Interstate Hotels & Resorts Reports 2nd Qtr 2005 Net Income of $1.7 million Compared to net loss of $(2.7) million in 2nd Qtr 2004 / August 2005

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Interstate Hotels & Resorts Reports 2nd Qtr 2005 Net Income of $1.7 million
Compared to net loss of $(2.7) million in 2nd Qtr 2004

ARLINGTON, Va.--- Aug. 9, 2005--Interstate Hotels & Resorts (NYSE:IHR), the nation's largest independent hotel management company, today reported results of operations for the second quarter ended June 30, 2005. The company exceeded its earnings guidance of May 5 and raised its 2005 full-year earnings guidance for the second time this year.

For the 2005 second quarter, net income was $1.7 million, or $0.06 per diluted share, compared to net loss of $(2.7) million, or $(0.09) per diluted share, in the second quarter 2004. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), excluding non-recurring items, special charges and discontinued operations, was $7.9 million, up 23.6 percent from $6.4 million in the 2004 second quarter. Net income, excluding non-recurring items and special charges, was $2.6 million, or $0.09 per share, compared to net income of $1.3 million, or $0.04 per share, for the same period a year earlier.

Second-quarter 2005 results for Adjusted EBITDA, excluding non-recurring items, special charges and discontinued operations, exceeded the company's upwardly revised guidance of $6.5 million to $7.5 million. Net income and earnings per share (EPS), both excluding non-recurring items, special charges and discontinued operations, exceeded the high end of the company's guidance by $0.4 million and $0.02, respectively. Both hotel management and BridgeStreet operations contributed to the strong second-quarter results.

Total revenue in the 2005 second quarter, excluding other revenue from managed properties (reimbursable costs), was $55.2 million, compared to $46.5 million in the 2004 second quarter. The company experienced revenue increases across all areas of business. The increase is primarily due to the February 2005 acquisition of the Hilton Concord hotel in San Francisco and strong performance from the BridgeStreet Corporate Housing Worldwide subsidiary, as well as higher management fee revenue resulting from a greater number of managed properties compared to the same period last year and favorable operating results across the company's portfolio.

Hotel Operating Results

Same-store revenue per available room (RevPAR) for all managed hotels, excluding those hotels affected by the hurricanes that struck Florida in the fall of 2004, improved 11.1 percent to $82.02, which is 0.6 percentage points above the high end of the company's guidance, and 2.8 percentage points above the industry average of 8.3 percent, as reported by Smith Travel Research. Average daily rate (ADR) improved 8.6 percent to $110.34, while occupancy rose 2.3 percent to 74.3 percent.

Same-store RevPAR for all full-service managed hotels, excluding those hotels affected by the hurricanes, rose 11.4 percent to $85.84. ADR improved 9.0 percent to $115.29, while occupancy advanced 2.3 percent to 74.5 percent.

Same-store RevPAR for all select-service managed hotels, excluding those hotels affected by the hurricanes, increased 9.1 percent to $64.64, led by a 6.5 percent improvement in ADR to $87.63 and a 2.4 percent increase in occupancy to 73.8 percent.

"Interstate posted strong results for the second quarter," said Thomas F. Hewitt, chief executive officer. "As the economy continues to strengthen, we have aggressively raised ADR without impacting occupancy. We believe the industry will continue to enjoy strong demand growth as business travel continues to increase, which should allow us to raise room rates for the remainder of the year."

BridgeStreet Results Up Substantially

The company's BridgeStreet division reported substantially improved revenues and profitability over the prior year, led by strong results in four key markets: New York, London, Washington, D.C., and Chicago. BridgeStreet's Smart Growth program, which was launched earlier this year and focuses on yield management and optimizing apartment rentals, positively impacted rate and occupancy, which rose 8.6 percent and 2.2 percent, respectively, for the second quarter.

The division also has benefited from the strength and quality of its licensing program, which provides BridgeStreet with significantly enhanced distribution in more than 90 U.S. market statistical areas (MSAs). Following the close of the second quarter, one of BridgeStreet's Global Partners added apartments to the program in Boca Raton, Ft. Lauderdale, South Miami Beach and Miami, Florida.
"BridgeStreet continues to gain strength this year," Hewitt said. "We experienced improved rate and occupancy over the same quarter last year. As a result of our restructuring efforts in 2004, our BridgeStreet subsidiary is focused in a stronger mix of markets, allowing us to achieve increased profitability on a slightly smaller unit count."

Acquisition and Divestment

The company benefited from its first full quarter of ownership of the 329-room Hilton Concord in the East Bay area of San Francisco, Calif., acquired in February 2005. "We have determined that we now will own the hotel outright, rather than sell the property into a joint venture partially owned by Interstate," Hewitt noted. The Hilton Concord exceeded the company's pro forma results in the 2005 second quarter.
During the second quarter, Interstate entered into an agreement to sell its Residence Inn Pittsburgh for $11 million. The transaction is expected to close in the third quarter. "We plan to use the proceeds to fund future acquisitions," said J. William Richardson, chief financial officer. "Diversifying our earnings stream through hotel ownership remains a key growth strategy--either for our own account, like the Hilton Concord, or in joint ventures with other investors, like the 16 properties in which we currently own an interest."

Key Financial Information

On June 30, 2005, Interstate had:

Total cash of $12.6 million
Total debt of $100.2 million, consisting of $75.5 million of senior debt, $19 million of mortgage debt, $5.7 million of other debt

Outlook and Guidance

"We remain optimistic about the outlook for our managed hotel portfolio and for the industry as a whole," Richardson said. "With the addition of the Hilton Concord to our portfolio, continued aggressive growth in RevPAR, a projected modest increase in incentive fees and continued strength from BridgeStreet, we are raising our guidance for the second time this year."

The company provides the following range of estimates for the third quarter and full year 2005:

RevPAR is expected to improve 7.5 to 8.5 percent in the third quarter and 8.5 to 9.5 percent for the full year;
Net income of $1.3 million to $2.0 million for the third quarter and net income of $9.4 million to $10.9 million for the full year;
Net income per diluted share of $0.04 to $0.07 for the third quarter and net income per diluted share of $0.30 to $0.35 for the full year;
Excluding non-recurring charges, special items and discontinued operations, net income of $1.3 million to $2.0 million for the third quarter and net income of $10.8 million to $12.3 million for the full year;
Excluding non-recurring charges, special items and discontinued operations, net income per diluted share of $0.04 to $0.07 for the third quarter and net income per diluted share of $0.35 to $0.39 for the full year;
Excluding non-recurring charges, special items and discontinued operations, Adjusted EBITDA of $6.1 million to $7.1 million for the third quarter and $32.5 million to $34.5 million for the full year.

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

                             Three Months Ended    Six Months Ended
                                   June 30             June 30
                            -----------------------------------------
                              2005       2004       2005       2004
                            --------   --------   --------   --------
Revenue:
Lodging revenue           $ 4,234   $    848   $ 6,796   $ 1,571
Management fees             16,353     14,968     30,352     28,646
Corporate housing           31,125     27,555     58,525     51,805
Other revenue                3,503      3,102      6,458      6,354
                            --------   --------   --------   --------
                              55,215     46,473    102,131     88,376
Other revenue from
   managed properties (7)    229,407    194,334    433,704    373,874
                            --------   --------   --------   --------
   Total revenue             284,622    240,807    535,835    462,250

Operating expenses by
department:
Lodging expenses             2,818        508      4,768        972
Corporate housing           24,620     21,903     48,029     42,285
Undistributed operating
expenses:
Administrative and general 19,896     17,684     37,927     35,202
Depreciation and
   amortization                2,271      2,338      4,511      4,733
Restructuring and
   severance expenses             96      3,312      2,119      3,439
Asset impairments and
   write-offs (4)                849      1,698      1,911      6,191
                            --------   --------   --------   --------
                              50,550     47,443     99,265     92,822
Other expenses from
   managed properties (7)    229,407    194,334    433,704    373,874
                            --------   --------   --------   --------
   Total operating expenses 279,957    241,777    532,969    466,696
                            --------   --------   --------   --------

OPERATING INCOME (LOSS) 4,665 (970) 2,866 (4,446)

Interest expense, net (5)     (2,089)    (1,568)    (5,883)    (3,290)
Equity in earnings (losses)
of affiliates                   350       (165)     3,192       (941)
Gain on sale of investments        -          -        385          -
                            --------   --------   --------   --------

INCOME (LOSS) BEFORE
MINORITY INTEREST AND
INCOME TAXES 2,926 (2,703) 560 (8,677)

Income tax (expense) benefit (1,154)     1,385       (230)     3,939
Minority interest (expense)
benefit                         (29)        29        (11)        75
                            --------   --------   --------   --------

INCOME (LOSS) FROM
CONTINUING OPERATIONS 1,743 (1,289) 319 (4,663)

Loss from discontinued
operations, net of tax (11) - (1,362) - (1,732)
-------- -------- -------- --------

NET INCOME (LOSS) $ 1,743 $ (2,651) $ 319 $ (6,395)
======== ======== ======== ========

Basic earnings (loss) per
share
Basic earnings (loss) per
   share from continuing
   operations               $   0.06   $ (0.04) $   0.01   $ (0.15)
Basic earnings (loss) per
   share from discontinued
   operations                      -      (0.05)         -      (0.06)
                            --------   --------   --------   --------
Basic earnings (loss)
   per share                $   0.06   $ (0.09) $   0.01   $ (0.21)
                            ========   ========   ========   ========

Diluted earnings (loss) per
share
Diluted earnings (loss)
   per share from
   continuing operations    $   0.06   $ (0.04) $   0.01   $ (0.15)
Diluted earnings (loss)
   per share from
   discontinued operations         -      (0.05)         -      (0.06)
                            --------   --------   --------   --------
Diluted earnings (loss)
   per share                $   0.06   $ (0.09) $   0.01   $ (0.21)
                            ========   ========   ========   ========

Weighted average number of
common shares outstanding
(in thousands):
Basic 30,716 30,587 30,686 30,328
Diluted (1) 30,993 30,587 30,980 30,328

Reconciliations of Non-GAAP Three Months Ended    Six Months Ended
financial measures                June 30             June 30
                            -----------------------------------------
                              2005       2004       2005       2004
                            --------   --------   --------   --------
Net Income (loss)           $ 1,743   $ (2,651) $    319   $ (6,395)
Adjustments:
   Depreciation and
    amortization               2,271      2,338      4,511      4,733
   Interest expense, net       2,089      1,568      5,883      3,290
   Equity in (earnings)
    losses of affiliates        (350)       165     (3,192)       941
   Discontinued
    operations (11)                -      1,362          -      1,732
   Income tax expense
    (benefit)                  1,154     (1,385)       230     (3,939)
   Minority interest
    expense (benefit)             29        (29)        11        (75)
                            --------   --------   --------   --------

Adjusted EBITDA (2)            6,936      1,368      7,762        287
Restructuring expenses          96      3,312      2,119      3,439
Asset impairments and
   write-offs (4)                849      1,698      1,911      6,191
Gain on sale of
   investments                     -          -       (385)         -
                            --------   --------   --------   --------

Adjusted EBITDA, excluding
non-recurring items,
special charges and
discontinued
operations (2) $ 7,881 $ 6,378 $ 11,407 $ 9,917
======== ======== ======== ========

Net Income (loss)           $ 1,743   $ (2,651) $    319   $ (6,395)
Adjustments to net income
(loss):
Restructuring expenses          96      3,312      2,119      3,439
Asset impairments and
   write-offs (4)                849      1,698      1,911      6,191
Gain on sale of
   investments                     -          -       (385)         -
Deferred financing costs
   write-offs (5)                  -          -      1,847          -
Equity interest in the
   gain on sale of Hilton
   San Diego (8)                (549)         -     (4,202)         -
Equity interest in the
   loss on sale of Wyndham
   Milwaukee (10)                380          -        380          -
MIP deferred financing
   costs write-off (9)             -          -        295          -
Discontinued
   operations (11)                 -        973          -      1,237
Minority interest expense
   (benefit)                      (2)       (38)       (12)       (50)
Income tax rate
   adjustment (6)                126     (2,003)      (470)    (3,852)
                            --------   --------   --------   --------

Net income, excluding non-
recurring items, special
charges and discontinued
operations (2) $ 2,643 $ 1,291 $ 1,802 $ 570
======== ======== ======== ========

Basic earnings per share,
excluding non-recurring
items, special charges and
discontinued
operations (2) $ 0.09 $ 0.04 $ 0.06 $ 0.02
======== ======== ======== ========

Diluted earnings per share,
excluding non-recurring
items, special charges and
discontinued
operations (2) $ 0.09 $ 0.04 $ 0.06 $ 0.02
======== ======== ======== ========

Weighted average number of
common shares outstanding
(in thousands):
Basic 30,716 30,587 30,686 30,328
Diluted (1) 30,993 30,774 30,993 30,539

Same-store hotel operating statistics (excluding 10 properties damaged
in 2004 hurricanes):

Full-service hotels:
Occupancy                     74.5%      72.8%      70.7%      69.7%
ADR                       $ 115.29   $ 105.80   $ 113.31   $ 104.35
RevPAR                    $ 85.84   $ 77.02   $ 80.15   $ 72.73

Select-service hotels:
Occupancy                     73.8%      72.0%      69.5%      67.5%
ADR                       $ 87.63   $ 82.26   $ 86.22   $ 81.30
RevPAR                    $ 64.64   $ 59.26   $ 59.96   $ 54.86

Total:
Occupancy                     74.3%      72.7% $ 70.50       69.3%
ADR                       $ 110.34   $ 101.61   $ 108.50   $ 100.32
RevPAR                    $ 82.02   $ 73.84   $ 76.51   $ 69.52

Outlook Reconciliation (3)        Forecast
                            -------------------
                             Three
                             months      Year
                             ending     ending
                            September December
                            30, 2005   31, 2005
                            -------------------

Net income                  $ 1,700   $ 10,150
Depreciation and
   amortization                2,250      9,050
Interest expense, net (5)    1,750      9,350
Equity in (earnings)
   losses of affiliates          250     (2,700)
Minority interest expense
   (benefit)                       -        150
Income tax expense
   (benefit)                     650      3,900
                            --------   --------

Adjusted EBITDA (2)            6,600     29,900
Restructuring expenses           -      2,100
Asset impairments and
   write-offs (4)                  -      1,900
Gain on sale of
   investments                     -       (400)
                            --------   --------

Adjusted EBITDA, excluding
non-recurring items,
special charges and
discontinued
operations (2) $ 6,600 $ 33,500
======== ========

Net income                  $ 1,700   $ 10,150
Adjustments to net income:
Restructuring expenses           -      2,100
Asset impairments and
   write-offs (4)                  -      1,900
Gain on sale of
   investments                     -       (400)
Deferred financing costs
   write-offs (5)                  -      1,850
Equity interest in the
   gain on sale of Hilton
   San Diego (8)                   -     (4,200)
Equity interest in the
   loss on sale of Wyndham
   Milwaukee (10)                  -        400
MIP deferred financing
   costs write-off (9)             -        300
Income Tax rate
   adjustment (6)                  -       (550)
                            --------   --------

Net income, excluding non-
recurring items, special
charges and discontinued
operations (2) $ 1,700 $ 11,550
======== ========

Income per diluted share,
excluding non-recurring
items, special charges and
discontinued
operations (2) $ 0.05 $ 0.37
======== ========

(1) Diluted shares outstanding are calculated as the weighted average
    number of shares of common stock outstanding plus other
    potentially dilutive securities. Dilutive securities may include
    shares granted under our stock incentive plans and operating
    partnership units held by minority partners. No effect is shown
    for any securities that are anti-dilutive.

(2) See discussion of Adjusted EBITDA, net income, basic and diluted
    earnings per share, excluding non-recurring items, special
    charges, and discontinued operations, located in the "Non-GAAP
    Financial Measures" section, described earlier in this press
    release.

(3) Our outlook reconciliation uses the mid-point of our estimates of
    Adjusted EBITDA, net income, and diluted EPS, all excluding non-
    recurring items, special charges and discontinued operations. Our
    outlook reconciliation uses the mid-point of our estimates of
    Adjusted EBITDA, net income, and diluted EPS, all excluding non-
    recurring items, special charges, and discontinued operations. In
    addition, we are currently evaluating the status of our $3.7
    million non-recourse note with FelCor Hospitality which we made in
    connection with our joint venture with FelCor. As the properties
    in the joint venture are now in foreclosure we are reviewing the
    appropriate treatment and accounting period in accordance with
    GAAP to derecognize the note and related interest payable. Our
    outlook does not take the resulting gain from derecognizing the
    note into account as we would consider this item to be
    non-recurring in nature.

(4) This amount is included in undistributed operating expenses and
    primarily represents write-offs of intangible costs associated
    with terminated management contracts and other terminated
    activities and other asset impairments.

(5) For the first quarter of 2005, Interest expense, net, includes
$1,847 of deferred financing fees written off in connection with
the refinancing of our senior secured credit facility.

(6) This amount represents an adjustment to recorded income tax
    expense to bring our overall effective tax rate to an estimated
    normalized rate of 28% in 2005 and 40% in 2004. This effective tax
    rate will differ from the effective tax rate reported in our
    historical statements of operations.

(7) Other revenue from managed properties and other expenses from
    managed properties have been revised in the same amount for the
    second quarter 2004 for certain amounts previously included in
    error. This revision has no impact on EBITDA, net income or our
    balance sheet and cash flows.

(8) This amount is included in equity in earnings (losses) of
    affiliates and represents our portion of the gain on the sale of
    the Hilton San Diego Gaslamp and retail space which was owned by
    one of our joint ventures.

(9) This amount is included in equity in earnings (losses) of
    affiliates and represents our portion of deferred financing costs
    written off in connection with the refinancing of the MIP joint
    venture's senior debt.

(10)This amount is included in equity in earnings (losses) of
affiliates and represents our portion of the loss on sale of the
Wyndham Milwaukee which was owned by one of our joint ventures.

(11)In June 2004, we completed the disposal of BridgeStreet Canada,
    Inc., the owner of our corporate housing operation in Toronto.
    Accordingly, we have reclassified all transactions as discontinued
    operations for the three months and six months ended June 30,
    2004, respectively.

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.

Contact:

Interstate Hotels & Resorts
Melissa Thompson
703-387-3377
www.ihrco.com

Also See:	Interstate Hotels & Resorts Selected to Manage Upscale Portfolio of 22 Hotels; Interstate Now Manages 330 Hotels / March 2005
	Interstate Hotels & Resorts Acquires the 329-room Hilton Concord for $29.15 million / February 2005

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