• RevPAR rose 4.0 percent for all managed hotel properties, compared to an average industry gain of 1.2 percent;
• Added nine management contracts, representing the third consecutive quarter of higher unit count;
• Signed a contract to manage its first property in India, an under- construction hotel in Vizag (Visakhapatnam) through India JV;
• Opened first U.S. Starwood branded aloft Hotel, in Rancho Cucamonga, Calif., developed and co-owned with JV partner, The John Buck Company;
• Signed contracts to manage company's first Cambria Suites, to be built near Atlanta Hartsfield Airport, to open in Q1 2009, and Crowne Plaza New Orleans, to open in Q4 2008.

Hewitt noted that renovations at the Atlanta and Columbia, Md. hotels are proceeding on budget and on schedule. "At the Sheraton Columbia in Maryland, we completed the first phase of the rooms renovation in late April, which comprised 50 percent of the 288 guest rooms. We began the second phase earlier this month, which we expect to finish by the end of the third quarter. The majority of the remaining projects in the capital plan, including all remaining public spaces, will be completed by the end of the year.

"We recently completed the rooms renovation at the Westin Atlanta Airport, and are on schedule to finish the remaining upgrades to the meeting rooms and public spaces by year end. With the completion of the Westin's $18 million renovation and the $12 million renovation at the Sheraton Columbia, these properties will be well positioned to achieve their full operating potential.

"As we entered the year, we did anticipate a certain amount of displacement from our renovations," Hewitt noted. "However, the impact of disruption associated with renovations of this magnitude coupled with a weaker economic environment will significantly affect the performance of these hotels in 2008. As a result, we are decreasing our full-year forecasted EBITDA from our wholly owned hotels by $2.5 million. The remainder of our owned hotel portfolio has performed well, with four of the five hotels exceeding our year- to-date budget.

"While our current forecast reflects a greater disruption impact from the renovations than originally anticipated, these hotels represent significant embedded growth for us in 2009 and beyond," Hewitt said. "In 2009 alone, we anticipate a $4.5 to $5 million increase in EBITDA from these two hotels."

Joint Venture Investments

During the quarter, the company opened the first aloft Hotel in the U.S., in Rancho Cucamonga, Calif., near Ontario. The 136-room, newly built hotel is owned by a joint venture in which Interstate and The John Buck Company (TJBC) of Chicago, Ill., a real estate development firm, are partners. "The aloft Ontario-Rancho Cucamonga is part of our growth strategy to develop hotels through joint ventures, which translates into significant growth potential as they ramp up," Hewitt said. "We expect this brand to quickly gain broad market acceptance and achieve strong operating margins."

Last week, the company announced a joint venture partnership with Madison W Properties, LLC, which recapitalized the existing ownership of the Lexington Downtown Hotel & Conference Center, formerly the Radisson, and an adjacent office building located in downtown Lexington, Ky. The partnership will invest $13 million in capital improvements and convert the property to the Hilton brand in 2009. Interstate managed the property for affiliates of the Blackstone Group prior to the transaction.

Leslie Ng, Interstate's chief investment officer, added that joint venture investments remain an essential part of the company's real estate growth strategy in 2008. "With the addition of the Lexington property, we currently have an equity interest in 49 properties. This will increase in the third quarter with the scheduled opening of the aloft Cool Springs, Tenn. We continue to seek joint venture opportunities both internationally and domestically that are consistent with our targeted investment profile."

Hotel Management Results

Same-store(5) RevPAR for all managed hotels in the second quarter of 2008 increased 4.0 percent to $108.65. Average daily rate (ADR) advanced 5.6 percent to $143.13, and occupancy declined 1.6 percent to 75.9 percent.

Same-store RevPAR for all full-service managed hotels rose 4.1 percent to $118.61. ADR improved 6.5 percent to $155.53, while occupancy dropped 2.2 percent to 76.3 percent.

Same-store RevPAR for all select-service managed hotels increased 3.7 percent to $83.58, led by a 3.3 percent gain in ADR to $111.42, and a 0.4 percent increase in occupancy to 75.0 percent.

"Our overall RevPAR increase of 4.0 percent for the quarter was well ahead of the industry RevPAR gain of 1.2 percent," Hewitt said. "Our RevPAR for the period was driven solely by room rate, as occupancy declined 1.6 percent. Although group business has held up relatively well, we are seeing more softness in our discretionary leisure/transient business, which is more sensitive to the difficult economic climate. This has led us to decrease our full-year RevPAR forecast to 1 to 3 percent growth, which remains ahead of overall industry expectations.

"As you would expect with lower RevPAR assumptions, we have implemented various cost containment initiatives at the majority of our hotels in order to maintain operating margins," he added. "Year to date, across the portfolio, we achieved very strong gross operating profit margins, 70 basis points higher than last year. Our sales and operations personnel have weathered numerous economic downturns and capitalize on this experience to achieve maximum operating results for our owners."

"We were particularly pleased to report our third consecutive quarter of unit growth, as we added a total of nine management contracts during the quarter," Hewitt said. After the end of the quarter, the company announced that it has taken over management of four Hyatt Place hotels for FFC Capital Corp. In addition, later this month the company will open the Hilton Garden Inn Melville, a newly constructed hotel in New York.

"Today, we have 16 management contracts for hotels under development or construction. These, together with the two properties that have opened this year, represent significant embedded growth in 2009 and beyond," Hewitt said. "Including the properties opening in 2008 and 2009, the company expects to earn approximately $3.5 million of incremental management fees in 2009."
 
    (5) Please see footnote 6 to the financial tables within this press
        release for a detailed explanation of "same-store" hotel operating
        statistics.
 
International Expansion
The company continued to expand its international presence in the second quarter. In April, JHM Interstate Hotels India, Interstate's joint venture management company with JHM Hotels, signed an agreement to manage its first property in India. The five-star, business-class hotel in Vizag (Visakhapatnam) is on schedule to open in late 2008. Interstate and its joint venture partner also simultaneously invested in a U.K.-based real estate fund dedicated solely to hotel investment in India, with a goal of developing approximately 25 hotels there.

In the third quarter, Interstate will open and manage the 273-room Hilton Moscow Leningradskaya in Russia. The landmark hotel, which recently completed a two-year total comprehensive restoration and modernization program, will be the first Hilton branded hotel in Moscow. It will be Interstate's sixth managed property in Moscow and eighth in Europe.

Hewitt added that the 300-room Renaissance Hotel in Moscow is scheduled to open in early 2009. "With this opening, we will manage a total of seven hotels in Moscow. The Russian economy remains robust, and we continue to source additional opportunities through our extensive contacts there."

In Latin America, the company's joint venture management company, IHR de Mexico, is actively engaged in pursuing contracts throughout Mexico and Central America.
 
Balance Sheet
    On June 30, 2008, Interstate had:
 
    -- Total unrestricted cash of $8.3 million.
    -- Total debt of $229.8 million, consisting of $147.3 million of senior
       debt and $82.5 million of non-recourse mortgage debt.
 
On May 1, the company closed on a $25 million non-recourse mortgage secured by its Sheraton Columbia hotel. The loan can be increased up to $35 million in total upon achieving certain capital expenditure and net operating income thresholds.
 
Outlook and Guidance
    The company provides the following updated guidance for full-year 2008:
 
    -- RevPAR, on a same-store basis, as follows:
 
        -- RevPAR for all managed properties (including owned hotels) is
           expected to increase 1.0 percent to 3.0 percent;
 
        -- Owned Hotel RevPAR, excluding Westin Atlanta Airport and Sheraton
           Columbia hotels (which are undergoing significant renovations), is
           expected to increase 1.0 percent to 3.0 percent;
 
    -- Net income of $9.1 million to $10.5 million;
 
    -- Diluted earnings per share of $0.28 to $0.32;
 
    -- Adjusted net income of $8.3 million to $9.7 million;
 
    -- Adjusted diluted earnings per share of $0.25 to $0.29;
 
    -- Adjusted EBITDA of $50.5 million to $52.5 million, which includes the
       following:
 
        -- EBITDA from wholly owned hotels of $26.5 million to $27.5 million;
 
        -- The company's share of EBITDA from unconsolidated joint ventures of
           approximately $8.5 million;
 
        -- EBITDA from the hotel management business of $15.5 million to $16.5
           million;
 
    -- The company's share of joint venture debt of $70 million related to
       existing joint ventures.
 
 

Interstate will hold a conference call to discuss its second-quarter results today, August 6, at 10 a.m. Eastern Time. To hear the webcast, interested parties may visit the company's Web site at 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 13, 2008, by dialing (800) 405-2236, reference number 11117346, and an archived webcast of the conference call will be posted on the company's Web site through September 6, 2008.

As of today, 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 managed a total of 223 hospitality properties with approximately 46,000 rooms in 36 states, the District of Columbia, Russia, Mexico, Canada, Belgium and Ireland. Interstate Hotels & Resorts also has contracts to manage 16 to be built hospitality properties with approximately 3,800 rooms. For more information about Interstate Hotels & Resorts, visit the company's Web site: 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 income, and Adjusted diluted EPS. 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 includes 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 Income 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 that the presentation of Adjusted EBITDA, when combined with the primary GAAP presentation of net income, 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 income (loss) and Adjusted diluted earnings (loss) per share ("EPS") as net income and diluted EPS, without the effects of those same charges, transactions and expenses described earlier. We believe that Adjusted EBITDA, Adjusted net income 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 income 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 the use of EBITDA, Adjusted EBITDA and Adjusted Net Income
We calculate EBITDA, Adjusted EBITDA, Adjusted net income, 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 income 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 income, 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, 2007.

Interstate Hotels & Resorts
Carrie McIntyre, SVP, Treasurer of Interstate Hotels & Resorts,
+1-703-387-3320/
http://www.ihrco.com