substantially all of our non-current assets consist of real estate, and in accordance with GAAP, those assets are subject to straight-line depreciation, which reflects the assumption that the value of real estate assets, other than land, will decline ratably over time. That assumption is often not true with respect to the actual market values of real estate assets (and, in particular, hotels), which fluctuate based on economic, market and other conditions. As a result, management and many industry investors believe the presentation of GAAP operating measures for real estate companies to be more informative and useful when other measures, adjusted for depreciation and amortization, are also presented.
In an effort to address these concerns, NAREIT adopted a definition of Funds From Operations, or FFO. NAREIT defines FFO as net income (computed in accordance with GAAP) excluding gains (or losses) from sales of real estate, real estate-related depreciation and amortization, and after comparable adjustments for our portion of these items related to unconsolidated partnerships and joint ventures. Extraordinary items and cumulative effect of changes in accounting principles as defined by GAAP are also excluded from the calculation of FFO. As defined by NAREIT, FFO also does not include reductions from asset impairment charges. The SEC, however, recommends that FFO include the effect of asset impairment charges, which presentation we have adopted. We believe FFO is an indicative measure of our operating performance due to the significance of our hotel real estate assets, and that it can be used to measure our ability to service debt, fund capital expenditures, and expand our business. We also use FFO in our annual budget process.

EBITDA represents consolidated earnings before interest, income taxes, depreciation and amortization and includes operations from the assets included in discontinued operations. We further adjust EBITDA for the effect of capital market transactions that would result in a gain or loss on early extinguishments of debt, as well as the earnings effect of asset dispositions and any impairment assessments, resulting in the measure that we refer to as "Adjusted EBITDA." We exclude the effect of gains or losses on early extinguishments of debt as well as the earnings effect of asset dispositions and impairment assessments because we believe that including them in Adjusted EBITDA does not fully reflect the operating performance of our remaining assets.

We also believe Adjusted EBITDA provides useful information to investors regarding our financial condition and results of operations because Adjusted EBITDA is useful in evaluating our operating performance and our capacity to incur and service debt, fund capital expenditures and expand our business. Furthermore, we use Adjusted EBITDA to provide a measure of unleveraged cash flow that can be isolated on an asset by asset basis, to determine overall property performance and to measure our ability to service debt. We believe that the rating agencies and a number of our lenders also use Adjusted EBITDA for those purposes. We also use Adjusted EBITDA as one measure in determining the value of acquisitions and dispositions and, like FFO, it is also widely used in our annual budget process.




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