CapStar Hotel Company to Acquire Nine Hotels for $200 Million; Announces Follow-on and Secondary Stock Offerings and Debt Offering.

WASHINGTON--(BUSINESS WIRE)--Sept. 23, 1997--CapStar Hotel Company (NYSE: CHO), a leading hotel investment and management corporation, today announced that it has signed agreements to acquire nine hotels in four separate transactions for $200 million. The transactions include the purchase of a portfolio of six hotels from New York City-based Medallion Hotels. Upon completion of the purchases, CapStar will have expanded its portfolio of owned hotels from 12 to 50 properties since its August 1996 initial public offering.

The hotels are located in Texas (4), New Jersey, Oklahoma, Michigan, Arizona and Kentucky. All of the transactions are expected to close between mid-October and early 1998, subject to customary documentation and conditions. Following completion of the purchases, CapStar will invest approximately $25.5 million to renovate the hotels.

Separately, the company announced that it has filed a registration statement with the Securities and Exchange Commission for a 4 million primary offering of newly issued stock, an approximately 1.3 million share secondary offering and $125 million in convertible subordinated notes. "The expansion of our capital structure through the sale of additional equity and fixed-rate convertible debt positions the Company to complete the acquisition of these nine hotels and remain prudently leveraged" said John Emery, CapStar's chief financial officer. "Following the completion of the equity and debt offerings and the purchase transactions, CapStar will have in excess of $250 million available under its current credit facilities to continue its external growth through opportunistic acquisitions."

Emery said that the shares in the secondary offering are being sold by various members of Acadia Partners, L.P., a private investment fund that provided capital to CapStar before its initial public offering. Members of CapStar's management are not selling shares in the offering.

Managing underwriters for the offering will be Lehman Brothers, BT Alex. Brown, Goldman Sachs & Co., Merrill Lynch & Co., Montgomery Securities, and Smith Barney, Inc.

"These acquisitions are in perfect alignment with our stated external growth strategy of acquiring individual properties, portfolios and hotel companies," said Paul Whetsell, CapStar president and CEO. "Medallion is our second major portfolio acquisition this year, and we continue to see a substantial number of both individual properties and portfolios for sale at attractive prices.

"Consolidation will continue to be a major focus in the hotel industry over the foreseeable future," Whetsell added. "While we currently don't anticipate vying for large capitalization companies, we believe there are substantial acquisition opportunities among the hundreds of small- to medium-sized groups, including ownership and management companies such as Medallion."

The Medallion acquisition includes a portfolio of six, upscale, full-service hotels containing 1,960 rooms. The properties are: the 382-room Houston (Tex.) Medallion Hotel; the 289-room Dallas (Tex.) Medallion Hotel; the 237-room Austin (Tex.) North Hilton and Towers; the 249-room Midland (Tex.) Hilton & Towers; the 399-room Oklahoma City (Okla.) Medallion Hotel; and the 321-room Seelbach Hotel, Louisville, Ky.

"The Medallion portfolio properties are upscale, full-service hotels in major metropolitan markets with extensive conference and meeting facilities, which matches up well with our management expertise," Whetsell noted. "We will complete the renovation program, which had already been initiated by Medallion. We expect to reflag all four of the unfranchised hotels and are in discussions with major chains including Hilton, Sheraton, Renaissance, Doubletree and Westin."

CapStar will acquire three additional hotels in separate transactions: the 151-suite Detroit Metro Airport Hilton Suites Hotel, the 201-room Governor Morris Hotel and Conference Center in Morristown, N.J. and the 204-suite Embassy Suites Tucson (Ariz.).

"These individual hotels will fit in well with our existing portfolio. Two properties are all-suite hotels with airport locations and the third, the Governor Morris Hotel, is a major conference and meeting facility which we will reposition and we intend to reflag as a Westin," Whetsell added. "We expect all of these hotels to benefit quickly from our expertise in these segments through implementation of our proprietary management and marketing systems."

This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. Copies of the prospectus relating to the offerings may be obtained from any of the underwriters.

Washington, D.C.-based CapStar Hotel Company owns and manages upscale, full-service hotels throughout the U.S. under such internationally known brands as Hilton, Sheraton, Marriott, Embassy Suites, Westin, Doubletree and Crowne Plaza. CapStar's hotel portfolio currently comprises 41 owned hotels with 10,521 rooms and 28 managed hotels with 4,928 rooms, for a total of 69 properties with 15,449 rooms. The company is actively seeking acquisitions and management contracts in major markets and resort locations throughout North America. -0- CapStar Acquires Nine Hotels-- Property Profiles

Six-hotels will be acquired through the purchase of the Medallion Hotels portfolio, including:

The Seelbach Hotel, Louisville, Kentucky--The hotel, a registered historic landmark, is situated in the central business district of downtown Louisville at the southwest corner of Mohammed Ali Blvd. and Fourth Street. The thirteen-story building contains 225 standard guest rooms, 70 club rooms (two floors) and 26 suites, for a total of 321-rooms, each of which features 18th-century reproduction armoires and four-poster beds. The Seelbach contains 35,000 square feet of meeting space and houses three restaurants: Otto's Cafe, which offers casual dining; the Old Seelbach Bar, rated among the South's three best bars by Esquire Magazine; and the Oakroom, considered one of the best restaurants in Louisville. Upon completion of the transaction, CapStar intends to invest approximately $3.2 million to upgrade the hotel, after which the property will be converted to a national hotel brand. Refurbishment will include replacing guest room soft goods, corridors and enhancing business work stations in the Business Class rooms.

The Austin North Hilton and Towers, Austin, Texas--Conveniently located at the junction of I-35 and Highway 290 East and just minutes away from top local attractions such as the Highland Mall, LBJ Library and the Convention Center, the 320-room complex includes a 237-room upscale hotel housed in a nine-story building and an adjacent 83-room, limited-service hotel.

The property provides over 14,000 square feet of flexible meeting space, including an 8,000-square-foot ballroom, a state-of-the-art fitness center and an outdoor pool. Upon completion of the acquisition, CapStar will invest approximately $3 million to upgrade the meeting and banquet space. In addition, corporate floors will be created with full work stations and all new finishes.

Medallion Hotel, Houston, Texas--The hotel offers a variety of room types, including two two-bedroom suites, 16 one-bedroom suites, business class rooms and concierge rooms, totaling 382-rooms. The property features a 10-story atrium lobby, a fitness center and a swimming pool. The Houston Medallion contains 12,000 square feet of flexible meeting space (including an 8,000-square-foot ballroom) and three restaurants: Cimarron, specializing in southwestern cuisine; Big Bend, bar & grill; and a piano bar. The hotel will be re-flagged under a major national hotel brand following a $3.5 million dollar refurbishment. The renovations will include replacing all soft goods in corridors, guest rooms and meeting space. In addition, guest rooms on the concierge level will be upgraded with large work desks, ergonomic seating and task lighting to accommodate the needs of business travelers.

Medallion Hotel, Oklahoma City, Oklahoma--The 399- room hotel recently completed an $8 million renovation to upgrade the lobby, the Aria Grill restaurant, lounge and meeting space. The only major upscale hotel located in downtown Oklahoma City, the property is adjacent to the Myriad Convention Center and the Century City Mall. The hotel offers a fully equipped business center, 22,000-square-feet of meeting space, a swimming pool and two restaurants, the Aria Grill and the Aria Lounge. The hotel will undergo a $2 million renovation program to upgrade business amenities in all guest rooms and to refurbish the meeting and banquet spaces prior to re-flagging to a national hotel brand.

Medallion Hotel, Dallas, Texas--Just blocks away from the Galleria Mall at the intersection of LBJ Freeway and Midway Road, the 289-room hotel features a concierge floor and executive class accommodations, the award-winning Seasons restaurant, the Palm Terrace lounge, a state-of-the art fitness center, 25,000 square feet of flexible meeting space, featuring a 7,000-square-foot ballroom. The property will be repositioned and re-branded under a national hotel franchise affiliate following a $3.5 million renovation, which will include upgrading guest rooms and guest bathrooms, meeting space, as well as enhancing the arrival area to compliment the recently completed multimillion dollar atrium renovation which was featured in a national hotel periodical.

The Midland Hilton & Towers, Midland, Texas--The 249-room hotel is situated in the heart of downtown Midland, just minutes from the Clay Delta business park and local shopping and sports complexes. In addition to providing over 10,000 feet of meeting space, the property also houses a concierge floor; three restaurants, the Santa Fe Grill, the Santa Fe Cafe and the Santa Fe Bar; a state-of-the-art exercise room and an outdoor pool nestled between the twin towers on the second floor of the hotel. The property will receive $2 million in renovations to replace the soft goods in guest rooms and meeting areas and to upgrade the business amenities on the property's concierge floors.

Three Additional Hotel Acquisitions

CapStar also announced that it will acquire three hotels in separate transactions:

Detroit Metro Airport Hilton Suites, Detroit, Michigan-- Located at 8600 Wickham Road in suburban Romulus, Mich., one-quarter mile north of the airport, the 151-suite hotel features an indoor/outdoor pool, a state-of-the-art exercise facility, a business service center and 3,300 square feet of meeting space. Guest rooms are equipped with a large work desk, two remote control televisions, microwave, refrigerator, coffee maker, two telephones with data ports, irons and ironing boards and hair dryers. Additionally, the hotel provides a complimentary breakfast and a daily manager's reception.

Upon completion of the acquisition, CapStar will begin approximately $1.1 million in renovations, including new desks, ergonomic chairs, task lighting, window treatments and soft goods for all hotel guest suites and refurbishment of the lobby and restaurant.

Governor Morris Hotel & Conference Center, Morristown, New Jersey--Located at Whippany Road and Lindsley Drive, the Governor Morris Hotel is a 201-room, six-story facility with approximately 18,000 square feet of meeting and banquet space, a state-of-the-art fitness center, a business center, an outdoor swimming pool and a paddle tennis court. The hotel also features four restaurants, including the 110-seat Windsor Court, the 60-seat Gershwin's, the 160-seat Backintyme Cafe, and the 240-seat Boca-Bay Nightclub.

CapStar will invest approximately $5 million to substantially upgrade the hotel. The exterior of the property will receive a complete face-lift, including new paint and landscaping. The ballroom and public restrooms will be completely re-finished, and all meeting space will be equipped with new soft goods. Guest rooms will receive new lighting, coffee makers and soft goods, as well as the addition of work desks and ergonomic chairs and task lighting. Guest room baths will be completely re-decorated with natural stone vanities. To further improve safety standards, CapStar will install a state-of-the-art sprinkler system. Upon completion of the renovations, the hotel will become a Westin brand hotel.

Embassy Suites Tucson International Airport, Tucson, Arizona--The 204 all-suite property is located at 7051 S. Tucson Blvd., at the entrance to the Tucson International Airport. The property features mission-style architecture and includes the full-service restaurant Finnegan's, a fitness room, swimming pool, business center, and an attractively landscaped courtyard. Following the completion of the transaction, CapStar will invest approximately $2.25 million in renovations to completely refurbish all guests rooms, the lobby, the fitness center and meeting/banquet space.

CONTACT: John Emery

Chief Financial Officer

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Jerry Daly or Chris Daly, media

Daly Gray Public Relations 

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