##### 









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


FORM 10-K


|                                                |  |                                                                                             
|----------------------------------------------- |  | --------------------------------------------------------------------------------------------
|þ                                               |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended December 31,
    2002
|OR                                             
|o                                               |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
    from      to     
|Commission file number 333-63768               

|                                                           |  |                                                           
|---------------------------------------------------------- |  | ----------------------------------------------------------
|MERISTAR HOSPITALITY
    OPERATING PARTNERSHIP, L.P.       |  | MERISTAR HOSPITALITY
    FINANCE CORP                     
|(Exact name of registrant as specified in its
    charter) |  | (Exact name of registrant as specified in its
    charter)
|                                                          
|75-2648837                                                 |  | 52-2321015                                                
|(I.R.S. Employer Identification No.)                       |  | (I.R.S. Employer Identification No.)                      
|                                                          
|MERISTAR HOSPITALITY
    FINANCE CORP II                   |  | MERISTAR HOSPITALITY
    FINANCE CORP III                 
|(Exact name of registrant as specified in its
    charter) |  | (Exact name of registrant as specified in its
    charter)
|                                                          
|73-1658708                                                 |  | 46-0467463                                                
|(I.R.S. Employer Identification No.)                       |  | (I.R.S. Employer Identification No.)                      

DELAWARE

(State or other jurisdiction of


incorporation or organization)


1010 WISCONSIN AVENUE, N.W.

WASHINGTON, D.C. 20007


(Address of principal executive offices)


Registrants telephone number, including
area code: (202) 295-1000

Securities registered pursuant to
Section 12(b) of the Act: None

Securities registered pursuant to
Section 12(g) of the Act: None

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.  Yes þ     No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.  o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Securities Exchange Act of
1934).  Yes þ     No o

DOCUMENTS INCORPORATED BY REFERENCE:

Part III incorporates information from certain
portions of MeriStar Hospitality Corporations (Commission
file number 1-11903) definitive proxy statement for the 2003
annual meeting of stockholders to be filed with the Securities
and Exchange Commission within 120 days after the close of
the fiscal year of the registrants.

As of June 28, 2002, the aggregate market
value of the voting and non-voting common equity of MeriStar
Hospitality Operating Partnership, L.P. held by
nonaffiliates, computed by reference to the market price of
shares of the common stock of MeriStar Hospitality Corporation
as of such date, was $750,600,128. Each common operating
partnership unit of MeriStar Hospitality Operating
Partnership, L.P. is redeemable for one share of MeriStar
Hospitality Corporation common stock. All of the shares of
common stock of MeriStar Hospitality Finance Corp.,
MeriStar Hospitality Finance Corp. II and MeriStar
Hospitality Finance Corp. III are held by MeriStar
Hospitality Operating Partnership, L.P.



---






---



##### 



EXPLANATORY NOTE

This Annual Report on Form 10-K is being
filed jointly by MeriStar Hospitality Operating Partnership,
L.P., or MHOP; MeriStar Hospitality Finance Corp, or MeriStar
Finance; MeriStar Hospitality Finance Corp II, or MeriStar
Finance II; and MeriStar Hospitality Finance Corp III,
or MeriStar Finance III. No separate financial or other
information of MeriStar Finance, MeriStar Finance II or
MeriStar Finance III is material to holders of the
securities of MHOP, MeriStar Finance, MeriStar Finance II
or MeriStar Finance III since as of December 31, 2002,
they had no operations, no employees, only nominal assets and no
liabilities other than their obligations as corporate co-issuers
under the indentures governing the senior unsecured notes issued
in January 2001, December 2001 and February 2002.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS

Information both included and incorporated by
reference in this Annual Report on Form 10-K may contain
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, and as
such may involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or
achievements to be materially different from future results,
performance or achievements expressed or implied by such
forward-looking statements. Forward-looking statements, which
are based on certain assumptions and describe our future plans,
strategies and expectations, are generally identified by our use
of words such as intend, plan,
may, should, will,
project, estimate,
anticipate, believe, expect,
continue, potential,
opportunity, and similar expressions, whether in the
negative or affirmative. All statements regarding our expected
financial position, business and financing plans are
forward-looking statements.

Factors which could have a material adverse
effect on our operations and future prospects include, but are
not limited to:



| |   |                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the current slowdown of the national economy;                                                                                                                                                          
|
| |  | economic conditions generally and the real estate
    market specifically;                                                                                                                             
|
| |  | the impact of the September 11, 2001
    terrorist attacks or actual or threatened future terrorist
    incidents;                                                                                     
|
| |  | the threatened or actual outbreak of hostilities,
    including the conflict with Iraq;                                                                                                                
|
| |  | governmental actions;                                                                                                                                                                                  
|
| |  | legislative/regulatory changes, including changes
    to laws governing the taxation of real estate investment trusts;                                                                                 
|
| |  | availability of capital;                                                                                                                                                                               
|
| |  | rising interest rates;                                                                                                                                                                                 
|
| |  | rising insurance premiums;                                                                                                                                                                             
|
| |  | competition;                                                                                                                                                                                           
|
| |  | supply and demand for hotel rooms in our current
    and proposed market areas, including the existing and continuing
    weakness in business travel and lower-than-expected daily room
    rates; and
|
| |  | generally accepted accounting principles,
    policies and guidelines applicable to real estate investment
    trusts.                                                                                 

These risks and uncertainties, along with the
risk factors discussed under Risk Factors in this
Annual Report on Form 10-K, should be considered in
evaluating any forward-looking statements contained in this
report or incorporated by reference herein. All forward-looking
statements speak only as of the date of this report or, in the
case of any document incorporated by reference, the date of that
document. All subsequent written and oral forward-looking
statements attributable to us or any person acting on our behalf
are qualified by the cautionary statements in this section. We
undertake no obligation to update or publicly release any
revisions to forward-looking statements to reflect events,
circumstances or changes in expectations after the date of this
report.



---



##### 



PART I

ITEM 1.          BUSINESS

Business Overview

MeriStar Hospitality Operating Partnership, L.P.
is the subsidiary operating partnership of MeriStar Hospitality
Corporation, Commission file number 1-11903,
(MeriStar Hospitality, which is a real estate
investment trust, or REIT) and owns a portfolio of upscale,
full-service hotels and resorts. Our portfolio is diversified
geographically as well as by franchise and brand affiliations.
As of December 31, 2002, we owned 107 hotels with 27,581
rooms. Our hotels are located in major metropolitan areas or
rapidly growing secondary markets in the United States and
Canada. A majority of our hotels are operated under nationally
recognized brand names such as Hilton®, Sheraton®,
Westin®, Marriott®, Radisson®, Doubletree®
and Embassy Suites®.

We believe the upscale, full-service segment of
the lodging industry offers attractive potential operating
results and investment opportunities in the long term. The real
estate market has recently experienced a significant slowdown in
the construction of upscale, full-service hotels. Also, upscale,
full-service hotels have particular appeal to both business
executives and upscale leisure travelers. We believe the
combination of these factors offers good long-term potential
ownership opportunities for us in this sector of the lodging
industry.

We were created on August 3, 1998, when
American General Hospitality Corporation, a corporation
operating as a real estate investment trust, merged with CapStar
Hotel Company. In connection with this merger, we created
MeriStar Hotels & Resorts Inc. (MeriStar Hotels)
to be the lessee and manager of nearly all of our hotels. On
July 31, 2002, MeriStar Hotels merged with Interstate
Hotels Corporation to form Interstate Hotels & Resorts, Inc.
(Interstate Hotels). As of December 31, 2002,
Interstate Hotels managed all of our hotels. We share our Chief
Executive Officer and Chairman of the Board, Paul W. Whetsell,
and two other board members, described in greater detail below,
with Interstate Hotels. In addition, we and Interstate Hotels
have entered into an intercompany agreement that governs a
number of aspects of our relationship. See The
Intercompany Agreement.

As of December 31, 2002, our general
partner, MeriStar Hospitality, in the form of our Common units,
directly owned a one percent general partnership interest
in us and also indirectly owned an approximately
90% interest in us. Several third parties owned the
remaining approximately 9% of our equity interests, in the form
of various classes of our partnership units.

Business Strategy

Given the challenging operating environment that
has resulted from a slowing economy coupled with the current
geopolitical situation, disruptions caused by the events of
September 11, 2001, and the threat of further terrorist
attacks, we intend to focus on maximizing the profitability of
our existing hotels by actively overseeing their operation by
Interstate Hotels. We have formed a new Asset Maximization®
Group in which senior level operators concentrate on maximizing
all potential profitability options of our hotels. In addition,
we have taken steps to strengthen our balance sheet and to
maintain financial flexibility and liquidity to enhance our
capacity to address the uncertain operating environment that
currently exists. We continue to focus on a deleveraging
strategy, including the expansion of our program of selling
non-core assets. We consider non-core assets
generally to be those that are located in markets that are
currently underperforming, have limited future growth potential,
have higher than average capital expenditure requirements, are
of a secondary brand affiliation, or are in markets where our
portfolio is over-weighted. Many of these assets were acquired
as part of a portfolio. To the extent we complete additional
asset dispositions, and we believe that our liquidity levels are
appropriate, we will consider applying proceeds from asset sales
to repurchase debt and reinvest in our core assets. We sold five
hotels in 2002 and one hotel in January 2003. As of
February 12, 2003, we were actively marketing eight
additional assets as part of our non-core asset disposition
plan. Subsequently, based on our decision to raise additional
cash to reduce our overall leverage and provide additional
capital for reinvestment in our core holdings, we changed our
expectation about our holding period for certain other hotels.
We plan to market another eight hotels, which will increase the
number of marketed assets to sixteen.

1



---



##### 



Accordingly, we will record an impairment charge
in the first quarter of 2003 in an expected range of
$50 million to $55 million.


In addition, we are frequently approached by
potential buyers interested in other assets that we might
consider selling and have recently engaged in discussions with
some of those potential buyers of hotel assets, both on an
individual and a portfolio basis. Any such portfolio may include
both core and non-core assets, if the disposition arrangement
would be beneficial to shareholder value. However, there can be
no assurance that any such transactions will be concluded. Any
additional sales of assets under these scenarios may result in
additional impairment charges in future periods, if and when the
assets are actively marketed. While we always consider any
opportunities that may improve our financial condition or
results of operations, we have not committed to the disposition
of any of these other assets at this time. As such, we are not
able at this time to estimate the timing or the amount of any
impairment charges that might result. We are aided in our
disposition program by the fact that we can terminate any
management agreement of any hotel we sell, in some cases,
subject to the payment of a fee, as described under the section
The Management Agreements  Term and
Termination below, as well as the fact that 83 of our
current 106 assets are unencumbered and only 13 of those assets
are subject to ground leases.

Recent Developments



| |                
| | ---------------
| | Management Team

We have historically shared certain key executive
officers and board members with Interstate Hotels. Due to the
merger of MeriStar Hotels and Interstate Hotels Corporation and
the resulting increased scale and size of Interstate Hotels, we
and Interstate Hotels decided to separate more completely the
executive management teams of the two companies. We have made
significant progress in this regard and now both companies have
fully dedicated management teams. Paul W. Whetsell remains
Chairman of the Board and Chief Executive Officer of each
company. In December 2002, Donald D. Olinger joined our company
as Chief Financial Officer. Mr. Olinger also serves as our
Chief Accounting Officer. John Emery previously performed the
duties of Chief Financial Officer for us. In November 2002, we
announced that John Emery, our president and Chief Operating
Officer, would resign from these positions, effective November
1, 2002. Mr. Emery continues to serve as president and
Chief Operating Officer of Interstate Hotels. Bruce Wiles, who
was previously Chief Investment Officer of both companies, is
our new Chief Operating Officer. In February 2003, Jerome
Kraisinger joined our company as General Counsel, and Brooks
Martin joined as Vice President of Tax. Mr. Kraisinger also
serves as our Corporate Secretary. All of the members of our
senior management team have substantial hospitality real estate
experience.



| |                                                      
| | -----------------------------------------------------
| | Payment of Note Receivable from Interstate
    Hotels

In early January 2003, we received payment on our
outstanding note receivable from Interstate Hotels, which was
due in 2007. Under the terms of the agreement, we received
$42.1 million, plus accrued interest, in settlement of the
$56.1 million note. Proceeds from the transaction have been
added to our cash reserves to enhance our liquidity and
financial flexibility.



| |                                     
| | ------------------------------------
| | New Senior Revolving Credit Facility

On October 29, 2002, we entered into a new
three-year $100 million senior revolving credit facility,
secured by the equity interests in most of our subsidiaries, and
terminated our previous credit facility. The initial rate is the
London Interbank Offered Rate, or LIBOR, plus 388 basis points,
slightly lower than the rate under the previous credit facility.
We currently have, and as of December 31, 2002 had, no
outstanding borrowings on this facility. This facility contains
customary compliance measures we must meet in order to borrow on
the facility, which became more stringent on a quarterly basis
beginning in the first quarter of 2003. The sale of two hotels
during the fourth quarter of 2002 and one in January 2003, as
well as the settlement of our note receivable with Interstate
Hotels, impacted our leverage covenant due to the loss of
trailing 12-month EBITDA (as defined in the credit agreement) on
a pro forma basis. While we cannot currently borrow under the
facility, we have obtained a waiver of compliance with this
leverage covenant from our lending group

2



---



##### 



through May 20, 2003. We do not expect this
compliance measurement to have a material impact on our
operations as we do not anticipate the need to draw on this
facility during 2003. We intend to either negotiate an amendment
to this facility to maintain our future compliance until such
time as we apply our unrestricted cash to reduce our leverage,
or we may terminate the facility.




| |                 
| | ----------------
| | Secured Facility

In 1999, we completed a $330 million 10-year
non-recourse financing secured by a portfolio of 19 hotels. The
loan bears a fixed interest rate of 8.01% and matures in 2009.
We used the majority of the net proceeds to repay amounts
outstanding under our prior credit facilities.

This facility contains standard provisions that
require the servicer to maintain in escrow cash balances for
certain items such as property taxes and funding of capital
expenditures. In addition, the facility contains a provision
that requires our mortgage servicer to retain in escrow the
excess cash from the encumbered hotels after payment of debt
service (Excess Cash), if net hotel operating income
after payment of furniture, fixtures and equipment
(FF&E) reserves and franchise fees
(NOI) for the trailing twelve months declines below
$57 million. This provision was triggered in October 2002
and will be effective until the hotels generate the minimum cash
flow required for two consecutive quarters, at which time the
cash being held in escrow will be released to us. Approximately
$4.5 million of cash was held in escrow under this provision as
of December 31, 2002. Additional amounts continue to be
held in escrow. The security agreement permits us to substitute
unleveraged properties into the portfolio in place of existing
properties in order to increase the NOI to a level at which the
portfolio will meet this requirement. We have begun discussions
with the servicer regarding this substitution and expect to be
able to do so, thus resulting in the release of any Excess Cash
held in escrow. Implementation of this solution is subject to
rating agency approval and qualification for Real Estate
Mortgage Investment Conduit purposes. There can be no assurance
that the hotels will reach the minimum cash flow in the future.
The security agreement also permits us to withdraw the cash held
in escrow for funding of capital expenditures on the 19
encumbered properties.

The Partnership Agreement

The following summary information is qualified
in its entirety by the provisions of the Agreement of Limited
Partnership of MeriStar Hospitality Operating Partnership, L.P.,
as amended, a copy of which is incorporated by reference as
Exhibit 10.1 to this Form 10-K.

Our partnership agreement gives MeriStar
Hospitality full control over our business and affairs. The
agreement also gives MeriStar Hospitality the right, in
connection with the contribution of property to us or otherwise,
to issue additional partnership interests in us in one or more
classes or series. These issuances may have such designations,
preferences and participating or other special rights and powers
(including rights and powers senior to those of the existing
partners) as MeriStar Hospitality determines appropriate.

Our partnership agreement currently provides for
five classes of partnership interests: Common OP Units,
Class B OP Units, Class C OP Units, Class D OP
Units and Profits-Only OP Units. As of March 10, 2003,
MeriStar Hospitality and our wholly-owned subsidiaries owned a
number of Common OP Units equal to the number of issued and
outstanding shares of MeriStar Hospitalitys common stock
(45,287,627 shares), par value $0.01. Other ownership
interests were as follows:



| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Independent third parties owned 3,700,517 OP
    Units (consisting of 1,896,713 Common OP Units,
    495,343 Class B OP Units, 916,304 Class C
    OP Units and 392,157 Class D OP Units), and
|
| |  | Certain of our executive officers and executive
    officers of Interstate Hotels owned an aggregate of 687,500
    Profits-Only OP Units and 5,758 Common OP Units.                          

Holders of Common OP Units and Class B OP
Units receive distributions for each Common or Class B OP
Unit equivalent to the dividend paid on each of MeriStar
Hospitalitys common shares. Holders of Class C OP
Units receive a non-cumulative, quarterly distribution equal to
$0.5575 per Class C OP Unit so long as the Common OP Units
and Class B OP Units receive a distribution for such
quarter and the dividend rate on MeriStar Hospitalitys
common stock has not exceeded $0.5575. Class C OP Units
automatically convert into

3



---



##### 



Common OP Units once that dividend rate is
exceeded. Holders of Class D OP Units receive a 6.5%
cumulative annual preferred return based on an assumed price per
MeriStar Hospitalitys common share of $22.16; the return
is compounded quarterly to the extent not paid on a current
basis, and holders are entitled to a liquidation preference of
$22.16 per Class D OP Unit. All net income and capital
received by us (after payment of the annual preferred return
and, if applicable, the liquidation preference) will be shared
by the holders of the Common OP Units in proportion to the
number of Common OP Units owned by each such holder.


Each Common OP Unit, Class B OP Unit and
Class C OP Unit held by third-parties is redeemable by the
holder for cash in an amount equal to the market value of a
share of MeriStar Hospitalitys common stock or, at our
option, for one share of MeriStar Hospitalitys common
stock, determined in accordance with the terms of our
partnership agreement. We have the option to redeem the
Class D OP Units at any time after April 1, 2000, at a
price of $22.16 per share for cash or, at our option, for shares
of MeriStar Hospitalitys common stock having a value equal
to the redemption price. The holders have the option to redeem
the Class D OP Units at any time after April 1, 2004
for cash or, at the option of the holders, for shares of
MeriStar Hospitalitys common stock having a value equal to
$22.16 per share.

Profits-Only OP Units are issued pursuant to our
Profits-Only Operating Partnership Units Plan, a copy of which
is incorporated by reference in Exhibit 10.9 to this
Form 10-K. Holders of Profits-Only OP Units receive
compensation equivalent to the dividend paid on MeriStar
Hospitalitys common stock in accordance with our amended
Incentive Plan, a copy of which is incorporated by reference in
Exhibit 10.7.1 to this Form 10-K.

REIT Modernization Act

Until January 1, 2001, in order for MeriStar
Hospitality to maintain its tax status as a REIT, we were not
permitted to engage in the operations of our hotel properties.
To comply with this requirement, we leased all of our real
property to third parties, including Interstate Hotels and Prime
Hospitality Corporation. On January 1, 2001, changes to the
U.S. federal tax laws governing REITs, commonly known as the
REIT Modernization Act, or RMA, became effective. As permitted
by the RMA, we formed a number of wholly-owned taxable
subsidiaries, which are subject to taxation similar to
subchapter C-corporations, to lease our real property. In 2000,
a subcommittee of independent members of our Board of Directors
ratified the transfer of our leases with subsidiaries of
Interstate Hotels to our taxable subsidiaries. Accordingly,
effective January 1, 2001, our taxable subsidiaries
executed agreements with subsidiaries of Interstate Hotels.
These agreements assigned our existing leases to our taxable
subsidiaries. In connection with the assignment, the taxable
subsidiaries executed new management agreements with a
subsidiary of Interstate Hotels for each property they
previously leased. The management agreements were structured to
substantially mirror the economics of the former lease
agreements. We believe this structure provides us with the
ability to capture the economic interests of property ownership,
as well as more efficiently aligning such interests.

Although a taxable subsidiary may lease our real
property, it is restricted from being involved in certain
activities prohibited by the RMA. First, a taxable subsidiary is
not permitted to manage the property itself; it must enter into
an arms-length management agreement with an
independent third-party manager that is actively involved in the
trade or business of hotel management and manages properties on
behalf of other owners. Second, the taxable subsidiary is not
permitted to lease a property that contains gambling operations.
Third, the taxable subsidiary is restricted from owning a brand
or franchise.

4



---



##### 



The Management Agreements



| |                                              
| | ---------------------------------------------
| | Management Fees and Performance
    Standards

Each of our taxable subsidiaries pays Interstate
Hotels a hotel management fee equal to a specified percentage of
aggregate hotel operating revenues, increased or reduced, as the
case may be, by 20% of the positive or negative difference
between:



| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | The actual excess of total operating revenues
    over total operating expenses; and
|
| |  | A projected excess of total operating revenues
    over total operating expenses.   

The total management fee for a hotel in any
fiscal year will not be less than 2.5% or greater than 4.0% of
aggregate hotel operating revenues.



| |                     
| | --------------------
| | Term and Termination

The management agreements with Interstate Hotels
generally have initial terms of 10 years with three renewal
periods of five years each, except for three management
agreements which have initial terms of one year which renew
annually thereafter. A renewal will not go into effect if a
change in the federal tax laws permits us or one of our
subsidiaries to operate the hotel directly without adversely
affecting MeriStar Hospitalitys ability to qualify as a
REIT, or if Interstate Hotels elects not to renew the agreement.
We may elect not to renew the management agreements only as
provided below.

Our taxable subsidiaries have the right to
terminate a management agreement for a hotel upon the sale of
the hotel to a third party or if the hotel is not restored after
a significant casualty loss. Upon that termination, the relevant
taxable subsidiary will be required to pay Interstate Hotels the
fair market value of the management agreement. That fair market
value will be equal to the present value of the remaining
payments (discounted using a 10% rate) of the existing term
under the agreement, based on the operating results for the
12 months preceding the termination. Our taxable
subsidiaries will be able to credit against any termination
payments, the present value of projected fees (discounted using
a 10% rate) under any management agreements or leases entered
into between Interstate Hotels and us (or our subsidiaries)
after August 3, 1998.

If a hotels gross operating profit is less
than 85% of the amount projected in the hotels budget in
any fiscal year and gross operating profit from that hotel is
less than 90% of the projected amount in the next fiscal year,
our taxable subsidiaries will have the right to terminate the
management agreement for the hotel, unless:



| |   |                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We did not materially comply with the capital
    expenditures contemplated by the budget for either or both of
    the applicable fiscal years; or                                                                                                                                 
|
| |  | Interstate Hotels cures the shortfall by agreeing
    to reduce its management fee for the next fiscal year by the
    amount of the shortfall between the actual operating profit for
    the second fiscal year and 90% of the projected gross operating
    profit for that year.

Interstate Hotels can only use the cure right
once during the term of each management agreement.



| |           
| | ----------
| | Assignment

Interstate Hotels does not have the right to
assign a management agreement without the prior written consent
of the relevant taxable subsidiary. A change in control of
Interstate Hotels will require the consent of the relevant
taxable subsidiary, and that subsidiary may grant or withhold
its consent in its sole discretion.

The Intercompany Agreement

We and MeriStar Hospitality are party to an
intercompany agreement with Interstate Hotels. So long as the
intercompany agreement remains in effect, Interstate Hotels is
prohibited from making real property

5



---



##### 



investments, which MeriStar Hospitality could
make while still remaining a REIT under the Internal Revenue
Code of 1986, as amended, unless:




| |   |                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We and MeriStar Hospitality are first given the
    opportunity, but elect not to pursue the investment;                                                 
|
| |  | The investment is on land already owned or leased
    by Interstate Hotels or is subject to a lease or purchase option
    in favor of Interstate Hotels;
|
| |  | Interstate Hotels will operate the property under
    an owned trade name; or                                                                            
|
| |  | The investment is a minority interest made as
    part of a lease or management agreement.                                                               

We and MeriStar Hospitality have a right of first
refusal with respect to any real property investment to be sold
by Interstate Hotels.

The intercompany agreement generally grants
Interstate Hotels the right of first refusal with respect to any
management opportunity at any of our properties we do not elect
to have managed by a hotel brand owner. We must make such an
opportunity available to Interstate Hotels only if we determine
that:



| |   |                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We are not required to enter into a management
    agreement with an unaffiliated third party with respect to the
    property in order to maintain MeriStar Hospitalitys status
    as a REIT;                      
|
| |  | Interstate Hotels is qualified to be the manager
    of that property;                                                                                                                                                
|
| |  | We decide not to have the property operated by
    the owner of a hospitality trade name under that trade name;                                                                                                       
|
| |  | The property is unencumbered by a management
    agreement, or if a management agreement exists, it can be freely
    terminated or terminated by the payment of a fee, which
    Interstate Hotels agrees to pay; and
|
| |  | The property is not subject to a leasehold estate
    held by an unaffiliated third party.                                                                                                                            

Because of the provisions of the intercompany
agreement, we and MeriStar Hospitality are restricted in the
nature of our business and the opportunities we may pursue.



| |                      
| | ---------------------
| | Provision of Services

We may exchange services with Interstate Hotels
as may be reasonably requested from time to time. These may
include administrative, renovation supervision, corporate,
accounting, financial, risk management, legal, tax, information
technology, human resources, acquisition identification and due
diligence, and operational services. We believe we compensate
each other in an amount that would be charged by an unaffiliated
third party for comparable services. The arrangements relating
to the provision of these services were not subject to
arms-length negotiation.



| |                 
| | ----------------
| | Equity Offerings

If we, MeriStar Hospitality, or Interstate Hotels
plan to engage in a securities issuance, the issuing party must
give notice to the other parties of its desire to engage in a
securities issuance as promptly as practicable. The notice will
include the proposed material terms of such issuance, to the
extent determined by the issuing party, including whether the
issuance is proposed to be pursuant to a public or private
offering, the amount of securities proposed to be issued and the
manner of determining the offering price, and other terms of the
securities. The non-issuing parties will cooperate with the
issuing party to effect any securities issuance of the issuing
party by assisting in the preparation of any registration
statement or other document required in connection with the
issuance and, in connection with that issuance, providing the
issuing party with such information as may be required to be
included in the registration statement or other document.

6



---



##### 





| |     
| | ----
| | Term

The intercompany agreement will terminate upon
the earlier of August 3, 2008, or the date of a change in
ownership or control of Interstate Hotels unless we approve, in
our sole discretion, such change in ownership or control. We
consented to the merger between Interstate Hotels Corporation
and MeriStar Hotels.



| |                          
| | -------------------------
| | Loan to Interstate Hotels

We were obligated to lend Interstate Hotels up to
$50 million for general corporate purposes under a
revolving credit agreement. The interest rate on the revolving
credit facility equaled 650 basis points over the 30-day LIBOR.
The facility matured the 91st day following the maturity of
Interstate Hotels senior bank credit facility. We amended
our revolving credit agreement with Interstate Hotels to include
covenants similar to those in its senior bank credit facility.

Interstate Hotels also issued to us a
$13.1 million term note effective January 1, 2002,
which refinanced outstanding accounts payable owed to us. Both
the interest rate and the maturity were the same as that of the
revolving credit agreement.

In connection with the merger that created
Interstate Hotels on July 31, 2002, Interstate Hotels paid
$3 million to reduce its borrowings outstanding on the
revolving credit agreement. Also, the credit agreement and term
note were amended and combined into a term loan agreement with a
principal balance of $56.1 million and a maturity date of
July 31, 2007. The interest rate remained at 650 basis
points over the 30-day LIBOR. This term loan was subordinate to
Interstate Hotels new bank credit agreement, and did not
allow for any further borrowings by Interstate Hotels.

In late December 2002, we reached an agreement to
settle the term loan with Interstate Hotels for
$42.1 million, plus accrued interest. We incurred a
$14.5 million charge in 2002, including expenses of the
transaction, related to this settlement. Cash payment was
received in early January 2003.

Acquisition Strategy

While the terms of our senior note indenture do
not currently permit us to execute this strategy (as we are
below the required fixed charge coverage ratio of 2 to 1), we
continue to maintain the acquisition of hotel properties as a
long-term strategy. In execution of this strategy, we will focus
our attention on investments in hotels located in markets with
economic, demographic and supply dynamics favorable to hotel
owners. Through an extensive due diligence process, we will
select those acquisition targets where we believe selective
capital improvements and well-selected third-party management
will increase the hotels ability to attract key demand
segments, enhance hotel operations and increase long-term value.
In order to evaluate the relative merits of each investment
opportunity, our senior management and Interstate Hotels will
create detailed plans covering all areas of renovation and
operation. These plans will serve as the basis for our
acquisition decisions and guide subsequent renovation and
operating plans. We rely heavily on our ability to raise new
capital through debt and equity offerings in order to complete
acquisitions. That ability will be dependent on the then-current
status of the capital markets generally, as well as our own
ability to access those markets on acceptable terms.

Franchises

We employ a flexible strategy in selecting brand
names based on each particular hotels market environment
and other unique characteristics. Accordingly, we use various
national trade names under licensing arrangements with national
franchisors. We have included a listing of all of our
properties, along with the affiliated brand names, under
Item 2 of this Form 10-K.

Competition

We compete primarily in the upper upscale sector
of the full-service segment of the lodging industry. Each
geographic market where we own hotels has other full- and
limited-service hotels that compete with our hotels. Competition
in the U.S. lodging industry is based on a number of factors,
most notably convenience of

7



---



##### 



location, brand affiliation, price, range of
services and guest amenities offered, and quality of customer
service and overall product.


Seasonality

Demand in the lodging industry is affected by
recurring seasonal patterns. For non-resort properties, demand
is lower in the winter months due to decreased travel and higher
in the spring and summer months during the peak travel season.
For resort properties, demand is generally higher in winter and
early spring. Since the majority of our hotels are non-resort
properties, our operations generally reflect non-resort
seasonality patterns. We typically have lower revenue, operating
income and cash flow in the first and fourth quarters and higher
revenue, operating income and cash flow in the second and third
quarters. These general trends are, however, greatly influenced
by overall economic cycles.

Employees

As of December 31, 2002, we employed 30
persons, all of whom work at our corporate headquarters in
Washington D.C.

Governmental Regulation



| |                                
| | -------------------------------
| | Americans with Disabilities Act

Under the Americans with Disabilities Act, or
ADA, all public accommodations must meet certain requirements
related to access and use by disabled persons. These
requirements became effective in 1992. Although significant
amounts have been and continue to be invested in ADA-required
upgrades to our hotels, a determination that we are not in
compliance with the ADA could result in a judicial order
requiring compliance, imposition of fines or an award of damages
to private litigants. We are likely to incur additional costs in
complying with the ADA; however, such costs are not expected to
have a material adverse effect on our results of operations or
financial condition.



| |                   
| | ------------------
| | Environmental Laws

Under various federal, state and local
environmental laws, ordinances and regulations, a current or
previous owner or operator of real property may be liable for
the costs of removal or remediation of hazardous or toxic
substances on, under or in property. Laws often impose liability
whether or not the owner or operator knew of, or was responsible
for, the presence of hazardous or toxic substances. In addition,
the presence of contamination from hazardous or toxic
substances, or the failure to properly remediate contaminated
property, may adversely affect the owners ability to sell
or rent real property or to borrow funds using real property as
collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs
of removal or remediation of these substances at the disposal or
treatment facility, whether or not the facility is or ever was
owned or operated by those persons.

Federal and state laws also regulate the
operation and removal of underground storage tanks. In
connection with the ownership and operation of our hotels, we
could be held liable for the costs of remedial action with
respect to the regulated substances and storage tanks and claims
related thereto. Activities have been undertaken to close or
remove storage tanks located on the property of several of our
hotels.

All of our hotels have undergone Phase I
environmental site assessments, which generally provide a
nonintrusive physical inspection and database search, but not
soil or groundwater analyses, by a qualified independent
environmental engineer. The purpose of a Phase I assessment
is to identify potential sources of contamination for which the
hotels may be responsible and to assess the status of
environmental regulatory compliance. The Phase I
assessments have not revealed any environmental liability or
compliance concerns that we believe would have a material
adverse effect on our results of operations or financial
condition, nor are we aware of any material environmental
liability or concerns. Nevertheless, it is possible that these
environmental site assessments did not reveal all environmental
liabilities or compliance concerns or that material
environmental liabilities or compliance concerns exist of which
we are currently unaware.

8



---



##### 



In addition, our hotels have been inspected to
determine the presence of asbestos. Federal, state and local
environmental laws, ordinances and regulations also require
abatement or removal of asbestos-containing materials and govern
emissions of and exposure to asbestos fibers in the air.
Asbestos-containing materials are present in various building
materials such as sprayed-on ceiling treatments, roofing
materials or floor tiles at some of our hotels. Operations and
maintenance programs for maintaining asbestos-containing
materials have been or are in the process of being designed and
implemented, or the asbestos-containing materials have been
scheduled to be or have been abated, at these hotels. Any
liability resulting from non-compliance or other claims relating
to environmental matters are not expected to have a material
adverse effect on our results of operations or financial
condition.

In recent years there has been a
widely-publicized proliferation of mold-related claims by
tenants, employees and other occupants of buildings against the
owners of those buildings. To date, a few such claims have been
filed against us by employees of hotels where mold has been
detected. Mold-related claims are not covered by our insurance
programs. These claims have not been material to our
consolidated results of operations, financial position or
liquidity. In every hotel where we have identified a measurable
presence of mold, whether or not a claim has been made, we have
undertaken remediation we believe to be appropriate for the
circumstances encountered. Unfortunately, there is little in the
way of government standards, insurance industry specifications
or otherwise generally accepted guidelines dealing with mold
propagation. Although considerable research into mold toxicity
and exposure levels is underway, it may be several years before
definitive standards are available to property owners against
which to evaluate risk and design remediation practices. We
cannot predict the outcome of any future regulatory requirements
to deal with mold-related matters. We also do not believe that,
currently, any potential mold-related liabilities, either
individually or in the aggregate, will have a material adverse
effect on our results of operations or financial condition.

Access to Our Filings

You may request a copy, at no cost, of our annual
report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and any amendments to those
reports as soon as reasonably practicable after such material is
electronically filed with the Securities and Exchange
Commission, by contacting us in writing or by telephone at our
principal executive offices: MeriStar Hospitality Operating
Partnership, L.P., 1010 Wisconsin Avenue, N.W.,
Washington, D.C. 20007, telephone (202) 295-1000. We also
make available all of these filings on MeriStar
Hospitalitys website at www.meristar.com.

9



---



##### 



RISK FACTORS

Financing Risks

We are highly leveraged; our significant
amount of debt could limit our operational flexibility or
otherwise adversely affect our financial condition.

As of December 31, 2002, we had
$1.7 billion of total debt outstanding, or 65% of our total
capitalization. We are subject to the risks normally associated
with significant amounts of debt, including the risks that:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our vulnerability to downturns in our business,
    such as the one we are currently experiencing, is increased,
    requiring us to reduce our capital expenditures as described
    further in Operating Risks (the potential adverse
    impact of our failure to meet the requirements contained in our
    franchise and licensing agreements), and restricting our ability
    to make acquisitions;
|
| |  | our cash flow from operations may be insufficient
    to make required payments of principal and interest;                                                                                                                                                                                                                                                                                                  
|
| |  | we may be unable to refinance existing
    indebtedness, including secured indebtedness;                                                                                                                                                                                                                                                                                                                    
|
| |  | the terms of any refinancing may not be as
    favorable as the terms of existing indebtedness; and                                                                                                                                                                                                                                                                                                         
|
| |  | we currently are, and may in the future be,
    unable to make distributions on any of our OP Units, except
    as required to maintain MeriStar Hospitalitys
    qualification as a REIT.                                                                                                                                                                                                                 

We may be required to refinance our
indebtedness, and the failure to refinance our indebtedness may
have a material, adverse effect on us.

As of December 31, 2002, we had
$154.3 million payable to MeriStar Hospitality (represents
their subordinated notes maturing in 2004); $205 million payable
to MeriStar Hospitality (represents their senior subordinated
notes maturing in 2007); $300 million of senior unsecured
notes maturing in 2008 and $250 million maturing in 2009;
$314.6 million of collateralized mortgage-backed securities
maturing in 2009; $400 million of senior unsecured notes
maturing in 2011; and $38 million of mortgage debt maturing
between 2003 and 2012. If we do not have sufficient funds to
repay our indebtedness at maturity, we will have to refinance
the indebtedness through additional debt financing. This
additional financing might include private or public offerings
of debt securities and additional non-recourse or other
collateralized indebtedness. If we are unable to refinance our
indebtedness on acceptable terms, we might be forced to dispose
of hotels or other assets on disadvantageous terms. This could
potentially result in losses and adverse effects on cash flow
from operating activities. If we are unable to make required
payments of principal and interest on our indebtedness, our
outstanding indebtedness could be accelerated, and our
properties could be foreclosed upon by the secured lenders with
a consequent loss of income and asset value.

Our senior secured revolving credit facility
and other debt instruments have restrictive covenants that could
affect our financial condition.

We currently have, and as of December 31,
2002 had, no outstanding borrowings under our senior secured
revolving credit facility. Our ability to borrow under this
facility is subject to financial covenants, including leverage
and interest rate coverage ratios and minimum net worth
requirements. Our compliance with these covenants in future
periods will depend substantially upon the financial results of
our hotels. If we fail to meet a future compliance measure, the
availability of funds under our credit facility might be
restricted. The credit agreement limits our ability to effect
mergers, asset sales and change of control events, and limits
dividends. The credit agreement also contains a cross-default
provision, which would be triggered by a default or acceleration
of $50 million or more of indebtedness secured by our
assets or $5 million or more of any other indebtedness.
Because we were not in compliance with the leverage covenant
under the credit agreement as of March 10, 2003, we could
not borrow under the credit agreement and do not expect to be
able to do so in the future unless we amend or replace our
credit facility, or use the proceeds from any future asset sales
to reduce our leverage. See Recent
Developments  New Senior Revolving Credit
Facility.

10



---



##### 



As of December 31, 2002, we had the
following outstanding borrowings:



| |   |                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $154.3 million payable to MeriStar
    Hospitality (represents their convertible subordinated notes due
    2004 bearing interest at 4.75%);                           
|
| |  | $205 million payable to MeriStar Hospitality
    (represents their senior subordinated notes due 2007 bearing
    interest at a weighted-average annual rate of 8.69%);
|
| |  | $300 million of senior unsecured notes due
    2008 bearing interest at 9%;                                                                                            
|
| |  | $250 million of senior unsecured notes due
    2009 bearing interest at 10.50%;                                                                                        
|
| |  | $314.6 million of collateralized
    mortgage-backed securities due 2009 bearing interest at a rate
    of 8.01%;                                                      
|
| |  | $400 million of senior unsecured notes due
    2011 bearing interest at 9.125%; and                                                                                    
|
| |  | $38 million of mortgage debt maturing
    between 2003 and 2012 at interest rates ranging from 8.5% to
    10.5%.                                                      

The indentures relating to some of our
outstanding debt contain limitations on our ability to effect
mergers and change of control events, as well as other
limitations, including limitations on:



| |   |                                                 
| | - | ------------------------------------------------
| |  | Incurring additional indebtedness;              
|
| |  | Selling our assets;                             
|
| |  | Conducting transactions with our affiliates; and
|
| |  | Incurring liens.                                

In this respect, the indentures relating to our
senior unsecured notes and MeriStar Hospitalitys senior
subordinated notes significantly restrict our ability to incur
indebtedness and MeriStar Hospitality from paying dividends, and
our ability to acquire or prepay certain of our debt if our
fixed charge coverage ratio (as defined in these indentures) is
less than 2 to 1 for our most recently ended four
fiscal quarters. Such ratio has been less than 2 to 1
since March 2002, and was at 1.6 to 1 as of
December 31, 2002.

Debt instruments we issue in future offerings
will likely contain similar restrictive covenants. These
restrictions could limit our ability to finance our future
operations or capital needs, make acquisitions or pursue
available business opportunities. In addition, they may require
us to maintain specific financial ratios and to satisfy various
financial covenants. We may be required to take action to reduce
our debt or act in a manner contrary to our business objectives
to meet these ratios and satisfy these covenants.

Our secured facility is secured by a portfolio of
19 hotels and contains standard provisions that require the
servicer to maintain in escrow cash balances for certain items
such as property taxes and funding of capital expenditures. In
addition, the facility contains a provision that requires our
mortgage servicer to retain in escrow the excess cash from the
encumbered hotels after payment of debt service (Excess
Cash), if net hotel operating income after payment of
FF&E reserves and franchise fees (NOI) for the
trailing twelve months declines below $57 million. This
provision was triggered in October 2002 and will be effective
until the hotels generate the minimum cash flow required for two
consecutive quarters, at which time the cash being held in
escrow will be released to us. Approximately $4.5 million
of cash was held in escrow under this provision as of
December 31, 2002. Additional amounts continue to be held
in escrow. The security agreement permits us to substitute
unleveraged properties into the portfolio in place of existing
properties in order to increase the NOI to a level at which the
portfolio will meet this requirement. We have begun discussions
with the servicer regarding this substitution.

11



---



##### 



We may be able to incur substantially more
debt, which would increase the risks associated with our
substantial leverage.

Although the terms of our debt instruments
restrict our ability to incur additional indebtedness, our
organizational documents do not limit the amount of indebtedness
we may incur. If we add new debt to our current debt, the
related risks we now face could intensify and increase the risk
of default on our indebtedness.

Rising interest rates could have an adverse
effect on our cash flow and interest expense.

Any borrowings we make under our senior secured
revolving credit facility will bear interest at a variable rate.
In addition, in the future we may incur indebtedness bearing
interest at a variable rate, or we may be required to refinance
our existing indebtedness at higher interest rates. Accordingly,
to the extent we borrow under our senior secured revolving
credit facility, increases in interest rates could increase our
interest expense and adversely affect our cash flow, reducing
the amounts available to make payments on our other
indebtedness, make acquisitions, or pursue other business
opportunities.

Operating Risks

Acts of terrorism, the threat of terrorism,
the war with Iraq and the potential conflicts with other
countries, and the ongoing war against terrorism have had a
negative impact on and will continue to have a negative effect
on our industry and our results of operations.

The terrorist attacks of September 11, 2001
have had a negative impact on our hotel operations from the
third quarter of 2001 to the present, causing lower than
expected performance in an already slowing economy. The events
of September 11 have caused a significant decrease in our
hotels occupancy and average daily rate due to disruptions
in business and leisure travel patterns, and concerns about
travel safety. Major metropolitan area and airport hotels have
been adversely affected by concerns about air travel safety and
a significant overall decrease in the amount of air travel.

The September 11 terrorist attacks were
unprecedented in scope, and in their immediate, dramatic impact
on travel patterns. We have not previously experienced such
events, and it is currently not possible to accurately predict
if and when travel patterns will be restored to
pre-September 11 levels. While we have had improvements in
our operating levels from the period immediately following the
attacks, we believe the uncertainty associated with subsequent
incidents, the war with Iraq and the possibility with other
countries, threats and the possibility of future attacks will
continue to hamper business and leisure travel patterns for the
next several quarters.

The recent economic slowdown, the threat of
further terrorist attacks, and the uncertainty of a conflict
with Iraq and other countries have materially affected, and may
continue to adversely affect, our revenue per available room, or
RevPAR, performance and operating cash flows, and if they worsen
or continue, these effects could become materially more
adverse.

We have experienced the following declines in
RevPAR:



| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | 18.0% decline during the first quarter of 2002,
    as compared to the same period of 2001;   
|
| |  | 11.3% decline during the second quarter of 2002,
    as compared to the same period of 2001;  
|
| |  | 5.3% decline during the third quarter of 2002, as
    compared to the same period of 2001; and
|
| |  | 8.6% decline during the full year 2002, as
    compared to full year 2001.                    

After generating $224 million of cash from
operations during 2000, we generated $150.1 million during
2001 and $56.7 million of cash from operations during 2002.
The decreases from 2000 are due to the economic slowdown that
began in 2001, as well as the terrorist attacks of
September 11, 2001, the continuing threat of further
terrorist attacks and the uncertainty of potential conflicts
with Iraq and other countries. A sharper-than-anticipated
decline in business and leisure travel was the primary cause of
the declines, which were principally reflected in decreased
occupancies. If the current economic slowdown worsens
significantly or

12



---



##### 



continues for a protracted period of time, the
declines in occupancy could also lead to further declines in
average daily room rates and could have a further material
adverse effect on our earnings, cash flows and EBITDA.


We expect to fund our continuing operations,
which primarily include our interest expense and capital
expenditures, through cash generated by our hotels and to the
extent necessary from the proceeds of sales of non-core hotel
assets. In response to the decline in our cash flows since
September 11, 2001, we have significantly curtailed our
capital expenditure programs, which may adversely affect the
competitive position of our hotels in their markets. We expect
capital expenditures of $40 million to $50 million in
2003. If the current economic conditions worsen, we may have to
curtail our capital expenditures even further. We have also sold
non-core assets to generate cash. Since the fourth quarter in
2001, we have sold eight hotels for aggregate cash proceeds of
$83 million and are currently actively marketing or expect
to bring to market in the near future a total of 16 non-core
assets.

If our revenues are negatively affected by one
or more particular risks, our operating margins could
suffer.

Until January 1, 2001, we leased all but
eight of our hotels to Interstate Hotels. Under each of those
leases, Interstate Hotels was required to pay us a fixed base
rent plus participating rent based on a percentage of revenues
at the hotel. As a result of changes to the federal tax laws
governing REITs, which became effective on January 1, 2001,
Interstate Hotels assigned those leases to our taxable REIT
subsidiaries and those subsidiaries have entered into management
agreements with Interstate Hotels to manage our hotels. As a
result of this new lease structure, we report operating revenues
and expenses from the hotels rather than rental payments under
the prior lease structure. Therefore, we have greater
sensitivity to changes in operating revenues and are subject to
the risk of fluctuating hotel operating margins at those hotels.
Hotel operating expenses include, but are not limited to, wage
and benefit costs, supplies, repair and maintenance expenses,
utilities, insurance and other operating expenses. These
operating expenses are more difficult to predict and control
than percentage lease revenue, resulting in increased
unpredictability in our operating margins. Also, due to the
level of fixed costs required to operate full-service hotels, we
generally cannot reduce significant expenditures necessary for
the operation of hotels when circumstances cause a reduction in
revenue.

Various factors could adversely affect our
operating margins, which are subject to all of the operating
risks inherent in the lodging industry. These risks include the
following:



| |   |                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | dependence on business and commercial travelers
    and tourism, which have been affected by the events of
    September 11, 2001 and threats of further terrorism, or
    other outbreaks of hostilities, and may otherwise fluctuate and
    be seasonal;
|
| |  | changes in general and local economic conditions;                                                                                                                                                                                                          
|
| |  | cyclical overbuilding in the lodging industry;                                                                                                                                                                                                             
|
| |  | varying levels of demand for rooms and related
    services;                                                                                                                                                                                               
|
| |  | competition from other hotels, motels and
    recreational properties, some of which may be owned or operated
    by companies having greater marketing and financial resources
    than we do;                                                            
|
| |  | decreases in air travel;                                                                                                                                                                                                                                   
|
| |  | fluctuations in operating costs;                                                                                                                                                                                                                           
|
| |  | the recurring costs of necessary renovations,
    refurbishments and improvements of hotel properties;                                                                                                                                                     
|
| |  | changes in governmental regulations that
    influence or determine wages, prices and construction and
    maintenance costs; and                                                                                                                          
|
| |  | changes in interest rates and the availability of
    credit.                                                                                                                                                                                              

In addition, demographic, geographic or other
changes in one or more of the markets of our hotels could impact
the convenience or desirability of the sites of some hotels,
which would in turn affect their operations.

13



---



##### 



Recent events have adversely affected the
insurance market.

The September 11, 2001 terrorist attacks
have had a dramatic effect on the insurance and reinsurance
industries. Companies in all industry segments are experiencing
increases in premiums and reductions in coverage upon renewal of
their insurance policies. Some entities have experienced an
inability to obtain insurance. If we are unable to maintain
insurance that meets our debt covenant and franchise agreement
requirements, and if we are unable to amend or waive those
requirements, it could have a material adverse effect on our
liquidity and our business. Our total annual property and
casualty insurance premiums are approximately $31 million
under our renewed policies.

We have significant operational relationships
with Interstate Hotels, and Interstate Hotels operating or
financial difficulties could adversely affect our hotels
operations or our financial position.

Interstate Hotels manages all of our hotels (107
hotels as of December 31, 2002). As a result, we depend
heavily on Interstate Hotels ability to provide efficient,
effective management services to our hotels. Although we monitor
the performance of our properties on an ongoing basis,
Interstate Hotels is responsible for the day-to-day management
of our properties. According to Interstate Hotels public
statements, Interstate Hotels has incurred, on a pro forma basis
giving effect to the merger that formed Interstate Hotels, net
losses of $9.7 million and $20.5 million for the years
ended December 31, 2002 and 2001, respectively. If
Interstate Hotels were unable to continue in business as a hotel
operator, we would have to find a new manager for our hotels.
This transition could significantly disrupt the operations of
our hotels and lead to lower operating results from our
properties.

Interstate Hotels is the general partner in
MeriStar Investment Partners, LP (MIP), a joint
venture established to acquire upscale, full-service hotels. We
have a 16% preferred partnership interest in MIP, (equal to an
initial investment of $40 million). We also have a
receivable for approximately $10.8 million in cumulative
preferred returns outstanding as of December 31, 2002. If
Interstate Hotels is unable to continue as the general partner
of MIP, a liquidation of MIP may occur. This liquidation could
result in an impairment of our investment and cumulative
preferred return receivable.

We invest in a single industry.

Our current strategy is to acquire interests only
in hospitality and lodging. As a result, we are subject to the
risks inherent in investing in a single industry. The effects on
cash available for distribution resulting from a downturn in the
hotel industry may be more pronounced than if we had diversified
our investments.

We have a high concentration of hotels in the
upscale, full-service segment, which may increase our
susceptibility to an economic downturn.

As of December 31, 2002, 85% of our hotels
were in the upscale, full-service segment. This hotel segment
generally demands higher room rates. In an economic downturn,
hotels in this segment may be more susceptible to a decrease in
revenues, as compared to hotels in other segments that have
lower room rates. This characteristic results from hotels in
this segment generally targeting business and high-end leisure
travelers. In periods of economic difficulties or political
instability, business and leisure travelers may seek to reduce
travel costs by limiting trips or seeking to reduce costs on
their trips. This characteristic has had, and could continue to
have, a material adverse effect on our revenues and results of
operations.

The lodging business is seasonal.

Generally, hotel revenues are greater in the
second and third calendar quarters than in the first and fourth
calendar quarters. This may not be true, however, for hotels in
major tourist destinations. Revenues for hotels in tourist areas
generally are substantially greater during tourist season than
other times of the year. Seasonal variations in revenue at our
hotels will cause quarterly fluctuations in our revenues. Events
beyond our control, such as extreme weather conditions, economic
and political factors and other considerations affecting travel,
may also adversely affect our earnings.

14



---



##### 



We may be adversely affected by the
requirements contained in our franchise and licensing
agreements.

As of December 31, 2002, approximately 89%
of our hotels were operated pursuant to existing franchise or
licensing agreements with nationally recognized hotel brands.
The franchise agreements generally contain specific standards
for, and restrictions and limitations on, the operation and
maintenance of a hotel in order to maintain uniformity within
the franchisor system. Those limitations may conflict with our
philosophy, shared with Interstate Hotels, of creating specific
business plans tailored to each hotel and to each market.
Standards are often subject to change over time, in some cases
at the discretion of the franchisor, and may restrict a
franchisees ability to make improvements or modifications
to a hotel without the consent of the franchisor. In addition,
compliance with standards could require a franchisee to incur
significant expenses or capital expenditures. Action or inaction
on our part or by our third-party operator could result in a
breach of standards or other terms and conditions of the
franchise agreements, and could result in the loss or
cancellation of a franchise license. Although we have from time
to time received default notices from franchisors due to service
or physical plant deficiencies, none of our franchise agreements
have been terminated for such deficiencies, and we believe that
we can avoid future terminations by cooperating with our
franchisors. Loss of franchise licenses without replacement
would likely have an adverse effect on our hotel revenues.

In connection with terminating or changing the
franchise affiliation of a currently-owned hotel or a
subsequently-acquired hotel, we may be required to incur
significant expenses or capital expenditures. Moreover, the loss
of a franchise license could have a material adverse effect upon
the operations or the underlying value of the hotel covered by
the franchise due to the loss of associated name recognition,
marketing support and centralized reservation systems provided
by the franchisor. The franchise agreements covering the hotels
expire or terminate, without specified renewal rights, at
various times and have differing remaining terms. As a condition
to renewal, the franchise agreements frequently contemplate a
renewal application process, which may require substantial
capital improvements to be made to the hotel. Unexpected capital
expenditures could adversely affect our results of operations
and our ability to make payments on our indebtedness.

The lodging industry is highly
competitive.

We have no single competitor or small number of
competitors that are considered to be dominant in the industry.
We operate in areas that contain numerous competitors, some of
which may have substantially greater resources than us.
Competition in the lodging industry is based generally on
location, availability, room rates, or accommodations, price,
range and quality of services and guest amenities offered. New
or existing competitors could significantly lower rates, offer
greater conveniences, services or amenities; or significantly
expand, improve or introduce new facilities in markets in which
we compete. All of these factors could adversely affect our
operations and the number of suitable business opportunities.

We rely on the knowledge and experience of
some key personnel, and the loss of these personnel may have a
material adverse effect on our operations.

We place substantial reliance on the lodging
industry knowledge and experience and the continued services of
our senior management, led by Paul W. Whetsell. While we believe
that, if necessary, we could find replacements for these key
personnel, the loss of their services could have a material
adverse effect on our operations. In addition, Mr. Whetsell
is currently engaged, and in the future will continue to engage,
in the management of Interstate Hotels. Mr. Whetsell may
experience conflicts of interest in allocating management time,
services and functions between Interstate Hotels and us.

We have lost some of our key personnel to
Interstate Hotels.

Historically, many of our senior executives have
held similar positions at our company and at Interstate Hotels.
Several of these senior executives, including our Chief
Operating Officer, Chief Financial Officer and Chief Accounting
Officer, and General Counsel, have left our company and work
exclusively for Interstate Hotels. As a result, several members
of our senior management are new or have changed positions. Our
Chief Financial Officer and General Counsel are new to our
company, and our Chief Operating Officer has been

15



---



##### 



recently promoted. Our success will depend in
part on the successful assimilation and performance of these
individuals. If we are unable to manage this transition, our
results of operations could be negatively affected.


Costs of compliance with environmental laws
could adversely affect our operating results.

See Governmental Regulation 
Environmental Laws for a further discussion of risks
related to environmental compliance.

Aspects of our operations are subject to
government regulation, and changes in that regulation may have
significant effects on our business.

A number of states regulate the licensing of
hotels and restaurants, including liquor license grants, by
requiring registration, disclosure statements and compliance
with specific standards of conduct. Interstate Hotels believes
our hotels are substantially in compliance with these
requirements or, in the case of liquor licenses that they have
or will promptly obtain the appropriate licenses. Compliance
with, or changes in, these laws could reduce the revenue and
profitability of our hotels and could otherwise adversely affect
our revenues, results of operations and financial condition.

Under the ADA, all public accommodations must
meet federal requirements related to access and use by disabled
persons. These requirements became effective in 1992. Although
significant amounts have been and continue to be invested in ADA
required upgrades to our hotels, a determination that our hotels
are not in compliance with the ADA could result in a judicial
order requiring compliance, imposition of fines or an award of
damages to private litigants.

Corporate Structure Risks

We have overlapping directors and an
overlapping senior executive officer with Interstate
Hotels.

We share three directors, among our ten
directors, with Interstate Hotels. Our Chairman and Chief
Executive Officer, Paul W. Whetsell, is also the Chairman and
Chief Executive Officer of Interstate Hotels. Our relationship
with Interstate Hotels is governed by an intercompany agreement
and by management agreements for each managed hotel. The
intercompany agreement restricts each party from taking
advantage of certain business opportunities without first
presenting those opportunities to the other party. We may have
conflicting views with Interstate Hotels on operation and
management of our hotels and with respect to lease arrangements,
acquisitions and dispositions. Inherent potential conflicts of
interest will be present in all of the numerous transactions
among Interstate Hotels and us.

We have restrictions on our business and on
our future opportunities that could affect our
business.

The intercompany agreement with Interstate Hotels
generally grants Interstate Hotels the right of first refusal
with respect to any management opportunity at any of our
properties we do not elect to have managed by a hotel brand
owner. We must make such an opportunity available to Interstate
Hotels only if we determine that:



| |   |                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We are not required to enter into a management
    agreement with an unaffiliated third party with respect to the
    property in order to maintain MeriStar Hospitalitys status
    as a REIT;                      
|
| |  | Interstate Hotels is qualified to be the manager
    of that property;                                                                                                                                                
|
| |  | We decide not to have the property operated by
    the owner of a hospitality trade name under that trade name;                                                                                                       
|
| |  | The property is unencumbered by a management
    agreement, or if a management agreement exists, it can be freely
    terminated or terminated by the payment of a fee, which
    Interstate Hotels agrees to pay; and
|
| |  | The property is not subject to a leasehold estate
    held by an unaffiliated third party.                                                                                                                            

16



---



##### 



Because of the provisions of the intercompany
agreement, we and MeriStar Hospitality are restricted in the
nature of our business and the opportunities we may pursue.

We may have conflicts relating to the sale of
hotels subject to management agreements.

Our management agreements with Interstate Hotels
may require us to pay a termination fee to Interstate Hotels if
we elect to sell a hotel or if we elect not to restore a hotel
after a casualty. We must pay this fee if we do not replace the
hotel with another hotel subject to a management agreement with
a fair market value equal to the fair market value of Interstate
Hotels remaining management fee due under the management
agreement to be terminated. Where applicable, the termination
fee is equal to the present value of the remaining payments
(discounted using a 10% rate) of the existing term under the
agreement, based on the operating results of the hotel for the
12 months preceding termination. Our decision to sell a
hotel may, therefore, have significantly different consequences
for Interstate Hotels and us. The requirement to pay a
termination fee may make a disposition transaction less
desirable economically.

We lack control over management and operations
of our hotels.

We depend on the ability of Interstate Hotels to
operate and manage our hotels. In order for MeriStar Hospitality
to maintain its REIT status, we cannot operate our hotels. As a
result, we are unable to directly implement strategic business
decisions for the operation and marketing of our hotels, such as
decisions with respect to the setting of room rates, food and
beverage operations and similar matters.

Our relationship with Interstate Hotels could
limit our acquisition opportunities in the future.

Our relationship with Interstate Hotels could
negatively impact our ability to acquire additional hotels
because hotel management companies, franchisees and others who
would have approached us with acquisition opportunities in hopes
of establishing lessee or management relationships may not do so
believing that we may rely primarily on Interstate Hotels to
manage the acquired properties, or that Interstate Hotels might
have a right of first refusal to manage some or all of the
acquired properties under the terms of the intercompany
agreement. These persons may instead provide acquisition
opportunities to companies free to choose their managers or to
hotel management companies who choose to own and manage the
properties following the sale. This could limit our acquisition
opportunities in the future.

There are potential conflicts of interest
relating to our relationship with Interstate Hotels.

The terms of the intercompany agreement and our
management agreements with Interstate Hotels were not negotiated
on an arms-length basis. Because MeriStar Hospitality and
Interstate Hotels share Paul Whetsell, who is Chairman and Chief
Executive Officer of both companies, and two other board
members, there is a potential conflict of interest with respect
to the enforcement and termination of these agreements to our
benefit and to the detriment of Interstate Hotels, or to the
benefit of Interstate Hotels and to our detriment. Furthermore,
because of the independent trading of MeriStar Hospitality and
Interstate Hotels, stockholders in MeriStar Hospitality or
Interstate Hotels may develop divergent interests which could
lead to conflicts of interest. The divergence of interests could
also reduce the anticipated benefits of our agreements with
Interstate Hotels.

U.S. Federal Income Tax Risks

Requirements imposed on us relating to
MeriStar Hospitalitys REIT status could cause us to
operate in a manner that might be disadvantageous to
noteholders.

We have operated and intend to continue to
operate in a manner designed to permit MeriStar Hospitality to
qualify as a REIT for federal income tax purposes.

To obtain the favorable tax treatment accorded to
REITs under the Internal Revenue Code, MeriStar Hospitality will
normally be required each year to distribute to its stockholders
at least 90% of its real estate investment trust taxable income,
determined without regard to the deduction for dividends paid
and by

17



---



##### 



excluding net capital gain. MeriStar Hospitality
will be subject to income tax on undistributed real estate
investment trust taxable income and net capital gain, and to a
4% nondeductible excise tax on the amount, if any, by which
distributions it pay with respect to any calendar year are less
than the sum of:




| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | 85% of its ordinary income for the calendar year;                                                                     
|
| |  | 95% of its capital gain net income for that year
    unless it elects to retain and pay income tax on those gains; and
|
| |  | 100% of its undistributed income from prior years.                                                                    

MeriStar Hospitality intends to make
distributions to its stockholders to comply with the 90%
distribution requirements described above and generally to avoid
federal income taxes and the nondeductible 4% excise tax. Its
income will consist primarily of its share of our income and its
cash flow will consist primarily of its share of distributions
made by us. In addition, these provisions of our partnership
agreement could in the future cause us to distribute amounts
that otherwise would be spent on future acquisitions,
unanticipated capital expenditures or debt, which would require
us to borrow funds or sell assets to fund the cost of these
items.

Our partnership agreement provides that unless
such action or inaction has been specifically consented to by
MeriStar Hospitality in writing, we will not take, or refrain
from taking, any action which, in the judgment of MeriStar
Hospitality, as our general partner:



| |   |                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | could adversely affect the ability of MeriStar
    Hospitality to continue to qualify as a REIT, unless MeriStar
    Hospitality otherwise ceases to qualify as a REIT, or
|
| |  | could subject MeriStar Hospitality to additional
    income or excise taxes applicable to REITs under the Internal
    Revenue Code.                                      

Our partnership agreement also provides that
MeriStar Hospitality, as our general partner, shall use its best
efforts to cause us to make sufficient distributions to enable
MeriStar Hospitality to meet the distribution requirements
described above and to avoid any federal income or excise tax
liability, except to the extent that such distributions would
contravene the terms of any notes or other debt obligations to
which we are subject in conjunction with borrowed funds.
Finally, our partnership agreement generally requires us to make
pro rata distributions to all holders of Common OP units, not
just distributions to MeriStar Hospitality. Thus, whenever
distributions are made to MeriStar Hospitality in order to
satisfy the foregoing requirements, equivalent distributions
must be made to other partners holding Common OP units.

It is possible, however, that differences in
timing between the receipt of income and the payment of expenses
in arriving at our taxable income or the taxable income of
MeriStar Hospitality and the effect of nondeductible capital
expenditures, the creation of reserves or required debt
amortization payments could in the future require us to borrow
funds on a short- or long-term basis to enable MeriStar
Hospitality to continue to qualify as a REIT and avoid federal
income taxes and the 4% nondeductible excise tax. In these
circumstances, we might need to borrow funds in order to avoid
adverse tax consequences even if we believe that the then
prevailing market conditions generally are not favorable for
those borrowings or that those borrowings are not advisable in
the absence of these tax considerations.

MeriStar Hospitality, as our general partner,
will determine our distributions. The amount of these
distributions is dependent on a number of factors including:



| |   |                                                                        
| | - | -----------------------------------------------------------------------
| |  | the amount of cash available for distribution;                         
|
| |  | our financial condition;                                               
|
| |  | our decision to reinvest funds rather than to
    distribute the funds;

18



---



##### 





| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | restrictions in our debt agreements;                                                                                            
|
| |  | our capital expenditure requirements;                                                                                           
|
| |  | the annual distribution requirements under the
    real estate investment trust provisions of the Internal Revenue
    Code; and
|
| |  | other factors as MeriStar Hospitality deems
    relevant.                                                                       

Although we intend to continue to make
distributions so that MeriStar Hospitality satisfies the annual
distribution requirement to avoid corporate income taxation on
the earnings that it in turn distributes, we may not be able to
do so.

If we were subject to federal income taxation
as a corporation, our ability to make payments on our borrowings
or distributions to holders of interest in us could be
substantially reduced.

We currently are classified as a partnership for
federal income tax purposes. Although we are organized and
operated with a view to maintaining that status, if the Internal
Revenue Service were successfully to determine that we should be
treated for federal income tax purposes as a corporation rather
than as a partnership, we would be required to pay federal
income tax at corporate tax rates on our taxable income. As
described above, we generally expect to make distributions to
our partners each year at least equal to the amount of our
taxable income so that MeriStar Hospitality can make
distributions to its stockholders sufficient to avoid federal
income and excise taxes. To the extent we had made such
distributions to our partners, we might be required to borrow
funds or to liquidate assets to pay the applicable corporate
income tax. In addition to the direct impact on us, our
treatment as a corporation for federal income tax purposes would
also cause MeriStar Hospitality to cease to qualify as a REIT
under the Code, which would have the possible results described
below.

If MeriStar Hospitality fails to qualify as a
REIT, it will be subject to federal income tax at corporate
rates which could adversely affect our operations and MeriStar
Hospitalitys ability to satisfy its obligations as a
guarantor of our borrowings.

Qualification as a REIT involves the application
of highly technical and complex provisions of the Internal
Revenue Code for which there are only limited judicial and
administrative interpretations. In addition, there are presently
only very limited judicial and administrative interpretations of
the federal tax legislation enacted in 1999 with respect to
taxable REIT subsidiaries. The determination of various factual
matters and circumstances not entirely within our or MeriStar
Hospitalitys control may affect MeriStar
Hospitalitys ability to continue to qualify as a REIT. The
complexity of these provisions and of the applicable income tax
regulations that have been promulgated under the Internal
Revenue Code is greater in the case of a REIT that holds its
assets through a partnership, such as MeriStar Hospitality does.
Moreover, legislation, new regulations, administrative
interpretations or court decisions might change the tax laws
with respect to qualification as a REIT or the federal income
tax consequences of that qualification.

If MeriStar Hospitality fails to qualify as a
REIT in any taxable year, it will not be allowed a deduction for
distributions to its stockholders in computing its taxable
income and it will be subject to federal income tax, including
any applicable alternative minimum tax, on its taxable income at
the applicable corporate rate. In addition, unless it was
entitled to relief under statutory provisions, it would be
disqualified from treatment as a REIT for the four taxable years
following the year during which qualification is lost. This
disqualification might reduce the funds available to MeriStar
Hospitality to satisfy any obligations it might have as a
guarantor of our borrowings because of the additional tax
liability for the year or years involved. In addition, to the
extent that distributions to its stockholders would have been
made in anticipation of its qualifying as a REIT, MeriStar
Hospitality might be required to borrow funds or to liquidate
assets to pay the applicable corporate income tax, including
assets held by us.

19



---



##### 



Item 2.          PROPERTIES

We maintain our corporate headquarters in
Washington, D.C. and own hotel properties throughout the United
States and Canada. As of December 31, 2002, we owned 107
hotels. All of our hotels are currently leased to our taxable
subsidiaries. No one hotel property is material to our
operations. A typical hotel has meeting and banquet facilities,
food and beverage facilities, and guest rooms and suites. Our
hotels generally feature comfortable, modern guest rooms,
extensive meeting and convention facilities and full-service
restaurant and catering facilities. Our hotels are designed to
attract meeting, convention, and banquet/reception functions
from groups and associations, upscale business and vacation
travelers, and the local community.

The following table sets forth certain
information with respect to our 107 hotels owned as of
December 31, 2002:

|            |                                         |          |                  |       |  |     | 
|----------- | --------------------------------------- | -------- | ---------------- | ----- |  | --- | 
|            |                                         |          |                  | Guest
|Hotel       |                                         | Location |                  | Rooms
|            |                                         |          |                  |      
|Arizona     |                                         |          |                  |       |  |    
|            | Crowne Plaza Phoenix                    |          | Phoenix          |       |  | 250 | 
|            | Embassy Suites Tucson                   |          | Tucson           |       |  | 204 | 
|            | Sheraton Mesa                           |          | Mesa             |       |  | 273 | 
|California  |                                         |          |                  |       |  |    
|            | Courtyard by Marriott Century City      |          | Century City     |       |  | 134 | 
|            | Courtyard by Marriott Marina del Ray    |          | Marina Del Rey   |       |  | 276 | 
|            | Crowne Plaza San Jose                   |          | San Jose         |       |  | 239 | 
|            | Doral Palm Springs(1)                   |          | Palm Springs     |       |  | 285 | 
|            | Hilton Irvine                           |          | Irvine           |       |  | 289 | 
|            | Hilton Monterey                         |          | Monterey         |       |  | 204 | 
|            | Hilton Sacramento                       |          | Sacramento       |       |  | 331 | 
|            | Hilton San Pedro(2)                     |          | San Pedro        |       |  | 226 | 
|            | LA Marriott Downtown                    |          | Los Angeles      |       |  | 469 | 
|            | Santa Barbara Inn                       |          | Santa Barbara    |       |  | 71  | 
|            | Sheraton Fishermans Wharf              |          | San Francisco    |       |  | 525 | 
|            | Wyndham San Jose Hotel(2)               |          | San Jose         |       |  | 355 | 
|Colorado    |                                         |          |                  |       |  |    
|            | Embassy Suites Denver                   |          | Englewood        |       |  | 236 | 
|            | Holiday Inn Garden of the Gods          |          | Colorado Springs |       |  | 200 | 
|            | Sheraton Colorado Springs               |          | Colorado Springs |       |  | 500 | 
|Connecticut |                                         |          |                  |       |  |    
|            | Hilton Hartford Hotel(2)                |          | Hartford         |       |  | 388 | 
|            | Ramada Plaza Meriden                    |          | Meriden          |       |  | 150 | 
|            | Ramada Plaza Shelton                    |          | Shelton          |       |  | 155 | 
|            | Doubletree Windsor Locks                |          | Windsor Locks    |       |  | 200 | 
|Florida     |                                         |          |                  |       |  |    
|            | Best Western Sanibel Island Resort      |          | Sanibel Island   |       |  | 46  | 
|            | Courtyard by Marriott Disney Village(2) |          | Lake Buena Vista |       |  | 314 | 
|            | Doubletree Hotel Westshore              |          | Tampa            |       |  | 496 | 
|            | Hilton Clearwater(2)                    |          | Clearwater       |       |  | 426 | 
|            | Hilton Hotel Cocoa Beach                |          | Cocoa Beach      |       |  | 296 | 

20



---



##### 



|          |                                                  |          |                   |       |  |     | 
|--------- | ------------------------------------------------ | -------- | ----------------- | ----- |  | --- | 
|          |                                                  |          |                   | Guest
|Hotel     |                                                  | Location |                   | Rooms
|          |                                                  |          |                   |      
|          | Holiday Inn Fort Lauderdale Beach                |          | Ft. Lauderdale    |       |  | 240 | 
|          | Holiday Inn Madeira Beach                        |          | Madeira Beach     |       |  | 149 | 
|          | Howard Johnson Resort Key Largo                  |          | Key Largo         |       |  | 100 | 
|          | Radisson Suite Beach Resort                      |          | Marco Island      |       |  | 268 | 
|          | Radisson Twin Towers of Orlando                  |          | Orlando           |       |  | 742 | 
|          | Ramada Inn Gulfview Clearwater Beach             |          | Clearwater        |       |  | 289 | 
|          | Safety Harbor Resort and Spa                     |          | Safety Harbor     |       |  | 193 | 
|          | Sanibel Inn                                      |          | Sanibel Island    |       |  | 96  | 
|          | Seaside Inn                                      |          | Sanibel Island    |       |  | 32  | 
|          | Sheraton Safari Lake Buena Vista                 |          | Lake Buena Vista  |       |  | 489 | 
|          | Song of the Sea                                  |          | Sanibel Island    |       |  | 30  | 
|          | South Seas Plantation Resort & Yacht Harbor      |          | Captiva           |       |  | 579 | 
|          | Sundial Beach Resort                             |          | Sanibel Island    |       |  | 243 | 
|          | Westin Resort Key Largo(1)                       |          | Key Largo         |       |  | 200 | 
|Georgia   |                                                  |          |                   |       |  |    
|          | Doubletree Guest Suites Atlanta                  |          | Atlanta           |       |  | 155 | 
|          | Jekyll Inn(2)                                    |          | Jekyll Island     |       |  | 262 | 
|          | Westin Atlanta                                   |          | Atlanta           |       |  | 495 | 
|          | Wyndham Marietta                                 |          | Marietta          |       |  | 218 | 
|Illinois  |                                                  |          |                   |       |  |    
|          | Holiday Inn Chicago O-Hare International Airport |          | Rosemont          |       |  | 507 | 
|          | Radisson Chicago                                 |          | Chicago           |       |  | 350 | 
|          | Radisson Hotel Arlington Heights                 |          | Arlington Heights |       |  | 247 | 
|          | Radisson Hotel Schaumburg                        |          | Schaumburg        |       |  | 200 | 
|Indiana   |                                                  |          |                   |       |  |    
|          | Doubletree Guest Suites Indianapolis             |          | Indianapolis      |       |  | 137 | 
|Kentucky  |                                                  |          |                   |       |  |    
|          | Hilton Seelbach                                  |          | Louisville        |       |  | 321 | 
|          | Radisson Lexington                               |          | Lexington         |       |  | 367 | 
|Louisiana |                                                  |          |                   |       |  |    
|          | Hilton Lafayette                                 |          | Lafayette         |       |  | 327 | 
|          | Holiday Inn Select New Orleans                   |          | Kenner            |       |  | 303 | 
|          | Hotel Maison de Ville(2)                         |          | New Orleans       |       |  | 23  | 
|Maryland  |                                                  |          |                   |       |  |    
|          | Radisson Annapolis                               |          | Annapolis         |       |  | 219 | 
|          | Radisson Cross Keys                              |          | Baltimore         |       |  | 148 | 
|          | Sheraton Columbia                                |          | Columbia          |       |  | 287 | 
|Michigan  |                                                  |          |                   |       |  |    
|          | Hilton Detroit                                   |          | Detroit           |       |  | 151 | 
|          | Hilton Hotel Grand Rapids                        |          | Grand Rapids      |       |  | 224 | 
|Missouri  |                                                  |          |                   |       |  |    
|          | Holiday Inn Kansas City Sports                   |          | Kansas City       |       |  | 163 | 

21



---



##### 



|               |                                      |          |                    |       |  |     | 
|-------------- | ------------------------------------ | -------- | ------------------ | ----- |  | --- | 
|               |                                      |          |                    | Guest
|Hotel          |                                      | Location |                    | Rooms
|               |                                      |          |                    |      
|Nevada         |                                      |          |                    |       |  |    
|               | St. Tropez Suites Las Vegas(3)       |          | Las Vegas          |       |  | 149 | 
|New Jersey     |                                      |          |                    |       |  |    
|               | Courtyard by Marriott Secaucus(2)    |          | Secaucus           |       |  | 165 | 
|               | Doral Forrestal(2)                   |          | Princeton          |       |  | 290 | 
|               | Marriott Somerset                    |          | Somerset           |       |  | 440 | 
|               | Sheraton Crossroads Hotel Mahwah     |          | Mahwah             |       |  | 225 | 
|               | Westin Governor Morris(1)            |          | Morristown         |       |  | 199 | 
|New Mexico     |                                      |          |                    |       |  |    
|               | Doubletree Albuquerque               |          | Albuquerque        |       |  | 295 | 
|               | Wyndham Albuquerque Airport Hotel(2) |          | Albuquerque        |       |  | 276 | 
|New York       |                                      |          |                    |       |  |    
|               | Radisson Inn Rochester(2)            |          | Rochester          |       |  | 171 | 
|North Carolina |                                      |          |                    |       |  |    
|               | Courtyard by Marriott Durham         |          | Durham             |       |  | 146 | 
|               | Hilton Hotel Durham                  |          | Durham             |       |  | 194 | 
|               | Sheraton Charlotte Airport           |          | Charlotte          |       |  | 222 | 
|Ohio           |                                      |          |                    |       |  |    
|               | Hilton Hotel Toledo(2)               |          | Toledo             |       |  | 213 | 
|               | Radisson Cleveland                   |          | Middleburg Heights |       |  | 237 | 
|Oklahoma       |                                      |          |                    |       |  |    
|               | Westin Oklahoma                      |          | Oklahoma City      |       |  | 395 | 
|Oregon         |                                      |          |                    |       |  |    
|               | Crowne Plaza Portland                |          | Lake Oswego        |       |  | 161 | 
|Pennsylvania   |                                      |          |                    |       |  |    
|               | Embassy Suites Philadelphia          |          | Philadelphia       |       |  | 288 | 
|               | Holiday Inn Select Bucks County      |          | Trevose            |       |  | 215 | 
|               | Sheraton Great Valley                |          | Frazer             |       |  | 198 | 
|Texas          |                                      |          |                    |       |  |    
|               | Doubletree Austin                    |          | Austin             |       |  | 350 | 
|               | Hilton Arlington                     |          | Arlington          |       |  | 309 | 
|               | Hilton Austin                        |          | Austin             |       |  | 320 | 
|               | Hilton Houston Westchase             |          | Houston            |       |  | 295 | 
|               | Hilton Midland                       |          | Midland            |       |  | 249 | 
|               | Holiday Inn DFW West                 |          | Bedford            |       |  | 243 | 
|               | Holiday Inn Select DFW South         |          | Irving             |       |  | 409 | 
|               | Marriott West Loop Houston           |          | Houston            |       |  | 302 | 
|               | Radisson Hotel Dallas                |          | Dallas             |       |  | 304 | 
|               | Renaissance Dallas Marriott          |          | Dallas             |       |  | 289 | 
|               | Sheraton Dallas                      |          | Dallas             |       |  | 348 | 
|               | Sheraton Houston                     |          | Houston            |       |  | 382 | 
|Utah           |                                      |          |                    |       |  |    
|               | Hilton Salt Lake Airport             |          | Salt Lake City     |       |  | 287 | 

22



---



##### 



|                |                                          |          |                  |       |        |     | 
|--------------- | ---------------------------------------- | -------- | ---------------- | ----- | ------ | --- | 
|                |                                          |          |                  | Guest
|Hotel           |                                          | Location |                  | Rooms
|                |                                          |          |                  |      
|Virginia        |                                          |          |                  |       |        |    
|                | Hilton Arlington                         |          | Arlington        |       |        | 209 | 
|                | Hilton Crystal City                      |          | Arlington        |       |        | 386 | 
|                | Holiday Inn Historic District Alexandria |          | Alexandria       |       |        | 178 | 
|                | Radisson Old Town Alexandria             |          | Alexandria       |       |        | 253 | 
|Washington      |                                          |          |                  |       |        |    
|                | Hilton Bellevue                          |          | Bellevue         |       |        | 179 | 
|Washington, D.C |                                          |          |                  |       |        |    
|                | Georgetown Inn                           |          | Washington, D.C  |       |        | 96  | 
|                | Hilton Embassy Row(2)                    |          | Washington, D.C  |       |        | 193 | 
|                | Latham Georgetown                        |          | Washington, D.C  |       |        | 143 | 
|Wisconsin       |                                          |          |                  |       |        |    
|                | Crowne Plaza Madison                     |          | Madison          |       |        | 226 | 
|                | Holiday Inn Madison                      |          | Madison          |       |        | 194 | 
|Canada          |                                          |          |                  |       |        |    
|                | Holiday Inn Calgary                      |          | Calgary, Alberta |       |        | 170 | 
|                | Holiday Inn Metrotown                    |          | Vancouver, B.C   |       |        | 100 | 
|                | Ramada Vancouver                         |          | Vancouver, B.C   |       |        | 118 | 
|                | Sheraton Guildford                       |          | Guildford, B.C   |       |        | 278 | 
|                |                                          |          |                  |       |        |    
|Total Rooms     |                                          |          |                  |       | 27,581 |    
|                |                                          |          |                  |       |        |    



---



|    |                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------
|(1) | We lease part of the land on which this hotel was
    built under one or more long-term lease agreements.
|   
|(2) | We lease the land on which this hotel was built
    under one or more long-term lease agreements.        
|   
|(3) | We sold this property in January 2003.                                                                   

23



---



##### 



Item
3.          LEGAL
PROCEEDINGS

In the course of our normal business activities,
various lawsuits, claims and proceedings have been or may be
instituted or asserted against us. Based on currently available
facts, we believe that the disposition of matters pending or
asserted will not have a material adverse effect on our
consolidated financial position, results of operations or
liquidity.



|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS

We did not submit any matters to a vote of
security holders during the fourth quarter of 2002.

24



---



##### 



PART II



|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | MARKET FOR REGISTRANTS COMMON EQUITY AND
    RELATED STOCKHOLDER MATTERS

There is not an established public trading market
for our OP units. The OP units, however, are redeemable at the
option of the holder for a like number of shares of common stock
of MeriStar Hospitality, or, at the option of MeriStar
Hospitality for the cash equivalent. The following information
is provided regarding the common stock of MeriStar Hospitality.
MeriStar Hospitalitys common stock is listed on the New
York Stock Exchange (NYSE) under the symbol
MHX. The following table sets forth for the periods
indicated the high and low sales prices for MeriStar
Hospitalitys common stock and the cash dividends declared
with respect thereto.

|      |                                        |                    |   |           |  |          |   |       |  |  |  |      |    
|----- | -------------------------------------- | ------------------ | - | --------- |  | -------- | - | ----- |  |  |  | ---- | ---
|      |                                        |                    |   |          
|      |                                        | Market Price Range |   |          
|      |                                        |                    |   | Dividends
|      |                                        | High               |   | Low       |  | Declared
|      |                                        |                    |   |           |  |         
|2003: |                                        |                    |   |           |  |          |   |       |  |  |  |     
|      | First Quarter (through March 10, 2003) |                    | $ | 7.00      |  |          | $ | 2.21  |  |  |  |      | (1)
|2002: |                                        |                    |   |           |  |          |   |       |  |  |  |     
|      | Fourth Quarter                         |                    |   | 8.65      |  |          |   | 6.60  |  |  |  |      | (1)
|      | Third Quarter                          |                    |   | 15.40     |  |          |   | 8.25  |  |  |  | .01  |    
|      | Second Quarter                         |                    |   | 18.50     |  |          |   | 14.80 |  |  |  | .01  |    
|      | First Quarter                          |                    |   | 18.25     |  |          |   | 13.64 |  |  |  | .01  |    
|2001: |                                        |                    |   |           |  |          |   |       |  |  |  |     
|      | Fourth Quarter                         |                    |   | 14.22     |  |          |   | 9.24  |  |  |  | .01  |    
|      | Third Quarter                          |                    |   | 23.30     |  |          |   | 8.65  |  |  |  | .505 |    
|      | Second Quarter                         |                    |   | 23.75     |  |          |   | 18.50 |  |  |  | .505 |    
|      | First Quarter                          |                    |   | 22.00     |  |          |   | 19.08 |  |  |  | .505 |    



---



|    |                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | MeriStar Hospitality suspended its quarterly
    dividend payment in the fourth quarter of 2002. At current
    operating levels, MeriStar Hospitality does not anticipate
    paying a dividend in 2003.

The last reported sales price of MeriStar
Hospitalitys common stock on the NYSE on March 10,
2003 was $2.23. As of March 10, 2003, there were
approximately 669 holders of record of MeriStar
Hospitalitys common stock.

Based on our current operating levels, MeriStar
Hospitality does not expect to pay a dividend in 2003. Any
future distributions will be at the discretion of MeriStar
Hospitalitys Board of Directors and will be determined by
factors including our operating results, capital expenditure
requirements, the economic outlook, the Internal Revenue Service
dividend payout requirements for REITs and such other factors as
MeriStar Hospitalitys Board of Directors deems relevant.
The indentures related to our senior notes and MeriStar
Hospitalitys indentures related to its senior
unsubordinated unsecured notes and convertible notes contain
limitations on MeriStar Hospitalitys ability to declare
and pay dividends. Therefore, we cannot provide assurance that
any such distributions will be made in the future.

Until January 1, 2001, in order for MeriStar
Hospitality to maintain its qualification as a REIT, it was
required to make annual distributions to stockholders of at
least 95% of its REIT taxable income, determined without regard
to the deduction for dividends paid and by excluding net capital
gains. After January 1, 2001, pursuant to the REIT
Modernization Act, the percentage of required annual
distributions was reduced to 90%. Under certain circumstances,
we may be required to make distributions in excess of available
cash in order to meet these distribution requirements. In that
event, we would seek to borrow additional funds or sell
additional non-core assets, or both, to the extent necessary to
obtain cash sufficient to make the dividends required to retain
MeriStar Hospitalitys qualification as a REIT.

25



---



##### 



Recent Sales of Unregistered
Securities

We have granted the following Profits-Only
Operating Partnership Units, or POPs, to certain of our
employees pursuant to our POPs Plan, which is incorporated by
reference in Exhibit 10.9 of this Annual Report on
Form 10-K. There is no established public trading market
for our Common OP Units or POPs.

|               |  |              |         |                   |  |                |         |  |  |  |         | 
|-------------- |  | ------------ | ------- | ----------------- |  | -------------- | ------- |  |  |  | ------- | 
|               |  |              |         | Number of POPS    |  | Number of POPs
|               |  | Number of    |         | Outstanding as of |  | Vested as of  
|Date of Grant  |  | POPs Granted |         | March 10, 2003    |  | March 10, 2003
|               |  |              |         |                   |  |               
|May 1, 2002    |  |              | 162,500 |                   |  |                | 162,500 |  |  |  | 49,653  | 
|April 1, 2002  |  |              | 25,000  |                   |  |                | 25,000  |  |  |  | 8,333   | 
|April 16, 2001 |  |              | 350,000 |                   |  |                | 200,000 |  |  |  | 133,333 | 
|March 29, 2000 |  |              | 462,500 |                   |  |                | 300,000 |  |  |  | 262,498 | 

The POPs were generally granted as fixed awards,
and vest ratably over periods ranging from three to five years.

26



---



##### 



ITEM
6.          SELECTED
FINANCIAL DATA

The following table sets forth summary selected
historical financial data derived from our audited consolidated
financial statements and other information for each of the five
years presented. The following information should be read in
conjunction with our audited consolidated financial statements
and related notes and Managements Discussion and Analysis
of Financial Condition and Results of Operations included
elsewhere in this Annual Report on Form 10-K.

|                                                                   |  |                                                           |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|------------------------------------------------------------------ |  | --------------------------------------------------------- | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | - |  | - | --------- | -
|                                                                   |  | 2002                                                      |           | 2001 |  | 2000 |           | 1999 |  | 1998
|                                                                   |  |                                                           |           |      |  |      |           |      |  |     
|                                                                   |  |                                                          
|                                                                   |  | (dollars and units in thousands, except per unit amounts)
|Summary of Operations, year ended
    December 31:                 |  |                                                           |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Total revenue                                                      |  | $                                                         | 983,453   |      |  | $    | 1,057,338 |      |  | $    | 385,940   |   |  | $ | 361,482   |   |  | $ | 515,246   |  
|Operating (loss) income                                            |  |                                                           | (1,370    | )    |  |      | 86,166    |      |  |      | 221,676   |   |  |   | 210,469   |   |  |   | 131,999   |  
|Interest expense, net                                              |  |                                                           | 136,429   |      |  |      | 122,472   |      |  |      | 117,613   |   |  |   | 100,464   |   |  |   | 49,761    |  
|Minority interests                                                 |  |                                                           | 15        |      |  |      | 48        |      |  |      | 3         |   |  |   | 24        |   |  |   | (2,185    | )
|(Loss) gain on sale of assets(A)                                   |  |                                                           |          |      |  |      | (2,176    | )    |  |      | 3,495     |   |  |   |          |   |  |   |          |  
|Income tax benefit (expense)                                       |  |                                                           | 1,310     |      |  |      | 975       |      |  |      | (1,522    | ) |  |   | (1,554    | ) |  |   | 741       |  
|Discontinued operations, net of tax(B)                             |  |                                                           | (34,345   | )    |  |      | (4,306    | )    |  |      | 8,597     |   |  |   | 7,839     |   |  |   | 2,478     |  
|Extraordinary (loss) gain, net of tax
    (C)                      |  |                                                           |          |      |  |      | (2,720    | )    |  |      | 3,400     |   |  |   | (4,551    | ) |  |   | (1,238    | )
|Net (loss) income                                                  |  |                                                           | (170,819  | )    |  |      | (45,485   | )    |  |      | 118,036   |   |  |   | 111,656   |   |  |   | 85,066    |  
|Net (loss)income applicable to common unit holders                 |  |                                                           | (171,384  | )    |  |      | (45,050   | )    |  |      | 117,471   |   |  |   | 111,091   |   |  |   | 84,416    |  
|Basic (loss) earnings per OP unit from
    continuing operations   |  |                                                           | (3.51     | )    |  |      | (0.80     | )    |  |      | 2.08      |   |  |   | 2.08      |   |  |   | 2.33      |  
|Diluted (loss) earnings per OP Unit from
    continuing operations |  |                                                           | (3.51     | )    |  |      | (0.80     | )    |  |      | 2.03      |   |  |   | 2.03      |   |  |   | 2.20      |  
|Distributions per Common OP Unit(D)                                |  |                                                           | 0.03      |      |  |      | 1.525     |      |  |      | 2.02      |   |  |   | 2.02      |   |  |   | 0.82      |  
|Number of OP Units outstanding as of December 31                   |  |                                                           | 49,426    |      |  |      | 49,033    |      |  |      | 48,851    |   |  |   | 52,193    |   |  |   | 51,460    |  
|                                                                  
|Financial Position as of
    December 31:                          |  |                                                           |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Investments in hotel properties, gross                             |  | $                                                         | 3,057,658 |      |  | $    | 3,183,677 |      |  | $    | 3,193,730 |   |  | $ | 3,118,723 |   |  | $ | 2,957,543 |  
|Total assets                                                       |  |                                                           | 2,793,982 |      |  |      | 3,004,586 |      |  |      | 3,006,500 |   |  |   | 3,086,096 |   |  |   | 2,989,609 |  
|Long-term debt and notes payable to MeriStar                       |  |                                                           |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Hospitality Corporation                                            |  |                                                           | 1,654,102 |      |  |      | 1,700,134 |      |  |      | 1,638,319 |   |  |   | 1,676,771 |   |  |   | 1,602,352 |  
|Redeemable units                                                   |  |                                                           | 38,205    |      |  |      | 67,147    |      |  |      | 88,545    |   |  |   | 81,401    |   |  |   | 89,435    |  
|Partners capital                                                  |  |                                                           | 915,000   |      |  |      | 1,045,190 |      |  |      | 1,142,772 |   |  |   | 1,203,518 |   |  |   | 1,170,220 |  
|                                                                  
|Other Financial Data, year ended
    December 31:                  |  |                                                           |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Net cash provided by operating activities                          |  |                                                           | 56,740    |      |  |      | 150,135   |      |  |      | 224,088   |   |  |   | 228,329   |   |  |   | 186,891   |  
|Net cash provided by (used in) investing
    activities            |  |                                                           | 6,742     |      |  |      | (68,890   | )    |  |      | (14,286   | ) |  |   | (187,952  | ) |  |   | (785,505  | )
|Net cash (used in) provided by financing
    activities            |  |                                                           | (53,239   | )    |  |      | (58,350   | )    |  |      | (212,173  | ) |  |   | (41,948   | ) |  |   | 520,457   |  
|                                                                  
|Operating Data for Owned Hotels and
    Properties:                |  |                                                           |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Number of hotels as of December 31                                 |  |                                                           | 107       |      |  |      | 112       |      |  |      | 114       |   |  |   | 116       |   |  |   | 117       |  
|Number of guest rooms as of December 31                            |  |                                                           | 27,581    |      |  |      | 28,653    |      |  |      | 29,090    |   |  |   | 29,348    |   |  |   | 29,351    |  
|Average occupancy(E)                                               |  |                                                           | 64.0      | %    |  |      | 66.0      | %    |  |      | 72.2      | % |  |   | 71.6      | % |  |   | 71.5      | %
|ADR(F)                                                             |  | $                                                         | 99.44     |      |  | $    | 105.04    |      |  | $    | 107.60    |   |  | $ | 101.14    |   |  | $ | 95.00     |  
|RevPAR(G)                                                          |  | $                                                         | 63.69     |      |  | $    | 69.37     |      |  | $    | 77.71     |   |  | $ | 72.44     |   |  | $ | 67.90     |  

| |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|

27



---



##### 





|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|(A) | During 2001, we sold two hotels for a loss.
    During 2000, we sold three limited-service hotels for a gain.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(B) | We adopted the provisions of Statement of
    Financial Accounting Standards (SFAS) No. 144,
    Accounting for the Impairment or Disposal of Long-Lived
    Assets, on January 1, 2002. SFAS 144 requires
    that current and prior period operating results of any asset
    that has been classified as held for sale or has been disposed
    of on or after January 1, 2002, including any gain or loss
    recognized, to be recorded as discontinued operations. We sold
    three hotels during the third quarter and two hotels during the
    fourth quarter of 2002. In January 2003, we sold one hotel
    classified as held for sale at December 31, 2002. We sold
    the five hotels in 2002 for $60,650, which resulted in a loss on
    sale of assets of $21,197 ($20,773, net of tax). We sold the one
    hotel in January 2003 for $12,650. All operating results,
    including the loss on disposal, have been recorded as
    discontinued operations. We have reclassified prior periods to
    reflect operations of the six hotels as discontinued operations.
|   
|(C) | In accordance with accounting principles
    generally accepted in the United States, or GAAP, we recorded
    the following extraordinary transactions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     



| |   |                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | During 2001, we repaid term loans under our
    previous credit facility. The write-off of deferred financing
    costs associated with this facility was recorded as
    extraordinary.
|
| |  | During 2000, we repurchased some of our
    convertible notes due to MeriStar Hospitality at a discount. The
    gain on the repurchase was recorded as extraordinary.                  
|
| |  | During 1999 and 1998, we refinanced some loan
    facilities. The write-offs of deferred financing costs
    associated with these facilities were recorded as extraordinary.           



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We will adopt the provisions of SFAS No. 145
    beginning on January 1, 2003. Certain rescission provisions
    require that all gains and losses from extinguishments of debt
    be classified as extraordinary only if the gains and losses are
    from unusual or infrequent transactions. Prior period amounts
    that do not meet this definition are required to be reclassified
    as an operational expense. Our prior period extraordinary items
    will be reclassified as operational expenses during 2003, and in
    the future we expect any gains and losses from the
    extinguishment of our debt to be classified as operational.



|    |                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------
|(D) | We did not declare any distributions prior to our
    formation date, August 3, 1998.                
|   
|(E) | Total number of rooms occupied by hotel guests on
    a paid basis, divided by total available rooms.



|    |                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|(F) | Average Daily Rate, or ADR: total room revenue
    divided by total number of rooms occupied by hotel guests on a
    paid basis.



|    |                                                                                                
|--- | -----------------------------------------------------------------------------------------------
|(G) | Revenue Per Available Room, or RevPAR: total room
    revenue divided by total available rooms.

28



---



##### 





|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BUSINESS SUMMARY

MeriStar Hospitality Operating Partnership, L.P.
is the subsidiary operating partnership of MeriStar Hospitality
which is a real estate investment trust, or REIT. We own a
portfolio of upscale, full-service hotels and resorts in the
United States and Canada. Our portfolio is diversified by
franchise and brand affiliations. As of December 31, 2002,
we owned 107 hotels, with 27,581 rooms, all of which were leased
by our taxable subsidiaries and managed by Interstate Hotels
& Resorts (Interstate Hotels), which was created
on July 31, 2002 through the merger of MeriStar Hotels
& Resorts, Inc. and Interstate Hotels Corporation. We share
our Chief Executive Officer and Chairman of the Board,
Paul W. Whetsell, and two other board members with
Interstate Hotels. In addition, we are party to an intercompany
agreement with Interstate Hotels that governs a number of
aspects of our relationship.

Our taxable subsidiaries pay a base management
fee to Interstate Hotels for each property managed equal to 2.5%
of total hotel revenue, plus incentive payments based on meeting
performance thresholds that could total up to an additional 1.5%
of total hotel revenue. The management agreements generally have
initial terms of 10 years with three renewal periods of
five years each, except for three management agreements which
have initial terms of one year each and renew annually
thereafter.

RESULTS OVERVIEW

Revenues declined to $983.5 million in 2002
compared to $1,057.3 million in 2001. Our results continue
to reflect a slowed economy, which has caused substantial
declines in business and leisure travel demand nationwide. Both
business and leisure travel continue to be negatively affected
by the aftermath of the September 11, 2001 terrorist
attacks and threats of international hostilities and
instability. Business transient travelers have not yet returned
in prior volumes to our properties and in their absence, we have
focused our efforts on our group and contract business. Our
achieved average daily rate is under continued pressure as a
result of the decrease in demand and general lack of pricing
power. Hotel operating expenses decreased to $387.7 million
in 2002 from $405.2 million in 2001 as a result of
decreased occupancy and cost control measures implemented during
late 2001. We will continue to work with Interstate Hotels to
focus on identifying revenue enhancement opportunities as well
as cost reduction and control measures at our hotels. Other
operating expenses increased to $597.1 million in 2002 from
$566.0 million in 2001 primarily resulting from an asset
impairment charge of $63.4 million in 2002 versus an asset
impairment charge in 2001 of $32.3 million. Both are more fully
described in the Results of Operations section below.

Since January 1, 2001, our revenues have
been derived from the operations of our hospitality properties,
including room, food and beverage revenues, as well as from our
leases of office, retail and parking rentals. Operating costs
include direct costs to run our hotels, management fees to
Interstate Hotels to manage our properties, depreciation of our
properties, as well as sales, marketing and general and
administrative costs. Our expenses also include interest on our
debt and minority interest allocations, which represents the
allocation of income to outside investors for properties that
are not wholly-owned. Prior to January 1, 2001, we earned
lease revenue from the lease of our hotel operating properties.
Our expenses included depreciation of our properties, and
related property tax expense, general and administrative costs,
as well as interest on our debt and minority interest
allocations.

RESULTS OF OPERATIONS

The provisions of Statement of Financial
Accounting Standards (SFAS) No. 144 require that current
and prior period operating results of any asset that has been
classified as held for sale or has been disposed of on or after
January 1, 2002, including any gain or loss recognized on
the sale, be recorded as discontinued operations. Accordingly,
we have reclassified all prior periods presented to conform to
this provision. See Footnote 13, Dispositions and
Acquisitions, included in Item 8 of this Annual
Report on Form 10-K for further information regarding the
amounts reclassified.

29



---



##### 



Year ended December 31, 2002 compared
with the year ended December 31, 2001

The following table provides our hotels
operating statistics on a comparable hotel basis for the years
ended December 31 (comparable hotels are those that were
owned for substantially all of both years):

|                           |  |      |       |      |  |        |        |  |  |  |      |   
|-------------------------- |  | ---- | ----- | ---- |  | ------ | ------ |  |  |  | ---- | --
|                           |  | 2002 |       | 2001 |  | Change
|                           |  |      |       |      |  |       
|Revenue per available room |  | $    | 63.69 |      |  | $      | 69.72  |  |  |  | (8.6 | )%
|Average daily rate         |  | $    | 99.44 |      |  | $      | 105.72 |  |  |  | (5.9 | )%
|Occupancy                  |  |      | 64.0% |      |  |        | 65.9%  |  |  |  | (2.9 | )%

The slowing United States economy has had a
significant negative effect on our hotel operations, evidenced
by a sharp reduction in transient business travel. This is
reflected in the 5.9% reduction in average daily rate and the
2.9% reduction in occupancy in 2002 compared to 2001. We have
shifted our marketing efforts towards lower-rated group and
contract business in most markets in order to maintain a base
level of occupancy in our properties. Due to the short booking
window for most business, including our group and contract
customers, we anticipate being able to shift our mix of business
toward more business transient customers when the economy and
corporate profits strengthen, bringing renewed strength to this
vital customer segment.

Revenues.Total
revenue from continuing operations decreased $73.9 million
to $983.4 million in 2002 from $1,057.3 million in
2001, primarily due to a $54.3 million decrease in room
revenue attributable to a decrease in average daily rate and
occupancy. The decrease in occupancy also contributed to an
$8.8 million decrease in food and beverage revenue and a
$6.6 million decrease in other operating departments,
including telephone and conference services. We also had a
$5.1 million decrease in lease revenue following the
termination of our hotel leases with Prime Hospitality
Corporation in 2001. We replaced these leases with management
contracts with Interstate Hotels.

Operating expenses.Total operating expenses increased a net $13.6 million to
$984.8 million in 2002 compared to $971.2 million in
2001. An increase in other operating expenses of
$31.1 million was partially offset by a $17.5 million
reduction in hotel operating expenses. Hotel operating expenses
decreased from $405.2 million in 2001 to
$387.7 million in 2002 due primarily to reductions in room
expense of $10.5 million and food and beverage costs of
$6.9 million. These decreases resulted directly from the
decrease in occupancy previously discussed. Other operating
expenses increased to $597.1 million in 2002 from
$566.0 million in 2001, described in greater detail, as
follows:

Administrative and general expenses.Administrative and general expenses
increased $3.7 million during the year, due primarily to an
increase in our total marketing costs. This increase can be
mainly attributed to the addition of marketing personnel to
focus our efforts on the group and contract business during the
year.

Property operating costs.Our property operating costs consist
primarily of repairs and maintenance, energy, franchise and
management costs. Our property operating costs decreased
$6.4 million during the year. This is primarily due to a
$3.4 million decrease in franchise fees and a
$1.7 million decrease in management fees directly resulting
from our decrease in revenues. Our energy costs also decreased
$1.6 million primarily due to reduced occupancy. We have
begun to see increases in our energy costs in 2003 due to the
civil disruptions in Venezuela and concerns regarding the
Persian Gulf war, as well as an unusually cold winter in the
northeastern United States. We expect this cost trend to
continue until such time as concerns over a potential gulf war
subside.

Property taxes, insurance and other.These costs decreased
$5.7 million due primarily to a $7.6 million reduction
in property taxes, partially offset by a $3.5 million
increase in property and terrorism insurance premiums in 2002.
Property taxes decreased due to favorable resolution of certain
appeals, as well as a reduction in tax-assessed values of
certain properties. Our total annual property and casualty
insurance premiums are approximately $31 million. Our
insurance programs renew in July 2003, and we anticipate a
substantial increase although pricing will be dictated by market
conditions at that time, which have not completely stabilized
since the September 11, 2001 terrorist attacks. Companies
in a number of industry

30



---



##### 



segments, particularly the travel and leisure
industry, are experiencing increases in premiums and reductions
in coverage upon renewal of their insurance policies, due to the
dramatic effect the September 11, 2001 terrorist attacks
had on the insurance and reinsurance industries. Some entities
have experienced an inability to obtain insurance. Our manager,
Interstate Hotels, is responsible for securing all of our
insurance coverage.


Depreciation and amortization expense.Depreciation and amortization expense
increased by $6.8 million. Depreciation expense increased
$3.9 million due to the purchase of replacement corporate
office computer equipment. Amortization expense increased
$2.9 million due to the amortization of deferred financing
fees related to the December 2001 and February 2002 issuance of
our senior secured notes.

Significant charges.We incurred the following significant
charges in 2002:



| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $63.4 million loss on asset impairments;                                                                                                                                                                       
|
| |  | a $14.5 million write-down of our note
    receivable with Interstate Hotels due to the settlement
    agreement related to their early repayment of the note;                                                   
|
| |  | a $4.7 million loss on fair value of
    non-hedging derivatives due to the repayment of debt that was
    originally hedged;                                                                                    
|
| |  | a $4.4 million expense for non-hedging
    derivatives due to our swap agreements being converted to
    non-hedging derivatives;                                                                                
|
| |  | $3.2 million of costs related to the formal
    separation of management functions from Interstate Hotels; and                                                                                                   
|
| |  | a $3.1 million write-off of deferred costs
    due to the reduction in our borrowing capacity on our revolving
    credit agreement in March 2002 and the termination of our credit
    facility in October 2002.

We also incurred several significant charges in
2001, as follows:



| |   |                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $32.3 million loss on asset impairments;                                                                                                                                
|
| |  | $9.3 million in swap termination fees;                                                                                                                                    
|
| |  | a $6.7 million expense for non-hedging
    derivatives due to our swap agreements being converted to
    non-hedging derivatives;                                         
|
| |  | $5.8 million of transaction costs, expensed
    immediately when MeriStar Hospitalitys proposed merger
    with FelCor Lodging Trust Inc. was terminated by both parties;
|
| |  | a $2.1 million write-down of our investment
    in STS Hotel Net;                                                                                                         
|
| |  | $1.3 million of costs to terminate our
    leases with Prime Hospitality Corporation; and                                                                                 
|
| |  | a $1.1 million charge related to a
    restructuring at our corporate headquarters.                                                                                       

Interest expense.Interest expense increased
$14 million to $136.4 million in 2002 compared to
$122.4 million in 2001 due primarily to higher interest
rates. We issued $250 million of senior unsecured notes in
December 2001 and $200 million in February 2002 at fixed
rates of interest greater than the variable rate on the debt
that was repaid from the proceeds of the issuance. As of
December 31, 2002, all of our debt carried fixed rates of
interest.

Discontinued operations and loss on sale of
assets.During 2002, we sold five
hotels in separate transactions and received $60.7 million
in cash. This resulted in a combined loss of $20.8 million,
net of tax. In January 2003, we completed the sale of one hotel,
classified as held for sale at December 31, 2002. We
recognized an impairment loss on this asset of
$15.1 million, net of tax, which is included in
discontinued operations. We classified $1.6 million, net of
tax, of income from these six hotels operations as
discontinued in 2002, and $4.3 million, net of tax, of
losses from their operations as discontinued in 2001. Losses in
2001 included an impairment charge of $10.9 million, net of
tax.

In 2001 we sold two hotels in separate
transactions and received $9.7 million in cash. This resulted in
losses on the sales of $2.2 million. These losses, as well
as the operating results of these hotels, were included

31



---



##### 



in continuing operations, as the provisions of
SFAS No. 144 requiring the presentation of such results in
discontinued operations applies only to assets classified as
held for sale or disposed of on or after January 1, 2002.


Extraordinary items.In 2001, we repaid $550 million
of term loans under our revolving credit facility, resulting in
an extraordinary loss of $2.7 million, net of tax, from the
write-off of deferred financing costs related to those term
loans. We will adopt the provisions of SFAS No. 145
beginning on January 1, 2003 (see New Accounting
Pronouncements discussion below for further details).
Certain rescission provisions require that all gains and losses
from extinguishments of debt be classified as extraordinary only
if the gains and losses are from unusual or infrequent
transactions. Prior period amounts that do not meet this
definition are required to be reclassified as an operational
expense. Our prior period extraordinary items will be
reclassified as operational expenses during 2003, and in the
future we expect any gains and losses from the extinguishment of
our debt to be classified as operational.

Year ended December 31, 2001 compared
with the year ended December 31, 2000

Until January 1, 2001, Interstate Hotels
leased substantially all of our hotels from us. Under the
leases, Interstate Hotels assumed all of the operating risks and
rewards of these hotels and paid us a percentage of each
hotels revenue under the lease agreements. Therefore, for
financial statement purposes through December 31, 2000,
Interstate Hotels recorded all of the operating revenues and
expenses of the hotels in its statements of operations, and we
recorded lease revenue earned under the lease agreements in our
statement of operations. Effective January 1, 2001,
Interstate Hotels assigned the hotel leases to our wholly-owned,
taxable REIT subsidiaries, and our taxable REIT subsidiaries
entered into management agreements with Interstate Hotels to
manage the hotels. For consolidated financial statement
purposes, beginning January 1, 2001, we recorded all of the
revenues and expenses of the hotels in our statements of
operations, including the management fee paid to Interstate
Hotels.

Our total revenues and total operating expenses
increased $671.3 million and $807.0 million,
respectively, for the year ended December 31, 2001 as
compared to the same period in 2000. As described in the
preceding paragraph, the significant increases resulted from
recording our hotels operating revenue and expenses in our
consolidated financial statements effective January 1,
2001, while we only recorded lease revenue in 2000. As a result,
our operating results for the year ended December 31, 2001
are not directly comparable to the same period in 2000. We
therefore compare our 2001 historical results of operations with
our 2000 pro forma results of operations, assuming that the REIT
Modernization Act had been enacted on January 1, 2000. The
REIT Modernization Act is discussed in greater detail in
Item 1. Business contained elsewhere in this
Annual Report on Form 10-K.

32



---



##### 



For comparative purposes, the following shows the
results for the year ended December 31, 2000 on a pro forma
basis assuming the leases with Interstate Hotels were converted
to management contracts on January 1, 2000.

|                                                                          |                          |                |           |             |  |   |           |         | 
|------------------------------------------------------------------------- | ------------------------ | -------------- | --------- | ----------- |  | - | --------- | ------- | 
|                                                                          |                          |                |           | 2000       
|                                                                          |                          | 2001           |           | (Pro Forma)
|                                                                          |                          |                |           |            
|                                                                          |                          |               
|                                                                          |                          | (in thousands)
|Revenue                                                                   |                          | $              | 1,057,338 |             |  | $ | 1,171,261 |        
|                                                                         
|Hotel operating expenses                                                  |                          |                | 405,192   |             |  |   | 439,843   |        
|Other operating expenses                                                  |                          |                | 565,980   |             |  |   | 510,724   |        
|                                                                          |                          |                |           |             |  |   |           |        
|                                                                          | Total operating expenses |                |           | 971,172     |  |   |           | 950,567 | 
|Interest expense, net                                                     |                          |                | 122,472   |             |  |   | 117,574   |        
|Minority interests                                                        |                          |                | (48       | )           |  |   | (3        | )      
|(Loss) gain on sale of assets                                             |                          |                | (2,176    | )           |  |   | 3,495     |        
|Income tax benefit (expense)                                              |                          |                | 975       |             |  |   | (1,680    | )      
|Discontinued operations, net of tax                                       |                          |                | (4,306    | )           |  |   | 9,523     |        
|                                                                          |                          |                |           |             |  |   |           |        
|Net (loss) income before extraordinary item                               |                          |                | (41,765   | )           |  |   | 114,455   |        
|Extraordinary (loss) gain on early
    extinguishment of debt, net of tax |                          |                | (2,720    | )           |  |   | 3,400     |        
|                                                                          |                          |                |           |             |  |   |           |        
|Net (loss) income                                                         |                          | $              | (44,485   | )           |  | $ | 117,855   |        
|                                                                          |                          |                |           |             |  |   |           |        

The following table provides our hotels
operating statistics on a comparable hotel basis for the years
ended December 31:

|                           |  |      |        |             |  |        |        |  |  |  |         | 
|-------------------------- |  | ---- | ------ | ----------- |  | ------ | ------ |  |  |  | ------- | 
|                           |  |      |        | 2000        |  |       
|                           |  | 2001 |        | (Pro Forma) |  | Change
|                           |  |      |        |             |  |       
|Revenue per available room |  | $    | 69.37  |             |  | $      | 77.46  |  |  |  | (10.4)% | 
|Average daily rate         |  | $    | 105.04 |             |  | $      | 107.69 |  |  |  | (2.5)%  | 
|Occupancy                  |  |      | 66.0%  |             |  |        | 71.9%  |  |  |  | (8.2)%  | 

Overall, disruptions in business and leisure
travel patterns and travel safety concerns due to the terrorist
attacks on September 11, 2001, coupled with the slowing
United States economy, had a significant negative effect on our
hotels during the second half of 2001. The events were marked by
sharp reductions in business and leisure travel. This
contributed to the 10.4% reduction in revenue per available room
and the 8.2% reduction in occupancy for 2001 compared to 2000.
These reductions became more pronounced during the third and
fourth quarters of 2001.

Revenues.Total
revenue decreased $114.0 million to $1,057.3 million
in 2001 from $1,171.3 million in 2000, primarily due to a
$79.9 million decrease in room revenue attributable to a
decrease in average daily rate and occupancy. The decrease in
occupancy also contributed to a $22.0 million decrease in
food and beverage revenue. We also had a $13.8 million
decrease in lease revenue due to a lesser number of hotels
leased to Prime Hospitality Corporation in 2001 as compared to
2000.

Operating expenses.Total operating expenses increased $20.6 million to
$971.2 million for the year ended December 31, 2001
compared to $950.6 million in 2000. This is mainly
attributable to a $55.3 million increase in other operating
expenses from $510.7 million in 2000 to $566.0 million
in 2001. This increase resulted primarily from the following
significant charges taken during 2001:



| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | a $32.3 million loss on asset impairments;                                                                                       
|
| |  | $9.3 million in swap termination fees;                                                                                           
|
| |  | a $6.7 million expense for non-hedging
    derivatives due to our swap agreements being converted to
    non-hedging derivatives;

33



---



##### 





| |   |                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $5.8 million of transaction costs, expensed
    immediately when MeriStar Hospitalitys proposed merger
    with FelCor Lodging Trust Inc. was terminated by both parties;
|
| |  | a $2.1 million write-down of our investment
    in STS Hotel Net;                                                                                                         
|
| |  | $1.3 million of costs to terminate our
    leases with Prime Hospitality Corporation; and                                                                                 
|
| |  | a $1.1 million charge related to a
    restructuring at our corporate headquarters.                                                                                       

The increase noted above was partially offset by
a $34.6 million decrease in hotel operating expenses from
$439.8 million in 2000 to $405.2 million in 2001,
attributable mainly to a reduction in room expenses of
$14.5 million, and food and beverage costs of
$15.9 million. These decreases stemmed directly from the
decrease in occupancy previously noted.

Interest expense.Interest expense increased
$4.9 million to $122.5 million for the year ended
December 31, 2001 compared to $117.6 million for the
same period in 2000 due primarily to the issuance of
$500 million of senior unsecured notes in January 2001.

Discontinued operations and loss on sale of
assets.During 2002, we sold five
hotels and in January 2003, we sold a hotel classified as held
for sale at December 31, 2002. As required by SFAS
No. 144, we classified 2001 losses on the hotels
operations of $4.3 million, net of tax, as
discontinued, and $9.5 million, net of tax, of income from
their operations in 2000 as discontinued. Losses in 2001
included an impairment charge of $10.9 million, net of tax.

In 2001, we sold two hotels in separate
transactions and received $9.7 million in cash. This resulted in
a loss on the sales of $2.2 million. In 2000, we sold three
hotels in separate transactions and received $24.1 million
in cash, resulting in a gain on the sales of $3.5 million.
The gain or loss recognized on these sales, as well as the
operating results of these hotels, were included in continuing
operations, as the provisions of SFAS No. 144 requiring the
presentation of such results as discontinued operations applies
to only those assets classified as held for sale or disposed of
on or after January 1, 2002.

Extraordinary items.In 2001, we repaid $550 million
of term loans under our revolving credit facility, resulting in
an extraordinary loss of $2.7 million, net of tax, from the
write-off of deferred financing costs related to those term
loans. In 2000, we repurchased $18.2 million of our notes
due to MeriStar Hospitality at a discount (their convertible
notes), resulting in an extraordinary gain of $3.4 million,
net of tax.

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL
RESOURCES

Our principal sources of liquidity are cash
generated from operations, funds from borrowings, funds from the
sales of non-core assets and existing cash on hand. Our
principal uses of cash include the funding of working capital
obligations, debt service, and investments in hotels (primarily
capital projects currently), and may include in the future the
repurchase of our debt in the open market.

Factors that may influence our liquidity include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Factors that affect our results of operations,
    including general economic conditions, demand for business and
    leisure travel, public concerns about travel safety related
    primarily to terrorism and the war with Iraq and related
    concerns, and other operating risks described under the caption,
    Risk Factors  Operating Risks in
    Item 1 of this Annual Report on Form 10-K;
|
| |  | Factors that affect our access to bank financing
    and the capital markets, including operational risks, high
    leverage, interest rate fluctuations, and other risks described
    under the caption Risk Factors  Financing
    Risks in Item 1 of this Annual Report on
    Form 10-K; and                                                                                                      
|
| |  | Other factors described under the caption,
    Cautionary Statement Regarding Forward-Looking
    Statements in this Annual Report on Form 10-K.                                                                                                                                                                                                                                                        

We believe we have sufficient free cash flow
currently, and we expect to have adequate cash flow during the
next twelve months in order to fund our operations, capital
commitments and debt service obligations. Our current and future
liquidity is, however, greatly dependent upon our operating
results, which are driven largely by overall economic
conditions, and since September 11, 2001 have been heavily
impacted by geopolitical

34



---



##### 



concerns. If general economic conditions are
significantly worse than we expect for an extended period, this
will likely have a negative effect on our projections of
available cash flow and liquidity. We have, however, taken steps
to strengthen our balance sheet and to maintain financial
flexibility and liquidity. We sold five non-core assets in 2002
for approximately $60 million. We ended the year 2002 with
a cash balance of approximately $54 million, of which
$34 million was unrestricted. In January 2003, we sold
another non-core hotel asset for approximately $13 million
and received $42 million in cash for settlement of our note
receivable with Interstate Hotels. As of March 10, 2003, we
held approximately $50 million in unrestricted cash. We
intend to carry balances of similar amounts, or slightly higher,
on our balance sheet for the foreseeable future, as we believe
this cash reserve should be adequate to protect us from a
potential downturn in our business.


We are also currently actively marketing, or
expect to bring to market in the near future, a total of 16
non-core assets, for expected proceeds of approximately
$100 million to $110 million. Our ability to realize
these estimated proceeds is, however, dependent upon finding
qualified buyers willing to pay a purchase price that we
consider reasonable. Subject to the limits and restrictions
imposed on us by our borrowing arrangements, we are currently
able to utilize any proceeds from the sale of assets to fund our
ongoing operations, invest in capital expenditures and repay our
debt as it comes due. See Long-Term Debt section
below for a discussion of such restrictions.

To reduce the overall amount and cost of our
debt, we will consider opportunities to repurchase some of our
current outstanding debt. Any such transactions, however, are
subject to the limits and restrictions imposed by our borrowing
arrangements. See Long-Term Debt section below for a
discussion of such restrictions.

Sources and Uses of Cash

Our operating results and the amount of cash
generated by our hotel operations have been negatively impacted
by the events of September 11, 2001, the continuing
sluggish economy, and the threat of further terrorist attacks.
We generated $56.7 million of cash from operations during
2002 compared to $150.1 million in 2001 and
$224 million in 2000.

Included in our operating results is the 16%
preferred return on our preferred investment in MeriStar
Investment Partners (or MIP). As of
December 31, 2002, approximately $10.8 million of
cumulative preferred returns remained unpaid due to restrictions
placed on MIP by its existing bank covenants, which require
excess cash flow to be applied to principal amortization rather
than being distributed to equity holders. We evaluate the
collectibility of our preferred return based on the underlying
value of the hotel properties and our preference to
distributions. On March 27, 2003, MIP completed a
refinancing of its long-term debt, which allows the release of
excess cash flow to pay our preferred return currently. We
expect to begin receiving distributions representing payments of
our current return during the second quarter of 2003. In the
future, we expect that our cumulative unpaid preferred returns
will be paid from excess cash flow above our current return and
from potential disposition proceeds in excess of debt allocated
to individual assets. Given the current economic environment, we
do not expect the partnerships operations to provide
adequate cash flow in the near term for significant repayments
of our cumulative unpaid preferred returns.

Our investing activities provided a net
$6.7 million of cash during 2002, resulting primarily from:



| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |  | $60.7 million of proceeds from the sale of
    five hotels; partially offset by                    
|
| |  | $47.3 million of hotel capital expenditures
    (including $4 million of capitalized interest), and
|
| |  | $7.5 million of advances to Interstate
    Hotels.                                                 

We used $53.2 million of cash in financing
activities during 2002, primarily for the net repayment of
$46 million of our long-term debt obligations and
$4.8 million in additional deferred financing costs related
to our new debt facilities.

MeriStar Hospitality must distribute to
stockholders at least 90% of its REIT taxable income, excluding
net capital gains, to preserve the favorable tax treatment
accorded to REITs under the Internal Revenue Code. MeriStar
Hospitality, as our general partner, must use its best efforts
to ensure our partnership

35



---



##### 



distributions meet this requirement. The payment
of dividends is restricted under our senior unsecured notes if
our fixed charge coverage ratio falls below 2 to 1, except that
the indenture permits MeriStar Hospitality to pay dividends
necessary to maintain its status as a REIT. Under certain
circumstances, MeriStar Hospitality may be required to make
distributions in excess of available cash in order to meet the
Internal Revenue Code requirements. In that event, we would seek
to borrow additional funds or sell additional non-core assets,
or both, to the extent necessary to obtain cash sufficient to
make the dividends required to retain its qualification as a
REIT. Any future distributions will be at the discretion of
MeriStar Hospitalitys board of directors and will be based
on factors including, but not limited to, our operating results,
restrictions imposed by our borrowing agreements, capital
expenditure requirements, the economic outlook, and the Internal
Revenue Service dividend payout requirements for REITs. The
timing and amount of any future distributions is dependent upon
these factors, and we cannot provide assurance of the amounts of
any such distributions that we may make in the future. At
current operating levels, MeriStar Hospitality does not expect
to be able to pay a dividend in 2003.


Long-Term Debt

Notes payable to MeriStar
Hospitality.As of December 31,
2002, we had outstanding $154.3 million aggregate principal
amount of 4.75% convertible subordinated notes due in 2004. In
respect of these notes, MeriStar Hospitality holds a
subordinated note issued by us, with the same principal amount,
interest rate and maturity. MeriStar Hospitality is currently
actively exploring a variety of sources to repay the convertible
subordinated notes. Under the indentures related to our
$950 million of senior unsecured notes and our
$205 million of senior subordinated unsecured notes,
prepayment of our convertible subordinated notes prior to
maturity is prohibited as long as our fixed charge coverage
ratio, as defined, is less than 2 to 1. At the end of
2002, such ratio was 1.6 to 1 and, therefore, under
these circumstances, MeriStar Hospitality can only repay these
securities at maturity (our indentures permit such repayment at
maturity). We do not currently expect this ratio to improve to a
level which would permit repayment of the convertible notes
prior to their maturity. Among the sources of repayment of these
securities which are currently under active consideration, all
of which are permitted under our indentures, are:



| |   |                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our available cash flow;                                                                                                                                                                                                                                                          
|
| |  | The proceeds of borrowings on a non-recourse
    basis, with such borrowings secured by certain of our hotel
    properties;                                                                                                                                                      
|
| |  | Borrowings under our $50 million general
    debt basket under our indentures;                                                                                                                                                                                                  
|
| |  | CMBS or other secured borrowings through a
    special purpose, unrestricted subsidiary; our
    indentures permit us to fund such a subsidiary with assets equal
    to up to 5% or our Consolidated Net Tangible Assets
    (approximately $135 million at December 31, 2002);
|
| |  | The proceeds of a pari passu
    refinancing of our convertible subordinated notes; or                                                                                                                                                                                            
|
| |  | A combination of the above.                                                                                                                                                                                                                                                       

Our ability to issue secured debt is enhanced by
the fact that our hotel portfolio contains 83 unencumbered
properties out of our total current portfolio of
106 hotels, and only 13 of these assets are subject to
ground leases. Our ability to incur secured debt is generally
limited by tests in our senior note indentures requiring us to
maintain certain levels of unencumbered assets. However, we do
not believe that these requirements will prevent us from
accessing any of the above sources of secured financing at the
convertible notes maturity in October 2004.

MeriStar Hospitality completed in 1997 the
offering of $150 million aggregate principal amount of
8.75% senior subordinated notes due 2007. The related indenture
contains various restrictive covenants, which are similar to
those governing MeriStar Hospitalitys senior unsecured
notes. In conjunction with this transaction, we borrowed
$150 million from MeriStar Hospitality under terms matching
those of the subordinated notes. In 1999, MeriStar Hospitality
issued $55 million aggregate principal amount of 8.75%
senior subordinated notes due 2007 under an indenture
substantially similar to that governing the 1997 MeriStar
Hospitality notes.

36



---



##### 



In conjunction with this transaction, we borrowed
$55 million from MeriStar Hospitality under terms matching
those of the subordinated notes. These notes are unsecured
obligations and provide for semi-annual payments of interest
each February 15 and August 15.


New credit facility.On October 29, 2002, we entered into a new three-year
$100 million senior revolving credit facility, secured by
our equity interests in most of our subsidiaries. The initial
interest rate is LIBOR plus 388 basis points. As of
December 31, 2002, there were no outstanding borrowings on
this facility.

This facility contains customary compliance
measures we must meet in order to borrow on the facility, which
became more stringent on a quarterly basis beginning in the
first quarter of 2003. The sale of two hotels during the fourth
quarter of 2002 and one in January 2003, as well as the
settlement of our note receivable with Interstate Hotels,
impacted our leverage covenant due to the loss of trailing
12-month EBITDA (as defined in the credit agreement) on a pro
forma basis. While we cannot currently borrow under the
facility, we have obtained a waiver of compliance with this
leverage covenant from our lending group through May 20,
2003. We do not expect this compliance measurement to have a
material impact on our operations as we do not anticipate the
need to draw on this facility during 2003. We intend to either
negotiate an amendment to this facility to maintain our future
compliance until such time as we apply our unrestricted cash to
reduce our leverage, or we may terminate the facility.

Senior unsecured
notes.In February 2002, we issued an
additional $200 million ($196.2 million, net of discount
and related fees) aggregate principal amount of 9.13% senior
unsecured notes due 2011. We used the proceeds from the issuance
of these notes to repay approximately $195 million of the
outstanding balance under our previous credit facility.

As of December 31, 2002, we had
$950 million of aggregate principal of these notes
outstanding. These notes contain various restrictive incurrence
covenants, limiting our ability to transact certain business
activities, including additional borrowings, if specific
financial thresholds are not achieved. One of those thresholds
is maintaining a 2 to 1 fixed charge coverage ratio (as defined
in the indentures, fixed charges only include interest on debt
obligations and preferred equity). As of December 31, 2002,
our fixed charge coverage ratio was 1.6 to 1, and therefore we
were not able to enter into certain transactions. These
limitations include the repurchase of our stock, the issuance of
any preferred stock, the payment of dividends (unless required
to maintain our status as a REIT), the incurrence of any
additional debt, or the repayment of outstanding debt before it
comes due. There are certain exceptions, or
carve-out, features with respect to the incurrence
of additional debt and early repayment of debt features in the
indentures.

Secured facility.We
completed this $330 million, 10-year non-recourse financing
during 1999. The facility is secured by a portfolio of 19 hotels
and contains standard provisions that require the servicer to
maintain in escrow cash balances for certain items such as
property taxes and funding of capital expenditures. In addition,
the facility contains a provision that requires our mortgage
servicer to retain in escrow the excess cash from the encumbered
hotels after payment of debt service (Excess Cash),
if net hotel operating income after payment of FF&E reserves
and franchise fees (NOI) for the trailing twelve
months declines below $57 million. This provision was
triggered in October 2002 and will be effective until the hotels
generate the minimum cash flow required for two consecutive
quarters, at which time the cash being held in escrow will be
released to us. Approximately $4.5 million of cash was held
in escrow under this provision as of December 31, 2002.
Additional amounts continue to be held in escrow. The security
agreement permits us to substitute unleveraged properties into
the portfolio in place of existing properties in order to
increase the NOI to a level at which the portfolio will meet
this requirement. We have begun discussions with the servicer
regarding this substitution and expect to be able to do so, thus
resulting in the release of any Excess Cash held in escrow.
Implementation of this solution is subject to rating agency
approval and qualification for Real Estate Mortgage Investment
Conduit purposes. There can be no assurance that the hotels will
reach the minimum cash flow in the future. The security
agreement also permits us to withdraw the cash held in escrow

37



---



##### 



for funding of capital expenditures on the 19
encumbered properties. Subsequent to year-end, through
March 10, 2003, the servicer had held $4.3 million of
additional funds in escrow.


Use of Asset Sales Proceeds

As discussed elsewhere, one of our key short-term
strategies is to sell selected non-core assets, many of which
were acquired as part of a portfolio. These non-core
assets generally posses one or more of the following
characteristics:



| |   |                                                             
| | - | ------------------------------------------------------------
| |  | limited future growth potential;                            
|
| |  | secondary market location;                                  
|
| |  | secondary brand affiliation;                                
|
| |  | higher than average capital expenditure
    requirements; or
|
| |  | our portfolio is over-weighted in the market.               

We believe that these asset sale transactions
will have the following benefits:



| |   |                                                                                       
| | - | --------------------------------------------------------------------------------------
| |  | improve the overall quality of the hotel assets
    remaining in our portfolio;       
|
| |  | enhance the ability of our portfolio to perform
    well in all cycles of the economy;
|
| |  | enhance future growth prospects when strength
    returns to the economy;             
|
| |  | reduce future capital requirements on a relative
    basis; and                       
|
| |  | reduce our leverage and requirements on our
    liquidity resources.                  

Our plan is to monitor our operations and
developments in the economic and geopolitical environment. To
the extent we complete additional asset dispositions, and we
believe that our liquidity levels are appropriate, we will
consider applying proceeds from those dispositions to repurchase
debt and reinvest in our core assets.

Assets Currently Being Marketed

We continue to focus on a deleveraging strategy,
including the expansion of our program of selling non-core
assets. Initially, we intend to retain the proceeds from any
asset sales for additional liquidity. To the extent we complete
additional asset dispositions, and we believe that our liquidity
levels are appropriate, we will consider applying proceeds from
asset sales to repurchase debt and reinvest in our core assets.
We sold five hotels in 2002 and one hotel in January 2003. As of
February 12, 2003, we were actively marketing eight
additional assets as part of our non-core asset disposition
plan. Subsequently, based on our decision to raise additional
cash to reduce our overall leverage and provide additional
capital for reinvestment in our core holdings, we changed our
expectation about our holding period for certain other hotels.
We plan to market another eight hotels, which will increase the
number of marketed assets to sixteen. Based on our expected
proceeds of approximately $100 million to
$110 million, we will record an impairment charge in the
first quarter of 2003 in an expected range of $50 million
to $55 million. Our ability to realize these estimated
proceeds is, however, dependent upon finding qualified buyers
willing to pay a purchase price that we consider reasonable.

In addition, we are frequently approached by
potential buyers interested in other assets that we might
consider selling and have recently engaged in discussions with
some of those potential buyers of hotel assets, both on an
individual and a portfolio basis. Any such portfolio may include
both core and non-core assets, if the disposition arrangement
would be beneficial to shareholder value. However, there can be
no assurance that any such transactions will be concluded. Any
additional sales of assets under these scenarios may result in
additional impairment charges in future periods, if and when the
assets are actively marketed. While we always consider any
opportunities that may improve our financial condition or
results of operations, we have not committed to the disposition
of any of these other assets at this time. As such, we are not
able at this time to estimate the timing or the amount of any
impairment charges that might result. We are aided in our

38



---



##### 



disposition program by the fact that we can
terminate any management agreement of any hotel we sell, in some
cases, subject to the payment of a fee, as well as the fact that
83 of our current 106 assets are unencumbered and only 13
of those assets are subject to ground leases.


Capital Resources

We make ongoing capital expenditures in order to
keep our hotels competitive in their markets and to comply with
franchise obligation, as described further in Operating
Risks (the potential adverse impact of our failure to meet
the requirements contained in our franchise and licensing
agreements) included in Item 1  Risk Factors of
this Annual Report on Form 10-K. We fund our capital
expenditures primarily from cash generated from operations and
existing cash on hand, but may also use proceeds from the sales
of non-core assets to provide capital for renovation work. We
invested approximately 5% of total hotel revenues for ongoing
capital expenditures during 2002, or $47 million (including
$4 million of capitalized interest), and we anticipate
investing $40 million to $50 million on capital
expenditure programs in 2003. These ongoing programs will
include room and facilities refurbishments, renovations, and
furniture and equipment replacements. We will be shifting a
portion of our 2003 planned capital expenditures to the second
half of the year due to the current sluggish economy and
uncertainty in the current economic operating environment. If
operating conditions warrant, we may defer elements of our
capital expenditure program to 2004.

We believe cash on hand and cash generated by
operations will be sufficient to fund our existing working
capital requirements, ongoing capital expenditures, and debt
service requirements. Our future capital decisions will also be
made in response to specific acquisition and/or investment
opportunities, depending on conditions in the capital and/or
other financial markets.

OTHER FINANCIAL INFORMATION

Critical Accounting Policies

Our consolidated financial statements include the
accounts of all wholly-owned and majority-owned subsidiaries.
Preparing financial statements in conformity with accounting
principles generally accepted in the United States requires us
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. On an ongoing basis, we evaluate our estimates
and judgments, including those related to the impairment of
long-lived assets and the recording of certain accrued
liabilities. Some of our estimates are material to the financial
statements. These estimates are therefore particularly sensitive
as future events could cause the actual results to be
significantly different from our estimates.

Our critical accounting policies include the
accounting for the impairment or disposal of long-lived assets
and the classification of properties as held for sale. Our hotel
properties generally fall into two categories, held for use and
held for sale. Our held for use properties may include those
that we are actively marketing. Until such time as our criteria
for held for sale are met, as described below in further detail,
we maintain classification as an operational asset. At the time
we determine an asset to meet the criteria noted below, we
reclassify the asset and its operations to discontinued
operations. Both categories are subject to an impairment
analysis whenever events or changes in circumstances indicate
that the carrying value may be impaired.

Accounting
for the impairment or disposal of long-lived assets

We adopted the provisions of SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, on January 1, 2002. SFAS No. 144
requires the current and prior period operating results of any
asset that has been classified as held for sale or had been
disposed of on or after January 1, 2002 and where we have
no continuing involvement, including any gain or loss
recognized, to be recorded as discontinued operations.

The provisions of SFAS No. 144 also require
that whenever events or changes in circumstances indicate that
the carrying value of a long-lived asset may be impaired, we
perform an analysis to determine the recoverability of the
assets carrying value. We make estimates of the
undiscounted cash flows from the

39



---



##### 



expected future operations of the asset, or in
the case of an asset actively being marketed but not yet held
for sale, we look at a range of expected sales prices. If the
analysis indicates that the carrying value is not recoverable
from these estimates of cash flows, we write down the asset to
estimated fair value and recognize an impairment loss. Any
impairment losses we recognize on assets held for use are
recorded as operating expenses. We record any impairment losses
on assets held for sale as a component of discontinued
operations. Based on current economic conditions and our
continuing forecast and outlooks for future periods, we may be
required in future periods to recognize additional impairment
charges if circumstances indicate at that time that the carrying
value of the assets may be impaired.


Classification
of properties as held for sale

Real estate companies have differing standards
with respect to which properties may be classified as held
for sale. We classify the properties we are actively
marketing as held for sale once all of the following conditions
are met:



| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our board has approved the sale,                                                                                                                                           
|
| |  | We have a fully executed agreement with a
    qualified buyer which provides for no significant outstanding or
    continuing obligations with the property after sale, and
|
| |  | We have a significant non-refundable deposit.                                                                                                                              

We carry properties held for sale at the lower of
their carrying values or estimated fair values less costs to
sell. We cease depreciation at the time the asset is classified
as held for sale. If material to our total portfolio, we
segregate the held for sale properties on our consolidated
balance sheet. We also reclassify the operating results of
properties held for sale as discontinued operations for all
periods presented.

Off-Balance Sheet Arrangements and Aggregate
Contractual Obligations

We have future long-term debt and ground lease
obligations related to our consolidated entities and properties.
As of December 31, 2002, we were not involved in any
off-balance sheet arrangements with MIP.

The following table summarizes our aggregate
contractual obligations as of December 31, 2002 (in
thousands):

|                                                     |                                       |       |           |           |  |             |       |            |  |            |         |         |  |   |         |         |  |   |         |         | 
|---------------------------------------------------- | ------------------------------------- | ----- | --------- | --------- |  | ----------- | ----- | ---------- |  | ---------- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                                     |                                       |       |           | Less than |  | One to      |       | Three to   |  |           
|                                                     |                                       | Total |           | One Year  |  | Three Years |       | Five Years |  | Thereafter
|                                                     |                                       |       |           |           |  |             |       |            |  |           
|Long-term debt, net of unamortized discount
    (a): |                                       |       |           |           |  |             |       |            |  |            |         |         |  |   |         |         |  |   |         |        
|                                                     | Senior unsecured notes                |       | $         | 943,941   |  |             | $     |           |  |            | $       |        |  |   | $       | 299,326 |  |   | $       | 644,615 | 
|                                                     | Secured facility                      |       |           | 314,626   |  |             |       | 5,108      |  |            |         | 13,094  |  |   |         | 23,132  |  |   |         | 273,292 | 
|                                                     | Mortgage debt and other               |       |           | 38,030    |  |             |       | 2,567      |  |            |         | 12,518  |  |   |         | 7,571   |  |   |         | 15,374  | 
|                                                     |                                       |       |           |           |  |             |       |            |  |            |         |         |  |   |         |         |  |   |         |        
|                                                     | Total long term debt                  |       |           | 1,296,597 |  |             |       | 7,675      |  |            |         | 25,612  |  |   |         | 330,029 |  |   |         | 933,281 | 
|                                                     |                                       |       |           |           |  |             |       |            |  |            |         |         |  |   |         |         |  |   |         |        
|                                                     | Notes payable to MeriStar Hospitality |       |           | 357,505   |  |             |       |           |  |            |         | 154,300 |  |   |         | 203,205 |  |   |         |        | 
|                                                     |                                       |       |           |           |  |             |       |            |  |            |         |         |  |   |         |         |  |   |         |        
|Ground lease obligations                             |                                       |       | 63,536    |           |  |             | 1,317 |            |  |            | 2,997   |         |  |   | 4,281   |         |  |   | 54,941  |        
|                                                     |                                       |       |           |           |  |             |       |            |  |            |         |         |  |   |         |         |  |   |         |        
|Aggregate contractual obligations                    |                                       | $     | 1,717,638 |           |  | $           | 8,992 |            |  | $          | 182,909 |         |  | $ | 537,515 |         |  | $ | 988,222 |        
|                                                     |                                       |       |           |           |  |             |       |            |  |            |         |         |  |   |         |         |  |   |         |        



---



|    |                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | For a description of the material terms of our
    long-term debt, see Financial Condition, Liquidity and
    Capital Resources  Long-Term Debt section above.

New Accounting Pronouncements

The Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. (FIN) 46,
Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, in January 2003.
The interpretation addresses how to identify variable

40



---



##### 



interest entities and when to consolidate those
entities. Consolidation of variable interest entities is
required by the primary beneficiary. FIN 46 applies
immediately to variable interest entities created after
January 31, 2003 and no later than the beginning of the
first interim or annual reporting period beginning after
June 15, 2003 for interests in variable interest entities
that were acquired prior to February 1, 2003. We do not
expect the adoption of this interpretation to have a material
effect on our results of operations or financial condition.


The FASB issued FIN 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, an interpretation of FASB Statements No. 5,
57, and 107 and rescission of FASB Interpretation No. 34,
in November 2002. For 2002, the interpretation requires
disclosures, which we have included in Footnote 12,
Commitments and Contingencies. Beginning in 2003,
the interpretation requires recognition of liabilities at their
fair value for newly issued guarantees. We do not expect the
adoption of the recognition provisions of this interpretation to
have a material effect on our results of operations or financial
condition.

The FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4 (Reporting Gains
and Losses from Extinguishment of Debt), No. 44 (Accounting
for Intangible Assets of Motor Carriers) and No. 64
(Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements), Amendment of SFAS No. 13 (Accounting for
Leases), Technical Corrections, in April 2002. The
rescission of SFAS No. 4 and No. 64 requires that all
gains and losses from extinguishments of debt be classified as
extraordinary only if the gains and losses are from unusual or
infrequent transactions. It also requires prior period gains or
losses that are not from unusual or infrequent transactions to
be reclassified as an operational expense. The amendment to SFAS
No. 13 requires that if a capital lease is modified in such
a way that the change in terms creates a new agreement
classified as an operating lease, then the original capital
lease asset and obligation be removed and a gain or loss be
recognized for the difference. The new lease will be accounted
for as any other operating lease. SFAS No. 44 does not
apply to us. We will adopt the provisions of this statement
beginning on January 1, 2003. Our prior period
extraordinary items will be reclassified as operational expenses
during 2003, and in the future we expect any gains and losses
from the extinguishment of our debt to be classified as
operational. We do not expect the adoption of the other
provisions to have a material effect on our results of
operations or financial condition.



|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK

Our policy is to manage interest rates through
the use of a combination of fixed and variable rate debt. Our
interest rate risk management objective is to limit the impact
of interest rate changes on earnings and cash flows. To achieve
our objectives, we borrow at a combination of fixed and variable
rates, and may enter into derivative financial instruments such
as interest rate swaps, caps and treasury locks in order to
mitigate our interest rate risk on a related financial
instrument. We only enter into derivative or interest rate
transactions for cash flow hedging purposes. We do not engage in
speculative transactions.

As of December 31, 2002, all of our
outstanding debt carried fixed rates of interest, as follows:

|                       |  |            |           |               |  |  |      |  
|---------------------- |  | ---------- | --------- | ------------- |  |  | ---- | -
|                       |  |            |           | Average      
|Expected Maturity      |  | Fixed Rate |           | Interest Rate
|                       |  |            |           |              
|2003                   |  | $          | 8,263     |               |  |  | 8.22 | %
|2004                   |  |            | 170,669   |               |  |  | 5.13 |  
|2005                   |  |            | 8,666     |               |  |  | 8.13 |  
|2006                   |  |            | 9,407     |               |  |  | 8.13 |  
|2007                   |  |            | 213,417   |               |  |  | 8.68 |  
|Thereafter             |  |            | 1,243,680 |               |  |  | 9.06 |  
|                       |  |            |           |               |  |  |      |  
|Total                  |  | $          | 1,654,102 |               |  |  | 8.59 | %
|                       |  |            |           |               |  |  |      |  
|Fair Value at 12/31/02 |  | $          | 1,463,699 |               |  |  |      |  
|                       |  |            |           |               |  |  |      |  

41



---



##### 



Our $100 million senior revolving credit
facility is our only variable rate debt. As of December 31,
2002, we had no outstanding borrowings under this facility, and
we do not anticipate the need to draw on it during 2003.

Upon the issuance in February 2002 of
$200 million aggregate principal amount of 9.13% senior
unsecured notes due 2011, we reduced the borrowings under our
previous senior secured credit facility by $195 million. As
a result of this financing, we re-designated two swap agreements
as non-hedging derivatives. These swap agreements had notional
principal amounts of approximately $200 million and were
originally designated to hedge variable rate borrowings under
our senior secured credit facility that were repaid. We
recognized a $4.7 million loss when this amount was
transferred out of accumulated other comprehensive income
because the debt being hedged was repaid. The swap agreements
expire between April and July 2003. These swap agreements are
currently being marked to market through operations. For the
years ended December 31, 2002 and 2001, we have made cash
payments on these swaps of approximately $12.1 million and
$6.3 million, respectively. These cash payments are
expensed in our statement of operations.

As of December 31, 2002, the 30-day LIBOR
was 1.38%. If LIBOR remains at that rate through July 2003, we
would make additional cash payments of approximately
$3.4 million. If LIBOR increases or decreases 50 basis
points during this same period, our payments would decrease or
increase by approximately $0.4 million.

Our Canadian operations were not material to our
consolidated financial position as of December 31, 2002 and
2001, or our consolidated results of operations and cash flows
for each of the years in the three-year period ended
December 31, 2002. Accordingly, we were not subject to
material foreign currency exchange rate risk from the effects
that exchange rate movements of foreign currencies would have on
our future costs or on our future cash flows we would receive
from our foreign subsidiaries. Foreign currency transaction
gains and losses were not material to our results of operations
for the same periods. To date, we have not entered into any
significant foreign currency forward exchange contracts or other
derivative financial instruments to hedge the effects of adverse
fluctuations in foreign currency exchange rates.

42



---



##### 





|        |                                                
|------- | -----------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA

The following Consolidated Financial Statements,
Supplementary Data and Financial Statement Schedules are filed
as part of this Annual Report on Form 10-K:

|                                                                                                      |  |   
|----------------------------------------------------------------------------------------------------- |  | --
|Independent Auditors Report                                                                          |  | 44
|Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                      |  | 45
|Consolidated Statements of Operations for the
    years ended December 31, 2002, 2001 and 2000        |  | 46
|Consolidated Statements of Partners Capital
    for the years ended December 31, 2002, 2001 and 2000 |  | 48
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000        |  | 49
|Notes to the Consolidated Financial Statements                                                        |  | 50
|Schedule III  Real Estate and
    Accumulated Depreciation as of December 31, 2002                   |  | 68

All other schedules are omitted because they are
not applicable or the required information is included in the
Consolidated Financial Statements or the Notes thereto.

43



---



##### 



INDEPENDENT AUDITORS REPORT

The Partners

MeriStar Hospitality Operating Partnership, L.P.:


We have audited the accompanying consolidated
balance sheets of MeriStar Hospitality Operating Partnership,
L.P. and subsidiaries (the Partnership) as of December 31,
2002 and 2001 and the related consolidated statements of
operations, partners capital, and cash flows for each of
the years in the three-year period ended December 31, 2002.
In connection with our audits of the consolidated financial
statements, we have also audited the financial statement
schedule of real estate and accumulated depreciation. These
consolidated financial statements and the financial statement
schedule are the responsibility of the Partnerships
management. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement
schedule based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of MeriStar Hospitality
Operating Partnership, L.P. and subsidiaries as of
December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity
with accounting principles generally accepted in the United
States of America. Also, in our opinion, the financial statement
schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

As discussed in note 2, the Partnership
adopted Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, in 2002.



| |             
| | ------------
| | /s/ KPMG LLP
| |             
| | KPMG LLP    

Washington, D.C.

February 12, 2003, except as to notes 4
and 15, 
   which are as of March 27, 2003


44



---



##### 



MERISTAR HOSPITALITY OPERATING PARTNERSHIP,
L.P.

CONSOLIDATED BALANCE SHEETS


DECEMBER 31, 2002 AND 2001


(Dollars in thousands)


|                                                                                          |  |      |           |      |  |   |           |  
|----------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | -
|                                                                                          |  | 2002 |           | 2001
|                                                                                          |  |      |           |     
|ASSETS                                                                                    |  |      |           |      |  |   |           |  
|Investments in hotel properties                                                           |  | $    | 3,057,658 |      |  | $ | 3,183,677 |  
|Accumulated depreciation                                                                  |  |      | (497,721  | )    |  |   | (397,380  | )
|                                                                                          |  |      |           |      |  |   |           |  
|                                                                                          |  |      | 2,559,937 |      |  |   | 2,786,297 |  
|Restricted cash                                                                           |  |      | 20,365    |      |  |   | 21,304    |  
|Investments in and advances to affiliates                                                 |  |      | 41,714    |      |  |   | 41,714    |  
|Due from Interstate Hotels & Resorts                                                      |  |      |          |      |  |   | 8,877     |  
|Note receivable from Interstate Hotels &
    Resorts                                      |  |      | 42,052    |      |  |   | 36,000    |  
|Prepaid expenses and other assets                                                         |  |      | 39,197    |      |  |   | 39,775    |  
|Accounts receivable, net of allowance for
    doubtful accounts of $848 and $973          |  |      | 56,828    |      |  |   | 47,178    |  
|Cash and cash equivalents                                                                 |  |      | 33,889    |      |  |   | 23,441    |  
|                                                                                          |  |      |           |      |  |   |           |  
|                                                                                          |  | $    | 2,793,982 |      |  | $ | 3,004,586 |  
|                                                                                          |  |      |           |      |  |   |           |  
|LIABILITIES AND PARTNERS
    CAPITAL                                                     |  |      |           |      |  |   |           |  
|Long-term debt                                                                            |  | $    | 1,296,597 |      |  | $ | 1,343,017 |  
|Notes payable to MeriStar Hospitality Corporation                                         |  |      | 357,505   |      |  |   | 357,117   |  
|Accounts payable and accrued expenses                                                     |  |      | 104,677   |      |  |   | 124,758   |  
|Accrued interest                                                                          |  |      | 52,907    |      |  |   | 45,009    |  
|Due to Interstate Hotels & Resorts                                                        |  |      | 10,500    |      |  |   |          |  
|Other liabilities                                                                         |  |      | 15,967    |      |  |   | 19,844    |  
|                                                                                          |  |      |           |      |  |   |           |  
|Total liabilities                                                                         |  |      | 1,838,153 |      |  |   | 1,889,745 |  
|                                                                                          |  |      |           |      |  |   |           |  
|Minority interests                                                                        |  |      | 2,624     |      |  |   | 2,639     |  
|Redeemable OP units at redemption value,
    4,194,925 and 4,508,855 outstanding          |  |      | 38,205    |      |  |   | 67,012    |  
|Partners capital  Common OP
    Units, 45,230,719 and 44,524,147 issued and outstanding |  |      | 915,000   |      |  |   | 1,045,190 |  
|                                                                                          |  |      |           |      |  |   |           |  
|                                                                                          |  | $    | 2,793,982 |      |  | $ | 3,004,586 |  
|                                                                                          |  |      |           |      |  |   |           |  

See
accompanying notes to the consolidated financial statements.

45



---



##### 



MERISTAR HOSPITALITY OPERATING PARTNERSHIP,
L.P.

CONSOLIDATED STATEMENTS OF
OPERATIONS


YEARS ENDED DECEMBER 31, 2002, 2001 AND
2000


(Dollars in thousands, except per unit
amounts)


|                                                                                                                                                     |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |         |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------------------------- | -------- | -------- | ------- | ---- | --------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                                                                                                     |                                                                             | 2002                                                                      |          | 2001     |         | 2000
|                                                                                                                                                     |                                                                             |                                                                           |          |          |         |     
|Revenue:                                                                                                                                             |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|                                                                                                                                                     | Hotel operations:                                                           |                                                                           |          |          |         |      |           |         |         |   |         |         |        
|                                                                                                                                                     |                                                                             | Rooms                                                                     |          | $        | 634,920 |      |           | $       | 689,215 |   |         | $       |        | 
|                                                                                                                                                     |                                                                             | Food and beverage                                                         |          |          | 257,034 |      |           |         | 265,815 |   |         |         |        | 
|                                                                                                                                                     |                                                                             | Other hotel operations                                                    |          |          | 73,817  |      |           |         | 80,385  |   |         |         |        | 
|                                                                                                                                                     | Office rental, parking and other revenue                                    |                                                                           |          | 17,682   |         |      |           | 16,829  |         |   |         | 8,516   |        
|                                                                                                                                                     | Participating lease revenue                                                 |                                                                           |          |         |         |      |           | 5,094   |         |   |         | 377,424 |        
|                                                                                                                                                     |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|Total revenue                                                                                                                                        |                                                                             |                                                                           | 983,453  |          |         |      | 1,057,338 |         |         |   | 385,940 |        
|                                                                                                                                                     |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|Hotel operating expenses:                                                                                                                            |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|                                                                                                                                                     |                                                                             | Rooms                                                                     |          |          | 156,773 |      |           |         | 167,265 |   |         |         |        | 
|                                                                                                                                                     |                                                                             | Food and beverage                                                         |          |          | 184,913 |      |           |         | 191,838 |   |         |         |        | 
|                                                                                                                                                     |                                                                             | Other hotel operating expenses                                            |          |          | 43,003  |      |           |         | 43,032  |   |         |         |        | 
|Office rental, parking and other expenses                                                                                                            |                                                                             |                                                                           | 3,004    |          |         |      | 3,057     |         |         |   | 2,523   |        
|Other operating expenses:                                                                                                                            |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|                                                                                                                                                     |                                                                             | Administrative and general                                                |          |          | 170,456 |      |           |         | 166,726 |   |         |         | 9,431   | 
|                                                                                                                                                     |                                                                             | Property operating costs                                                  |          |          | 149,971 |      |           |         | 156,350 |   |         |         |        | 
|                                                                                                                                                     |                                                                             | Depreciation and amortization                                             |          |          | 118,765 |      |           |         | 111,944 |   |         |         | 106,295 | 
|                                                                                                                                                     |                                                                             | Property taxes, insurance and other                                       |          |          | 67,732  |      |           |         | 73,418  |   |         |         | 46,015  | 
|                                                                                                                                                     |                                                                             | Loss on asset impairments                                                 |          |          | 63,364  |      |           |         | 32,335  |   |         |         |        | 
|                                                                                                                                                     |                                                                             | Write-down of note receivable with Interstate
    Hotels & Resorts        |          |          | 14,517  |      |           |         |        |   |         |         |        | 
|                                                                                                                                                     |                                                                             | Loss on fair value of non-hedging derivatives                             |          |          | 4,735   |      |           |         | 6,666   |   |         |         |        | 
|                                                                                                                                                     |                                                                             | Change in fair value of non-hedging derivatives,
    net of swap payments |          |          | 4,446   |      |           |         |        |   |         |         |        | 
|                                                                                                                                                     |                                                                             | Write-off of deferred financing costs                                     |          |          | 3,144   |      |           |         |        |   |         |         |        | 
|                                                                                                                                                     |                                                                             | Swap termination costs                                                    |          |          |        |      |           |         | 9,297   |   |         |         |        | 
|                                                                                                                                                     |                                                                             | Write-down of investment in STS Hotel Net                                 |          |          |        |      |           |         | 2,112   |   |         |         |        | 
|                                                                                                                                                     |                                                                             | FelCor merger costs                                                       |          |          |        |      |           |         | 5,817   |   |         |         |        | 
|                                                                                                                                                     |                                                                             | Costs to terminate leases with Prime Hospitality
    Corporation          |          |          |        |      |           |         | 1,315   |   |         |         |        | 
|                                                                                                                                                     |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|Total operating expenses                                                                                                                             |                                                                             |                                                                           | 984,823  |          |         |      | 971,172   |         |         |   | 164,264 |        
|                                                                                                                                                     |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|Operating (loss) income                                                                                                                              |                                                                             |                                                                           | (1,370   | )        |         |      | 86,166    |         |         |   | 221,676 |        
|Interest expense, net                                                                                                                                |                                                                             |                                                                           | 136,429  |          |         |      | 122,472   |         |         |   | 117,613 |        
|                                                                                                                                                     |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|(Loss) income before minority interests,
    (loss) gain on sale of assets, income taxes, discontinued
    operations, and extraordinary (loss) gain |                                                                             |                                                                           | (137,799 | )        |         |      | (36,306   | )       |         |   | 104,063 |        
|Minority interests                                                                                                                                   |                                                                             |                                                                           | 15       |          |         |      | 48        |         |         |   | 3       |        
|(Loss) gain on sale of assets                                                                                                                        |                                                                             |                                                                           |         |          |         |      | (2,176    | )       |         |   | 3,495   |        
|Income tax benefit (expense)                                                                                                                         |                                                                             |                                                                           | 1,310    |          |         |      | 975       |         |         |   | (1,522  | )      
|                                                                                                                                                     |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|(Loss) income from continuing operations                                                                                                             |                                                                             |                                                                           | (136,474 | )        |         |      | (37,459   | )       |         |   | 106,039 |        
|Discontinued operations:                                                                                                                             |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|                                                                                                                                                     | (Loss) income from discontinued operations before
    tax (expense) benefit |                                                                           |          | (34,956  | )       |      |           | (4,413  | )       |   |         | 8,753   |        
|                                                                                                                                                     | Income tax benefit (expense)                                                |                                                                           |          | 611      |         |      |           | 107     |         |   |         | (156    | )      
|                                                                                                                                                     |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|                                                                                                                                                     | (Loss) income from discontinued operations                                  |                                                                           |          | (34,345  | )       |      |           | (4,306  | )       |   |         | 8,597   |        
|                                                                                                                                                     |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|(Loss) income before extraordinary
    (loss) gain                                                                                                   |                                                                             |                                                                           | (170,819 | )        |         |      | (41,765   | )       |         |   | 114,636 |        
|                                                                                                                                                     |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|Extraordinary (loss) gain on early
    extinguishment of debt, net of tax effect of $(50) in 2001 and
    $50 in 2000                                |                                                                             |                                                                           |         |          |         |      | (2,720    | )       |         |   | 3,400   |        
|                                                                                                                                                     |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|Net (loss) income                                                                                                                                    |                                                                             | $                                                                         | (170,819 | )        |         | $    | (44,485   | )       |         | $ | 118,036 |        
|                                                                                                                                                     |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|                                                                                                                                                     | Preferred distributions                                                     |                                                                           | $        | (565     | )       |      | $         | (565    | )       |   | $       | (565    | )      
|                                                                                                                                                     |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|                                                                                                                                                     | Net (loss) income applicable to common
    unitholders                      |                                                                           | $        | (171,384 | )       |      | $         | (45,050 | )       |   | $       | 117,471 |        
|                                                                                                                                                     |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|                                                                                                                                                     | Net (loss) income applicable to general
    partner unitholders             |                                                                           | $        | (157,718 | )       |      | $         | (41,487 | )       |   | $       | 107,378 |        
|                                                                                                                                                     |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        
|                                                                                                                                                     | Net (loss) income applicable to limited
    partner unitholders             |                                                                           | $        | (13,666  | )       |      | $         | (3,563  | )       |   | $       | 10,093  |        
|                                                                                                                                                     |                                                                             |                                                                           |          |          |         |      |           |         |         |   |         |        

46



---



##### 



|                   |          |                                            |                   |      |       |       |   |   |       |       |   |   |      |      | 
|------------------ | -------- | ------------------------------------------ | ----------------- | ---- | ----- | ----- | - | - | ----- | ----- | - | - | ---- | ---- | 
|                   |          | 2002                                       |                   | 2001 |       | 2000 
|                   |          |                                            |                   |      |       |      
|Earnings per unit: |          |                                            |                   |      |       |       |   |   |       |       |   |  
|                   | Basic:   |                                            |                   |      |       |       |   |   |       |       |   |   |     
|                   |          | (Loss) income from continuing operations   |                   | $    | (2.80 | )     |   | $ | (0.80 | )     |   | $ | 2.08 |     
|                   |          | (Loss) income from discontinued operations |                   |      | (0.71 | )     |   |   | (0.09 | )     |   |   | 0.17 |     
|                   |          | Extraordinary (loss) gain                  |                   |      |      |       |   |   | (0.06 | )     |   |   | 0.07 |     
|                   |          |                                            |                   |      |       |       |   |   |       |       |   |  
|                   |          |                                            | Net (loss) income |      | $     | (3.51 | ) |   | $     | (0.95 | ) |   | $    | 2.32 | 
|                   |          |                                            |                   |      |       |       |   |   |       |       |   |  
|                   | Diluted: |                                            |                   |      |       |       |   |   |       |       |   |   |     
|                   |          | (Loss) income from continuing operations   |                   | $    | (2.80 | )     |   | $ | (0.80 | )     |   | $ | 2.03 |     
|                   |          | (Loss) income from discontinued operations |                   |      | (0.71 | )     |   |   | (0.09 | )     |   |   | 0.15 |     
|                   |          | Extraordinary (loss) gain                  |                   |      |      |       |   |   | (0.06 | )     |   |   | 0.06 |     
|                   |          |                                            |                   |      |       |       |   |   |       |       |   |  
|                   |          |                                            | Net (loss) income |      | $     | (3.51 | ) |   | $     | (0.95 | ) |   | $    | 2.24 | 
|                   |          |                                            |                   |      |       |       |   |   |       |       |   |  

See
accompanying notes to the consolidated financial statements.

47



---



##### 



MERISTAR HOSPITALITY OPERATING PARTNERSHIP,
L.P.

CONSOLIDATED STATEMENTS OF PARTNERS
CAPITAL


YEARS ENDED DECEMBER 31, 2002, 2001 AND
2000


(Dollars in thousands)


|                                                                                                   |                      |        |            |             |  |  |            |   |  |   |           |          |  
|-------------------------------------------------------------------------------------------------- | -------------------- | ------ | ---------- | ----------- |  |  | ---------- | - |  | - | --------- | -------- | -
|                                                                                                   |                      |        |            |            
|                                                                                                   |                      | Units  |            |            
|                                                                                                   |                      |        |            |            
|                                                                                                   |                      | Issued |            | Repurchased |  | 
|                                                                                                   |                      |        |            |             |  | 
|Balance at January 1, 2000                                                                         |                      |        | 47,663,868 |             |  |  | (407,400   | ) |  | $ | 1,203,518 |         
|Comprehensive income:                                                                              |                      |        |            |             |  |  |            |   |  |   |           |         
|Net income                                                                                         |                      |        |           |             |  |  |           |   |  |   | 118,036   |         
|Foreign currency translation adjustment                                                            |                      |        |           |             |  |  |           |   |  |   | (834      | )       
|                                                                                                   |                      |        |            |             |  |  |            |   |  |   |           |         
|                                                                                                   | Comprehensive income |        |            |             |  |  |            |   |  |   |           | 117,202  |  
|                                                                                                   |                      |        |            |             |  |  |            |   |  |   |           |         
|Contributions                                                                                      |                      |        | 132,675    |             |  |  |           |   |  |   | 1,832     |         
|Contribution from general partner related to
    amortization of unearned stock-based compensation |                      |        |           |             |  |  |           |   |  |   | 3,070     |         
|Repurchase of units                                                                                |                      |        |           |             |  |  | (3,675,804 | ) |  |   | (73,638   | )       
|Redemption of OP Units                                                                             |                      |        | 77,386     |             |  |  |           |   |  |   | 24        |         
|Allocations to redeemable OP Units                                                                 |                      |        | 589,081    |             |  |  |           |   |  |   | (7,506    | )       
|Distributions                                                                                      |                      |        |           |             |  |  |           |   |  |   | (101,730  | )       
|                                                                                                   |                      |        |            |             |  |  |            |   |  |   |           |         
|Balance at December 31, 2000                                                                       |                      |        | 48,463,010 |             |  |  | (4,083,204 | ) |  |   | 1,142,772 |         
|Comprehensive loss:                                                                                |                      |        |            |             |  |  |            |   |  |   |           |         
|Net loss                                                                                           |                      |        |           |             |  |  |           |   |  |   | (44,485   | )       
|Foreign currency translation adjustment                                                            |                      |        |           |             |  |  |           |   |  |   | (1,176    | )       
|Derivative instruments transition adjustment                                                       |                      |        |           |             |  |  |           |   |  |   | (2,842    | )       
|Change in valuation of hedging derivative
    instruments                                          |                      |        |           |             |  |  |           |   |  |   | (2,404    | )       
|                                                                                                   |                      |        |            |             |  |  |            |   |  |   |           |         
|                                                                                                   | Comprehensive loss   |        |            |             |  |  |            |   |  |   |           | (50,907  | )
|                                                                                                   |                      |        |            |             |  |  |            |   |  |   |           |         
|Contributions                                                                                      |                      |        | 47,559     |             |  |  |           |   |  |   | 847       |         
|Contribution from general partner related to
    amortization of unearned stock-based compensation |                      |        |           |             |  |  |           |   |  |   | 2,263     |         
|Repurchase of units                                                                                |                      |        |           |             |  |  | (153,218   | ) |  |   | (4,514    | )       
|Redemption of OP Units                                                                             |                      |        | 250,000    |             |  |  |           |   |  |   | 5,428     |         
|Allocations from redeemable OP Units                                                               |                      |        |           |             |  |  |           |   |  |   | 24,201    |         
|Distributions                                                                                      |                      |        |           |             |  |  |           |   |  |   | (74,900   | )       
|                                                                                                   |                      |        |            |             |  |  |            |   |  |   |           |         
|Balance at December 31, 2001                                                                       |                      |        | 48,760,569 |             |  |  | (4,236,422 | ) |  |   | 1,045,190 |         
|Comprehensive loss:                                                                                |                      |        |            |             |  |  |            |   |  |   |           |         
|Net loss                                                                                           |                      |        |           |             |  |  |           |   |  |   | (170,819  | )       
|Foreign currency translation adjustment                                                            |                      |        |           |             |  |  |           |   |  |   | 205       |         
|Reclassification of loss on derivatives due to
    repayment of hedged debt                        |                      |        |           |             |  |  |           |   |  |   | 4,735     |         
|Change in valuation of hedging derivative
    instruments                                          |                      |        |           |             |  |  |           |   |  |   | 511       |         
|                                                                                                   |                      |        |            |             |  |  |            |   |  |   |           |         
|                                                                                                   | Comprehensive loss   |        |            |             |  |  |            |   |  |   |           | (165,368 | )
|                                                                                                   |                      |        |            |             |  |  |            |   |  |   |           |         
|Contributions                                                                                      |                      |        | 480,548    |             |  |  |           |   |  |   | 3,156     |         
|Contribution from general partner related to
    amortization of unearned stock-based compensation |                      |        |           |             |  |  |           |   |  |   | 1,649     |         
|Repurchase of units                                                                                |                      |        |           |             |  |  | (87,906    | ) |  |   | (1,318    | )       
|Redemption of OP Units                                                                             |                      |        | 313,930    |             |  |  |           |   |  |   | 6,502     |         
|Allocations from redeemable OP Units                                                               |                      |        |           |             |  |  |           |   |  |   | 26,533    |         
|Distributions                                                                                      |                      |        |           |             |  |  |           |   |  |   | (1,344    | )       
|                                                                                                   |                      |        |            |             |  |  |            |   |  |   |           |         
|Balance at December 31, 2002                                                                       |                      |        | 49,555,047 |             |  |  | (4,324,328 | ) |  | $ | 915,000   |         
|                                                                                                   |                      |        |            |             |  |  |            |   |  |   |           |         

See
accompanying notes to the consolidated financial statements.

48



---



##### 



MERISTAR HOSPITALITY OPERATING PARTNERSHIP,
L.P.

CONSOLIDATED STATEMENTS OF CASH
FLOWS


YEARS ENDED DECEMBER 31, 2002, 2001 AND
2000


(Dollars in thousands)


|                                                                 |                                                                                              |                                                                                  |                                                                                |          |         |        |         |          |         |        |          |          |         |         |  
|---------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | -------- | ------- | ------ | ------- | -------- | ------- | ------ | -------- | -------- | ------- | ------- | -
|                                                                 |                                                                                              | 2002                                                                             |                                                                                | 2001     |         | 2000  
|                                                                 |                                                                                              |                                                                                  |                                                                                |          |         |       
|Operating activities:                                            |                                                                                              |                                                                                  |                                                                                |          |         |        |         |          |         |        |          |         
|                                                                 | Net (loss) income                                                                            |                                                                                  | $                                                                              | (170,819 | )       |        | $       | (44,485  | )       |        | $        | 118,036  |        
|                                                                 | Adjustments to reconcile net (loss) income
    to net cash provided by operating activities: |                                                                                  |                                                                                |          |         |        |         |          |         |        |          |          |        
|                                                                 |                                                                                              | Depreciation and amortization                                                    |                                                                                |          | 122,221 |        |         |          | 116,495 |        |          |          | 110,688 |        
|                                                                 |                                                                                              | Loss (gain) on sale of assets, before tax
    effect                             |                                                                                |          | 21,197  |        |         |          | 2,176   |        |          |          | (3,495  | )      
|                                                                 |                                                                                              | Extraordinary loss (gain) on early
    extinguishment of debt, before tax effect |                                                                                |          |        |        |         |          | 2,770   |        |          |          | (3,450  | )      
|                                                                 |                                                                                              | Loss on asset impairments                                                        |                                                                                |          | 78,732  |        |         |          | 43,582  |        |          |          |        |        
|                                                                 |                                                                                              | Write-down of note receivable with Interstate
    Hotels & Resorts               |                                                                                |          | 14,517  |        |         |          |        |        |          |          |        |        
|                                                                 |                                                                                              | Write-off of deferred financing costs                                            |                                                                                |          | 3,144   |        |         |          |        |        |          |          |        |        
|                                                                 |                                                                                              | Loss on fair value of non-hedging derivatives                                    |                                                                                |          | 4,735   |        |         |          | 6,666   |        |          |          |        |        
|                                                                 |                                                                                              | Write-down of investment in STS Hotel Net                                        |                                                                                |          |        |        |         |          | 2,112   |        |          |          |        |        
|                                                                 |                                                                                              | Minority interests                                                               |                                                                                |          | (15     | )      |         |          | (48     | )      |          |          | (3      | )      
|                                                                 |                                                                                              | Amortization of unearned stock-based compensation                                |                                                                                |          | 4,543   |        |         |          | 2,263   |        |          |          | 3,070   |        
|                                                                 |                                                                                              | Unrealized loss on interest rate swaps recognized
    in net loss                |                                                                                |          | (7,612  | )      |         |          |        |        |          |          |        |        
|                                                                 |                                                                                              | Deferred income taxes                                                            |                                                                                |          | (2,038  | )      |         |          | (1,454  | )      |          |          | 636     |        
|                                                                 |                                                                                              | Changes in operating assets and liabilities:                                     |                                                                                |          |         |        |         |          |         |        |          |          |         |        
|                                                                 |                                                                                              |                                                                                  | Accounts receivable                                                            |          |         | (9,650 | )       |          |         | 2,855  |          |          |         | (1,505  | )
|                                                                 |                                                                                              |                                                                                  | Prepaid expenses and other assets                                              |          |         | (3,401 | )       |          |         | (2,039 | )        |          |         | 6,370   |  
|                                                                 |                                                                                              |                                                                                  | Due from/to Interstate Hotels & Resorts                                        |          |         | 6,757  |         |          |         | 13,344 |          |          |         | (10,745 | )
|                                                                 |                                                                                              |                                                                                  | Accounts payable, accrued expenses, accrued
    interest and other liabilities |          |         | (5,571 | )       |          |         | 5,898  |          |          |         | 4,486   |  
|                                                                 |                                                                                              |                                                                                  |                                                                                |          |         |        |         |          |         |        |          |         
|Net cash provided by operating activities                        |                                                                                              |                                                                                  | 56,740                                                                         |          |         |        | 150,135 |          |         |        | 224,088  |         
|                                                                 |                                                                                              |                                                                                  |                                                                                |          |         |        |         |          |         |        |          |         
|Investing activities:                                            |                                                                                              |                                                                                  |                                                                                |          |         |        |         |          |         |        |          |         
|                                                                 | Investments in hotel properties                                                              |                                                                                  |                                                                                | (47,347  | )       |        |         | (44,476  | )       |        |          | (90,703  | )      
|                                                                 | Proceeds from sales of assets                                                                |                                                                                  |                                                                                | 60,650   |         |        |         | 9,715    |         |        |          | 24,148   |        
|                                                                 | Investments in and advances to affiliates, net                                               |                                                                                  |                                                                                |         |         |        |         |         |         |        |          | (2,111   | )      
|                                                                 | Hotel operating cash received in lease conversions                                           |                                                                                  |                                                                                |         |         |        |         | 3,257    |         |        |          |         |        
|                                                                 | Net (advances to) payments from Interstate Hotels
    & Resorts                              |                                                                                  |                                                                                | (7,500   | )       |        |         | (36,000  | )       |        |          | 57,110   |        
|                                                                 | Decrease (increase) in restricted cash                                                       |                                                                                  |                                                                                | 939      |         |        |         | (1,386   | )       |        |          | (2,730   | )      
|                                                                 |                                                                                              |                                                                                  |                                                                                |          |         |        |         |          |         |        |          |         
|Net cash provided by (used in) investing
    activities          |                                                                                              |                                                                                  | 6,742                                                                          |          |         |        | (68,890 | )        |         |        | (14,286  | )       
|                                                                 |                                                                                              |                                                                                  |                                                                                |          |         |        |         |          |         |        |          |         
|Financing activities:                                            |                                                                                              |                                                                                  |                                                                                |          |         |        |         |          |         |        |          |         
|                                                                 | Deferred financing costs                                                                     |                                                                                  |                                                                                | (4,806   | )       |        |         | (18,927  | )       |        |          | (1,615   | )      
|                                                                 | Proceeds from issuance of long-term debt                                                     |                                                                                  |                                                                                | 305,258  |         |        |         | 933,250  |         |        |          | 179,388  |        
|                                                                 | Principal payments on long-term debt                                                         |                                                                                  |                                                                                | (352,466 | )       |        |         | (871,467 | )       |        |          | (200,028 | )      
|                                                                 | Repayments to MeriStar Hospitality Corporation                                               |                                                                                  |                                                                                |         |         |        |         |         |         |        |          | (14,362  | )      
|                                                                 | Contributions from partners                                                                  |                                                                                  |                                                                                | 3,153    |         |        |         | 847      |         |        |          | 1,356    |        
|                                                                 | Repurchase of units                                                                          |                                                                                  |                                                                                | (1,318   | )       |        |         | (4,514   | )       |        |          | (73,638  | )      
|                                                                 | Distributions paid to partners                                                               |                                                                                  |                                                                                | (3,060   | )       |        |         | (97,539  | )       |        |          | (103,274 | )      
|                                                                 |                                                                                              |                                                                                  |                                                                                |          |         |        |         |          |         |        |          |         
|Net cash used in financing activities                            |                                                                                              |                                                                                  | (53,239                                                                        | )        |         |        | (58,350 | )        |         |        | (212,173 | )       
|                                                                 |                                                                                              |                                                                                  |                                                                                |          |         |        |         |          |         |        |          |         
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                              |                                                                                  | 205                                                                            |          |         |        | 304     |          |         |        | 64       |         
|Net increase (decrease) in cash and cash
    equivalents         |                                                                                              |                                                                                  | 10,448                                                                         |          |         |        | 23,199  |          |         |        | (2,307   | )       
|Cash and cash equivalents, beginning of year                     |                                                                                              |                                                                                  | 23,441                                                                         |          |         |        | 242     |          |         |        | 2,549    |         
|                                                                 |                                                                                              |                                                                                  |                                                                                |          |         |        |         |          |         |        |          |         
|Cash and cash equivalents, end of year                           |                                                                                              | $                                                                                | 33,889                                                                         |          |         | $      | 23,441  |          |         | $      | 242      |         
|                                                                 |                                                                                              |                                                                                  |                                                                                |          |         |        |         |          |         |        |          |         

See
accompanying notes to the consolidated financial statements.

49



---



##### 



MERISTAR HOSPITALITY OPERATING PARTNERSHIP,
L.P.

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS


DECEMBER 31, 2002, 2001 AND 2000


(Amounts in thousands, except per unit and
unit amounts)




|   |             
|-- | ------------
|1. | Organization

MeriStar Hospitality Operating
Partnership, L.P. is the subsidiary operating partnership
of MeriStar Hospitality Corporation (MeriStar
Hospitality, which is a real estate investment trust, or
REIT). We own a portfolio of upscale, full-service hotels and
resorts in the United States and Canada. Our portfolio is
diversified geographically and by franchise and brand
affiliations. As of December 31, 2002, we owned
107 hotels, with 27,581 rooms, all of which were
leased by our taxable subsidiaries and managed by Interstate
Hotels & Resorts, Inc. (Interstate Hotels).
Interstate Hotels was created on July 31, 2002 through the
merger of MeriStar Hotels & Resorts, Inc. and
Interstate Hotels Corporation.

We were created on August 3, 1998, when
American General Hospitality Corporation, a corporation
operating as a real estate investment trust, merged with CapStar
Hotel Company. In connection with this merger, we created
MeriStar Hotels & Resorts, Inc. (now part of Interstate
Hotels) to be the lessee and manager of nearly all of our
hotels. As of December 31, 2002, our general partner,
MeriStar Hospitality, in the form of our Common units, directly
owned a one percent general partnership interest in us and also
indirectly owned an approximately 90% interest in us. Several
third parties owned the remaining approximately 9% of our equity
interests, in the form of various classes of our partnership
units. Because some of these units held by third parties have
redemption rights, these units have been excluded from
partners capital and have been classified as
Redeemable OP Units on the accompanying balance
sheet and recorded at their redemption value.

On January 1, 2001, changes to the federal
tax laws governing REITs became effective. Those changes are
commonly know as the REIT Modernization Act, or RMA. As
permitted by the RMA, we formed a number of wholly-owned taxable
subsidiaries to lease our real property. The RMA prohibits our
taxable subsidiaries from engaging in the following activities:



| |   |                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Managing the properties they lease (our taxable
    subsidiaries must enter into an arms-length
    management agreement with an independent third-party manager
    actively involved in the trade or business of hotel management
    and manages properties on behalf of other owners);
|
| |  | Leasing a property that contains gambling
    operations; and                                                                                                                                                                                                                                
|
| |  | Owning a brand or franchise.                                                                                                                                                                                                                                                                 

Our taxable subsidiaries are parties to
management agreements with a subsidiary of Interstate Hotels to
manage all of our hotels. Under these management agreements, the
taxable subsidiaries pay a management fee to Interstate Hotels
for each property. The taxable subsidiaries in turn make rental
payments to us under the participating leases. Under the
management agreements, the base management fee is 2.5% of total
hotel revenue, plus incentive payments based on meeting
performance thresholds that could total up to 1.5% of total
hotel revenue. All of the agreements, except for three
agreements with terms that renew annually, have an initial term
of 10 years with three renewal periods of five years each
at the option of Interstate Hotels, subject to some exceptions.



|   |                                               
|-- | ----------------------------------------------
|2. | Summary of Significant Accounting
    Policies

Principles of
Consolidation.Our consolidated
financial statements include the accounts of all wholly-owned
and majority-owned subsidiaries. Intercompany balances and
transactions have been eliminated in consolidation.

We use the equity method to account for
investments in unconsolidated joint ventures and affiliated
companies in which we hold a voting interest of 50% or less and
exercise significant influence. We use the cost method to
account for our investments in entities in which we do not have
the ability to exercise significant influence.

50



---



##### 



Use of Estimates.Preparing financial statements in conformity with accounting
principles generally accepted in the United States requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ
significantly from these estimates.

Investments in Hotel Properties.We record investments in hotel
properties at cost (the allocated purchase price for hotel
acquisitions) or at fair value at the time of contribution (for
contributed property). We depreciate buildings using the
straight-line method over a life of 40 years. We depreciate
furniture, fixtures and equipment using the straight-line method
over lives ranging from five to seven years. For the years ended
December 31, 2002, 2001 and 2000, we capitalized interest
of $3,993, $6,098, and $8,613, respectively.

Held for Sale Properties.We classify the properties we are
actively marketing as held for sale once all of the following
conditions are met:



| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our board has approved the sale,                                                                                                                                           
|
| |  | We have a fully executed agreement with a
    qualified buyer which provides for no significant outstanding or
    continuing obligations with the property after sale, and
|
| |  | We have a significant non-refundable deposit.                                                                                                                              

We carry properties held for sale at the lower of
their carrying values or estimated fair values less costs to
sell. We cease depreciation at the time the asset is classified
as held for sale. If material to our total portfolio, we
segregate the held for sale properties on our consolidated
balance sheet.

Impairment or Disposal of Long-Lived Assets.We adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, on January 1, 2002. SFAS No. 144
requires the current and prior period operating results of any
asset that has been classified as held for sale or has been
disposed of on or after January 1, 2002 and where we have
no continuing involvement, including any gain or loss
recognized, to be recorded as discontinued operations.

The provisions of SFAS No. 144 also require
that whenever events or changes in circumstances indicate that
the carrying value of a long-lived asset (including property and
equipment and all intangibles) may be impaired that an analysis
be performed to determine the recoverability of the assets
carrying value. We make estimates of the undiscounted cash flows
from the expected future operations of the asset, or in the case
of an asset actively being marketed but not yet held for sale,
we look to a range of expected sales prices. If the analysis
indicates that the carrying value is not recoverable from these
estimates of cash flows, we write down the asset to estimated
fair value and recognize an impairment loss. Any impairment
losses we recognize on assets held for use are recorded as
operating expenses. We record any impairment losses on assets
held for sale as a component of discontinued operations.

Intangible Assets.Intangible assets consist primarily of deferred financing fees.
We amortize these deferred fees on a straight-line basis (which
approximates the interest method) over the lives of the related
borrowings.

Cash Equivalents and Restricted Cash.We consider all highly liquid
investments with an original maturity of three months or less to
be cash equivalents. Restricted cash represents amounts held in
escrow in accordance with the requirements of certain of our
credit facilities.

Income Taxes.We
account for income taxes in accordance with the provisions of
SFAS No. 109, Accounting for Income Taxes.
Deferred income taxes reflect the tax consequences on future
years of differences between the tax and financial reporting
bases of assets and liabilities.

In conjunction with the merger on August 3,
1998, we were formed to hold all of our hotel properties. We are
a partnership, and as such are not subject to Federal income
tax. We are subject to certain state and local income taxes.

Revenue Recognition.Prior to January 1, 2001, we earned participating lease
revenue from the lease of our hotel operating properties.
Participating lease revenue represented lease payments from
lessees pursuant to

51



---



##### 



participating lease agreements. Effective
January 1, 2001, in conjunction with the RMA, we began to
earn room, food and beverage, and other revenue through the
operations of our hospitality properties. We did earn
participating lease revenues from eight hotels in 2001. We
recognize hotel operational revenues as hotel services are
delivered. Office, retail and parking rentals are generally
recognized on a straight-line basis over the terms of the
respective leases.


Derivative Instruments and Hedging
Activities.We adopted SFAS
No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by SFAS No. 137 and
138, on January 1, 2001. SFAS No. 133 requires an
entity to recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments
at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive
income based on whether the derivative has been designated as a
hedge.

Our policy is to manage interest rates through
the use of a combination of fixed and variable rate debt. Our
interest rate risk management objective is to limit the impact
of interest rate changes on earnings and cash flows. We only
enter into derivative or interest rate transactions for cash
flow hedging purposes.

Stock-Based Compensation.We apply the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, in accounting for our stock option
compensation programs. As we grant compensation awards at market
value, no compensation cost has been recognized. For our other
equity-based compensation plans, we record the fair value of the
cost at the time of issuance and recognize compensation expense
over the respective vesting period. We will adopt the
recognition provisions of SFAS No. 123, Accounting
for Stock-Based Compensation, as amended in
December 2002 by SFAS No. 148, on January 1, 2003
for our stock option compensation programs. As permitted by SFAS
No. 148, we will elect to apply the provisions
prospectively, which will include recognizing compensation
expense for only those stock options issued in 2003 and forward.
We do not expect the adoption of the recognition provisions to
have a material effect on our results of operations or financial
condition. We have adopted the disclosure provisions of SFAS
No. 148 as of December 31, 2002.

Pro forma information regarding net income and
earnings per unit is required by SFAS No. 123, and has been
determined as if we had accounted for our employee stock options
under the fair value method. We estimated the fair value for
these options at the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions:

|                               |  |      |            |      |  |      |            |  |  |   |            | 
|------------------------------ |  | ---- | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | 
|                               |  | 2002 |            | 2001 |  | 2000
|                               |  |      |            |      |  |     
|Risk-free interest rate        |  |      | 2.1%       |      |  |      | 3.6%       |  |  |   | 6.71%      | 
|Dividend rate                  |  |      |           |      |  |      | $1.525     |  |  | $ | 2.02       | 
|Volatility factor              |  |      | 0.04       |      |  |      | 0.57       |  |  |   | 0.27       | 
|Weighted average expected life |  |      | 3.77 years |      |  |      | 3.10 years |  |  |   | 3.06 years | 

52



---



##### 



Had compensation cost for stock options been
determined based on the fair value at the grant date for awards
under our plans, our net (loss) income and per unit amounts
would have been reduced to the pro forma amounts indicated as
follows:

|                                                                                                                                                    |                      |                         |          |        |   |      |         |       |   |   |         |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ----------------------- | -------- | ------ | - | ---- | ------- | ----- | - | - | ------- | ---- | 
|                                                                                                                                                    |                      |                        
|                                                                                                                                                    |                      | Year Ended December 31,
|                                                                                                                                                    |                      | 2002                    |          | 2001   |   | 2000
|                                                                                                                                                    |                      |                         |          |        |   |     
|Net (loss) income, as reported                                                                                                                      |                      | $                       | (170,819 | )      |   | $    | (44,485 | )     |   | $ | 118,036 |     
|Add: Stock-based employee compensation expense
    included in reported net income, net of related tax effect                                       |                      |                         | 4,692    |        |   |      | 4,434   |       |   |   | 1,958   |     
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |                      |                         | (5,526   | )      |   |      | (9,098  | )     |   |   | (5,381  | )   
|                                                                                                                                                    |                      |                         |          |        |   |      |         |       |   |   |         |     
|Net (loss) income, pro forma                                                                                                                        |                      | $                       | (171,653 | )      |   | $    | (49,149 | )     |   | $ | 114,613 |     
|                                                                                                                                                    |                      |                         |          |        |   |      |         |       |   |   |         |     
|Earnings per unit:                                                                                                                                  |                      |                         |          |        |   |      |         |       |   |   |         |     
|                                                                                                                                                    | Basic, as reported   |                         |          | $(3.51 | ) |      | $       | (0.95 | ) |   | $       | 2.32 | 
|                                                                                                                                                    | Basic, pro forma     |                         |          | $(3.52 | ) |      | $       | (1.04 | ) |   | $       | 2.25 | 
|                                                                                                                                                    |                      |                         |          |        |   |      |         |       |   |   |         |     
|                                                                                                                                                    | Diluted, as reported |                         |          | $(3.51 | ) |      | $       | (0.95 | ) |   | $       | 2.24 | 
|                                                                                                                                                    | Diluted, pro forma   |                         |          | $(3.52 | ) |      | $       | (1.04 | ) |   | $       | 2.18 | 
|                                                                                                                                                    |                      |                         |          |        |   |      |         |       |   |   |         |     
|Weighted average fair value of options granted                                                                                                      |                      |                         | $0.72    |        |   | $    | 6.59    |       |   | $ | 3.75    |     
|                                                                                                                                                    |                      |                         |          |        |   |      |         |       |   |   |         |     

The effects of applying SFAS No. 123 for
disclosing pro forma compensation costs may not be
representative of the actual effects on reported net income and
earnings per unit in future years.

Foreign Currency
Translation.We maintain the results
of operations for our four Canadian hotels in Canadian dollars
and translate those results to U.S. dollars using the average
exchange rates for each period. We translate assets and
liabilities using the exchange rate in effect at the balance
sheet date. We reflect any resulting translation adjustments in
accumulated other comprehensive income (loss).

New Accounting Pronouncements.The Financial Accounting Standards
Board (FASB) issued FASB Interpretation No. (FIN) 46,
Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, in January 2003.
The interpretation addresses how to identify variable interest
entities and when to consolidate those entities. Consolidation
of variable interest entities is required by the primary
beneficiary. FIN 46 applies immediately to variable
interest entities created after January 31, 2003 and no
later than the beginning of the first interim or annual
reporting period beginning after June 15, 2003 for
interests in variable interest entities that were acquired prior
to February 1, 2003. We do not expect the adoption of this
interpretation to have a material effect on our results of
operations or financial condition.

The FASB issued FIN 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, an interpretation of FASB Statements No. 5,
57, and 107 and rescission of FASB Interpretation No. 34,
in November 2002. For 2002, the interpretation requires
disclosures, which we have included in Footnote 12,
Commitments and Contingencies. Beginning in 2003,
the interpretation requires recognition of liabilities at their
fair value for newly issued guarantees. We do not expect the
adoption of the recognition provisions of this interpretation to
have a material effect on our results of operations or financial
condition.

The FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4 (Reporting Gains
and Losses from Extinguishment of Debt), No. 44 (Accounting
for Intangible Assets of Motor Carriers) and No. 64
(Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements), Amendment of SFAS No. 13 (Accounting for
Leases), Technical Corrections, in April 2002. The
rescission of SFAS No. 4 and No. 64 requires that all
gains and losses from extinguishments of debt be classified as
extraordinary only if the gains and losses are from unusual or
infrequent transactions. It also requires prior period gains or
losses that are not from unusual or infrequent transactions to
be reclassified as an operational expense. The amendment to SFAS

53



---



##### 



No. 13 requires that if a capital lease is
modified in such a way that the change in terms creates a new
agreement classified as an operating lease, then the original
capital lease asset and obligation be removed and a gain or loss
be recognized for the difference. The new lease will be
accounted for as any other operating lease. SFAS No. 44
does not apply to us. We will adopt the provisions of this
statement beginning on January 1, 2003. Our prior period
extraordinary items will be reclassified as operational expenses
during 2003, and in the future we expect any gains and losses
from the extinguishment of our debt to be classified as
operational. We do not expect the adoption of the other
provisions to have a material effect on our results of
operations or financial condition.


Classification.We
have reclassified certain prior year amounts to conform to the
current year presentation.



|   |                                
|-- | -------------------------------
|3. | Investments in Hotel Properties

Investments in hotel properties consisted of the
following:

|                                  |  |              |           |      |  |   |           | 
|--------------------------------- |  | ------------ | --------- | ---- |  | - | --------- | 
|                                  |  |             
|                                  |  | December 31,
|                                  |  | 2002         |           | 2001
|                                  |  |              |           |     
|Land                              |  | $            | 288,611   |      |  | $ | 310,921   | 
|Buildings                         |  |              | 2,371,861 |      |  |   | 2,473,651 | 
|Furniture, fixtures and equipment |  |              | 361,197   |      |  |   | 354,392   | 
|Construction-in-progress          |  |              | 35,989    |      |  |   | 44,713    | 
|                                  |  |              |           |      |  |   |           | 
|                                  |  | $            | 3,057,658 |      |  | $ | 3,183,677 | 
|                                  |  |              |           |      |  |   |           | 

Due to changes in economic conditions and our
deleveraging strategy, which includes the potential sales of
non-core assets, we performed an analysis to determine the
recoverability of each of our hotel properties during both the
years ended December 31, 2002 and 2001. We recognized an
impairment loss of $78,732 during the fourth quarter of 2002. A
portion of this loss, $15,368, related to an asset classified as
held for sale at December 31, 2002, and is therefore
included in loss from discontinued operations in the
accompanying consolidated statements of operations. We
recognized an impairment loss of $43,582 during the fourth
quarter of 2001. Certain of these assets were sold during 2002,
and as required by SFAS No. 144, the associated impairment
loss of $11,247 recognized in 2001, as well as the assets
related operations for all periods presented, have been
reclassified to loss from discontinued operations in the
accompanying consolidated statements of operations.



|   |                                              
|-- | ---------------------------------------------
|4. | Investments in and Advances to
    Affiliates

We have ownership interests in certain
unconsolidated joint ventures and affiliated companies.

In conjunction with the lease assignments from
MeriStar Hotels (now Interstate Hotels) on January 1, 2001,
we acquired an ownership interest in Ballston Parking Associates
for $1,629. We account for this investment using the cost method.

In 1999, we invested $40,000 in MeriStar
Investment Partners, LP (MIP), a joint venture
established to acquire upscale, full-service hotels. Our
investment is in the form of a preferred partnership interest,
in which we receive a 16% preferred return on our investment. We
account for this investment using the cost method. As of
December 31, 2002, cumulative preferred returns of $10,808
were due from MIP. We have included this receivable in accounts
receivable on the accompanying consolidated balance sheet. Due
to restrictions placed on MIP by its existing bank covenants,
MIP was required to use excess cash flow for principal
amortization rather than distributions to equity holders. We
evaluate the collectibility of our preferred return based on the
underlying value of the hotel properties and our preference to
distributions. On March 27, 2003, MIP completed a
refinancing of its long-term debt, which allows the release of
excess cash flow to pay our preferred return currently. We
expect to begin receiving distributions representing payments of
our current return during the second quarter of 2003. In the
future, we expect that our cumulative

54



---



##### 



unpaid preferred returns will be paid from excess
cash flow above our current return and from potential
disposition proceeds in excess of debt allocated to individual
assets. Given the current economic environment, we do not expect
the partnerships operations to provide adequate cash flow
in the near term for significant repayments of our cumulative
unpaid preferred returns.




|   |                                                             
|-- | ------------------------------------------------------------
|5. | Long-Term Debt and Notes Payable to MeriStar
    Hospitality

Long-term debt consisted of the following:

|                                                                   |               |                |           |         |           |   |           |         |           | 
|------------------------------------------------------------------ | ------------- | -------------- | --------- | ------- | --------- | - | --------- | ------- | --------- | 
|                                                                   |               |               
|                                                                   |               | December 31,  
|                                                                   |               | 2002           |           | 2001   
|                                                                   |               |                |           |        
|Senior unsecured notes                                             |               | $              | 950,000   |         |           | $ | 750,000   |        
|Credit facility                                                    |               |                |          |         |           |   | 224,000   |        
|Secured facility                                                   |               |                | 314,626   |         |           |   | 319,788   |        
|Mortgage debt and other                                            |               |                | 38,030    |         |           |   | 52,335    |        
|Unamortized issue discount                                         |               |                | (6,059    | )       |           |   | (3,106    | )      
|                                                                   |               |                |           |         |           |   |           |        
|                                                                   |               | Long-term debt |           | $       | 1,296,597 |   |           | $       | 1,343,017 | 
|                                                                   |               |                |           |         |           |   |           |        
|Notes payable to MeriStar Hospitality                              |               | $              | 359,300   |         |           | $ | 359,300   |        
|Unamortized issue discount                                         |               |                | (1,795    | )       |           |   | (2,183    | )      
|                                                                   |               |                |           |         |           |   |           |        
|                                                                   | Notes payable |                | $         | 357,505 |           |   | $         | 357,117 |          
|                                                                   |               |                |           |         |           |   |           |        
|Total long-term debt and notes payable to
    MeriStar Hospitality |               | $              | 1,654,102 |         |           | $ | 1,700,134 |        
|                                                                   |               |                |           |         |           |   |           |        

Aggregate future maturities as of
December 31, 2002 were as follows:

|           |  |   |           | 
|---------- |  | - | --------- | 
|2003       |  | $ | 8,263     | 
|2004       |  |   | 170,669   | 
|2005       |  |   | 8,666     | 
|2006       |  |   | 9,407     | 
|2007       |  |   | 213,417   | 
|Thereafter |  |   | 1,243,680 | 
|           |  |   |           | 
|           |  | $ | 1,654,102 | 
|           |  |   |           | 

Senior unsecured notes.In February 2002, we issued $200,000
($196,250, net of discount) aggregate principal amount of 9.13%
senior unsecured notes due 2011. We used the proceeds from the
issuance of these notes to repay approximately $195,000 of the
outstanding balance under our previous revolving credit facility.

In December 2001, we issued $250,000 aggregate
principal amount of 10.5% senior notes due June 2009. The net
proceeds from the sale of $248,420 were used to repay amounts
outstanding under our previous credit facility. The repayments
of term loans under the credit facility resulted in an
extraordinary loss of $1,527 ($1,489, net of tax) from the
write-off of deferred financing costs related to the amounts
repaid.

In January 2001, we issued $300,000 aggregate
principal amount of 9.0% senior notes due 2008 and $200,000 of
9.13% senior notes due 2011. The net proceeds from the sale of
$492,000 were used to repay amounts outstanding under our
previous credit facility, and to make payments to terminate
certain swap agreements that hedged variable rate loans that
were repaid. The repayments of term loans under the credit
facility resulted in an extraordinary loss of $1,243 ($1,224,
net of tax) from the write-off of deferred financing costs
related to the amounts repaid.

The total $950,000 notes are unsecured
obligations of certain subsidiaries of ours and MeriStar
Hospitality guarantees payment of principal and interest on the
notes. These notes contain various restrictive incurrence
covenants, limiting our ability to transact certain business
activities, including additional borrow-

55



---



##### 



ings, if specific financial thresholds are not
achieved. One of those thresholds is maintaining a
2 to 1 fixed charge coverage ratio (as defined in the
indentures, fixed charges only include interest on debt
obligations and preferred equity). As of December 31, 2002,
our fixed charge coverage ratio was 1.6 to 1, and
therefore we were not able to enter into certain transactions.
These limitations include the repurchase of our stock, the
issuance of any preferred stock, the payment of dividends
(unless required to maintain MeriStar Hospitalitys status
as a REIT), the incurrence of any additional debt, or the
repayment of outstanding debt before it comes due. There are
certain exceptions, or carve-out, features with
respect to the incurrence of additional debt and early repayment
of debt features in the indentures.


Credit facility.In
conjunction with the merger between CapStar Hotel Company and
American General Hospitality Corporation in 1998, we entered
into a $1,000,000 senior secured credit facility. The credit
facility was structured as a $300,000, five-year term loan
facility; a $200,000, five-and-a-half year term loan facility;
and a $500,000, three-year revolving credit facility with two,
one-year optional extensions. As described above, we used the
proceeds from the sales of the senior unsecured notes issued in
2001 to repay amounts outstanding under the two term loans. The
credit facility was secured by our common stock and our general
partnership, limited partnership and limited liability ownership
interests in our subsidiaries. The interest rate on the term
loans and revolving facility ranged from 100 to 200 basis points
over the 30-day London Interbank Offered Rate, or LIBOR,
depending on certain financial performance covenants and
long-term senior unsecured debt ratings.

In December 2001, we amended the terms of this
credit facility, permanently relaxing the financial covenants
and extending the maturity date of the revolver from February
2002 to February 2003. We incurred $4,382 of financing costs
related to the amended agreement.

In February 2002, we amended the revolving credit
facility, reducing the revolving commitments to $310,000. In
March 2002, we reduced the borrowing capacity again from
$310,000 to $150,000. We recognized a $1,529 loss due to the
write-off of deferred financing costs related to this reduction
in our borrowing capacity.

New credit facility.On October 29, 2002, we entered into a new three-year
$100,000 senior revolving credit facility, secured by our equity
interest in most of our subsidiaries. The initial interest rate
is LIBOR plus 388 basis points. We terminated our previous
credit facility with this new revolving credit facility. We also
wrote off $1,615 of deferred financing fees related to the
termination. As of December 31, 2002, there were no
outstanding borrowings on this facility.

This facility contains customary compliance
measures we must meet in order to borrow on the facility, which
became more stringent on a quarterly basis beginning in the
first quarter of 2003. The sale of two hotels during the fourth
quarter of 2002 and one in January 2003, as well as the
settlement of our note receivable with Interstate Hotels,
impacted our leverage covenant due to the loss of trailing
12-month EBITDA (as defined in the credit agreement) on a pro
forma basis. While we cannot currently borrow under the
facility, we have obtained a waiver of compliance with this
leverage covenant from our lending group through May 20,
2003. We do not expect this compliance measurement to have a
material impact on our operations as we do not anticipate the
need to draw on this facility during 2003. We intend to either
negotiate an amendment to this facility to maintain our future
compliance until such time as we apply our unrestricted cash to
reduce our leverage, or we may terminate the facility.

Secured facility.In
1999, we completed a $330,000 10-year non-recourse financing
secured by a portfolio of 19 hotels. The loan bears a fixed
interest rate of 8.01% and matures in 2009. We used the majority
of the net proceeds to repay amounts outstanding under our prior
credit facilities.

Our secured facility contains standard provisions
that require the servicer to maintain in escrow cash balances
for certain items such as property taxes and funding of capital
expenditures. In addition, the facility contains a provision
that requires our mortgage servicer to retain in escrow the
excess cash from the encumbered hotels after payment of debt
service (Excess Cash), if net hotel operating income
after payment of FF&E reserves and franchise fees
(NOI) for the trailing twelve months declines below
$57,000. This provision was triggered in October 2002 and will
be effective until the hotels generate the minimum cash

56



---



##### 



flow required for two consecutive quarters, at
which time the cash being held in escrow will be released to us.
Approximately $4,500 of cash was held in escrow under this
provision as of December 31, 2002. Additional amounts
continue to be held in escrow. The security agreement permits us
to substitute unleveraged properties into the portfolio in place
of existing properties in order to increase the NOI to a level
at which the portfolio will meet this requirement. We have begun
discussions with the servicer regarding this substitution and
expect to be able to do so, thus resulting in the release of any
Excess Cash held in escrow. Implementation of this solution is
subject to rating agency approval and qualification for Real
Estate Mortgage Investment Conduit purposes. There can be no
assurance that the hotels will reach the minimum cash flow in
the future.


Mortgage debt.In
connection with the merger between CapStar Hotel Company and
American General Hospitality Corporation in 1998, we assumed
mortgage debt secured by seven hotels. We repaid two of the
mortgages totaling $11,943 during 2002 and one in 2001 for
$3,978. The mortgage debt matures between 2003 and 2012, and the
interest rates on the mortgages range from 8.5% to 10.5%.

Notes payable to MeriStar Hospitality.MeriStar Hospitality completed the
offering of $150,000 aggregate principal amount ($149,799, net
of discount) of 8.75% senior subordinated notes due 2007 in
1997. The related indenture contains various restrictive
covenants, which are similar to those governing MeriStar
Hospitalitys senior unsecured notes. In conjunction with
this transaction, we borrowed $150,000 ($149,799, net of
discount) from MeriStar Hospitality under terms matching those
of the subordinated notes. These notes are unsecured obligations
and provide for semi-annual payments of interest each
February 15 and August 15.

In 1999, MeriStar Hospitality issued $55,000
aggregate principal amount ($51,906, net of discount) of 8.75%
senior subordinated notes due 2007 under an indenture
substantially similar to that governing the 1997 MeriStar
Hospitality notes. In conjunction with this transaction, we
borrowed $55,000 ($51,906, net of discount) from MeriStar
Hospitality under terms matching those of the subordinated
notes. The net proceeds of $51,219 were used to repay amounts
outstanding under our previous credit facility and to invest in
MIP (as discussed in footnote 4). These notes are unsecured
obligations and provide for semi-annual payments of interest
each February 15 and August 15.

MeriStar Hospitality completed in 1997 the
offering of $172,500 aggregate principal amount of 4.75%
convertible subordinated notes due 2004, generating net proceeds
of $167,581. In conjunction with this transaction, we borrowed
$172,500 ($167,581 net of discount) from MeriStar Hospitality
under terms matching those of the convertible notes. The
proceeds were used to repay amounts outstanding under our prior
credit facility and to finance certain hotel acquisitions. The
convertible notes are unsecured obligations and provide for
semi-annual payments of interest on April 15 and
October 15. During 2000, we repurchased $18,200 of these
convertible notes at a discount, resulting in an extraordinary
gain of $3,450 ($3,400, net of tax effect).

Hedge agreements and other
derivatives.Upon adoption of SFAS
No. 133, we recognized a transition adjustment of $2,842
representing the fair value of our derivative instruments at
January 1, 2001. We recorded a liability and corresponding
charge to accumulated comprehensive loss for this amount.

Upon the sale of our $500,000 senior unsecured
notes in January 2001, we reduced the term loans under our
senior secured credit facility by $300,000. At that time, we
terminated three swap agreements with a notional amount of
$300,000. These swap agreements were originally designated as
cash flow hedges of interest rates on the variable rate term
loans that were repaid. We made net payments totaling $9,297 to
terminate these swap agreements, and recognized the loss in
earnings.

Upon the sale of our $250,000 senior unsecured
notes in December 2001, we reduced the term loans and our
revolver under our senior secured credit facility by an
aggregate amount of $248,400. At that time, we converted three
swap agreements to non-hedging derivatives. These swap
agreements had notional principal amounts of approximately
$151,400 and were originally designated to hedge interest rates
on borrowings under our senior secured credit facility that were
repaid. We recognized a $6,666 loss when this amount was
transferred out of accumulated other comprehensive income
because the debt being hedged was repaid.

Upon the issuance of $200,000 aggregate principal
amount of 9.13% senior unsecured notes due 2011 in February
2002, we reduced the borrowings under our previous senior
secured credit agreement by $195,000.

57



---



##### 



As a result of this financing, we redesignated
two swap agreements as non-hedging derivatives. These swap
agreements had notional principal amounts of approximately
$200,000 and were originally designated to hedge variable rate
borrowings under our senior secured credit facility that were
repaid. We recognized a $4,735 loss when this amount was
transferred out of accumulated other comprehensive income
because the debt being hedged was repaid.


As of December 31, 2002, we had two swap
agreements with notional principal amounts totaling $200,000.
Both of these swap agreements have been converted to non-hedging
derivatives due to our repayment of the floating-rate borrowings
they originally hedged. The swap agreements expire between April
and July 2003. These swap agreements are currently being marked
to market through our statement of operations.

We have exposure going forward as the change in
fair value of our non-hedging derivatives will have an impact on
our operations. During the year ended December 31, 2002, we
recognized $7,612 of income related to these interest rate
swaps. For the years ended December 31, 2002 and 2001, we
made cash payments on these swaps of approximately $12,058 and
$6,285, respectively. The change in fair value during 2002 and
the swap payments are netted together on our statement of
operations. The fair value of these swap agreements was a
liability of $3,977 at December 31, 2002, and is included
in other liabilities in the accompanying consolidated balance
sheets.

In anticipation of the August 1999 completion of
our secured facility, we entered into two separate hedge
transactions during July 1999. Upon completion of the secured
facility, we terminated the underlying treasury lock agreements,
resulting in a net payment to us of $5,100. This amount was
deferred and is being recognized as a reduction to interest
expense over the life of the underlying debt. As a result, the
effective interest rate on the secured facility is 7.76%.

As of December 31, 2002, all of our debt was
fixed. Our overall weighted average interest rate was 8.6%. The
fair value of our fixed rate long-term debt was $1,463,699 at
December 31, 2002. We determined fair value based on market
prices as of December 31, 2002.



|   |             
|-- | ------------
|6. | Income Taxes

We file as a partnership for federal income tax
purposes. As a partnership, we are not subject to federal income
tax but are responsible for certain state and local income
taxes. When the RMA became effective on January 1, 2001, we
formed taxable subsidiaries to lease certain of our properties.
These subsidiaries are subject to taxation similar to subchapter
C-corporations. The income of these taxable subsidiaries is
subject to federal and state income taxes.

Our income taxes were allocated as follows:

|                                                                                                        |  |      |        |      |  |      |        |   |  |   |       | 
|------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ----- | 
|                                                                                                        |  | 2002 |        | 2001 |  | 2000
|                                                                                                        |  |      |        |      |  |     
|Tax (benefit) expense on (loss) income
    before discontinued operations and extraordinary (loss) gain |  | $    | (1,310 | )    |  | $    | (976   | ) |  | $ | 1,522 | 
|Tax (benefit) expense on discontinued
    operations                                                    |  |      | (611   | )    |  |      | (107   | ) |  |   | 156   | 
|Tax (benefit) expense on extraordinary
    (loss) gain                                                  |  |      |       |      |  |      | (50    | ) |  |   | 50    | 
|                                                                                                        |  |      |        |      |  |      |        |   |  |   |       | 
|Total income tax (benefit) expense                                                                      |  | $    | (1,921 | )    |  | $    | (1,133 | ) |  | $ | 1,728 | 
|                                                                                                        |  |      |        |      |  |      |        |   |  |   |       | 

Our effective income tax rate is as follows:

|                                                         |  |      |     |      |  |      |     |   |  |  |     |  
|-------------------------------------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                                                         |  | 2002 |     | 2001 |  | 2000
|                                                         |  |      |     |      |  |     
|State and local taxes (weighted average rate)            |  |      | 1.0 | %    |  |      | 1.5 | % |  |  | 1.1 | %
|Difference in effective rate on foreign
    subsidiaries |  |      | 0.1 |      |  |      | 1.0 |   |  |  | 0.3 |  
|                                                         |  |      |     |      |  |      |     |   |  |  |     |  
|                                                         |  |      | 1.1 | %    |  |      | 2.5 | % |  |  | 1.4 | %
|                                                         |  |      |     |      |  |      |     |   |  |  |     |  

58



---



##### 



The components of income tax
(benefit) expense were as follows as of December 31:

|          |         |      |        |        |   |      |        |        |   |   |       |     | 
|--------- | ------- | ---- | ------ | ------ | - | ---- | ------ | ------ | - | - | ----- | --- | 
|          |         | 2002 |        | 2001   |   | 2000
|          |         |      |        |        |   |     
|Current:  |         |      |        |        |   |      |        |        |   |   |       |    
|          | State   |      | $      | 350    |   |      | $      | 320    |   |   | $     | 640 | 
|          | Foreign |      |        |       |   |      |        | 90     |   |   |       | 346 | 
|          |         |      |        |        |   |      |        |        |   |   |       |    
|          |         |      | 350    |        |   |      | 410    |        |   |   | 986   |    
|Deferred: |         |      |        |        |   |      |        |        |   |   |       |    
|          | Federal |      |        | 337    |   |      |        | (337   | ) |   |       |    | 
|          | State   |      |        | (2,520 | ) |      |        | (1,118 | ) |   |       | 654 | 
|          | Foreign |      |        | (88    | ) |      |        | (88    | ) |   |       | 88  | 
|          |         |      |        |        |   |      |        |        |   |   |       |    
|          |         |      | (2,271 | )      |   |      | (1,543 | )      |   |   | 742   |    
|          |         |      |        |        |   |      |        |        |   |   |       |    
|          |         | $    | (1,921 | )      |   | $    | (1,133 | )      |   | $ | 1,728 |    
|          |         |      |        |        |   |      |        |        |   |   |       |    

The tax effects of the principal temporary
differences that give rise to our net deferred tax liability
were as follows:

|                                                                |  |              |        |      |  |   |       |  
|--------------------------------------------------------------- |  | ------------ | ------ | ---- |  | - | ----- | -
|                                                                |  |             
|                                                                |  | December 31,
|                                                                |  |             
|                                                                |  | 2002         |        | 2001
|                                                                |  |              |        |     
|Fair value of hotel assets acquired                             |  | $            | 4,258  |      |  | $ | 5,440 |  
|Accelerated depreciation and basis difference                   |  |              | 1,589  |      |  |   | 1,704 |  
|Asset impairments, extraordinary items and
    one-time charges |  |              | (1,024 | )    |  |   |      |  
|Accrued expenses                                                |  |              | 374    |      |  |   | 374   |  
|Net operating loss carryforwards                                |  |              |       |      |  |   | (449  | )
|Other                                                           |  |              | (338   | )    |  |   | 61    |  
|                                                                |  |              |        |      |  |   |       |  
|Net deferred tax liability                                      |  | $            | 4,859  |      |  | $ | 7,130 |  
|                                                                |  |              |        |      |  |   |       |  

At the time of the merger between CapStar Hotel
Company and American General Hospitality Corporation in 1998, we
established a new basis for the acquired assets and assumed
liabilities based on their fair values at the time of the
merger. We established a net deferred income tax liability for
the estimated future state and local income tax effect for
differences between the accounting and tax bases of these assets
and liabilities. As of December 31, 2002, this deferred tax
liability was $4,258.

For federal income tax purposes, the aggregate
net operating loss (NOL) carryforward for our taxable
subsidiaries was $25,600 as of December 31, 2002. Based on
our projections of the taxable subsidiaries ability to
utilize the NOL carryforward, we have recorded a valuation
allowance to reduce the carrying value of the NOL carryforward
deferred tax asset to zero at December 31, 2002.



|   |                                             
|-- | --------------------------------------------
|7. | Partnership Units and Minority
    Interests

OP Units.Third
parties hold outstanding units of limited partnership interest
in us. These units are redeemable at the option of the holder
for a like number of these shares of common stock of MeriStar
Hospitality, or cash, or a combination thereof, at the election
of MeriStar Hospitality. Due to the redemption rights of these
units held by third parties, the units have been excluded from
partners capital and classified as redeemable OP Units on
the accompanying balance sheet and measured at redemption value
as of the end of the periods presented. At December 31,
2002 and 2001, there were 3,802,768 and 4,116,698 redeemable
units outstanding, respectively. The value of these redeemable
units was based on the closing market price of MeriStar
Hospitalitys common stock at December 31, 2002 and
2001, which was $6.60 and $14.20, respectively. In addition,
there were 392,157 Class D Preferred OP Units outstanding
at December 31, 2002 and 2001, with a redemption value of
$22.16 per unit.

59



---



##### 



Our partnership agreement provides for five
classes of partnership interests: Common OP Units, Class B
OP Units, Class C OP Units, Class D OP Units and
Profits-Only OP Units. Holders of Common OP Units and
Class B OP Units receive distributions per OP unit
equivalent to the dividend paid on each of MeriStar
Hospitalitys common shares. Holders of Class C OP
Units receive a non-cumulative, quarterly distribution equal to
$0.5575 per Class C OP Unit so long as the Common OP Units
and Class B OP Units receive a distribution for such
quarter and the dividend rate on MeriStar Hospitalitys
common stock has not exceeded $0.5575. Class C OP Units
automatically convert into Common OP Units once that dividend
rate is exceeded. Holders of Class D OP Units receive a
6.5% cumulative annual preferred return based on an assumed
price per common share of $22.16; the return is compounded
quarterly to the extent not paid on a current basis, and holders
are entitled to a liquidation preference of $22.16 per
Class D OP Unit. All of our net income and capital received
(after payment of the annual preferred return and, if
applicable, the liquidation preference) will be shared by the
holders of the Common OP Units in proportion to the number of
Common OP Units in us owned by each such holder. As of
December 31, 2002 and 2001, outstanding OP units were
49,425,644 and 49,033,002, respectively.

Each Common OP Unit, Class B
OP Unit, and Class C OP Unit held by
third-parties is redeemable by the holder for cash in an amount
equal to the market value of a share of MeriStar
Hospitalitys common stock or, at our option, for one share
of MeriStar Hospitalitys common stock, determined in
accordance with the terms of our partnership agreement. We have
the option to redeem the Class D OP Units at any time
after April 1, 2000, at a price of $22.16 per share for
cash or, at our option, for shares of MeriStar
Hospitalitys common stock having a value equal to the
redemption price. The holders have the option to redeem the
Class D OP Units at any time after April 1, 2004
for cash or, at the option of the holders, for shares of
MeriStar Hospitalitys common stock having a value equal to
$22.16 per share.

OP Unit holders converted 414,000, 250,000,
and 77,000 of OP Units into MeriStar Hospitalitys common
stock during the years ended December 31, 2002, 2001, and
2000, respectively. There were no conversions for cash during
these years.

Distributions.On
March 30, 2002, June 26, 2002, and September 25,
2002, we declared our first, second, and third quarter
distributions, respectively, equivalent to an annual rate of
$0.03 per Common OP Unit. We did not declare a distribution in
the fourth quarter. The amount of the distribution for each
quarter was $0.01 per unit. The distributions were paid on
April 30, 2002, July 31, 2002, and October 31,
2002.

On March 21, 2001, June 28, 2001,
September 18, 2001, and December 17, 2001, we declared
our first, second, third and fourth quarter distributions,
respectively, equivalent to an annual rate of $1.525 per Common
OP Unit. The amount of the distribution for each of the first
three quarters was $0.505 per unit and $0.01 per unit for the
fourth quarter. The distributions were paid on April 30,
2001, July 31, 2001, October 12, 2001, and
January 31, 2002.

On March 21, 2000, June 21, 2000,
September 25, 2000, and December 20, 2000, we declared
our first, second, third and fourth quarter distributions,
respectively, equivalent to an annual rate of $2.02 per Common
OP Unit. The amount of the distributions for each quarter was
$0.505 per unit. The distributions were paid on April 28,
2000, July 31, 2000, October 31, 2000, and
January 31, 2001.

60



---



##### 





|   |                  
|-- | -----------------
|8. | Earnings Per Unit

The following table presents the computation of
basic and diluted earnings per unit:

|                                       |                                                                      |                                       |   |          |   |      |   |         |   |  |   |         |       | 
|-------------------------------------- | -------------------------------------------------------------------- | ------------------------------------- | - | -------- | - | ---- | - | ------- | - |  | - | ------- | ----- | 
|                                       |                                                                      |                                      
|                                       |                                                                      | Year Ended December 31,              
|                                       |                                                                      |                                      
|                                       |                                                                      | 2002                                  |   | 2001     |   | 2000
|                                       |                                                                      |                                       |   |          |   |     
|Basic Earnings Per Unit Computation:   |                                                                      |                                       |   |          |   |      |   |         |   |  |   |        
|                                       | Net (loss) income from continuing operations                         |                                       | $ | (136,474 | ) |      | $ | (37,459 | ) |  | $ | 106,039 |      
|                                       | Dividends paid on unvested MeriStar Hospitality
    restricted stock |                                       |   | (4       | ) |      |   | (505    | ) |  |   | (1,168  | )    
|                                       | Preferred distributions                                              |                                       |   | (565     | ) |      |   | (565    | ) |  |   | (565    | )    
|                                       |                                                                      |                                       |   |          |   |      |   |         |   |  |   |        
|                                       | (Loss) income available to common unitholders                        |                                       |   | (137,043 | ) |      |   | (38,529 | ) |  |   | 104,306 |      
|                                       | Weighted average number of OP Units outstanding                      |                                       |   | 48,883   |   |      |   | 48,364  |   |  |   | 50,122  |      
|                                       |                                                                      |                                       |   |          |   |      |   |         |   |  |   |        
|                                       | Basic (loss) earnings per unit from
    continuing operations        |                                       | $ | (2.80    | ) |      | $ | (0.80   | ) |  | $ | 2.08    |      
|                                       |                                                                      |                                       |   |          |   |      |   |         |   |  |   |        
|Diluted Earnings Per Unit Computation: |                                                                      |                                       |   |          |   |      |   |         |   |  |   |        
|                                       | (Loss) income available to common unitholders                        |                                       | $ | (137,043 | ) |      | $ | (38,529 | ) |  | $ | 104,306 |      
|                                       | Preferred distributions                                              |                                       |   |         |   |      |   |        |   |  |   | 565     |      
|                                       | Interest on convertible debt, net of tax                             |                                       |   |         |   |      |   |        |   |  |   | 7,338   |      
|                                       | Dividends on unvested MeriStar Hospitality
    restricted stock      |                                       |   |         |   |      |   |        |   |  |   | 254     |      
|                                       | Adjusted net (loss) income                                           |                                       |   | (137,043 | ) |      |   | (38,529 | ) |  |   | 112,463 |      
|                                       |                                                                      |                                       |   |          |   |      |   |         |   |  |   |        
|                                       | Weighted average number of OP Units outstanding                      |                                       |   | 48,883   |   |      |   | 48,364  |   |  |   | 50,122  |      
|                                       | OP Unit equivalents:                                                 |                                       |   |          |   |      |   |         |   |  |   |         |      
|                                       |                                                                      | MeriStar Hospitality stock options    |   |          |  |      |   |         |  |  |   |         | 208   | 
|                                       |                                                                      | Class D preferred OP Units            |   |          |  |      |   |         |  |  |   |         | 392   | 
|                                       |                                                                      | Convertible debt                      |   |          |  |      |   |         |  |  |   |         | 4,612 | 
|                                       |                                                                      | MeriStar Hospitality restricted stock |   |          |  |      |   |         |  |  |   |         | 126   | 
|                                       |                                                                      |                                       |   |          |   |      |   |         |   |  |   |        
|                                       | Total weighted average number of diluted OP                          |                                       |   |          |   |      |   |         |   |  |   |         |      
|                                       | Units outstanding                                                    |                                       |   | 48,883   |   |      |   | 48,364  |   |  |   | 55,460  |      
|                                       |                                                                      |                                       |   |          |   |      |   |         |   |  |   |        
|                                       | Diluted (loss) earnings per unit from
    continuing operations      |                                       | $ | (2.80    | ) |      | $ | (0.80   | ) |  | $ | 2.03    |      
|                                       |                                                                      |                                       |   |          |   |      |   |         |   |  |   |        

9.          Related-Party
Transactions

Due to/from Interstate Hotels &
Resorts

In the normal course of managing our hotel
properties, Interstate Hotels incurs day-to-day operating costs
which are reimbursed by us. The balance due to Interstate Hotels
of $10,500 at December 31, 2002 includes management fees
due for each hotel, and reimbursements due for insurance,
employee benefits, sales and marketing expenses, and other
miscellaneous operating expenses. These amounts are normally
paid within 30 days.

Pursuant to an intercompany agreement, we and
Interstate Hotels provide each other with, among other things,
reciprocal rights to participate in certain transactions entered
into by each party. In particular, Interstate Hotels has a right
of first refusal to become the manager of any real property we
acquire. We also may provide each other with certain services.
These may include administrative, renovation supervision,
corporate, accounting, finance, risk management, legal, tax,
information technology, human resources, acquisition
identification and due diligence, and operational services, for
which Interstate Hotels is compensated in an amount that we
would be charged by a third party for comparable services. As of
December 31, 2001, Interstate Hotels owed us $8,877 for
these services, as well as for working capital deficits at the
RMA lease conversion date. During the years ended
December 31, 2002, 2001 and 2000, we paid Interstate Hotels
a net amount of $454, $151, and $1,165, respectively, for such
services.

61



---



##### 



Note Receivable From Interstate Hotels
& Resorts

Under a revolving credit agreement with
Interstate Hotels through July 31, 2002, we had the ability
to lend Interstate Hotels up to $50,000 for general corporate
purposes. The interest rate on this credit agreement was 650
basis points over the 30-day LIBOR. Repayment of the revolving
credit agreement was subordinated to Interstate Hotels
bank debt. As of December 31, 2001, Interstate Hotels owed
us $36,000 under this agreement.

Effective January 1, 2002, Interstate Hotels
issued us a term note for $13,069, which refinanced outstanding
accounts payable owed to us. The interest rate, maturity date
and subordinated feature were the same as that of the revolving
credit agreement.

In connection with the merger that created
Interstate Hotels on July 31, 2002, Interstate Hotels paid
$3,000 to reduce its borrowings outstanding on the credit
agreement. Simultaneously, the credit agreement and term note
were amended and combined into a term loan agreement with a
principal balance of $56,069 and a maturity date of
July 31, 2007. The interest rate remained at 650 basis
points over the 30-day LIBOR. This term loan was subordinated to
Interstate Hotels new bank credit facility, and the term
loan did not allow for any further borrowings by Interstate
Hotels. In late December 2002, we agreed to settle the term loan
with Interstate Hotels for $42,100, plus accrued interest. We
incurred a $14,517 charge in 2002 related to this settlement.
Cash payment was received in early January 2003.

During 2002, 2001, and 2000, we earned interest
of $4,780, $5,005, and $955, respectively, from these lending
arrangements.

Other Related-Party
Transactions

Of the $300,000 aggregate principal amount of
9.0% senior unsecured notes due in 2008 we issued in January
2001, $30,000 principal amount was issued at a price of 99.688%
to an affiliate of Oak Hill Capital Partners. The terms and
conditions of the notes purchased were identical to those
purchased by third parties.

Of the $200,000 aggregate principal amount of
9.13% senior unsecured notes due in 2011 we issued in January
2001, $20,000 principal amount was issued at a price of 99.603%
to an affiliate of Oak Hill Capital Partners. The terms and
conditions of the notes purchased were identical to those
purchased by third parties.

Of the $250,000 aggregate principal amount of
10.5% senior unsecured notes due in 2009 we issued in December
2001, $23,000 principal amount was issued at a price of 99.368%
to an affiliate of Oak Hill Capital Partners. The terms and
conditions of the notes purchased are identical to those
purchased by third parties.

10.          Stock-Based
Compensation

Stock Options

MeriStar Hospitality sponsors a restricted stock
plan and a stock option plan in which employees of the Operating
Partnership participate. Upon issuance of any restricted stock
or stock option, MeriStar Hospitality is obligated to contribute
the proceeds to us in exchange for an equal number of OP units.

In connection with the merger between CapStar
Hotel Company and American General Hospitality Corporation in
1998, MeriStar Hospitality adopted a new equity incentive plan.
This plan authorizes MeriStar Hospitality to award up to
5,565,518 options on shares of its common stock to our officers
or other key employees. These options are exercisable in three
annual installments and expire ten years from the grant date.

MeriStar Hospitality also adopted a new equity
incentive plan for non-employee directors. The directors
plan authorizes MeriStar Hospitality to award up to 500,000
options, which are also exercisable in three annual installments
and expire ten years from the grant date.

62



---



##### 



Stock option activity for 2002, 2001 and 2000 was
as follows:

|                                                   |           |                       |           |                 |           |           |       |          |       |  |         |        |         |   |       |       |       | 
|-------------------------------------------------- | --------- | --------------------- | --------- | --------------- | --------- | --------- | ----- | -------- | ----- |  | ------- | ------ | ------- | - | ----- | ----- | ----- | 
|                                                   |           |                       |           |                
|                                                   |           | Equity Incentive Plan |           | Directors Plan
|                                                   |           |                       |           |                
|                                                   |           |                       |           | Weighted        |           |           |       | Weighted
|                                                   |           |                       |           | Average         |           |           |       | Average 
|                                                   |           | Number                |           | Exercise        |           | Number    |       | Exercise
|                                                   |           | of Shares             |           | Price           |           | of Shares |       | Price   
|                                                   |           |                       |           |                 |           |           |       |         
|Outstanding at January 1, 2000                     |           |                       | 4,805,928 |                 |           | $         | 23.56 |          |       |  | 85,000  |        |         | $ | 22.36 |      
|                                                   | Granted   |                       |           | 140,000         |           |           |       | 16.13    |       |  |         | 30,000 |         |   |       | 19.00 |      
|                                                   | Exercised |                       |           | (47,153         | )         |           |       | 17.26    |       |  |         |       |         |   |       |      |      
|                                                   | Canceled  |                       |           | (113,441        | )         |           |       | 28.62    |       |  |         |       |         |   |       |      |      
|                                                   |           |                       |           |                 |           |           |       |          |       |  |         |        |         |   |       |      
|Outstanding at December 31, 2000                   |           |                       | 4,785,334 |                 |           |           | 22.68 |          |       |  | 115,000 |        |         |   | 21.34 |      
|                                                   | Granted   |                       |           | 88,500          |           |           |       | 13.33    |       |  |         | 47,500 |         |   |       | 23.00 |      
|                                                   | Exercised |                       |           | (41,839         | )         |           |       | 16.12    |       |  |         |       |         |   |       |      |      
|                                                   | Canceled  |                       |           | (2,194,165      | )         |           |       | 26.87    |       |  |         |       |         |   |       |      |      
|                                                   |           |                       |           |                 |           |           |       |          |       |  |         |        |         |   |       |      
|Outstanding at December 31, 2001                   |           |                       | 2,637,830 |                 |           |           | 19.47 |          |       |  | 162,500 |        |         |   | 21.83 |      
|                                                   | Granted   |                       |           | 690,000         |           |           |       | 11.05    |       |  |         | 42,500 |         |   |       | 15.41 |      
|                                                   | Exercised |                       |           | (201,296        | )         |           |       | 15.45    |       |  |         |       |         |   |       |      |      
|                                                   | Canceled  |                       |           | (164,829        | )         |           |       | 20.10    |       |  |         |       |         |   |       |      |      
|                                                   |           |                       |           |                 |           |           |       |          |       |  |         |        |         |   |       |      
|Outstanding at December 31, 2002                   |           |                       | 2,961,705 |                 |           | $         | 17.64 |          |       |  | 205,000 |        |         | $ | 20.49 |      
|                                                   |           |                       |           |                 |           |           |       |          |       |  |         |        |         |   |       |      
|Shares exercisable at December 31 were as follows: |           |                       |           |                 |           |           |       |          |       |  |         |        |         |   |       |      
|                                                   |           | 2000                  |           |                 | 3,482,816 |           |       | $        | 23.99 |  |         |        | 26,667  |   |       | $     | 22.56 | 
|                                                   |           |                       |           |                 |           |           |       |          |       |  |         |        |         |   |       |      
|                                                   |           | 2001                  |           |                 | 2,020,759 |           |       | $        | 20.09 |  |         |        | 80,000  |   |       | $     | 21.69 | 
|                                                   |           |                       |           |                 |           |           |       |          |       |  |         |        |         |   |       |      
|                                                   |           | 2002                  |           |                 | 2,191,049 |           |       | $        | 19.81 |  |         |        | 119,167 |   |       | $     | 21.79 | 
|                                                   |           |                       |           |                 |           |           |       |          |       |  |         |        |         |   |       |      

The following table summarizes information about
stock options outstanding and exercisable at December 31,
2002:

|                 |  |                     |           |                     |  |          |      |             |  |          |       |  |  |  |           |  |  |   |       | 
|---------------- |  | ------------------- | --------- | ------------------- |  | -------- | ---- | ----------- |  | -------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                 |  |                     |           |                    
|                 |  | Options Outstanding |           | Options Exercisable
|                 |  |                     |           |                    
|                 |  |                     |           | Weighted            |  |          |      |            
|                 |  |                     |           | Average             |  | Weighted |      |             |  | Weighted
|                 |  |                     |           | Remaining           |  | Average  |      |             |  | Average 
|Range of         |  | Number              |           | Contractual Life    |  | Exercise |      | Number      |  | Exercise
|Exercise Prices  |  | Outstanding         |           | (in years)          |  | Price    |      | Exercisable |  | Price   
|                 |  |                     |           |                     |  |          |      |             |  |         
|$7.42 to $14.88  |  |                     | 991,000   |                     |  |          | 8.64 |             |  | $        | 11.64 |  |  |  | 404,503   |  |  | $ | 14.77 | 
|$15.60 to $19.00 |  |                     | 622,523   |                     |  |          | 5.89 |             |  |          | 16.32 |  |  |  | 407,527   |  |  |   | 15.88 | 
|$19.19 to $19.19 |  |                     | 850,000   |                     |  |          | 6.10 |             |  |          | 19.19 |  |  |  | 850,000   |  |  |   | 19.19 | 
|$19.75 to $32.42 |  |                     | 700,182   |                     |  |          | 5.50 |             |  |          | 26.19 |  |  |  | 645,186   |  |  |   | 26.57 | 
|$31.51 to $31.51 |  |                     | 3,000     |                     |  |          | 4.93 |             |  |          | 31.51 |  |  |  | 3,000     |  |  |   | 31.51 | 
|                 |  |                     |           |                     |  |          |      |             |  |          |       |  |  |  |           |  |  |   |       | 
|                 |  |                     | 3,166,705 |                     |  |          |      |             |  |          |       |  |  |  | 2,310,216 |  |  |   |       | 
|                 |  |                     |           |                     |  |          |      |             |  |          |       |  |  |  |           |  |  |   |       | 

Other Stock-Based Compensation

As of December 31, 2002, MeriStar
Hospitality has granted 621,500 shares of restricted stock to
our employees or to those of an affiliate. This restricted stock
vests ratably over three- or five-year periods. The issuance of
restricted stock has resulted in $744 of unearned stock-based
compensation recorded as a reduction to partners capital
on our balance sheet as of December 31, 2002.

63



---



##### 



On March 29, 2000, we granted 462,500
Profits-Only Units, or POPs, to some of our employees pursuant
to our POPs Plan. These POPs were originally eligible for
vesting based on our achievement of certain financial
performance criteria. During 2001, we converted the 387,500 of
outstanding POPs to fixed awards and extended the vesting period
to 2004. On April 16, 2001, we granted 350,000 POPs to some
of our employees pursuant to our POPs Plan. These POPs are fixed
awards and vest ratably over three years. On April 1, 2002,
we granted 25,000 POPs to some of our employees pursuant to our
POPs Plan. These POPs are fixed awards and vest ratably over
five years. On May 1, 2002, we granted 162,500 POPs to one
of our employees pursuant to our POPs Plan. These POPs are fixed
awards and vest ratably over three years. There were
737,500 POPs outstanding and 409,028 POPs vested as of
December 31, 2002.

11.          Separation
and Restructuring Charges

In 2002, we incurred $3,244 of costs related to
the formal separation of management functions from Interstate
Hotels. In 2001, we incurred a restructuring charge of $1,080 in
connection with operational changes at our corporate
headquarters. The costs for both years are included in
administrative and general expenses on our income statement.

The 2001 restructuring charge included the
elimination of seven corporate staff positions and office space
no longer needed under the new structure. The restructuring
charge consisted of $168 of severance costs and $912 of
noncancelable lease costs. During 2002, we applied $184 of lease
termination costs against the restructuring reserve, and $168 in
severance and $520 of lease termination costs were applied
during 2001. As of December 31, 2002, $208 of the
restructuring accrual remains.

12.          Commitments
and Contingencies

Litigation.In the
course of our normal business activities, various lawsuits,
claims and proceedings have been or may be instituted or
asserted against us. Based on currently available facts, we
believe that the disposition of matters that are pending or
asserted will not have a material adverse effect on our
financial position, results of operations or liquidity.

Minimum Lease Payments.We lease the land at certain of our
hotels under long-term arrangements from third parties. Certain
leases contain contingent rent features based on gross revenues
at the respective property. Future minimum lease payments
required under these operating leases as of December 31,
2002 were as follows:

|           |  |   |        | 
|---------- |  | - | ------ | 
|2003       |  | $ | 1,437  | 
|2004       |  |   | 1,437  | 
|2005       |  |   | 1,440  | 
|2006       |  |   | 1,427  | 
|2007       |  |   | 1,427  | 
|Thereafter |  |   | 56,368 | 
|           |  |   |        | 
|           |  | $ | 63,536 | 
|           |  |   |        | 

Our obligations under other operating lease
commitments, primarily for equipment, are not significant.

64



---



##### 



We lease certain office, retail and parking space
to outside parties under non-cancelable operating leases with
initial or remaining terms in excess of one year. Future minimum
rental receipts under these leases as of December 31, 2002
were as follows:

|           |  |   |        | 
|---------- |  | - | ------ | 
|2003       |  | $ | 4,697  | 
|2004       |  |   | 4,428  | 
|2005       |  |   | 2,896  | 
|2006       |  |   | 2,027  | 
|2007       |  |   | 1,456  | 
|Thereafter |  |   | 1,929  | 
|           |  |   |        | 
|           |  | $ | 17,433 | 
|           |  |   |        | 

13.          Dispositions
and Acquisitions

We sold three hotels during the third quarter and
two hotels during the fourth quarter of 2002. In January 2003,
we sold one hotel classified as held for sale at
December 31, 2002. We sold the five hotels in 2002 for
$60,650, which resulted in a loss on sale of assets of $21,197
($20,773, net of tax). We sold the one hotel in January 2003 for
$12,650, and recognized an impairment loss of $15,368 on this
asset during 2002. All operating results, including the loss on
disposal and impairment loss, have been recorded as discontinued
operations. We have reclassified prior periods to reflect
operations of the six hotels as discontinued operations.

Revenue and pre-tax (loss) income included
in discontinued operations for these six hotels were:

|                      |  |      |         |      |  |      |        |   |  |   |        | 
|--------------------- |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ------ | 
|                      |  | 2002 |         | 2001 |  | 2000
|                      |  |      |         |      |  |     
|Revenue               |  | $    | 24,092  |      |  | $    | 27,550 |   |  | $ | 14,745 | 
|                      |  |      |         |      |  |      |        |   |  |   |        | 
|Pre-tax (loss) income |  | $    | (34,956 | )    |  | $    | (4,413 | ) |  | $ | 8,753  | 
|                      |  |      |         |      |  |      |        |   |  |   |        | 

During 2001, we sold two hotels and received
proceeds of $9,715. The sales resulted in a loss of $2,176. The
loss recognized on these sales, as well as the operating results
of these hotels, were included in continuing operations, as the
provisions of SFAS No. 144 requiring the presentation of
such results as discontinued operations applies to only those
assets disposed of on or after January 1, 2002.

During 2001, we terminated the leases of eight of
our hotels from affiliates of Prime Hospitality Corporation for
a total cost of $1,315. Concurrently, we signed long-term
management agreements with Interstate Hotels (formerly MeriStar
Hotels) for four of these properties. The term on the remaining
three management agreements with Interstate Hotels are one year
with additional one-year renewal periods.

On May 9, 2001, we and MeriStar Hospitality
entered into an Agreement and Plan of Merger with FelCor Lodging
Trust Incorporated and its operating partnership. On
September 21, 2001, we mutually agreed with FelCor to
terminate the merger agreement due to unfavorable market
conditions. We incurred $5,817 of costs related to this
potential merger. The costs are reflected in our statement of
operations.

During 2000, we sold three limited-service hotels
and received proceeds of $24,148. This resulted in a gain on
sale of assets of $3,495. The gain recognized on these sales, as
well as the operating results of these hotels, were included in
continuing operations, as the provisions of SFAS No. 144
requiring the presentation of such results as discontinued
operations applies to only those assets disposed of on or after
January 1, 2002. We also purchased a full-service hotel in
2000 for $19,400. Of the purchase amount, $11,400 was paid in
cash and $8,000 will be paid from the hotels future cash
flow through 2005. The acquisition was funded using existing
cash and borrowings on our credit facility.

65



---



##### 



14.          Segment
Information

SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information,
requires public entities to report selected information about
operating segments. Based on the guidance provided in the
standard, we have determined that our business is conducted in
one reportable segment, hotel ownership.

The following summarizes certain geographic
information required under the standard:

|                                          |  |      |           |      |  |      |           |  |  |   |         | 
|----------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | ------- | 
|                                          |  | 2002 |           | 2001 |  | 2000
|                                          |  |      |           |      |  |     
|Revenue:                                  |  |      |           |      |  |      |           |  |  |   |         | 
|U.S.                                      |  | $    | 961,753   |      |  | $    | 1,034,071 |  |  | $ | 379,419 | 
|Canada                                    |  |      | 21,700    |      |  |      | 23,267    |  |  |   | 6,521   | 
|                                          |  |      |           |      |  |      |           |  |  |   |         | 
|                                          |  | $    | 983,453   |      |  | $    | 1,057,338 |  |  | $ | 385,940 | 
|                                          |  |      |           |      |  |      |           |  |  |   |         | 
|Investments in hotel properties,
    net: |  |      |           |      |  |      |           |  |  |   |         | 
|U.S.                                      |  | $    | 2,509,117 |      |  | $    | 2,734,028 |  |  |   |         | 
|Canada                                    |  |      | 50,820    |      |  |      | 52,269    |  |  |   |         | 
|                                          |  |      |           |      |  |      |           |  |  |   |         | 
|                                          |  | $    | 2,559,937 |      |  | $    | 2,786,297 |  |  |   |         | 
|                                          |  |      |           |      |  |      |           |  |  |   |         | 

15.          Subsequent
Event

We continue to focus on a deleveraging strategy,
including the expansion of our program of selling non-core
assets. As of February 12, 2003, we were actively marketing
eight assets as part of our non-core asset disposition plan.
Based on a recent decision to raise additional cash to reduce
our overall leverage and provide additional capital for
reinvestment in our core holdings, we changed our expectation
about our holding period on eight additional hotels in our
portfolio. Based on expected sales proceeds, we will record an
impairment charge in the first quarter of 2003 of approximately
$50,000 to $55,000.

16.          Quarterly
Financial Information (Unaudited)

Quarterly information has been restated to
reflect assets sold or classified as held for sale in 2002 as
discontinued operations for all periods presented.

|                                         |  |         |         |         |  |         |         |         |  |         |         |         |  |         |          |         |  |   |         |  |  |   |         |  |  |   |         |   |  |   |         |  
|---------------------------------------- |  | ------- | ------- | ------- |  | ------- | ------- | ------- |  | ------- | ------- | ------- |  | ------- | -------- | ------- |  | - | ------- |  |  | - | ------- |  |  | - | ------- | - |  | - | ------- | -
|                                         |  |         |         |        
|                                         |  | 2002    |         | 2001   
|                                         |  |         |         |        
|                                         |  | First   |         | Second  |  | Third   |         | Fourth  |  | First   |         | Second  |  | Third   |          | Fourth 
|                                         |  | Quarter |         | Quarter |  | Quarter |         | Quarter |  | Quarter |         | Quarter |  | Quarter |          | Quarter
|                                         |  |         |         |         |  |         |         |         |  |         |         |         |  |         |          |        
|Total revenue                            |  | $       | 249,359 |         |  | $       | 273,226 |         |  | $       | 230,970 |         |  | $       | 229,898  |         |  | $ | 296,105 |  |  | $ | 299,482 |  |  | $ | 240,319 |   |  | $ | 221,432 |  
|Total operating expenses                 |  |         | 226,165 |         |  |         | 236,554 |         |  |         | 188,704 |         |  |         | 333,400  |         |  |   | 251,919 |  |  |   | 243,794 |  |  |   | 228,157 |   |  |   | 247,302 |  
|Operating (loss) income                  |  |         | 23,194  |         |  |         | 36,672  |         |  |         | 42,266  |         |  |         | (103,502 | )       |  |   | 44,186  |  |  |   | 55,688  |  |  |   | 12,162  |   |  |   | (25,870 | )
|(Loss) income from continuing operations |  |         | (11,136 | )       |  |         | 2,546   |         |  |         | (24,266 | )       |  |         | (103,618 | )       |  |   | 12,453  |  |  |   | 24,903  |  |  |   | (19,660 | ) |  |   | (55,155 | )
|Net (loss) income                        |  |         | (10,324 | )       |  |         | 3,503   |         |  |         | (30,739 | )       |  |         | (133,259 | )       |  |   | 13,271  |  |  |   | 27,131  |  |  |   | (18,050 | ) |  |   | (66,837 | )
|Diluted (loss) earnings per unit         |  |         | (0.22   | )       |  |         | 0.07    |         |  |         | (0.63   | )       |  |         | (2.74    | )       |  |   | 0.29    |  |  |   | 0.52    |  |  |   | (0.38   | ) |  |   | (1.39   | )

66



---



##### 



17.          Supplemental
Cash Flow Information

|                                             |                                       |      |   |         |  |      |   |         |  |  |   |         | 
|-------------------------------------------- | ------------------------------------- | ---- | - | ------- |  | ---- | - | ------- |  |  | - | ------- | 
|                                             |                                       | 2002 |   | 2001    |  | 2000
|                                             |                                       |      |   |         |  |     
|Cash paid for interest and income taxes:     |                                       |      |   |         |  |      |   |         |  |  |   |        
|                                             | Interest, net of capitalized interest |      | $ | 132,977 |  |      | $ | 105,732 |  |  | $ | 120,539 | 
|                                             | Income taxes                          |      |   | 827     |  |      |   | 698     |  |  |   | 874     | 
|Non-cash investing and financing activities: |                                       |      |   |         |  |      |   |         |  |  |   |        
|                                             | Redemption of Units                   |      |   | 6,502   |  |      |   | 5,428   |  |  |   | 24      | 
|                                             | Issuances of POPs                     |      |   | 2,894   |  |      |   | 1,243   |  |  |   |        | 
|                                             | POPs converted to common stock        |      |   | 2,915   |  |      |   |        |  |  |   |        | 
|                                             | Dividends reinvested                  |      |   |        |  |      |   |        |  |  |   | 91      | 
|                                             | Issuance of restricted stock          |      |   |        |  |      |   |        |  |  |   | 10,620  | 
|                                             | Deferred purchase price               |      |   |        |  |      |   |        |  |  |   | 8,000   | 

We received the following operating assets and
assumed the following liabilities in connection with our lease
conversion in 2001:

|                                                                    |                                 |   |        |        | 
|------------------------------------------------------------------- | ------------------------------- | - | ------ | ------ | 
|Accounts receivable                                                 |                                 | $ | 47,200 |       
|Prepaid expenses and other                                          |                                 |   | 13,500 |       
|Furniture and fixtures, net of accumulated
    depreciation of $163 |                                 |   | 152    |       
|Investment in affiliates, net                                       |                                 |   | 1,629  |       
|                                                                    |                                 |   |        |       
|                                                                    | Total operating assets received |   | $      | 62,481 | 
|                                                                    |                                 |   |        |       
|Accounts payable and accrued expenses                               |                                 | $ | 65,706 |       
|Long-term debt                                                      |                                 |   | 32     |       
|                                                                    |                                 |   |        |       
|                                                                    | Total liabilities assumed       |   | $      | 65,738 | 
|                                                                    |                                 |   |        |       

18.          Consolidating
Financial Statements

Certain of our subsidiaries and MeriStar
Hospitality are guarantors of our senior unsecured notes.
Certain of our subsidiaries are guarantors of MeriStar
Hospitalitys unsecured subordinated notes. All guarantees
are full and unconditional, and joint and several.
Exhibit 99.1 to this Annual Report on Form 10-K
presents supplementary consolidating financial statements for
us, including each of our guarantor subsidiaries. This exhibit
presents our consolidating balance sheets as of
December 31, 2002 and 2001, consolidating statements of
operations for the years ended December 31, 2002, 2001, and
2000, and consolidating statements of cash flows for the years
ended December 31, 2002, 2001 and 2000.

67



---



##### 



MERISTAR HOSPITALITY OPERATING PARTNERSHIP,
L.P.

SCHEDULE III  REAL ESTATE AND
ACCUMULATED DEPRECIATION


DECEMBER 31, 2002


(Dollars in thousands)


|                                                                      |  |         |        |              |  |                  |        |                |  |          |        |      |  |          |        |           |  |           |         |          |  |      |        |  |  |   |        |  |  |   |       |  |  |  |      |  |  |  |          |  |  |  |    | 
|--------------------------------------------------------------------- |  | ------- | ------ | ------------ |  | ---------------- | ------ | -------------- |  | -------- | ------ | ---- |  | -------- | ------ | --------- |  | --------- | ------- | -------- |  | ---- | ------ |  |  | - | ------ |  |  | - | ----- |  |  |  | ---- |  |  |  | -------- |  |  |  | -- | 
|                                                                      |  |         |        |              |  |                  |        |                |  |          |        |      |  |          |        |           |  |          
|                                                                      |  |         |        |              |  | Costs Subsequent |        | Gross Amount   |  |          |        |      |  |          |        |          
|                                                                      |  |         |        | Initial Cost |  | to Acquisition   |        | at End of Year |  |          |        |      |  |          |        |          
|                                                                      |  |         |        |              |  |                  |        |                |  |          |        |      |  |          |        |          
|                                                                      |  |         |        |              |  | Building         |        |                |  | Building |        |      |  | Building |        | Accum-    |  |           |         |          |  |     
|                                                                      |  |         |        |              |  | and              |        |                |  | and      |        |      |  | and      |        | ulated    |  | Year of   |         |          |  |     
|                                                                      |  | Encum-  |        |              |  | Improve-         |        |                |  | Improve- |        |      |  | Improve- |        | Deprecia- |  | Construc- |         | Date     |  |     
|Description, Hotel Assets:                                            |  | brances |        | Land         |  | ments            |        | Land           |  | ments    |        | Land |  | ments    |        | tion      |  | tion      |         | Acquired |  | Life
|                                                                      |  |         |        |              |  |                  |        |                |  |          |        |      |  |          |        |           |  |           |         |          |  |     
|Salt Lake Airport Hilton, UT                                          |  | $       |       |              |  | $                | 770    |                |  | $        | 12,828 |      |  | $        |       |           |  | $         | 4,505   |          |  | $    | 770    |  |  | $ | 17,333 |  |  | $ | 2,994 |  |  |  | 1980 |  |  |  | 3/3/95   |  |  |  | 40 | 
|Radisson Hotel, Schaumburg, IL                                        |  |         |       |              |  |                  | 1,080  |                |  |          | 5,131  |      |  |          | (234   | )         |  |           | 1,084   |          |  |      | 846    |  |  |   | 6,215  |  |  |   | 1,263 |  |  |  | 1979 |  |  |  | 6/30/95  |  |  |  | 40 | 
|Sheraton Hotel, Colorado Springs, CO                                  |  |         | (a)    |              |  |                  | 1,071  |                |  |          | 14,592 |      |  |          |       |           |  |           | 5,444   |          |  |      | 1,071  |  |  |   | 20,036 |  |  |   | 3,485 |  |  |  | 1974 |  |  |  | 6/30/95  |  |  |  | 40 | 
|Hilton Hotel, Bellevue, WA                                            |  |         | 48     |              |  |                  | 5,211  |                |  |          | 6,766  |      |  |          | (441   | )         |  |           | 3,886   |          |  |      | 4,770  |  |  |   | 10,652 |  |  |   | 1,628 |  |  |  | 1979 |  |  |  | 8/4/95   |  |  |  | 40 | 
|Marriott Hotel, Somerset, NJ                                          |  |         | (a)    |              |  |                  | 1,978  |                |  |          | 23,001 |      |  |          |       |           |  |           | 5,007   |          |  |      | 1,978  |  |  |   | 28,008 |  |  |   | 4,899 |  |  |  | 1978 |  |  |  | 10/3/95  |  |  |  | 40 | 
|Westin Atlanta Airport, Atlanta, GA                                   |  |         |       |              |  |                  | 2,650  |                |  |          | 15,926 |      |  |          | (300   | )         |  |           | 9,671   |          |  |      | 2,350  |  |  |   | 25,597 |  |  |   | 4,345 |  |  |  | 1982 |  |  |  | 11/15/95 |  |  |  | 40 | 
|Sheraton Hotel, Charlotte, NC                                         |  |         | (a)    |              |  |                  | 4,700  |                |  |          | 11,057 |      |  |          |       |           |  |           | 4,267   |          |  |      | 4,700  |  |  |   | 15,324 |  |  |   | 2,633 |  |  |  | 1985 |  |  |  | 2/2/96   |  |  |  | 40 | 
|Radisson Hotel Southwest, Cleveland, OH                               |  |         |       |              |  |                  | 1,330  |                |  |          | 6,353  |      |  |          |       |           |  |           | 5,647   |          |  |      | 1,330  |  |  |   | 12,000 |  |  |   | 1,773 |  |  |  | 1978 |  |  |  | 2/16/96  |  |  |  | 40 | 
|Orange County Airport Hilton, Irvine, CA                              |  |         | (a)    |              |  |                  | 9,990  |                |  |          | 7,993  |      |  |          |       |           |  |           | 3,882   |          |  |      | 9,990  |  |  |   | 11,875 |  |  |   | 1,837 |  |  |  | 1976 |  |  |  | 2/22/96  |  |  |  | 40 | 
|The Latham Hotel, Washington, DC                                      |  |         |       |              |  |                  | 6,500  |                |  |          | 5,320  |      |  |          |       |           |  |           | 4,550   |          |  |      | 6,500  |  |  |   | 9,870  |  |  |   | 1,396 |  |  |  | 1981 |  |  |  | 3/8/96   |  |  |  | 40 | 
|Hilton Hotel, Arlington, TX                                           |  |         | (a)    |              |  |                  | 1,836  |                |  |          | 14,689 |      |  |          | 79     |           |  |           | 3,846   |          |  |      | 1,915  |  |  |   | 18,535 |  |  |   | 2,987 |  |  |  | 1983 |  |  |  | 4/17/96  |  |  |  | 40 | 
|Hilton Hotel, Arlington, VA                                           |  |         |       |              |  |                  | 4,000  |                |  |          | 15,069 |      |  |          |       |           |  |           | 1,208   |          |  |      | 4,000  |  |  |   | 16,277 |  |  |   | 2,503 |  |  |  | 1990 |  |  |  | 8/23/96  |  |  |  | 40 | 
|Embassy Suites, Englewood, CO                                         |  |         | (a)    |              |  |                  | 2,500  |                |  |          | 20,700 |      |  |          |       |           |  |           | 3,751   |          |  |      | 2,500  |  |  |   | 24,451 |  |  |   | 3,629 |  |  |  | 1986 |  |  |  | 12/12/96 |  |  |  | 40 | 
|Holiday Inn, Colorado Springs, CO                                     |  |         |       |              |  |                  | 1,600  |                |  |          | 4,232  |      |  |          | (426   | )         |  |           | 479     |          |  |      | 1,174  |  |  |   | 4,711  |  |  |   | 726   |  |  |  | 1974 |  |  |  | 12/17/96 |  |  |  | 40 | 
|Embassy Row Hilton, Washington, DC                                    |  |         |       |              |  |                  | 2,200  |                |  |          | 13,247 |      |  |          |       |           |  |           | 3,712   |          |  |      | 2,200  |  |  |   | 16,959 |  |  |   | 2,292 |  |  |  | 1969 |  |  |  | 12/17/96 |  |  |  | 40 | 
|Hilton Hotel & Towers, Lafayette, LA                                  |  |         | (a)    |              |  |                  | 1,700  |                |  |          | 16,062 |      |  |          |       |           |  |           | 2,309   |          |  |      | 1,700  |  |  |   | 18,371 |  |  |   | 2,625 |  |  |  | 1981 |  |  |  | 12/17/96 |  |  |  | 40 | 
|Hilton Hotel, Sacramento, CA                                          |  |         | (a)    |              |  |                  | 4,000  |                |  |          | 16,013 |      |  |          |       |           |  |           | 3,515   |          |  |      | 4,000  |  |  |   | 19,528 |  |  |   | 2,668 |  |  |  | 1983 |  |  |  | 12/17/96 |  |  |  | 40 | 
|Santa Barbara Inn, Santa Barbara, CA                                  |  |         |       |              |  |                  | 2,600  |                |  |          | 5,141  |      |  |          |       |           |  |           | 1,575   |          |  |      | 2,600  |  |  |   | 6,716  |  |  |   | 929   |  |  |  | 1959 |  |  |  | 12/17/96 |  |  |  | 40 | 
|San Pedro Hilton, San Pedro, CA                                       |  |         |       |              |  |                  | 640    |                |  |          | 6,047  |      |  |          |       |           |  |           | 2,631   |          |  |      | 640    |  |  |   | 8,678  |  |  |   | 1,184 |  |  |  | 1989 |  |  |  | 1/28/97  |  |  |  | 40 | 
|Doubletree Hotel, Albuquerque, NM                                     |  |         | (a)    |              |  |                  | 2,700  |                |  |          | 15,075 |      |  |          |       |           |  |           | 2,470   |          |  |      | 2,700  |  |  |   | 17,545 |  |  |   | 2,388 |  |  |  | 1975 |  |  |  | 1/31/97  |  |  |  | 40 | 
|Westchase Hilton & Towers, Houston, TX                                |  |         | (a)    |              |  |                  | 3,000  |                |  |          | 23,991 |      |  |          |       |           |  |           | 1,595   |          |  |      | 3,000  |  |  |   | 25,586 |  |  |   | 3,762 |  |  |  | 1980 |  |  |  | 1/31/97  |  |  |  | 40 | 
|Sheraton Great Valley Inn, Frazer, PA                                 |  |         |       |              |  |                  | 2,150  |                |  |          | 11,653 |      |  |          | 11     |           |  |           | 3,840   |          |  |      | 2,161  |  |  |   | 15,493 |  |  |   | 1,964 |  |  |  | 1971 |  |  |  | 3/27/97  |  |  |  | 40 | 
|Holiday Inn Calgary Airport, Calgary, Alberta,
    Canada             |  |         |       |              |  |                  | 751    |                |  |          | 5,011  |      |  |          | (72    | )         |  |           | 2,036   |          |  |      | 679    |  |  |   | 7,047  |  |  |   | 831   |  |  |  | 1981 |  |  |  | 4/1/97   |  |  |  | 40 | 
|Sheraton Hotel Dallas, Dallas, TX                                     |  |         |       |              |  |                  | 1,300  |                |  |          | 17,268 |      |  |          | (797   | )         |  |           | (6,849  | )        |  |      | 503    |  |  |   | 10,419 |  |  |   | 2,588 |  |  |  | 1974 |  |  |  | 4/1/97   |  |  |  | 40 | 
|Radisson Hotel Dallas, Dallas, TX                                     |  |         |       |              |  |                  | 1,800  |                |  |          | 17,580 |      |  |          | (1,369 | )         |  |           | (11,395 | )        |  |      | 431    |  |  |   | 6,185  |  |  |   | 2,494 |  |  |  | 1972 |  |  |  | 4/1/97   |  |  |  | 40 | 
|Sheraton Hotel Guildford, Surrey, BC, Canada                          |  |         |       |              |  |                  | 2,366  |                |  |          | 24,008 |      |  |          | (226   | )         |  |           | (888    | )        |  |      | 2,140  |  |  |   | 23,120 |  |  |   | 3,229 |  |  |  | 1992 |  |  |  | 4/1/97   |  |  |  | 40 | 
|Doubletree Guest Suites, Indianapolis, IN                             |  |         |       |              |  |                  | 1,000  |                |  |          | 8,242  |      |  |          |       |           |  |           | 1,087   |          |  |      | 1,000  |  |  |   | 9,329  |  |  |   | 1,286 |  |  |  | 1987 |  |  |  | 4/1/97   |  |  |  | 40 | 
|Ramada Vancouver Centre, Vancouver, BC, Canada                        |  |         |       |              |  |                  | 4,400  |                |  |          | 7,840  |      |  |          | (419   | )         |  |           | 2,006   |          |  |      | 3,981  |  |  |   | 9,846  |  |  |   | 1,307 |  |  |  | 1968 |  |  |  | 4/1/97   |  |  |  | 40 | 
|Holiday Inn Sports Complex, Kansas City, MO                           |  |         |       |              |  |                  | 420    |                |  |          | 4,742  |      |  |          | (210   | )         |  |           | (703    | )        |  |      | 210    |  |  |   | 4,039  |  |  |   | 903   |  |  |  | 1975 |  |  |  | 4/30/97  |  |  |  | 40 | 
|Hilton Crystal City, Arlington, VA                                    |  |         |       |              |  |                  | 5,800  |                |  |          | 29,879 |      |  |          |       |           |  |           | 1,769   |          |  |      | 5,800  |  |  |   | 31,648 |  |  |   | 4,308 |  |  |  | 1974 |  |  |  | 7/1/97   |  |  |  | 40 | 
|Doral Palm Springs, Cathedral City, CA                                |  |         |       |              |  |                  | 1,604  |                |  |          | 16,141 |      |  |          |       |           |  |           | 3,522   |          |  |      | 1,604  |  |  |   | 19,663 |  |  |   | 2,524 |  |  |  | 1985 |  |  |  | 7/1/97   |  |  |  | 40 | 
|Radisson Hotel & Suites, Chicago, IL                                  |  |         |       |              |  |                  | 4,870  |                |  |          | 39,175 |      |  |          |       |           |  |           | 4,091   |          |  |      | 4,870  |  |  |   | 43,266 |  |  |   | 5,623 |  |  |  | 1971 |  |  |  | 7/15/97  |  |  |  | 40 | 
|Georgetown Inn, Washington, DC                                        |  |         |       |              |  |                  | 6,100  |                |  |          | 7,103  |      |  |          |       |           |  |           | 1,884   |          |  |      | 6,100  |  |  |   | 8,987  |  |  |   | 1,096 |  |  |  | 1962 |  |  |  | 7/15/97  |  |  |  | 40 | 
|Embassy Suites Center City, Philadelphia, PA                          |  |         | (a)    |              |  |                  | 5,500  |                |  |          | 26,763 |      |  |          |       |           |  |           | 3,570   |          |  |      | 5,500  |  |  |   | 30,333 |  |  |   | 3,866 |  |  |  | 1963 |  |  |  | 8/12/97  |  |  |  | 40 | 
|Doubletree Hotel Austin, Austin, TX                                   |  |         | (a)    |              |  |                  | 2,975  |                |  |          | 25,678 |      |  |          |       |           |  |           | 3,522   |          |  |      | 2,975  |  |  |   | 29,200 |  |  |   | 3,717 |  |  |  | 1984 |  |  |  | 8/14/97  |  |  |  | 40 | 
|Radisson Plaza Hotel, Lexington, KY                                   |  |         |       |              |  |                  | 1,100  |                |  |          | 30,375 |      |  |          |       |           |  |           | 6,882   |          |  |      | 1,100  |  |  |   | 37,257 |  |  |   | 4,713 |  |  |  | 1982 |  |  |  | 8/14/97  |  |  |  | 40 | 
|Jekyll Inn, Jekyll Island, GA                                         |  |         |       |              |  |                  |       |                |  |          | 7,803  |      |  |          |       |           |  |           | 3,775   |          |  |      |       |  |  |   | 11,578 |  |  |   | 1,436 |  |  |  | 1971 |  |  |  | 8/20/97  |  |  |  | 40 | 
|Holiday Inn Metrotown, Burnaby, BC, Canada                            |  |         |       |              |  |                  | 1,115  |                |  |          | 5,303  |      |  |          | (106   | )         |  |           | 849     |          |  |      | 1,009  |  |  |   | 6,152  |  |  |   | 779   |  |  |  | 1989 |  |  |  | 8/22/97  |  |  |  | 40 | 
|Embassy Suites International Airport, Tucson, AZ                      |  |         |       |              |  |                  | 1,640  |                |  |          | 10,444 |      |  |          |       |           |  |           | 2,544   |          |  |      | 1,640  |  |  |   | 12,988 |  |  |   | 1,545 |  |  |  | 1982 |  |  |  | 10/23/97 |  |  |  | 40 | 
|Westin Morristown, NJ                                                 |  |         |       |              |  |                  | 2,500  |                |  |          | 19,128 |      |  |          | 100    |           |  |           | 3,875   |          |  |      | 2,600  |  |  |   | 23,003 |  |  |   | 2,792 |  |  |  | 1962 |  |  |  | 11/20/97 |  |  |  | 40 | 
|Doubletree Hotel Bradley International Airport,
    Windsor Locks, CT |  |         |       |              |  |                  | 1,013  |                |  |          | 10,228 |      |  |          | 87     |           |  |           | 1,919   |          |  |      | 1,100  |  |  |   | 12,147 |  |  |   | 1,442 |  |  |  | 1985 |  |  |  | 11/24/97 |  |  |  | 40 | 
|Sheraton Hotel, Mesa, AZ                                              |  |         |       |              |  |                  | 1,850  |                |  |          | 16,938 |      |  |          | (1,153 | )         |  |           | (7,992  | )        |  |      | 697    |  |  |   | 8,946  |  |  |   | 2,410 |  |  |  | 1985 |  |  |  | 12/5/97  |  |  |  | 40 | 
|Metro Airport Hilton & Suites, Detroit, MI                            |  |         |       |              |  |                  | 1,750  |                |  |          | 12,639 |      |  |          |       |           |  |           | 1,505   |          |  |      | 1,750  |  |  |   | 14,144 |  |  |   | 1,704 |  |  |  | 1989 |  |  |  | 12/16/97 |  |  |  | 40 | 
|Marriott Hotel, Los Angeles, CA                                       |  |         |       |              |  |                  | 5,900  |                |  |          | 48,250 |      |  |          |       |           |  |           | 8,090   |          |  |      | 5,900  |  |  |   | 56,340 |  |  |   | 6,718 |  |  |  | 1983 |  |  |  | 12/18/97 |  |  |  | 40 | 
|Austin Hilton & Towers, TX                                            |  |         |       |              |  |                  | 2,700  |                |  |          | 15,852 |      |  |          |       |           |  |           | 2,912   |          |  |      | 2,700  |  |  |   | 18,764 |  |  |   | 2,248 |  |  |  | 1974 |  |  |  | 1/6/98   |  |  |  | 40 | 
|Dallas Renaissance North, TX                                          |  |         |       |              |  |                  | 3,400  |                |  |          | 20,813 |      |  |          |       |           |  |           | 4,038   |          |  |      | 3,400  |  |  |   | 24,851 |  |  |   | 2,950 |  |  |  | 1979 |  |  |  | 1/6/98   |  |  |  | 40 | 
|Houston Sheraton Brookhollow Hotel, TX                                |  |         |       |              |  |                  | 2,500  |                |  |          | 17,609 |      |  |          |       |           |  |           | 2,712   |          |  |      | 2,500  |  |  |   | 20,321 |  |  |   | 2,454 |  |  |  | 1980 |  |  |  | 1/6/98   |  |  |  | 40 | 
|Seelbach Hilton, Louisville, KY                                       |  |         |       |              |  |                  | 1,400  |                |  |          | 38,462 |      |  |          |       |           |  |           | 7,375   |          |  |      | 1,400  |  |  |   | 45,837 |  |  |   | 5,241 |  |  |  | 1905 |  |  |  | 1/6/98   |  |  |  | 40 | 
|Midland Hilton & Towers, TX                                           |  |         |       |              |  |                  | 150    |                |  |          | 8,487  |      |  |          |       |           |  |           | 1,863   |          |  |      | 150    |  |  |   | 10,350 |  |  |   | 1,226 |  |  |  | 1976 |  |  |  | 1/6/98   |  |  |  | 40 | 
|Westin Oklahoma , OK                                                  |  |         |       |              |  |                  | 3,500  |                |  |          | 27,588 |      |  |          |       |           |  |           | 3,096   |          |  |      | 3,500  |  |  |   | 30,684 |  |  |   | 3,651 |  |  |  | 1977 |  |  |  | 1/6/98   |  |  |  | 40 | 
|Sheraton Hotel, Columbia, MD                                          |  |         |       |              |  |                  | 3,600  |                |  |          | 21,393 |      |  |          |       |           |  |           | 4,020   |          |  |      | 3,600  |  |  |   | 25,413 |  |  |   | 2,775 |  |  |  | 1972 |  |  |  | 3/27/98  |  |  |  | 40 | 
|Radisson Cross Keys, Baltimore, MD                                    |  |         |       |              |  |                  | 1,500  |                |  |          | 5,615  |      |  |          |       |           |  |           | 1,592   |          |  |      | 1,500  |  |  |   | 7,207  |  |  |   | 782   |  |  |  | 1973 |  |  |  | 3/27/98  |  |  |  | 40 | 
|Sheraton Fishermans Wharf, San Francisco, CA                         |  |         | (a)    |              |  |                  | 19,708 |                |  |          | 61,751 |      |  |          |       |           |  |           | 5,578   |          |  |      | 19,708 |  |  |   | 67,329 |  |  |   | 7,653 |  |  |  | 1975 |  |  |  | 4/2/98   |  |  |  | 40 | 
|Hartford Hilton, CT                                                   |  |         |       |              |  |                  | 4,073  |                |  |          | 24,458 |      |  |          | (2,602 | )         |  |           | (12,565 | )        |  |      | 1,471  |  |  |   | 11,893 |  |  |   | 3,005 |  |  |  | 1975 |  |  |  | 5/21/98  |  |  |  | 40 | 
|Holiday Inn Dallas DFW Airport South, TX                              |  |         | 11,754 |              |  |                  | 3,388  |                |  |          | 28,847 |      |  |          | (2,988 | )         |  |           | 776     |          |  |      | 400    |  |  |   | 29,623 |  |  |   | 816   |  |  |  | 1974 |  |  |  | 8/3/98   |  |  |  | 40 | 
|Courtyard by Marriott Meadowlands, NJ                                 |  |         |       |              |  |                  |       |                |  |          | 9,649  |      |  |          |       |           |  |           | 225     |          |  |      |       |  |  |   | 9,874  |  |  |   | 1,079 |  |  |  | 1993 |  |  |  | 8/3/98   |  |  |  | 40 | 

68



---



##### 



|                                                             |  |         |        |              |  |                  |         |                |  |          |           |      |  |          |         |           |  |           |         |          |  |      |         |  |  |   |           |  |  |   |         |  |  |  |      |  |  |  |         |  |  |  |    | 
|------------------------------------------------------------ |  | ------- | ------ | ------------ |  | ---------------- | ------- | -------------- |  | -------- | --------- | ---- |  | -------- | ------- | --------- |  | --------- | ------- | -------- |  | ---- | ------- |  |  | - | --------- |  |  | - | ------- |  |  |  | ---- |  |  |  | ------- |  |  |  | -- | 
|                                                             |  |         |        |              |  |                  |         |                |  |          |           |      |  |          |         |           |  |          
|                                                             |  |         |        |              |  | Costs Subsequent |         | Gross Amount   |  |          |           |      |  |          |         |          
|                                                             |  |         |        | Initial Cost |  | to Acquisition   |         | at End of Year |  |          |           |      |  |          |         |          
|                                                             |  |         |        |              |  |                  |         |                |  |          |           |      |  |          |         |          
|                                                             |  |         |        |              |  | Building         |         |                |  | Building |           |      |  | Building |         | Accum-    |  |           |         |          |  |     
|                                                             |  |         |        |              |  | and              |         |                |  | and      |           |      |  | and      |         | ulated    |  | Year of   |         |          |  |     
|                                                             |  | Encum-  |        |              |  | Improve-         |         |                |  | Improve- |           |      |  | Improve- |         | Deprecia- |  | Construc- |         | Date     |  |     
|Description, Hotel Assets:                                   |  | brances |        | Land         |  | ments            |         | Land           |  | ments    |           | Land |  | ments    |         | tion      |  | tion      |         | Acquired |  | Life
|                                                             |  |         |        |              |  |                  |         |                |  |          |           |      |  |          |         |           |  |           |         |          |  |     
|Hotel Maison de Ville, New Orleans, LA                       |  |         |       |              |  |                  | 292     |                |  |          | 3,015     |      |  |          |        |           |  |           | 105     |          |  |      | 292     |  |  |   | 3,120     |  |  |   | 337     |  |  |  | 1778 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Hilton Hotel Toledo, OH                                      |  |         |       |              |  |                  |        |                |  |          | 11,708    |      |  |          |        |           |  |           | 386     |          |  |      |        |  |  |   | 12,094    |  |  |   | 1,314   |  |  |  | 1987 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Holiday Inn Select Dallas DFW Airport West,TX                |  |         |       |              |  |                  | 947     |                |  |          | 8,346     |      |  |          | 2,441   |           |  |           | (4,129  | )        |  |      | 3,388   |  |  |   | 4,217     |  |  |   | 3,238   |  |  |  | 1974 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Holiday Inn Select New Orleans International
    Airport, LA |  |         | (a)    |              |  |                  | 3,040   |                |  |          | 25,616    |      |  |          |        |           |  |           | 2,913   |          |  |      | 3,040   |  |  |   | 28,529    |  |  |   | 3,018   |  |  |  | 1973 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Hampton Inn Ocean City, MD                                   |  |         |       |              |  |                  |        |                |  |          |          |      |  |          |        |           |  |           |        |          |  |      |        |  |  |   |          |  |  |   |        |  |  |  | 1989 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Crowne Plaza Madison, WI                                     |  |         | (a)    |              |  |                  | 2,629   |                |  |          | 21,634    |      |  |          |        |           |  |           | 649     |          |  |      | 2,629   |  |  |   | 22,283    |  |  |   | 2,471   |  |  |  | 1987 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Wyndham Albuquerque Airport Hotel, NM                        |  |         |       |              |  |                  |        |                |  |          | 18,889    |      |  |          |        |           |  |           | 284     |          |  |      |        |  |  |   | 19,173    |  |  |   | 2,130   |  |  |  | 1972 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Wyndham San Jose Airport Hotel, TX                           |  |         |       |              |  |                  |        |                |  |          | 35,743    |      |  |          |        |           |  |           | 1,355   |          |  |      |        |  |  |   | 37,098    |  |  |   | 4,040   |  |  |  | 1974 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Sheraton Safari Resort, Lake Buena Vista, FL                 |  |         |       |              |  |                  | 4,103   |                |  |          | 35,263    |      |  |          |        |           |  |           | 9,366   |          |  |      | 4,103   |  |  |   | 44,629    |  |  |   | 4,646   |  |  |  | 1985 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Hilton Monterey, CA                                          |  |         |       |              |  |                  | 2,141   |                |  |          | 17,666    |      |  |          |        |           |  |           | 5,423   |          |  |      | 2,141   |  |  |   | 23,089    |  |  |   | 2,359   |  |  |  | 1971 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Hilton Hotel Durham, NC                                      |  |         |       |              |  |                  | 1,586   |                |  |          | 15,577    |      |  |          |        |           |  |           | 3,666   |          |  |      | 1,586   |  |  |   | 19,243    |  |  |   | 1,944   |  |  |  | 1987 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Wyndham Garden Hotel Marietta, GA                            |  |         |       |              |  |                  | 1,900   |                |  |          | 17,077    |      |  |          | 1       |           |  |           | 749     |          |  |      | 1,901   |  |  |   | 17,826    |  |  |   | 1,929   |  |  |  | 1985 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Westin Resort Key Largo, FL                                  |  |         |       |              |  |                  | 3,167   |                |  |          | 29,190    |      |  |          |        |           |  |           | 702     |          |  |      | 3,167   |  |  |   | 29,892    |  |  |   | 3,304   |  |  |  | 1985 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Doubletree Guest Suites Atlanta, GA                          |  |         |       |              |  |                  | 2,236   |                |  |          | 18,514    |      |  |          |        |           |  |           | 3,984   |          |  |      | 2,236   |  |  |   | 22,498    |  |  |   | 2,424   |  |  |  | 1985 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Radisson Hotel Arlington Heights, IL                         |  |         |       |              |  |                  | 1,540   |                |  |          | 12,645    |      |  |          | (480    | )         |  |           | 2,448   |          |  |      | 1,060   |  |  |   | 15,093    |  |  |   | 1,960   |  |  |  | 1981 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Holiday Inn Select Bucks County, PA                          |  |         |       |              |  |                  | 2,610   |                |  |          | 21,744    |      |  |          |        |           |  |           | 3,191   |          |  |      | 2,610   |  |  |   | 24,935    |  |  |   | 2,583   |  |  |  | 1987 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Hilton Hotel Cocoa Beach, FL                                 |  |         |       |              |  |                  | 2,783   |                |  |          | 23,076    |      |  |          |        |           |  |           | 2,320   |          |  |      | 2,783   |  |  |   | 25,396    |  |  |   | 2,773   |  |  |  | 1986 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Radisson Universal Orlando, FL                               |  |         |       |              |  |                  | 9,555   |                |  |          | 73,486    |      |  |          |        |           |  |           | 9,648   |          |  |      | 9,555   |  |  |   | 83,134    |  |  |   | 8,779   |  |  |  | 1972 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Crowne Plaza Phoenix, AZ                                     |  |         |       |              |  |                  | 1,852   |                |  |          | 15,957    |      |  |          |        |           |  |           | 3,549   |          |  |      | 1,852   |  |  |   | 19,506    |  |  |   | 2,123   |  |  |  | 1981 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Hilton Airport Hotel Grand Rapids, MI                        |  |         | (a)    |              |  |                  | 2,049   |                |  |          | 16,657    |      |  |          |        |           |  |           | 1,471   |          |  |      | 2,049   |  |  |   | 18,128    |  |  |   | 1,911   |  |  |  | 1979 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Marriott West Loop Houston, TX                               |  |         | (a)    |              |  |                  | 2,943   |                |  |          | 23,934    |      |  |          |        |           |  |           | 4,740   |          |  |      | 2,943   |  |  |   | 28,674    |  |  |   | 2,929   |  |  |  | 1976 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Courtyard by Marriott Durham, NC                             |  |         |       |              |  |                  | 1,406   |                |  |          | 11,001    |      |  |          |        |           |  |           | 90      |          |  |      | 1,406   |  |  |   | 11,091    |  |  |   | 1,228   |  |  |  | 1996 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Courtyard by Marriott, Marina Del Rey, CA                    |  |         |       |              |  |                  | 3,450   |                |  |          | 24,534    |      |  |          |        |           |  |           | 2,778   |          |  |      | 3,450   |  |  |   | 27,312    |  |  |   | 2,837   |  |  |  | 1976 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Courtyard by Marriott, Century City, CA                      |  |         |       |              |  |                  | 2,165   |                |  |          | 16,465    |      |  |          |        |           |  |           | 1,179   |          |  |      | 2,165   |  |  |   | 17,644    |  |  |   | 1,867   |  |  |  | 1986 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Courtyard by Marriott, Orlando, FL                           |  |         |       |              |  |                  |        |                |  |          | 41,267    |      |  |          |        |           |  |           | 3,083   |          |  |      |        |  |  |   | 44,350    |  |  |   | 4,811   |  |  |  | 1972 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Crowne Plaza, San Jose, CA                                   |  |         | (a)    |              |  |                  | 2,130   |                |  |          | 23,404    |      |  |          | (24     | )         |  |           | 1,698   |          |  |      | 2,106   |  |  |   | 25,102    |  |  |   | 2,767   |  |  |  | 1975 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Doubletree Hotel Westshore, Tampa, FL                        |  |         |       |              |  |                  | 2,904   |                |  |          | 23,476    |      |  |          |        |           |  |           | 9,963   |          |  |      | 2,904   |  |  |   | 33,439    |  |  |   | 3,208   |  |  |  | 1972 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Howard Johnson Resort Key Largo, FL                          |  |         |       |              |  |                  | 1,784   |                |  |          | 12,419    |      |  |          |        |           |  |           | 1,269   |          |  |      | 1,784   |  |  |   | 13,688    |  |  |   | 1,441   |  |  |  | 1971 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Radisson Annapolis, MD                                       |  |         |       |              |  |                  | 1,711   |                |  |          | 13,671    |      |  |          |        |           |  |           | 2,201   |          |  |      | 1,711   |  |  |   | 15,872    |  |  |   | 1,637   |  |  |  | 1975 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Holiday Inn Fort Lauderdale, FL                              |  |         |       |              |  |                  | 2,381   |                |  |          | 19,419    |      |  |          |        |           |  |           | 2,276   |          |  |      | 2,381   |  |  |   | 21,695    |  |  |   | 2,304   |  |  |  | 1969 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Holiday Inn Madeira Beach, FL                                |  |         |       |              |  |                  | 1,781   |                |  |          | 13,349    |      |  |          | (995    | )         |  |           | (6,272  | )        |  |      | 786     |  |  |   | 7,077     |  |  |   | 1,604   |  |  |  | 1972 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Holiday Inn Chicago OHare, IL                               |  |         | 16,852 |              |  |                  | 4,290   |                |  |          | 72,631    |      |  |          |        |           |  |           | 16,148  |          |  |      | 4,290   |  |  |   | 88,779    |  |  |   | 9,001   |  |  |  | 1975 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Holiday Inn & Suites Alexandria, VA                          |  |         |       |              |  |                  | 1,769   |                |  |          | 14,064    |      |  |          | (1      | )         |  |           | 1,757   |          |  |      | 1,768   |  |  |   | 15,821    |  |  |   | 1,620   |  |  |  | 1985 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Hilton Clearwater, FL                                        |  |         |       |              |  |                  |        |                |  |          | 69,285    |      |  |          |        |           |  |           | 4,867   |          |  |      |        |  |  |   | 74,152    |  |  |   | 7,935   |  |  |  | 1980 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Radisson Rochester, NY                                       |  |         |       |              |  |                  |        |                |  |          | 6,499     |      |  |          |        |           |  |           | 3,045   |          |  |      |        |  |  |   | 9,544     |  |  |   | 914     |  |  |  | 1971 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Radisson Old Towne Alexandria, VA                            |  |         |       |              |  |                  | 2,241   |                |  |          | 17,796    |      |  |          |        |           |  |           | 4,144   |          |  |      | 2,241   |  |  |   | 21,940    |  |  |   | 2,156   |  |  |  | 1975 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Ramada Inn Clearwater, FL                                    |  |         |       |              |  |                  | 1,270   |                |  |          | 13,453    |      |  |          |        |           |  |           | 742     |          |  |      | 1,270   |  |  |   | 14,195    |  |  |   | 1,615   |  |  |  | 1969 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Crowne Plaza Las Vegas, NV                                   |  |         |       |              |  |                  | 3,006   |                |  |          | 24,011    |      |  |          | (3,006  | )         |  |           | (24,011 | )        |  |      |        |  |  |   |          |  |  |   |        |  |  |  | 1989 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Crowne Plaza Portland, OR                                    |  |         | 4,573  |              |  |                  | 2,950   |                |  |          | 23,254    |      |  |          |        |           |  |           | 948     |          |  |      | 2,950   |  |  |   | 24,202    |  |  |   | 2,598   |  |  |  | 1988 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Ramada Plaza Meriden                                         |  |         |       |              |  |                  | 1,247   |                |  |          | 10,057    |      |  |          | (1      | )         |  |           | (46     | )        |  |      | 1,246   |  |  |   | 10,011    |  |  |   | 1,114   |  |  |  | 1985 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Ramada Plaza Shelton                                         |  |         | 4,247  |              |  |                  | 2,040   |                |  |          | 16,235    |      |  |          |        |           |  |           | 165     |          |  |      | 2,040   |  |  |   | 16,400    |  |  |   | 1,797   |  |  |  | 1989 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Sheraton Crossroads Mahwah, NJ                               |  |         |       |              |  |                  | 3,258   |                |  |          | 26,185    |      |  |          |        |           |  |           | 1,135   |          |  |      | 3,258   |  |  |   | 27,320    |  |  |   | 2,945   |  |  |  | 1986 |  |  |  | 8/3/98  |  |  |  | 40 | 
|St. Tropez, Las Vegas, NV                                    |  |         |       |              |  |                  | 3,027   |                |  |          | 24,429    |      |  |          | (1,461  | )         |  |           | (11,605 | )        |  |      | 1,566   |  |  |   | 12,824    |  |  |   | 2,777   |  |  |  | 1986 |  |  |  | 8/3/98  |  |  |  | 40 | 
|Doral Forrestal, Princeton, NJ                               |  |         |       |              |  |                  | 9,578   |                |  |          | 57,555    |      |  |          |        |           |  |           | 9,610   |          |  |      | 9,578   |  |  |   | 67,165    |  |  |   | 7,003   |  |  |  | 1981 |  |  |  | 8/11/98 |  |  |  | 40 | 
|South Seas Resort, Captiva, FL                               |  |         | 543    |              |  |                  | 3,084   |                |  |          | 83,573    |      |  |          |        |           |  |           | 9,722   |          |  |      | 3,084   |  |  |   | 93,295    |  |  |   | 9,689   |  |  |  | 1975 |  |  |  | 10/1/98 |  |  |  | 40 | 
|Radisson Suites Beach Resort, Marco Island, FL               |  |         |       |              |  |                  | 7,120   |                |  |          | 35,300    |      |  |          |        |           |  |           | 3,357   |          |  |      | 7,120   |  |  |   | 38,657    |  |  |   | 3,915   |  |  |  | 1983 |  |  |  | 10/1/98 |  |  |  | 40 | 
|Best Western Sanibel Island, FL                              |  |         |       |              |  |                  | 3,868   |                |  |          | 3,984     |      |  |          | 17      |           |  |           | 633     |          |  |      | 3,885   |  |  |   | 4,617     |  |  |   | 442     |  |  |  | 1967 |  |  |  | 10/1/98 |  |  |  | 40 | 
|The Dunes Golf & Tennis Club, Sanibel Island,
    FL         |  |         |       |              |  |                  | 7,705   |                |  |          | 3,043     |      |  |          | 9       |           |  |           | 194     |          |  |      | 7,714   |  |  |   | 3,237     |  |  |   | 344     |  |  |  | 1964 |  |  |  | 10/1/98 |  |  |  | 40 | 
|Sanibel Inn, Sanibel Island, FL                              |  |         |       |              |  |                  | 8,482   |                |  |          | 12,045    |      |  |          |        |           |  |           | 307     |          |  |      | 8,482   |  |  |   | 12,352    |  |  |   | 1,277   |  |  |  | 1964 |  |  |  | 10/1/98 |  |  |  | 40 | 
|Seaside Inn, Sanibel Island, FL                              |  |         |       |              |  |                  | 1,702   |                |  |          | 6,416     |      |  |          | 23      |           |  |           | 117     |          |  |      | 1,725   |  |  |   | 6,533     |  |  |   | 686     |  |  |  | 1964 |  |  |  | 10/1/98 |  |  |  | 40 | 
|Song of the Sea, Sanibel Island, FL                          |  |         |       |              |  |                  | 339     |                |  |          | 3,223     |      |  |          | 19      |           |  |           | 132     |          |  |      | 358     |  |  |   | 3,355     |  |  |   | 348     |  |  |  | 1964 |  |  |  | 10/1/98 |  |  |  | 40 | 
|Sundial Beach Resort, Sanibel Island, FL                     |  |         |       |              |  |                  | 320     |                |  |          | 12,009    |      |  |          |        |           |  |           | 2,651   |          |  |      | 320     |  |  |   | 14,660    |  |  |   | 1,368   |  |  |  | 1975 |  |  |  | 10/1/98 |  |  |  | 40 | 
|Holiday Inn Madison, WI                                      |  |         |       |              |  |                  | 4,143   |                |  |          | 6,692     |      |  |          |        |           |  |           | 548     |          |  |      | 4,143   |  |  |   | 7,240     |  |  |   | 692     |  |  |  | 1965 |  |  |  | 1/11/99 |  |  |  | 40 | 
|Safety Harbor Resort and Spa                                 |  |         |       |              |  |                  | 732     |                |  |          | 19,618    |      |  |          |        |           |  |           | 2,574   |          |  |      | 732     |  |  |   | 22,192    |  |  |   | 1,426   |  |  |  | 1926 |  |  |  | 5/31/00 |  |  |  | 40 | 
|                                                             |  |         |        |              |  |                  |         |                |  |          |           |      |  |          |         |           |  |           |         |          |  |      |         |  |  |   |           |  |  |   |         |  |  |  |      |  |  |  |         |  |  |  |    | 
|                                                             |  |         |        |              |  | $                | 303,135 |                |  | $        | 2,148,047 |      |  | $        | (14,524 | )         |  | $         | 223,814 |          |  | $    | 288,611 |  |  | $ | 2,371,861 |  |  | $ | 286,679 |  |  |  |      |  |  |  |         |  |  |  |    | 
|                                                             |  |         |        |              |  |                  |         |                |  |          |           |      |  |          |         |           |  |           |         |          |  |      |         |  |  |   |           |  |  |   |         |  |  |  |      |  |  |  |         |  |  |  |    | 



---



|    |                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------
|(a) | These properties collateralize our Secured
    Facility, which had an outstanding balance of $314,626 as of
    December 31, 2002.

69



---



##### 



MERISTAR HOSPITALITY OPERATING PARTNERSHIP,
L.P.

SCHEDULE III  REAL ESTATE AND
ACCUMULATED DEPRECIATION

DECEMBER 31, 2002


(Dollars in thousands)


The components of our hotel property and
equipment are as follows:

|                             |  |              |           |              |  |   |         | 
|---------------------------- |  | ------------ | --------- | ------------ |  | - | ------- | 
|                             |  | Property and |           | Accumulated 
|                             |  | Equipment    |           | Depreciation
|                             |  |              |           |             
|Land                         |  | $            | 288,611   |              |  | $ |        | 
|Building and improvements    |  |              | 2,371,861 |              |  |   | 286,679 | 
|Furniture and equipment      |  |              | 361,197   |              |  |   | 211,042 | 
|Construction in progress     |  |              | 35,989    |              |  |   |        | 
|                             |  |              |           |              |  |   |         | 
|Total property and equipment |  | $            | 3,057,658 |              |  | $ | 497,721 | 
|                             |  |              |           |              |  |   |         | 

A reconciliation of our investment in hotel
property and equipment and related accumulated depreciation is
as follows:

|                                                |                              |                                           |           |           |         |      |           |           |         |   |           |           |         |  
|----------------------------------------------- | ---------------------------- | ----------------------------------------- | --------- | --------- | ------- | ---- | --------- | --------- | ------- | - | --------- | --------- | ------- | -
|                                                |                              | 2002                                      |           | 2001      |         | 2000
|                                                |                              |                                           |           |           |         |     
|Hotel property and equipment                    |                              |                                           |           |           |         |      |           |           |         |   |           |          
|                                                | Balance, beginning of period |                                           | $         | 3,183,677 |         |      | $         | 3,193,730 |         |   | $         | 3,118,723 |        
|                                                |                              | Acquisitions during period                |           |           |        |      |           |           |        |   |           |           | 19,618  |  
|                                                |                              | Improvements and construction-in-progress |           |           | 47,347  |      |           |           | 47,467  |   |           |           | 78,911  |  
|                                                |                              | Loss on asset impairments                 |           |           | (78,732 | )    |           |           | (43,582 | ) |           |           |        |  
|                                                |                              | Cost of real estate sold                  |           |           | (94,634 | )    |           |           | (13,938 | ) |           |           | (23,522 | )
|                                                |                              |                                           |           |           |         |      |           |           |         |   |           |          
|                                                | Balance, end of period       |                                           |           | 3,057,658 |         |      |           | 3,183,677 |         |   |           | 3,193,730 |        
|                                                |                              |                                           |           |           |         |      |           |           |         |   |           |          
|Accumulated depreciation                        |                              |                                           |           |           |         |      |           |           |         |   |           |          
|                                                | Balance, beginning of period |                                           |           | 397,380   |         |      |           | 287,229   |         |   |           | 182,430   |        
|                                                |                              | Additions-depreciation expense            |           |           | 115,233 |      |           |           | 112,465 |   |           |           | 107,363 |  
|                                                |                              | Cost of real estate sold                  |           |           | (14,892 | )    |           |           | (2,314  | ) |           |           | (2,564  | )
|                                                |                              |                                           |           |           |         |      |           |           |         |   |           |          
|                                                | Balance, end of period       |                                           |           | 497,721   |         |      |           | 397,380   |         |   |           | 287,229   |        
|                                                |                              |                                           |           |           |         |      |           |           |         |   |           |          
|Net hotel property and equipment, end of period |                              | $                                         | 2,559,937 |           |         | $    | 2,786,297 |           |         | $ | 2,906,501 |          
|                                                |                              |                                           |           |           |         |      |           |           |         |   |           |          

70



---



##### 





|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
    ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III



|         |                                                       
|-------- | ------------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE
    REGISTRANT

The information required by this Item is
incorporated herein by reference to the sections entitled
Management and Principal Stockholders in
MeriStar Hospitalitys 2003 Annual Stockholder Meeting
proxy statement.



|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION

The information required by this item is
incorporated herein by reference to the sections entitled
Executive Compensation, Compensation of
Directors and Stock Option Grants in MeriStar
Hospitalitys 2003 Annual Stockholder Meeting proxy
statement.



|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
    OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is
incorporated herein by reference to the section entitled
Principal Stockholders in MeriStar
Hospitalitys 2003 Annual Stockholder Meeting proxy
statement.



|         |                                                   
|-------- | --------------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED
    TRANSACTIONS

The information required by this item is
incorporated herein by reference to the section entitled
Certain Relationships and Related Transactions in
MeriStar Hospitalitys 2003 Annual Stockholder Meeting
proxy statement.



|         |                        
|-------- | -----------------------
|ITEM 14. | CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and
Procedures

We maintain disclosure controls and procedures
that are designed to ensure that information required to be
disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and regulations,
and that the information is accumulated and communicated to our
management, including our chief executive officer and chief
financial and chief accounting officer, as appropriate, to allow
timely decisions regarding required disclosures based closely on
the definition of disclosure controls and procedures
in Rule 13a-1(c) of the Securities Exchange Act of 1934. In
designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired objectives, and
management was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
Also, we have investments in certain unconsolidated entities. As
we do not control or manage these entities, our disclosure
controls and procedures with respect to these entities are
substantially more limited than those we maintain with respect
to our consolidated subsidiaries.

Within 90 days prior to the date of this
report, we carried out an evaluation, under the supervision and
with the participation of our management, including our chief
executive officer and our chief financial and chief accounting
officer of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on this evaluation, we
concluded that our disclosure controls and procedures were
effective.

Changes in Internal Controls

None.

71



---



##### 



PART IV



|         |                                                                     
|-------- | --------------------------------------------------------------------
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
    REPORTS ON FORM 8-K

(a.) Index to Financial Statements and
Financial Statement Schedules



| |    |                     
| | -- | --------------------
| | 1. | Financial Statements

The Financial Statements included in this Annual
Report on Form 10-K are provided under Item 8.



| |    |                    
| | -- | -------------------
| | 2. | Reports on Form 8-K

None.



| |      |                              
| | ---- | -----------------------------
| | (b.) | Financial Statement Schedules

The Financial Statement Schedule included in this
Annual Report on Form 10-K is provided under Item 8.



| |      |         
| | ---- | --------
| | (c.) | Exhibits

Exhibits listed below, which have been filed with
the Commission pursuant to the Securities Act of 1933 or the
Securities Exchange Act of 1934, and which were filed as noted
below, are hereby incorporated by reference and made a part of
this report with the same effect as if filed herewith.

|        |     |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | --- | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |                        
|No.     |     | Description of Document
|        |     |                        
|        | 3.1 |                         |  | Certificate of Limited Partnership of MeriStar
    Hospitality Operating Partnership, L.P. (incorporated by
    reference to Exhibit 3.1 to the Registration Statement on
    Form S-4 for MeriStar Hospitality Operating Partnership,
    L.P. and MeriStar Hospitality Finance Corp. (File
    No. 333-63768) filed with the Securities and Exchange
    Commission on June 25, 2001.)                                       
|        | 3.2 |                         |  | Second Amended and Restated Agreement of, as
    amended, Limited Partnership of MeriStar Hospitality Operating
    Partnership, L.P. (incorporated by reference to Exhibit 3.2
    to the Registration Statement on Form S-4 for MeriStar
    Hospitality Operating Partnership, L.P. and MeriStar Hospitality
    Finance Corp. (File No. 333-63768) filed with the
    Securities and Exchange Commission on June 25, 2001.)
|        | 3.3 |                         |  | Certificate of Incorporation of MeriStar
    Hospitality Finance Corp. (incorporated by reference to
    Exhibit 3.3 to the Registration Statement on Form S-4
    for MeriStar Hospitality Operating Partnership, L.P. and
    MeriStar Hospitality Finance Corp. (File No. 333-63768)
    filed with the Securities and Exchange Commission on
    June 25, 2001.)                                                           
|        | 3.4 |                         |  | By-Laws of MeriStar Hospitality Finance Corp.
    (incorporated by reference to Exhibit 3.4 to the
    Registration Statement on Form S-4 for MeriStar Hospitality
    Operating Partnership, L.P. and MeriStar Hospitality Finance
    Corp. (File No. 333-63768) filed with the Securities and
    Exchange Commission on June 25, 2001.)                                                                                    
|        | 3.5 |                         |  | Certificate of Incorporation of MeriStar
    Hospitality Finance Corp. II.***                                                                                                                                                                                                                                                                                                                                                  
|        | 3.6 |                         |  | By-Laws of MeriStar Hospitality Finance
    Corp. II.***                                                                                                                                                                                                                                                                                                                                                                       
|        | 3.7 |                         |  | Certificate of Incorporation of MeriStar
    Hospitality Finance Corp. III.***                                                                                                                                                                                                                                                                                                                                                 
|        | 3.8 |                         |  | By-Laws of MeriStar Hospitality Finance
    Corp. III.***                                                                                                                                                                                                                                                                                                                                                                      
|        | 4.1 |                         |  | Form of Share Certificate (incorporated by
    reference to Exhibit 4.1 to MeriStar Hospitalitys
    Registration Statement on Form S-11 (No. 333-4568),
    and filed with the Commission on July 3, 1996).                                                                                                                                                                                                                  
|        | 4.2 |                         |  | Indenture, dated as of August 19, 1997 (the
    August 1997 Indenture), between CapStar Hotel
    Company and IBJ Schroder Bank & Trust Company, as Trustee
    (incorporated by reference to Exhibit 4.4 to MeriStar
    Hospitalitys annual report on Form 10-K for the year
    ended December 31, 1999, and filed with the Commission on
    March 15, 2000).                                                           

72



---



##### 



|        |        |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | ------ | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |                        
|No.     |        | Description of Document
|        |        |                        
|        | 4.2.1  |                         |  | Specimen Subordinated Note to August 1997
    Indenture (incorporated by reference to Exhibit 4.2 to
    MeriStar Hospitalitys annual report on Form 10-K for the
    year ended December 31, 1999, and filed with the Commission
    on March 15, 2000).                                                                                                                                                                                                   
|        | 4.2.2  |                         |  | First Supplemental Indenture to the August 1997
    Indenture (incorporated by reference to Exhibit 4.2.2 to
    MeriStar Hospitalitys annual report on Form 10-K for
    the year ended December 31, 2001, and filed with the
    Commission on March 6, 2002).                                                                                                                                                                                            
|        | 4.2.3  |                         |  | Second Supplemental Indenture to the August 1997
    Indenture (incorporated by reference to Exhibit 4.5 to
    MeriStar Hospitalitys annual report on Form 10-K for
    the year ended December 31, 1999, and filed with the
    Commission on March 15, 2000).                                                                                                                                                                                            
|        | 4.2.4  |                         |  | Third Supplemental Indenture to the August 1997
    Indenture (incorporated by reference to Exhibit 4.15 to
    MeriStar Hospitalitys annual report on Form 10-K for
    the year ended December 31, 2000, and filed with the
    Commission on March 6, 2001).                                                                                                                                                                                             
|        | 4.2.5  |                         |  | Fourth Supplemental Indenture to the August 1997
    Indenture (incorporated by reference to Exhibit 4.2.5 to
    MeriStar Hospitalitys annual report on Form 10-K for
    the year ended December 31, 2001, and filed with the
    Commission on March 6, 2002).                                                                                                                                                                                           
|        | 4.2.6  |                         |  | Fifth Supplemental Indenture to the August 1997
    Indenture. (incorporated by reference to Exhibit 4.2.6 to
    MeriStar Hospitalitys annual report on Form 10-K for
    the year ended December 31, 2001, and filed with the
    Commission on March 6, 2002).                                                                                                                                                                                           
|        | 4.3    |                         |  | Indenture (the Convertible Notes
    Indenture), dated as of October 16, 1997, between
    CapStar Hotel Company and First Trust, National Association, as
    Trustee (incorporated by reference to Exhibit 4.6 to
    MeriStar Hospitalitys annual report on Form 10-K for
    the year ended December 31, 1999, and filed with the
    Commission on March 15, 2000).                                                                                  
|        | 4.3.1  |                         |  | Specimen Convertible Note to the Convertible
    Notes Indenture (incorporated by reference to Exhibit 4.7
    to MeriStar Hospitalitys annual report on Form 10-K
    for the year ended December 31, 1999, and filed with the
    Commission on March 15, 2000).                                                                                                                                                                                          
|        | 4.3.2  |                         |  | First Supplemental Indenture to the Convertible
    Notes Indenture (incorporated by reference to Exhibit 4.8
    to MeriStar Hospitalitys annual report on Form 10-K
    for the year ended December 31, 1999, and filed with the
    Commission on March 15, 2000).                                                                                                                                                                                       
|        | 4.4    |                         |  | Indenture (the March 1999 Indenture),
    dated as of March 18, 1999, between MeriStar Hospitality
    Corporation and IBJ Whitehall Bank & Trust Company, as
    Trustee (incorporated by reference to Exhibit B to MeriStar
    Hospitalitys Registration Statement No. 333-78163,
    and filed with the Commission on May 10, 1999).                                                                                                                  
|        | 4.4.1  |                         |  | Specimen Subordinated Note to March 1999
    Indenture (incorporated by reference to Exhibit A to
    MeriStar Hospitalitys Registration Statement
    No. 333-78163, and filed with the Commission on
    May 10, 1999).                                                                                                                                                                                                                                   
|        | 4.4.1a |                         |  | First Supplemental Indenture to the March 1999
    Indenture (incorporated by reference to Exhibit 4.13 to
    MeriStar Hospitalitys annual report on Form 10-K for
    the year ended December 31, 2000, and filed with the
    Commission on March 6, 2001).                                                                                                                                                                                              
|        | 4.4.2  |                         |  | Second Supplemental Indenture to the March 1999
    Indenture (incorporated by reference to Exhibit 4.4.2 to
    MeriStar Hospitalitys annual report on Form 10-K for
    the year ended December 31, 2001, and filed with the
    Commission on March 6, 2002).                                                                                                                                                                                            
|        | 4.4.3  |                         |  | Third Supplemental Indenture to the March 1999
    Indenture. (incorporated by reference to Exhibit 4.4.3 to
    MeriStar Hospitalitys annual report on Form 10-K for
    the year ended December 31, 2001, and filed with the
    Commission on March 6, 2002).                                                                                                                                                                                            
|        | 4.5    |                         |  | Indenture (the January 2001
    Indenture), dated January 26, 2001, between MeriStar
    Hospitality Operating Partnership, L.P., MeriStar Hospitality
    Finance Corp., MeriStar Hospitality Corporation, and U.S. Bank
    Trust National Association (incorporated by reference to
    Exhibit 4.14 to MeriStar Hospitalitys annual report
    on Form 10-K for the year ended December 31, 2000, and
    filed with the Commission on March 6, 2001).

73



---



##### 



|        |        |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | ------ | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |                        
|No.     |        | Description of Document
|        |        |                        
|        | 4.5.1  |                         |  | Specimen Senior Note to the January 2001
    Indenture (incorporated by reference to Exhibit 4.5.1 to
    MeriStar Hospitalitys annual report on Form 10-K for the
    year ended December 31, 2001, and filed with the Commission
    on March 6, 2002).                                                                                                                                                                                                                                                                                                                             
|        | 4.5.2  |                         |  | First Supplemental Indenture to the January 2001
    Indenture (incorporated by reference to Exhibit 4.5.2 to
    MeriStar Hospitalitys annual report on Form 10-K for
    the year ended December 31, 2001, and filed with the
    Commission on March 6, 2002).                                                                                                                                                                                                                                                                                                                     
|        | 4.5.3  |                         |  | Second Supplemental Indenture to the January 2001
    Indenture (incorporated by reference to Exhibit 4.5.3 to
    MeriStar Hospitalitys annual report Form 10-K for the
    year ended December 31, 2001, and filed with the Commission
    on March 6, 2002).                                                                                                                                                                                                                                                                                                                       
|        | 4.6    |                         |  | Indenture (the December 2001
    Indenture), dated December 19, 2001, between MeriStar
    Hospitality Operating Partnership, L.P., MeriStar Hospitality
    Finance Corp., MeriStar Hospitality Corporation, and U.S. Bank
    Trust National Association (incorporated by reference to
    Exhibit 4.6 to MeriStar Hospitalitys annual report on
    Form 10-K for the year ended December 31, 2001, and
    filed with the Commission on March 6, 2002).                                                                                                                         
|        | 4.6.1  |                         |  | Specimen Senior Note to the December 2001
    Indenture (incorporated by reference to Exhibit 4.6.1 to
    MeriStar Hospitalitys annual report on Form 10-K for the
    year ended December 31, 2001, and filed with the Commission
    on March 6, 2002).                                                                                                                                                                                                                                                                                                                            
|        | 4.6.2  |                         |  | Registration Rights Agreement, dated
    December 19, 2001, between MeriStar Hospitality Operating
    Partnership, L.P., MeriStar Hospitality Finance Corp. II,
    MeriStar Hospitality Corporation, and certain subsidiaries of
    MeriStar Hospitality Operating Partnership, L.P. and Lehman
    Brothers Inc., SG Cowen Securities Corporation and certain other
    parties (incorporated by reference to Exhibit 4.6.2 to
    MeriStar Hospitalitys annual report on Form 10-K for the
    year ended December 31, 2001, and filed with the Commission
    on March 6, 2002).
|        | 4.6.3  |                         |  | First Supplemental Indenture to the December 2001
    Indenture (incorporated by reference to Exhibit 4.6.3 to
    MeriStar Hospitalitys annual report on Form 10-K for
    the year ended December 31, 2001, and filed with the
    Commission on March 6, 2002).                                                                                                                                                                                                                                                                                                                    
|        | 4.7    |                         |  | Indenture (the February 2002
    Indenture), dated February 7, 2002, between MeriStar
    Hospitality Operating Partnership, L.P., MeriStar Hospitality
    Finance Corp., MeriStar Hospitality Corporation, and U.S. Bank
    Trust National Association (incorporated by reference to
    Exhibit 4.7 to MeriStar Hospitalitys annual report on
    Form 10-K for the year ended December 31, 2001, and
    filed with the Commission on March 6, 2002).                                                                                                                          
|        | 4.7.1  |                         |  | Specimen Senior Note to the February 2002
    Indenture (incorporated by reference to Exhibit 4.7.1 to o
    MeriStar Hospitalitys annual report on Form 10-K for
    the year ended December 31, 2001, and filed with the
    Commission on March 6, 2002).                                                                                                                                                                                                                                                                                                                          
|        | 4.7.2  |                         |  | Registration Rights Agreement, dated
    February 7, 2002, between MeriStar Hospitality Operating
    Partnership, L.P., MeriStar Hospitality Finance Corp. II,
    MeriStar Hospitality Corporation, and certain subsidiaries of
    MeriStar Hospitality Operating Partnership, L.P. and Lehman
    Brothers Inc., SG Cowen Securities Corporation and certain other
    parties (incorporated by reference to Exhibit 4.7.2 to
    MeriStar Hospitalitys annual report on Form 10-K for the
    year ended December 31, 2001, and filed with the Commission
    on March 6, 2002). 
|        | 10.2   |                         |  | Second Amended and Restated Senior Secured Credit
    Agreement dated as of August 3, 1998 (the Senior
    Credit Agreement (incorporated by reference to
    Exhibit 10.4 to MeriStar Hospitalitys annual report
    on Form 10-K for the year ended December 31, 1998, and
    filed with the Commission on March 2, 1999).                                                                                                                                                                                                                                                       
|        | 10.2.1 |                         |  | First Amendment to the Second Amended and
    Restated Senior Secured Credit Agreement (incorporated by
    reference to Exhibit 10.2.1 to MeriStar Hospitalitys
    annual report on Form 10-K for the year ended
    December 31, 2001, and filed with the Commission on
    March 6, 2002).                                                                                                                                                                                                                                                                                        
|        | 10.2.2 |                         |  | Second Amendment to the Second Amended and
    Restated Senior Secured Credit Agreement (incorporated by
    reference to Exhibit 10.2.2 to MeriStar Hospitalitys
    annual report on Form 10-K for the year ended
    December 31, 2001, and filed with the Commission on
    March 6, 2002).                                                                                                                                                                                                                                                                                       

74



---



##### 



|        |         |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | ------- | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                        
|No.     |         | Description of Document
|        |         |                        
|        | 10.2.3  |                         |  | Third Amendment to the Second Amended and
    Restated Senior Secured Credit Agreement (incorporated by
    reference to Exhibit 10.2.3 to MeriStar Hospitalitys
    annual report on Form 10-K for the year ended
    December 31, 2001, and filed with the Commission on
    March 6, 2002).                                                                                                                                         
|        | 10.2.4  |                         |  | Fourth Amendment to the Second Amended and
    Restated Senior Secured Credit Agreement (incorporated by
    reference to Exhibit 10.2.4 to MeriStar Hospitalitys
    annual report on Form 10-K for the year ended
    December 31, 2001, and filed with the Commission on
    March 6, 2002).                                                                                                                                        
|        | 10.2.5  |                         |  | Fifth Amendment to the Second Amended and
    Restated Senior Secured Credit Agreement (incorporated by
    reference to Exhibit 10.2.5 to MeriStar Hospitalitys
    annual report on Form 10-K for the year ended
    December 31, 2001, and filed with the Commission on
    March 6, 2002).                                                                                                                                         
|        | 10.3    |                         |  | Loan Agreement, dated as of August 12, 1999,
    between MeriStar Hospitality Operating Partnership, L.P. and
    Lehman Brothers Holdings Inc. D/ B/ A Lehman Capital, a division
    of Lehman Brothers Holdings Inc. (incorporated by reference to
    Exhibit 10.13 to o MeriStar Hospitalitys annual
    report on Form 10-K for the year ended December 31,
    1999, and filed with the Commission on March 15, 2000).          
|        | 10.4    |                         |  | Intercompany Agreement between MeriStar
    Hospitality Corporation, MeriStar Hospitality Operating
    Partnership, L.P., MeriStar Hotels & Resorts, Inc. and
    MeriStar H&R Operating Company L.P. (Intercompany
    Agreement) (incorporated by reference to Exhibit 10.4
    to MeriStar Hospitalitys annual report on Form 10-K
    for the year ended December 31, 2001, and filed with the
    Commission on March 6, 2002).
|        | 10.4.1  |                         |  | Amendment to the Intercompany Agreement
    (incorporated by reference to Exhibit 10.15 to MeriStar
    Hospitalitys annual report on Form 10-K for the year
    ended December 31, 2000, and filed with the Commission on
    March 6, 2001).                                                                                                                                                                                         
|        | 10.5    |                         |  | Revolving Credit Agreement (the MeriStar
    Hotels Revolving Credit Agreement), dated as of
    August 3, 1998, by and between MeriStar H&R Operating
    Company, L.P. and MeriStar Hospitality Operating Partnership,
    L.P. (incorporated by reference to Exhibit 10.5 to MeriStar
    Hospitalitys annual report on Form 10-K for the year
    ended December 31, 2001, and filed with the Commission on
    March 6, 2002).  
|        | 10.5.1  |                         |  | Amendment to MeriStar Hotels Revolving Credit
    Agreement (incorporated by reference to Exhibit 10.5.1 to
    MeriStar Hospitalitys annual report on Form 10-K for
    the year ended December 31, 2001, and filed with the
    Commission on March 6, 2002).                                                                                                                                                                        
|        | 10.5.2  |                         |  | Second Amendment to MeriStar Hotels Revolving
    Credit Agreement (incorporated by reference to
    Exhibit 10.5.2 to MeriStar Hospitalitys annual report
    on Form 10-K for the year ended December 31, 2001, and
    filed with the Commission on March 6, 2002).                                                                                                                                                                 
|        | 10.5.3  |                         |  | Third Amendment to MeriStar Hotels Revolving
    Credit Agreement, dated July 31, 2002 (incorporated by
    reference to Exhibit 10.4 to Interstate Hotels and Resorts,
    Inc., Commission File No. 1-14331 , Form 8-K dated
    August 7, 2002, and filed with the Commission on
    August 7, 2002).                                                                                                                                
|        | 10.5.4  |                         |  | Fourth Amendment to MeriStar Hotels Revolving
    Credit Agreement, dated August 15, 2002 (incorporated by
    reference to Exhibit 10.5.4 to MeriStar Hospitalitys
    quarterly report on Form 10-Q for the period ended
    September 30, 2002, and filed with the Commission on
    November 14, 2002).                                                                                                                            
|        | 10.6    |                         |  | Term Note by MeriStar H&R Operating Company,
    L.P. to MeriStar Hospitality Operating Partnership, L.P.
    (incorporated by reference to MeriStar Hospitalitys annual
    report on Form 10-K for the year ended December 31,
    2001, and filed with the Commission on March 6, 2002).                                                                                                                                            
|        | 10.7*   |                         |  | MeriStar Hospitality Corporation Incentive Plan
    (the Incentive Plan) (incorporated by reference to
    Exhibit 10.1 to MeriStar Hospitalitys Registration
    Statement No. 333-49611, and filed with the Commission on
    June 22, 1998).                                                                                                                                                                                      
|        | 10.7.1* |                         |  | Amendment to the Incentive Plan (incorporated by
    reference to Exhibit 10.7.1 to o MeriStar Hospitalitys
    annual report on Form 10-K for the year ended
    December 31, 2001, and filed with the Commission on
    March 6, 2002).                                                                                                                                                                                              

75



---



##### 



|        |         |                         |  |                                                                                                                                                                                                                                                                                                                                                                               
|------- | ------- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                        
|No.     |         | Description of Document
|        |         |                        
|        | 10.8*   |                         |  | MeriStar Hospitality Corporation Non-Employee
    Directors Incentive Plan (the Directors
    Plan) (incorporated by reference to Exhibit 10.2 to
    MeriStar Hospitalitys Registration Statement
    No. 333-49611, and filed with the Commission on
    June 22, 1998).                                                                                               
|        | 10.8.1* |                         |  | Amendment to the Directors Plan
    (incorporated by reference to Exhibit 10.8.1 to MeriStar
    Hospitalitys annual report on Form 10-K for the year
    ended December 31, 2001, and filed with the Commission on
    March 6, 2002).                                                                                                                                     
|        | 10.9*   |                         |  | Profits-Only Operating Partnership Units Plan
    (incorporated by reference to Exhibit 10.14 to MeriStar
    Hospitalitys quarterly report on Form 10-Q for the
    quarter ended March 31, 2000, and filed with the Commission
    on May 12, 2000).                                                                                                                       
|        | 10.10*  |                         |  | MeriStar Hospitality Corporation Employee Stock
    Purchase Plan (incorporated by reference to Exhibit 10.10
    to MeriStar Hospitalitys annual report on Form 10-K
    for the year ended December 31, 2001, and filed with the
    Commission on March 6, 2002).                                                                                                         
|        | 10.11*  |                         |  | Employment Agreement between MeriStar Hospitality
    Corporation and Paul W. Whetsell (incorporated by reference to
    Exhibit 10.6 to MeriStar Hospitalitys quarterly
    report on Form 10-Q for the quarter ended
    September 30, 2000, and filed with the Commission on
    November 13, 2000).                                                                      
|        | 10.12*  |                         |  | Employment Agreement between MeriStar Hospitality
    Corporation and Steven D. Jorns (incorporated by reference to
    Exhibit 10.4 to MeriStar Hospitalitys Registration
    Statement No. 333-49611, and filed with the Commission on
    June 22, 1998).                                                                                                                 
|        | 10.13*  |                         |  | Employment Agreement between MeriStar Hospitality
    Corporation and Bruce G. Wiles (incorporated by reference to
    Exhibit 10.10 to MeriStar Hospitalitys annual report
    on Form 10-K for the year ended December 31, 1998, and
    filed with the Commission on March 2, 1999).                                                                                      
|        | 10.14*  |                         |  | Employment Agreement between MeriStar Hospitality
    Corporation and John Emery (incorporated by reference to
    Exhibit 10.9 to MeriStar Hospitalitys quarterly
    report on Form 10-Q for the quarter ended
    September 30, 2000, and filed with the Commission on
    November 13, 2000).                                                                            
|        | 10.15   |                         |  | Senior Secured Credit Agreement, dated
    October 28, 2002, between MeriStar Hospitality Operating
    Partnership, L.P. and SG Cowen Securities Corporation
    (incorporated by reference to Exhibit 10.7 to MeriStar
    Hospitalitys quarterly report on Form 10-Q for the
    period ended September 30, 2002, and filed with the Commission
    on November 14, 2002).
|        | 10.16*  |                         |  | Separation Agreement, effective November 1,
    2002, between MeriStar Hospitality Corporation (including
    MeriStar Hospitality Operating Partnership, L.P.) and John
    Emery.**                                                                                                                                                                                         
|        | 10.17*  |                         |  | Employment Agreement, effective December 2,
    2002, between MeriStar Hospitality Corporation, MeriStar
    Hospitality Operating Partnership, L.P., and Donald D. Olinger.**                                                                                                                                                                                                
|        | 12      |                         |  | Ratio of Earnings to Fixed Charges.***                                                                                                                                                                                                                                                                                                                                        
|        | 13      |                         |  | Financial Statements of MeriStar Hospitality
    Corporation as of December 31, 2002, 2001 and 2000.***                                                                                                                                                                                                                                                                       
|        | 21      |                         |  | Subsidiaries of MeriStar Hospitality Operating
    Partnership, L.P.***                                                                                                                                                                                                                                                                                                       
|        | 23      |                         |  | Consent of KPMG LLP.***                                                                                                                                                                                                                                                                                                                                                       
|        | 24      |                         |  | Power of Attorney (see Signatures pages).***                                                                                                                                                                                                                                                                                                                                  
|        | 99.1    |                         |  | Consolidating Financial Information of MeriStar
    Hospitality Operating Partnership, L.P.***                                                                                                                                                                                                                                                                                
|        | 99.2    |                         |  | Sarbanes-Oxley Act Section 906
    Certifications of Chief Executive Officer.***                                                                                                                                                                                                                                                                                              
|        | 99.3    |                         |  | Sarbanes-Oxley Act Section 906
    Certifications of Chief Financial and Chief Accounting
    Officer.***                                                                                                                                                                                                                                                                     



---



|  |                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------
|* | Indicates a management contract or compensatory
    plan or arrangement required to be filed pursuant to
    Item 14(c) of Form 10-K.



|   |                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | Filed as part of MeriStar Hospitality
    Corporations Annual Report on Form 10-K for the year ended
    December 31, 2002 (Commission file number 1-11903).



|    |                
|--- | ---------------
|*** | Filed herewith.

76



---



##### 



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                                                 
| | ------------------------------------------------
| | MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.
| | MERISTAR HOSPITALITY FINANCE CORP.              
| | MERISTAR HOSPITALITY FINANCE CORP. II           
| | MERISTAR HOSPITALITY FINANCE CORP. III          



| |     |                                  
| | --- | ---------------------------------
| | By: | MERISTAR HOSPITALITY CORPORATION,

| |                     | 
| | ------------------- | 
| |                     | 
| | ITS GENERAL PARTNER | 



| |     |                      | 
| | --- | -------------------- | 
| | By: | /s/ PAUL W. WHETSELL | 

| |                                                       | 
| | ----------------------------------------------------- | 
| |                                                       | 
| | PAUL W. WHETSELL                                      | 
| | Chief Executive Officer and Chairman of the
    Board | 

Dated: March 31, 2003

KNOW ALL MEN BY THESE PRESENT,that each person whose signature
appears below constitutes and appoints Paul W. Whetsell, Bruce
G. Wiles, Donald D. Olinger and Jerome J. Kraisinger, such
persons true and lawful attorneys-in-fact and agents, with
full power of substitution and revocation, for such person and
in such persons name, place and stead, in any and all
capacities to sign any and all amendments to this report filed
pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, and to file the same with all
exhibits thereto, and the other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and
things requisite and necessary to be done, as fully to all
intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report and the foregoing Power of
Attorney have been signed by the following persons in the
capacities and on the dates indicated.

|                                       |  |                                                                                                                                          |  |                |  | 
|-------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                       |  |                                                                                                                                          |  |               
|Signature                              |  | Title                                                                                                                                    |  | Date          
|                                       |  |                                                                                                                                          |  |               
|                                      
|/s/ PAUL W. WHETSELLPaul W. Whetsell   |  | Chief Executive Officer and Chairman of the Board
    of Directors (Principal Executive Officer) of MeriStar
    Hospitality Corporation |  | March 26, 2003
|                                      
|/s/ STEVEN D. JORNSSteven D. Jorns     |  | Vice Chairman of the Board of Directors of
    MeriStar Hospitality Corporation                                                          |  | March 26, 2003
|                                      
|/s/ BRUCE G. WILESBruce G. Wiles       |  | Chief Operating Officer and Director of MeriStar
    Hospitality Corporation                                                             |  | March 26, 2003
|                                      
|/s/ DONALD D. OLINGERDonald D. Olinger |  | Chief Financial and Chief Accounting Officer of
    MeriStar Hospitality Corporation                                                     |  | March 26, 2003

77



---



##### 



|                                           |  |                                              |  |                |  | 
|------------------------------------------ |  | -------------------------------------------- |  | -------------- |  | 
|                                           |  |                                              |  |               
|Signature                                  |  | Title                                        |  | Date          
|                                           |  |                                              |  |               
|                                          
|/s/ J. TAYLOR CRANDALLJ. Taylor Crandall   |  | Director of MeriStar Hospitality Corporation |  | March 26, 2003
|                                          
|/s/ JAMES F. DANNHAUSERJames F. Dannhauser |  | Director of MeriStar Hospitality Corporation |  | March 26, 2003
|                                          
|/s/ WILLIAM S. JANESWilliam S. Janes       |  | Director of MeriStar Hospitality Corporation |  | March 26, 2003
|                                          
|/s/ H. CABOT LODGE IIIH. Cabot Lodge III   |  | Director of MeriStar Hospitality Corporation |  | March 26, 2003
|                                          
|/s/ D. ELLEN SHUMAND. Ellen Shuman         |  | Director of MeriStar Hospitality Corporation |  | March 26, 2003
|                                          
|/s/ JAMES R. WORMSJames R. Worms           |  | Director of MeriStar Hospitality Corporation |  | March 26, 2003

78



---



##### 



CERTIFICATIONS

I, Paul W. Whetsell, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of MeriStar Hospitality Operating
    Partnership, L.P., MeriStar Hospitality Finance Corp.,
    MeriStar Hospitality Finance Corp. II and MeriStar
    Hospitality Finance Corp. III (the registrants);                                                                              
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrants as of,
    and for, the periods presented in this annual report;                      
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a14 and 15d14) for the registrants and
    have:                                                                                                      



| |    |                                                                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | designed such disclosure controls and procedures
    to ensure that material information relating to the registrants,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;



| |    |                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and



| |    |                                                                                                                                                                             
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;



| |    |                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants boards of directors (or persons performing the
    equivalent functions):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and



| |    |                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls: and



| |    |                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this annual report whether there were
    significant changes in internal controls or in other factors
    that could significantly affect internal controls subsequent to
    the date of our most recent evaluation, including any corrective
    actions with regard to significant deficiencies and material
    weaknesses.



|                                                     | 
|---------------------------------------------------- | 
|Date: March 31, 2003                                 | 
|                                                    
|/s/ PAUL W. WHETSELL                                 | 
|                                                     | 
|Paul W. Whetsell                                     | 
|Chief Executive Officer                              | 
|MeriStar Hospitality Operating
    Partnership, L.P. | 
|MeriStar Hospitality Finance Corp.                   | 
|MeriStar Hospitality Finance
    Corp. II            | 
|MeriStar Hospitality Finance
    Corp. III           | 

79



---



##### 



CERTIFICATIONS

I, Donald D. Olinger, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of MeriStar Hospitality Operating Partnership,
    L.P., MeriStar Hospitality Finance Corp., MeriStar Hospitality
    Finance Corp. II and MeriStar Hospitality Finance
    Corp. III (the registrants);                                                                              
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrants as of,
    and for, the periods presented in this annual report;                      
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a14 and 15d14) for the registrants and
    have:                                                                                                      



| |    |                                                                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | designed such disclosure controls and procedures
    to ensure that material information relating to the registrants,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;



| |    |                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and



| |    |                                                                                                                                                                             
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;



| |    |                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants boards of directors (or persons performing the
    equivalent functions):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and



| |    |                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls: and



| |    |                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this annual report whether there were
    significant changes in internal controls or in other factors
    that could significantly affect internal controls subsequent to
    the date of our most recent evaluation, including any corrective
    actions with regard to significant deficiencies and material
    weaknesses.



|                                                     | 
|---------------------------------------------------- | 
|Date: March 31, 2003                                 | 
|                                                    
|/s/ DONALD D. OLINGER                                | 
|                                                     | 
|Donald D. Olinger                                    | 
|Chief Financial and Chief Accounting
    Officer     | 
|MeriStar Hospitality Operating Partnership,
    L.P. | 
|MeriStar Hospitality Finance Corp.                   | 
|MeriStar Hospitality Finance
    Corp. II            | 
|MeriStar Hospitality Finance
    Corp. III           | 

80