MeriStar Reports Net Loss of $241.6 million in Fiscal 2005

Forecasts Net Income of $7 million to $11 million for 2006

. October 14, 2008

BETHESDA, MD, February 7, 2006. MeriStar Hospitality Corporation (NYSE: MHX), one of the nation's largest hotel real estate investment trusts (REIT), today announced financial results for the full year and fourth quarter ended December 31, 2005. Highlights of the company's strong performance include(1):

Full year 2005 comparable hotel gross operating profit margins rose 144

basis points, and comparable hotel EBITDA margins increased 176 basis

points;

Business interruption (BI) insurance gain of $2.8 million and $7.1

million (based on insurer recognition to date from losses resulting from

the 2004 Florida hurricanes) included in fourth quarter and full year

2005, respectively, in net income, adjusted FFO and adjusted EBITDA.

The BI insurance gain amount is $1.2 million below previous guidance;

Net loss includes non-cash impairment charges of $153.6 million or

$(1.71) per diluted share for the full year 2005 and $106.6 million or

$(1.19) per diluted share for the fourth quarter 2005 related to the

company's asset disposition program.

"Our 2005 results demonstrated the ability of our portfolio to deliver consistently strong operating results," said Paul W. Whetsell, chairman and chief executive officer. "We are realizing the benefits of our three-year renovation program and the repositioning of our portfolio. Moreover, we have made significant progress on our plan to take advantage of the prevailing real estate market valuations and have sold assets at prices that increase shareholder value and provide increased financial strength, as well as greater visibility towards restoring our common dividend.

"Our management team remained focused and active in early 2006. We have taken several actions since year end that will greatly accelerate our capital structure improvement and provide a stronger platform for future growth," Whetsell added. The company completed the following:

Executed a previously announced agreement with an affiliate of The

Blackstone Group to sell nine hotels and a golf and tennis club for

approximately $367 million, with the transaction expected to close by

the end of the first quarter;

Sold an additional six assets (1,269 rooms) in January in several

transactions for total gross proceeds of $115 million;

Reached an agreement to settle the company's Hurricane Charley insurance

claims for a total value of $202.5 million after deductibles. The

settlement will result in an $82.5 million payment in February;

Issued an irrevocable redemption notice to call $100 million of its 10.5

percent senior unsecured debt at the call price of 105.25%. The notes

will be redeemed in early March.

"We have substantially and successfully concluded our asset disposition plan and intend to promptly apply these proceeds to repay our senior unsecured notes," Whetsell stated. "These actions will significantly improve our financial flexibility and interest coverage, providing us a much broader ability to address business issues and further enhance shareholder value."

Donald D. Olinger, chief financial officer stated, "We are very pleased to have worked with our insurance companies to reach a settlement of our Hurricane Charley claim at a coverage level that adequately addresses our restoration obligations and supports our business interruption income recognition. Completing the claim process will enable us to better plan our business and focus on operations."

Operations

"Our properties performed exceedingly well, as we experienced a 10.5 percent increase in RevPAR for the year on a comparable hotel basis, led principally by a 10.3 percent increase in average daily rate (ADR). RevPAR gains accelerated throughout the year, with a 2005 fourth quarter RevPAR increase of 14.8 percent over the 2004 fourth quarter," Whetsell noted.

"Our ability to aggressively drive rate was the major factor in the 176 basis-point improvement in our comparable hotel EBITDA margins during 2005. Rate improvement allowed us to absorb increases in energy and insurance costs and still achieve 2005 adjusted EBITDA of nearly $190 million, which was at the top end of our range of guidance.

"With our focus on upscale, full-service brands in major urban markets, we benefited fully from the continuing growth in transient business demand and the increased competitive strength of our portfolio. We are encouraged that the development pipeline remains conservative, especially in urban markets, where barriers to new competition are the highest," Whetsell added.

Regionally, the company experienced the strongest gains in the Washington D.C./Mid-Atlantic and southern California markets, where RevPAR grew 16.1 percent and 16.9 percent, respectively, during the 2005 fourth quarter. Also, the company recorded RevPAR growth of 29.2 percent for the 2005 fourth quarter in the combined Houston/Dallas markets following the response to the Gulf Coast hurricanes. Results from the company's recently acquired properties, the Ritz-Carlton Pentagon City and the Marriott Irvine, continued to show very positive growth, with a combined 17.0 percent RevPAR increase in the 2005 fourth quarter and 18.6 percent RevPAR growth for the year. The Radisson Lexington Avenue in Midtown Manhattan, in which the company invested $10 million for a 49.99 percent equity interest, returned $1.6 million in distributable cash recognized as EBITDA during the year, $252,000 of which was recognized in the fourth quarter, in addition to the $5.75 million annual return on the company's $40 million mezzanine loan. "Results from all three of our recent investments have exceeded our initial expectations and contributed significantly to our excellent 2005 results," Whetsell remarked.

Asset Sales

As previously reported, the company sold five hotels in the 2005 fourth quarter for total gross proceeds of $58.5 million, and retired $27 million in secured debt in the quarter. For the full year 2005, the company sold nine properties with gross proceeds totaling $104 million.

The company also sold six properties in January 2006 for total proceeds of $115 million and repaid an additional $23 million in secured debt. The properties include:

Courtyard Durham, North Carolina (146 rooms)
Hilton Grand Rapids Airport, Michigan (224 rooms)
Radisson Annapolis, Maryland (219 rooms)
Doubletree Hotel Dallas, Texas (289 rooms)
Hilton Romulus Airport, Michigan (151 rooms)
Holiday Inn Fort Lauderdale, Florida (240 rooms)

In addition, the company recently announced it had signed a definitive agreement to sell 10 properties to an affiliate of The Blackstone Group for $367 million. The transaction is expected to close by the end of the first quarter.

"Following the completion of the Blackstone transaction, we will have sold 25 assets for $586 million since the beginning of 2005. This group of 25 properties contributed over $30 million in adjusted EBITDA(2) for the full year 2005. These sales essentially complete our asset disposition program, with only six properties remaining for disposition that are expected to generate approximately $70 million in proceeds. We plan to use the majority of the proceeds from our asset disposition program to reduce our overall debt levels," Whetsell stated.

Renovation Update

During the year, the company invested $95 million in non-hurricane related capital improvements at its properties, including $17 million during the fourth quarter. "Our renovation program continues on schedule, as we completed approximately $220 million in non-hurricane refurbishments and upgrades at our hotels during 2004 and 2005. We plan to invest an additional $70 million in 2006 for non-hurricane capital expenditures. This will essentially complete our multi-year capital improvement program allowing our capital expenditure levels to return to more typical industry levels.

"The benefits of our renovation program are accelerating," Whetsell added. "By the end of 2005, nearly every property in our portfolio had significant renovation work completed within the past two years. We believe that our portfolio of hotels now is well positioned for continued future growth."

Capital Structure

"We have made measurable progress on our overall objective to restructure our outstanding debt and significantly reduce our cost of borrowing," Olinger said. "We expect to call the remaining balance of our 10.5 percent senior unsecured notes following the completion of our recently announced asset sale transactions and will look for additional debt reduction opportunities. By the end of the second quarter, we plan to repay a total of approximately $400 million of our senior notes, plus $44 million in mortgage debt.

"When combined with the transactions we have entered into over the past year including the refinancing of our $300 million CMBS loan, by year-end 2006 we expect to have lowered our borrowing costs by 75 basis points to approximately 7.75 percent and reduced our annual interest expense by approximately $50 million on a pro forma basis, compared to year-end 2004 debt levels.

"In combination with the performance of our portfolio, our goal is to achieve greater financial flexibility through improved interest coverage and lower debt levels. In particular, we will seek to improve our interest coverage ratio to more than two times by the end of 2006," he added.

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