EXHIBIT 99.1
CapStar Hotel Company, American General Hospitality to Merge Sign $3 Billion
Agreement To Form First Hotel Paper Clip REIT
WASHINGTON, D.C./DALLAS, March 16, 1998--CapStar Hotel Company (NYSE: CHO), a
hotel ownership and management company, and American General Hospitality
Corporation (NYSE: AGT), a hotel real estate investment trust (REIT), today
announced that they have signed a definitive agreement to merge as equals and
form the first hotel industry "dedicated" paper clip REIT. When completed, the
merged companies will operate as a REIT with an approximate $3 billion total
market capitalization and a "paper clipped" C-Corporation, spun-off from
CapStar. The two companies will share management and growth objectives.
The merger, which has been approved unanimously by both boards of directors,
will create the nation's third largest hotel REIT and second largest independent
hotel management company. The transaction is expected to be consummated in
June, subject to customary conditions, including regulatory approvals and
approval of the merger by shareholders of each company.
Merger Terms
Under terms of the agreement, CapStar will spin off its hotel operations and
management business to its current shareholders as a new C-Corporation to be
called MeriStar Hotels & Resorts, Inc. CapStar subsequently will merge into
American General Hospitality Corporation in a tax-free reorganization, more than
doubling the REIT's holdings. The REIT, which will be renamed MeriStar
Hospitality Corporation, will own 110 hotels with 27,739 rooms in 30 states and
Canada. CapStar shareholders will receive one share each in MeriStar Hospitality
Corporation and MeriStar Hotels & Resorts for each CapStar share owned. American
General Hospitality shareholders will receive 0.8475 shares of MeriStar
Hospitality Corporation for each American General Hospitality share owned. Both
exchange ratios are fixed, with no adjustment mechanism. MeriStar Hospitality
Corporation anticipates that its initial dividend will be $2.02 per share on an
annualized basis, which is equivalent to American General Hospitality's current
dividend adjusted for the exchange ratio.
MeriStar Hotels & Resorts will acquire privately-held American General
Hospitality, Inc. and AGH Leasing, L.P., which together currently operate and/or
lease 46 of American General Hospitality Corp.'s 54 owned hotels and manage 15
additional properties for third party owners. Upon completion of the CapStar
spin-off and acquisitions, MeriStar
Hotels & Resorts will lease and manage 202 hotels in 31 states, 110 of which
will be owned by MeriStar Hospitality Corporation. Based on current market
conditions, CapStar Hotel Company believes the initial value of MeriStar Hotels
& Resorts will be between $2.50 and $3.50 per share.
The taxable value of the spin-off and adjustments to the conversion price of
CapStar's 4.75 percent convertible debt due 2004 will be based upon the fair
market value of the spin-off at the time of consummation of the spin-off.
"This structure will create the first "dedicated" paper clip REIT focused on
assets and management in a single industry--hospitality," said Paul W. Whetsell,
CapStar's chairman and CEO. "We believe this arrangement, with its strong
alignment of ownership and management, will provide the most efficient and
profitable means of owning and operating hotels."
"The unique paper clip structure gives shareholders the tax efficiency and
dividends associated with a REIT, while allowing its paper clipped operating
company to capture hotel management fees and lease leakage," said Steven Jorns,
American General Hospitality Chairman and CEO. "This paper clip structure
essentially offers the same advantages of a paired share REIT, while providing
investors with the flexibility to own either the REIT or the operating company,
or both."
Merger Benefits
The merger will create the lodging industry's largest independent multi-brand
owner of premium, full-service hotels. MeriStar Hospitality will be the nation's
largest independent owner of Hiltons, Sheratons and Westins. "This multi-brand
strategy gives us a significant advantage in sourcing acquisition candidates,"
Whetsell added. "Both CapStar and American General Hospitality already enjoy
solid relationships with all of the major, upscale, premium-branded franchise
companies. These companies know that our strong operations will enhance their
brands."
The merger also will allow the companies to:
- - Join complementary portfolios of first-class, full-service hotels;
- - Combine highly experienced hotel acquisition teams and become a more active
consolidator, especially for larger portfolios and other corporate
transactions;
- - Unite two experienced hotel management teams into one operating company
that has multiple avenues for growth through its REIT relationship,
strategic alliances, other third party owners and management company
acquisitions;
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- - Combine similar, strong property operating systems that can achieve greater
efficiencies and enhanced profits from the significant upside potential of
both companies' recent product improvements and repositionings;
- - Offer existing and potential new investors the option of investing in
either real estate ownership or management, or both;
- - Improve liquidity through a larger public float;
- - Enhance the companies' credit profiles and lower their cost of capital;
- - Diversify into other lodging-related areas.
"We also see significant cost synergies in the merger," Whetsell said. "The
combining of the two organizations, in addition to the tax savings resulting
from CapStar's merger into the REIT, will result in operating cost savings of
$5-10 million in the first year of combined operations. MeriStar Hotels &
Resorts will have in-depth expertise at all key
positions and will be well positioned for continued growth. We also see
significant opportunities for cost savings in purchasing, insurance and related
activities."
Growth Potential
"The merger combines two powerful and highly experienced acquisition teams,"
Jorns said. "Each company acquired approximately $1 billion in hotels during
the last year and has demonstrated the ability to source deals, often before
they reach the general market, and to structure complex transactions that
benefit both the buyer and seller. By combining forces, MeriStar Hospitality
will continue to be an aggressive consolidator of upscale and premium hotels."
Jorns noted that MeriStar Hotels & Resorts expects to grow through its
relationship with the REIT, other strategic alliances, management contracts for
third party owners and through acquisition of other management companies.
"Good, independent hotel management, with in-depth expertise and proprietary
operating and marketing systems, is a valuable commodity in our industry," he
said. "Most large management organizations are affiliated with a brand, which
limits an owner's options. With our combined, proven experience in management,
repositioning and turning around properties, backed by our superior operating
expertise, we expect to be a major player in the industry."
"We expect the transaction to be accretive to both companies in 1998," Whetsell
said. "Individually, the companies have invested approximately $125 million in
their respective hotels over the past two years and have budgeted in excess of
$150 million in 1998 to improve the combined portfolio. These repositioned
properties create significant shareholder value by offering substantial internal
growth. With a base of nearly $3 billion
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in assets, the REIT will have more opportunities to acquire the larger
portfolios and companies available in the market."
Jorns noted that the new companies will sign an Intercompany Agreement giving
MeriStar Hospitality the right of first refusal to acquire hotels presented by
the operating company and MeriStar Hotels & Resorts the right of first refusal
to lease and manage all future hotels acquired by the REIT. "Our interests will
be fully aligned for the benefit of both companies' shareholders," he said.
The companies will be headquartered in Washington, D.C. and will maintain a
major regional and accounting office in Dallas. Whetsell will be chairman and
CEO, and Jorns will be vice-chairman and chief operating officer of both
companies. David McCaslin, CapStar's chief operating officer, will be president
of MeriStar Hotels & Resorts, and Bruce Wiles, American General Hospitality's
executive vice president, will be president of MeriStar Hospitality. Each
company will have a nine-member board of directors including four shared
directors--Whetsell; Jorns; Daniel Doctoroff, managing director, Oak Hill
Partners, Inc.; and James Worms, managing director, William E. Simon & Sons,
L.L.C.--and a total of six independent directors.
The aggregate purchase price for American General Hospitality, Inc. and AGH
Leasing, L.P. is $95 million, payable in a mixture of cash and units of limited
partnership interest. "By acquiring the two entities that lease and manage
American General Hospitality's properties, we will fully align management's and
shareholders' interests," Whetsell said. "The combination of the two operating
organizations, which have similar guest-oriented, entrepreneurial cultures, will
create one of the industry's strongest management teams."Jorns said that
MeriStar Hospitality plans to selectively dispose of certain assets over time
that no longer fit its long-term strategy or that are not compatible with owning
large, upscale, full-service hotels in urban markets with high barriers to new
competition. Targeted assets include limited-service and mid-market hotels, as
well as one office building owned by the REIT. MeriStar Hospitality plans to
redeploy the proceeds from the sale of such assets into hotels which better meet
its investment criteria.
Paper Clip Advantages
The paper clip ownership structure offers shareholders a number of advantages:
- - Ownership of hotel real estate and operations with shared growth
objectives, or an investment in the vehicle (REIT or hotel management) that
best suits the investor's objectives;
- - Alignment of ownership and management interests;
- - Tax-advantaged income from the REIT;
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- Rapid growth potential of the new operating company;
- Accretive to both CapStar's and American General Hospitality's
shareholders.
Goldman, Sachs & Co. and Lehman Brothers acted as financial advisors for
CapStar, and Salomon Smith Barney acted as financial advisor for American
General Hospitality.
About the Companies
American General Hospitality Corporation is a publicly traded REIT with a
portfolio of 54 owned hotels, plus an additional 12 pending acquisitions, in 22
states, containing a total of 15,159 guest rooms and suites. Operating in major
markets, the Company focuses on creating shareholder value through acquisitions,
and product, operational and brand repositioning.
Washington, D.C.-based CapStar Hotel Company owns and manages upscale, full-
service hotels throughout the U.S. and Canada under such internationally known
brands as Hilton, Sheraton, Marriott, Embassy Suites, Westin and Doubletree.
Including three hotels currently under contract, CapStar's hotel portfolio
comprises 56 owned hotels with 14,938 rooms and 85 managed and/or leased hotels
with 13,304 rooms, for a total of 141 properties with 28,242 rooms.
Statements in this release looking forward in time involve risks and
uncertainties, including the ability to consummate the merger, the ability of
the combined companies to achieve the proposed benefits from the merger, the
ability of either or both Companies to successfully implement their respective
acquisition and operating strategies, the Companies' ability to manage rapid
expansion, changes in economic cycles, competition from other hospitality
companies, changes in the laws and government regulations applicable to the
Companies and other risk factors detailed in both Companies' Securities and
Exchange Commission filings.
Fact Sheet
The Transaction
- - CapStar spins off hotel operations and management business to current
shareholders as a new C-Corporation called MeriStar Hotels & Resorts, Inc.
- - CapStar merges its real estate assets into American General Hospitality and
creates MeriStar Hospitality Corporation, a REIT owning 110 hotels
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- CapStar shareholders exchange each existing share for one share each
in operating company and in new REIT
- American General Hospitality shareholders exchange one existing
share for .8475 share of new REIT
- MeriStar Hotels & Resorts acquires privately-held American General
Hospitality, Inc., and AGH Leasing, L.P., which, combined with the
REIT's management contracts and leases, gives the new C-Corporation a
total of 202 management contracts and/or leases
Merger of Equals
American General Hospitality CapStar
54 (12,801 rooms) Owned hotels 56 (14,938 rooms)
15* (2,934 rooms) Third party management contracts 40 (6,912 rooms)
-- Leases 45 (6,392 rooms)
$1.4 billion Current total market capitalization $1.7 billion
$1 billion Recent hotel acquisitions $1 billion
9.1 % 1997 RevPAR growth 10.0 %
* Includes AGHI managed hotels
New Structure Highlights
- - 110 owned hotels with 27,739 rooms
- - 100 additional (third party) leases and/or management contracts with over
16,000 rooms
- - Operating in 33 states, two Canadian provinces, the District of Columbia
and the U.S. Virgin Islands
- - Third largest hotel REIT, second largest independent U.S. hotel management
company
Strategic Rationale
- - Doubles both companies' portfolios; combines complementary first-class,
full-service hotels
- - Achieves significant cost savings and combines two experienced hotel
management teams
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- - Allows CapStar shareholders to receive REIT tax efficiencies
- - Provides multiple growth opportunities
- - Increases the public float, creating greater liquidity
- - Creates marketing synergies
- - Permits significant operating upside from greater economies of scale at
recently renovated properties
- - Lowers cost of capital
Paper Clip Advantages
- - Ownership of hotel real estate and operations with shared growth objectives
- - Alignment of ownership and management interests
REIT Growth Strategies
- - Acquire under-performing first-class, full-service hotels
- - Seek acquisition candidates, including portfolios, companies and brands
- - Receive higher profits from short-term and long-term internal growth
generated by strengthened management and enhanced operations
Operating Company Growth Strategies
- - Obtain REIT management contracts
- - Gain third party management contracts and leases
- - Enter related complementary businesses, e.g. timeshare
- - Engage in strategic alliances with other REITs and private capital groups
- - Improve short-term and long-term property results
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Proforma Capitalization
New REIT New Operating Company*
Market equity $1.7 billion $100 million
Debt $1.3 billion $65 million
Debt to capital ratio 41 % 39 %
*Proforma for the acquisition of AGHI and AGH Leasing, L.P. Organization
Key Officers New REIT New Operating Company
Chairman & CEO Paul Whetsell Paul Whetsell
Vice-Chairman & COO Steven Jorns Steven Jorns
President Bruce Wiles David McCaslin
Chief Financial Officer John Emery James Calder
EVP Finance & Acquisitions -- John Plunket
Board of Directors Each company will have a nine-member board of
directors, including four shared directors; in
addition, each board will have six independent
directors
Approximate employees 20 27,000
Other Information
Subject to: Approval of both companies' shareholders
Hart-Scott-Rodino review
Expected closing: June 1998
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