##### 



Exhibit 13

MERISTAR HOSPITALITY CORPORATION

CONSOLIDATED BALANCE SHEETS


(Dollars and shares in thousands, except per share
amounts)


|                                                                                 |                                                                                                               |             |           |              |   |   |           |           |  
|-------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ----------- | --------- | ------------ | - | - | --------- | --------- | -
|                                                                                 |                                                                                                               | March 31,   |           |             
|                                                                                 |                                                                                                               | 2003        |           | December 31,
|                                                                                 |                                                                                                               | (Unaudited) |           | 2002        
|                                                                                 |                                                                                                               |             |           |             
|ASSETS                                                                           |                                                                                                               |             |           |              |   |   |           |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Investments in hotel properties                                                  |                                                                                                               | $           | 2,943,118 |              |   | $ | 3,020,909 |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Accumulated depreciation                                                         |                                                                                                               |             | (467,021  | )            |   |   | (460,972  | )        
|                                                                                 |                                                                                                               |             |           |              |   |   |           |          
|                                                                                 |                                                                                                               |             | 2,476,097 |              |   |   | 2,559,937 |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Restricted cash                                                                  |                                                                                                               |             | 22,021    |              |   |   | 20,365    |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Investments in and advances to affiliates                                        |                                                                                                               |             | 41,714    |              |   |   | 41,714    |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Note receivable from Interstate Hotels &
    Resorts                             |                                                                                                               |             |          |              |   |   | 42,052    |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Prepaid expenses and other assets                                                |                                                                                                               |             | 40,729    |              |   |   | 43,228    |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Accounts receivable, net of allowance for
    doubtful accounts of $771 and $848 |                                                                                                               |             | 69,765    |              |   |   | 56,828    |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Cash and cash equivalents                                                        |                                                                                                               |             | 65,488    |              |   |   | 33,896    |          
|                                                                                 |                                                                                                               |             |           |              |   |   |           |          
|                                                                                 |                                                                                                               | $           | 2,715,814 |              |   | $ | 2,798,020 |          
|                                                                                 |                                                                                                               |             |           |              |   |   |           |          
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                         |                                                                                                               |             |           |              |   |   |           |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Long-term debt                                                                   |                                                                                                               | $           | 1,652,510 |              |   | $ | 1,654,102 |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Accounts payable and accrued expenses                                            |                                                                                                               |             | 110,156   |              |   |   | 109,790   |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Accrued interest                                                                 |                                                                                                               |             | 40,744    |              |   |   | 52,907    |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Due to Interstate Hotels & Resorts                                               |                                                                                                               |             | 10,593    |              |   |   | 10,500    |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Other liabilities                                                                |                                                                                                               |             | 19,712    |              |   |   | 18,013    |          
|                                                                                 |                                                                                                               |             |           |              |   |   |           |          
|Total liabilities                                                                |                                                                                                               |             | 1,833,715 |              |   |   | 1,845,312 |          
|                                                                                 |                                                                                                               |             |           |              |   |   |           |          
|                                                                                
|Minority interests                                                               |                                                                                                               |             | 52,495    |              |   |   | 74,422    |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Stockholders equity:                                                            |                                                                                                               |             |           |              |   |   |           |          
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Common stock, par value $0.01 per share
    Authorized  250,000 shares
    Issued  50,392 and 49,555 shares |             |           | 504          |   |   |           | 495       |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Additional paid-in capital                                                                                    |             |           | 1,215,046    |   |   |           | 1,196,025 |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Retained deficit                                                                                              |             |           | (300,616     | ) |   |           | (230,870  | )
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Accumulated other comprehensive loss                                                                          |             |           | (5,994       | ) |   |           | (7,052    | )
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Unearned stock-based compensation                                                                             |             |           | (2,662       | ) |   |           | (3,638    | )
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Common stock held in treasury  4,324
    shares                                                              |             |           | (76,674      | ) |   |           | (76,674   | )
|                                                                                 |                                                                                                               |             |           |              |   |   |           |          
|Total stockholders equity                                                       |                                                                                                               |             | 829,604   |              |   |   | 878,286   |          
|                                                                                 |                                                                                                               |             |           |              |   |   |           |          
|                                                                                 |                                                                                                               | $           | 2,715,814 |              |   | $ | 2,798,020 |          
|                                                                                 |                                                                                                               |             |           |              |   |   |           |          

See accompanying notes to the unaudited consolidated financial
statements.





---



##### 



MERISTAR HOSPITALITY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS


UNAUDITED


(Dollars in thousands, except per share amounts)


|                                                                              |                                          |                                               |          |       |         |       |         |       |         |       |  
|----------------------------------------------------------------------------- | ---------------------------------------- | --------------------------------------------- | -------- | ----- | ------- | ----- | ------- | ----- | ------- | ----- | -
|                                                                              |                                          |                                              
|                                                                              |                                          | Three Months Ended                           
|                                                                              |                                          | March 31,                                    
|                                                                              |                                          |                                              
|                                                                              |                                          | 2003                                          |          | 2002 
|                                                                              |                                          |                                               |          |      
|Revenue:                                                                      |                                          |                                               |          |       |         |       |         |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Hotel operations:                        |                                               |          |       |         |       |         |       |        
|                                                                              |                                          | Rooms                                         |          | $     | 158,260 |       |         | $     | 164,740 |      
|                                                                              |                                          | Food and beverage                             |          |       | 62,830  |       |         |       | 60,988  |      
|                                                                              |                                          | Other hotel operations                        |          |       | 18,879  |       |         |       | 18,802  |      
|                                                                              | Office rental, parking and other revenue |                                               |          | 3,197 |         |       |         | 4,301 |        
|                                                                              |                                          |                                               |          |       |         |       |         |      
|Total revenue                                                                 |                                          |                                               | 243,166  |       |         |       | 248,831 |      
|                                                                              |                                          |                                               |          |       |         |       |         |      
|Hotel operating expenses:                                                     |                                          |                                               |          |       |         |       |         |      
|                                                                              |                                          | Rooms                                         |          |       | 38,586  |       |         |       | 37,524  |      
|                                                                              |                                          | Food and beverage                             |          |       | 46,086  |       |         |       | 43,567  |      
|                                                                              |                                          | Other hotel operating expenses                |          |       | 11,125  |       |         |       | 10,519  |      
|Office rental, parking and other expenses                                     |                                          |                                               | 641      |       |         |       | 761     |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Other operating expenses:                                                     |                                          |                                               |          |       |         |       |         |      
|                                                                              |                                          | Administrative and general                    |          |       | 42,551  |       |         |       | 42,233  |      
|                                                                              |                                          | Property operating costs                      |          |       | 36,980  |       |         |       | 35,622  |      
|                                                                              |                                          | Depreciation and amortization                 |          |       | 28,994  |       |         |       | 29,853  |      
|                                                                              |                                          | Loss on asset impairments                     |          |       | 56,677  |       |         |       |        |      
|                                                                              |                                          | Property taxes, insurance and other           |          |       | 20,269  |       |         |       | 19,582  |      
|                                                                              |                                          | Loss on fair value of non-hedging derivatives |          |       |        |       |         |       | 4,735   |      
|                                                                              |                                          | Write-off of deferred financing costs         |          |       |        |       |         |       | 1,529   |      
|                                                                              |                                          |                                               |          |       |         |       |         |      
|Operating expenses                                                            |                                          |                                               | 281,909  |       |         |       | 225,925 |      
|                                                                              |                                          |                                               |          |       |         |       |         |      
|Operating (loss) income                                                       |                                          |                                               | (38,743  | )     |         |       | 22,906  |      
|Interest expense, net                                                         |                                          |                                               | 34,876   |       |         |       | 34,622  |      
|                                                                              |                                          |                                               |          |       |         |       |         |      
|Loss before minority interests, income taxes, and
    discontinued operations |                                          |                                               | (73,619  | )     |         |       | (11,716 | )    
|Minority interests                                                            |                                          |                                               | 3,677    |       |         |       | 627     |      
|Income tax benefit                                                            |                                          |                                               | 196      |       |         |       | 305     |      
|                                                                              |                                          |                                               |          |       |         |       |         |      
|Loss from continuing operations                                               |                                          |                                               | (69,746  | )     |         |       | (10,784 | )    
|Income from discontinued operations, net of
    income taxes of $24           |                                          |                                               |         |       |         |       | 841     |      
|                                                                              |                                          |                                               |          |       |         |       |         |      
|Net loss                                                                      |                                          | $                                             | (69,746  | )     |         | $     | (9,943  | )    
|                                                                              |                                          |                                               |          |       |         |       |         |      
|Earnings per share:                                                           |                                          |                                               |          |       |         |       |         |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Basic:                                   |                                               |          |       |         |       |         |       |        
|                                                                              |                                          | Loss from continuing operations               |          | $     | (1.53   | )     |         | $     | (0.24   | )    
|                                                                              |                                          | Income from discontinued operations           |          |       |        |       |         |       | 0.02    |      
|                                                                              |                                          |                                               |          |       |         |       |         |      
|                                                                              |                                          |                                               | Net loss |       | $       | (1.53 | )       |       | $       | (0.22 | )
|                                                                              |                                          |                                               |          |       |         |       |         |      
|                                                                              | Diluted:                                 |                                               |          |       |         |       |         |       |        
|                                                                              |                                          | Loss from continuing operations               |          | $     | (1.53   | )     |         | $     | (0.24   | )    
|                                                                              |                                          | Income from discontinued operations           |          |       |        |       |         |       | 0.02    |      
|                                                                              |                                          |                                               |          |       |         |       |         |      
|                                                                              |                                          |                                               | Net loss |       | $       | (1.53 | )       |       | $       | (0.22 | )
|                                                                              |                                          |                                               |          |       |         |       |         |      

See accompanying notes to the unaudited consolidated financial
statements.

2



---



##### 



MERISTAR HOSPITALITY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


UNAUDITED


(Dollars in thousands)


|                                                                 |                                                                                               |                                                                   |                                                                                |         |        |         |         |          |        |         |  
|---------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------- | ------ | ------- | ------- | -------- | ------ | ------- | -
|                                                                 |                                                                                               |                                                                  
|                                                                 |                                                                                               | Three Months Ended                                               
|                                                                 |                                                                                               | March 31,                                                        
|                                                                 |                                                                                               |                                                                  
|                                                                 |                                                                                               | 2003                                                              |                                                                                | 2002   
|                                                                 |                                                                                               |                                                                   |                                                                                |        
|Operating activities:                                            |                                                                                               |                                                                   |                                                                                |         |        |         |         |         
|                                                                 | Net loss                                                                                      |                                                                   | $                                                                              | (69,746 | )      |         | $       | (9,943   | )     
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Adjustments to reconcile net loss to net cash
    (used in) provided by operating activities: |                                                                   |                                                                                |         |        |         |         |          |       
|                                                                 |                                                                                               | Depreciation and amortization                                     |                                                                                |         | 28,994 |         |         |          | 30,901 |        
|                                                                 |                                                                                               | Loss on asset impairments                                         |                                                                                |         | 56,677 |         |         |          |       |        
|                                                                 |                                                                                               | Write-off of deferred financing costs                             |                                                                                |         |       |         |         |          | 1,529  |        
|                                                                 |                                                                                               | Loss on fair value of non-hedging derivatives                     |                                                                                |         |       |         |         |          | 4,735  |        
|                                                                 |                                                                                               | Minority interests                                                |                                                                                |         | (3,677 | )       |         |          | (627   | )      
|                                                                 |                                                                                               | Amortization of unearned stock-based compensation                 |                                                                                |         | 976    |         |         |          | 880    |        
|                                                                 |                                                                                               | Unrealized gain on interest rate swaps recognized
    in net loss |                                                                                |         | (2,055 | )       |         |          | (2,887 | )      
|                                                                 |                                                                                               | Deferred income taxes                                             |                                                                                |         | (931   | )       |         |          | (317   | )      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                               | Changes in operating assets and liabilities:                      |                                                                                |         |        |         |         |          |        |        
|                                                                 |                                                                                               |                                                                   | Accounts receivable                                                            |         |        | (12,937 | )       |          |        | (12,254 | )
|                                                                 |                                                                                               |                                                                   | Prepaid expenses and other assets                                              |         |        | 1,416   |         |          |        | 1,634   |  
|                                                                 |                                                                                               |                                                                   | Due from/to Interstate Hotels & Resorts                                        |         |        | 93      |         |          |        | (224    | )
|                                                                 |                                                                                               |                                                                   | Accounts payable, accrued expenses, accrued
    interest and other liabilities |         |        | (9,039  | )       |          |        | (4,285  | )
|                                                                 |                                                                                               |                                                                   |                                                                                |         |        |         |         |         
|Net cash (used in) provided by operating
    activities          |                                                                                               |                                                                   | (10,229                                                                        | )       |        |         | 9,142   |         
|                                                                 |                                                                                               |                                                                   |                                                                                |         |        |         |         |         
|Investing activities:                                            |                                                                                               |                                                                   |                                                                                |         |        |         |         |         
|                                                                 | Investments in hotel properties                                                               |                                                                   |                                                                                | (8,622  | )      |         |         | (12,292  | )     
|                                                                 | Proceeds from sale of asset                                                                   |                                                                   |                                                                                | 12,650  |        |         |         |         |       
|                                                                 | Net payments from (advances to) Interstate Hotels
    & Resorts                               |                                                                   |                                                                                | 42,052  |        |         |         | (9,000   | )     
|                                                                 | (Increase) decrease in restricted cash                                                        |                                                                   |                                                                                | (1,656  | )      |         |         | 2,952    |       
|                                                                 | Other, net                                                                                    |                                                                   |                                                                                | (299    | )      |         |         |         |       
|                                                                 |                                                                                               |                                                                   |                                                                                |         |        |         |         |         
|Net cash provided by (used in) investing
    activities          |                                                                                               |                                                                   | 44,125                                                                         |         |        |         | (18,340 | )       
|                                                                 |                                                                                               |                                                                   |                                                                                |         |        |         |         |         
|Financing activities:                                            |                                                                                               |                                                                   |                                                                                |         |        |         |         |         
|                                                                 | Deferred financing fees                                                                       |                                                                   |                                                                                |        |        |         |         | (3,131   | )     
|                                                                 | Proceeds from issuance of long-term debt                                                      |                                                                   |                                                                                |        |        |         |         | 234,545  |       
|                                                                 | Principal payments on long-term debt                                                          |                                                                   |                                                                                | (1,889  | )      |         |         | (220,901 | )     
|                                                                 | Proceeds from issuances of common stock                                                       |                                                                   |                                                                                |        |        |         |         | 3,155    |       
|                                                                 | Purchases of common stock                                                                     |                                                                   |                                                                                |        |        |         |         | (409     | )     
|                                                                 | Dividends paid to stockholders                                                                |                                                                   |                                                                                |        |        |         |         | (475     | )     
|                                                                 | Distributions to minority investors                                                           |                                                                   |                                                                                | (141    | )      |         |         | (789     | )     
|                                                                 |                                                                                               |                                                                   |                                                                                |         |        |         |         |         
|Net cash (used in) provided by financing
    activities          |                                                                                               |                                                                   | (2,030                                                                         | )       |        |         | 11,995  |         
|                                                                 |                                                                                               |                                                                   |                                                                                |         |        |         |         |         
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                               |                                                                   | (274                                                                           | )       |        |         | (271    | )       
|Net increase in cash and cash equivalents                        |                                                                                               |                                                                   | 31,592                                                                         |         |        |         | 2,526   |         
|Cash and cash equivalents, beginning of period                   |                                                                                               |                                                                   | 33,896                                                                         |         |        |         | 23,448  |         
|                                                                 |                                                                                               |                                                                   |                                                                                |         |        |         |         |         
|Cash and cash equivalents, end of period                         |                                                                                               | $                                                                 | 65,488                                                                         |         |        | $       | 25,974  |         
|                                                                 |                                                                                               |                                                                   |                                                                                |         |        |         |         |         
|Supplemental Cash Flow Information                               |                                                                                               |                                                                   |                                                                                |         |        |         |         |         
|                                                                
|                                                                
|                                                                
|                                                                
|Cash paid for interest and income taxes:                         |                                                                                               |                                                                   |                                                                                |         |        |         |         |         
|                                                                 | Interest, net of capitalized interest                                                         |                                                                   | $                                                                              | 46,989  |        |         | $       | 38,288   |       
|                                                                 |                                                                                               |                                                                   |                                                                                |         |        |         |         |         
|                                                                 | Income taxes                                                                                  |                                                                   | $                                                                              | 207     |        |         | $       | 93       |       
|                                                                 |                                                                                               |                                                                   |                                                                                |         |        |         |         |         

See
accompanying notes to the unaudited consolidated financial
statements.

3



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##### 



MERISTAR HOSPITALITY CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2003


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


1.          Organization

MeriStar Hospitality Corporation 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 March 31, 2003, we owned 106
hotels with 27,432 rooms, all of which were leased by our
taxable subsidiaries and managed by Interstate Hotels &
Resorts, Inc. (Interstate Hotels).

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 two 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

Interim Financial Statements.We have prepared these
unaudited interim financial statements according to the rules
and regulations of the Securities and Exchange Commission. We
have omitted certain information and footnote disclosures that
are normally included in financial statements prepared in
accordance with accounting principles generally accepted in the
United States. These interim financial statements should be read
in conjunction with the financial statements, accompanying notes
and other information included in our Annual Report on
Form 10-K for the year ended December 31, 2002.
Certain 2002 amounts have been reclassified to conform to the
2003 presentation.

In our opinion, the accompanying unaudited consolidated interim
financial statements reflect all adjustments, which are of a
normal and recurring nature, necessary for a fair presentation
of the financial condition and results of operations and cash
flows for the periods presented. The results of operations for
the interim periods are not necessarily indicative of the
results for the entire year.

Principles of Consolidation.We adopted the Financial
Accounting Standards Board (FASB) Interpretation No. (FIN) 46,
Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, on
January 1, 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. We do not have an interest
in any variable interest entities.

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

4



---



##### 





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 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 or potential sale of the
asset. 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.

We adopted the provisions of SFAS No. 146, Accounting
for Costs Associated with Exit or Disposal Activities, on
January 1, 2003. SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal
activity be recognized and measured initially at fair value only
when the liability is incurred. As part of our strategy includes
the disposition of certain hotel assets, all of which are
managed under agreements which typically include termination
penalty clauses with Interstate Hotels, we may incur termination
obligations related to our asset dispositions. Any such
liability will be recognized at the time the asset disposition
is complete and a termination notice is provided to Interstate
Hotels. At that time, the recognition of the termination
obligation will be included in the calculation of the final gain
or loss on sale and will be included in discontinued operations.
For further discussion of potential termination obligations, see
Asset Dispositions included in Item 2 of this
Quarterly Report on Form 10-Q.

Gains and Losses From Extinguishments of Debt.We adopted
the provisions of SFAS No. 145, Rescission of FASB
Statements No. 4, No. 44 and No. 64, Amendment of
SFAS No. 13, and Technical Corrections, on
January 1, 2003. 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. Adoption of the standard
did not have a material impact on our results of operations for
the three months ended March 31, 2003.

Stock-Based Compensation.We adopted 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 new stock options
issued under our compensation programs. As permitted by SFAS
No. 148, we elected to apply the provisions prospectively,
which includes recognizing compensation expense for only those
stock options issued in 2003 and forward. Adoption of the
standard did not have a significant impact on our results of
operations or financial condition. We apply the provisions of
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, in
accounting for our stock options issued under our compensation
programs prior to January 1, 2003. As we granted these
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
periods.

Had compensation cost been determined based on fair value at the
grant date for awards granted prior to our adoption of SFAS
No. 123, as amended by SFAS No. 148, our net loss and
per share amounts would have been adjusted to the pro forma
amounts indicated as follows:

|                      |                                                                                                                                                     |                    |         |        |   |   |         |        |  
|--------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ------- | ------ | - | - | ------- | ------ | -
|                      |                                                                                                                                                     |                   
|                      |                                                                                                                                                     | Three Months Ended
|                      |                                                                                                                                                     | March 31,         
|                      |                                                                                                                                                     |                   
|                      |                                                                                                                                                     | 2003               |         | 2002  
|                      |                                                                                                                                                     |                    |         |       
|Net loss, as reported |                                                                                                                                                     | $                  | (69,746 | )      |   | $ | (9,943  | )     
|                      | Add: Stock-based employee compensation expense
    included in reported net loss, net of related tax effect                                         |                    |         | 929    |   |   |         | 1,891  |  
|                      | Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |                    |         | (1,081 | ) |   |         | (2,137 | )
|                      |                                                                                                                                                     |                    |         |        |   |   |         |       
|Net loss, pro forma   |                                                                                                                                                     | $                  | (69,898 | )      |   | $ | (10,189 | )     
|                      |                                                                                                                                                     |                    |         |        |   |   |         |       

5



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##### 



|                   |                      |                    |   |       |   |  |   |       |  
|------------------ | -------------------- | ------------------ | - | ----- | - |  | - | ----- | -
|                   |                      |                   
|                   |                      | Three Months Ended
|                   |                      | March 31,         
|                   |                      |                   
|                   |                      | 2003               |   | 2002 
|                   |                      |                    |   |      
|Earnings per share |                      |                    |   |       |   |  |   |      
|                   | Basic, as reported   |                    | $ | (1.53 | ) |  | $ | (0.22 | )
|                   | Basic, pro forma     |                    | $ | (1.53 | ) |  | $ | (0.23 | )
|                   |                      |                    |   |       |   |  |   |      
|                   | Diluted, as reported |                    | $ | (1.53 | ) |  | $ | (0.22 | )
|                   | Diluted, pro forma   |                    | $ | (1.53 | ) |  | $ | (0.23 | )
|                   |                      |                    |   |       |   |  |   |      

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 share in future
periods.

Accounting for Guarantees.We adopted FASB 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,
on January 1, 2003. The interpretation requires
disclosures, which we have included in Footnote 9,
Commitments and Contingencies. The interpretation
also requires recognition of liabilities at their fair value for
newly issued guarantees. As we did not issue any new guarantees
during the three months ended March 31, 2003, the adoption
did not have a material impact on our results of operations or
financial condition.

3.          Comprehensive
Loss

Comprehensive loss was $68,688 and $9,420 for the three months
ended March 31, 2003 and 2002, respectively. Comprehensive
loss consisted primarily of net loss ($69,746 and $9,943 for the
three months ended March 31, 2003 and 2002, respectively),
foreign currency translation adjustments, and in 2002 a $511
fair value adjustment for derivatives.

4.          Investments
in Hotel Properties

Investments in hotel properties consisted of the following:

|                                  |  |           |           |              |  |   |           | 
|--------------------------------- |  | --------- | --------- | ------------ |  | - | --------- | 
|                                  |  | March 31, |           | December 31,
|                                  |  | 2003      |           | 2002        
|                                  |  |           |           |             
|Land                              |  | $         | 281,461   |              |  | $ | 288,611   | 
|Buildings                         |  |           | 2,287,118 |              |  |   | 2,351,769 | 
|Furniture, fixtures and equipment |  |           | 331,406   |              |  |   | 344,541   | 
|Construction-in-progress          |  |           | 43,133    |              |  |   | 35,988    | 
|                                  |  |           |           |              |  |   |           | 
|                                  |  | $         | 2,943,118 |              |  | $ | 3,020,909 | 
|                                  |  |           |           |              |  |   |           | 

For the three months ended March 31, 2003 and 2002, we
capitalized interest of $779 and $919, respectively.

In late 2002, due to changes in economic conditions and the
decision to market non-core assets as part of our program to
sell assets that do not fit our long-term strategy, we performed
an analysis to determine the recoverability of each of our hotel
properties. Assets we have identified as non-core
typically have one or more of the following characteristics:
limited future growth potential, secondary market locations,
secondary brand affiliations, higher than average future capital
expenditure requirements, or an over-weighted market location.

We recognized an impairment loss in 2002 on certain non-core
assets we were then actively marketing. Late in the first
quarter of 2003, we expanded our asset sales program to include
a total of 16 non-core assets. We recognized an impairment loss
of $56,677 related to these 16 hotels during the three months
ended March 31, 2003.

Subsequent to March 31, 2003, we identified an additional
19 non-core assets that we plan to dispose of. As a result of
this change in our expected holding period for these assets, we
updated our impairment analysis

6



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##### 





The impairment charges discussed above are based on our
estimates of the fair value of the properties we plan to dispose
of. These estimates require us to make assumptions about the
sales prices that we expect to realize for each property as well
as the timing of a potential sale. In making these estimates, we
consider the operating results of the assets, the market for
comparable properties, and quotes from brokers, among other
information. Actual results could differ materially from these
estimates.

5.          Investments
in and Advances to Affiliates

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 March 31, 2003,
cumulative preferred returns of $12,840 were due from MIP. We
have included this receivable in accounts receivable on the
accompanying consolidated balance sheet. 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.

6.          Long-Term
Debt

Long-term debt consisted of the following:

|                           |  |           |           |              |  |   |           |  
|-------------------------- |  | --------- | --------- | ------------ |  | - | --------- | -
|                           |  | March 31, |           | December 31,
|                           |  | 2003      |           | 2002        
|                           |  |           |           |             
|Senior unsecured notes     |  | $         | 950,000   |              |  | $ | 950,000   |  
|Secured facility           |  |           | 313,270   |              |  |   | 314,626   |  
|Senior subordinated notes  |  |           | 205,000   |              |  |   | 205,000   |  
|Convertible notes          |  |           | 154,300   |              |  |   | 154,300   |  
|Mortgage debt and other    |  |           | 37,498    |              |  |   | 38,030    |  
|Unamortized issue discount |  |           | (7,558    | )            |  |   | (7,854    | )
|                           |  |           |           |              |  |   |           |  
|                           |  | $         | 1,652,510 |              |  | $ | 1,654,102 |  
|                           |  |           |           |              |  |   |           |  

Aggregate future maturities as of March 31, 2003 were as
follows:

|                   |  |   |           | 
|------------------ |  | - | --------- | 
|2003 (nine months) |  | $ | 6,776     | 
|2004               |  |   | 170,715   | 
|2005               |  |   | 8,666     | 
|2006               |  |   | 9,407     | 
|2007               |  |   | 213,514   | 
|Thereafter         |  |   | 1,243,432 | 
|                   |  |   |           | 
|                   |  | $ | 1,652,510 | 
|                   |  |   |           | 

As of March 31, 2003, all of our debt bore fixed rates of
interest. Our overall weighted average interest rate was 8.6%.
The fair value of our fixed rate long-term debt was $1,419,651
at March 31, 2003. We determined fair value based on market
prices as of March 31, 2003.

7



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##### 



Senior unsecured notes.The notes are unsecured
obligations of certain subsidiaries of ours, and we guarantee
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 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 March 31, 2003,
our fixed charge coverage ratio was 1.5 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. We currently have
the ability to incur $300,000 of secured non-recourse financing
within restricted subsidiaries. Proceeds within the restricted
subsidiaries could not be used to retire the Convertible Notes
prior to their maturity but could be used to repay them at
maturity. Additionally, we are permitted to invest five percent
of consolidated net tangible assets in an unrestricted
subsidiary. We would then be able to leverage the properties
contributed to the unrestricted subsidiary and could use any
proceeds from new financings to retire the Convertible Notes
prior to their maturity. We also have a general carve-out to
incur $50,000 of any type of additional debt within a restricted
subsidiary.

Credit facility. On October 29, 2002, we entered
into a new three-year $100,000 senior revolving credit facility,
secured by the 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 and wrote off $1,615 of deferred financing costs
related to this termination. As of March 31, 2003, there
were no outstanding borrowings on the new 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. We have obtained
a waiver of compliance with this leverage covenant from our
lending group through May 20, 2003. We currently intend to
request an extension of the waiver for a 90-day period. Because
we do not anticipate needing to draw under the bank line or
having borrowing capacity to do so in the near term, we expect
to significantly reduce or terminate the facility. We have
approximately $1,400 of unamortized capitalized financing costs
related to this facility as of March 31, 2003. These costs,
or a significant portion thereof, would be written off if we
decide to terminate or significantly reduce the facility.

Secured facility.We completed a $330,000 10-year
non-recourse financing secured by a portfolio of 19 hotels in
1999. The loan bears a fixed interest rate of 8.01% and matures
in 2009. The 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 flow
required for two consecutive quarters, at which time the cash
being held in escrow will be released to us. Approximately
$8,800 of cash was held in escrow under this provision as of
March 31, 2003. 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. We are also in
the process of negotiating the release of up to $5,000 of cash
held in escrow for funding of capital expenditures on the 19
encumbered properties.

Derivatives.We have exposure going forward as the change
in fair value of our non-hedging derivatives will have an impact
on our operations. As of March 31, 2003, we had two
non-hedged swap agreements with notional principal amounts
totaling $200,000. These swap agreements are currently being
marked to market through our statement of operations. During the
three months ended March 31, 2003 and 2002, we recognized

8



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##### 





On April 14, 2003, one swap agreement with a notional
principal amount of $100,000 expired with no significant impact
on our results of operations or financial condition. The
remaining swap with a notional principal amount of $100,000
expires in July 2003. As of March 31, 2003, the fair value
of the liability related to this swap was $1,456. At that time,
the 30-day LIBOR was 1.03%. If LIBOR remains at that rate
through the expiration of the swap in July 2003, we would make
additional cash payments of approximately $1,200. If LIBOR
increases or decreases by 50 basis points during this same
period, our payments would decrease or increase by approximately
$100.

7.          Stockholders
Equity and Minority Interests

Common Stock Transactions.We issued 50,000 shares of
common stock to an employee in connection with the formal
separation of management functions with Interstate Hotels during
the three months ended March 31, 2003. POPs totaling 50,000
were also relinquished in connection with the separation.

OP Units. Substantially all of our assets are held
indirectly by and operated through MeriStar Hospitality
Operating Partnership, L.P., our subsidiary operating
partnership (Commission file number 333-63768). Our operating
partnerships 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 (POPs).

Common OP Unit holders converted 787,000 of their OP Units, with
a value of $18,109, into common stock during the three months
ended March 31, 2003. There were no conversions for cash
during the quarter.

8.          Earnings
Per Share

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

|                                                  |                                                                                     |                    |   |         |   |  |   |         |  
|------------------------------------------------- | ----------------------------------------------------------------------------------- | ------------------ | - | ------- | - |  | - | ------- | -
|                                                  |                                                                                     |                   
|                                                  |                                                                                     | Three Months Ended
|                                                  |                                                                                     | March 31,         
|                                                  |                                                                                     |                   
|                                                  |                                                                                     | 2003               |   | 2002   
|                                                  |                                                                                     |                    |   |        
|Basic and Diluted Earnings Per Share Computation: |                                                                                     |                    |   |         |   |  |   |        
|                                                  | Net loss from continuing operations                                                 |                    | $ | (69,746 | ) |  | $ | (10,784 | )
|                                                  | Dividends declared on unvested restricted stock                                     |                    |   |        |   |  |   | (2      | )
|                                                  |                                                                                     |                    |   |         |   |  |   |        
|                                                  | Loss available to common stockholders                                               |                    | $ | (69,746 | ) |  | $ | (10,786 | )
|                                                  |                                                                                     |                    |   |         |   |  |   |        
|                                                  | Weighted average number of basic and diluted
    shares of common stock outstanding |                    |   | 45,548  |   |  |   | 44,553  |  
|                                                  |                                                                                     |                    |   |         |   |  |   |        
|                                                  | Basic and diluted loss per share from continuing
    operations                     |                    | $ | (1.53   | ) |  | $ | (0.24   | )
|                                                  |                                                                                     |                    |   |         |   |  |   |        

For the three months ended March 31, 2003 and 2002, 10,572
and 9,267 securities, respectively, were excluded from the
calculation of diluted earnings per share as the effect of their
inclusion would be anti-dilutive.

9.          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.

9



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##### 



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
March 31, 2003 were as follows:

|                   |  |   |        | 
|------------------ |  | - | ------ | 
|2003 (nine months) |  | $ | 1,078  | 
|2004               |  |   | 1,437  | 
|2005               |  |   | 1,440  | 
|2006               |  |   | 1,427  | 
|2007               |  |   | 1,427  | 
|Thereafter         |  |   | 56,368 | 
|                   |  |   |        | 
|                   |  | $ | 63,177 | 
|                   |  |   |        | 

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

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 March 31, 2003 were as
follows:

|                   |  |   |        | 
|------------------ |  | - | ------ | 
|2003 (nine months) |  | $ | 3,523  | 
|2004               |  |   | 4,428  | 
|2005               |  |   | 2,896  | 
|2006               |  |   | 2,027  | 
|2007               |  |   | 1,456  | 
|Thereafter         |  |   | 1,929  | 
|                   |  |   |        | 
|                   |  | $ | 16,259 | 
|                   |  |   |        | 

10.          Dispositions

We sold five hotels during 2002. In January 2003, we sold one
hotel classified as held for sale at December 31, 2002.
Operating results for these six hotels have been reclassified as
discontinued operations for the three months ended
March 31, 2002. Revenue of $7,305 and pre-tax income of
$865 is included in discontinued operations for 2002 related to
these six hotels. Results of operations for the three months
ended March 31, 2003 for the one hotel sold in January were
insignificant and were therefore included in continuing
operations. In April 2003, we completed the sale of another
hotel for approximately $3,100.

11.          Consolidating
Financial Statements

We and certain subsidiaries of MeriStar Hospitality Operating
Partnership, L.P. (MHOP), our subsidiary operating partnership,
are guarantors of senior unsecured notes issued by MHOP. MHOP
and certain of its subsidiaries are guarantors of our unsecured
subordinated notes. We own a one percent general partner
interest in MHOP, and MeriStar LP, Inc., our wholly-owned
subsidiary, owns approximately a 90 percent limited partner
interest in MHOP. All guarantees are full and unconditional, and
joint and several. Exhibit 99.1 to this Quarterly Report on
Form 10-Q presents supplementary consolidating financial
statements for MHOP, including each of the guarantor
subsidiaries. This exhibit presents MHOPs consolidating
balance sheets as of March 31, 2003 and December 31,
2002, consolidating statements of operations for the three
months ended March 31, 2003 and 2002, and consolidating
statements of cash flows for the three months ended
March 31, 2003 and 2002.

10