##### 



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the quarterly period ended September 30, 2002 or

[   ] 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                                   |  | MERISTAR HOSPITALITY                                  
|OPERATING PARTNERSHIP, L.P.                            |  | FINANCE CORP                                          
|(Exact name of Registrant as specified in its Charter) |  | (Exact name of Registrant as specified in its Charter)
|                                                       |  |                                                       
|DELAWARE                                               |  | DELAWARE                                              
|(State of Incorporation)                               |  | (State of Incorporation)                              
|                                                       |  |                                                       
|75-2648837                                             |  | 52-2321015                                            
|(IRS Employer Identification No.)                      |  | (IRS Employer Identification No.)                     
|                                                       |  |                                                       
|1010
WISCONSIN AVENUE, N.W.                            |  | 1010 WISCONSIN AVENUE, N.W.                           
|WASHINGTON, D.C. 20007                                 |  | WASHINGTON, D.C. 20007                                
|(202) 295-1000                                         |  | (202) 295-1000                                        
|(Address, including zip code, and telephone            |  | (Address, including zip code, and telephone           
|number, including area code, of Principal              |  | number, including area code, of Principal             
|Executive Offices)                                     |  | Executive Offices)                                    
|                                                       |  |                                                       
|MERISTAR HOSPITALITY                                   |  | MERISTAR HOSPITALITY                                  
|FINANCE CORP II                                        |  | FINANCE CORP III                                      
|(Exact name of Registrant as specified in its Charter) |  | (Exact name of Registrant as specified in its Charter)
|                                                       |  |                                                       
|DELAWARE                                               |  | DELAWARE                                              
|(State of Incorporation)                               |  | (State of Incorporation)                              
|                                                       |  |                                                       
|73-1658708                                             |  | 46-0467463                                            
|(IRS Employer Identification No.)                      |  | (IRS Employer Identification No.)                     
|                                                       |  |                                                       
|1010
WISCONSIN AVENUE, N.W.                            |  | 1010 WISCONSIN AVENUE, N.W.                           
|WASHINGTON, D.C. 20007                                 |  | WASHINGTON, D.C. 20007                                
|(202) 295-1000                                         |  | (202) 295-1000                                        
|(Address, including zip code, and telephone            |  | (Address, including zip code, and telephone           
|number, including area code, of Principal              |  | number, including area code, of Principal             
|Executive Offices)                                     |  | Executive Offices)                                    

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 for which the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X   No -





---



##### 



MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.

Explanatory Note:This quarterly report on Form 10-Q 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 September 30, 2002, they had no operations, no employees, only
nominal assets and no liabilities other than their obligations under the
indenture governing its senior unsecured notes issued in January 2001, December
2001 and February 2002 and for related financing costs.

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

INDEX

|         |  |                                                                                                           |  |     
|-------- |  | --------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                           |  | Page
|         |  |                                                                                                           |  |     
|PART I.  |  | FINANCIAL INFORMATION                                                                                     |  |     
|         |  |                                                                                                           |  |     
|ITEM 1:  |  | FINANCIAL STATEMENTS (UNAUDITED)                                                                          |  |     
|         |  |                                                                                                           |  |     
|         |  | Condensed Consolidated Balance Sheets 
September 30, 2002 and December 31, 2001                          |  | 3   
|         |  |                                                                                                           |  |     
|         |  | Condensed Consolidated Statements of Operations 
Three and nine months ended September 30, 2002 and 2001 |  | 4   
|         |  |                                                                                                           |  |     
|         |  | Condensed Consolidated Statements of Partners Capital 
September 30, 2002 and 2001                      |  | 6   
|         |  |                                                                                                           |  |     
|         |  | Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 2002 and 2001           |  | 7   
|         |  |                                                                                                           |  |     
|         |  | Notes to Condensed Consolidated Financial Statements                                                      |  | 8   
|         |  |                                                                                                           |  |     
|         |  |                                                                                                           |  |     
|ITEM 2:  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS                     |  | 14  
|         |  |                                                                                                           |  |     
|ITEM 3:  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK                                                |  | 23  
|         |  |                                                                                                           |  |     
|ITEM 4:  |  | CONTROLS AND PROCEDURES                                                                                   |  | 24  
|         |  |                                                                                                           |  |     
|PART II. |  | OTHER INFORMATION                                                                                         |  | 24  
|         |  |                                                                                                           |  |     
|ITEM 5:  |  | OTHER INFORMATION                                                                                         |  | 24  
|         |  |                                                                                                           |  |     
|ITEM 6:  |  | EXHIBITS AND REPORTS ON FORM 8-K                                                                          |  | 25  

2



---



##### 





|PART I. |  | FINANCIAL INFORMATION
|------- |  | ---------------------
|ITEM 1: |  | FINANCIAL STATEMENTS 

MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)

|                                                              |                                                          |                                                                              |                    |             |                   |   |           |           |          |  
|------------------------------------------------------------- | -------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------ | ----------- | ----------------- | - | --------- | --------- | -------- | -
|                                                              |                                                          |                                                                              | September 30, 2002 |             | December 31, 2001 |  
|                                                              |                                                          |                                                                              |                    |             |                   |  
|                                                              |                                                          |                                                                              |                    | (unaudited) |                   |   |           |          
|Assets                                                        |                                                          |                                                                              |                    |             |                   |   |           |          
|Investments in hotel properties                               |                                                          | $                                                                            | 3,181,539          |             |                   | $ | 3,183,677 |          
|                                                              |                                                          | Accumulated depreciation                                                     |                    |             | (477,625          | ) |           |           | (397,380 | )
|                                                              |                                                          |                                                                              |                    |             |                   |   |           |          
|                                                              |                                                          |                                                                              | 2,703,914          |             |                   |   | 2,786,297 |          
|                                                              |                                                          | Cash and cash equivalents                                                    |                    |             | 24,728            |   |           |           | 23,441   |  
|                                                              |                                                          | Accounts receivable, net of allowance for doubtful
accounts of $650 and $973 |                    |             | 52,791            |   |           |           | 47,178   |  
|                                                              |                                                          | Prepaid expenses and other                                                   |                    |             | 23,357            |   |           |           | 18,306   |  
|                                                              |                                                          | Income tax receivable                                                        |                    |             | 319               |   |           |           |         |  
|                                                              |                                                          | Notes receivable from Interstate Hotels & Resorts                            |                    |             | 56,069            |   |           |           | 36,000   |  
|                                                              |                                                          | Due from Interstate Hotels & Resorts                                         |                    |             |                  |   |           |           | 8,877    |  
|                                                              |                                                          | Investments in affiliates                                                    |                    |             | 41,714            |   |           |           | 41,714   |  
|                                                              |                                                          | Restricted cash                                                              |                    |             | 16,443            |   |           |           | 21,304   |  
|                                                              |                                                          | Intangible assets, net of accumulated amortization
of $9,067 and $5,289      |                    |             | 18,825            |   |           |           | 21,469   |  
|                                                              |                                                          |                                                                              |                    |             |                   |   |           |          
|                                                              |                                                          | $                                                                            | 2,938,160          |             |                   | $ | 3,004,586 |          
|                                                              |                                                          |                                                                              |                    |             |                   |   |           |          
|Liabilities, Minority Interests and Partners Capital         |                                                          |                                                                              |                    |             |                   |   |           |          
|                                                              | Accounts payable, accrued expenses and other liabilities |                                                                              | $                  | 117,998     |                   |   | $         | 123,972   |         
|                                                              | Accrued interest                                         |                                                                              |                    | 41,144      |                   |   |           | 45,009    |         
|                                                              | Due to Interstate Hotels & Resorts                       |                                                                              |                    | 9,954       |                   |   |           |          |         
|                                                              | Income taxes payable                                     |                                                                              |                    |            |                   |   |           | 310       |         
|                                                              | Dividends and distributions payable                      |                                                                              |                    | 449         |                   |   |           | 1,090     |         
|                                                              | Deferred income taxes                                    |                                                                              |                    | 6,358       |                   |   |           | 7,130     |         
|                                                              | Interest rate swaps                                      |                                                                              |                    | 6,802       |                   |   |           | 12,100    |         
|                                                              | Notes payable to MeriStar Hospitality                    |                                                                              |                    | 357,408     |                   |   |           | 357,117   |         
|                                                              | Long-term debt                                           |                                                                              |                    | 1,312,246   |                   |   |           | 1,343,017 |         
|                                                              |                                                          |                                                                              |                    |             |                   |   |           |          
|Total liabilities                                             |                                                          |                                                                              | 1,852,359          |             |                   |   | 1,889,745 |          
|                                                              |                                                          |                                                                              |                    |             |                   |   |           |          
|Minority interests                                            |                                                          |                                                                              | 2,629              |             |                   |   | 2,639     |          
|Redeemable OP units at redemption value                       |                                                          |                                                                              | 45,996             |             |                   |   | 67,012    |          
|Partners capital  common OP units 45,045,410 and
44,524,147 |                                                          |                                                                              |                    |             |                   |   |           |          
|                                                              | issued and outstanding                                   |                                                                              |                    | 1,037,176   |                   |   |           | 1,045,190 |         
|                                                              |                                                          |                                                                              |                    |             |                   |   |           |          
|                                                              |                                                          | $                                                                            | 2,938,160          |             |                   | $ | 3,004,586 |          
|                                                              |                                                          |                                                                              |                    |             |                   |   |           |          

See accompanying notes to condensed consolidated financial statements.

3



---



##### 



MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 
UNAUDITED (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)

|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------- | ------------------------------------------------------------------------------------------- | ------- | ------------------ | ------- | ----------------- | ------- | ----- | ------- | ---- | ------- | ------ | ------- | - | ------- | ----- | ------- | 
|                                                                                                                                                                         |                                          |                                                                                             |         | Three months ended |         | Nine months ended
|                                                                                                                                                                         |                                          |                                                                                             |         | September 30,      |         | September 30,    
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                  
|                                                                                                                                                                         |                                          |                                                                                             |         | 2002               |         | 2001              |         | 2002  |         | 2001
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |     
|Revenue:                                                                                                                                                                 |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |      
|                                                                                                                                                                         | Hotel operations:                        |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |        
|                                                                                                                                                                         |                                          | Rooms                                                                                       |         | $                  | 156,935 |                   |         | $     | 163,568 |      |         | $      | 506,054 |   |         | $     | 562,497 | 
|                                                                                                                                                                         |                                          | Food and beverage                                                                           |         |                    | 56,548  |                   |         |       | 55,886  |      |         |        | 189,423 |   |         |       | 200,273 | 
|                                                                                                                                                                         |                                          | Other operating departments                                                                 |         |                    | 18,306  |                   |         |       | 18,721  |      |         |        | 57,715  |   |         |       | 64,511  | 
|                                                                                                                                                                         | Participating lease revenue              |                                                                                             |         |                   |         |                   |         | 1,841 |         |      |         |       |         |   |         | 8,146 |        
|Office rental and other revenues                                                                                                                                         |                                          |                                                                                             | 4,017   |                    |         |                   | 4,016   |       |         |      | 14,282  |        |         |   | 12,183  |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|Total revenue                                                                                                                                                            |                                          |                                                                                             | 235,806 |                    |         |                   | 244,032 |       |         |      | 767,474 |        |         |   | 847,610 |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|Hotel operating expenses by department:                                                                                                                                  |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |      
|                                                                                                                                                                         |                                          | Rooms                                                                                       |         |                    | 40,895  |                   |         |       | 42,715  |      |         |        | 122,194 |   |         |       | 134,225 | 
|                                                                                                                                                                         |                                          | Food and beverage                                                                           |         |                    | 44,187  |                   |         |       | 44,122  |      |         |        | 138,234 |   |         |       | 147,320 | 
|                                                                                                                                                                         |                                          | Other operating departments                                                                 |         |                    | 10,967  |                   |         |       | 10,353  |      |         |        | 33,159  |   |         |       | 33,845  | 
|Office rental, parking and other operating expenses                                                                                                                      |                                          |                                                                                             | 767     |                    |         |                   | 819     |       |         |      | 2,372   |        |         |   | 2,444   |      
|Undistributed operating expenses:                                                                                                                                        |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |      
|                                                                                                                                                                         |                                          | Administrative and general                                                                  |         |                    | 42,136  |                   |         |       | 39,610  |      |         |        | 129,098 |   |         |       | 126,774 | 
|                                                                                                                                                                         |                                          | Property operating costs                                                                    |         |                    | 40,166  |                   |         |       | 40,716  |      |         |        | 117,842 |   |         |       | 124,812 | 
|                                                                                                                                                                         |                                          | Property taxes, insurance and other                                                         |         |                    | 16,511  |                   |         |       | 20,811  |      |         |        | 52,999  |   |         |       | 57,158  | 
|                                                                                                                                                                         |                                          | Depreciation and amortization                                                               |         |                    | 30,039  |                   |         |       | 28,500  |      |         |        | 91,242  |   |         |       | 85,594  | 
|                                                                                                                                                                         |                                          | Expense for non-hedging derivatives                                                         |         |                    | 1,132   |                   |         |       |        |      |         |        | 4,211   |   |         |       |        | 
|                                                                                                                                                                         |                                          | Write-off of deferred financing costs                                                       |         |                    |        |                   |         |       |         |      |         |        | 1,529   |   |         |       |        | 
|                                                                                                                                                                         |                                          | Loss on fair value of non-hedging derivatives                                               |         |                    |        |                   |         |       |        |      |         |        | 4,735   |   |         |       |        | 
|                                                                                                                                                                         |                                          | Write down of investment in STS Hotel Net                                                   |         |                    |        |                   |         |       |        |      |         |        |        |   |         |       | 2,112   | 
|                                                                                                                                                                         |                                          | Swap termination costs                                                                      |         |                    |        |                   |         |       |        |      |         |        |        |   |         |       | 9,297   | 
|                                                                                                                                                                         |                                          | FelCor merger costs                                                                         |         |                    |        |                   |         |       | 2,028   |      |         |        |        |   |         |       | 5,817   | 
|                                                                                                                                                                         |                                          | Cost to terminate leases with Prime Hospitality Corporation                                 |         |                    |        |                   |         |       |        |      |         |        |        |   |         |       | 1,315   | 
|                                                                                                                                                                         |                                          | Restructuring charge                                                                        |         |                    |        |                   |         |       | 1,080   |      |         |        |        |   |         |       | 1,080   | 
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|Total operating expenses                                                                                                                                                 |                                          |                                                                                             | 226,800 |                    |         |                   | 230,754 |       |         |      | 697,615 |        |         |   | 731,793 |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|Net operating income                                                                                                                                                     |                                          |                                                                                             | 9,006   |                    |         |                   | 13,278  |       |         |      | 69,859  |        |         |   | 115,817 |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|Interest expense, net                                                                                                                                                    |                                          |                                                                                             | 33,846  |                    |         |                   | 31,354  |       |         |      | 102,543 |        |         |   | 91,661  |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |      
|Income (loss) from continuing operations before minority
interests, income tax expense (benefit), discontinued
operations, loss on sale of assets and extraordinary loss |                                          |                                                                                             | (24,840 | )                  |         |                   | (18,076 | )     |         |      | (32,684 | )      |         |   | 24,156  |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|Minority interests                                                                                                                                                       |                                          |                                                                                             | (18     | )                  |         |                   | (22     | )     |         |      | (10     | )      |         |   | (16     | )    
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|Income (loss) from continuing operations before income tax
expense (benefit), discontinued operations, loss on sale of
assets and extraordinary loss                     |                                          |                                                                                             | (24,822 | )                  |         |                   | (18,054 | )     |         |      | (32,674 | )      |         |   | 24,172  |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|Income tax expense (benefit)                                                                                                                                             |                                          |                                                                                             | (595    | )                  |         |                   | (521    | )     |         |      | (754    | )      |         |   | 721     |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|Income (loss) from continuing operations before discontinued
operations, loss on sale of assets and extraordinary loss                                                   |                                          |                                                                                             | (24,227 | )                  |         |                   | (17,533 | )     |         |      | (31,920 | )      |         |   | 23,451  |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|Discontinued operations:                                                                                                                                                 |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |      
|                                                                                                                                                                         |                                          | Income (loss) from operations of assets sold (including
loss on disposal of $6,403 in 2002) |         |                    | (6,640  | )                 |         |       | 558     |      |         |        | (5,768  | ) |         |       | 2,264   | 
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|                                                                                                                                                                         | Income tax benefit                       |                                                                                             |         | 128                |         |                   |         |      |         |      |         | 128    |         |   |         |      |        
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|                                                                                                                                                                         | Income (loss) on discontinued operations |                                                                                             |         | (6,512             | )       |                   |         | 558   |         |      |         | (5,640 | )       |   |         | 2,264 |        
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|Loss on sale of assets, net of tax effect of ($20) and ($39)                                                                                                             |                                          |                                                                                             |        |                    |         |                   | (1,075  | )     |         |      |        |        |         |   | (2,137  | )    
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|Extraordinary loss on early extinguishments of debt, net of tax
effect of ($17)                                                                                          |                                          |                                                                                             |        |                    |         |                   |        |       |         |      |        |        |         |   | (1,226  | )    
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|Net income (loss)                                                                                                                                                        |                                          | $                                                                                           | (30,739 | )                  |         | $                 | (18,050 | )     |         | $    | (37,560 | )      |         | $ | 22,352  |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|Preferred distributions                                                                                                                                                  |                                          |                                                                                             | (141    | )                  |         |                   | (141    | )     |         |      | (423    | )      |         |   | (423    | )    
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |       |         | 
|Net income (loss) applicable to common unitholders                                                                                                                       |                                          | $                                                                                           | (30,880 | )                  |         | $                 | (18,191 | )     |         | $    | (37,983 | )      |         | $ | 21,929  |      
|                                                                                                                                                                         |                                          |                                                                                             |         |                    |         |                   |         |       |         |      |         |        |         |   |         |      

See accompanying notes to condensed consolidated financial statements.

4



---



##### 



MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED (IN THOUSANDS,
EXCEPT PER UNIT AMOUNTS)

|                                                                               |                                                                                |   |                    |         |                   |   |        |         |      |   |        |         |   |   |       |        |  
|------------------------------------------------------------------------------ | ------------------------------------------------------------------------------ | - | ------------------ | ------- | ----------------- | - | ------ | ------- | ---- | - | ------ | ------- | - | - | ----- | ------ | -
|                                                                               |                                                                                |   | Three months ended |         | Nine months ended
|                                                                               |                                                                                |   | September 30,      |         | September 30,    
|                                                                               |                                                                                |   |                    |         |                  
|                                                                               |                                                                                |   | 2002               |         | 2001              |   | 2002   |         | 2001
|                                                                               |                                                                                |   |                    |         |                   |   |        |         |     
|                                                                               | Net income (loss) applicable to common
unitholders                             |   | $                  | (30,880 | )                 |   | $      | (18,191 | )    |   | $      | (37,983 | ) |   | $     | 21,929 |  
|                                                                               |                                                                                |   |                    |         |                   |   |        |         |      |   |        |         |   |   |       |       
|                                                                               | Net income (loss) applicable to general
partner common unitholders             |   | $                  | (28,437 | )                 |   | $      | (16,803 | )    |   | $      | (34,921 | ) |   | $     | 20,178 |  
|                                                                               |                                                                                |   |                    |         |                   |   |        |         |      |   |        |         |   |   |       |       
|Net income (loss) applicable to third party
limited partner common unitholders |                                                                                | $ | (2,443             | )       |                   | $ | (1,388 | )       |      | $ | (3,062 | )       |   | $ | 1,751 |       
|                                                                               |                                                                                |   |                    |         |                   |   |        |         |      |   |        |         |   |   |       |       
|                                                                               |                                                                                |   |                    |         |                   |   |        |         |      |   |        |         |   |   |       |        |  
|                                                                               |                                                                                |   |                    |         |                   |   |        |         |      |   |        |         |   |   |       |        |  
|Earnings per unit:                                                             |                                                                                |   |                    |         |                   |   |        |         |      |   |        |         |   |   |       |       
|                                                                               | Basic:                                                                         |   |                    |         |                   |   |        |         |      |   |        |         |   |   |       |        |  
|                                                                               | Continuing income (loss) before discontinued
operations and extraordinary loss |   | $                  | (0.50   | )                 |   | $      | (0.39   | )    |   | $      | (0.66   | ) |   | $     | 0.42   |  
|                                                                               | Discontinued operations                                                        |   |                    | (0.13   | )                 |   |        | 0.01    |      |   |        | (0.12   | ) |   |       | 0.05   |  
|                                                                               | Extraordinary loss                                                             |   |                    |        |                   |   |        |        |      |   |        |        |   |   |       | (0.03  | )
|                                                                               |                                                                                |   |                    |         |                   |   |        |         |      |   |        |         |   |   |       |       
|                                                                               | Net income (loss)                                                              |   | $                  | (0.63   | )                 |   | $      | (0.38   | )    |   | $      | (0.78   | ) |   | $     | 0.44   |  
|                                                                               |                                                                                |   |                    |         |                   |   |        |         |      |   |        |         |   |   |       |       
|                                                                               | Diluted:                                                                       |   |                    |         |                   |   |        |         |      |   |        |         |   |   |       |        |  
|                                                                               | Continuing income (loss) before discontinued
operations and extraordinary loss |   | $                  | (0.50   | )                 |   | $      | (0.39   | )    |   | $      | (0.66   | ) |   | $     | 0.42   |  
|                                                                               | Discontinued operations                                                        |   |                    | (0.13   | )                 |   |        | 0.01    |      |   |        | (0.12   | ) |   |       | 0.05   |  
|                                                                               | Extraordinary loss                                                             |   |                    |        |                   |   |        |        |      |   |        |        |   |   |       | (0.03  | )
|                                                                               |                                                                                |   |                    |         |                   |   |        |         |      |   |        |         |   |   |       |       
|                                                                               | Net income (loss)                                                              |   | $                  | (0.63   | )                 |   | $      | (0.38   | )    |   | $      | (0.78   | ) |   | $     | 0.44   |  
|                                                                               |                                                                                |   |                    |         |                   |   |        |         |      |   |        |         |   |   |       |       

See accompanying notes to condensed consolidated financial statements.

5



---



##### 



MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL
UNAUDITED
(IN THOUSANDS)

|                                                                                               |                             |                          |           |               |           |      |           |       |           | 
|---------------------------------------------------------------------------------------------- | --------------------------- | ------------------------ | --------- | ------------- | --------- | ---- | --------- | ----- | --------- | 
|                                                                                               |                             |                          |           | September 30,
|                                                                                               |                             |                          |           | 2002          |           | 2001
|                                                                                               |                             |                          |           |               |           |     
|                                                                                               |                             |                          |           |               |           |      |           |       |           | 
|Balance at beginning of year                                                                   |                             | $                        | 1,045,190 |               |           | $    | 1,142,772 |      
|Net income (loss)                                                                              |                             |                          | (37,560   | )             |           |      | 22,352    |      
|Foreign currency translation adjustment                                                        |                             |                          | 112       |               |           |      | (1,001    | )    
|Transition adjustment                                                                          |                             |                          |          |               |           |      | (2,842    | )    
|Change in fair value of cash flow hedges                                                       |                             |                          | 511       |               |           |      | (9,678    | )    
|                                                                                               |                             |                          |           |               |           |      |           |      
|                                                                                               | Comprehensive income (loss) |                          |           | (36,937       | )         |      |           | 8,831 |          
|Reclassification of non-hedging derivatives                                                    |                             |                          | 4,735     |               |           |      |          |      
|Contributions                                                                                  |                             |                          | 3,156     |               |           |      | 844       |      
|Contribution from general partner related to amortization
of unearned stock-based compensation |                             |                          | 3,041     |               |           |      | 2,628     |      
|Repurchase of units                                                                            |                             |                          | (1,193    | )             |           |      | (4,028    | )    
|Allocations from redeemable OP units                                                           |                             |                          | 20,528    |               |           |      | 41,266    |      
|Distributions                                                                                  |                             |                          | (1,344    | )             |           |      | (73,568   | )    
|                                                                                               |                             |                          |           |               |           |      |           |      
|                                                                                               |                             |                          |           |               |           |      |           |       |           | 
|                                                                                               |                             | Balance at end of period |           | $             | 1,037,176 |      |           | $     | 1,118,745 | 
|                                                                                               |                             |                          |           |               |           |      |           |      

See accompanying notes to condensed consolidated financial statements.

6



---



##### 



MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED (IN THOUSANDS)

|                                                                                         |                                                                       |                                                          |         |                   |        |      |         |          |         |  
|---------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | -------------------------------------------------------- | ------- | ----------------- | ------ | ---- | ------- | -------- | ------- | -
|                                                                                         |                                                                       |                                                          |         | Nine months ended
|                                                                                         |                                                                       |                                                          |         | September 30,    
|                                                                                         |                                                                       |                                                          |         |                  
|                                                                                         |                                                                       |                                                          |         | 2002              |        | 2001
|                                                                                         |                                                                       |                                                          |         |                   |        |     
|Operating activities:                                                                    |                                                                       |                                                          |         |                   |        |      |         |         
|Net income (loss)                                                                        |                                                                       | $                                                        | (37,560 | )                 |        | $    | 22,352  |         
|                                                                                         |                                                                       |                                                          |         |                   |        |      |         |          |         |  
|Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |                                                                       |                                                          |         |                   |        |      |         |         
|                                                                                         | Depreciation and amortization                                         |                                                          |         | 91,770            |        |      |         | 86,639   |        
|                                                                                         | Loss on fair value of non-hedging derivatives                         |                                                          |         | 4,735             |        |      |         |         |        
|                                                                                         | Write-off of deferred financing costs                                 |                                                          |         | 1,529             |        |      |         |         |        
|                                                                                         | Loss on sale of assets, before tax effect                             |                                                          |         | 6,403             |        |      |         | 2,176    |        
|                                                                                         | Write down of investment in STS Hotel Net                             |                                                          |         |                  |        |      |         | 2,112    |        
|                                                                                         | Extraordinary loss on early extinguishment of debt, before tax effect |                                                          |         |                  |        |      |         | 1,243    |        
|                                                                                         | Minority interests                                                    |                                                          |         | (10               | )      |      |         | (16      | )      
|                                                                                         | Amortization of unearned stock based compensation                     |                                                          |         | 3,041             |        |      |         | 2,628    |        
|                                                                                         | Interest rate swaps marked to fair value                              |                                                          |         | (4,787            | )      |      |         |         |        
|                                                                                         | Deferred income taxes                                                 |                                                          |         | (772              | )      |      |         | (359     | )      
|                                                                                         |                                                                       |                                                          |         |                   |        |      |         |          |         |  
|                                                                                         | Changes in operating assets and liabilities:                          |                                                          |         |                   |        |      |         |          |        
|                                                                                         |                                                                       | Accounts receivable, net                                 |         |                   | (5,613 | )    |         |          | 11,256  |  
|                                                                                         |                                                                       | Prepaid expenses and other                               |         |                   | (5,051 | )    |         |          | (6,135  | )
|                                                                                         |                                                                       | Due to/from Interstate Hotels & Resorts                  |         |                   | 5,762  |      |         |          | 9,152   |  
|                                                                                         |                                                                       | Accounts payable, accrued expenses and other liabilities |         |                   | (6,444 | )    |         |          | (18,035 | )
|                                                                                         |                                                                       | Accrued interest                                         |         |                   | (3,865 | )    |         |          | 3,080   |  
|                                                                                         |                                                                       | Income taxes payable                                     |         |                   | (629   | )    |         |          | 233     |  
|                                                                                         |                                                                       |                                                          |         |                   |        |      |         |         
|Net cash provided by operating activities                                                |                                                                       |                                                          | 48,509  |                   |        |      | 116,326 |         
|                                                                                         |                                                                       |                                                          |         |                   |        |      |         |         
|Investing activities:                                                                    |                                                                       |                                                          |         |                   |        |      |         |         
|                                                                                         | Investment in hotel properties, net                                   |                                                          |         | (35,824           | )      |      |         | (31,066  | )      
|                                                                                         | Proceeds from disposition of assets                                   |                                                          |         | 25,150            |        |      |         | 9,715    |        
|                                                                                         | Hotel operating cash received in lease conversions                    |                                                          |         |                  |        |      |         | 3,257    |        
|                                                                                         | Repayments of notes receivable                                        |                                                          |         | (7,000            | )      |      |         | (36,000  | )      
|                                                                                         | Change in restricted cash                                             |                                                          |         | 4,861             |        |      |         | (2,741   | )      
|                                                                                         |                                                                       |                                                          |         |                   |        |      |         |         
|Net cash used in investing activities                                                    |                                                                       |                                                          | (12,813 | )                 |        |      | (56,835 | )       
|                                                                                         |                                                                       |                                                          |         |                   |        |      |         |         
|Financing activities:                                                                    |                                                                       |                                                          |         |                   |        |      |         |         
|                                                                                         | Deferred financing costs                                              |                                                          |         | (3,416            | )      |      |         | (11,072  | )      
|                                                                                         | Proceeds from issuance of mortgages and notes payable                 |                                                          |         | 283,138           |        |      |         | 684,710  |        
|                                                                                         | Principal payments on mortgages and notes payable                     |                                                          |         | (313,618          | )      |      |         | (608,149 | )      
|                                                                                         | Contributions from partners                                           |                                                          |         | 3,156             |        |      |         | 2,157    |        
|                                                                                         | Repurchase of units                                                   |                                                          |         | (1,193            | )      |      |         | (4,028   | )      
|                                                                                         | Distributions paid to partners                                        |                                                          |         | (2,467            | )      |      |         | (75,950  | )      
|                                                                                         |                                                                       |                                                          |         |                   |        |      |         |         
|Net cash used in financing activities                                                    |                                                                       |                                                          | (34,400 | )                 |        |      | (12,332 | )       
|                                                                                         |                                                                       |                                                          |         |                   |        |      |         |         
|Effect of exchange rate changes on cash and cash equivalents                             |                                                                       |                                                          | (9      | )                 |        |      | 245     |         
|                                                                                         |                                                                       |                                                          |         |                   |        |      |         |         
|Net increase in cash and cash equivalents                                                |                                                                       |                                                          | 1,287   |                   |        |      | 47,404  |         
|Cash and cash equivalents, beginning of period                                           |                                                                       |                                                          | 23,441  |                   |        |      | 242     |         
|                                                                                         |                                                                       |                                                          |         |                   |        |      |         |         
|Cash and cash equivalents, end of period                                                 |                                                                       | $                                                        | 24,728  |                   |        | $    | 47,646  |         
|                                                                                         |                                                                       |                                                          |         |                   |        |      |         |         

See accompanying notes to condensed consolidated financial statements.

7



---



##### 



MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
UNAUDITED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. ORGANIZATION

General

We are a subsidiary operating partnership of MeriStar Hospitality Corporation.
We own a portfolio of upscale, full-service hotels in the United States and
Canada. Our portfolio is diversified by franchise and brand affiliations. As of
September 30, 2002, we owned 109 hotels, with 28,099 rooms, all of which are
leased by our taxable subsidiaries and managed by Interstate Hotels & Resorts,
Inc. 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, as a result of the merger between CapStar
Hotel Company and American General Hospitality Corporation, and the subsequent
formation of MeriStar Hospitality, the merged entity. MeriStar Hospitality, a
real estate investment trust, or REIT, is our general partner and owns a one
percent interest in us as of September 30, 2002. The limited partners are as
follows:



| |  |  | MeriStar LP, Inc., a wholly-owned subsidiary of MeriStar Hospitality,
which owns approximately a 90 percent interest as of September 30, 2002;
and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | various third parties, which owned an aggregate interest of nine percent
at September 30, 2002.                                                   

Partners capital includes the partnership interests of MeriStar Hospitality
and MeriStar LP, Inc. MeriStar Hospitality held 483,745 common OP units as of
September 30, 2002. MeriStar LP, Inc. held 44,561,665 common OP units as of
September 30, 2002. Due to the redemption rights of the limited partnership
units held by third parties, these units have been excluded from partners
capital and classified as Redeemable OP units and are recorded at redemption
value. At September 30, 2002, there were 4,296,307 redeemable units
outstanding.

On January 1, 2001, changes to the federal tax laws governing real estate
investment trusts became effective. Those changes are commonly known as the
REIT Modernization Act, or RMA. The RMA permits real estate investment trusts
to create taxable subsidiaries that are subject to taxation similar to
subchapter C-Corporations. Because of the RMA, we have created a number of
these 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 arms 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),
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | leasing a property that contains gambling operations; and                                                                                                                                                                                                                           
| |  |  | owning a brand or franchise.                                                                                                                                                                                                                                                        

We believe establishing taxable subsidiaries to lease the properties we own
provides an efficient alignment of and ability to capture the economic
interests of property ownership. Our taxable subsidiaries are parties to
management agreements with a subsidiary of Interstate Hotels to manage 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 incentives payments, based on meeting performance thresholds, that could
total up to 1.5% of total hotel revenue. All of the agreements, except for four
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.

8



---



##### 



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

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 of America. 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, as amended, for the year ended December 31, 2001. Certain 2001 amounts
have been reclassified to conform to the 2002 presentation.

In our opinion, the accompanying unaudited condensed 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
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires us to make
estimates and assumptions. Such estimates and assumptions affect the reported
amounts of assets and liabilities, as well as the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Our actual results
could differ from those estimates. The results of operations for the interim
periods are not necessarily indicative of the results for the entire year.

Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information requires a public entity to
report selected information about operating segments in financial reports
issued to shareholders. Based on the guidance provided in the standard, we
have determined that our business is conducted in one reportable segment. The
standard also establishes requirements for related disclosures about products
and services, geographic areas and major customers. Revenues for Canadian
operations totaled $6,166 and $6,716 for the three months ended September 30,
2002 and 2001, respectively. Revenues for Canadian operations totaled $16,573
and $18,299 for the nine months ended September 30, 2002 and 2001,
respectively.

Our interest rate risk management objective is to limit the impact of interest
rate changes on earnings and cash flows. We assess interest rate cash flow
risk by continually identifying and monitoring changes in interest rate
exposures that may adversely impact expected future cash flows, and by
evaluating hedging opportunities. We do not enter into derivative instruments
for any purpose other than cash flow hedging purposes.

Our interest rate swap agreements were initially designated as hedges against
changes in future cash flows associated with specific variable rate debt
obligations.As of September 30, 2002, we had three swap agreements with
notional amounts totaling $300,000. All of these swap agreements have been
converted to non-hedging derivatives due to our repayment of the floating-rate
borrowings they originally hedged and they are currently being marked to market
through our statement of operations. We have interest rate exposure going
forward as the change in fair value of our non-hedging derivatives will have an
impact on our statement of operations. The interest rate swap agreements are
reflected at fair value in our consolidated balance sheet as of September 30,
2002. For more information regarding our interest rate hedging activities, see
Quantitative and Qualitative Disclosures about Market Risk.

New Accounting Pronouncements

In July 2002, the Financial Accounting Standards Board issued SFAS No. 146
Accounting for Costs Associated with Exit or Disposal Activities. If we
enter into these transactions in the future, we will have to evaluate the
effects this new standard will have on our financial statements. The
provisions of this statement are to be applied prospectively to exit or
disposal activities initiated after December 31, 2002.

In April 2002, the Financial Accounting Standards Board issued SFAS No. 145
Rescission of FASB Statements No. 4, 44 and 64, Amendment of SFAS No. 13,
Technical Corrections. We plan to adopt this statement on January 1, 2003.

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144
Accounting for the Impairment of Disposal of Long-Lived Assets, which
supersedes SFAS No. 121. The provisions of SFAS No. 144 were effective on
January 1, 2002 for our financial statements. SFAS No. 144 requires the
current and prior period operating results of any asset that has been disposed
of, on or after January 1, 2002, including any gain or loss recognized, to be
recorded as

9



---



##### 



discontinued operations. In August 2002, we sold three hotels. All operating
results, including the loss on disposal, have been recorded as discontinued
operations. We have reclassified prior periods to reflect operations of the
three hotels as discontinued operations.

3. AMOUNTS DUE TO/FROM INTERSTATE HOTELS

Due to/from Interstate Hotel and 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 of $9,954 at
September 30, 2002, includes management fees due, 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
owed us $8,877 for working capital deficits at the RMA lease conversion date and these services.

Note Receivable From Interstate Hotels and 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 London Interbank Offered Rate.

Interstate Hotels also issued us a term note effective January 1, 2002. This
$13,069 term note refinanced outstanding accounts payable Interstate Hotels
owed to us. The term loan bore interest at 650 basis points over the 30-day
LIBOR. The maturity date was the same as that of the revolving credit
agreement. The repayments of the credit agreement and term note were
subordinate to Interstates bank debt.

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. Also, 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 is subordinate to Interstates new
credit agreement, and the term loan does not allow for any additional amount of
further borrowings by Interstate Hotels.

4.     LONG-TERM DEBT

Long-term debt consisted of the following:

|                                      |  |                    |           |                   |  |   |           |  
|------------------------------------- |  | ------------------ | --------- | ----------------- |  | - | --------- | -
|                                      |  | September 30, 2002 |           | December 31, 2001
|                                      |  |                    |           |                  
|Senior unsecured notes                |  | $                  | 950,000   |                   |  | $ | 750,000   |  
|Credit facility                       |  |                    | 14,000    |                   |  |   | 224,000   |  
|Secured facility                      |  |                    | 315,955   |                   |  |   | 319,788   |  
|Mortgage debt and other               |  |                    | 38,550    |                   |  |   | 52,335    |  
|                                      |  |                    |           |                   |  |   |           |  
|                                      |  |                    | 1,318,505 |                   |  |   | 1,346,123 |  
|Notes payable to MeriStar Hospitality |  |                    | 359,300   |                   |  |   | 359,300   |  
|Unamortized issue discount            |  |                    | (8,151    | )                 |  |   | (5,289    | )
|                                      |  |                    |           |                   |  |   |           |  
|                                      |  | $                  | 1,669,654 |                   |  | $ | 1,700,134 |  
|                                      |  |                    |           |                   |  |   |           |  

As of September 30, 2002 aggregate future maturities of the above obligations
are as follows:

|           |  |   |           | 
|---------- |  | - | --------- | 
|2002       |  | $ | 1,914     | 
|2003       |  |   | 22,188    | 
|2004       |  |   | 170,669   | 
|2005       |  |   | 8,665     | 
|2006       |  |   | 9,407     | 
|Thereafter |  |   | 1,456,811 | 
|           |  |   |           | 
|           |  | $ | 1,669,654 | 
|           |  |   |           | 

In February 2002, we issued an additional $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 revolving credit agreement. As a result
of this financing, we redesignated

10



---



##### 



some swap agreements as non-hedging derivatives. We recognized a $4,735 loss
when this amount was transferred out of accumulated other comprehensive income
because the debt being hedged was repaid.

In February 2002, we amended our revolving credit agreement. The amendment
allowed us to reduce the revolving commitments to below $300,000. In March
2002, we reduced the borrowing capacity on our revolving credit agreement from
$310,000 to $150,000. We recognized a $1,529 loss due to the write-off of
deferred financing costs related to reducing the borrowing capacity of our
revolving credit agreement.

On October 29, 2002, we entered into a new three-year, $100,000 senior
unsecured revolving credit facility. The initial interest rate is 30-day LIBOR plus 388 basis points. We repaid the
outstanding
balance of $14,000 on our previous credit facility in conjunction with closing
this facility.

5.     DIVIDENDS AND DISTRIBUTIONS PAYABLE

On September 25, 2002, we declared a dividend for the three months ended
September 30, 2002 of $0.01 per limited partnership unit. We paid the dividend
on October 31, 2002.

6.     EARNINGS PER UNIT

The following table presents the computation of basic and diluted earnings per
unit (unit amounts in thousands):

|                                                                                      |                           |   |                    |   |                   |   |         |   |      |   |         |   |  |   |        |     | 
|------------------------------------------------------------------------------------- | ------------------------- | - | ------------------ | - | ----------------- | - | ------- | - | ---- | - | ------- | - |  | - | ------ | --- | 
|                                                                                      |                           |   | Three months ended |   | Nine months ended
|                                                                                      |                           |   | September 30,      |   | September 30,    
|                                                                                      |                           |   |                    |   |                  
|                                                                                      |                           |   | 2002               |   | 2001              |   | 2002    |   | 2001
|                                                                                      |                           |   |                    |   |                   |   |         |   |     
|BASIC EARNINGS (LOSS) PER
UNIT COMPUTATION:                                           |                           |   |                    |   |                   |   |         |   |      |   |         |   |  |   |        |    
|Income (loss) from continuing
operations before extraordinary loss                    |                           | $ | (24,227            | ) |                   | $ | (18,608 | ) |      | $ | (31,920 | ) |  | $ | 21,314 |    
|Dividends paid on unvested restricted
stock                                           |                           |   | (2                 | ) |                   |   | (198    | ) |      |   | (5      | ) |  |   | (593   | )  
|Preferred distributions                                                               |                           |   | (141               | ) |                   |   | (141    | ) |      |   | (423    | ) |  |   | (423   | )  
|                                                                                      |                           |   |                    |   |                   |   |         |   |      |   |         |   |  |   |        |    
|Income (loss) applicable to common
unitholders                                        |                           | $ | (24,370            | ) |                   | $ | (18,947 | ) |      | $ | (32,348 | ) |  | $ | 20,298 |    
|                                                                                      |                           |   |                    |   |                   |   |         |   |      |   |         |   |  |   |        |    
|Weighted average number of OP units
outstanding                                       |                           |   | 48,950             |   |                   |   | 48,312  |   |      |   | 48,830  |   |  |   | 48,359 |    
|                                                                                      |                           |   |                    |   |                   |   |         |   |      |   |         |   |  |   |        |    
|Basic earnings (loss) per unit from
continuing operations before
extraordinary loss   |                           | $ | (0.50              | ) |                   | $ | (0.39   | ) |      | $ | (0.66   | ) |  | $ | 0.42   |    
|                                                                                      |                           |   |                    |   |                   |   |         |   |      |   |         |   |  |   |        |    
|DILUTED EARNINGS (LOSS) PER
UNIT COMPUTATION:                                         |                           |   |                    |   |                   |   |         |   |      |   |         |   |  |   |        |    
|Adjusted income (loss) applicable to
common unitholders                               |                           | $ | (24,370            | ) |                   | $ | (18,947 | ) |      | $ | (32,348 | ) |  | $ | 20,298 |    
|                                                                                      |                           |   |                    |   |                   |   |         |   |      |   |         |   |  |   |        |    
|Weighted average number of OP units
outstanding                                       |                           |   | 48,950             |   |                   |   | 48,312  |   |      |   | 48,830  |   |  |   | 48,359 |    
|                                                                                      | Stock options of MeriStar |   |                    |  |                   |   |         |  |      |   |         |  |  |   |        | 324 | 
|                                                                                      |                           |   |                    |   |                   |   |         |   |      |   |         |   |  |   |        |    
|Total weighted average number of
diluted OP units outstanding                         |                           |   | 48,950             |   |                   |   | 48,312  |   |      |   | 48,830  |   |  |   | 48,683 |    
|                                                                                      |                           |   |                    |   |                   |   |         |   |      |   |         |   |  |   |        |    
|Diluted earnings (loss) per unit from
continuing operations before
extraordinary loss |                           | $ | (0.50              | ) |                   | $ | (0.39   | ) |      | $ | (0.66   | ) |  | $ | 0.42   |    
|                                                                                      |                           |   |                    |   |                   |   |         |   |      |   |         |   |  |   |        |    

Stock options are not included in the computation of diluted earnings (loss)
per unit when their effect is antidilutive.

11



---



##### 



7.     SUPPLEMENTAL CASH FLOW INFORMATION

|                                                                         |                                                                         |                                       |                                 |         |                                 |   |      |        |        |        | 
|------------------------------------------------------------------------ | ----------------------------------------------------------------------- | ------------------------------------- | ------------------------------- | ------- | ------------------------------- | - | ---- | ------ | ------ | ------ | 
|                                                                         |                                                                         |                                       |                                 |         | Nine months ended September 30,
|                                                                         |                                                                         |                                       |                                 |         |                                
|                                                                         |                                                                         |                                       |                                 |         | 2002                            |   | 2001
|                                                                         |                                                                         |                                       |                                 |         |                                 |   |     
|                                                                         | Cash paid for interest and income taxes:                                |                                       |                                 |         |                                 |   |      |        |       
|                                                                         | Interest, net of capitalized interest of
$3,093 and $5,435 respectively |                                       | $                               | 110,619 |                                 |   | $    | 88,522 |       
|                                                                         | Income taxes                                                            |                                       |                                 | 643     |                                 |   |      | 558    |       
|                                                                         |                                                                         |                                       |                                 |         |                                 |   |      |        |        |        | 
|                                                                         | Non-cash investing and financing activities:                            |                                       |                                 |         |                                 |   |      |        |       
|                                                                         | Issuance of POPs                                                        |                                       |                                 | 3,339   |                                 |   |      |       |       
|                                                                         | Redemption of redeemable OP units                                       |                                       |                                 | 6,146   |                                 |   |      | 4,504  |       
|                                                                         |                                                                         |                                       |                                 |         |                                 |   |      |        |        |        | 
|Operating assets received and liabilities assumed from lease conversion: |                                                                         |                                       |                                 |         |                                 |   |      |       
|                                                                         |                                                                         | Accounts receivable                   |                                 | $       |                                |   |      | $      | 47,200 |       
|                                                                         |                                                                         | Prepaid expenses and other            |                                 |         |                                |   |      |        | 13,500 |       
|                                                                         |                                                                         | Furniture and fixtures, net           |                                 |         |                                |   |      |        | 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 acquired            |                                 | $       |                                |   |      | $      | 65,738 |       
|                                                                         |                                                                         |                                       |                                 |         |                                 |   |      |       

8.     STOCK-BASED COMPENSATION

As of September 30, 2002, MeriStar Hospitality has granted 481,500 shares of
restricted stock to employees. This restricted stock vests ratably over
three-year or five-year periods.

As of September 30, 2002, MeriStar Hospitality has granted 925,000 Profits-Only
OP Units, or POPs, to some of our employees pursuant to our POPs Plan. These
POPs are fixed awards and vest over three-year or four-year periods.

9.     RESTRUCTURING EXPENSES

During 2001, we incurred a restructuring charge of $1,080 in connection with
operational changes at our corporate headquarters. The restructuring included
eliminating seven corporate staff positions and office space no longer needed
under the new structure. During 2002, we applied $156 of lease termination
costs against the restructuring reserve. Approximately $236 of the
restructuring accrual remains at September 30, 2002.

10.     CONSOLIDATING FINANCIAL INFORMATION

Certain of our subsidiaries and MeriStar Hospitality are guarantors of senior
unsecured notes. Our guarantor subsidiaries also guarantee the unsecured
subordinated notes of MeriStar Hospitality. All guarantees are full and
unconditional, and joint and several. Exhibit 99.1 to this Quarterly Report on
Form 10-Q presents supplementary consolidating information for us, our
non-guarantor subsidiaries, and each of our guarantor subsidiaries. The
supplementary consolidating information in Exhibit 99.1 presents our
consolidating balance sheets as of September 30, 2002 and December 31, 2001,
consolidating statements of operations for each of the three and nine months
ended September 30, 2002 and 2001, and consolidating cash flows for the nine
months ended September 30, 2002 and 2001.

12



---



##### 



11.     DISPOSITIONS

On August 1, 2002 we sold three hotels for $25,150, which resulted in a loss on
sale of assets of $6,403 ($6,275, net of tax). Revenue and pre-tax income
included in discontinued operations for these three hotels were:

|                      |  |                    |      |                   |  |      |       |      |  |   |       |  |  |   |       | 
|--------------------- |  | ------------------ | ---- | ----------------- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                      |  | Three months ended |      | Nine months ended
|                      |  | September 30       |      | September 30,    
|                      |  | 2002               |      | 2001              |  | 2002 |       | 2001
|                      |  |                    |      |                   |  |      |       |     
|Revenue               |  | $                  | 981  |                   |  | $    | 3,506 |      |  | $ | 7,233 |  |  | $ | 9,779 | 
|                      |  |                    |      |                   |  |      |       |      |  |   |       |  |  |   |       | 
|Pre-tax income (loss) |  | $                  | (237 | )                 |  | $    | 558   |      |  | $ | 635   |  |  | $ | 2,264 | 
|                      |  |                    |      |                   |  |      |       |      |  |   |       |  |  |   |       | 

12.     SUBSEQUENT EVENTS

On October 29, 2002, we entered into a new three-year $100,000 senior
unsecured revolving credit facility. The initial interest rate 30-day LIBOR plus 388
basis points. We repaid the outstanding
balance of $14,000 on our previous credit facility in conjunction with closing
this facility.

On November 6, 2002, we sold one hotel for
$12,500. The book carrying value of this hotel at the date of sale was
approximately $26,000. In the fourth quarter, we will record a loss on sale from
the disposition of this hotel of approximately $13,500.

SFAS No. 144 requires companies to classify
long-lived assets as held for sale (as opposed to held for use) as of a balance
sheet date if several criteria are met. One of those criteria is that the sale
of the asset must be considered probable (that is, likely to occur) as of the
balance sheet date. As of September 30, 2002, we did not consider the sale of
this asset to be probable and therefore we did not meet the criteria according to
SFAS No. 144 to classify this hotel as held for sale on our balance sheet and to reclassify the operations of the hotel to discontinued operations
on our statement of operations. We did not consider this sale probable as of September 30, 2002 for
the following reasons:



| |  |  | although we had listed this property to be sold
with an independent broker prior to September 30, 2002, we believed the
probability of a sale within one year was low. Based on our history of listing
assets for possible sale, we expected the listing, bidding, and negotiation
process for a possible sale, if any, to be extended;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | the offer to purchase this property was received
after the balance sheet date, in mid-October 2002;                                                                                                                                                                                                                                    
| |  |  | the offer was received from a new prospective
buyer with whom we had no previous dealings and therefore it was difficult to
assess the potential buyers ability or willingness to close a transaction
on a timely basis;                                                                                                              
| |  |  | the buyer was not willing to put up a
nonrefundable deposit; and                                                                                                                                                                                                                                                                       
| |  |  | we did not have an executed sales contract until
November 4, 2002.                                                                                                                                                                                                                                                                     

Based on the reasons above, we did not consider
this property as held for sale as of the balance sheet date.

In addition, as of September 30, 2002, we did not
consider this property impaired in accordance with the provisions of SFAS No. 144.
In situations when the criteria of SFAS No. 144 are met to classify an asset as
held for sale after the balance sheet date but before issuance of the financial
statements, SFAS No. 144 requires that the asset continue to be classified as
held and used in those financial statements when issued. We tested the asset for
recoverability on a held and used basis as of the balance sheet date. The
estimates of future cash flows used in this test considered the likelihood of
possible outcomes that existed at the balance sheet date, including the assessment of
the likelihood of the future sale of the asset. We performed the recoverability analysis using a
probability-weighted cash flows test to assess the asset for possible impairment.
Based on the results of the probability-weighted cash flows test for impairment,
the carrying value of this asset would be recoverable as of September 30, 2002;
therefore the asset was not considered impaired as of that date.

We sold this asset in light of the severe downturn in
the overall economy that has had a negative effect on our operating results, and
decreased the amount of cash generated by our operations. We believe we have
sufficient free cash flow currently, and project to have adequate cash flow in
future periods. Our current and future liquidity is, however, greatly dependent
upon our operating results, which are driven largely by overall economic
conditions. If the general economic conditions continue to be depressed for an
extended period, this would negatively impact our projections of
available cash flow and liquidity. In order to maintain our current operating
flexibility and establish a further cushion against the slowed economy and
future economic and other uncertainties, we are taking several steps to further
improve our liquidity. One of these steps is the marketing of non-core assets. We elected to
sell this asset principally because of the rapid closing offered by the seller.
This allowed us to improve our short-term liquidity and provide an additional
cushion against future operating results.

13



---



##### 



|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

GENERAL

We are a subsidiary operating partnership of MeriStar Hospitality Corporation.
We own a portfolio of upscale, full-service hotels in the United States and
Canada. Our portfolio is diversified by franchise and brand affiliations. As of
September 30, 2002, we owned 109 hotels, with 28,099 rooms, all of which are
leased by our taxable subsidiaries and managed by Interstate Hotels & Resorts,
Inc. 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, as a result of the merger between CapStar
Hotel Company and American General Hospitality Corporation, and the subsequent
formation of MeriStar Hospitality, the merged entity. MeriStar Hospitality, a
real estate investment trust, or REIT, is our general partner and owns a one
percent interest in us as of September 30, 2002. The limited partners are as
follows:



| |  |  | MeriStar LP, Inc., a wholly-owned subsidiary of MeriStar Hospitality,
which owns approximately a 90 percent interest as of September 30, 2002;
and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | various third parties, which owned an aggregate interest of nine percent
at September 30, 2002.                                                   

Partners capital includes the partnership interests of MeriStar Hospitality
and MeriStar LP, Inc. MeriStar Hospitality held 483,745 common OP units as of
September 30, 2002. MeriStar LP, Inc. held 44,561,665 common OP units as of
September 30, 2002. Due to the redemption rights of the limited partnership
units held by third parties, these units have been excluded from partners
capital and classified as Redeemable OP units and are recorded at redemption
value. At September 30, 2002, there were 4,296,307 redeemable units
outstanding.

On January 1, 2001, changes to the federal tax laws governing real estate
investment trusts became effective. Those changes are commonly known as the
REIT Modernization Act, or RMA. The RMA permits real estate investment trusts
to create taxable subsidiaries that are subject to taxation similar to
subchapter C-Corporations. Because of the RMA, we have created a number of
these 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 arms 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),
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | leasing a property that contains gambling operations; and                                                                                                                                                                                                                           
| |  |  | owning a brand or franchise.                                                                                                                                                                                                                                                        

We believe establishing taxable subsidiaries to lease the properties we own
provides an efficient alignment of and ability to capture the economic
interests of property ownership. Our taxable subsidiaries are parties to
management agreements with a subsidiary of Interstate Hotels to manage our
hotels. Under these management agreements, the taxable subsidiaries pay a
management fee to Interstate Hotels for each property. Our 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.
Interstate Hotels can also earn incentive management fees, based on meeting
performance thresholds, of up to 1.5% of total hotel revenue. All of the
agreements, except for four 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.

Business Summary

Our results continue to reflect a slowed economy which has caused substantial
declines in business and leisure travel demand nationwide. Our group business
improved during the first three quarters of 2002 but our transient business
continues to be significantly lower than prior to the terrorist attacks on
September 11, 2001, and also lower than our initial internal projections for
2002. Overall, our occupancies were ahead of our internal plan for the first
three quarters of 2002, but our average daily rate was lower than we projected.
We will continue to work with Interstate Hotels to focus on cost

14



---



##### 



reduction and control measures at our hotels. We have also shifted our
marketing efforts towards our group and leisure business customers. We expect
year-over-year performance measures to improve in the fourth quarter of 2002
and in 2003, but our business is highly dependent upon general economic
conditions.

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 restriction of coverage upon renewal of
their insurance programs. Some have experienced an inability to obtain
insurance. Our facility requires our property insurance carriers to be
rated AA or better by Standard & Poors, or S&P. Our manager, Interstate Hotels,
is responsible for securing property insurance for our properties. In June
2002, Interstate Hotels renewed all expiring programs and obtained coverage
from carriers that are appropriately rated by S&P. As the effects of the
terrorist attacks on September 11, 2001 are more fully reflected on the
financial statements of insurers and reinsurers, however, their ratings may
change. If we are unable to maintain insurance that meets our debt covenant
requirements and if we are unable to amend or waive those covenants, 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.

Relationships with Interstate Hotels

Since our formation in 1998, we have had close operating, management and
governance relationships with the manager of our hotel properties, MeriStar
Hotels (now part of Interstate Hotels). Interstate Hotels manages all of our
hotel properties under long-term management contracts. We have shared several
key management personnel with Interstate Hotels, and our board of directors has
four members who also serve on Interstate Hotels board of directors. Due to
the merger of Interstate Hotels Corporation and MeriStar Hotels and the
resulting increased scale and size of Interstate Hotels, we and Interstate
Hotels plan to separate more completely the management teams of the two
companies. This separation of management will eliminate all but one shared
management position between the two companies. It will allow each company to
provide additional, dedicated resources for the management of each respective
company. Paul W. Whetsell will remain Chairman and Chief Executive Officer of
both companies, but we do not expect any other management positions to be
shared between the companies. This plan to further separate the management
teams will mainly affect the legal, finance and accounting, and development
departments. On November 4, 2002, we announced that Donald D. Olinger will
join our company as chief financial officer in December. John Emery previously
performed the duties of chief financial officer. On November 5, 2002,
we announced that John Emery, who is also our president and chief operating
officer, would resign from those positions. Mr. Emery will continue to serve
as president and chief operating officer of Interstate Hotels. Bruce Wiles who
was our chief investment officer, will be our new chief operating officer. Mr.
Olinger will also serve as our chief accounting officer. James A. Calder, our
current chief accounting officer, will resign from that position. Mr. Calder will
continue to serve as chief financial officer of Interstate Hotels. We expect
to complete all other separation of management positions by the first quarter
of 2003.

Critical Accounting Policies

Preparing financial statements in conformity with accounting principles
generally accepted in the United States of America 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 on-going 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 are as follows:



| |  |  | Impairment of long-lived assets;                                                      
| | - |  | --------------------------------------------------------------------------------------
| |  |  | Estimating certain accrued liabilities; and                                           
| |  |  | Determining the impact of future interest rate changes on our statement of operations.

Impairment of long-lived assets

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, we perform an analysis to determine the recoverability of the
assets carrying value. The carrying value of the asset includes the original
purchase price (net of depreciation) plus the cost of all

15



---



##### 



capital improvements (net of depreciation). We make estimates of the
undiscounted cash flows from the expected future operations of the asset. If
the analysis indicates that the carrying value is not recoverable from future
cash flows, we write down the asset to estimated fair value and recognize an
impairment loss. Any impairment losses we recognize are recorded as operating
expenses. We did not recognize any impairment losses for the nine months ended
September 30, 2002. We did recognize an impairment loss of $43.6 million
during the fourth quarter of 2001 to write-down certain hotel assets. These
write-downs resulted from the negative impact of changes in the economic
climate on the value of these assets. 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 warranted by then
current economic and operational forecasts.

Estimating certain accrued liabilities

Estimates for certain accruals such as real and personal property taxes could
have a material effect on our financial statements. Currently, we estimate real
and personal property taxes based on a combination of preliminary estimates
from state and local jurisdictions, and historical information. The assessed
values of these properties could change significantly from the values or rates
we use in our estimates.

Property tax assessments are subject to periodic and often lengthy appeals. For
example, in instances where a jurisdiction increases our assessed value, we
frequently appeal that assessment. Similarly, when hotel operations are
declining, we may appeal an assessment as too high if it is based on past
operating results. These appeals of assessed values are subject to a
potentially wide range of outcomes. As a result of the economic slowdown and
events of September 11, 2001, we have filed a number of appeals for lower
assessments. As of September 30, 2002, we had ongoing appeals in several
jurisdictions with respect to approximately nine properties. We accrue for
property tax liabilities based on what we believe is a reasonable judgment of
the most likely outcome of the appeals. We believe our experience in pursuing
reductions through the appeals process is very favorable  for example, during
the nine months ended September 30, 2002 we completed the appeals process for
1997 through 2001 for approximately 25 properties. Of these appeals, three of
the larger ones resulted in refunds of approximately $2.7 million from taxing
authorities. We cannot predict with certainty the outcome of these appeals, or
their effect on our accruals for such items. Also, actual property tax expense
could vary greatly from our estimates used for the current property tax accrual
based on a change in the assessed value, a change in the tax rate, and/or a
different outcome of the appeals process than we currently expect.

Determining impact of future interest rate changes on our statement of
operations

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
requires a company to recognize all derivatives as either assets or liabilities
in the balance sheet and record those instruments at fair value. SFAS No. 137
and No. 138 amended certain provisions of SFAS No. 133. We adopted these
accounting pronouncements effective January 1, 2001.

Our interest rate risk management objective is to limit the impact of interest
rate changes on earnings and cash flows. We assess interest rate cash flow risk
by continually identifying and monitoring changes in interest rate exposures
that may adversely impact expected future cash flows and by evaluating hedging
opportunities. We do not enter into derivative instruments for any purpose
other than cash flow hedging purposes.

Our interest rate swap agreements were initially designated as hedges against
changes in future cash flows associated with specific variable rate debt
obligations. As of September 30, 2002, we had three swap agreements with
notional amounts totaling $300 million. These swap agreements have been
converted to non-hedging derivatives due to our repayment of the floating-rate
borrowings they originally hedged and they are currently being marked to market
through our statement of operations. We have interest rate exposure going
forward as the change in fair value of our non-hedging derivatives will have an
impact on our statement of operations. During the three and nine months ended
September 30, 2002, we recognized $1.1 million and $4.2 million of expense,
respectively, related to these interest rate swaps. The fair value of these
swap agreements is a liability of $6.8 million at September 30, 2002. For more
information regarding our interest rate hedging activities, see Quantitative
and Qualitative Disclosures about Market Risk.

16



---



##### 



FINANCIAL CONDITION

SEPTEMBER 30, 2002 COMPARED WITH DECEMBER 31, 2001

Our total assets decreased by $66.4 million to $2,938.2 million at September
30, 2002 from $3,004.6 million at December 31, 2001 primarily due to:



| |  |  | depreciation on hotel assets of $86.0 million; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | the sale of three hotels and the use of the $25.2 million in proceeds to pay down debt; partially offset by                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |  | the $5.6 million increase in accounts receivable due to our
accrual of our preferred return on our investment in MeriStar
Investment Partners. (We accrue this preferred return although
MeriStar Investment Partners is not permitted to pay it in cash until
they refinance or re-pay their existing bank debt. We evaluate the
collectibility of our preferred return based on the underlying value
of the hotel properties. MeriStar Investment Partners ability to
refinance their bank debt is dependent upon the operations of the
hotels and other factors);
| |  |  | the $5.1 million increase in prepaid expenses due to increased
premiums paid on 2003 insurance policies;                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |  | net additional borrowings by Interstate Hotels of $11.2 million; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |  | capital expenditures of $35.8 million at the hotels.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Total liabilities decreased by $37.3 million to $1,852.4 million at September
30, 2002 from $1,889.7 million at December 31, 2001 due mainly to:



| |  |  | net payments of long-term debt and notes payable due to MeriStar Hospitality of $30.4 million;                                                                                            
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | a $5.3 million decrease in market value of our derivative instruments;                                                                                                                    
| |  |  | a $6.0 million decrease in accounts payable, accrued expenses
and other liabilities due to the timing of payments; and                                                                    
| |  |  | a $3.9 million decrease in accrued interest due to the
semi-annual interest payments on our senior unsecured debt issued in
December 2001 and February 2002; partially offset by          
| |  |  | a $10.0 million increase in due to Interstate Hotels primarily
due to our quarterly workers compensation and general liability
insurance which has not been paid as of September 30, 2002.

Long-term debt and notes payable to MeriStar Hospitality decreased by $30.4
million to $1,669.7 million at September 30, 2002 from $1,700.1 million at
December 31, 2001 due primarily to:



| |  |  | $210.0 million of net repayments on our previous revolving credit
facility using proceeds of the issuance of senior unsecured notes in
February and cash generated by operations;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | $13.8 million of net repayments on our mortgage debt and other; and                                                                                                              
| |  |  | $3.8 million of net repayments on our facility; partially offset by                                                                                                              
| |  |  | $200 million ($196.2 million, net of discount) in senior unsecured notes issued in February.                                                                                     

Redeemable OP units at redemption value decreased $21.0 million due primarily
to less capital allocated to redeemable OP unitholders as a result of decreases
in MeriStar Hospitalitys stock price.

Partners capital decreased $8.0 million to $1,037.2 at September 30, 2002 from
$1,045.2 million at December 31, 2001 due primarily to:



| |  |  | $37.6 million of net loss for the nine months ended September 30,
2002 partially offset by                                                         
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | $5.4 million reduction in accumulated other comprehensive loss due mainly
due to the conversion of our swap derivatives to non-hedging
derivatives;
| |  |  | $20.5 million reduction of capital allocated to redeembable OP
unitholders as a result of decreases in MeriStar Hospitalitys stock
price; and     
| |  |  | $3.2 million of capital contributions.                                                                                                             

17



---



##### 



RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 2001

The following table provides our hotels operating statistics on a same store
basis for the three months ended September 30, 2002 and 2001.

|                           |  |      |       |      |  |        |       |   |  |  |      |   
|-------------------------- |  | ---- | ----- | ---- |  | ------ | ----- | - |  |  | ---- | --
|                           |  | 2002 |       | 2001 |  | Change
|                           |  |      |       |      |  |       
|Revenue per available room |  | $    | 60.95 |      |  | $      | 64.36 |   |  |  | (5.3 | )%
|Average daily rate         |  | $    | 94.36 |      |  | $      | 97.79 |   |  |  | (3.5 | )%
|Occupancy                  |  |      | 64.6  | %    |  |        | 65.8  | % |  |  | (1.8 | )%

Overall, the lingering softness of the United States economy and the
anniversary of the September 11 terrorist attacks had a negative effect on our
hotels during the third quarter of 2002. This effect is evidenced by lower
than anticipated transient business travel. This is reflected in the 3.5%
reduction in average daily rate and the 1.8% reduction in occupancy in the
third quarter 2002 compared to 2001. Our group and leisure business has been
stronger than transient business travel in most markets. We have shifted our
marketing efforts towards these customer groups.

Total revenue decreased $8.2 million to $235.8 million in 2002 from $244.0 million in 2001 primarily due to:



| |  |  | a $6.6 million decrease in room revenue due to a decrease in average daily rate; and                          
| | - |  | --------------------------------------------------------------------------------------------------------------
| |  |  | a $1.8 million decrease in lease revenue following the
termination of our hotel leases with Prime Hospitality.

Total operating expenses decreased $4.0 million to $226.8 for the three months
ended September 30, 2002 compared to $230.8 million for the same period in 2001
due primarily to:



| |  |  | a $1.8 million decrease in room expenses due to lower occupancy;                                                                                                                                 
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | a $4.3 million decrease in property taxes, insurance and other
due to a $3.4 million decrease in property taxes and a $0.4 million
decrease in leases;                                           
| |  |  | $2.0 million in costs associated with a proposed merger with Felcor during 2001; and                                                                                                             
| |  |  | $1.1 million restructuring costs during 2001; partially offset by                                                                                                                                
| |  |  | a $1.5 million increase in depreciation and amortization expenses;                                                                                                                               
| |  |  | a $2.5 million increase in administrative and general expenses
due primarily to a $2.0 million increase in sales and marketing
expense; and                                                      
| |  |  | a $1.1 million increase in expense for non-hedging derivatives
for the three months ended September 30, 2002 due to our three swap
agreements being converted to non-hedging derivatives in 2002.

Expense for non-hedging derivatives represents the change in fair value of our
non-hedging derivatives, net of cash payments to the counterparty.

Interest expense increased $2.4 million to $33.8 million for the three months
ended September 30, 2002 compared to $31.4 million for the same period in 2001
due primarily to the issuance of $250 million of senior secured notes in
December 2001 and $200 million of senior secured notes in February 2002 at
fixed rates greater than the variable rate of the debt that was repaid.

In the third quarter of 2002, we sold three hotels and received $25.2 million.
This resulted in a loss on the sale of assets of $6.3 million, net of tax.

In the third quarter of 2001, we sold one hotel and received $2.4 million. The
sale resulted in a loss of $1.1. million net of tax.

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 2001

The following table provides our hotels operating statistics on a same store
basis for the nine months ended September 30, 2002 and 2001.

18



---



##### 



|                           |  |      |        |      |  |        |        |   |  |  |       |   
|-------------------------- |  | ---- | ------ | ---- |  | ------ | ------ | - |  |  | ----- | --
|                           |  | 2002 |        | 2001 |  | Change
|                           |  |      |        |      |  |       
|Revenue per available room |  | $    | 66.24  |      |  | $      | 75.19  |   |  |  | (11.9 | )%
|Average daily rate         |  | $    | 100.56 |      |  | $      | 108.01 |   |  |  | (6.9  | )%
|Occupancy                  |  |      | 65.9   | %    |  |        | 69.6   | % |  |  | (5.3  | )%

Overall, the slowing United States economy had a major negative effect on our
hotels during the first three quarters of 2002 compared to the first three
quarters 2001. This effect is evidenced by a sharp reduction in transient
business travel. This is reflected in the 6.9% reduction in average daily rate
and the 5.3% reduction in occupancy in the first three quarters 2002 compared
to 2001. Our group and leisure business has been stronger than transient
business travel in most markets. We have shifted our marketing efforts towards
these customer groups.

Total revenue decreased $80.1 million to $767.5 million in 2002 from $847.6 million in 2001 primarily due to:



| |  |  | a $56.4 million decrease in room revenue due to a decrease in occupancy and average daily rate;               
| | - |  | --------------------------------------------------------------------------------------------------------------
| |  |  | a $10.9 million decrease in food and beverage revenue due to a decrease in occupancy;                         
| |  |  | a $6.8 million decrease in other operating departments due to a decrease in occupancy; and                    
| |  |  | a $8.1 million decrease in lease revenue following the
termination of our hotel leases with Prime Hospitality.

Total operating expenses decreased $34.2 million to $697.6 for the nine months
ended September 30, 2002 compared to $731.8 million for the same period in 2001
due primarily to:



| |  |  | a $12.0 million decrease in room expenses due to lower occupancy;                                                                                                                                                                             
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | a $9.1 million decrease in food and beverage expenses due to lower occupancy;                                                                                                                                                                 
| |  |  | a $7.0 million decrease in property operating costs due primarily
to a $3.5 million decrease in franchise costs, a $2.0 million decrease
in energy costs and a $1.9 million decrease in management fees;                                      
| |  |  | a $4.2 million decrease in property taxes, insurance and other
due to a $5.4 million decrease in property taxes and a $0.6 million
decrease in leases partially offset by a $2.8 million increase in
property and general liability insurance;
| |  |  | $9.3 million in swap termination fees during 2001;                                                                                                                                                                                            
| |  |  | a $2.1 million write down of investment in STS Hotel Net during 2001;                                                                                                                                                                         
| |  |  | $5.8 million in costs
associated with a proposed merger with Felcor during 2001;                                                                                                                                                              
| |  |  | $1.1 million of restructuring costs during 2001; and                                                                                                                                                                                          
| |  |  | $1.3 million of costs to terminate leases with Prime Hospitality Corporation; partially offset by                                                                                                                                             
| |  |  | a $4.7 million loss on fair value of non-hedging derivatives in
2002 due to the repayment of debt that was originally hedged;                                                                                                                 
| |  |  | a $1.5 million write-off of deferred costs due to the reduction
in our borrowing capacity on our revolving credit agreement in 2002;                                                                                                          
| |  |  | a $5.6 million increase in depreciation and amortization expense;                                                                                                                                                                             
| |  |  | a $2.3 million increase in administrative and general expenses
due primarily to a $2.9 million increase in sales and marketing
expense; and                                                                                                   
| |  |  | a $4.2 million increase in expense for non-hedging derivatives
for the nine months ended September 30, 2002 due to our three swap
agreements being converted to non-hedging derivatives in 2002.                                              

Interest expense increased $10.8 million to $102.5 million for the nine months
ended September 30, 2002 compared to $91.7 million for the same period in 2001
due primarily to the issuance of $250 million of senior secured notes in
December 2001 and $200 million of senior secured notes in February 2002 at
fixed rates greater than the variable rate of the debt that was repaid.

In the third quarter of 2002, we sold three hotels and received $25.2 million.
This resulted in a loss on the sale of assets of $6.3 million, net of tax.

In 2001, we paid down $300 million of term loans under our previous senior credit
facility. This resulted in an extraordinary loss of $1.2 million, net of tax.

In 2001, we sold two hotels and received $9.7 million. This resulted in a loss
on the sale of assets of $2.1 million, net of tax.

19



---



##### 



LIQUIDITY AND CAPITAL RESOURCES

Sources of Cash

We generated $48.5 million of cash from operations during the first nine months
of 2002. Our principal sources of liquidity are cash on hand, cash generated
from operations, and funds from external borrowings and debt offerings. We
expect to fund our continuing operations through cash generated by our hotels.
We also use the periodic sales of non-core assets to generate cash. On October 29, 2002 we entered into a
new $100 million revolving credit facility, under which
November 6, 2002, we sold one hotel for $12.5 million. See
footnote 12 of our condensed consolidated financial statements. On
October 29, 2002, we entered into a new $100 million revolving
credit facility, under which, as of November 12, 2002, $100.0 million was available.

We also expect to finance hotel acquisitions, hotel renovations and joint
venture investments through a combination of internally generated cash,
external borrowings, potential proceeds from the sale of non-core assets and
the issuance of OP Units and/or common stock.

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 and other operating risks described under
the caption, Risk FactorsOperating Risks in our 2001 Annual Report
on Form 10-K;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | factors that affect our access to bank financing and the capital
markets, including interest rate fluctuations, operational risks and
other risks described under the caption Risk FactorsFinancing Risks
in our 2001 Annual Report on Form 10-K; and                                       
| |  |  | the other factors described under the caption, Forward-Looking
Statements.                                                                                                                                                                                                                   

Additionally, MeriStar Hospitality must distribute to stockholders at least 90%
of its taxable income, excluding net capital gains to preserve the favorable
tax treatment accorded to real estate investment trusts under the Internal
Revenue Code. MeriStar Hospitality, as our general partner, must use its best
efforts to ensure our partnership distributions meet this requirement. We
expect to fund such distributions through cash generated from operations and
borrowings on our credit agreement. Due to the sluggish economy, we expect our
taxable income to decrease in 2002 compared to 2001. 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, restrictions imposed
by our borrowing agreements, capital expenditure requirements, the economic
outlook, the Internal Revenue Service dividend payout requirements for REITs
and such other factors as our Board of Directors deems relevant. 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.

Uses of Cash

We used $12.8 million of cash in investing activities during the first nine months of 2002 primarily for:



| |  |  | $7.0 million of notes receivable from Interstate Hotels; and          
| | - |  | ----------------------------------------------------------------------
| |  |  | $35.8 million of capital expenditures at hotels; partially offset by  
| |  |  | $25.2 million of net proceeds related to the sale of three hotels; and
| |  |  | a $4.9 million change in restricted cash.                             

We used $34.4 million of cash from financing activities during the first nine months of 2002 primarily for:



| |  |  | $30.5 million of net payments on our credit facilities;                                                                                                                                          
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | $3.4 million for additional deferred financing costs related to
issuing the $200 million of senior unsecured notes in February 2002
and the $250 million senior unsecured notes in December 2001;
| |  |  | $2.5 million of distributions to partners; partially offset by                                                                                                                                   
| |  |  | $3.2 million of contributions.                                                                                                                                                                   

Capital Structure Plan

The severe downturn in the overall economy has had a negative effect on our
operating results, and decreased the amount of cash generated by our hotel
operations. Based on current expectations, we believe we have sufficient free cash flow currently, and
project to have adequate cash flow in the next twelve months. Our current and future
liquidity is, however, greatly dependent upon our operating results, which are
driven largely by overall economic conditions. If the general economic
conditions continue to be

20



---



##### 



depressed for an extended period, this would negatively impact our projections
of available cash flow and liquidity. In order to maintain our operating
flexibility and establish a further cushion against the slowed economy, we are
taking several steps to further improve our liquidity. These steps include:



| |  |  | Marketing of non-core assets  we are marketing eight to 10 non-core
assets for sale. If these properties are sold, we expect to generate
net proceeds of $80 million to $100 million which will be used to pay
down outstanding debt. Our ability to realize these estimated proceed
amounts is, however, dependent upon finding qualified buyers willing to
pay a purchase price that we consider reasonable. We can give no
assurance about the ultimate timing of these sales. On November 6, 2002, we sold one hotel for $12.5 million. See
footnote 12 of our condensed consolidated financial statements.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | Discussions on repayment of
note receivable from Interstate Hotels 
we are currently in discussions with Interstate Hotels about possible
early repayment of their $56.1 million note payable to us. Interstate
Hotels ability to repay this note would, however, be dependent on their
ability to find an alternative source of funds to provide cash for a
repayment. An early repayment of the note, if completed, would likely
be at a discount to the current face amount of the note. We have not
reached a conclusion as to what, if any, discount we would accept.                                    
| |  |  | Establishing new senior unsecured revolving credit facility  in
October 2002, we entered into a new revolving credit facility. As a
result of the refinancing the credit facility, we have no significant
maturities until October 2004 and have approximately $50.0 of available
borrowing capacity currently.                                                                                                                                                                                                                                                                                                
| |  |  | Deferral of certain capital expenditures  we will also be shifting
the majority of our 2003 planned capital expenditures to the second half
of the year to allow us to better forecast our operations for the year.
This deferral could have a negative effect on our properties in their
markets.                                                                                                                                                                                                                                                                                                             

We believe the combination of these items will help maintain our liquidity. To
reduce the overall amount and cost of our debt, we may also look to repurchase
some of our currently outstanding debt. Any such transactions, however, are
subject to limits and restrictions imposed by our borrowing arrangements.

Long-Term Debt

Our revolving credit agreement contains customary compliance measures we must
meet to borrow on the facility. At September 30, 2002, we did not meet some of
our compliance measures in that facility. However, on October 29, 2002, we
entered into a new $100 million revolving credit facility. This facility contains debt covenants
with which we must comply. Our compliance with these covenants in future
periods will depend substantially on the financial results from our hotels. If
we fail to meet a future compliance measure, the availability of funds under
our credit facility might be restricted. We do not, however, currently believe
a restriction would have a material impact on our operations, due to the fact
that we expect to generate sufficient cash flow from operations for our
operating purposes.

In February 2002, we issued $200 million ($196.2 million, 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 $195.0
million of the outstanding balance under our previous senior credit agreement. As a
result of this financing, we redesignated some swap agreements as non-hedging
derivatives. 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.

In February 2002, we amended our revolving credit agreement. The amendment
allows us to reduce the revolving commitments to below $300 million. In March
2002, we reduced the borrowing capacity on our previous senior credit agreement from
$310 million to $150 million. We recognized a $1.5 million loss due to the write-off
of deferred financing costs related to this reduction in our borrowing
capacity.

On October 29, 2002, we entered into a new three-year $100 million senior
unsecured revolving credit facility. The initial interest rate is the London
Interbank Offered Rate plus 388 basis points. We paid the outstanding balance of $14.0 million on our previous
credit facility in conjunction with closing this facility.

21



---



##### 



Minimum payments due under our debt obligations as of September 30, 2002 are
(in thousands):

|           |  |   |           | 
|---------- |  | - | --------- | 
|2002       |  | $ | 1,914     | 
|2003       |  |   | 22,188    | 
|2004       |  |   | 170,669   | 
|2005       |  |   | 8,665     | 
|2006       |  |   | 9,407     | 
|Thereafter |  |   | 1,456,811 | 
|           |  |   |           | 
|           |  | $ | 1,669,654 | 
|           |  |   |           | 

As of November 12,
2002, we had no indebtedness outstanding under
our new revolving credit agreement.

Capital Resources

We make ongoing capital expenditures in order to keep our hotels competitive in
their markets. We expect a combination of internally generated cash and
external borrowings to provide capital for renovation work. We expect to spend
approximately 4% of annual hotel revenues for ongoing capital expenditure
programs. These ongoing programs will include room and facilities
refurbishments, renovations, and furniture and equipment replacements. For the
nine months ended September 30, 2002, we spent $35.8 million on capital
expenditures. We expect to spend $12.0 to $14.0 million during the last
quarter of 2002 for our ongoing capital expenditure programs and approximately
$40.0 to $50.0 million in 2003.

We believe cash generated by operations, together with anticipated borrowing
capacity under our senior credit facility, will be sufficient to fund our
existing working capital requirements, ongoing capital expenditures, and debt
service requirements. We believe, however, that 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.

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 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 generally 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.

22



---



##### 



ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates on long-term debt
obligations that impact the fair value of these obligations. 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 and to lower our overall
borrowing costs. 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 do not enter into derivative or
interest rate transactions for speculative purposes. We have no cash flow
exposure due to general interest rate changes for our fixed long-term debt
obligations.

The table below presents, as of September 30, 2002, the principal amounts (in
thousands of dollars) for our fixed and variable rate debt instruments,
weighted-average interest rates, and fair values by year of expected maturity
to evaluate the expected cash flows and sensitivity to interest rate changes.

|                      |  |                |           |      |  |          |     |          |        |          |        |         |  |  |     | 
|--------------------- |  | -------------- | --------- | ---- |  | -------- | --- | -------- | ------ | -------- | ------ | ------- |  |  | --- | 
|                      |  | Long-term Debt
|                      |  |               
|                      |  |                |           |      |  | Average  |     |          |        |          |        | Average
|                      |  |                |           |      |  | Interest |     | Variable |        | Interest
|Expected Maturity     |  | Fixed Rate     |           | Rate |  | Rate     |     | Rate    
|                      |  |                |           |      |  |          |     |         
|2002                  |  | $              | 1,914     |      |  |          | 7.9 | %        |        | $        |       |         |  |  | N/A | 
|2003                  |  |                | 8,188     |      |  |          | 7.6 | %        |        |          | 14,000 |         |  |  | 5.8 | 
|2004                  |  |                | 170,669   |      |  |          | 5.1 | %        |        |          |       |         |  |  | N/A | 
|2005                  |  |                | 8,665     |      |  |          | 8.1 | %        |        |          |       |         |  |  | N/A | 
|2006                  |  |                | 9,407     |      |  |          | 8.1 | %        |        |          |       |         |  |  | N/A | 
|Thereafter            |  |                | 1,456,811 |      |  |          | 9.0 | %        |        |          |       |         |  |  | N/A | 
|                      |  |                |           |      |  |          |     |          |        |          |        |         |  |  |     | 
|Total                 |  | $              | 1,655,654 |      |  |          | 8.6 | %        |        | $        | 14,000 |         |  |  | 5.8 | 
|                      |  |                |           |      |  |          |     |          |        |          |        |         |  |  |     | 
|Fair Value at 9/30/02 |  | $              | 1,519,075 |      |  |          |     | $        | 14,000 |          |        |        
|                      |  |                |           |      |  |          |     |          |        |          |        |         |  |  |     | 

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 agreement by $195.0 million. 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
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.

As of September 30, 2002, we had three swap agreements with notional principal
amounts totaling $300 million. All of these swap agreements have been converted
to non-hedging derivatives. The swap agreements effectively fix the 30-day
LIBOR between 4.77% and 6.4%. The swap agreements expire between December 2002
and July 2003. For the three months ended September 30, 2002 and 2001, we have
made net payments of approximately $3.0 million and $2.5 million, respectively.
For the nine months ended September 30, 2002 and 2001, we have made net
payments of approximately $9.0 million and $4.1 million, respectively.

As of September 30, 2002, 99% of our debt was fixed and our overall weighted
average interest rate was 8.6%.

Although we conduct business in Canada, the Canadian operations were not
material to our consolidated financial position, results of operations or cash
flows during the nine months ended September 30, 2002 and 2001. Additionally,
foreign currency transaction gains and losses were not material to our results
of operations for the years ended September 30, 2002 and 2001. 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 future cash flows we would receive from our foreign
subsidiaries. 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.

23



---



##### 



ITEM 4.    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
SECs rules and forms, and that the information is accumulated and communicated
to our management, including our chief executive officer and chief accounting
officer, as appropriate, to allow timely decisions regarding required
disclosure based closely on the definition of disclosure controls and
procedures in Rule 13a-1(c ). 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 accounting officer of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, it was concluded that our disclosure
controls and procedures were effective.

Changes in Internal Controls

N/A

PART II.  OTHER INFORMATION

ITEM 5.    OTHER INFORMATION

Forward-Looking Statements

Information both included and incorporated by reference in this quaterly report
on Form 10-Q may contain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, 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 identifiable by use of the words may, will,
should, expect, anticipate, estimate, believe, intend or project
or the negative of them or other variations of them or comparable terminology.
Factors that 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;                                                         
| |  |  | governmental actions;                                                                                     
| |  |  | legislative/regulatory changes, including changes to laws governing the taxation of REITs;                
| |  |  | availability of capital;                                                                                  
| |  |  | interest rates;                                                                                           
| |  |  | competition;                                                                                              
| |  |  | supply and demand for hotel rooms in our current and proposed market areas; and                           
| |  |  | changes in general accounting principles, policies and guidelines applicable to REITs.                    

These risks and uncertainties, along with the risk factors set forth in our
Annual Report on Form 10-K for the year ended December 31, 2001 under Risk
Factors, should be considered in evaluating any forward-looking statements
contained in this Form 10-Q.

We undertake no obligation to update or revise any forward-looking statement,
whether as a result of new information, future events, or otherwise, other than
required by law.

24



---



##### 



ITEM 6:    EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits



All Exhibits listed below are filed with this Quarterly Report on Form
10-Q unless specifically stated to be incorporated by reference to other
documents previously filed with the Commission.

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                          
|           
|3.1         |  | Second Articles of Amendment and Restatement of
Incorporation of the Registrant (incorporated by reference to
Exhibit 3.4 to our Registration Statement No. 333-4568).                                                                                                                                                                                                                                           
|           
|3.1.1       |  | Articles of Amendment of Second Articles of Amendment and Restatement of Incorporation dated August 11, 2000
(incorporated by reference to Exhibit 3.1.1 to our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange Commission on March 6, 2002.)                                                                                                                              
|           
|3.1.2       |  | Articles of Amendment of Second Articles of Amendment and Restatement of Incorporation dated June 30, 2001
(incorporated by reference to Exhibit 3.1.2 to our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange Commission on March 6, 2002.)                                                                                                                                
|           
|3.2         |  | Amended and Restated By-laws of the Registrant (incorporated
by reference to Exhibit 3.2 on our Form S-3 (Registration Statement
No. 333-66229) filed with the Securities and Exchange Commission on
October 28, 1998).                                                                                                                                                                                          
|           
|4.1         |  | Form of Share Certificate (incorporated by reference to
Exhibit 4.1 on our Registration Statement No. 333-4568).                                                                                                                                                                                                                                                                                                 
|           
|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 our Form 10-K for the year ended December 31, 1999 filed with the
Securities and Exchange Commission on March 15, 2000).                                                                                      
|           
|4.2.1       |  | Specimen Subordinated Note to August 1997 Indenture
(incorporated by reference to Exhibit 4.2 to our Form 10-K for the
year ended December 31, 1999 filed with the Securities and Exchange
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 our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange Commission on March 6, 2002.)                                                                                                                                                                                 
|           
|4.2.3       |  | Second Supplemental Indenture to the August 1997 Indenture
(incorporated by reference to Exhibit 4.5 to our Form 10-K for the
year ended December 31, 1999 filed with the Securities and Exchange
Commission on March 15, 2000).                                                                                                                                                                                 
|           
|4.2.4       |  | Third Supplemental Indenture to the August 1997 Indenture
(incorporated by reference to Exhibit 4.15 to our Form 10-K for the
year ended December 31, 2000 filed with the Securities and Exchange
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 our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange 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 our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange 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 our Form 10-K filed with the Securities and Exchange
Commission on March 15, 2000).                                                                                                                     
|           
|4.3.1       |  | Specimen Convertible Note to the Convertible Notes Indenture (incorporated by reference to Exhibit
4.7 to our Form 10-K for the year ended December 31, 1999 filed with
the Securities and Exchange Commission on March 15, 2000).                                                                                                                                                                               
|           
|4.3.2       |  | First Supplemental Indenture to the Convertible Notes
Indenture (incorporated by reference to Exhibit 4.8 to our Form
10-K for the year ended December 31, 1999 filed with the Securities
and Exchange 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 our Form S-4 (Registration Statement No. 333-78163)
filed with the Securities and Exchange Commission on May 10, 1999).                                                                               
|           
|4.4.1       |  | Specimen Subordinated Note to March 1999
Indenture (incorporated by reference to Exhibit A to our Form S-4 (Registration Statement No. 333-78163) filed
with the Securities and Exchange Commission on May 10, 1999).                                                                                                                                                                                            
|           
|4.4.1a      |  | First Supplemental Indenture to the March 1999 Indenture (incorporated by reference to
Exhibit 4.13 to our Form 10-K for the year ended December 31, 2000 filed with the
Securities and Exchange 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 our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange 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 our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange 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 our Form 10-K for the year ended
December 31, 2000 filed with the Securities and Exchange Commission
on March 6, 2001). 
|           
|4.5.1       |  | Specimen Senior Note to the January 2001 Indenture
(incorporated by reference to Exhibit 4.5.1 to our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange 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 our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange 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 our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange 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 our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange 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 our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange 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 our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange 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 our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange 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 our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange Commission on March 6, 2002.)                                                                                                                                                                                       
|           
|10.1        |  | Second Amended and Restated Agreement of Limited Partnership
of MeriStar Hospitality Operating Partnership, L.P. dated as of
August 3, 1998 (incorporated by reference to Exhibit 10.3 to our
Form 10-K for the year ended December 31, 1998 filed with the
Securities and Exchange Commission on March 2, 1999).                                                                                                
|           
|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 our Form 10-K
for the year ended December 31, 1999 filed with the Securities and
Exchange 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 our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange Commission on March 6, 2002.)                      
|           
|10.4.1      |  | Amendment to the Intercompany Agreement (incorporated by reference
to Exhibit 10.15 to our Form 10-K for the year ended December 31,
2000 filed with the Securities and Exchange 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.                                                                                                                                                                                              
|           
|10.5.1      |  | Amendment to MeriStar Hotels Revolving Credit Agreement
(incorporated by reference to Exhibit 10.5.1 to our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange 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 our Form 10-K for the year ended December 31, 2001
filed with the Securities and Exchange 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 for Interstate Hotels and Resorts, Inc. Form 8-K dated
August 7, 2002).                                                                                                                                                                                                            
|           
|10.5.4      |  | Fourth Amendment to MeriStar Hotels Revolving Credit Agreement, dated August 15, 2002.                                                                                                                                                                                                                                                                                                                           
|           
|10.7        |  | Senior Second Credit Agreement, dated October 28, 2002, between MeriStar Hospitality Operating
Partnership, L.P., and SG Cowen Securities Corporation.                                                                                                                                                                                                                                                           
|           
|13          |  | Unaudited Financial Statements of MeriStar Hospitality Corporation
as of September 30, 2002 and December 31, 2001 and for
the three and nine months ended September 30, 2002 and 2001.                                                                                                                                                                                                                           
|           
|99.1        |  | Consolidating Financial Information of MeriStar Hospitality Operating
Partnership, L.P.                                                                                                                                                                                                                                                                                                                          
|           
|99.2        |  | Certification of Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                                         
|           
|99.3        |  | Certification of Chief Accounting Officer                                                                                                                                                                                                                                                                                                                                                                        

(b)  Reports on Form 8-k

Current report on Form 8-K dated (Items 5 and 7) and filed August 7, 2002 regarding the second
quarter earnings press release.

Current report on Form 8-K dated (Item 9) and filed on September 11, 2002 regarding the
search for a Chief Financial Officer.

Current report on Form 8-K dated (Items 5 and 7) and filed on September 27, 2002 regarding us
lowering earnings guidance for third quarter.

25



---



##### 



SIGNATURES

Pursuant to the requirements 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.
|
| |                                                 

Dated: November 13, 2002

| |                                                            
| | -----------------------------------------------------------
| |                                                            
|
| | /s/ James A. CalderJames A. Calder
Chief Accounting Officer

26



---



##### 



I, Paul W. Whetsell, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of MeriStar
Hospitality Operating Partnership, L.P.;                                                                                                                                                                                                                       
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly 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 quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;                   
|
| | 4. |  | The registrants other certifying officers 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 registrant
and have:                                                                                                    
|

| | a. |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the Evaluation
Date); and                                                                                                  
|
| | c. |  | presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        
|

| | 5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

| | a. |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data
and have identified for the registrants 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
registrants internal controls: and                                                                                                                                        
|

| | 6. |  | The registrants other certifying officers and I have indicated in
this quarterly report whether or not 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: November 13, 2002

|                                                             | 
|------------------------------------------------------------ | 
|/s/ Paul W. WhetsellPaul W. Whetsell
Chief Executive Officer | 

27



---



##### 



I, James A. Calder, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of MeriStar
Hospitality Operating Partnership, L.P.;                                                                                                                                                                                                                       
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly 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 quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;                   
|
| | 4. |  | The registrants other certifying officers 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 registrant
and have:                                                                                                    
|

| | a. |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the Evaluation
Date); and                                                                                                  
|
| | c. |  | presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        
|

| | 5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

| | a. |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data
and have identified for the registrants 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
registrants internal controls: and                                                                                                                                        
|

| | 6. |  | The registrants other certifying officers and I have indicated in
this quarterly report whether or not 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: November 13, 2002

|                                                            | 
|----------------------------------------------------------- | 
|/s/ James A. CalderJames A. Calder
Chief Accounting Officer | 

28