Interstate Hotels & Resorts Reports Second-Quarter 2009 Results

ARLINGTON, Va., Aug. 5  /PRNewswire-FirstCall/ -- Interstate Hotels & Resorts (NYSE:IHR), a leading hotel real estate investor and the nation's largest independent hotel management company, today reported operating results for the second quarter ended June 30, 2009.  The company's performance for the second quarter includes the following (in millions, except per share amounts):

                                       Second Quarter   Year-to-Date (YTD)
                                       2009(4)   2008   2009(4)   2008(5)
  Total revenue (1)                    $34.0    $40.5    $64.5    $79.4
  Net (loss) income                    $(6.7)    $0.1   $(19.2)   $(0.2)
  Diluted (loss) earnings per share   $(0.21)   $0.00   $(0.60)   $0.00
  Adjusted EBITDA (2)(3)               $10.3    $10.2    $16.2    $17.9
  Adjusted net income (loss)(2)         $0.6     $0.1    $(1.3)   $(1.0)
  Adjusted diluted EPS (2)             $0.02    $0.00   $(0.04)  $(0.03)



(1) Total revenue excludes other revenue from managed properties (reimbursable costs).

(2) Adjusted EBITDA, Adjusted net income (loss), and Adjusted diluted EPS are non-GAAP financial measures and should not be considered as an alternative to any measures of operating results under GAAP.  See the definition of and further discussion of non-GAAP financial measures and reconciliation to net (loss) income later in this press release.

(3) Includes the company's share of EBITDA from investments in unconsolidated entities in the amounts of $1.8 million and $2.5 million in the second quarters of 2009 and 2008, respectively, and $3.0 million and $4.2 million in the first six months of 2009 and 2008, respectively.

(4) The second quarter 2009 and  YTD 2009 results include (i) a $3 million non-cash impairment charge related to the company's investment in a joint venture, (ii) $0.1 million and $0.9 million charges, respectively, for restructuring primarily related to severance costs as a part of the company's 2009 cost reduction program, (iii) $0.7 million of write-offs of intangible assets related to the termination of certain management contracts and other asset impairments, and (iv) income tax expense related to the full valuation allowance against our deferred tax assets offset by a change in the company's effective tax rate, both described in more detail in footnote 9 to the financial tables later in this press release.  These charges are excluded from the calculation of Adjusted EBITDA, Adjusted net income (loss), and Adjusted diluted EPS.

(5) The YTD 2008 results include (i) a $2.4 million gain on the sale of the Doral Tesoro Hotel & Golf Club, and (ii) $1.1 million of write-offs of intangible assets related to the sale of certain hotels.  These charges are excluded from the calculation of Adjusted EBITDA, Adjusted net income (loss), and Adjusted diluted EPS.

  Highlights for the second quarter and through today include:
  --  Maintained year over year Adjusted EBITDA in a difficult economy;
      generated growth in Adjusted Net Income;
  --  Extended senior secured credit facility to March 2012;
  --  Added seven properties to third-party management portfolio, including
      three hotels from its signed management contract pipeline of
      properties under development or construction;
  --  Signed first management contract with the Duet Hotel Fund in India; 
      the second contract for JHM Interstate Hotels India;

  --  Common stock resumed trading on the NYSE effective July 29, 2009.




"I am very pleased with the significant progress we have made on our capital structure," said Thomas F. Hewitt, chairman and chief executive officer.  "We extended our senior credit facility to March 2012 well in advance of its original expiration date.  This, along with our successful appeal of the NYSE's ruling to suspend the trading of our stock, has provided stability to our capital structure in an extremely volatile market.

"With these hurdles behind us, we continue to focus our efforts on growing our third party management business while preserving our capital and liquidity and maximizing profits," Hewitt added.  "Despite the challenging operating climate and RevPAR declines in excess of 20 percent, we maintained our second quarter Adjusted EBITDA year over year, which is a result of the cost reduction initiatives we implemented in January."

Hotel Management

Same-store(6) RevPAR for all managed hotels in the second quarter decreased 21.4 percent to $81.81.  Average daily rate (ADR) was $122.30, down 12.8 percent, and occupancy fell 9.8  percent to 66.9 percent.

Same-store RevPAR for all full-service managed hotels declined 22.2 percent to $93.35.  ADR was off 13.9 percent to $133.78, while occupancy decreased 9.7 percent to 69.8 percent.

Same-store RevPAR for all select-service managed hotels declined 19.0 percent to $59.68, led by a 10.1 percent decline in occupancy to 61.4 percent and a 9.8 percent drop in ADR to $97.25.

"During the second quarter, we saw a continuation of the difficult economic conditions and deteriorating lodging fundamentals that prevailed in the first quarter and much of last year, " Hewitt said.  "We continue to focus on top-line revenues and reducing costs wherever possible.  These are indeed unprecedented times, but we have the experience and expertise to operate effectively in these conditions."

Hewitt added that Interstate's new contract flow has remained steady in 2009, a fact that he attributes to the company's proven operating performance in all economic cycles, deep relationships in the industry, high owner loyalty and a broad network of contacts.

"We recently added two Courtyard by Marriott hotels in Virginia owned by the same group for whom we've been managing two hotels and two first-class restaurants in Gettysburg, Pa.  We also added the Holiday Inn Laredo Civic Center and the Crowne Plaza Milwaukee Airport, and opened the Lancaster Marriott at Penn Square and Lancaster County Convention Center, a $177 million project with which we have been involved for more than a decade.  We opened the TownePlace Suites by Marriott in Easton/Bethlehem (Pa.), and last week, our wholly-owned subsidiary, Sunstone Hospitality Management, signed an agreement to manage the Doubletree Austin-University Area in Texas, the second property we now manage for that ownership group."

After opening three under-construction properties this summer, Interstate currently has 13 management contracts signed for hotels under development or construction.  The majority of these properties are expected to open in 2010.

(6)  Please see footnote 11 to the financial tables within this press release for a detailed explanation of "same-store" hotel operating statistics.

International

"We continue to move forward with our management and development plans in India," Hewitt added.  "Our management company joint venture, JHM Interstate Hotels India, signed its first management contract with the Duet Fund, a U.K.-based real estate fund dedicated to India hotel development that we invested in last year."

The 115-room hotel, scheduled to open in the fall of 2009, is located in Jaipur, which is the capital of the state of Rajasthan and part of India's Golden Triangle (Delhi, Jaipur and Agra).   Brand affiliations for this property and the under-construction property in Vizag (Visakhapatnam), are expected to be finalized during the third quarter.

Wholly Owned Hotel Results

EBITDA from the company's seven owned hotels was $6.0 million in the 2009 second quarter as outlined below (in millions):

  Owned Hotels                       Second Quarter      Year-to-Date
  ------------                       --------------      ------------
                                      2009     2008      2009     2008
                                      ----     ----      ----     ----
  Net income                          $0.0     $1.3     $(1.3)    $1.5
  Interest expense                     3.1      3.2       6.0      6.8
  Depreciation and amortization        2.9      3.8       5.8      7.0
                                       ---      ---       ---      ---
  EBITDA                              $6.0     $8.3     $10.5    $15.3
                                      ====     ====     =====    =====



"RevPAR for our owned portfolio declined 16.4 percent, better than the industry average of 19.5 percent," Hewitt said.  "These results were driven by our two recently renovated properties.  The Westin Atlanta Airport property performed exceptionally well with a RevPAR gain of 3.9 percent.  Also, at the Sheraton Columbia Town Center Hotel, after completing our $12 million renovation, the hotel outperformed its competitive set and the industry with a 13.2 percent RevPAR decline.

"We did experience weakness at our hotels in Concord, Calif., and Houston and Arlington, Texas," Hewitt noted.  "However, I am very pleased with the results of the cost-cutting initiatives carried out by all of our hotels.  Despite a RevPAR decrease of 16.4 percent, of which 12.6 percent was ADR, we were able to offset nearly 50 percent of this revenue decline with expense savings."

  Balance Sheet
  On June 30, 2009, Interstate had:

  --  Total unrestricted cash of $22.8 million.

  --  Total debt of $243.7 million, consisting of $161.2 million of senior
      debt and $82.5 million of non-recourse mortgage debt.




Effective July 10, the company extended the maturity of its senior credit facility to March 2012 by converting the facility's outstanding balance of $161.2 million to a new term loan. The agreement also provides the company with an $8 million revolving line of credit.

"The recent extension of our credit facility to 2012 gives us a solid platform from which we can continue to focus on our core business," said Bruce Riggins, chief financial officer.  "We are in the process of securing a mortgage on the Westin Atlanta Airport Hotel and expect to choose a lender in the near term.  The expected mortgage proceeds of approximately $20 million will be used to pay down the credit facility in accordance with its amortization requirements.   We are also in the process of exploring the sale of a wholly-owned asset.   Upon the completion of these two transactions, we will be well on our way to meeting the second $20 million amortization hurdle by March 2011."

Guidance

The company has updated its 2009 guidance based on a current projected RevPAR decline of 19 percent for all hotels and 15 percent for owned hotels:

      -- Total Adjusted EBITDA of $34.0 million which includes the
         following:
         -- EBITDA from wholly owned hotels of $18.0 million;
         -- The company's share of EBITDA from unconsolidated joint
            ventures of $5.5 million; and
         -- EBITDA from the hotel management business of $10.5 million.
      -- Adjusted net loss of $(7.2) million or $(0.22) per share.

  Earnings Conference Call


Interstate will hold a conference call to discuss its second-quarter results today, August 5, at 9 a.m. Eastern Time.  To hear the webcast, interested parties may visit the company's Web site at http://www.ihrco.com/ and click on Investor Relations and then Second-Quarter Conference Call.  A replay of the conference call will be available until midnight on Wednesday, August 12, 2009, by dialing [phone], reference number 4117565, and an archived webcast of the conference call will be posted on the company's Web site through September 5, 2009.

Interstate Hotels & Resorts has ownership interests in 56 hotels and resorts, including seven wholly owned assets.  Together with these properties, the company and its affiliates manage a total of 224 hospitality properties with approximately 45,700 rooms in 37 states, the

District of Columbia, Russia, Mexico, Belgium, Canada and Ireland.  Interstate Hotels & Resorts also has contracts to manage 13 to be built hospitality properties with approximately 3,000 rooms.  For more information about Interstate Hotels & Resorts, visit the company's Web site:  http://www.ihrco.com/.

Non-GAAP Financial Measures

Included in this press release are certain non-GAAP financial measures, which are measures of our historical or estimated future performance that are different from measures calculated and presented in accordance with generally accepted accounting principles in the United States of America (or GAAP), within the meaning of applicable Securities and Exchange Commission rules, that we believe are useful to investors.  They are as follows:  (i) Earnings before interest, taxes, depreciation and amortization (or "EBITDA") and (ii) Adjusted EBITDA, Adjusted net loss and Adjusted diluted loss per share.  The following discussion defines these terms and presents the reasons we believe they are useful measures of our performance.

EBITDA

A significant portion of our non-current assets consists of intangible assets, related to some of our management contracts, and long-lived assets, which include the cost of our owned hotels.  Intangible assets, excluding goodwill, are amortized over their expected term.  Property and equipment is depreciated over its useful life.  Because amortization and depreciation are non-cash items, management and many industry investors believe the presentation of EBITDA is useful.  We also exclude depreciation and amortization and interest expense from our unconsolidated joint ventures.  We believe EBITDA provides useful information to investors regarding our performance and our capacity to incur and service debt, fund capital expenditures and expand our business.  Management uses EBITDA to evaluate property-level results and as one measure in determining the value of acquisitions and dispositions.  It is also widely used by management in the annual budget process.  We believe that the rating agencies and a number of lenders use EBITDA for those purposes and a number of restrictive covenants related to our indebtedness use measures similar to EBITDA presented herein.

Adjusted EBITDA, Adjusted Net Loss and Adjusted Diluted EPS

We define Adjusted EBITDA as, EBITDA excluding the effects of certain recurring and non-recurring charges, transactions and expenses incurred in connection with events management believes do not provide the best indication of our ongoing operating performance.  These charges include restructuring and severance expenses, asset impairments and write-offs, gains and losses on asset dispositions for both consolidated and unconsolidated investments, and other non-cash charges.  We believe that the presentation of Adjusted EBITDA will provide useful supplemental information to investors regarding our ongoing operating performance  and when combined with the primary GAAP presentation of net loss, is beneficial to an investor's complete understanding of our operating performance.  We also use Adjusted EBITDA in determining our incentive compensation for management.

Similarly, we define Adjusted net loss and Adjusted diluted loss per share ("EPS") as net loss and diluted EPS, without the effects of those same charges, transactions and expenses described earlier.  We believe that Adjusted EBITDA, Adjusted net loss and Adjusted diluted EPS are useful performance measures because including these expenses, transactions, and special charges may either mask or exaggerate trends in our ongoing operating performance.  Furthermore, performance measures that include these charges may not be indicative of the continuing performance of our underlying business.  Therefore, we present Adjusted EBITDA, Adjusted net loss and Adjusted diluted EPS because they may help investors to compare our performance before the effect of various items that do not directly affect our ongoing operating performance.

Limitations on Use of EBITDA, Adjusted EBITDA, Adjusted Net Loss and Adjusted Diluted EPS

We calculate EBITDA, Adjusted EBITDA, Adjusted net loss and Adjusted diluted EPS as we believe they are important measures for our management's and our investors' understanding of our operations.  These may not be comparable to measures with similar titles as calculated by other companies.  This information should not be considered as an alternative to net income, operating profit, cash from operations or any other operating performance measure calculated in accordance with GAAP.  Cash receipts and expenditures from investments, interest expense and other non-cash items have been and will be incurred and are not reflected in the EBITDA and Adjusted EBITDA presentations.  Adjusted net loss and Adjusted diluted EPS do not include cash receipts and expenditures related to those same items and charges discussed above.  Management compensates for these limitations by separately considering these excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures.  Additionally, EBITDA, Adjusted EBITDA, Adjusted net loss and Adjusted diluted EPS should not be considered a measure of our liquidity.  Adjusted net income and Adjusted diluted EPS should also not be used as a measure of amounts that accrue directly to our stockholders' benefit.

This press release contains "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995, about Interstate Hotels & Resorts, including those statements regarding future operating results and the timing and composition of revenues, among others, and statements containing words such as "expects," "believes" or "will," which indicate that those statements are forward-looking.  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 volatility of the national economy, economic conditions generally and the hotel and real estate markets specifically, the war in Iraq, international and geopolitical difficulties or health concerns, governmental actions, legislative and regulatory changes, availability of debt and equity capital, interest rates, competition, weather conditions or natural disasters, supply and demand for lodging facilities in our current and proposed market areas, and the company's ability to manage integration and growth.  Additional risks are discussed in Interstate Hotels & Resorts' filings with the Securities and Exchange Commission, including Interstate Hotels & Resorts' annual report on Form 10-K for the year ended December 31, 2008.

  Contact:
  Carrie McIntyre
  SVP, Treasurer
  [phone]



                     Interstate Hotels & Resorts, Inc.
                   Consolidated Statements of Operations
             (Unaudited, in thousands except per share amounts)


                                   Three Months Ended    Six Months Ended
                                         June 30,            June 30,
                                   ------------------    ----------------
                                        2009     2008      2009     2008
                                        ----     ----      ----     ----
   Revenue:
     Lodging                         $21,225  $25,796   $40,261  $49,714
     Management fees                   8,758   10,820    17,109   20,729
     Termination fees (1)              1,995    1,194     3,241    4,204
     Other                             2,039    2,693     3,923    4,792
                                       -----    -----     -----    -----
                                      34,017   40,503    64,534   79,439
    Other revenue from managed
     properties                      133,657  157,333   265,746  308,347
                                     -------  -------   -------  -------
         Total revenue               167,674  197,836   330,280  387,786

   Expenses:
     Lodging                          15,224   17,510    29,806   34,452
     Administrative and general       10,783   15,331    22,021   31,243
     Depreciation and amortization     3,849    4,901     7,690    9,175
     Restructuring costs (2)              90        -       921        -
     Asset impairments and write-
      offs                               236       29       236    1,141
                                         ---       --       ---    -----
                                      30,182   37,771    60,674   76,011
    Other expenses from managed
     properties                      133,657  157,333   265,746  308,347
                                     -------  -------   -------  -------
         Total operating expenses    163,839  195,104   326,420  384,358
                                     -------  -------   -------  -------

   OPERATING INCOME                    3,835    2,732     3,860    3,428

   Interest income                        25      280       125      599
   Interest expense (4)               (3,126)  (3,333)   (6,033)  (7,148)
   Equity in (losses) earnings of
    unconsolidated entities
    (5)(6)(7)(8)                      (3,713)     535    (4,511)   2,896
   Gain on sale of investments             -        -        13        -
                                         ---      ---        --      ---

   (LOSS) INCOME BEFORE INCOME
    TAXES                             (2,979)     214    (6,546)    (225)

   Income tax (expense) benefit (9)   (3,733)     (79)  (12,649)      72
                                      ------      ---   -------       --

   NET (LOSS) INCOME                  (6,712)     135   (19,195)    (153)
   Add: Net (income) loss
    attributable to noncontrolling
    interest                               5       (1)       11        1
                                         ---       --        --      ---
   NET (LOSS) INCOME ATTRIBUTABLE TO
    INTERSTATE STOCKHOLDERS          $(6,707)    $134  $(19,184)   $(152)
                                     =======     ====  ========    =====


  Basic (loss) earnings per share
   attributable to Interstate
   stockholders                       $(0.21)   $0.00    $(0.60)   $0.00
                                      ======    =====    ======    =====

  Diluted (loss) earnings per share
   attributable to Interstate
   stockholders (10)                  $(0.21)   $0.00    $(0.60)   $0.00
                                      ======    =====    ======    =====

   Weighted average shares
    outstanding (in thousands):
    Basic                             32,135   31,764    32,030   31,765
    Diluted                           32,135   32,864    32,030   31,765



                     Interstate Hotels & Resorts, Inc.
                      Hotel Level Operating Statistics
                                (Unaudited)


                         Three Months Ended           Six Months Ended
                              June 30,                     June 30,
                         ------------------           ----------------
                       2009     2008  % change     2009     2008  % change
                       ----     ----  --------     ----     ----  --------

    Managed Hotels - Hotel Level Operating Statistics: (11)

     Full-service
      hotels:
     Occupancy         69.8%    77.3%     -9.7%    66.7%    74.6%    -10.6%
     ADR            $133.78  $155.30     -13.9% $134.70  $153.34     -12.2%
     RevPAR          $93.35  $120.02     -22.2%  $89.78  $114.40     -21.5%

     Select-service
      hotels:
     Occupancy         61.4%    68.3%    -10.1%    58.2%    64.3%     -9.5%
     ADR             $97.25  $107.79      -9.8%  $98.32  $108.16      -9.1%
     RevPAR          $59.68   $73.65     -19.0%  $57.24   $69.51     -17.7%

     Total:
     Occupancy         66.9%    74.2%     -9.8%    63.5%    70.7%    -10.2%
     ADR            $122.30  $140.26     -12.8% $122.15  $137.89     -11.4%
     RevPAR          $81.81  $104.08     -21.4%  $77.54   $97.52     -20.5%

     Wholly-Owned Hotels - Hotel Level Operating Statistics: (12)

     Occupancy         68.5%    71.6%     -4.3%    63.8%    68.1%     -6.3%
     ADR            $107.18  $122.69     -12.6% $109.43  $122.34     -10.6%
     RevPAR          $73.38   $87.79     -16.4%  $69.85   $83.34     -16.2%



                      Interstate Hotels & Resorts, Inc.
             Reconciliations of Non-GAAP Financial Measures (13)
              (Unaudited, in thousands except per share amounts)

                                     Three Months Ended   Six Months Ended
                                           June 30,          June 30,
                                     ------------------   -----------------
                                         2009     2008      2009     2008
                                         ----     ----      ----     ----

   Net (loss) income                   $(6,712)    $135  $(19,195)   $(153)
    Adjustments:
     Depreciation and amortization       3,849    4,901     7,690    9,175
     Interest expense, net               3,101    3,053     5,908    6,549
     Depreciation and amortization
      from unconsolidated entities       1,157    1,098     2,109    1,799
     Interest expense, net from
      unconsolidated entities              988      897     1,950    1,860
     Income tax (benefit) expense        3,733       79    12,649      (72)
                                         -----       --    ------      ---

   EBITDA                                6,116   10,163    11,111   19,158
     Restructuring costs (2)                90        -       921        -
     Asset impairments and
      write-offs (3)                       736       29       736    1,141
     Gain on sale of investments             -        -       (13)       -
     Equity interest in the sale of
      unconsolidated entities (5)            -        -         -   (2,392)
     Foreign currency loss from
      unconsolidated entities (6)         (202)       -       (73)       -
     Start-up costs from
      unconsolidated entities (7)         511        -       511        -
     Investment in unconsolidated
      entities impairments (8)           3,019        -     3,019        -

                                       -------  -------   -------  -------
   Adjusted EBITDA                     $10,270  $10,192   $16,212  $17,907
                                       =======  =======   =======  =======

                                     Three Months Ended   Six Months Ended
                                           June 30,          June 30,
                                     ------------------   -----------------
                                         2009     2008      2009     2008
                                         ----     ----      ----     ----
   Net (loss) income                   $(6,712)    $135  $(19,195)   $(153)
    Adjustments:
     Restructuring costs (2)                90        -       921        -
     Asset impairments and write-offs
      (3)                                  736       29       736    1,141
     Gain on sale of investments             -        -       (13)       -
     Deferred financing costs write-
      off (4)                                -        -       119        -
     Equity interest in the sale of
      unconsolidated entities (5)            -        -         -   (2,392)
     Foreign currency loss from
      unconsolidated entities (6)         (202)       -       (73)       -
     Start-up costs from
      unconsolidated entities (7)         511        -       511        -
     Investment in unconsolidated
      entities impairments (8)           3,019        -     3,019        -
     Income tax rate adjustment (14)     3,170      (43)   12,636      397
                                         -----      ---    ------      ---

   Adjusted net income (loss)             $612     $121   $(1,339) $(1,007)
                                          ====     ====   =======  =======


   Adjusted diluted earnings (loss)
    per share                            $0.02    $0.00    $(0.04)  $(0.03)
                                         =====    =====    ======   ======

   Weighted average number of diluted
    shares outstanding (in thousands)
    (10):                               32,135   32,864    32,030   31,765



                    Interstate Hotels & Resorts, Inc.
                       Outlook Reconciliation (13)
                        (Unaudited, in thousands)

                                                        Forecast
                                                       ----------
                                                      Year Ending
                                                   December 31, 2009
                                                  -------------------
   Net loss                                                  $(24,900)
    Adjustments:
     Depreciation and amortization                             16,100
     Interest expense, net                                     17,300
     Depreciation and amortization from unconsolidated
      entities                                                  4,100
     Interest expense, net from unconsolidated entities         3,700
     Income tax expense                                        12,700
                                                               ------

   EBITDA                                                      29,000
     Restructuring costs (2)                                      900
     Asset impairments and write-offs (3)                         700
     Foreign currency loss from unconsolidated entities (6)      (100)
     Start-up costs from unconsolidated entities (7)              500
     Investment in unconsolidated entities impairments (8)      3,000
                                                                -----

   Adjusted EBITDA                                            $34,000
                                                              =======



                                                        Forecast
                                                       ----------
                                                      Year Ending
                                                   December 31, 2009
                                                  -------------------
   Net Loss                                                  $(24,900)
    Adjustments:
     Restructuring costs (2)                                      900
     Asset impairments and write-offs (3)                         700
     Deferred financing costs write-off (4)                       100
     Foreign currency loss from unconsolidated entities (6)      (100)
     Start-up costs from unconsolidated entities (7)              500
     Investment in unconsolidated entities impairments (8)      3,000
     Income tax rate adjustment (14)                           12,600
                                                               ------

   Adjusted Net Loss                                          $(7,200)
                                                              =======

   Adjusted diluted loss per share (10)                        $(0.22)
                                                               ======



  Interstate Hotels & Resorts, Inc.
  Notes to Financial Tables
  (Unaudited)



(1) We record termination fees as revenue when all contingencies related to the termination fees have been removed.

(2) Restructuring costs for the three and six months ended June 30, 2009 consists of severance payments and other benefits for terminated employees associated with our cost-savings program implemented in January 2009.

(3) This amount represents losses recorded for intangible assets associated with terminated management contracts and other asset impairments. In the second quarter of 2009, $0.5 million in allowance for bad debts related to notes receivable, which are recorded within administrative and general expense on our consolidated statement of operations, has been included.

(4) Interest expense for the six months ended June 30, 2009 includes a $0.1 million write-off of deferred financing costs as a result of the permanent reduction in capacity of our credit facility associated with the waiver and amendment obtained in March 2009.

(5) In the first quarter of 2008, one of our joint ventures sold the Doral Tesoro Hotel & Golf Club and we recorded a gain of $2.4 million.

(6) One of our international joint ventures has debt that is denominated in a currency other than its functional currency. Each period, the debt obligation is translated and the resulting gain or loss is recognized in our consolidated statement of operations, although it is a non-cash event.

(7) In February 2008, we and JHM Hotels, LLC formed a joint venture hotel management company in India. In May 2009, our previously contributed notes receivable were converted into a 50.0 percent equity interest in the JHM Interstate Hotels India Ltd. joint venture. Upon applying the equity method of accounting in the second quarter of 2009, we recorded $0.5 million in equity in losses related to the accumulated start-up costs of the joint venture.

(8) In the second quarter of 2009, we recognized a non-cash impairment charge of $3.0 million relating to one of our joint venture investments and this charge is reflected within equity in (losses) earnings of unconsolidated entities on our statement of operations.

(9) In the first quarter of 2009, our effective annual tax rate was determined to be (250.4)% which took into account our foreign intellectual property license transaction. This transaction was expected to accelerate the utilization of certain U.S. tax attributes based on then-current forecasts. The application of this effective annual tax rate to our first quarter pre-tax loss of $3.6 million resulted in income tax expense of $8.9 million for the first quarter of 2009.

In the second quarter of 2009, we established a full valuation allowance against our remaining net deferred tax assets as we determined it is more likely than not that we will not be able to utilize these assets in the foreseeable future. As a result, our effective annual tax rate was calculated to be 1.2% in the second quarter of 2009 and is expected to be nominal (or approximately 0%) for the third and fourth quarters of 2009.

(10) Our diluted earnings per share assumes the issuance of common stock for all potentially dilutive common stock equivalents outstanding.  Potentially dilutive shares include unvested restricted stock and stock options granted under our comprehensive stock plan and operating partnership units held by noncontrolling interest partners.  No effect is shown for any securities that are anti-dilutive.

(11) We present certain operating statistics (i.e. occupancy, RevPAR and ADR) for the periods included in this report on a same-store hotel basis.  We define our same-store hotels as those which (i) are managed or owned by us for the entirety of the reporting periods being compared or have been managed by us for part of the reporting periods compared and we have been able to obtain operating statistics for the period of time in which we did not manage the hotel, and (ii) have not sustained substantial property damage, business interruption, or undergone large-scale capital projects during the current reporting period being presented.  In addition, the operating results of hotels for which we no longer managed as of June 30, 2009 are also not included in same-store hotel results for the periods presented herein.  Of the 221 properties that we managed as of June 30, 2009, 193 hotels have been classified as same-store hotels.  RevPAR is defined as revenue per available room.

(12) Operating statistics for our wholly-owned hotels includes our entire portfolio of 7 hotels, including the Sheraton Columbia and the Westin Atlanta Airport, both of which underwent comprehensive renovation programs throughout 2008.

(13) See discussion of EBITDA, adjusted EBITDA, adjusted net loss and adjusted diluted loss per share, located in the "Non-GAAP Financial Measures" section, described earlier in this press release.

(14) These amounts represent the effect on income tax expense for the adjustments made to adjusted net income (loss). For the six months ended June 30, 2009 and 2008, we used an effective annual tax rate of 1.2% and 32%, respectively. For the three and six months ended June 30, 2009, we adjusted the income tax expense related to the valuation allowance recorded against deferred tax assets during the quarter as discussed in footnote 9 above. 

DATASOURCE: Interstate Hotels & Resorts



CONTACT:  Carrie McIntyre, SVP, Treasurer, [phone]



Web Site:  http://www.ihrco.com/ 

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