Interstate financed the repayment with proceeds from a $40.0 million subordinated term loan obtained from Lehman Brothers that matures in January 2007 and carries a coupon rate of LIBOR plus 850 basis points. The remaining $2.1 million will be paid out of available cash.

"The early repayment of our note to MeriStar Hospitality provides a number of benefits, including a reduction in long-term debt and future interest expense, as well as an improvement to our financial covenant ratios," said John Emery, Interstate president and chief operating officer.

For financial statement purposes, the transaction will produce a gain from early repayment of debt of approximately $13.5 million, and the remaining costs of the transaction will be amortized over the life of the new subordinated term loan. Following the one-time gain to be recognized in the first quarter of 2003, there will be no material effect on earnings per share thereafter.

Interstate Hotels & Resorts operates approximately 400 hospitality properties with nearly 86,000 rooms in 45 states, the District of Columbia, Canada and Russia, including 55 properties managed by Flagstone Hospitality Management, a subsidiary of Interstate Hotels & Resorts. BridgeStreet Corporate Housing Worldwide, an Interstate Hotels & Resorts subsidiary, is one of the world's largest corporate housing providers, offering upscale, fully furnished corporate housing throughout the United States, Canada, the United Kingdom, France and 39 additional countries through its network partners. For more information about Interstate Hotels & Resorts, visit the company's Web site: www.ihrco.com.