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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ------------------------------------------------------------------------------------



For the Fiscal Year Ended December 31, 2003



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 1-14045



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LASALLE HOTEL
PROPERTIES

(Exact name of registrant as specified in its charter)



|                                                              |  |                                 
|------------------------------------------------------------- |  | --------------------------------
|Maryland                                                      |  | 36-4219376                      
|(State or other jurisdictionof incorporation or organization) |  | (IRS EmployerIdentification No.)



|                                                    |  |           
|--------------------------------------------------- |  | ----------
|4800 Montgomery Lane, Suite M25, Bethesda,
Maryland |  | 20814     
|(Address of principal executive offices)            |  | (Zip Code)



301/941-1500

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(Registrants telephone number, including area code)



Securities Registered pursuant to Section 12(b) of the Act:



|                                                      |  |                                         
|----------------------------------------------------- |  | ----------------------------------------
|Title of each class                                   |  | Name of each exchange onwhich registered
|Common Shares of Beneficial Interest                  |  | New York Stock Exchange                 
|($0.01 par value)                                     |  |                                         
|101⁄4% Series A Cumulative Redeemable Preferred Shares  |  | New York Stock Exchange                 
|($0.01 par value)                                     |  |                                         
|83/8%
Series B Cumulative Redeemable Preferred Shares |  | New York Stock Exchange                 
|($0.01 par value)                                     |  |                                         



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



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



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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act rule 12b-2). Yes  x No ̈



As of February 13, 2004, there were 24,118,929 shares of the Registrants common shares of beneficial interest issued and outstanding. The aggregate market value of the Registrants 23,606,275 and 20,097,079 common shares of
beneficial interest held by non-affiliates of the Registrant at February 13, 2004 and June 30, 2003, respectively, was approximately $471.7 million and $297.0 million, respectively. The aggregate market value was calculated by using the closing
price of the stock as of the respective dates on the New York Stock Exchange.



DOCUMENTS INCORPORATED BY REFERENCE



Portions of the Registrants Proxy Statement for its 2004 Annual Meeting of Shareholders to be held on or about April 22, 2004 (the Proxy Statement) are incorporated by reference in Part III of this
report.



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LASALLE HOTEL PROPERTIES



INDEX



|        |  |                                                                                              |  |                      
|------- |  | -------------------------------------------------------------------------------------------- |  | ---------------------
|ItemNo. |  |                                                                                              |  | Form 10-K Report Page
|        |  | PART I                                                                                       |  |                      
|1.      |  | Business                                                                                     |  | 1                    
|2.      |  | Properties                                                                                   |  | 10                   
|3.      |  | Legal Proceedings                                                                            |  | 13                   
|4.      |  | Submission of Matters to a Vote of Security Holders                                          |  | 14                   
|        |  |                                                                                             
|        |  | PART II                                                                                      |  |                      
|        |  |                                                                                             
|5.      |  | Market for Registrants Common Shares of Beneficial Interest and Related Shareholder Matters |  | 14                   
|6.      |  | Selected Financial Data                                                                      |  | 15                   
|7.      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations        |  | 17                   
|7A.     |  | Quantitative and Qualitative Disclosures About Market Risk                                   |  | 39                   
|8.      |  | Consolidated Financial Statements and Supplementary Data                                     |  | 41                   
|9.      |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure         |  | 41                   
|9A.     |  | Controls and Procedures                                                                      |  | 41                   
|        |  |                                                                                             
|        |  | PART III                                                                                     |  |                      
|        |  |                                                                                             
|10.     |  | Trustees and Executive Officers of the Registrant                                            |  | 41                   
|11.     |  | Executive Compensation                                                                       |  | 41                   
|12.     |  | Security Ownership of Certain Beneficial Owners and Management                               |  | 41                   
|13.     |  | Certain Relationships and Related Transactions                                               |  | 41                   
|14.     |  | Principal Accountant Fees & Services                                                         |  | 41                   
|        |  |                                                                                             
|        |  | PART IV                                                                                      |  |                      
|        |  |                                                                                             
|15.     |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                             |  | 42                   
|        |  | Signatures                                                                                   |  | 48                   



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This report, together with other statements and information publicly disseminated by the Company,
contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe the Companys future plans, strategies and expectations, are generally identifiable by use of the words believe, expect, intend,
anticipate, estimate, project or similar expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond
the Companys control and which could materially affect actual results, performances or achievements. Factors that may cause actual results to differ materially from current expectations include, but are not limited to the risk factors
discussed in this Annual Report on Form 10-K. Accordingly, there is no assurance that the Companys expectations will be realized. Except as otherwise required by the federal securities laws, the Company disclaims any obligations or undertaking
to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in the Companys expectations with regard thereto or any change in events, conditions or circumstances on which
any such statement is based.



The Company means
LaSalle Hotel Properties, a Maryland real estate investment trust, and one or more of its subsidiaries (including LaSalle Hotel Operating Partnership, L.P. and LaSalle Hotel Lessee, Inc.) and, as the context may require, LaSalle Hotel Properties
only or the operating partnership only.



PART I



Item 1.    Business



General



The Company was organized as a
Maryland real estate investment trust on January 15, 1998 to buy, own and lease primarily upscale and luxury full-service hotels located in convention, resort and major urban business markets. As of December 31, 2003, the Company owned interests in
17 hotels with approximately 5,600 rooms/suites located in ten states and the District of Columbia. Independent hotel operators manage the hotels. The Company is a self-managed and self-administered real estate investment trust (REIT) as
defined in the Internal Revenue Code of 1986, as amended (the Code). A REIT is a legal entity that holds real estate interests and, through payments of dividends to shareholders, is permitted to reduce or avoid federal income taxes at
the corporate level.



Substantially all of the Companys
assets are held by, and all of its operations are conducted through, LaSalle Hotel Operating Partnership, L.P. The Company is the sole general partner of the operating partnership with an approximate 98.3% ownership at December 31, 2003. The
remaining 1.7% is held by other limited partners who hold 424,686 limited partnership units. Limited partnership units are redeemable for cash or, at the option of the Company, for a like number of common shares of beneficial interest, par value
$0.01 per share, of the Company. The hotels are leased under participating leases that provide for rental payments equal to the greater of (i) base rent or (ii) participating rent based on fixed percentages of gross hotel revenues.



The Companys principal offices are located at 4800 Montgomery Lane,
Suite M25, Bethesda, MD 20814. The Companys website is www.lasallehotels.com. The Company makes available on its website free of charge its filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports.



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Strategies and Objectives



The Companys primary objectives are to provide a stable stream of income to its shareholders through increases in
distributable cash flow and to increase long-term total returns to shareholders through appreciation in the value of its common shares of beneficial interest. To achieve these objectives, the Company seeks to:



| |  |  | enhance the return from, and the value of, the hotels in which it owns interests and any additional hotels the Company may acquire or develop; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | invest in or acquire additional hotel properties on favorable terms.
| | - |  | --------------------------------------------------------------------



The Company seeks to achieve revenue growth principally through:



| |  |  | renovations, repositioning and/or expansions at selected hotels;
| | - |  | ----------------------------------------------------------------



| |  |  | acquisitions of full-service hotels located in convention, resort and major urban business markets in the U.S. and abroad, especially upscale and luxury full-service hotels in such
markets where the Company perceives strong demand growth or significant barriers to entry; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | selective development of hotel properties, particularly upscale and luxury full-service hotels in high demand markets where development economics are favorable.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company intends to acquire additional hotels
in targeted markets, consistent with the growth strategies outlined above and which may:



| |  |  | possess unique competitive advantages in the form of location, physical facilities or other attributes;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | be available at significant discounts to replacement cost, including when such discounts result from reduced competition for hotels with long-term management and/or franchise
agreements;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | benefit from brand or franchise conversion, new management, renovations or redevelopment or other active and aggressive asset management strategies; or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | have expansion opportunities.
| | - |  | -----------------------------



The Company seeks to grow through strategic relationships with premier, internationally recognized hotel operating companies including: Westin Hotels and
Resorts, Sheraton Hotels and Resorts, Marriott International, Inc., Radisson Hotels International, Inc., Crestline Hotels & Resorts, Inc., Outrigger Lodging Services, Noble House Hotels and Resorts, Hyatt Corporation, the Kimpton Hotel &
Restaurant Group, L.L.C., Benchmark Hospitality and White Lodging Services Corporation. The Company believes that having multiple independent operators creates a network that will generate acquisition opportunities. In addition, the Company believes
its acquisition capabilities are enhanced by its considerable experience, resources and relationships in the hotel industry specifically and the real estate industry generally.



Hotel Acquisitions



The Company acquired ten upscale and luxury full-service hotels in connection with its initial public offering. The Company sold four of the initial
hotels. The Company sold the Holiday Inn Plaza Park in August 2000 and the Radisson Hotel Tampa in August 2001, as these hotels were not considered consistent with the Companys long-term portfolio strategy. Additionally, the Company sold the
New Orleans Grande Hotel in April 2003, and the Holiday Inn Beachside Resort in July 2003 because of weak short and mid-term market outlooks in these markets and the Companys belief that the capital could be redeployed in markets that
exhibited stronger fundamentals.



Subsequent to the
Companys initial public offering, the Company acquired the following hotel interests:



| |  |  | 95.1% interest in the 462-room San Diego Paradise Point Resort for a net purchase price of $73.0 million in June 1998;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



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| |  |  | The 270-room Harborside Hyatt Conference Center & Hotel in Boston, Massachusetts for a net purchase price of $73.5 million in June 1998;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The 222-room Hotel Viking in Newport, Rhode Island for a net purchase price of $28.0 million in June 1999;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | The 1,192-room Chicago Marriott Downtown in January 2000 through a joint venture with The Carlyle Group, an institutional investor. The Company has a non-controlling 9.9% equity
interest and is entitled to receive an annual preferred return and the opportunity to earn an incentive participation in net sale proceeds in the event the hotel is sold or refinanced;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Four full-service hotels in Washington, D.C. (the D.C. Collection) with a total of 496 guestrooms for an aggregate net purchase price of approximately $42.5 million in
March 2001. All four hotels, the Topaz Hotel, the Hotel Rouge, the Hotel Madera and the Hotel Helix, have been fully renovated, improved and repositioned as unique high-end, independent hotels. The aggregate cost of renovating and repositioning the
four hotels was approximately $32.7 million;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The 343-room Holiday Inn on the Hill, a full-service hotel located on Capitol Hill in Washington, D.C., for a net purchase price of approximately $44.0 million in June 2001;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The 296-room Lansdowne Resort, a full-service golf resort and conference center located in Lansdowne, VA, for a purchase price of approximately $115.8 million, in June 2003; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The 139-room Hotel George, a luxury urban hotel located on Capitol Hill in Washington, D.C., for a purchase price of approximately $24.1 million, in September 2003. The Company
includes the Hotel George as part of the D.C. Collection.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Recent Developments



Effective January 16,
2004, the Company entered into an exclusive listing agreement for the sale of its Omaha property. The asset was classified as held for sale at that time because the property is being actively marketed and sale is expected to occur within one year;
accordingly, depreciation was suspended. Based on initial pricing expectation the Company expects to recognize a gain on the sale, therefore no impairment was recognized.



On February 10, 2004, the Company acquired a 100% interest in the Indianapolis Marriott Downtown, a 615-room, AAA
four-diamond rated full service hotel located in downtown Indianapolis, Indiana, for $106.0 million. The source of funding for the acquisition was the Companys senior unsecured bank facility. The property was leased to LHL, and White Lodging
Services Corporation was retained to manage the property.



On
February 11, 2004, the Company paid in full the $62.3 million balance of the mortgage loan that had been secured by the Lansdowne Resort, which the Company had assumed upon purchase of the property on June 17, 2003. The mortgage loan permitted
prepayment beginning on February 11, 2004. Upon prepayment, the seller was entitled to the remaining value of the $5.0 million debt service reserve (after prepayment penalty) that the seller had transferred to the Company in conjunction with the
purchase of the Lansdowne Resort. On February 12, 2004, the Company paid the seller $3.1 million in cash representing the remaining value of the debt service reserve escrow. The Company recognized a gain on the debt extinguishment of $0.1 million.



Hotel Renovations



The Company believes that its regular program of capital improvements at the
hotels, including replacement and refurbishment of furniture, fixtures and equipment, helps maintain and enhance its competitiveness and maximizes revenue growth under the participating leases. During the year ended December 31, 2003, the Company
invested approximately $28.0 million on renovations and additional capital improvements at the hotels. The Company plans to invest approximately $45.0 million on renovations and additional capital improvements at



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its hotel properties during 2004. As of December 31, 2003, purchase orders and letters of commitment totaling approximately $12.0 million have been issued
for renovations at the hotels. The Company has committed to these projects and anticipates making similar arrangements with the existing hotels or any future hotels that it may acquire. Any unexpended amounts will remain the property of the Company
upon termination of the participating leases.



Tax Status



The Company has elected to be taxed as a REIT under Sections 856 through 860
of the Code. As a result, the Company generally is not subject to corporate income tax on that portion of its net income that is currently distributed to shareholders. A REIT is subject to a number of highly technical and complex organizational and
operational requirements, including requirements with respect to the nature of its gross income and assets and a requirement that it currently distribute at least 90% of its taxable income. The Company may, however, be subject to certain state and
local taxes on its income and property.



Effective January 1,
2001, the Company elected to operate its wholly owned subsidiary, LaSalle Hotel Lessee, Inc. (LHL), as provided for under the REIT Modernization Act as a taxable-REIT subsidiary. Accordingly, LHL is required to pay income taxes at the
applicable rates.



Seasonality



The hotels operations historically have been seasonal. The hotels
maintain higher occupancy rates during the second and third quarters, including the Marriott Seaview Resort and Lansdowne Resort, which generate a portion of their revenues from golf-related business and, as a result, their revenues also fluctuate
according to the season and the weather. These seasonality patterns can be expected to cause fluctuations in the Companys quarterly lease revenue under the participating leases with third-party lessees and hotel operating revenue from LHL.



Competition



The hotel industry is highly competitive. Each of the hotels is located in a
developed area that includes other hotel properties. The number of competitive hotel properties in a particular area could have a material adverse effect on occupancy, average daily rate and room revenue per available room of the hotels or at hotel
properties acquired in the future. The Company may be competing for investment opportunities with entities that have substantially greater financial resources than the Company. These entities may generally be able to accept more risk than the
Company can prudently manage, including risks with respect to the creditworthiness of a hotel operator or the geographic proximity of its investments. Competition may generally reduce the number of suitable investment opportunities offered to the
Company and increase the bargaining power of property owners seeking to sell.



Environmental Matters



In connection with the
ownership and operation of the hotels, the Company is subject to various federal, state and local laws, ordinances and regulations relating to environmental protection. Under these laws, a current or previous owner or operator of real estate may be
liable for the costs of removal or remediation of certain hazardous or toxic substances on, under, or in such property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of
hazardous or toxic substances. In addition, the presence of contamination from hazardous or toxic substances, or the failure to remediate such contaminated property properly, may adversely affect the owners ability to borrow using such
property as collateral. Furthermore, a person who arranges for the disposal or treatment of a hazardous or toxic substance at a property owned by another, or who transports such substance to or from such property, may be liable for the costs of
removal or remediation of such substance released into the environment at the disposal or treatment facility. The costs of remediation or removal of such substances may be substantial, and the presence of such



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substances may adversely affect the owners ability to sell such real estate or to borrow using such real estate as collateral. In connection with the
ownership and operation of the hotels the Company may be potentially liable for such costs.



The Company believes that its hotels are in compliance, in all material respects, with all federal, state and local environmental ordinances and regulations regarding hazardous or toxic substances and other
environmental matters, the violation of which could have a material adverse effect on the Company. The Company has not received written notice from any governmental authority of any material noncompliance, liability or claim relating to hazardous or
toxic substances or other environmental matters in connection with any of its present properties.



Employees



The Company
had 22 employees as of February 18, 2004. All persons employed in the day-to-day operations of the hotels are employees of the management companies engaged by the lessees to operate such hotels.



Additional Information



The Company has made available copies of the charters of its board committees, its code of ethics and its corporate
governance guidelines on its website at www.lasallehotels.com. Copies of these documents are available in print to any shareholder who requests them. Requests should be sent to LaSalle Hotel Properties, 4800 Montgomery Lane, Suite M25,
Bethesda, Maryland, 20814. Attn: Hans S. Weger, Corporate Secretary.



Risk
Factors



Additional Factors that May Affect Future Results



The following risk factors and other information included
in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones the Company faces. Additional risks and uncertainties not presently known to the Company or that it currently deems
immaterial also may impair its business operations. If any of the following risks occur, the Companys business, financial condition, operating results and cash flows could be materially adversely affected.



The Companys return on its hotels depends upon the ability of the lessees and the
hotel operators to operate and manage the hotels



To
maintain its status as a REIT, the Company is not permitted to operate any of its hotels. As a result, the Company is unable to directly implement strategic business decisions with respect to the operation and marketing of its hotels, such as
decisions with respect to the setting of room rates, repositioning of a hotel, food and beverage prices and certain similar matters. Although it consults with the lessees and hotel operators with respect to strategic business plans, the lessees and
hotel operators are under no obligation to implement any of the Companys recommendations with respect to such matters.



The Companys performance and its ability to make distributions on its capital shares are subject to risks associated with the hotel industry



Competition for Guests, Increases in Operating Costs, Dependence on
Travel and Economic Conditions Could Affect the Companys Cash Flow.    The hotels are subject to all operating risks common to the hotel industry. These risks include:



| |  |  | competition for guests and meetings from other hotels including as a result of competition from internet wholesalers and distributors;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increases in operating costs, including wages, benefits, insurance, property taxes and energy, due to inflation and other factors, which may not be offset in the future by increased
room rates;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | dependence on demand from business and leisure travelers including substantial weakness at this time in business travel, which may fluctuate and be seasonal;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increases in energy costs, airline fares, and other expenses related to travel, which may deter traveling;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | terrorism alerts and warnings and military actions, which may cause decreases in business and leisure travel;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | the military involvement in Iraq and its likely continued negative impact on travel and the economy; and
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | adverse effects of weak general and local economic conditions.
| | - |  | --------------------------------------------------------------



These factors could adversely affect the ability of the lessees to generate revenues and to make rental payments to the Company.



Unexpected Capital Expenditures Could Adversely Affect the Companys
Cash Flow.    Hotels require ongoing renovations and other capital improvements, including periodic replacement or refurbishment of furniture, fixtures and equipment. Under the terms of its leases, the Company is obligated to
pay the cost of certain capital expenditures at the hotels and to pay for periodic replacement or refurbishment of furniture, fixtures and equipment. If capital expenditures exceed expectations, there can be no assurance that sufficient sources of
financing will be available to fund such expenditures. In addition, the Company may acquire hotels in the future that require significant renovation. Renovation of hotels involves numerous risks, including the possibility of environmental problems,
construction cost overruns and delays, impact on current demand, uncertainties as to market demand or deterioration in market demand after commencement of renovation and the emergence of unanticipated competition from other hotels.



The Companys obligation to comply with financial covenants in its senior unsecured
bank facility and mortgages on some of its hotel properties could restrict its range of operating activities



The Company has a senior unsecured bank facility from a syndicate of banks, which provides for a maximum borrowing of up to $215.0 million. The senior
unsecured bank facility matures on December 31, 2006 and has a one-year extension option. Funding for the new unsecured bank facility occurred on December 15, 2003, at which time it replaced the Companys prior senior unsecured bank facility.
The senior unsecured bank facility contains certain financial covenants relating to debt service coverage, minimum tangible net worth and total funded indebtedness.



The Companys bank facility contains financial covenants that could restrict its ability to incur additional
indebtedness or make distributions on the common shares. The senior unsecured bank facility contains certain financial covenants relating to debt service coverage, net worth and total funded indebtedness and contains financial covenants that,
assuming no continuing defaults, allow the Company to make shareholder distributions which, when combined with the distributions to shareholders in the three immediately preceding fiscal quarters, do not exceed the greater of (i) funds from
operations from the preceding four-quarter rolling period or (ii) the greater of (a) the amount of distributions required for the Company to maintain its status as a REIT or (b) the amount required to ensure the Company will avoid imposition of an
excise tax for failure to make certain minimum distributions on a calendar year basis. Availability under the bank facility may be reduced by hotel financing which the Company obtains outside the bank facility. Pursuant to the bank facility, the
amount of outside financing is limited to specified levels. If the Company is unable to borrow under the bank facility, it could adversely affect the Companys financial condition.



The Companys wholly owned subsidiary, LHL, has a senior unsecured bank facility from a syndicate of banks, which
provides for a maximum borrowing of up to $13.0 million. The senior unsecured bank facility matures on December 31, 2006. The senior unsecured bank facility contains certain financial covenants relating to debt service coverage, minimum tangible net
worth and total funded indebtedness.



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The Radisson Convention Hotel, Westin City Center Dallas, Le Montrose Suite Hotel, Lansdowne Resort and
San Diego Paradise Point Resort are each mortgaged to secure payment of indebtedness aggregating approximately $187.2 million (including a mortgage premium on the mortgage secured by the Lansdowne Resort) as of December 31, 2003. The Harborside
Hyatt Conference Center & Hotel is mortgaged to secure payment of principal and interest on bonds with an aggregate par value of approximately $42.5 million. If the Company is unable to meet mortgage payments, the mortgage securing the specific
property could be foreclosed upon by, or the property could be otherwise transferred to, the mortgagee with a consequent loss of income and asset value to the Company. From time to time, the Company may mortgage additional hotels to secure payment
of additional indebtedness.



The Companys performance is subject to
real estate industry conditions and the terms of our leases



Because Real Estate Investments Are Illiquid the Company May Not Be Able to Sell Hotels When Desired.    Real estate investments generally cannot be sold quickly. The Company may not be able to vary its portfolio
promptly in response to economic or other conditions. In addition, provisions of the Code limit a REITs ability to sell properties in some situations when it may be economically advantageous to do so.



Liability for Environmental Matters Could Adversely Affect the
Companys Financial Condition.    As an owner of real property, the Company is subject to various federal, state and local laws and regulations relating to the protection of the environment that may require a current or
previous owner of real estate to investigate and clean-up hazardous or toxic substances at a property. These laws often impose such liability without regard to whether the owner knew of or caused the presence of the contaminants, and liability is
not limited under the enactments and could exceed the value of the property and/or the aggregate assets of the owner. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the clean-up costs of the
substances at a disposal or treatment facility, whether or not such facility is owned or operated by the person. Even if more than one person were responsible for the contamination, each person covered by the environmental laws may be held
responsible for the entire amount of clean-up costs incurred.



Environmental laws also govern the presence, maintenance and removal of asbestos-containing materials. These laws impose liability for release of asbestos-containing materials into the air and third parties may seek recovery from owners or
operators of real properties for personal injury associated with asbestos-containing materials. In connection with the ownership (direct or indirect) the Company may be considered an owner or operator of properties containing asbestos-containing
materials. Having arranged for the disposal or treatment of contaminants, the Company may be potentially liable for removal, remediation and other costs, including governmental fines and injuries to persons and property.



The Costs of Compliance with the Americans with Disabilities Act Could
Adversely Affect the Companys Cash Flow.    Under the Americans with Disabilities Act of 1990, all public accommodations are required to meet certain federal requirements related to access and use by disabled persons. A
determination that the Company is not in compliance with the Americans with Disabilities Act of 1990 could result in imposition of fines or an award of damages to private litigants.



Certain Leases and Management Agreements May Constrain the Company from Acting in the Best Interests of Shareholders or
Require it to Make Certain Payments.    The Harborside Hyatt Conference Center & Hotel and the San Diego Paradise Point Resort are each subject to a ground lease with a third-party lessor. In order for the Company to sell
either of these hotels or to assign its leasehold interest in either of these ground leases, it must first obtain the consent of the relevant third-party lessor. The Radisson Convention Hotel is also subject to a ground lease with a third-party
lessor; third-party lessor consent is required to assign leasehold interest unless the assignment is in conjunction with the sale of the hotel. Accordingly, if the Company determines that the sale of any of these hotels or the assignment of its
leasehold interest in any of these ground leases is in the best interest of its shareholders, the Company may be prevented from completing such transaction if it is unable to obtain the required consent from the relevant lessor.



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In some instances, the Company may be required to obtain the consent of the hotel operator prior to
selling the hotel. Typically, such consent is only required in connection with certain proposed sales, such as if the proposed purchaser is engaged in the operation of a competing hotel or does not meet certain minimum financial requirements. Hotels
where operator approval of certain sales may be required include: Chicago Marriott Downtown, Harborside Hyatt Conference Center & Hotel and Omaha Marriott Hotel.



The Westin City Center Dallas is a unit of a commercial condominium complex and is subject to a right of first refusal in
favor of the owner of the remaining condominium units. In addition, the Company is subject to certain rights of first refusal or similar rights with respect to the following hotels: Hotel Viking, LaGuardia Airport Marriott and Marriott Seaview
Resort. Similarly, the operator of the D.C. Collection hotels has a right of first offer and a right of first refusal, excluding the Hotel George, if any of the hotels are sold other than through a public bidding process.



If the Company determines to terminate a lease with a third-party lessee
(other than in connection with a default by such lessee), it may be required to pay a termination fee calculated based upon the value of the lease.



Increases in interest rates may increase our interest expense



As of December 31, 2003, approximately $116.8 million of aggregate indebtedness (48.8% of total indebtedness) was subject to variable interest rates. The
aggregate indebtedness balance includes the Companys $11.9 million pro rata portion of indebtedness relating to the Companys joint venture investment in the Chicago Marriott Downtown hotel. An increase in interest rates could increase
the Companys interest expense and reduce its cash flow and its ability to service its indebtedness.



Failure to qualify as a REIT would be costly



The Company has operated (and intends to so operate in the future) so as to qualify as a REIT under the Code beginning with its taxable year ended December 31, 1998. Although management believes that the Company is
organized and operated in a manner to so qualify, no assurance can be given that the Company will qualify or remain qualified as a REIT.



If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax (including any applicable alternative minimum tax)
on its taxable income at regular corporate rates. Moreover, unless entitled to relief under certain statutory provisions, the Company also will be disqualified from treatment as a REIT for the four taxable years following the year during which
qualification was lost. This treatment would cause the Company to incur additional tax liabilities and would significantly impair the Companys ability to service indebtedness, and reduce the amount of cash available to make new investments or
to make distributions on its common shares of beneficial interest and preferred shares.



Property ownership through partnerships and joint ventures could limit the Companys control of those investments



Partnership or joint venture investments may involve risks not otherwise present for investments made solely by the Company, including the possibility
that its co-investors might become bankrupt, that its co-investors might at any time have different interests or goals than the Company does, and that its co-investors may take action contrary to its instructions, requests, policies or objectives,
including its policy with respect to maintaining its qualification as a REIT. Other risks of joint venture investments include an impasse on decisions, such as a sale, because neither the Companys co-investors nor the Company would have full
control over the partnership or joint venture. There is no limitation under the Companys organizational documents as to the amount of funds that may be invested in partnerships or joint ventures.



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Tax consequences upon a sale or refinancing of properties may result in conflicts of interest



Holders of units of limited partnership interest in the operating
partnership or co-investors in properties not owned entirely by the Company may suffer different and more adverse tax consequences than the Company upon the sale or refinancing of properties. The Company may have different objectives from these
co-investors and unitholders regarding the appropriate pricing and timing of any sale or refinancing of these properties. While the Company, as the sole general partner of the operating partnership, has the exclusive authority as to whether and on
what terms to sell or refinance each property owned solely by the operating partnership, some of its trustees who have interests in units of limited partnership may seek to influence the Company not to sell or refinance the properties, even though
such a sale might otherwise be financially advantageous to it, or may seek to influence the Company to refinance a property with a higher level of debt.



The Company may not have enough insurance



The Company carries comprehensive liability, fire, flood, earthquake, extended coverage and business interruption policies that insure it against losses
with policy specifications and insurance limits that the Company believes are reasonable. There are certain types of losses that management may decide not to insure against since the cost of insuring is not economical. The Company may suffer losses
that exceed its insurance coverage. Further, market conditions, changes in building codes and ordinances or other factors such as environmental laws may make it too expensive to repair or replace a property that has been damaged or destroyed, even
if covered by insurance.



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Item 2.    Properties



Hotel Properties



At December 31, 2003, the
Company owned interests in the following 17 hotel properties:



|         |  |                                             |  |          |  |                             
|-------- |  | ------------------------------------------- |  | -------- |  | ----------------------------
|Property |  | Number ofRooms/Suites                       |  | Location
|1.       |  | Radisson Convention Hotel*                  |  | 565      |  | Bloomington, MN             
|2.       |  | Westin City Center Dallas*                  |  | 407      |  | Dallas, TX                  
|3.       |  | Marriott Seaview Resort                     |  | 297      |  | Galloway, NJ (Atlantic City)
|4.       |  | Omaha Marriott Hotel                        |  | 299      |  | Omaha, NE                   
|5.       |  | Le Montrose Suite Hotel*                    |  | 132      |  | West Hollywood, CA          
|6.       |  | LaGuardia Airport Marriott                  |  | 438      |  | New York, NY                
|7.       |  | San Diego Paradise Point Resort*            |  | 462      |  | San Diego, CA               
|8.       |  | Harborside Hyatt Conference Center & Hotel* |  | 270      |  | Boston, MA                  
|9.       |  | Hotel Viking                                |  | 222      |  | Newport, RI                 
|10.      |  | Chicago Marriott Downtown*                  |  | 1,192    |  | Chicago, IL                 
|11.      |  | Topaz Hotel                                 |  | 99       |  | Washington, D.C.            
|12.      |  | Hotel Rouge                                 |  | 137      |  | Washington, D.C.            
|13.      |  | Hotel Madera                                |  | 82       |  | Washington, D.C.            
|14.      |  | Hotel Helix                                 |  | 178      |  | Washington, D.C.            
|15.      |  | Hotel George                                |  | 139      |  | Washington, D.C.            
|16.      |  | Holiday Inn on the Hill                     |  | 343      |  | Washington, D.C.            
|17.      |  | Lansdowne Resort*                           |  | 296      |  | Lansdowne, VA               
|         |  |                                             |  |          |  |                             
|         |  | Total number of rooms/suites                |  | 5,558    |  |                             
|         |  |                                             |  |          |  |                             

---

|* |  | Properties subject to a mortgage.
|- |  | ---------------------------------



Radisson Convention Hotel.    Radisson Convention Hotel is an upscale full-service convention hotel located at the intersection
of Interstate 494 and Highway 100, approximately 15 minutes from the Minneapolis/St. Paul International Airport, and five miles from the Mall of America. The hotel is currently leased to LHL and operated by an affiliate of the Radisson Group, Inc.



The Company currently expects to engage Starwood Hotels and
Resorts Worldwide, Inc. to manage and operate its Bloomington, Minnesota property under the Sheraton brand affiliation, beginning during the first quarter 2004.



Westin City Center Dallas.    Westin City Center Dallas is an upscale full-service convention oriented hotel located in
downtown Dallas, approximately 25 minutes from the Dallas/Fort Worth International Airport, in the heart of the citys arts and financial districts. The hotel is conveniently located near the Dallas Convention Center, four stops away on the
Dallas light rail system, with a DART station adjacent to the hotel. The hotel is leased to LHL and operated by Starwood Hotels & Resorts Worldwide, Inc.



Marriott Seaview Resort.    Marriott Seaview Resort is a luxury AAA Four-Diamond rated golf resort and conference center
located on Reeds Bay, approximately nine miles north of Atlantic City, New Jersey. The hotel is leased to LHL and operated by Marriott International, Inc. pursuant to a long-term incentive-based operating agreement.



Omaha Marriott Hotel.    Omaha Marriott Hotel is
an upscale full-service major business hotel located in the western suburbs of Omaha at one of the citys busiest intersections (I-680 and West Dodge Road). The hotel is located in the Regency Office Park, a mixed-use development containing
over 865,000 square feet of office



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and retail space, and directly across West Dodge Road from Westroads Shopping Center, one of the largest shopping malls in Omaha. The hotel is leased to LHL
and operated by Marriott International, Inc. pursuant to a long-term incentive-based operating agreement.



Le Montrose Suite Hotel.    Le Montrose Suite Hotel is a five-story, luxury full-service hotel located in West Hollywood,
California, two blocks east of Beverly Hills and one block south of the Sunset Strip. The hotel is within walking distance of many of the areas finest restaurants, retail shops and nightclubs. The hotel attracts short and long-term
guests and small groups primarily from the recording, film and design industries. The hotel is leased to and operated by Outrigger Lodging Services.



LaGuardia Airport Marriott.    LaGuardia Airport Marriott is an upscale full-service urban/major business hotel located
directly across from New Yorks LaGuardia Airport. The hotel is five minutes from Shea Stadium and the USTA National Tennis Center and 20 minutes from Manhattan. The hotel is leased to LHL and operated by Marriott International, Inc. pursuant
to a long-term incentive-based operating agreement.



San
Diego Paradise Point Resort.    San Diego Paradise Point Resort is a luxury resort that lies on 44 acres and has nearly one mile of beachfront. The hotel is located in the heart of Mission Bay on Vacation Island, a 4,600-acre
aquatic park in southwest San Diego County. The resort is 15 minutes away from the San Diego International Airport and convenient to many major San Diego tourist attractions including Sea World, Old Town, downtown San Diego, the San Diego Convention
Center, Qualcomm Stadium and the San Diego Zoo. The hotel is subject to a 50-year ground lease with the city of San Diego, which expires in June 2049. The hotel is leased to and operated by WestGroup San Diego Associates, Ltd., an affiliate of Noble
House Hotels and Resorts.



Harborside Hyatt Conference
Center & Hotel.    Harborside Hyatt Conference Center & Hotel is a full-service luxury conference and airport hotel located adjacent to Bostons Logan International Airport along the Boston waterfront. The
property features 19,000 square feet of meeting space and is directly across the Boston Harbor from Bostons central business district. The hotel is located next to the Ted Williams Tunnel, providing convenient access to downtown Boston and the
new Boston Convention Center. The property is subject to a long-term ground lease from the Massachusetts Port Authority, Logan International Airports owner and operating authority. The hotel is leased to LHL and operated by Hyatt Corporation
pursuant to a long-term incentive based managment agreement.



Hotel Viking.    Hotel Viking is a full-service upscale resort located on Bellevue Avenue in Newport, Rhode Island. The hotel offers 29,000 square feet of meeting space, a restaurant, a lounge, a rooftop bar and a
full-service spa. The property also includes the Trinity Parish House and the fully restored Kay Chapel, both adjacent to the hotel. The hotel is leased to LHL and is operated by Noble House Hotels and Resorts.



Chicago Marriott Downtown.    Chicago Marriott
Downtown is a full-service, upscale convention hotel located at the intersection of North Michigan Avenue and Ohio Street on downtown Chicagos world-famous Magnificent Mile. The property has over 60,000 square feet of meeting
space, five food and beverage outlets, a health club and sports center, a business center and a gift shop. The Chicago Marriott Downtown has superb visibility and allows guests convenient access to a variety of attractions. A world-renowned shopping
destination, the Magnificent Mile is home to such retailers as Neiman Marcus, Saks Fifth Avenue, Nordstrom, Marshall Fields and Niketown. The Company, through the operating partnership, owns a non-controlling 9.9% equity interest in the
Chicago Marriott Downtown. The hotel is leased to Chicago 540 Lessee, Inc. in which the Company also owns a non-controlling 9.9% equity interest. The hotel is operated by Marriott International, Inc. pursuant to a long-term incentive-based operating
agreement.



D.C. Collection.    The
D.C. Collection comprises five full-service hotels located in Washington, D.C. with a total of 635 guestrooms. Each hotel features large guestrooms or suites. The Company renovated and repositioned four of the hotels as full-service, upscale,
unique, independent hotels: the Topaz Hotel, the Hotel



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Rouge, the Hotel Madera and the Hotel Helix. The Company leases each of these hotels to wholly owned subsidiaries of LHL. The San Francisco, California-based
Kimpton Hotel & Restaurant Group, L.L.C., operates all five of these hotels.



Topaz Hotel.    The Topaz Hotel is a full-service hotel with an exotic East-meets-West theme. The hotel is conveniently located on Embassy Row in downtown Washington, D.C.
It is within walking distance of the Central Business District, minutes from the monuments and museums, and less than two blocks from Dupont Circle and the Metro. The hotel features a bar/restaurant.



Hotel Rouge.    Hotel Rouge is a
full-service hotel with a playful, interactive, glamorous theme. Located on Scott Circle in Washington, D.C., the hotel is five blocks from the White House and just minutes from the business district. The hotel features a bar/restaurant.



Hotel Madera.    Hotel
Madera is a full-service hotel with a cosmopolitan comfort theme. The Hotel Madera, is located on the eastern edge of the Georgetown section of Washington, D.C., and near many of the areas attractions. The hotel features a
restaurant, Firefly, a modern American bistro.



Hotel
Helix.    Hotel Helix is a full-service hotel with a pop-art theme. The Hotel Helix is located just a few blocks from the new 2.3 million square-foot Washington Convention Center. The hotel is located four
blocks from Dupont Circle in close proximity to most of the major downtown tourist attractions. The hotel features a bar/restaurant.



Hotel George.    The Hotel George, a luxury urban hotel, is situated within three blocks of the U.S. Capitol Building
and is centrally located to numerous leisure and corporate demand generators such as Union Station, The White House, the Mall and the Smithsonian. The hotel is within walking distance of the new 2.3 million square-foot Washington Convention Center
and the revitalized Capitol Hill and Chinatown neighborhoods. The hotel features the award winning restaurant Bistro Bis.



Holiday Inn on the Hill.    Holiday Inn on the Hill is an upscale full-service hotel strategically located on Capitol Hill in
Washington, D.C. The property is the closest hotel to the U.S. Capitol Building. The hotel offers a first class amenity package, including 10,000 square feet of newly renovated meeting space, a full-service restaurant and bar and a rooftop swimming
pool. The hotel is minutes away from the 2.3 million square-foot Washington Convention Center. The hotel is leased to a wholly owned subsidiary of LHL, and Crestline Hotels & Resorts, Inc. has been the operator of the property since 1997.



Lansdowne Resort.    Lansdowne
Resort is a AAA Four-Diamond luxury full-service golf resort and conference center located in Lansdowne, Virginia. The 296-room resort is located on 556 acres and features an 18-hole championship golf course designed by award-winning architect
Robert Trent Jones, Jr. A second 18-hole championship golf course, designed by Greg Norman, and a clubhouse are currently under development and are scheduled for completion by mid-2005. The resort is leased to a wholly owned subsidiary of LHL and
operated by Benchmark Hospitality.



Participating Leases and Management
Agreements



The Company is subject to participating leases
with third-party lessees and, through LHL, management agreements. For hotels leased to third-party lessees, the Company earns the greater of (i) base rent or (ii) participating rent based on fixed percentages of hotel revenues pursuant to the
respective participating lease. For hotels leased to third-party lessees, the Company is responsible for the payment of real estate taxes, ground rent, if any, certain insurance, maintaining a reserve for future capital expenditures and payment of
agreed upon capital expenditures. The terms of these third-party participating leases have expirations between 2008 and 2009. For hotels leased by LHL, the Company, through LHL, earns all hotel revenues and is responsible for all hotel expenses,
including base management fees and incentive management fees, if any, pursuant to the terms of the respective management agreement. The terms of the leases with LHL have expirations between 2008 and 2011.



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Item 3.    Legal Proceedings



The nature of the operations of the hotels exposes them to the risk of claims and litigation in the normal course of their business. Although the outcome of these matters cannot be determined, management does not
expect the ultimate resolution of these matters to have a material adverse effect on the financial position, operations or liquidity of the hotels.



The Company has engaged Starwood Hotels & Resorts Worldwide, Inc. to manage and operate its Dallas hotel under the Westin brand affiliation. Meridien
Hotels, Inc. (Meridien) had been operating the Dallas property as a wrongful holdover tenant, until the Westin brand conversion occurred on July 14, 2003 under court order.



On December 20, 2002, Meridien abandoned the Companys New Orleans hotel. The Company entered into a lease with a
wholly owned subsidiary of LHL and an interim management agreement with Interstate Hotels & Resorts, Inc., and re-named the hotel the New Orleans Grande Hotel. The New Orleans property thereafter was sold on April 21, 2003 for $92.5 million.



In connection with the termination of Meridien at these
hotels, the Company is currently in litigation with Meridien and related affiliates. The Company believes its sole potential obligation in connection with the termination of the leases is to pay fair market value of the leases, if any. Arbitration
of the fair market value of the New Orleans lease commenced in October 2002. On December 19, 2002, the arbitration panel determined that Meridien was entitled to a net award of approximately $5.4 million in connection with the New Orleans property,
subject to adjustment (reduction) by the courts to account for Meridiens holdover. The Company is disputing the arbitration decision, as well as whether Meridien is entitled to fair market value. In order to dispute the arbitration decision,
the Company was required to post a $7.8 million surety bond, which is secured by $5.9 million of restricted cash.



In 2002 the Company recognized a net $2.5 million contingent lease termination expense and reversed previously deferred assets and liabilities related to
the termination of both the New Orleans property and Dallas property leases, and recorded a corresponding contingent liability included in accounts payable and accrued expenses in the accompanying consolidated financial statements. The Company
believes, however, it is owed holdover rent per the lease terms due to Meridiens failure to vacate the properties as required under the leases. The contingent lease termination expense was therefore net of the holdover rent the Company
believes it is entitled to for both properties and in the first, second and third quarters of 2003 the Company adjusted this liability by additional holdover rent of $395, $380 and $52, respectively, that it believes it is entitled to for the Dallas
property. The additional holdover rent is recorded as other income in the accompanying consolidated financial statements. The net contingent lease termination liability has also been adjusted for legal fees and has a balance of approximately $2.0
million as of December 31, 2003, which is included in accounts payable and accrued expenses in the accompanying consolidated balance sheet. Based on the claims the Company has against Meridien, the Company is and will continue to seek reimbursement
of legal fees and damages, and will challenge the arbitration determination, which may reduce any amounts owed Meridien, and therefore ultimately any contingent lease termination expense. Additionally, the Company cannot provide any assurances that
the holdover rents will be collectible or that the amounts due will not be greater than the recorded contingent lease termination expense.



The Company maintained a lien on Meridiens security deposit on both disputed properties with an aggregate value of approximately $3.3 million, in
accordance with the lease agreements. The security deposits were liquidated in May 2003 with the proceeds used to partially satisfy Meridiens outstanding obligations, including certain working capital notes and outstanding base rent.



Additionally, Meridien is disputing the Companys
calculations of participating rents for both properties. The total amount Meridien is disputing is approximately $2.0 million. Consistent with the express terms of the lease, however, Meridien has paid the participating rent due for 2001 and 2002 in
full. The Company continues to believe the calculation is correct, consistent with the lease terms, and it has recognized the revenue in the appropriate periods.



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Meridien also has sued the Company and one of the Companys officers alleging that certain actions
taken in anticipation of re-branding the Dallas and New Orleans hotels under the Westin brand affiliation constituted unfair trade practices, false advertising, trademark infringement, trademark dilution and tortious interference. On August 19,
2002, the Company received an order from the court denying all of Meridiens motions. Meridien continued with the lawsuit, however, and filed an amended complaint. The Company moved to dismiss Meridiens lawsuit, and on March 11, 2003 the
court granted the Companys motion and dismissed all of Meridiens claims. On April 9, 2003, Meridien filed a notice of appeal, which appeal is pending.



The Company does not believe that the amount of any fees or damages it may be required to pay on any of the litigation
related to Meridien will have a material adverse effect on the Companys financial condition or results of operations, taken as a whole. The Companys management has discussed this contingency and the related accounting treatment with the
audit committee of its Board of Trustees.



The Company is not
presently subject to any other material litigation nor, to the Companys knowledge, is any other litigation threatened against the Company, other than routine actions for negligence or other claims and administrative proceedings arising in the
ordinary course of business, some of which are expected to be covered by liability insurance and all of which collectively are not expected to have a material adverse effect on the liquidity, results of operations or business or financial condition
of the Company.



Item 4.    Submission of Matters to a Vote of Security Holders



There were no matters submitted to a vote of the Companys shareholders during the fourth quarter of the year covered by this Annual Report on Form
10-K.



Part II



Item 5.    Market for Registrants Common Shares of Beneficial Interest and Related Shareholder Matters



Market Information



The common shares of the Company began trading on the New York Stock Exchange on April 24, 1998 under the symbol LHO. The following table sets
forth for the indicated periods the high and low sale prices for the common shares of beneficial interest and the cash distributions declared per share:



|               |  |                    |       |                    |   |              |  |      |       |     |   |              |  |   |       |  |   |      
|-------------- |  | ------------------ | ----- | ------------------ | - | ------------ |  | ---- | ----- | --- | - | ------------ |  | - | ----- |  | - | -----
|               |  | Calendar Year 2003 |       | Calendar Year 2002
|               |  | High               |       | Low                |   | Distribution |  | High |       | Low |   | Distribution
|First Quarter  |  | $                  | 14.26 |                    | $ | 10.50        |  | $    | 0.210 |     | $ | 16.47        |  | $ | 11.10 |  | $ | 0.010
|Second Quarter |  | $                  | 15.90 |                    | $ | 12.00        |  | $    | 0.210 |     | $ | 16.33        |  | $ | 13.65 |  | $ | 0.010
|Third Quarter  |  | $                  | 17.40 |                    | $ | 14.75        |  | $    | 0.210 |     | $ | 15.75        |  | $ | 10.60 |  | $ | 0.210
|Fourth Quarter |  | $                  | 19.07 |                    | $ | 16.56        |  | $    | 0.210 |     | $ | 14.13        |  | $ | 11.30 |  | $ | 0.210



The closing price for
the Companys common shares as reported by the New York Stock Exchange on December 31, 2003 was $18.55 per share.



Shareholder Information



As of February 13, 2004, there were 170 record holders of the Companys common shares of beneficial interest, including shares held in street
name by nominees who are record holders, and approximately 6,500 beneficial holders.



In order to comply with certain requirements related to qualification of the Company as a REIT, the Companys Amended and Restated Declaration of Trust limits the number of common shares of beneficial



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##### Table of Contents

interest and preferred shares that may be owned by any single person or affiliated group to 9.8% of the outstanding common shares of beneficial interest and
preferred shares, except for T. Rowe Price Associates, Inc. and Heitman Real Estate Investment Management which were granted waivers and each may own up to 13.0% of the Companys outstanding common shares of beneficial interest and preferred
shares.



Distribution Information



In 2003, the Company paid $0.84 per common share in distributions, 100.0% of
which represented ordinary income for tax purposes.



The
declaration of distributions by the Company is in the sole discretion of the Companys Board of Trustees and depends on the actual cash flow of the Company, its financial condition, capital expenditure requirements for the Companys
hotels, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Trustees deems relevant.



The Company paid monthly distributions in lieu of quarterly distributions to its common shareholders and unitholders beginning in 2003. The Company paid
the first monthly distribution for the month of January 2003 on February 14, 2003 at a level of $.07 per common share of beneficial interest and limited partnership unit, and the Company declared a similar distribution for the months of February
through December 2003, to be paid in March 2003 through January 2004, respectively.



Operating Partnership Units



The operating
partnership issued 3,181,723 units of limited partnership interest on April 29, 1998 (inception), in conjunction with the initial public offering. The following is a summary of unit activity since inception:



|                                                         |  |           |  |            |  
|-------------------------------------------------------- |  | --------- |  | ---------- | -
|Units issued at initial public offering                  |  | 3,181,723 | 
|Units converted to common shares of beneficial interest: |  |           | 
|                                                         |  | 1999      |  | (1,622,489 | )
|                                                         |  | 2000      |  | (36,754    | )
|                                                         |  | 2001      |  | (1,095,964 | )
|                                                         |  | 2002      |  | (18,497    | )
|Units issued:                                            |  |           | 
|                                                         |  | 2000      |  | 16,667     |  
|                                                         |  |           |  |            |  
|Units outstanding at December 31, 2003                   |  | 424,686   | 
|                                                         |  |           |  |            |  



Holders of units of
limited partnership interest receive distributions per unit in the same manner as distributions on a per common share basis to the common shareholders of beneficial interest.



Item 6.    Selected Financial Data



Selected Financial Data



The following tables set forth selected historical operating and financial data for the Company. The selected historical operating and financial data for the Company for the years ended December 31, 2003, 2002, 2001, 2000 and 1999 have been
derived from the historical financial statements of the Company. The following selected financial information should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations
and all of the financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.



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LASALLE HOTEL PROPERTIES



Selected Historical Operating and Financial Data

(Unaudited, Dollars in thousands, except share data)



|                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | - |  | ---- | ---------- | - |  | - | ---------- | -
|                                                                                                                                            |  | For the year ended December 31, |           
|                                                                                                                                            |  | 2003                            |            |   | 2002 |   |            | 2001 |  |   | 2000       |   |  | 1999 |           
|Operating Data:                                                                                                                             |  |                                 |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Revenues from continuing operations:                                                                                                        |  |                                 |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Hotel operating revenues                                                                                                                    |  | $                               | 179,443    |   |      | $ | 148,450    |      |  | $ | 118,175    |   |  | $    |           |   |  | $ |           |  
|Participating lease revenue                                                                                                                 |  |                                 | 21,284     |   |      |   | 21,909     |      |  |   | 32,346     |   |  |      | 69,055     |   |  |   | 62,779     |  
|Interest income                                                                                                                             |  |                                 | 340        |   |      |   | 340        |      |  |   | 685        |   |  |      | 1,216      |   |  |   | 955        |  
|Other income                                                                                                                                |  |                                 | 919        |   |      |   | 19         |      |  |   | 827        |   |  |      | 56         |   |  |   | 66         |  
|                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Total revenues from continuing operations                                                                                                   |  |                                 | 201,986    |   |      |   | 170,718    |      |  |   | 152,033    |   |  |      | 70,327     |   |  |   | 63,800     |  
|Expenses from continuing operations:                                                                                                        |  |                                 |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Hotel operating expenses                                                                                                                    |  |                                 | 133,120    |   |      |   | 107,229    |      |  |   | 82,969     |   |  |      |           |   |  |   |           |  
|Depreciation and other amortization                                                                                                         |  |                                 | 33,188     |   |      |   | 30,070     |      |  |   | 26,443     |   |  |      | 24,221     |   |  |   | 20,783     |  
|Real estate, personal property taxes and insurance                                                                                          |  |                                 | 9,757      |   |      |   | 8,276      |      |  |   | 8,089      |   |  |      | 6,706      |   |  |   | 6,799      |  
|Ground rent                                                                                                                                 |  |                                 | 3,561      |   |      |   | 3,208      |      |  |   | 3,279      |   |  |      | 3,157      |   |  |   | 2,933      |  
|General and administrative                                                                                                                  |  |                                 | 7,335      |   |      |   | 6,432      |      |  |   | 6,359      |   |  |      | 927        |   |  |   | 1,341      |  
|Interest                                                                                                                                    |  |                                 | 12,651     |   |      |   | 10,527     |      |  |   | 16,151     |   |  |      | 18,958     |   |  |   | 16,181     |  
|Amortization of deferred financing costs                                                                                                    |  |                                 | 2,399      |   |      |   | 2,251      |      |  |   | 1,841      |   |  |      | 1,080      |   |  |   | 992        |  
|Advisory fee (1)                                                                                                                            |  |                                 |           |   |      |   |           |      |  |   |           |   |  |      | 3,840      |   |  |   | 3,670      |  
|Impairment of investment in hotel property                                                                                                  |  |                                 | 2,453      |   |      |   |           |      |  |   | 1,872      |   |  |      | 12,296     |   |  |   | 2,000      |  
|Lease termination, advisory transaction, subsidiary purchase and contingent lease termination expense                                       |  |                                 | 10         |   |      |   | 2,520      |      |  |   | 1,929      |   |  |      |           |   |  |   |           |  
|Writedown of notes receivable                                                                                                               |  |                                 |           |   |      |   | 158        |      |  |   | 1,172      |   |  |      |           |   |  |   |           |  
|Other expenses                                                                                                                              |  |                                 | 251        |   |      |   | 7          |      |  |   | 976        |   |  |      | 19         |   |  |   | 138        |  
|                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Total expenses from continuing operations                                                                                                   |  |                                 | 204,725    |   |      |   | 170,678    |      |  |   | 151,080    |   |  |      | 71,204     |   |  |   | 54,837     |  
|Net income (loss) from continuing operations before income tax benefit, minority interest and equity in earnings of unconsolidated
entities |  |                                 | (2,739     | ) |      |   | 40         |      |  |   | 953        |   |  |      | (877       | ) |  |   | 8,963      |  
|Income tax benefit                                                                                                                          |  |                                 | 5,482      |   |      |   | 2,696      |      |  |   | 1,507      |   |  |      |           |   |  |   |           |  
|Minority interest in LaSalle Hotel Operating Partnership, L.P.                                                                              |  |                                 | (63        | ) |      |   | (72        | )    |  |   | (81        | ) |  |      | (16        | ) |  |   | (1,462     | )
|Equity in earnings of unconsolidated entities                                                                                               |  |                                 | 304        |   |      |   | 458        |      |  |   | 616        |   |  |      | 1,152      |   |  |   | 57         |  
|                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net income from continuing operations                                                                                                       |  |                                 | 2,984      |   |      |   | 3,122      |      |  |   | 2,995      |   |  |      | 259        |   |  |   | 7,558      |  
|Distributions to preferred shareholders                                                                                                     |  |                                 | (10,805    | ) |      |   | (8,410     | )    |  |   |           |   |  |      |           |   |  |   |           |  
|                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net income (loss) from continuing operations applicable to common shareholders                                                              |  |                                 | (7,821     | ) |      |   | (5,288     | )    |  |   | 2,995      |   |  |      | 259        |   |  |   | 7,558      |  
|Net income from discontinued operations                                                                                                     |  |                                 | 35,857     |   |      |   | 1,349      |      |  |   | 840        |   |  |      | 5,092      |   |  |   | 6,431      |  
|                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net income (loss) applicable to common shareholders                                                                                         |  | $                               | 28,036     |   |      | $ | (3,939     | )    |  | $ | 3,835      |   |  | $    | 5,351      |   |  | $ | 13,989     |  
|                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net income (loss) from continuing operations applicable to common shareholders per common share:                                            |  |                                 |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|basic (after dividends paid on unvested restricted shares)                                                                                  |  | $                               | (0.40      | ) |      | $ | (0.29      | )    |  | $ | 0.16       |   |  | $    | 0.02       |   |  | $ | 0.49       |  
|diluted (before dividends paid on unvested restricted shares)                                                                               |  | $                               | (0.38      | ) |      | $ | (0.28      | )    |  | $ | 0.16       |   |  | $    | 0.02       |   |  | $ | 0.49       |  
|                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net income (loss) applicable to common shareholders per common share:                                                                       |  |                                 |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|basic (after dividends paid on unvested restricted shares)                                                                                  |  | $                               | 1.39       |   |      | $ | (0.22      | )    |  | $ | 0.21       |   |  | $    | 0.32       |   |  | $ | 0.91       |  
|diluted (before dividends paid on unvested restricted shares)                                                                               |  | $                               | 1.37       |   |      | $ | (0.21      | )    |  | $ | 0.21       |   |  | $    | 0.32       |   |  | $ | 0.91       |  
|                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Weighted average number of common shares outstanding:                                                                                       |  |                                 |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|basic                                                                                                                                       |  |                                 | 20,030,723 |   |      |   | 18,413,602 |      |  |   | 18,321,730 |   |  |      | 16,920,596 |   |  |   | 15,432,667 |  
|diluted                                                                                                                                     |  |                                 | 20,487,406 |   |      |   | 18,843,530 |      |  |   | 18,452,882 |   |  |      | 16,982,962 |   |  |   | 15,432,667 |  



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|                                                               |  |                    |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------------------------------------------- |  | ------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                               |  | As of December 31, |        
|                                                               |  | 2003               |         |   | 2002 |   |         | 2001 |  |   | 2000    |   |  | 1999 |        
|Balance Sheet Data:                                            |  |                    |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Investment in hotel properties, net                            |  | $                  | 595,976 |   |      | $ | 549,814 |      |  | $ | 550,015 |   |  | $    | 486,184 |   |  | $ | 501,191 |  
|Total assets                                                   |  |                    | 707,904 |   |      |   | 605,735 |      |  |   | 588,256 |   |  |      | 531,893 |   |  |   | 532,072 |  
|Borrowings under credit facilities                             |  |                    |        |   |      |   | 99,390  |      |  |   | 175,400 |   |  |      | 113,500 |   |  |   | 164,900 |  
|Bonds payable, net                                             |  |                    | 42,500  |   |      |   | 42,500  |      |  |   | 42,500  |   |  |      | 40,314  |   |  |   | 41,571  |  
|Mortgage loans                                                 |  |                    | 187,157 |   |      |   | 117,042 |      |  |   | 118,562 |   |  |      | 119,964 |   |  |   | 46,306  |  
|Minority interest in LaSalle Hotel Operating Partnership, L.P. |  |                    | 5,721   |   |      |   | 5,262   |      |  |   | 5,589   |   |  |      | 20,288  |   |  |   | 22,417  |  
|Redeemable preferred shares, liquidation preference            |  |                    | 127,298 |   |      |   | 99,798  |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total shareholders equity                                     |  |                    | 436,853 |   |      |   | 315,107 |      |  |   | 230,393 |   |  |      | 223,528 |   |  |   | 242,568 |  
|Other Data:                                                    |  |                    |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Funds from operations (2)                                      |  | $                  | 26,844  |   |      | $ | 30,785  |      |  | $ | 36,268  |   |  | $    | 47,984  |   |  | $ | 44,065  |  
|Cash provided by operating activities                          |  |                    | 41,194  |   |      |   | 37,961  |      |  |   | 40,016  |   |  |      | 40,891  |   |  |   | 45,923  |  
|Cash used in investing activities                              |  |                    | (52,709 | ) |      |   | (41,548 | )    |  |   | (81,231 | ) |  |      | (31,853 | ) |  |   | (63,660 | )
|Cash provided by (used in) financing activities                |  |                    | 39,755  |   |      |   | 7,390   |      |  |   | 42,519  |   |  |      | (9,236  | ) |  |   | 17,779  |  
|Cash dividends declared per common share                       |  | $                  | 0.840   |   |      | $ | 0.440   |      |  | $ | 0.795   |   |  | $    | 1.535   |   |  | $ | 1.515   |  

---

|(1) |  | Represents advisory fee paid to the external advisor for acquisition, management, advisory, employee lease and administrative services provided to the Company. The external advisor
received an annual base fee of up to 5.0% of the Companys net operating income, as defined in the advisory agreement, and an annual incentive fee, which prior to January 1, 1999, was limited to 1.0% of the Companys prorated pro forma net
operating income based on growth in funds from operations per share.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The White Paper on funds from operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts (NAREIT) in April 2002, defines
funds from operations as net income (loss) (computed in accordance with accounting principles generally accepted in the Unites States of America, (GAAP), excluding gains (or losses) from debt restructuring, sales of properties and items
classified by GAAP as extraordinary, plus real estate-related depreciation and amortization (excluding amortization of deferred finance costs) and after comparable adjustments for the Companys portion of these items related to unconsolidated
entities and joint ventures. The Company computes funds from operations in accordance with standards established by NAREIT that may not be comparable to funds from operations reported by other REITs that do not define the term in accordance with the
current NAREIT definition or that interpret the current NAREIT definition differently than the Company. Funds from operations does not represent cash generated from operating activities determined by GAAP and should not be considered as an
alternative to net income (determined in accordance with GAAP) as an indication of the Companys financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Companys liquidity,
nor are they indicative of funds available to fund the Companys cash needs, including its ability to make cash distributions. Funds from operations may include funds that may not be available for managements discretionary use due to
functional requirements to conserve funds for capital expenditures and property acquisitions, and other commitments and uncertainties.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Item 7.    Managements Discussion and Analysis of Financial Condition and Results of Operations



Forward-Looking Statements



This report, together with other statements and information publicly disseminated by the Company, contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe the
Companys future plans, strategies and expectations, are generally identifiable by use of the words believe, expect, intend, anticipate, estimate, project or similar
expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Companys control and which could materially affect actual results,
performances or achievements. Factors that may cause actual results to differ materially from current expectations include, but are not limited to, the risk factors discussed in this Annual Report on Form 10-K. Accordingly, there is no assurance
that the Companys expectations will be realized. Except as otherwise required by the federal securities laws, the Company disclaims any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement
contained herein (or elsewhere) to reflect any change in the Companys expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.



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Overview



2003 was a challenging year for the travel industry, the lodging business and the Company. Travel, in general, was negatively affected by a number of
factors including the war in Iraq, intermittently raised terror alert levels, an overall weak economy, the impact of SARS on international travel and consistently bad weather, especially on the East Coast. The Companys revenues come primarily
from hotel operating revenues from its hotels. Hotel operating revenues include room revenue, food and beverage revenue and other ancillary revenue such as golf revenue at our two golf resorts and telephone and parking revenue.



For 2003, we had net income of $28.0 million, or $1.37 per diluted share.
Funds from Operations, or FFO was $26.8 million, or $1.28 per diluted share/unit and earnings before interest, taxes, depreciation and amortization or EBITDA was $87.3 million. Room revenue per available room or RevPAR was $92.45. We consider RevPAR
and EBITDA to be key measures of the individual hotels performance. RevPAR for the total portfolio declined 0.6% for 2003. The RevPAR decline is attributable to an Average Daily Rate (ADR) drop of 3.1% to $142.97, while occupancy
improved by 2.6% to 64.7%. EBITDA for the entire portfolio declined 9.0% for 2003, largely because of year over year increases in employee costs, property taxes, energy, and insurance.



We continuously evaluate the hotels in our portfolio using these measures to evaluate each hotels contribution toward
reaching our goal of maintaining a reliable stream of income and moderate growth to our shareholders. We invest in capital improvements through the portfolio to continue to positively impact the competitiveness of our hotels. We actively seek to
acquire new hotel properties that meet our portfolio criteria. However, because of the high level of competitive capital resources and a relatively limited number of hotels on the market, there continues to be relatively few hotels priced to provide
the Company the returns it requires.



Critical Accounting Policies



The consolidated financial statements include the
accounts of the Company, the operating partnership, LHL and its consolidated subsidiaries and partnerships. All significant intercompany balances and transactions have been eliminated.



Use of Estimates



The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts
of certain 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. In preparing these financial statements,
management has utilized the information available including its past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments of certain amounts included in the consolidated
financial statements, giving due consideration to materiality. Included in the accompanying consolidated financial statements is an estimated contingent lease termination expense of an immaterial amount and $2.5 million for the years ended December
31, 2003 and 2002, respectively, related to the Companys litigation with Meridien Hotels, Inc. (see Item 3. Legal Proceedings) and an estimated income tax benefit of $5.6 million and $3.0 million for the years ended December 31, 2003 and 2002,
respectively. Additionally, included in the accompanying consolidated financial statements is an estimated liability of $2.0 million related to the Companys litigation with Meridien Hotels, Inc. (see Item 3. Legal Proceedings), an estimated
allowance for doubtful accounts of $0.3 million and an estimated deferred tax asset of $10.4 million as of December 31, 2003. Management believes that it is more likely than not that this deferred tax asset will be realized and has determined that
no valuation allowance is required.



It is possible that the
ultimate outcome as anticipated by management in formulating its estimates inherent in these financial statements might not materialize. However, application of the critical accounting policies below involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual results



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could differ from those estimates. In addition, other companies may utilize different estimates, which may impact comparability of the Companys results
of operations to those of companies in similar businesses.



Revenue Recognition



For properties not leased
by LHL, the Company recognizes lease revenue on an accrual basis pursuant to the terms of the respective participating leases. Base rent and participating rent are recognized based on quarterly thresholds, pursuant to the lease agreements. For
properties leased by LHL, the Company recognizes hotel operating revenue on an accrual basis consistent with the hotel operations.



For the Lansdowne Resort, the Company defers golf membership fees and recognizes revenue over the average expected life of an active membership (currently
six years) on a straight-line basis. Golf membership, health club and executive club annual dues are recognized as earned throughout the membership year.



Investment in Hotel Properties



Upon acquisition, the Company allocates the purchase price of assets to asset classes based on the fair value of the acquired real estate, furniture,
fixtures and equipment and intangible assets. The Companys investments in hotel properties are carried at cost and are depreciated using the straight-line method over estimated useful lives ranging from 27.5 to 30 years for buildings and
improvements and three to five years for furniture, fixtures and equipment. Renovations and/or replacements that improve or extend the life of the asset are capitalized and depreciated over their estimated useful lives.



The Company is required to make subjective assessments as to the useful lives
of its properties for purposes of determining the amount of depreciation expense to reflect each year with respect to those properties. These assessments have a direct impact on the Companys net income. Should the Company lengthen the expected
useful life of particular assets, it would be depreciated over more years, and result in less depreciation expense and higher annual net income.



The Company periodically reviews the carrying value of each hotel to determine if circumstances exist indicating impairment to the carrying value of the
investment in the hotel or that depreciation periods should be modified. If facts or circumstances support the possibility of impairment, the Company will prepare an estimate of the undiscounted future cash flows, without interest charges, of the
specific hotel and determine if the investment in such hotel is recoverable based on the undiscounted future cash flows. If impairment is indicated, an adjustment will be made to the carrying value of the hotel to reflect the hotel at fair value.
These assessments have a direct impact on the Companys net income, because making an impairment adjustment results in an immediate negative adjustment to net income.



In July 2003, management of the Company changed its intent from holding its investment in the Holiday Inn Beachside Resort
to selling the property due to the projected cost of renovating the property and receiving an unsolicited offer to purchase the property. As a result, the Company wrote down its investment in the Holiday Inn Beachside Resort by $2,453 to its
estimated fair value, net of estimated costs to sell. The Board of Trustees approved managements plan to sell the asset in July 2003. The property was sold in July 2003. The Company does not believe that there are any facts or circumstances
indicating impairment of any of its other investments in its hotels.



In accordance with the provisions of Financial Accounting Standards Board Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, a hotel is considered held for sale when a contract for sale is entered
into or when management has committed to a plan to sell an asset, the asset is actively marketed and sale is expected to occur within one year.



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Stock-Based Compensation



The Company has applied Accounting Principles Board Opinion No. 25 and related interpretations in accounting for the 1998
stock incentive and option plan. Accordingly, no compensation costs have been recognized for stock options granted to the Companys employees. Under Accounting Principles Board Opinion No. 25, no compensation expense is recognized upon the
granting of stock options when the exercise price of such options equals the market price of the underlying stock on the date of grant. The Company recognizes compensation cost for restricted shares issued based upon the fair market value of the
common stock at the grant date. Compensation cost is recognized on a straight-line basis over the vesting period. The Company provides additional pro forma disclosures as required under Statement of Financial Accounting Standards No. 148 in the
notes to its consolidated financial statements.



Comparison of the Year
Ended December 31, 2003 to the Year Ended December 31, 2002



Hotel operating revenues



Hotel operating
revenues from the hotels leased to LHL (14 hotels), including room revenue, food and beverage revenue and other operating department revenues (which includes golf, telephone, parking and other ancillary revenues) increased approximately $30.9
million, from $148.5 million in 2002 to $179.4 million in 2003. This increase includes amounts that are not comparable year-over-year as follows:



| |  |  | $20.5 million increase from the Lansdowne Resort, which was purchased in June 2003;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | $6.2 million increase from the Westin City Center Dallas, which lease was transferred to LHL in July, 2003;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | $3.8 million increase from the Hotel Helix, which was closed and repositioned during the second, third and fourth quarters of 2002, but was open during all of 2003;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $3.6 million increase from the Hotel Madera, which was closed and repositioned during the second and third quarters of 2002, but was open during all of 2003; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $2.0 million increase from the Hotel George, which was purchased in September 2003.
| | - |  | -----------------------------------------------------------------------------------



The remaining change is a decrease of $5.2 million, or 3.5%, and is attributable to a 2.8% decrease in RevPAR for our
properties leased to LHL. While occupancies were up slightly, the decrease in RevPAR is primarily attributable to lower average daily room rates from weakness in primarily corporate transient demand.



Overall, travel levels improved in the second and third quarters, when the
industry benefited from relatively strong leisure demand. Compared to leisure travel, business travel continued to be weak. On a year over year basis, overall industry demand for hotel rooms significantly outpaced supply growth throughout the year,
with occupancies up an average of 2.6% in 2003. The current marketplace is still imbalanced, however, with supply high and occupancies relatively low. While demand improved during 2003, reflecting the early stage of an industry recovery, increasing
and/or maintaining room rates remains a challenge. Both the leisure traveler and the business traveler, group and transient, continue to be price sensitive, utilizing an aggressive negotiation posture and internet sites to shop for the lowest rates.
Additionally, the business is more competitive now because transient guests tend to book their rooms closer to their time of stay than in the past, and transient rooms get priced lower than they otherwise would have. Many of the Companys
hotels experienced ADR declines during 2003, especially at the convention-oriented and urban-oriented hotels. Nevertheless, the Company is seeing meaningful improvements industry-wide in the way the internet is utilized. These changes can be
expected to improve rates obtained through the use of third party and hotel or brand specific internet sites, as well as lower distribution costs.



Participating lease revenue



Participating lease revenue from hotels leased to third party lessees (two hotels) decreased $0.6 million from $21.9 million in 2002 to $21.3 million in
2003. Participating lease revenue includes (i) base rent and (ii)



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participating rent based on fixed percentages of hotel revenues pursuant to the respective participating lease. This decrease includes amounts that are not
comparable year-over-year as follows:



| |  |  | $1.3 million decrease from the Westin City Center Dallas, which lease was transferred to LHL in July 2003, but was leased to a third party for the entire 2002 year; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $0.4 million decrease from the Radisson Convention Hotel as a result of transferring the lease to LHL in January 2002.
| | - |  | ----------------------------------------------------------------------------------------------------------------------



The remaining change is an increase of $1.1 million, or 5.0%, and is a result
of an increase in RevPAR at the hotels leased to third party lessees. The higher RevPAR resulted primarily from increased occupancy from strong leisure demand.



Hotel Operating expenses



Hotel operating expenses increased approximately $25.9 million from $107.2 million in 2002 to $133.1 million in 2003. This increase includes amounts that
are not comparable year-over-year as follows:



| |  |  | $13.9 million increase from the Lansdowne Resort, which was purchased in June 2003;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | $5.2 million increase from the Westin City Center Dallas, which lease was transferred to LHL in July, 2003;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | $2.9 million increase from the Hotel Madera, which was closed and repositioned during the second and third quarters of 2002, but was open during all of 2003;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $2.9 million increase from the Hotel Helix, which was closed and repositioned during the second, third and fourth quarters of 2002, but was open during all of 2003; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $1.2 million increase from the Hotel George, which was purchased in September 2003.
| | - |  | -----------------------------------------------------------------------------------



The remaining change is a decrease of $0.2 million, or 0.2%, a result of cost savings initiatives at the hotels.



Maintaining hotel margins continued to be a challenge during 2003. The
Company continued to see increases in payroll and related employee costs and benefits, insurance, energy and property taxes.



Depreciation and other amortization



Depreciation and other amortization expense increased by approximately $3.1 million from $30.1 million in 2002 to $33.2 million in 2003. This increase
includes amounts that are not comparable year-over-year as follows:



| |  |  | $1.8 million due to the closing and repositioning of the Hotel Madera and Hotel Helix during the second and third quarters of 2002 and the second, third and fourth quarters of 2002,
respectively;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $1.8 million from the Lansdowne Resort, which was purchased in June 2003; and
| | - |  | -----------------------------------------------------------------------------



| |  |  | $0.3 million from the Hotel George, which was purchased in September 2003.
| | - |  | --------------------------------------------------------------------------



The remaining change is a decrease of $0.8 million because certain assets were fully depreciated during 2003.



Real estate taxes, personal property taxes, insurance and ground rent



Real estate taxes, personal property taxes, insurance and
ground rent expenses increased approximately $1.8 million from $11.5 million in 2002 to $13.3 million in 2003. This increase includes amounts that are not comparable year-over-year as follows:



| |  |  | $0.5 million increase from the Lansdowne Resort, which was purchased in June 2003; and
| | - |  | --------------------------------------------------------------------------------------



| |  |  | $0.1 million increase from the Hotel George, which was purchased in September 2003.
| | - |  | -----------------------------------------------------------------------------------



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The remaining increase of $1.2 million, or 10.4% is a result of increased real estate tax rates and tax
assessments and higher insurance premiums overall for the hotels and higher ground rent at the San Diego and Boston properties because of higher revenues and additional parking charges, respectively.



Property taxes were up 12.9% in 2003. With state and local budgets showing
deficits, many state and local governments have increased real estate taxes. These rate increases have almost completely offset the success the Company has had getting reductions in property assessments, many of them through successful appeals.
Property and casualty insurance, combined with general liability, were up 30.1% for 2003; although price increases have recently moderated significantly from much larger increases over the last two years.



General and administrative expenses



General and administrative expense increased approximately $0.9 million from
$6.4 million in 2002 to $7.3 million in 2003 primarily as a result of increases in pursuit costs, directors fees, legal and audit fees, technology expenses and payroll related expenses to executives and employees.



Interest expense



Interest expense increased by approximately $2.2 million from $10.5 million
in 2002 to $12.7 million in 2003 due to an increase in the Companys weighted average interest rate, an increase in the weighted average debt outstanding and a decrease in capitalized interest. The Companys weighted average interest rate
related to continuing operations increased from 5.0% in 2002 to 5.3% in 2003. The Companys weighted average debt outstanding related to continuing operations increased from $209.9 million in 2002 to $234.4 million in 2003, which includes (i)
an $81.9 million net pay down in March 2002 on the Companys senior unsecured bank facility with proceeds from the March 2002 preferred share offering, (ii) a $29.1 million paydown in June 2003 on the Companys bank facility with proceeds
from the June 2003 common stock offering, (iii) a $32.0 million net pay down in September 2003 on the Companys bank facility with proceeds from the September 2003 Series B Preferred Share offering, (iv) $50.0 million net paydown on the
Companys bank facility with proceeds from the November 2003 common stock offering, and (v) additional pay downs on the Companys bank facility with operating cash flows, offset by: (vi) assumption of a $65.2 million mortgage loan
(including a $2.4 million mortgage premium) in conjunction with the purchase of the Lansdowne Resort in June 2003, (vii) additional borrowings for renovations of the Hotel Madera, Hotel Helix, Holiday Inn on the Hill and Hotel Viking early in 2003,
(viii) additional borrowings under the Companys bank facility to finance other capital improvements during 2003 and (ix) additional borrowings to purchase the Hotel George in September 2003.



Impairment of investment in hotel property



Impairment of investment in hotel properties increased approximately $2.5
million from zero due to the Companys management changing its intent from holding its investment in the Holiday Inn Beachside Resort to selling the property. As a result, the Company wrote down its investment in the Holiday Inn Beachside
Resort by $2.5 million in June 2003, to its estimated fair value, net of estimated costs to sell. The hotel was sold in July 2003.



Lease termination, advisory transition and subsidiary purchase expense



Lease termination, advisory transition, subsidiary purchase and contingent lease termination expense decreased $2.5 million
from $2.5 million for 2002, to less than $0.1 million for 2003. The 2002 amount consists of contingent expenses relating to terminating the Le Meridien New Orleans and Dallas leases.



Writedown of notes receivable



Writedown of notes receivable decreased approximately $0.2 million from $0.2 million for 2002 to zero for 2003. Writedown of
notes receivable of $0.2 million in 2002 represents the adjustment to net realizable value of



22



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##### Table of Contents

the furniture, fixtures and equipment notes receivable from the Dallas property based on the Companys valuation estimate of furniture, fixtures and
equipment that secure the loan.



Income taxes



Income tax benefit increased approximately $2.8 million
from $2.7 million in 2002 to $5.5 million in 2003. For 2003, the REIT incurred state and local income tax expense of $0.5 million. LHLs net loss before income tax benefit increased by approximately $7.4 million from $7.5 million in 2002 to
$14.9 million in 2003. Accordingly, for 2003 LHL recorded a federal income tax benefit of approximately $4.7 million (using an estimated tax rate of 30.8%) and a state and local tax benefit of approximately $1.6 million (using an estimated tax rate
of 10.7%). The portion of LHLs income tax benefit relating to the New Orleans property and the Key West property has been reclassified to discontinued operations. The following table summarizes the change in income tax benefit (dollars in
thousands):



|                                                                                  |  |                                |        |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------ | -
|                                                                                  |  | For the year endedDecember 31, |       
|                                                                                  |  | 2003                           |        |   | 2002 |  
|REIT state and local tax expense                                                  |  | $                              | 457    |   |      | $ | 86     |  
|LHL federal, state and local tax benefit                                          |  |                                | (6,307 | ) |      |   | (3,096 | )
|LHL state and local tax (benefit) expense                                         |  |                                | 208    |   |      |   | (7     | )
|                                                                                  |  |                                |        |   |      |   |        |  
|Total tax benefit                                                                 |  |                                | (5,642 | ) |      |   | (3,017 | )
|                                                                                  |  |                                |        |   |      |   |        |  
|Less: LHL federal, state and local tax benefit related to discontinued operations |  |                                | 160    |   |      |   | 321    |  
|                                                                                  |  |                                |        |   |      |   |        |  
|Total continuing operations tax benefit                                           |  | $                              | (5,482 | ) |      | $ | (2,696 | )
|                                                                                  |  |                                |        |   |      |   |        |  



As of December 31,
2003, the Company had a deferred tax asset of $10,424 primarily due to past and current years tax net operating losses. These loss carryforwards will expire in 2021 thru 2023 if not utilized by then. Management believes that it is more likely
than not that this deferred tax asset will be realized and has determined that no valuation allowance is required. The deferred tax asset is classified as non-current because the reversal in the subsequent year cannot be reasonably estimated.



Minority interest



Minority interest in the operating partnership represents the limited
partners proportionate share of the equity in the operating partnership. Income is allocated to minority interest based on the weighted average percentage ownership throughout the year. At December 31, 2003, the aggregate partnership interest
held by the limited partners in the operating partnership was approximately 2.066%. The following table summarizes the change in minority interest (dollars in thousands):



|                                                                      |  |                                |        |   |      |   |       |  
|--------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ----- | -
|                                                                      |  | For the year endedDecember 31, |       
|                                                                      |  | 2003                           |        |   | 2002 |  
|Net income before minority interest                                   |  | $                              | 39,660 |   |      | $ | 4,575 |  
|Weighted average minority interest percentage at December 31          |  |                                | 2.066  | % |      |   | 2.281 | %
|Minority interest allocation                                          |  |                                | 819    |   |      |   | 104   |  
|Less: minority interest allocation related to discontinued operations |  |                                | (756   | ) |      |   | (32   | )
|                                                                      |  |                                |        |   |      |   |       |  
|Total allocation of minority interest to continuing operations        |  | $                              | 63     |   |      | $ | 72    |  
|                                                                      |  |                                |        |   |      |   |       |  



Discontinued
operations



Net income from discontinued operations is a
result of the sale of the New Orleans property and the Holiday Inn Beachside Resort property. Net income from discontinued operations increased by approximately $34.6



23



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##### Table of Contents

million from $1.3 million in 2002 to $35.9 million in 2003. The following table summarizes net income/(loss) from discontinued operations from 2003 and 2002
(dollars in thousands):



|                                                             |  |                                |        |   |      |   |       |  
|------------------------------------------------------------ |  | ------------------------------ | ------ | - | ---- | - | ----- | -
|                                                             |  | For the year endedDecember 31, |       
|                                                             |  | 2003                           |        |   | 2002 |  
|Net lease income (loss) from New Orleans property            |  | $                              | (123   | ) |      | $ | 2,102 |  
|Net operating income from New Orleans property               |  |                                | 59     |   |      |   | (173  | )
|Net lease income from Key West property                      |  |                                | 299    |   |      |   | (269  | )
|Net operating loss from Key West property                    |  |                                | (444   | ) |      |   | (600  | )
|Gain on sale of New Orleans property                         |  |                                | 37,087 |   |      |   |      |  
|Loss on sale of Key West property                            |  |                                | (425   | ) |      |   |      |  
|Minority interest allocation related to New Orleans property |  |                                | (764   | ) |      |   | (46   | )
|Minority interest allocation related to Key West property    |  |                                | 8      |   |      |   | 14    |  
|Income tax benefit (expense) related to New Orleans property |  |                                | (24    | ) |      |   | 72    |  
|Income tax benefit related to Key West property              |  |                                | 184    |   |      |   | 249   |  
|                                                             |  |                                |        |   |      |   |       |  
|Net income (loss) from discontinued operations               |  | $                              | 35,857 |   |      | $ | 1,349 |  
|                                                             |  |                                |        |   |      |   |       |  



Distributions to
preferred shareholders



Distributions to preferred
shareholders increased $2.4 million from $8.4 million in 2002 to $10.8 million in 2003. The Series A Preferred Shares were issued on March 6, 2002 and the first quarter 2002 distribution was prorated for the actual number of days the Series A
Preferred Shares were outstanding. The second, third and fourth quarter 2002 Series A Preferred Shares distributions were paid for all quarters. By contrast, Series A Preferred Shares distributions for the year ended December 31, 2003 were paid for
the entire year. The Series B Preferred Shares were issued on September 30, 2003. Distributions were paid for the Series B Preferred Shares for the entire fourth quarter of 2003, but there were no Series B Preferred Shares distributions in 2002.



Comparison of the Year Ended December 31, 2002 to the Year Ended December
31, 2001



Hotel operating revenues



Hotel operating revenues from the hotels leased to LHL (13 hotels),
including room revenue, food and beverage revenue and other operating department revenues (which includes golf, telephone, parking and other ancillary revenues) increased approximately $30.3 million, from $118.2 million in 2001 to $148.5 million in
2002. This increase includes amounts that are not comparable year-over-year as follows:



| |  |  | $20.4 million increase attributable to transferring the Radisson Convention Hotel lease to LHL in January 2002;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | $7.4 million increase attributable to the purchase of the Holiday Inn on the Hill in June 2001;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | $3.3 million increase attributable to the Hotel Rouge, which was acquired in March 2001, and subsequently closed for repositioning from May to December 2001, but was open in 2002;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $2.9 million increase attributable to the Topaz Hotel, which was acquired in March 2001, and subsequently closed for repositioning from May to October 2001, but was open in 2002;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $2.4 million decrease attributable to the Hotel Helix, which was closed for repositioning from April 2002 through early-November 2002; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $0.6 million decrease from the Hotel Madera, which was closed for repositioning from mid-April 2002 through late September 2002.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



24



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##### Table of Contents

The remaining change is a decrease of $ 0.7 million, or 0.6%, and is attributable to a decrease in RevPAR
for our properties leased to LHL. The decrease in RevPAR is attributable to reduced occupancies and average daily room rates from weakness in primarily corporate group and transient demand.



Participating lease revenue



Participating lease revenue from hotels leased to third party lessees (three
hotels) decreased $10.4 million from $32.3 million in 2001 to $21.9 million in 2002. Participating lease revenue includes (i) base rent and (ii) participating rent based on fixed percentages of hotel revenues pursuant to the respective participating
lease. This decrease includes amounts that are not comparable year-over-year as follows:



| |  |  | $6.5 million decrease from the Radisson Convention Hotel and Holiday Inn Beachside Resort as a result of transferring the leases to LHL in January 2002;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $2.3 million decrease due to the sale of the Radisson Hotel Tampa on August 15, 2001; and
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | $0.2 million decrease as a result of transferring the Hotel Viking lease to LHL in February 2001.
| | - |  | -------------------------------------------------------------------------------------------------



The remaining decrease of $1.4 million, or 4.3%, is a result of a decrease in RevPAR at the hotels leased to third party
lessees from weakness in primarily corporate group and transient demand.



Hotel operating expenses



Operating expenses increased approximately $24.2 million from $83.0 million in 2001 to $107.2 million in 2002. This increase includes amounts that are not comparable year-over-year as follows:



| |  |  | $14.6 million increase from the Radisson Convention Hotel as a result of transferring the lease to LHL in January 2002;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | $4.7 million increase from the Holiday Inn on the Hill, which was acquired in June 2001;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | $3.0 million increase from the Hotel Rouge which was acquired in March 2001, and subsequently closed for repositioning from May to December 2001, but was open in 2002;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $2.3 million increase from the Topaz Hotel which was acquired in March 2001, and subsequently closed for repositioning from May to October 2001 but was open in 2002;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $1.1 million increase as a result of transferring the Hotel Viking lease to LHL in February 2001; and
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | $1.1 million decrease in hotel expenses from the Hotel Helix, which was closed for repositioning from April 2002 through early-November 2002.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



The remaining change is a decrease of $0.4 million, or 0.5%. This decrease is
a result of lower overall hotel direct and indirect expenses primarily as a result of the corporate action plan initiatives and lower occupancy levels.



Depreciation and other amortization



Depreciation and other amortization expense increased by approximately $3.7 million from $26.4 million in 2001 to $30.1 million in 2002. This increase
includes amounts that are not comparable year-over-year as follows:



| |  |  | $1.7 million increase due to the acquisition of the Topaz Hotel, the Hotel Rouge, the Hotel Madera and the Hotel Helix in March 2001 and the subsequent repositioning of the Topaz
Hotel and Hotel Rouge during the last three quarters of 2001 and the subsequent repositioning of the Hotel Madera and Hotel Helix during the second, third and fourth quarters of 2002; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $0.9 million increase due to the acquisition of the Holiday Inn on the Hill in June 2001.
| | - |  | -----------------------------------------------------------------------------------------



25



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##### Table of Contents

The remaining increase of $1.1 million is related to capital improvements placed into service at all
hotels during 2002.



Real estate taxes, personal property
taxes, insurance and ground rent



Real estate taxes,
personal property taxes, insurance and ground rent expenses increased approximately $0.1 million from $11.4 million in 2001 to $11.5 million in 2002. This increase includes amounts that are not comparable year-over-year as follows:



| |  |  | $0.3 million increase in real estate taxes and insurance as a result of the acquisition of the Holiday Inn on the Hill in June 2001;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $0.2 million increase in real estate taxes and insurance as a result of the acquisition of the Topaz Hotel, the Hotel Rouge, the Hotel Madera and the Hotel Helix in March 2001 and
the subsequent repositioning of the Topaz Hotel and Hotel Rouge during the last three quarters of 2001 and the subsequent repositioning of the Hotel Madera and Hotel Helix during the second, third and fourth quarters of 2002;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $0.1 million increase in ground rent for Radisson Convention Hotel as a result of transferring the lease to LHL in January 2002; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a $0.2 million decrease in real estate taxes relating to the Radisson Hotel Tampa, which was sold on August 15, 2001.
| | - |  | ---------------------------------------------------------------------------------------------------------------------



The remaining change is a decrease of $0.3 million, or 2.6% and is a result
of a decrease in real estate taxes because of successful real estate tax appeals at the Dallas and San Diego properties, a decrease in ground rent expense at the Boston and San Diego properties as a result of reduced revenues and a refund of
personal property taxes from the lessee of the Le Montrose Suite Hotel, offset by increased insurance premiums overall for the hotels.



General and administrative expenses



General and administrative expense remained unchanged at approximately $6.4 million. While there was an increase of approximately $0.4 million in
executive compensation expense relating to the grants of restricted shares in April and November 2001, that increase was offset by administrative cost savings initiatives.



Interest expense



Interest expense decreased by approximately $5.7 million from $16.2 million to $10.5 million due to a decrease in the Companys weighted average
interest rate, a decrease in the weighted average debt outstanding and an increase in capitalized interest. The Companys weighted average interest rate related to continuing operations decreased from 5.9% to 5.0% for the year ended December
31, 2001 and 2002, respectively, including a decrease in the weighted average interest rate for the bonds outstanding from 3.1% to 1.5% for the year ended December 31, 2001 and 2002, respectively. The Companys weighted average debt outstanding
related to continuing operations decreased from $269.2 million to $209.9 million for the year ended December 31, 2001 and 2002, respectively. The decrease includes (i) an $81.9 million net pay down in March 2002 on the Companys senior
unsecured bank facility with proceeds from the March 2002 preferred share offering, (ii) additional pay downs on the Companys senior unsecured bank facility with operating cash flows, offset by: (iii) additional borrowings for renovations of
the Topaz Hotel, the Hotel Rouge, the Hotel Madera and the Hotel Helix during 2002, and (iv) additional borrowings under the Companys senior unsecured bank facility to finance other capital improvements during 2002. Capitalized interest
increased by approximately $0.2 million from $0.8 million to $1.0 million due to the renovations of the Hotel Madera and the Hotel Helix during 2002.



26



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##### Table of Contents

Impairment of investment in hotel property



Impairment of investment in hotel property decreased from $1.9 million to zero. Impairment of investment in hotel property
of $1.9 million for the year ended December 31, 2001 represents the writedown of the Radisson Hotel Tampa. The asset was written down in the second quarter of 2001 and sold on August 15, 2001. There were no similar writedowns of assets during the
year ended December 31, 2002.



Lease termination, advisory transition and
subsidiary purchase expense



Lease termination, advisory
transition, subsidiary purchase and contingent lease termination expense increased $0.6 million from $1.9 million for the year ended December 31, 2001, which included $0.5 million of LHL acquisition costs, $0.6 million of one-time expenses
associated with becoming a self-managed REIT, and a $0.8 million cost of terminating the Hotel Viking lease, to $2.5 million for the year ended December 31, 2002, which consists of contingent expenses relating to terminating the Le Meridien New
Orleans and Dallas leases.



Writedown of notes receivable



Writedown of notes receivable decreased approximately $1.0 million from $1.2
million to $0.2 million. Writedown of notes receivable of $1.2 million in 2001 represents the adjustment to net realizable value of the furniture, fixtures and equipment notes receivable from the Radisson Convention Hotel and Le Meridien Dallas
based on the Companys valuation estimate of furniture, fixtures and equipment that secure the loans. Writedown of notes receivable of $0.2 million in 2002 represents the adjustment to net realizable value of the furniture, fixtures and
equipment notes receivable from Le Meridien Dallas based on the Companys valuation estimate of furniture, fixtures and equipment that secure the loan.



Other expenses



Other expenses decreased approximately $1.0 million from $1.0 million in 2001 to zero is 2002. Other expense of $1.0 million for the year ended December
31, 2001 represents the costs related to the March 1, 2001 redemption of the Massachusetts Port Authority special project revenue bonds relating to the Harborside Hyatt Conference Center & Hotel. There were no similar costs incurred during the
year ended December 31, 2002.



Income taxes



For 2002, the REIT incurred state and local income tax expense of $0.1
million. LHLs net loss before income tax benefit increased by approximately $3.9 million from $3.6 million in 2001 to $7.5 million in 2002. Accordingly, for 2002 LHL recorded a federal income tax benefit of approximately $2.3 million (using an
estimated tax rate of 30.8%) and a state and local tax benefit of approximately $0.8 million (using an estimated tax rate of 10.7%). The portion of LHLs income tax benefit relating to the New Orleans property and the Key West property has been
reclassified to discontinued operations. The following table summarizes the change in income tax benefit (dollars in thousands):



|                                                                                  |  |                                |        |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------ | -
|                                                                                  |  | For the year endedDecember 31, |       
|                                                                                  |  | 2002                           |        |   | 2001 |  
|REIT state and local tax expense                                                  |  | $                              | 86     |   |      | $ |       |  
|LHL federal, state and local tax benefit                                          |  |                                | (3,096 | ) |      |   | (1,118 | )
|LHL state and local tax benefit                                                   |  |                                | (7     | ) |      |   | (389   | )
|                                                                                  |  |                                |        |   |      |   |        |  
|Total tax benefit                                                                 |  |                                | (3,017 | ) |      |   | (1,507 | )
|                                                                                  |  |                                |        |   |      |   |        |  
|Less: LHL federal, state and local tax benefit related to discontinued operations |  |                                | 321    |   |      |   |       |  
|                                                                                  |  |                                |        |   |      |   |        |  
|Total continuing operations tax benefit                                           |  | $                              | (2,696 | ) |      | $ | (1,507 | )
|                                                                                  |  |                                |        |   |      |   |        |  



27



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##### Table of Contents

Minority interest



Minority interest in the operating partnership represents the limited partners proportionate share of the equity in the operating partnership.
Income is allocated to minority interest based on the weighted average percentage ownership throughout the year. At December 31, 2002, the aggregate partnership interest held by the limited partners in the operating partnership was approximately
2.28%. Although net income before minority interest increased, minority interest allocation related to continuing operations decreased slightly from 2001 to 2002. The following table summarizes the change in minority interest (dollars in thousands):



|                                                                            |  |                                |       |   |      |   |       |  
|--------------------------------------------------------------------------- |  | ------------------------------ | ----- | - | ---- | - | ----- | -
|                                                                            |  | For the year endedDecember 31, |      
|                                                                            |  | 2002                           |       |   | 2001 |  
|Net income before minority interest                                         |  | $                              | 4,575 |   |      | $ | 3,938 |  
|Weighted average minority interest percentage at December 31                |  |                                | 2.281 | % |      |   | 2.611 | %
|Minority interest allocation                                                |  |                                | 104   |   |      |   | 103   |  
|Less: minority interest income (expense) related to discontinued operations |  |                                | (32   | ) |      |   | (22   | )
|                                                                            |  |                                |       |   |      |   |       |  
|Total allocation of minority interest to continuing operations              |  | $                              | 72    |   |      | $ | 81    |  
|                                                                            |  |                                |       |   |      |   |       |  



Discontinued operations



Net income from discontinued operations is a result of
the New Orleans property and the Holiday Inn Beachside Resort property being held for sale, resulting in an increase of approximately $0.5 million from $0.8 million to $1.3 million. The following table summarizes net income/(loss) from discontinued
operations from 2002 and 2001 (dollars in thousands):



|                                                             |  |                                 |       |   |      |   |     |  
|------------------------------------------------------------ |  | ------------------------------- | ----- | - | ---- | - | --- | -
|                                                             |  | For the year ended December 31, |      
|                                                             |  | 2002                            |       |   | 2001 |  
|Net lease income from New Orleans property                   |  | $                               | 2,102 |   |      | $ | 776 |  
|Net operating income from New Orleans property               |  |                                 | (173  | ) |      |   |    |  
|Income tax benefit related to New Orleans property           |  |                                 | 72    |   |      |   |    |  
|Minority interest allocation related to New Orleans property |  |                                 | (46   | ) |      |   | (20 | )
|Net lease income (loss) from Key West property               |  |                                 | (269  | ) |      |   | 86  |  
|Net operating income from Key West property                  |  |                                 | (600  | ) |      |   |    |  
|Income tax benefit related to Key West property              |  |                                 | 249   |   |      |   |    |  
|Minority interest allocation related to Key West property    |  |                                 | 14    |   |      |   | (2  | )
|                                                             |  |                                 |       |   |      |   |     |  
|Net income from discontinued operations                      |  | $                               | 1,349 |   |      | $ | 840 |  
|                                                             |  |                                 |       |   |      |   |     |  



Distributions to preferred
shareholders



Distributions to preferred shareholders
increased $8.4 million from zero. Preferred shares were issued in March 2002, therefore there were no distributions to preferred shareholders prior to the payment of the first preferred share dividend in April 2002.



Funds From Operations and EBITDA



The Company considers the non-GAAP measures of funds from operations
(FFO) and earnings before interest, taxes, depreciation and amortization (EBITDA) to be key measures of the Companys performance and should be considered along with, but not as alternatives to, net income and cash flow
as a measure of the Companys operating performance and liquidity.



The Company believes that FFO and EBITDA are helpful to investors as a measure of the performance of an equity REIT because, along with cash flow from operating activities, financing activities and investing activities, they provide
investors with an indication of the ability of an equity REIT to incur and service debt, to make capital expenditures and to fund other cash needs. The White Paper on FFO approved by NAREIT in April 2002 defined FFO as net income or loss (computed
in accordance with GAAP), excluding gains or losses from



28



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##### Table of Contents

debt restructuring, sales of properties and items classified by GAAP as extraordinary, plus real estate-related depreciation and amortization (excluding
amortization of deferred finance costs) and after comparable adjustments for the Companys portion of these items related to unconsolidated entities and joint ventures. The Company computes FFO in accordance with standards established by
NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than the Company. FFO and EBITDA do not
represent cash generated from operating activities determined by GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Companys financial performance or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of the Companys liquidity, nor are they indicative of funds available to fund the Companys cash needs, including its ability to make cash distributions. FFO and
EBITDA may include funds that may not be available for managements discretionary use due to functional requirements to conserve funds for capital expenditures, property acquisitions, and other commitments and uncertainties.



The following is a reconciliation between net income applicable to common
shareholders and FFO for the years ended December 31, 2003, 2002 and 2001 (dollars in thousands, except share data):



|                                                               |  |                                 |            |   |      |   |            |      |  |   |           
|-------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------
|                                                               |  | For the year ended December 31,
|                                                               |  | 2003                            |            |   | 2002 |   |            | 2001
|Funds From Operations (FFO):                                   |  |                                 |            |   |      |   |            |      |  |   |           
|Net income (loss) applicable to common shareholders            |  | $                               | 28,036     |   |      | $ | (3,939     | )    |  | $ | 3,835     
|Depreciation                                                   |  |                                 | 33,582     |   |      |   | 33,425     |      |  |   | 31,354    
|Equity in depreciation of joint venture                        |  |                                 | 1,019      |   |      |   | 974        |      |  |   | 938       
|Amortization of deferred lease costs                           |  |                                 | 50         |   |      |   | 71         |      |  |   | 38        
|Minority interest:                                             |  |                                 |            |   |      |   |            |      |  |   |           
|Minority interest in LaSalle Hotel OperatingPartnership, L.P.  |  |                                 | 63         |   |      |   | 72         |      |  |   | 81        
|Minority interest in discontinued operations                   |  |                                 | 756        |   |      |   | 32         |      |  |   | 22        
|Net gain on sale of properties disposed of                     |  |                                 | (36,662    | ) |      |   |           |      |  |   |          
|Equity in extraordinary loss of joint venture                  |  |                                 |           |   |      |   | 150        |      |  |   |          
|                                                               |  |                                 |            |   |      |   |            |      |  |   |           
|FFO                                                            |  | $                               | 26,844     |   |      | $ | 30,785     |      |  | $ | 36,268    
|                                                               |  |                                 |            |   |      |   |            |      |  |   |           
|Weighted average number of common sharesand units outstanding: |  |                                 |            |   |      |   |            |      |  |   |           
|Basic                                                          |  |                                 | 20,455,409 |   |      |   | 18,849,792 |      |  |   | 18,814,381
|Diluted                                                        |  |                                 | 20,912,092 |   |      |   | 19,279,719 |      |  |   | 18,945,533



The following is a
reconciliation between net income applicable to common shareholders and EBITDA for the years ended December 31, 2003, 2002 and 2001 (dollars in thousands):



|                                                                        |  |                                 |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                        |  | For the year ended December 31, |       
|                                                                        |  | 2003                            |        |   | 2002 |   |        | 2001 | 
|Earnings Before Interest, Taxes,Depreciation and Amortization (EBITDA): |  |                                 |        |   |      |   |        |      |  |   |        |  
|Net income (loss) applicable to common shareholders                     |  | $                               | 28,036 |   |      | $ | (3,939 | )    |  | $ | 3,835  |  
|Interest                                                                |  |                                 | 14,331 |   |      |   | 15,333 |      |  |   | 21,005 |  
|Equity in interest expense of joint venture                             |  |                                 | 590    |   |      |   | 579    |      |  |   | 825    |  
|Income tax benefit:                                                     |  |                                 |        |   |      |   |        |      |  |   |        |  
|Income tax benefit                                                      |  |                                 | (5,482 | ) |      |   | (2,696 | )    |  |   | (1,507 | )
|Income tax benefit from discontinued operations                         |  |                                 | (160   | ) |      |   | (321   | )    |  |   |       |  
|Depreciation and other amortization                                     |  |                                 | 33,702 |   |      |   | 33,531 |      |  |   | 31,429 |  
|Equity in depreciation/amortization of joint venture                    |  |                                 | 1,130  |   |      |   | 1,062  |      |  |   | 998    |  
|Amortization of deferred financing costs                                |  |                                 | 3,511  |   |      |   | 2,398  |      |  |   | 1,992  |  
|Minority interest:                                                      |  |                                 |        |   |      |   |        |      |  |   |        |  
|Minority interest in LaSalle Hotel Operating Partnership, L.P.          |  |                                 | 63     |   |      |   | 72     |      |  |   | 81     |  
|Minority interest in discontinued operations                            |  |                                 | 756    |   |      |   | 32     |      |  |   | 22     |  
|Distributions to preferred shareholders                                 |  |                                 | 10,805 |   |      |   | 8,410  |      |  |   |       |  
|                                                                        |  |                                 |        |   |      |   |        |      |  |   |        |  
|EBITDA                                                                  |  | $                               | 87,282 |   |      | $ | 54,461 |      |  | $ | 58,680 |  
|                                                                        |  |                                 |        |   |      |   |        |      |  |   |        |  



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The Hotels



The following table sets forth historical comparative information with respect to occupancy, average daily rate (ADR) and room revenue per
available room (RevPAR) for the total hotel portfolio for the years ended December 31, 2003 and 2002, respectively.



|                |  |                         |        |   |      |   |        |          |  |      |   
|--------------- |  | ----------------------- | ------ | - | ---- | - | ------ | -------- |  | ---- | --
|                |  | Year ended December 31, |       
|                |  | 2003                    |        |   | 2002 |   |        | Variance | 
|Total Portfolio |  |                         |        |   |      |   |        |          |  |      |   
|Occupancy       |  |                         | 64.7   | % |      |   | 63.0   | %        |  | 2.6  | % 
|ADR             |  | $                       | 142.97 |   |      | $ | 147.56 |          |  | (3.1 | )%
|RevPAR          |  | $                       | 92.45  |   |      | $ | 92.99  |          |  | (0.6 | )%



Off-Balance Sheet Arrangements



The Company is a party to a joint venture arrangement
with The Carlyle Group, an institutional investor, that owns the 1,192-room Chicago Marriott Downtown in Chicago, Illinois. The Company owns a non-controlling 9.9% equity interest in the joint venture that owns the Chicago Marriott Downtown. The
Company receives an annual preferred return in addition to its pro rata share of annual cash flow. The Company also has the opportunity to earn an incentive participation in net sale proceeds based upon the achievement of certain overall investment
returns, in addition to its pro rata share of net sale or refinancing proceeds. The Chicago Marriott Downtown is leased to Chicago 540 Lessee, Inc., in which the Company also owns a non-controlling 9.9% equity interest. The Carlyle Group owns a
90.1% controlling interest in both the joint venture that owns the Chicago Marriott Downtown and Chicago 540 Lessee, Inc. Marriott International, Inc. operates the Chicago Marriott Downtown pursuant to a long-term incentive-based operating
agreement. As the controlling owner, The Carlyle Group may elect to dispose of the Chicago Marriott Downtown without the Companys consent. The Company accounts for its non-controlling 9.9% equity interest in each of the joint venture that owns
the Chicago Marriott Downtown and Chicago 540 Lessee, Inc. under the equity method of accounting.



The joint venture that owns the Chicago Marriott Downtown and in which the Company holds a non-controlling 9.9% ownership interest is subject to two
mortgage loans for an aggregate amount of $120.0 million. The mortgage loans have two-year terms, expire in July 2004, and can be extended at the option of the joint venture for three additional one-year terms. The mortgages bear interest at the
greater of (i) the London InterBank Offered Rate plus 2.4% or (ii) 4.9%. The joint venture has purchased a cap on the London InterBank Offered Rate capping the London InterBank Offered Rate at 8.1%, effectively limiting the rate on the mortgages to
10.5%. As of December 31, 2003, the interest rate was 4.9%. Monthly interest-only payments are due in arrears throughout the term. The Chicago Marriott Downtown secures these mortgages. The Companys pro rata share of the loans in aggregate is
approximately $11.9 million and is included in the Companys liquidity and capital resources discussion and in calculating debt coverage ratios under the Companys credit facility. No guarantee exists on behalf of the Company for these
mortgages.



Currently, the joint venture is in discussions with
its current lender to refinance the mortgages with new two-year loans that would expire in 2006 and include three one-year extension options. If the new loan is not consummated, the joint venture would evaluate alternative financing or exercise its
extension options.



The Company has no other off-balance sheet
arrangements.



Liquidity and Capital Resources



The Companys principal source of cash to meet its cash requirements,
including distributions to shareholders, is its pro rata share of hotel operating cash flow distributed by LHL and the operating partnerships cash flow from the participating leases. The partnership agreement for the operating partnership
provides that distributions of available cash shall be distributed at least quarterly. Available cash is generally defined as net



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income plus any reduction in reserves and minus interest and principal payments on debt, capital expenditures, and additions to reserves and other
adjustments. There are currently no contractual or other arrangements limiting payment of distributions by the operating partnership. Similarly, LHL is a wholly owned subsidiary of the operating partnership. Payments to the operating partnership are
required to be paid pursuant to the terms of the lease agreements between LHL and the operating partnership relating to the properties owned by the operating partnership and leased by LHL. Except for the security deposits required under the
participating leases for the two hotels not leased by LHL, the lessees obligations under the participating leases are unsecured and the lessees abilities to make rent payments to the operating partnership, and the Companys
liquidity, including its ability to make distributions to shareholders, is dependent on the lessees abilities to generate sufficient cash flow from the operations of the hotels.



In addition, cash flow from hotel operations is subject to all operating risks common to the hotel industry. These risks
include:



| |  |  | competition for guests and meetings from other hotels, including as a result of competition from internet wholesalers and distributors;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increases in operating costs including wages, benefits, insurance, property taxes and energy due to inflation and other factors, which may not be offset in the future by increases
in room rates;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | dependence on demand from business and leisure travelers, including substantial weakness in business travel, which may fluctuate and be seasonal;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increases in energy costs, airline fares, and other expenses related to travel, which may deter traveling;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | military involvement in Iraq and its likely continued negative impact on travel and the economy; and
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | terrorism and actions taken against terrorists which may cause additional decreases in business and leisure travel.
| | - |  | -------------------------------------------------------------------------------------------------------------------



These factors could adversely affect the ability of the hotel operators to
generate revenues and therefore adversely affect the lessees of the Companys hotels and their ability to make rental payments to the Company pursuant to the participating leases and therefore impact the Companys liquidity.



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The following is a summary of the Company's obligations and commitments as of December 31, 2003 (dollars
in thousands):



|                                                                                                                                 |  |                       |         |                                            |   |             |  |             |         |             |   |        |  |   |        
|-------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | ------- | ------------------------------------------ | - | ----------- |  | ----------- | ------- | ----------- | - | ------ |  | - | -------
|                                                                                                                                 |  |                       |         | Amount of Commitment Expiration Per Period
|                                                                                                                                 |  | TotalAmountsCommitted |         | Less than1 year                            |   | 1 to 3years |  | 4 to 5years |         | Over 5years
|Contractual Obligations                                                                                                          |  |                       |         |                                            |   |             |  |             |         |             |   |        |  |   |        
|Mortgage loansGE Capital Corporation                                                                                            |  |                       |         |                                            |   |             |  |             |         |             |   |        |  |   |        
|Le Montrose Suite Hotel                                                                                                          |  |                       | 14,231  |                                            |   | 182         |  |             | 657     |             |   | 533    |  |   | 12,859 
|Radisson Convention Hotel and Westin City Center Dallas                                                                          |  |                       | 43,515  |                                            |   | 850         |  |             | 3,004   |             |   | 2,447  |  |   | 37,214 
|Lansdowne Resort (excluding premium amortization)                                                                                |  |                       | 62,396  |                                            |   | 950         |  |             | 61,446  |             |   |       |  |   |       
|San Diego Paradise Point Resort                                                                                                  |  |                       | 65,000  |                                            |   | 1,134       |  |             | 4,137   |             |   | 59,729 |  |   |       
|Ground rent                                                                                                                      |  |                       |         |                                            |   |             |  |             |         |             |   |        |  |   |        
|Harborside Hyatt Conference Center & Hotel                                                                                       |  |                       | 11,135  |                                            |   | 525         |  |             | 1,541   |             |   | 1,028  |  |   | 8,041  
|Radisson Convention Hotel                                                                                                        |  |                       | 186     |                                            |   | 100         |  |             | 86      |             |   |       |  |   |       
|San Diego Paradise Point Resort                                                                                                  |  |                       | 88,904  |                                            |   | 1,957       |  |             | 5,873   |             |   | 3,915  |  |   | 77,159 
|Bonds payable                                                                                                                    |  |                       |         |                                            |   |             |  |             |         |             |   |        |  |   |        
|Massport taxable bonds                                                                                                           |  |                       | 5,400   |                                            |   |            |  |             | 5,400   |             |   |       |  |   |       
|Massport tax-exempt bonds                                                                                                        |  |                       | 37,100  |                                            |   |            |  |             | 37,100  |             |   |       |  |   |       
|                                                                                                                                 |  |                       |         |                                            |   |             |  |             |         |             |   |        |  |   |        
|Total contractual obligations                                                                                                    |  | $                     | 327,867 |                                            | $ | 5,698       |  | $           | 119,244 |             | $ | 67,652 |  | $ | 135,273
|Commercial Commitments                                                                                                           |  |                       |         |                                            |   |             |  |             |         |             |   |        |  |   |        
|Borrowings under credit facilities                                                                                               |  |                       |        |                                            |   |            |  |             |        |             |   |       |  |   |       
|                                                                                                                                 |  |                       |         |                                            |   |             |  |             |         |             |   |        |  |   |        
|Dividends on Preferred Shares                                                                                                    |  |                       |         |                                            |   |             |  |             |         |             |   |        |  |   |        
|Dividends payable on preferred shares                                                                                            |  |                       | 46,610  |                                            |   | 12,532      |  |             | 31,775  |             |   | 2,303  |  |   |       
|                                                                                                                                 |  |                       |         |                                            |   |             |  |             |         |             |   |        |  |   |        
|Total contractual obligations, commercial commitments and dividends on preferred shares excluding off-balance sheet
arrangements |  | $                     | 374,477 |                                            | $ | 18,230      |  | $           | 151,019 |             | $ | 69,955 |  | $ | 135,273
|                                                                                                                                 |  |                       |         |                                            |   |             |  |             |         |             |   |        |  |   |        
|Off-Balance Sheet Obligation                                                                                                     |  |                       |         |                                            |   |             |  |             |         |             |   |        |  |   |        
|Mortgage loansCIGNA Chicago Hotel Venture                                                                                       |  |                       | 11,880  |                                            |   | 11,880      |  |             |        |             |   |       |  |   |       
|                                                                                                                                 |  |                       |         |                                            |   |             |  |             |         |             |   |        |  |   |        
|Total obligations and commitments                                                                                                |  | $                     | 386,357 |                                            | $ | 30,110      |  | $           | 151,019 |             | $ | 69,955 |  | $ | 135,273
|                                                                                                                                 |  |                       |         |                                            |   |             |  |             |         |             |   |        |  |   |        



The Company had a
senior unsecured bank facility from a syndicate of banks, which provided for a maximum borrowing of up to $210.0 million and was due to mature on December 31, 2003. On November 20, 2003, the Company executed a new senior unsecured bank facility from
a syndicate of banks, which provides for a maximum borrowing of up to $215.0 million. The new unsecured bank facility matures on December 31, 2006 and has a one-year extension option. Funding for the new senior unsecured bank facility occurred on
December 15, 2003, at which time it replaced the Companys prior senior unsecured bank facility. The senior unsecured bank facility contains certain financial covenants relating to debt service coverage, net worth and total funded indebtedness
and contains financial covenants that, assuming no continuing defaults, allow the Company to make shareholder distributions which, when combined with the distributions to shareholders in the three immediately preceding fiscal quarters, do not exceed
the greater of (i) funds from operations from the preceding four-quarter rolling period or (ii) the greater of (a) the amount of distributions required for the Company to maintain its status as a REIT or (b) the amount required to ensure the Company
will avoid imposition of an excise tax for failure to make certain minimum distributions on a calendar year basis. Borrowings under the new senior unsecured bank facility bear interest at floating rates equal to, at the Companys option, either
(i) London InterBank Offered Rate plus an applicable margin, or (ii) an Adjusted Base Rate plus an applicable margin. For the year ended December 31, 2003 and 2002, the weighted average interest rate for borrowings under the senior



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unsecured bank facility was approximately 3.8% and 4.3%, respectively. The Company did not have any Adjusted Base Rate borrowings outstanding at December 31,
2003. Additionally, the Company is required to pay a variable unused commitment fee determined from a ratings or leverage based pricing matrix, currently set at 0.250% of the unused portion of the senior unsecured bank facility. The Company incurred
an unused commitment fee of approximately $0.5 million and $0.4 million for the years ended December 31, 2003 and 2002, respectively. At December 31, 2003, the Company had no outstanding borrowings against the senior unsecured bank facility.



In conjunction with the June 1998 acquisition of the
Harborside Hyatt Conference Center & Hotel, the Company assumed $40.0 million of Massachusetts Port Authority special project revenue bonds previously issued under a loan and trust agreement with Massachusetts Port Authority, as amended. On
March 1, 2001, the Company redeemed the $40.0 million aggregate principal amount of tax-exempt Massachusetts Port Authority special project revenue bonds. Proceeds for the redemption were derived from $37.1 million of newly issued tax-exempt and
$5.4 million of newly issued taxable bonds, each having a 17-year maturity. The new bonds were issued by Massachusetts Port Authority and bear interest based on a weekly floating rate, and have no principal payments until maturity. A call premium of
$0.8 million and an interest expense of $0.4 million associated with the escrows, which was later offset by a $0.3 million reimbursement of interest expense were incurred. Interest expense for the years ended December 31, 2003 and 2002 was $0.5
million and $0.6 million, respectively. Due to the nature of these bonds, they can be redeemed at any time without penalty. The bonds were secured by letters of credit issued by GE Capital Corporation that were due to expire on March 1, 2004. On
October 7, 2003, the Company extended the letters of credit issued by GE Capital Corporation securing the MassPort Bonds. The extended letters of credit expire in February 2007 and are collateralized by the Harborside Hyatt Conference Center &
Hotel and a $6.0 million letter of credit from the Company. If GE Capital Corporation fails to renew its letters of credit at that time and an acceptable replacement provider cannot be found, the Company may be required to pay-off the bonds. At
December 31, 2003, the Company had outstanding bonds payable of $42.5 million.



The Company, through a wholly owned partnership, is subject to a ten-year mortgage loan that is secured by the Radisson Convention Hotel, located in Bloomington, Minnesota and the Westin City Center Dallas, located in
Dallas, Texas. The mortgage loan matures on July 31, 2009 and does not allow for prepayment prior to maturity without penalty. The mortgage loan bears interest at a fixed rate of 8.1% and requires interest and principal payments based on a 25-year
amortization schedule. The loan agreement requires the partnership to hold funds in escrow sufficient for the payment of 50% of the annual insurance premiums and real estate taxes related to the two hotels that secure the loan. Interest expense for
both the year ended December 31, 2003 and 2002 was $3.6 million. The mortgage loan had a principal balance of $43.5 million and $44.3 million at December 31, 2003 and 2002, respectively.



The Company, through a wholly owned partnership, is subject to a ten-year mortgage loan that is secured by the Le Montrose
Suite Hotel located in West Hollywood, California. The Company had two additional mortgage loans collateralized by the New Orleans Grande Hotel and the Holiday Inn Beachside Resort, located in Key West, Florida. These hotels were sold on April 21,
2003 and July 25, 2003, respectively, and the purchasers assumed the respective principal balances of $46.7 million and $11.4 million at the time of sale (see Note 4 to the Companys consolidated financial statements). The remaining loan is
subject to a fixed interest rate of 8.08%, matures on July 31, 2010, and requires interest and principal payments based on a 27-year amortization schedule. The mortgage loan agreement requires the partnership to hold funds in escrow sufficient for
the payment of 50% of the annual insurance premium and real estate taxes on the Le Montrose Suite Hotel. Interest expense for both the year ended December 31, 2003 and 2002 (excluding interest amounts related to the New Orleans Grande Hotel and the
Holiday Inn Beachside Resort) was $1.2 million. The principal balance of this mortgage loan was $14.2 million and $14.4 million at December 31, 2003 and 2002, respectively.



The Company is subject to a five-year mortgage loan that is secured by the Lansdowne Resort located in Lansdowne, Virginia.
The Company assumed the mortgage upon purchase of the property on June 17, 2003. In



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conjunction with the assumption of the mortgage, the Company recorded a premium of $2.4 million, which is being amortized over the remaining life of the
mortgage loan. The loan bears interest at a floating rate of the London InterBank Offered Rate plus 4.5%, matures on January 28, 2007, and requires interest and principal payments based on a 25-year amortization schedule. The loan has a London
InterBank Offered Rate floor of 3.0% and permits prepayment beginning on February 11, 2004. On February 11, 2004, the Company paid in full the $62.3 million balance of the mortgage loan that had been secured by the Lansdowne Resort (see Note 22 to
the accompanying consolidated financial statements). As of December 31, 2003, the interest rate was 7.5%. Also in conjunction with the assumption of the mortgage loan, the seller transferred to the Company a $5.0 million debt service reserve escrow,
which is included in restricted cash. If the mortgage loan is prepaid, the seller is entitled to the remaining value of the debt service reserve (after prepayment penalty) in the form of cash or common shares of beneficial interest, as defined. The
mortgage loan agreement requires the Company to hold funds in escrow sufficient for the payment of 50% of the annual insurance premiums and real estate taxes on the Lansdowne Resort in addition to reserves for various property improvements and sales
tax. Interest expense, net of premium amortization, for the years ended December 31, 2003 and 2002 was $2.2 million and zero, respectively. The principal balance of the mortgage loan at December 31, 2003, including the unamortized premium of $2.0
million was $64.4 million.



On December 12, 2003, the Company,
through the LHO San Diego Financing, L.L.C., entered into a five-year mortgage loan totaling $65.0 million that is secured by the San Diego Paradise Point Resort. The mortgage loan matures on February 9, 2009 and does not allow for prepayment prior
to maturity without penalty. The mortgage loan bears interest at a fixed rate of 5.25% and requires interest and principal payments based on a 25-year amortization schedule. The loan agreement requires the Company to hold funds in escrow sufficient
for the payment of 50% of the annual insurance premiums and real estate taxes related to the hotel that secures the loan. Interest expense for the years ended December 31, 2003 and 2002 was $0.2 million and zero, respectively. The mortgage loan had
a principal balance of $65.0 million at December 31, 2003.



Effective January 1, 2001, the Company purchased all of the issued and outstanding shares of capital stock of LHL for $0.5 million (which included an aggregate of $455 in payments to Jones Lang LaSalle Incorporated and LPI Charities for the
shares then held by them) in accordance with a Stock Purchase Agreement dated July 28, 2000. Effective January 1, 2001, LHL became a wholly owned subsidiary of the Company as provided for under the taxable-REIT subsidiary provisions of the
Code. The cost associated with the transaction was expensed during the first quarter of 2001 and was classified as an operating expense in the accompanying consolidated financial statements. LHL currently leases the following 14 hotels owned by the
Company:



| |  |  | Marriott Seaview Resort
| | - |  | -----------------------



| |  |  | LaGuardia Airport Marriott
| | - |  | --------------------------



| |  |  | Omaha Marriott Hotel
| | - |  | --------------------



| |  |  | Harborside Hyatt Conference Center & Hotel
| | - |  | ------------------------------------------



| |  |  | Hotel Viking
| | - |  | ------------



| |  |  | Topaz Hotel
| | - |  | -----------



| |  |  | Hotel Rouge
| | - |  | -----------



| |  |  | Hotel Madera
| | - |  | ------------



| |  |  | Hotel Helix
| | - |  | -----------



| |  |  | Holiday Inn on the Hill
| | - |  | -----------------------



| |  |  | Radisson Convention Hotel
| | - |  | -------------------------



| |  |  | Lansdowne Resort
| | - |  | ----------------



| |  |  | Westin City Center Dallas
| | - |  | -------------------------



| |  |  | Hotel George
| | - |  | ------------



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On January 3, 2001, LHL obtained a three-year commitment for a $5.0 million senior unsecured revolving
bank facility to be used for working capital and general corporate purposes. On September 1, 2002, LHL amended its unsecured revolving credit facility agreement to allow for maximum borrowings of $7.5 million. Effective January 1, 2003, LHL again
amended its unsecured revolving credit facility agreement to allow for maximum borrowings of $10.0 million. This LHL credit facility matured on December 31, 2003. Effective January 1, 2004, LHL renewed its credit facility for $13.0 million for three
additional years. The new LHL credit facility matures December 31, 2006. Borrowings under the LHL credit facility bear interest at floating rates equal to, at LHLs option, either (i) London InterBank Offered Rate plus an applicable margin, or
(ii) an Adjusted Base Rate plus an applicable margin. The weighted average interest rate under the facility for the years ended December 31, 2003 and 2002 was 3.5% and 4.2%, respectively. LHL is required to pay an unused commitment fee
which is variable, determined from a ratings-based pricing matrix, and currently set at 0.250% of the unused portion of the LHL credit facility. LHL incurred an immaterial commitment fee for each of the years ended December 31, 2003 and 2002. At
December 31, 2003, the Company had no outstanding borrowings against the LHL credit facility.



In March 2002, the Company completed an underwritten public offering of 3,991,900 101⁄4% Series A Cumulative Redeemable Preferred Shares, par value $0.01 per share (Liquidation Preference $25 per share) (the
2002 Equity Offering). After deducting underwriting discounts and commissions and other offering costs, the Company raised net proceeds of approximately $96.1 million. The net proceeds were used to repay then existing indebtedness under
the Companys senior unsecured bank facility and to fund the redevelopment of the D.C. Collection throughout the year.



In June 2003, the Company completed an underwritten public offering of 2,041,000 common shares of beneficial interest, par value $0.01 per share. After
deducting underwriting discounts and commissions and other offering costs, the Company raised net proceeds of approximately $29.1 million. The net proceeds were used to repay existing indebtedness under the Companys senior unsecured bank
facility. On July 1, 2003, the Company issued an additional 204,000 common shares pursuant to an over allotment option for approximately $2.9 million after deducting underwriting discounts and commissions.



In September 2003, the Company completed an underwritten public offering of
1,000,000 shares of 83/8% Series B Cumulative Redeemable Preferred Shares, par value $0.01 per share
(Liquidation Preference $25 per share). After deducting underwriting discounts and commission, the Company raised net proceeds of approximately $24.4 million. The net proceeds were used to repay existing indebtedness under the Companys senior
unsecured bank facility. On October 1, 2003, the Company issued an additional 100,000 Series B Preferred Shares pursuant to an over allotment option for approximately $2.4 million after deducting underwriting discounts and commissions.



In November 2003, the Company completed an underwritten
public offering of 3,000,000 common shares of beneficial interest, par value $0.01 per share. After deducting underwriting discounts and commissions and other offering costs, the Company raised net proceeds of approximately $50.0 million. The net
proceeds were used to repay existing indebtedness under the Companys senior unsecured bank facility.



At December 31, 2003, the Company had approximately $34.8 million of cash and cash equivalents and approximately $22.0 million of restricted cash
reserves.



Net cash provided by operating activities was
approximately $41.2 million for the year ended December 31, 2003 primarily due to the distribution of available hotel operating cash by LHL and participating lease revenues, which were offset by payments for real estate taxes, personal property
taxes, insurance and ground rent.



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Net cash used in investing activities was approximately $52.7 million for the year ended December 31,
2003 primarily due to outflows for improvements and additions at the hotels, the funding of restricted cash reserves and the funding of notes receivable, offset by proceeds from restricted cash reserves and distributions from the joint venture.



Net cash provided by financing activities was approximately
$39.8 million for the year ended December 31, 2003, comprised of borrowings under the senior unsecured bank facility and proceeds from the two issuances of common shares of beneficial interest and the issuance of Series B Preferred Shares, offset by
repayments of borrowings under the senior unsecured bank facility, payment of the fourth quarter 2002 and January through November 2003 distributions to the common shareholders and unitholders and payments of the fourth quarter 2002 and first,
second and third quarter 2003 distributions to preferred shareholders and mortgage loan repayments.



The Company has considered its short-term (one year or less) liquidity needs and the adequacy of its estimated cash flow from operations and other
expected liquidity sources to meet these needs. The Company believes that its principal short-term liquidity needs are to fund normal recurring expenses, debt service requirements, distributions on the preferred shares and the minimum distribution
required to maintain the Companys REIT qualification under the Code. The Company anticipates that these needs will be met with cash flows provided by operating activities and using availability under the senior unsecured bank facility. The
Company also considers capital improvements and property acquisitions as short-term needs that will be funded either with cash flows provided by operating activities, utilizing availability under the senior unsecured bank facility, the issuance of
other indebtedness, or the issuance of additional equity securities.



The Company expects to meet long-term (greater than one year) liquidity requirements such as property acquisitions, scheduled debt maturities, major renovations, expansions and other nonrecurring capital improvements utilizing availability
under the senior unsecured bank facility, estimated cash flows from operations, the issuance of long-term unsecured and secured indebtedness and the issuance of additional equity securities. The Company expects to acquire or develop additional hotel
properties only as suitable opportunities arise, and the Company will not undertake acquisition or development of properties unless stringent acquisition/development criteria have been achieved.



Reserve Funds



The Company is obligated to maintain reserve funds for capital expenditures at the hotels (including the periodic
replacement or refurbishment of furniture, fixtures and equipment) as determined pursuant to the participating leases. The Companys aggregate obligation under the reserve funds was approximately $15.1 million at December 31, 2003. Four of the
participating leases and one mortgage agreement require that the Company reserve restricted cash ranging from 4.0% to 5.5% of the individual hotels annual revenues. As of December 31, 2003, $6.0 million was available in restricted cash
reserves for future capital expenditures. Eleven of the participating leases require that the Company reserve funds of 4.0% of the individual hotels annual revenues but do not require the funds to be set aside in restricted cash. As of
December 31, 2003, the total amount obligated for future capital expenditures but not set aside in restricted cash reserves was $9.1 million. Amounts will be capitalized as incurred. As of December 31, 2003, purchase orders and letters of commitment
totaling approximately $12.0 million have been issued for renovations at the hotels. The Company has committed to these projects and anticipates making similar arrangements with the existing hotels or any future hotels that it may acquire. Any
unexpended amounts will remain the property of the Company upon termination of the participating leases.



The joint venture lease requires that the joint venture reserve restricted cash of 5.0% of the Chicago Marriott Downtowns annual revenues; however,
the joint venture is not consolidated in the Companys financial statements and, therefore, the amount of restricted cash reserves relating to the joint venture is not recorded on the Companys books and records.



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Subsequent Events



Effective January 16, 2004, the Company entered into an exclusive listing agreement for the sale of its Omaha property. The asset was classified as held
for sale at that time because the property is being actively marketed and sale is expected to occur within one year; accordingly depreciation was suspended. Based on initial pricing expectations the Company expects to recognize a gain on the sale,
therefore no impairment was recognized.



On February 10, 2004,
the Company acquired a 100% interest in the Indianapolis Marriott Downtown, a 615-room, full service hotel located in downtown Indianapolis, Indiana, for $106.0 million. The source of the funding for the acquisition was the Companys senior
unsecured bank facility, however, the Company anticipates entering into a secured debt agreement in the near future. The property was leased to LHL, and White Lodging Services Corporation was retained to manage the property.



On February 10, 2004, the Company announced that its 565-room convention
hotel in Bloomington, Minnesota would be re-flagged as the Sheraton Minneapolis Hotel. Starwood Hotels and Resorts Worldwide, Inc. has been selected to manage the property as a Sheraton, Starwoods upscale brand, when the conversion takes place
in March 2004.



On February 11, 2004, the Company paid in full
the $62.3 million balance of the mortgage loan that had been secured by the Lansdowne Resort, which the Company had assumed upon purchase of the property on June 17, 2003. The mortgage loan permitted prepayment beginning on February 11, 2004. Upon
prepayment, the seller was entitled to the $5.0 million debt service reserve, less the $1.9 million prepayment penalty, that the seller had transferred to the Company in conjunction with the purchase of the Lansdowne Resort. On February 12,
2004, the Company paid the seller $3.1 million in cash representing the remaining value of the debt service reserve escrow. The Company recognized a gain on the debt extinguishment of $0.1 million.



Inflation



The Companys revenues come primarily from its pro rata share of the operating partnerships cash flow from the
participating leases and the LHL hotel operating revenues, thus the Companys revenues will vary based on changes in the underlying hotels revenues. Therefore, the Company relies entirely on the performance of the hotels and the
lessees abilities to increase revenues to keep pace with inflation. The hotel operators can change room rates quickly, but competitive pressures may limit the lessees and hotel operators abilities to raise rates faster than
inflation or even at the same rate, as has been the case for the period from the second quarter of 2001 through 2003.



The Companys expenses (primarily real estate taxes, property and casualty insurance, administrative expenses and LHL hotel operating expenses) are
subject to inflation. These expenses are expected to grow with the general rate of inflation, except for property and casualty insurance, liability insurance, property tax rates, employee benefits, and some wages, which are expected to increase at
rates higher than inflation, and except for instances in which the properties are subject to periodic real estate tax reassessments.



Recently Issued Accounting Pronouncements



On April 30, 2002, the Financial Accounting Standards Board issued Statement No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13, and Technical Corrections. The rescission of Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements, which amended Statement No. 4, affects income statement classification of gains and losses from extinguishment of debt. Statement No. 4 requires that gains and losses from extinguishment of debt be classified as an extraordinary
item, if material. Under



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Statement No. 145, extinguishment of debt is now considered a risk management strategy by the reporting enterprise and the Financial Accounting Standards
Board does not believe it should be considered extraordinary under the criteria in Accounting Principles Board Opinion No. 30, Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, unless the debt extinguishment meets the unusual in nature and infrequency of occurrence criteria in Accounting Principles Board Opinion No. 30. Statement No. 145
became effective for fiscal years beginning after May 15, 2002. Upon adoption on January 1, 2003, extinguishments of debt are classified under the criteria in Accounting Principles Board Opinion No. 30. Adoption did not have a material effect on the
Company.



In December 2002, the Financial Accounting Standards
Board issued Statement No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure  an amendment of FASB Statement No. 123. Statement No. 148 amends Financial Accounting Standards Board Statement No. 123,
Accounting for Stock-Based Compensation, providing alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement No. 123 to requiring prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported
results. In addition, to address concerns raised by some constituents about the lack of comparability caused by multiple transition methods, Statement No. 148 does not permit the use of the original Statement No. 123 prospective method of transition
for changes to the fair value based method made in fiscal years beginning after December 15, 2003. The Company adopted Statements No. 123 and No. 148 effective January 1, 2003. Adoption did not have a material effect on the Company.



In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, Consolidation of Variable Interest Entities, which addresses consolidation by business enterprises of variable interest entities. In general, a variable interest entity is a corporation, partnership, trust, or any
other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. A variable
interest entity often holds financial assets, including loans or receivables, real estate or other property. A variable interest entity may be essentially passive or it may engage in research and development or other activities on behalf of another
company. Until now, a company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. Interpretation No. 46 changes that by requiring a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entitys activities or entitled to receive a majority of the entitys residual returns or both. The consolidation
requirements of Interpretation No. 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities by the end of the reporting period beginning after December 15, 2003.
Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. Adoption is not expected to have a material effect on the Company.



In May, 2003, the Financial Accounting Standards Board issued Statement
No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. Statement No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective
at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities which are subject to the provisions of the statement for the first fiscal period beginning
after December 15, 2003. Statement No. 150 is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before May 15, 2003 and still existing at the beginning of the interim period
of adoption. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. The Company is evaluating the impact of adoption.





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##### Table of Contents

Derivative/Financial Instruments



In the normal course of business, the Company is exposed to the effects of interest rate changes. As of December 31, 2003,
approximately 48.8% (including the Companys $11.9 million pro rata portion of indebtedness relating to the Companys joint venture investment in the Chicago Marriott Downtown hotel) of the Companys borrowings were subject to
variable rates. The Company limits the risks associated with interest rate changes by following established risk management policies and procedures including the use of derivatives. For interest rate exposures, derivatives are used primarily to
align rate movements between interest rates associated with the Companys hotel operating revenue, participating lease revenue and other financial assets with interest rates on related debt, and manage the cost of borrowing obligations. The
Company may utilize derivative financial instruments to manage, or hedge, interest rate risk. The Company requires that hedging derivative instruments be effective in reducing the interest rate risk exposure that they are designated to hedge. This
effectiveness is essential in order to qualify for hedge accounting. Some derivative instruments are associated with the hedge of an anticipated transaction. In those cases, hedge effectiveness criteria also require that it be probable that the
underlying transaction will occur. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract. When the terms of an underlying transaction are modified, or when the underlying hedged
item ceases to exist, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income each period until the instrument matures.



The Company has a policy of only entering into contracts with major financial institutions based upon their credit ratings
and other factors. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, the Company has not sustained a material loss from those instruments nor does it anticipate any material adverse
effect on its net income or financial position in the future from the use of derivatives.



To manage interest rate risk, the Company may employ options, forwards, interest rate swaps, caps and floors or a combination thereof depending on the underlying exposure. The Company utilizes a variety of borrowings
including lines of credit and medium and long-term financings. To reduce overall interest cost, the Company uses interest rate instruments, typically interest rate swaps, to convert a portion of its variable rate debt to fixed rate debt. Interest
rate differentials that arise under these swap contracts are recognized in interest expense over the life of the contracts. The resulting cost of funds is usually lower than that which would have been available if debt with matching characteristics
was issued directly.



To determine the fair values of
derivative instruments, the Company uses a variety of methods and assumptions that are based on market conditions and risks existing as of each valuation date. For the majority of financial instruments including most derivatives, long-term
investments and long-term debt, standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost, and termination cost are used to determine fair value. All methods of assessing fair value
result in a general approximation of value, and such value may never actually be realized.



Item 7A.    Quantitative and Qualitative Disclosures About Market Risk



The Company is exposed to market risk from changes in interest rates. The Companys interest rate risk management objective is to limit the impact of
interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve these objectives, the Company borrows at a combination of fixed and variable rates. As of December 31, 2003, approximately $116.8 million of
aggregate indebtedness (48.8% of total indebtedness), including the Companys $11.9 million pro rata portion of indebtedness relating to the Companys joint venture investment in the Chicago Marriott Downtown hotel, was subject to variable
interest rates.



At December 31, 2003, the Company had no
outstanding borrowings under the senior unsecured bank facility. Borrowings under the senior unsecured bank facility bear interest at variable market rates. The weighted average interest rate under the facility for the years ended December 31, 2003
and 2002 was 3.8% and 4.3% respectively. A 0.25% annualized change in interest rates would have changed interest expense by approximately



39



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##### Table of Contents

$0.1 million for the year ended December 31, 2003. This change is based on the weighted average borrowings subject to variable rates under the senior
unsecured bank facility for the year ended December 31, 2003 of $58.4 million.



At December 31, 2003, the Company had no outstanding borrowings under the LHL credit facility. Borrowings under the LHL credit facility bear interest at variable market rates. The weighted average interest rate under
the facility for the years ended December 31, 2003 and 2002 was approximately 3.5% and 4.2%, respectively. A 0.25% annualized change in interest rates would have changed interest expense by an immaterial amount for the year ended December 31, 2003.
This change is based on the weighted average borrowings under the LHL credit facility for the year ended December 31, 2003 of $7.9 million.



At December 31, 2003, the Company had outstanding bonds payable of $42.5 million. The bonds bear interest based on weekly floating rates and have no
principal reductions for the life of the bonds. The weighted average interest rate for the years ended December 31, 2003 and 2002 was 1.1% and 1.5%, respectively. A 0.25% annualized change in interest rates would have changed interest expense by
approximately $0.1 million for the year ended December 31, 2003. This change is based on the weighted average borrowings under the bonds for the year ended December 31, 2003 of $42.5 million.



At December 31, 2003, the mortgage loan that is collateralized by the
Radisson Convention Hotel and the Westin City Center Dallas had a balance of $43.5 million. At December 31, 2003, the carrying value of this mortgage loan approximated its fair value as the interest rate associated with the borrowing approximated
current market rates available for similar types of borrowing arrangements. This loan is subject to a fixed interest rate of 8.1%, matures on July 31, 2009 and requires interest and principal payments based on a 25-year amortization schedule.



At December 31, 2003, the mortgage loan that is collateralized
by the Le Montrose Suite Hotel located in West Hollywood, California had a balance of $14.2 million. At December 31, 2003, the carrying value of this mortgage approximated its fair value as the interest rate associated with the borrowing
approximated current market rate available for similar types of borrowing arrangements. This loan is subject to a fixed interest rate of 8.08%, matures on July 31, 2010, and requires interest and principal payments based on a 27-year amortization
schedule.



At December 31, 2003, the mortgage loan
collateralized by the Lansdowne Resort located in Lansdowne, Virginia had a principal balance of $64.4 million, including an unamortized premium of $2.0 million. This mortgage loan bears interest at a floating rate that is reset monthly. The
weighted average interest rate for the year ended December 31, 2003 was 7.5%. The loan bears interest at a floating rate of the London InterBank Offered Rate plus 4.5% and has a London InterBank Offered Rate floor of 3.0%. A 0.25% annualized change
in interest rates above the 7.5% floor would have changed interest expense by less than $0.1 million for the year ended December 31, 2003. This change is based on the weighted average borrowings under this mortgage for the year ended December 31,
2003 of $34.0 million. At December 31, 2003, the carrying value of the mortgage loan approximated its fair value as the interest rate associated with the borrowings approximated current market rate available for similar types of borrowing
arrangements. This loan matures on January 28, 2007 and requires interest and principal payments based on a 25-year amortization schedule. On February 11, 2004, the Company paid in full the $62.3 million balance of this mortgage (see Note 22 to the
consolidated financial statements).



At December 31, 2003, the
mortgage loan that is collateralized by the San Diego Paradise Point Resort had a principal balance of $65.0 million. At December 31, 2003, the carrying value of this mortgage approximated its fair values as the interest rate associated with the
borrowing approximated current market rate available for similar types of borrowing arrangements. This loan is subject to a fixed interest rate of 5.25%, matures on February 1, 2009, and requires interest and principal payments based on a 25-year
amortization schedule.



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##### Table of Contents

Item 8.    Consolidated Financial Statements and Supplementary Data



See Index to the Financial Statements on page F-1.



Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure



None.



Item 9A.    Controls and Procedures



Based on the most recent evaluation, the Companys Chief Executive Officer and Chief Financial Officer believe the Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) were effective as of December 31, 2003. There were no changes to the Companys internal controls over financial reporting during the fourth quarter ended December 31, 2003 that has materially affected, or is reasonably likely to
materially affect, the Companys internal controls over financial reporting.



PART III



Item 10.    Trustees and Executive Officers of the Registrant



The information required by this item is incorporated by reference to the material in the Companys Proxy Statement for the 2004 Annual Meeting of
Shareholders (the Proxy Statement) under the captions Election of Trustees and Audit Committee Report.



Item 11.    Executive Compensation



The information required by this item is incorporated by reference to the material in the Proxy Statement under the caption Executive Compensation.



Item 12.    Security Ownership of Certain Beneficial Owners and Management



The information required by this item is incorporated by reference to the material in the Proxy Statement under the captions Equity Compensation
Plans, Election of Trustees and Principal and Management Shareholders.



Item 13.    Certain Relationships and Related Transactions



The information required by this item is incorporated by reference to the material in the Proxy Statement under the caption Certain Relationships
and Related Transactions.



Item 14.    
Principal Accountant Fees and Services



The information required by this item is incorporated by reference to the material in the Proxy Statement under the caption Principal Accountant Fees and Services.



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##### Table of Contents

PART IV



Item 15.    
Exhibits, Financial Statement Schedules, and Reports on Form 8-K



|    |  |    |  |                                                                                                                                                                                                                                                                                                    
|--- |  | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | 1. |  | Financial Statements                                                                                                                                                                                                                                                                               
|    |  |   
|    |  |    |  | Included herein at pages F-1 through F-41                                                                                                                                                                                                                                                          
|    |  |   
|    |  | 2. |  | Financial Statement Schedules                                                                                                                                                                                                                                                                      
|    |  |   
|    |  |    |  | The following financial statement schedule is included herein at pages F-40 and F-41.                                                                                                                                                                                                              
|    |  |   
|    |  |    |  | Schedule III  Real Estate and Accumulated Depreciation                                                                                                                                                                                                                                            
|    |  |   
|    |  |    |  | All other schedules for which provision is made in Regulation S-X are either not required to be included herein under the related instructions or are inapplicable or the related information
is included in the footnotes to the applicable financial statement and, therefore, have been omitted.
|    |  |   
|    |  | 3. |  | Exhibits                                                                                                                                                                                                                                                                                           



The
following exhibits are filed as part of this Annual Report on Form 10-K:



|              |  |                                                                                                                                                                                             
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                                                                      
|              | 
|              |  |                                                                                                                                                                                             
|              | 
|2.1           |  | Purchase and Sale Agreement, dated as of June 16, 1998, by and between Bird Island Limited Partnership and LaSalle Hotel Operating Partnership, L.P. (3)                                    
|              | 
|3.1           |  | Articles of Amendment and Restatement of Declaration of Trust of the Registrant (4)                                                                                                         
|              | 
|3.2           |  | Bylaws of the Registrant (4)                                                                                                                                                                
|              | 
|3.3           |  | Articles Supplementary relating to the 101/4% Series A
Cumulative Redeemable Preferred Shares of Beneficial Interest, Liquidation Preference $25.00 Per Share, Par Value $.01 Per Share (15)
|              | 
|4.1           |  | Form of Common Share of Beneficial Interest (1)                                                                                                                                             
|              | 
|4.2           |  | Form of Common Share Purchase Right (LaSalle) (1)                                                                                                                                           
|              | 
|4.3           |  | Form of Common Share Purchase Right (Steinhardt/Cargill) (1)                                                                                                                                
|              | 
|4.4           |  | Common Share Purchase Right dated April 29, 1998 (LaSalle Partners) (4)                                                                                                                     
|              | 
|4.5           |  | Common Share Purchase Right dated April 29, 1998 (Steinhardt) (4)                                                                                                                           
|              | 
|4.6           |  | Common Share Purchase Right dated April 29, 1998 (Cargill) (4)                                                                                                                              
|              | 
|4.7           |  | Form of certificate evidencing 101/4% Series A
Cumulative Redeemable Preferred Shares of Beneficial Interest, Liquidation Preference $25.00 Per Share, Par Value $.01 Per Share (15)        
|              | 
|10.1          |  | Form of Agreement of Limited Partnership of the Operating Partnership (1)                                                                                                                   
|              | 
|10.2          |  | Form of Articles of Incorporation and Bylaws of the Advisor (1)                                                                                                                             
|              | 
|10.3          |  | Form of Registration Rights Agreement relating to Rights to Purchase Common Shares (1)                                                                                                      
|              | 
|10.4          |  | Form of Registration Rights Agreement relating to Units, exchangeable for Common Shares (1)                                                                                                 
|              | 
|10.5          |  | Share Option Plan (1)*                                                                                                                                                                      



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|              |  |                                                                                                                                                                                                                                                                                             
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                                                                                                                                                                      
|              | 
|10.6          |  | Omnibus Contribution Agreement By and Among LaSalle Hotel Operating Partnership, L.P. and the Contributors named herein (1)                                                                                                                                                                 
|              | 
|10.7          |  | Contribution Agreement (Steinhardt) (1)                                                                                                                                                                                                                                                     
|              | 
|10.8          |  | Contribution Agreement (Cargill) (1)                                                                                                                                                                                                                                                        
|              | 
|10.9          |  | Contribution Agreement (OLS Visalia) (1)                                                                                                                                                                                                                                                    
|              | 
|10.10         |  | Contribution Agreement (OLS Le Montrose) (1)                                                                                                                                                                                                                                                
|              | 
|10.11         |  | Contribution Agreement (Durbin) (1)                                                                                                                                                                                                                                                         
|              | 
|10.12         |  | Contribution Agreement (Radisson) (1)                                                                                                                                                                                                                                                       
|              | 
|10.13         |  | Form of Advisory Agreement (1)                                                                                                                                                                                                                                                              
|              | 
|10.14         |  | Form of Management Agreement (1)                                                                                                                                                                                                                                                            
|              | 
|10.15         |  | Form of Lease (1)                                                                                                                                                                                                                                                                           
|              | 
|10.16         |  | Form of Lease with Affiliated Lessees (1)                                                                                                                                                                                                                                                   
|              | 
|10.17         |  | Form of Supplemental Representations, Warranties and Indemnity Agreement(1)                                                                                                                                                                                                                 
|              | 
|10.18         |  | Form of Pledge and Security Agreement (1)                                                                                                                                                                                                                                                   
|              | 
|10.19         |  | Purchase and Sale Agreement with Joint Escrow Instructions, dated as of June 1, 1998, by and between VVH Resorts, Ltd. and LHO Mission Bay Hotel, L.P. (2)                                                                                                                                  
|              | 
|10.20         |  | Subscription Agreement (with registration rights), dated as of May 28, 1998, by WestGroup San Diego Associates, Ltd. (2)                                                                                                                                                                    
|              | 
|10.21         |  | Agreement of Limited Partnership, dated as of June 1,1998, of LHO Mission Bay Hotel, L.P. (2)                                                                                                                                                                                               
|              | 
|10.22         |  | Lease Agreement, dated as of June 1, 1998, by and between LHO Mission Bay Hotel, L.P. and WestGroup San Diego Associates, Ltd. (2)                                                                                                                                                          
|              | 
|10.23         |  | Amended and Restated Agreement of Limited Partnership of the Operating Partnership dated as of April 29, 1998 (4)                                                                                                                                                                           
|              | 
|10.24         |  | Advisory Agreement, dated as of April 23, 1998, by and between the Registrant and LaSalle Hotel Advisors, Inc. (4)                                                                                                                                                                          
|              | 
|10.25         |  | Registration Rights Agreement, dated as of April 29, 1998, with respect to Common Shares which may be Issued upon Exchange of Operating Partnership Units (LaSalle Partners)
(4)                                                                                                            
|              | 
|10.26         |  | Registration Rights Agreement, dated as of April 29, 1998, with respect to Common Shares which may be Issued upon Exchange of Operating Partnership Units (Steinhardt) (4)                                                                                                                  
|              | 
|10.27         |  | Registration Rights Agreement, dated as of April 29, 1998, with respect to Common Shares which may be Issued upon Exchange of Operating Partnership Units (Cargill) (4)                                                                                                                     
|              | 
|10.28         |  | Registration Rights Agreement, dated as of April 29, 1998, with respect to Common Share Purchase Rights (LaSalle Partners) (4)                                                                                                                                                              
|              | 
|10.29         |  | Registration Rights Agreement, dated as of April 29, 1998, with respect to Common Share Purchase Rights (Steinhardt) (4)                                                                                                                                                                    
|              | 
|10.30         |  | Registration Rights Agreement, dated as of April 29, 1998, with respect to Common Share Purchase Rights (Cargill) (4)                                                                                                                                                                       
|              | 
|10.31         |  | Senior Unsecured Credit Agreement, dated as of April 23, 1998, among the Operating Partnership, Societe Generale, Southwest Agency, as Co-Arranger, Administrative Agent, and Documentation
Agent, Bank of Montreal, Chicago Branch, as Co-Arranger and Syndication Agent, and the Banks (4)



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|              |  |                                                                                                                                                                                                                                         
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                                                                                                                  
|              | 
|10.32         |  | Lease Agreement, dated as of June 24, 1998, by and between LHO Harborside Hotel, L.L.C. as Landlord, and LaSalle Hotel Lessee, Inc. as Tenant (4)                                                                                       
|              | 
|10.33         |  | Loan and Trust Agreement, dated as of December 15, 1990, as amended and restated as of June 27, 1991, among the Massachusetts Port Authority, Logan Harborside Associates II Limited
Partnership, and Shawmut Bank, N.A., as trustee (4)
|              | 
|10.34         |  | Credit Enhancement Agreement, dated as of June 27, 1991, among the Massachusetts Port Authority, Logan Harborside Associates II Limited Partnership and Shawmut Bank, N.A. (4)                                                          
|              | 
|10.35         |  | Management Agreement, dated as of February 1, 1990, by and between Logan Harborside Associates II Limited Partnership and Hyatt Corporation, and the First Amendment thereto dated as of June
27, 1991 (4)                              
|              | 
|10.36         |  | Leasehold Mortgage and Security Agreement, dated as of December 15, 1990, between Logan Harborside Associates II Limited Partnership and Shawmut Bank, N.A., and the First Amendment thereto
dated as of June 27, 1991 (4)              
|              | 
|10.37         |  | 1998 Share Option and Incentive Plan (5)                                                                                                                                                                                                
|              | 
|10.38         |  | Amended and Restated Senior Unsecured Credit Agreement (5)                                                                                                                                                                              
|              | 
|10.39         |  | First Amendment to the Amended and Restated Unsecured Credit Agreement (5)                                                                                                                                                              
|              | 
|10.40         |  | Form of First Amendment to Lease with Affiliated Lessee (7)                                                                                                                                                                             
|              | 
|10.41         |  | Form of Second Amendment to Lease with Affiliate Lessee (7)                                                                                                                                                                             
|              | 
|10.42         |  | First Amendment to the 1998 Share Option and Incentive Plan (8)*                                                                                                                                                                        
|              | 
|10.43         |  | LaSalle Hotel Properties 1998 Share Option and Incentive Plan, as amended through September 9, 1999 (9)*                                                                                                                                
|              | 
|10.44         |  | Loan Agreement dated July 29, 1999 between LHO Financing Partnership I, L.P. and General Electric Capital Corporation (Radisson Convention Hotel) (10)                                                                                  
|              | 
|10.45         |  | Fee and Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated July 29, 1999 (Radisson Convention Hotel) (10)                                                                                  
|              | 
|10.46         |  | Second Fee and Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated July 29, 1999 (Radisson Convention Hotel) (10)                                                                           
|              | 
|10.47         |  | Loan Agreement dated July 29, 1999 between LHO Financing Partnership I, L.P. and General Electric Capital Corporation (Le Meridien Dallas) (10)                                                                                         
|              | 
|10.48         |  | Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated July 29, 1999 (Le Meridien Dallas) (10)                                                                                                      
|              | 
|10.49         |  | Amended and Restated Advisory Agreement and Employee Lease Agreement dated January 1, 2000 between LaSalle Hotel Properties and LaSalle Hotel Advisors, Inc. (11)                                                                       
|              | 
|10.50         |  | Stock Purchase Agreement dated July 28, 2000 by and among LaSalle Hotel Operating Partnership, L.P. and LaSalle Hotel Co-Investment, Inc., LPI Charities and LaSalle Hotel Properties
(12)                                              
|              | 
|10.51         |  | Second Amended and Restated Senior Unsecured Credit Agreement dated November 13, 2000 by and among Societe Generale, Bank of Montreal, Deutche Banc Alex. Brown and LaSalle Hotel Operating
Partnership, L.P. (12)                      
|              | 
|10.52         |  | Environmental Indemnification Agreement dated November 13, 2000 by and among Societe Generale, Bank of Montreal, Deutsche Banc Alex. Brown and LaSalle Hotel Operating Partnership, L.P.
(12)                                           
|              | 
|10.53         |  | Guaranty and Contribution Agreement dated November 13, 2000 by and among Societe Generale, Bank of Montreal, Deutche Banc Alex. Brown and LaSalle Hotel Operating Partnership, L.P.
(12)                                                



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|              |  |                                                                                                                                                                                                                                                                                                                      
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                                                                                                                                                                                               
|              | 
|10.54         |  | Termination and Services Agreement dated December 28, 2000 by and among LaSalle Hotel Properties, and LaSalle Hotel Advisors, Inc. and LaSalle Investment Management, Inc.
(12)                                                                                                                                      
|              | 
|10.55         |  | Revolving Credit Note dated January 3, 2001 between LaSalle Hotel Lessee, Inc. and Firstar Bank, National Association (12)                                                                                                                                                                                           
|              | 
|10.56         |  | Guaranty dated January 3, 2001 between LaSalle Hotel Lessee, Inc. and Firstar Bank, National Association (12)                                                                                                                                                                                                        
|              | 
|10.57         |  | Third Amended and Restated Senior Unsecured Credit Agreement dated June 26, 2001 by and among Societe Generale, Bank of Montreal, Deutche Banc Alex. Brown and LaSalle Hotel Operating
Partnership, L.P. (13)                                                                                                        
|              | 
|10.58         |  | Environmental Indemnification Agreement dated June 26, 2001 by and among Societe Generale, Bank of Montreal, Deutche Banc Alex. Brown and LaSalle Hotel Operating Partnership, L.P.
(13)                                                                                                                             
|              | 
|10.59         |  | Guaranty and Contribution Agreement dated June 26, 2001 by and among Societe Generale, Bank of Montreal, Deutche Banc Alex. Brown and LaSalle Hotel Operating Partnership, L.P.
(13)                                                                                                                                 
|              | 
|10.60         |  | Second Amendment to Third Amended and Restated Senior Unsecured Credit Agreement entered into on February 11, 2002 by and among Societe Generale, Bank of Montreal, Bankers Trust Company,
Credit Lyonnais, LaSalle Bank, N.A., Fleet National Bank, Firstar Bank, and LaSalle Hotel Operating Partnership, L.P. (14)
|              | 
|10.61         |  | First Amendment to the Amended and Restated Agreement of Limited Partnership of LaSalle Hotel Operating Partnership, L.P., dated as of March 6, 2002 (16)                                                                                                                                                            
|              | 
|10.62         |  | Change in Control Severance Agreement between Jon E. Bortz and LaSalle Hotel Properties dated as of January 28, 2002 (17)*                                                                                                                                                                                           
|              | 
|10.63         |  | Change in Control Severance Agreement between Hans S. Weger and LaSalle Hotel Properties dated as of January 28, 2002 (17)*                                                                                                                                                                                          
|              | 
|10.64         |  | Change in Control Severance Agreement between Michael D. Barnello and LaSalle Hotel Properties dated as of January 28, 2002 (17)*                                                                                                                                                                                    
|              | 
|10.65         |  | Senior Unsecured Credit Agreement entered into on November 20, 2003 by and among Bank of Montreal, Fleet National Bank, HarrisNesbitt Corp., Fleet Securities, Inc. and LaSalle Hotel Operating
Partnership, L.P. (17)                                                                                               
|              | 
|10.66         |  | Guaranty and Contribution Agreement dated November 20, 2003 by and among Bank of Montreal, Fleet National Bank, Harris Nesbitt Corp., Fleet Securities, Inc. and LaSalle Hotel Operating
Partnership, L.P. (17)                                                                                                      
|              | 
|10.67         |  | Environmental Indemnification Agreement dated November 20, 2003 by and among Bank of Montreal, Fleet National Bank, Harris Nesbitt Corp., Fleet Securities, Inc. and LaSalle Hotel Operating
Partnership, L.P. (17)                                                                                                  
|              | 
|12.1          |  | Calculation of the Registrants Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends (6)                                                                                                                                                                                                       
|              | 
|21            |  | List of subsidiaries                                                                                                                                                                                                                                                                                                 
|              | 
|23            |  | Consent of KPMG LLP                                                                                                                                                                                                                                                                                                  
|              | 
|24.1          |  | Power of Attorney (included in Part IV of this Annual Report on Form 10-K)                                                                                                                                                                                                                                           



45



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##### Table of Contents

|              |  |                                                                                                         
|------------- |  | --------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                  
|              | 
|31.1          |  | Jon E. Bortz Certification Pursuant to Rule 13a-14(a)/15d-14(a).                                        
|              | 
|31.2          |  | Hans S. Wager Certification Pursuant to Rule 13a-14(a)/15d-14(a).                                       
|              | 
|32.1          |  | Jon E. Bortz Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code 
|              | 
|32.2          |  | Hans S. Weger Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

|* |  | Management contract or compensatory plan or agreement.
|- |  | ------------------------------------------------------

---

|(1) |  | Previously filed as an exhibit to the Registrants Registration Statement on Form S-11 (No. 333-45647) and incorporated herein by reference.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Previously filed as an exhibit to the Registrants Form 8-K report filed with the SEC on June 15, 1998 and incorporated herein by reference.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Previously filed as an exhibit to the Registrants Form 8-K report filed with the SEC on July 9, 1998 and incorporated herein by reference.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Previously filed as an exhibit to the Registrants Form 10-Q filed with the SEC on August 14, 1998 and incorporated herein by reference.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Previously filed as an exhibit to the Registrants Form 10-Q filed with the SEC on November 16, 1998 and incorporated herein by reference.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Previously filed as an exhibit to the Registrants Registration Statement on Form S-3 (No. 333-77371) on April 29, 1999 and incorporated herein by reference.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | Previously filed as an exhibit to the Registrants Form 10-Q filed with the SEC on May 12, 1999 and incorporated herein by reference.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------

|(8) |  | Previously filed as an exhibit to the Registrants Form 10-Q filed with the SEC on August 11, 1999 and incorporated herein by reference.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|(9) |  | Previously filed as an exhibit to the Registrants Registration Statement on Form S-8 (No. 333-86911) on September 10, 1999 and incorporated herein by reference.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) |  | Previously filed as an exhibit to the Registrants Form 10-Q filed with the SEC on November 12, 1999 and incorporated herein by reference.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------

|(11) |  | Previously filed as an exhibit to the Registrants Form 10-Q filed with the SEC on August 2, 2000 and incorporated herein by reference.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------

|(12) |  | Previously filed as an exhibit to the Registrants Form 10-K filed with the SEC on March 27, 2001 and incorporated herein by reference.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------

|(13) |  | Previously filed as an exhibit to the Registrants Form 8-K report filed with the SEC on September 4, 2001 and incorporated herein by reference.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

|(14) |  | Previously filed as an exhibit to the Registrants Form 8-K report filed with the SEC on February 13, 2002 and incorporated herein by reference.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

|(15) |  | Previously filed as an exhibit to the Registrants Registration Statement on Form 8-A (No. 001-14045) on March 5, 2002 and incorporated herein by reference.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|(16) |  | Previously filed as an exhibit to the Registrants Form 8-K report filed with the SEC on March 12, 2002 and incorporated herein by reference.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

|(17) |  | Previously filed as an exhibit to the Registrants Form 10-K filed with the SEC on February 19, 2003 and incorporated by reference herein.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------

|(18) |  | Previously filed as an exhibit to Registrants Form 8-K report filed with the SEC on December 15, 2003 and incorporated herein by reference.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------



46



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##### Table of Contents

(b) Reports on Form 8-K



The Company filed eight reports on Form 8-K during the quarter ended December 31, 2003. Information regarding items reported is as follows:





|                  |  |                                                                                                                                                                                                                                                                                                                                     
|----------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date              |  | Items Reported On                                                                                                                                                                                                                                                                                                                   
|                  | 
|October 14, 2003  |  | Item 9Regulation FD Disclosure                                                                                                                                                                                                                                                                                                     
|                  |  | The Company announced it would report financial results for the quarter ended September 30, 2003 on October 22, 2003 after the market closes. The Company also
announced a conference call to discuss the results of the quarter ended September 2003, and its outlook for the remainder of the year to be held on October 23, 2003.
|                  | 
|October 23, 2003  |  | Item 7Financial Statements, Proforma financial information and Exhibits                                                                                                                                                                                                                                                            
|                  |  | Item 12Results of Operations and Financial Condition                                                                                                                                                                                                                                                                               
|                  |  | The Company issued a press release dated October 22, 2003 announcing its results of operations for the quarter ended September 30, 2003 and its outlook for the
remainder of the year.                                                                                                                                              
|                  | 
|November 10, 2003 |  | Item 7Financial Statements, Proforma financial information and Exhibits                                                                                                                                                                                                                                                            
|                  |  | Item 9Regulation FD Disclosure The Company issued a press release dated November 10, 2003 announcing its sale of 3,000,000 common shares of beneficial interest.                                                                                                                                                                   
|                  | 
|November 12, 2003 |  | Item 7Financial Statements, Proforma financial information and Exhibits                                                                                                                                                                                                                                                            
|                  |  | Item 9Regulation FD Disclosure                                                                                                                                                                                                                                                                                                     
|                  |  | The Company issued a press release dated November 11, 2003 announcing its sale of 3,000,000 common shares of beneficial interest resulting in net proceeds of
$49,950,000.                                                                                                                                                          
|                  | 
|November 13, 2003 |  | Item 5Other Events                                                                                                                                                                                                                                                                                                                 
|                  |  | On November 10, 2003, the Company and the Operating Partnership entered into an underwriting agreement with Wachovia Capital Markets, LLC relating to the offer
and sale by the Company of 3,000,000 of the Companys common shares of beneficial interest.                                                                         
|                  |  | Item 7Financial Statements, Proforma financial information and Exhibits                                                                                                                                                                                                                                                            
|                  | 
|November 20, 2003 |  | Item 7Financial Statements, Proforma financial information and Exhibits                                                                                                                                                                                                                                                            
|                  |  | Item 9Regulation FD Disclosure                                                                                                                                                                                                                                                                                                     
|                  |  | The Company issued a press release dated November 20, 2003 announcing it had successfully executed a new $215.0 million senior unsecured bank
facility.                                                                                                                                                                             
|                  | 
|December 15, 2003 |  | Item 5Other Events                                                                                                                                                                                                                                                                                                                 
|                  |  | On November 20, 2003 a new $215.0 million senior unsecured bank facility was entered into by and among Bank of Montreal, Fleet National Bank, Harris Nesbitt
Corp., Fleet Securities, Inc. and LaSalle Hotel Operating Partnership, L.P.                                                                                            
|                  |  | Item 7Financial Statements, Proforma financial information and Exhibits                                                                                                                                                                                                                                                            
|                  | 
|December 15, 2003 |  | Item 7Financial Statements, Proforma financial information and Exhibits Item 9Regulation FD Disclosure On December 12, 2003 LaSalle Hotel Properties issued a press
release announcing that it has successfully executed a $65.0 million secured loan with GE Real Estate at a fixed rate of 5.25 percent.                        





47



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##### Table of Contents

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.



|                         |  |  |  |                          |  |                      |  |                                                                              
|------------------------ |  |  |  | ------------------------ |  | -------------------- |  | -----------------------------------------------------------------------------
|                         |  |  |  | LASALLE HOTEL PROPERTIES
|                         |  |  | 
|Dated: February 18, 2004 |  |  |  | By:                      |  | /s/    HANS S.
WEGER
|                         |  |  |  |                          |  |                      |  | Hans S. Weger Executive Vice President, Treasurer and Chief Financial
Officer



KNOW ALL MEN BY THESE
PRESENTS, that we, the undersigned officers and trustees of LaSalle Hotel Properties, hereby severally constitute Jon E. Bortz, Michael D. Barnello and Hans S. Weger, and each of them singly, our true and lawful attorneys with full power to them,
and each of them singly, to sign for us and in our names in the capacities indicated below, the Form 10-K filed herewith and any and all amendments to said Form 10-K, and generally to do all such things in our names and in our capacities as officers
and trustees to enable LaSalle Hotel Properties to comply with the provisions of the Securities Exchange Act of 1934, as amended and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys, or any of them, to said Form 10-K and any and all amendments thereto.



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and dates indicated.



|                  |  |                                                     |  |                                                                                                                               
|----------------- |  | --------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------
|Date              |  | Signature                                           |  |                                                                                                                               
|                  |  |                                                    
|February 18, 2004 |  | /s/    JON E. BORTZJon E. Bortz                     |  | Chairman, President and ChiefExecutive Officer (PrincipalExecutive Officer)                                                   
|                  |  |                                                    
|February 18, 2004 |  | /s/    DARRYL HARTLEY-LEONARDDarryl Hartley-Leonard |  | Trustee                                                                                                                       
|                  |  |                                                    
|February 18, 2004 |  | /s/    KELLY L. KUHNKelly L. Kuhn                   |  | Trustee                                                                                                                       
|                  |  |                                                    
|February 18, 2004 |  | /s/    WILLIAM S. MCCALMONTWilliam S. McCalmont     |  | Trustee                                                                                                                       
|                  |  |                                                    
|February 18, 2004 |  | /s/    DONALD S. PERKINSDonald S. Perkins           |  | Trustee                                                                                                                       
|                  |  |                                                    
|February 18, 2004 |  | /s/    STUART L. SCOTTStuart L. Scott               |  | Trustee                                                                                                                       
|                  |  |                                                    
|February 18, 2004 |  | /s/    DONALD A. WASHBURNDonald A. Washburn         |  | Trustee                                                                                                                       
|                  |  |                                                    
|February 18, 2004 |  | /s/    MICHAEL D. BARNELLOMichael D. Barnello       |  | Chief Operating Officer and Executive Vice President of Acquisitions                                                          
|                  |  |                                                    
|February 18, 2004 |  | /s/    HANS S. WEGERHans S. Weger                   |  | Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)



48



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##### Table of Contents

LASALLE HOTEL PROPERTIES



Index to
Financial Statements



LASALLE HOTEL PROPERTIES



|                                                                                                    |  |     
|--------------------------------------------------------------------------------------------------- |  | ----
|Independent Auditors Report                                                                        |  | F-2 
|                                                                                                    | 
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                        |  | F-3 
|                                                                                                    | 
|Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001          |  | F-4 
|                                                                                                    | 
|Consolidated Statements of Shareholders Equity for the years ended December 31, 2003, 2002and 2001 |  | F-6 
|                                                                                                    | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001          |  | F-7 
|                                                                                                    | 
|Notes to Consolidated Financial Statements                                                          |  | F-9 
|                                                                                                    | 
|Schedule IIIReal Estate and Accumulated Depreciation                                               |  | F-40



F-1



---

##### Table of Contents

Independent Auditors Report



To
the Shareholders and Board of Trustees

LaSalle Hotel Properties:



We have audited the consolidated financial statements of LaSalle Hotel Properties (the Company) as listed in the
accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement
schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.



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



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LaSalle Hotel Properties as of December 31, 2003 and 2002, and the results of
their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.



KPMG LLP



Chicago, Illinois

February 6, 2004, except as to Note 22

which is as of February 11, 2004.



F-2



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##### Table of Contents

LASALLE HOTEL PROPERTIES



Consolidated Balance Sheets

(Dollars in thousands, except per share data)



|                                                                                                                                                                                                   |  |                  |         |   |                  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                                                   |  | December 31,2003 |         |   | December 31,2002 |  
|Assets:                                                                                                                                                                                            |  |                  |         |   |                  |   |         |  
|Investment in hotel properties, net (Notes 2 and 4)                                                                                                                                                |  | $                | 595,976 |   |                  | $ | 495,488 |  
|Property under development (Note 3)                                                                                                                                                                |  |                  | 14,743  |   |                  |   |        |  
|Investment in joint venture (Note 2)                                                                                                                                                               |  |                  | 3,488   |   |                  |   | 4,580   |  
|Cash and cash equivalents                                                                                                                                                                          |  |                  | 34,761  |   |                  |   | 6,521   |  
|Restricted cash reserves (Note 9)                                                                                                                                                                  |  |                  | 21,988  |   |                  |   | 18,737  |  
|Rent receivable                                                                                                                                                                                    |  |                  | 2,116   |   |                  |   | 2,251   |  
|Notes receivable                                                                                                                                                                                   |  |                  | 483     |   |                  |   | 1,802   |  
|Hotel receivables (net of allowance for doubtful accounts of approximately $261 and $194, respectively)                                                                                            |  |                  | 10,593  |   |                  |   | 5,886   |  
|Deferred financing costs, net                                                                                                                                                                      |  |                  | 4,195   |   |                  |   | 2,721   |  
|Deferred tax asset                                                                                                                                                                                 |  |                  | 10,424  |   |                  |   | 4,215   |  
|Prepaid expenses and other assets                                                                                                                                                                  |  |                  | 9,102   |   |                  |   | 7,223   |  
|Assets sold, net (Note 7)                                                                                                                                                                          |  |                  | 35      |   |                  |   | 56,311  |  
|                                                                                                                                                                                                   |  |                  |         |   |                  |   |         |  
|Total assets                                                                                                                                                                                       |  | $                | 707,904 |   |                  | $ | 605,735 |  
|                                                                                                                                                                                                   |  |                  |         |   |                  |   |         |  
|                                                                                                                                                                                                   |  |                 
|Liabilities and Shareholders Equity:                                                                                                                                                              |  |                  |         |   |                  |   |         |  
|Borrowings under credit facilities (Note 8)                                                                                                                                                        |  | $                |        |   |                  | $ | 99,390  |  
|Bonds payable (Note 8)                                                                                                                                                                             |  |                  | 42,500  |   |                  |   | 42,500  |  
|Mortgage loans (including $2,015 unamortized premium) (Note 8)                                                                                                                                     |  |                  | 187,157 |   |                  |   | 70,175  |  
|Accounts payable and accrued expenses (Note 9)                                                                                                                                                     |  |                  | 26,842  |   |                  |   | 16,312  |  
|Advance deposits                                                                                                                                                                                   |  |                  | 3,202   |   |                  |   | 1,555   |  
|Accrued interest                                                                                                                                                                                   |  |                  | 705     |   |                  |   | 650     |  
|Distributions payable                                                                                                                                                                              |  |                  | 4,853   |   |                  |   | 6,575   |  
|Liabilities of assets sold (Note 6)                                                                                                                                                                |  |                  | 61      |   |                  |   | 48,199  |  
|                                                                                                                                                                                                   |  |                  |         |   |                  |   |         |  
|Total liabilities                                                                                                                                                                                  |  |                  | 265,320 |   |                  |   | 285,356 |  
|Minority interest in LaSalle Hotel Operating Partnership, L.P. (Note 10)                                                                                                                           |  |                  | 5,721   |   |                  |   | 5,262   |  
|Minority interest in other partnerships                                                                                                                                                            |  |                  | 10      |   |                  |   | 10      |  
|Commitments and contingencies (Note 9)                                                                                                                                                             |  |                  |        |   |                  |   |        |  
|                                                                                                                                                                                                   |  |                 
|Shareholders Equity:                                                                                                                                                                              |  |                  |         |   |                  |   |         |  
|Preferred shares, $.01 par value, 20,000,000 shares authorized,101/4% Series A3,991,900 shares issued and outstanding atDecember 31, 2003 and 2002, respectively (Note 10)                        |  |                  | 40      |   |                  |   | 40      |  
|83/8% Series
B1,100,000 and zero shares issued and outstanding at December 31, 2003 and 2002, respectively (Note 10)                                                                              |  |                  | 11      |   |                  |   |        |  
|Common shares of beneficial interest, $.01 par value, 100,000,000 shares authorized, 24,140,855 and 18,708,829 shares issued and outstanding
at December 31, 2003 and 2002, respectively (Note 10) |  |                  | 241     |   |                  |   | 187     |  
|Additional paid-in capital, including offering costs of $28,461 and $25,329 at December 31, 2003 and 2002, respectively                                                                            |  |                  | 485,724 |   |                  |   | 374,383 |  
|Deferred compensation                                                                                                                                                                              |  |                  | (3,394  | ) |                  |   | (1,914  | )
|Accumulated other comprehensive loss (Note 12)                                                                                                                                                     |  |                  |        |   |                  |   | (1,050  | )
|Distributions in excess of retained earnings                                                                                                                                                       |  |                  | (45,769 | ) |                  |   | (56,539 | )
|                                                                                                                                                                                                   |  |                  |         |   |                  |   |         |  
|Total shareholders equity                                                                                                                                                                         |  |                  | 436,853 |   |                  |   | 315,107 |  
|                                                                                                                                                                                                   |  |                  |         |   |                  |   |         |  
|Total liabilities and shareholders equity                                                                                                                                                         |  | $                | 707,904 |   |                  | $ | 605,735 |  
|                                                                                                                                                                                                   |  |                  |         |   |                  |   |         |  



The accompanying notes
are an integral part of these consolidated financial statements.



F-3



---

##### Table of Contents

LASALLE HOTEL PROPERTIES



Consolidated Statements of Operations

(Dollars in thousands, except per share data)



|                                                                                                                                      |  |                                 |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                                                      |  | For the year ended December 31, |        
|                                                                                                                                      |  | 2003                            |         |   | 2002 |   |         | 2001 | 
|Revenues:                                                                                                                             |  |                                 |         |   |      |   |         |      |  |   |         |  
|Hotel operating revenues:                                                                                                             |  |                                 |         |   |      |   |         |      |  |   |         |  
|Room revenue                                                                                                                          |  | $                               | 101,223 |   |      | $ | 86,101  |      |  | $ | 70,875  |  
|Food and beverage revenue                                                                                                             |  |                                 | 60,963  |   |      |   | 48,503  |      |  |   | 34,424  |  
|Other operating department revenue                                                                                                    |  |                                 | 17,257  |   |      |   | 13,846  |      |  |   | 12,876  |  
|Participating lease revenue (Note 13)                                                                                                 |  |                                 | 21,284  |   |      |   | 21,909  |      |  |   | 32,346  |  
|Interest income                                                                                                                       |  |                                 | 340     |   |      |   | 340     |      |  |   | 685     |  
|Other income (Note 9)                                                                                                                 |  |                                 | 919     |   |      |   | 19      |      |  |   | 827     |  
|                                                                                                                                      |  |                                 |         |   |      |   |         |      |  |   |         |  
|Total revenues                                                                                                                        |  |                                 | 201,986 |   |      |   | 170,718 |      |  |   | 152,033 |  
|                                                                                                                                      |  |                                 |         |   |      |   |         |      |  |   |         |  
|                                                                                                                                      |  |                                 |        
|Expenses:                                                                                                                             |  |                                 |         |   |      |   |         |      |  |   |         |  
|Hotel operating expenses:                                                                                                             |  |                                 |         |   |      |   |         |      |  |   |         |  
|Room                                                                                                                                  |  |                                 | 27,078  |   |      |   | 22,176  |      |  |   | 17,058  |  
|Food and beverage                                                                                                                     |  |                                 | 43,694  |   |      |   | 35,189  |      |  |   | 25,260  |  
|Other direct                                                                                                                          |  |                                 | 9,689   |   |      |   | 7,116   |      |  |   | 6,805   |  
|Other indirect (Note 16)                                                                                                              |  |                                 | 52,659  |   |      |   | 42,748  |      |  |   | 33,846  |  
|Depreciation and other amortization                                                                                                   |  |                                 | 33,188  |   |      |   | 30,070  |      |  |   | 26,443  |  
|Real estate taxes, personal property taxes and insurance                                                                              |  |                                 | 9,757   |   |      |   | 8,276   |      |  |   | 8,089   |  
|Ground rent (Note 9)                                                                                                                  |  |                                 | 3,561   |   |      |   | 3,208   |      |  |   | 3,279   |  
|General and administrative                                                                                                            |  |                                 | 7,335   |   |      |   | 6,432   |      |  |   | 6,359   |  
|Interest                                                                                                                              |  |                                 | 12,651  |   |      |   | 10,527  |      |  |   | 16,151  |  
|Amortization of deferred financing costs                                                                                              |  |                                 | 2,399   |   |      |   | 2,251   |      |  |   | 1,841   |  
|Impairment of investment in hotel property (Note 2)                                                                                   |  |                                 | 2,453   |   |      |   |        |      |  |   | 1,872   |  
|Lease termination, advisory transition, subsidiary purchase and contingent lease termination expense (Notes 9 and 16)                 |  |                                 | 10      |   |      |   | 2,520   |      |  |   | 1,929   |  
|Writedown of notes receivable                                                                                                         |  |                                 |        |   |      |   | 158     |      |  |   | 1,172   |  
|Other expenses                                                                                                                        |  |                                 | 251     |   |      |   | 7       |      |  |   | 976     |  
|                                                                                                                                      |  |                                 |         |   |      |   |         |      |  |   |         |  
|Total expenses                                                                                                                        |  |                                 | 204,725 |   |      |   | 170,678 |      |  |   | 151,080 |  
|                                                                                                                                      |  |                                 |         |   |      |   |         |      |  |   |         |  
|Income (loss) before income tax benefit, minority interest, equity in earnings of unconsolidated entities and discontinued
operations |  |                                 | (2,739  | ) |      |   | 40      |      |  |   | 953     |  
|Income tax benefit (Note 17)                                                                                                          |  |                                 | 5,482   |   |      |   | 2,696   |      |  |   | 1,507   |  
|                                                                                                                                      |  |                                 |         |   |      |   |         |      |  |   |         |  
|Income before minority interest, equity in earnings of unconsolidated entities and discontinued operations                            |  |                                 | 2,743   |   |      |   | 2,736   |      |  |   | 2,460   |  
|Minority interest in LaSalle Hotel Operating Partnership, L.P.                                                                        |  |                                 | (63     | ) |      |   | (72     | )    |  |   | (81     | )
|                                                                                                                                      |  |                                 |         |   |      |   |         |      |  |   |         |  
|Income before equity in earnings of unconsolidated entities and discontinued operations                                               |  |                                 | 2,680   |   |      |   | 2,664   |      |  |   | 2,379   |  
|Equity in earnings of unconsolidated entities (Note 2)                                                                                |  |                                 | 304     |   |      |   | 458     |      |  |   | 616     |  
|                                                                                                                                      |  |                                 |         |   |      |   |         |      |  |   |         |  
|Income before discontinued operations                                                                                                 |  |                                 | 2,984   |   |      |   | 3,122   |      |  |   | 2,995   |  
|Discontinued operations (Note 6):                                                                                                     |  |                                 |         |   |      |   |         |      |  |   |         |  
|Income (loss) from operations of property disposed of                                                                                 |  |                                 | (209    | ) |      |   | 1,060   |      |  |   | 862     |  
|Gain on sale of property dispositions, net of losses (Note 7)                                                                         |  |                                 | 36,662  |   |      |   |        |      |  |   |        |  
|Minority interest                                                                                                                     |  |                                 | (756    | ) |      |   | (32     | )    |  |   | (22     | )
|Income tax benefit (Note 17)                                                                                                          |  |                                 | 160     |   |      |   | 321     |      |  |   |        |  
|                                                                                                                                      |  |                                 |         |   |      |   |         |      |  |   |         |  
|Net income from discontinued operations                                                                                               |  |                                 | 35,857  |   |      |   | 1,349   |      |  |   | 840     |  
|                                                                                                                                      |  |                                 |        
|Net income                                                                                                                            |  |                                 | 38,841  |   |      |   | 4,471   |      |  |   | 3,835   |  
|Distributions to preferred shareholders                                                                                               |  |                                 | (10,805 | ) |      |   | (8,410  | )    |  |   |        |  
|                                                                                                                                      |  |                                 |         |   |      |   |         |      |  |   |         |  
|Net income (loss) applicable to common shareholders                                                                                   |  | $                               | 28,036  |   |      | $ | (3,939  | )    |  | $ | 3,835   |  
|                                                                                                                                      |  |                                 |         |   |      |   |         |      |  |   |         |  



F-4



---

##### Table of Contents

LASALLE HOTEL PROPERTIES



Consolidated Statements of OperationsContinued

(Dollars in thousands, except per share data)



|                                                                                                                                      |  |                                 |            |   |      |   |            |      |  |   |           
|------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------
|                                                                                                                                      |  | For the year ended December 31,
|                                                                                                                                      |  | 2003                            |            |   | 2002 |   |            | 2001
|Earnings per Common ShareBasic:                                                                                                      |  |                                 |            |   |      |   |            |      |  |   |           
|Income (loss) applicable to common shareholders before discontinued operations and after dividends paid on unvested restricted
shares |  | $                               | (0.40      | ) |      | $ | (0.29      | )    |  | $ | 0.16      
|Discontinued operations                                                                                                               |  |                                 | 1.79       |   |      |   | 0.07       |      |  |   | 0.05      
|                                                                                                                                      |  |                                 |            |   |      |   |            |      |  |   |           
|Net income (loss) applicable to common shareholders after dividends paid on unvested restricted shares                                |  | $                               | 1.39       |   |      | $ | (0.22      | )    |  | $ | 0.21      
|                                                                                                                                      |  |                                 |            |   |      |   |            |      |  |   |           
|                                                                                                                                      |  |                                 |           
|Earnings per Common ShareDiluted:                                                                                                    |  |                                 |            |   |      |   |            |      |  |   |           
|Income (loss) applicable to common shareholders before discontinued operations                                                        |  | $                               | (0.38      | ) |      | $ | (0.28      | )    |  | $ | 0.16      
|Discontinued operations                                                                                                               |  |                                 | 1.75       |   |      |   | 0.07       |      |  |   | 0.05      
|                                                                                                                                      |  |                                 |            |   |      |   |            |      |  |   |           
|Net income (loss) applicable to common shareholders                                                                                   |  | $                               | 1.37       |   |      | $ | (0.21      | )    |  | $ | 0.21      
|                                                                                                                                      |  |                                 |            |   |      |   |            |      |  |   |           
|                                                                                                                                      |  |                                 |           
|Weighted average number common shares outstanding:                                                                                    |  |                                 |            |   |      |   |            |      |  |   |           
|Basic                                                                                                                                 |  |                                 | 20,030,723 |   |      |   | 18,413,602 |      |  |   | 18,321,730
|Diluted                                                                                                                               |  |                                 | 20,487,406 |   |      |   | 18,843,530 |      |  |   | 18,452,882







The accompanying notes are an integral part of these consolidated financial
statements.



F-5



---

##### Table of Contents

LASALLE HOTEL PROPERTIES



Consolidated Statements of Shareholders Equity

(Dollars in thousands, except per share data)



|                                                    |  |                 |    |                                   |   |                          |  |                      |         |  |                                   |        |   |                  |   |        |                                           |  |   |         |   |  |   |         |   |  |   |         |  
|--------------------------------------------------- |  | --------------- | -- | --------------------------------- | - | ------------------------ |  | -------------------- | ------- |  | --------------------------------- | ------ | - | ---------------- | - | ------ | ----------------------------------------- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                    |  | PreferredShares |    | CommonShares ofBeneficialInterest |   | AdditionalPaid-InCapital |  | DeferredCompensation |         |  | AccumulatedOtherComprehensiveLoss |        |   | RetainedEarnings |   |        | Distributionsin Excess ofRetainedEarnings |  |   | Total   |  
|Balance, December 31, 2000                          |  | $               |   |                                   | $ | 170                      |  | $                    | 256,950 |  | $                                 |       |   |                  | $ |       |                                           |  | $ |        |   |  | $ | (33,592 | ) |  | $ | 223,528 |  
|Issuance of shares, net of offering costs           |  |                 |   |                                   |   |                         |  |                      | 46      |  |                                   |       |   |                  |   |       |                                           |  |   |        |   |  |   |        |   |  |   | 46      |  
|Options exercised                                   |  |                 |   |                                   |   | 3                        |  |                      | 3,722   |  |                                   |       |   |                  |   |       |                                           |  |   |        |   |  |   |        |   |  |   | 3,725   |  
|Unit conversions                                    |  |                 |   |                                   |   | 11                       |  |                      | 14,388  |  |                                   |       |   |                  |   |       |                                           |  |   |        |   |  |   |        |   |  |   | 14,399  |  
|Deferred compensation                               |  |                 |   |                                   |   | 3                        |  |                      | 2,954   |  |                                   | (2,957 | ) |                  |   |       |                                           |  |   |        |   |  |   |        |   |  |   |        |  
|Amortization of deferred compensation               |  |                 |   |                                   |   |                         |  |                      |        |  |                                   | 356    |   |                  |   |       |                                           |  |   |        |   |  |   |        |   |  |   | 356     |  
|Unrealized loss on interest rate derivatives        |  |                 |   |                                   |   |                         |  |                      |        |  |                                   |       |   |                  |   | (883   | )                                         |  |   |        |   |  |   |        |   |  |   | (883    | )
|Distributions declared($0.795 per common share)     |  |                 |   |                                   |   |                         |  |                      |        |  |                                   |       |   |                  |   |       |                                           |  |   | (3,835  | ) |  |   | (10,778 | ) |  |   | (14,613 | )
|Net income                                          |  |                 |   |                                   |   |                         |  |                      |        |  |                                   |       |   |                  |   |       |                                           |  |   | 3,835   |   |  |   |        |   |  |   | 3,835   |  
|                                                    |  |                 |    |                                   |   |                          |  |                      |         |  |                                   |        |   |                  |   |        |                                           |  |   |         |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2001                          |  |                 |   |                                   |   | 187                      |  |                      | 278,060 |  |                                   | (2,601 | ) |                  |   | (883   | )                                         |  |   |        |   |  |   | (44,370 | ) |  |   | 230,393 |  
|Issuance of shares, net of offering costs           |  |                 | 40 |                                   |   |                         |  |                      | 95,965  |  |                                   |       |   |                  |   |       |                                           |  |   |        |   |  |   |        |   |  |   | 96,005  |  
|Options exercised                                   |  |                 |   |                                   |   |                         |  |                      | 31      |  |                                   |       |   |                  |   |       |                                           |  |   |        |   |  |   |        |   |  |   | 31      |  
|Unit conversions                                    |  |                 |   |                                   |   |                         |  |                      | 244     |  |                                   |       |   |                  |   |       |                                           |  |   |        |   |  |   |        |   |  |   | 244     |  
|Deferred compensation                               |  |                 |   |                                   |   |                         |  |                      | 83      |  |                                   | (83    | ) |                  |   |       |                                           |  |   |        |   |  |   |        |   |  |   |        |  
|Amortization of deferred compensation               |  |                 |   |                                   |   |                         |  |                      |        |  |                                   | 770    |   |                  |   |       |                                           |  |   |        |   |  |   |        |   |  |   | 770     |  
|Unrealized loss on interest rate derivatives        |  |                 |   |                                   |   |                         |  |                      |        |  |                                   |       |   |                  |   | (167   | )                                         |  |   |        |   |  |   |        |   |  |   | (167    | )
|Distributions declared ($0.44 per common share)     |  |                 |   |                                   |   |                         |  |                      |        |  |                                   |       |   |                  |   |       |                                           |  |   | (4,471  | ) |  |   | (3,759  | ) |  |   | (8,230  | )
|Distributions ($ 2.11 per preferred share)          |  |                 |   |                                   |   |                         |  |                      |        |  |                                   |       |   |                  |   |       |                                           |  |   |        |   |  |   | (8,410  | ) |  |   | (8,410  | )
|Net income                                          |  |                 |   |                                   |   |                         |  |                      |        |  |                                   |       |   |                  |   |       |                                           |  |   | 4,471   |   |  |   |        |   |  |   | 4,471   |  
|                                                    |  |                 |    |                                   |   |                          |  |                      |         |  |                                   |        |   |                  |   |        |                                           |  |   |         |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2002                          |  |                 | 40 |                                   |   | 187                      |  |                      | 374,383 |  |                                   | (1,914 | ) |                  |   | (1,050 | )                                         |  |   |        |   |  |   | (56,539 | ) |  |   | 315,107 |  
|Issuance of shares, net of offering costs           |  |                 | 11 |                                   |   | 52                       |  |                      | 108,261 |  |                                   |       |   |                  |   |       |                                           |  |   |        |   |  |   |        |   |  |   | 108,324 |  
|Options exercised                                   |  |                 |   |                                   |   | 1                        |  |                      | 661     |  |                                   |       |   |                  |   |       |                                           |  |   |        |   |  |   |        |   |  |   | 662     |  
|Unit conversions                                    |  |                 |   |                                   |   |                         |  |                      |        |  |                                   |       |   |                  |   |       |                                           |  |   |        |   |  |   |        |   |  |   |        |  
|Deferred compensation                               |  |                 |   |                                   |   | 1                        |  |                      | 2,419   |  |                                   | (2,420 | ) |                  |   |       |                                           |  |   |        |   |  |   |        |   |  |   |        |  
|Amortization of deferred compensation               |  |                 |   |                                   |   |                         |  |                      |        |  |                                   | 940    |   |                  |   |       |                                           |  |   |        |   |  |   |        |   |  |   | 940     |  
|Unrealized loss on interest rate derivatives        |  |                 |   |                                   |   |                         |  |                      |        |  |                                   |       |   |                  |   | 1,050  |                                           |  |   |        |   |  |   |        |   |  |   | 1,050   |  
|Distributions declared ($0.84 per common share)     |  |                 |   |                                   |   |                         |  |                      |        |  |                                   |       |   |                  |   |       |                                           |  |   | (38,841 | ) |  |   | 21,575  |   |  |   | (17,266 | )
|Distributions ($ 2.56 per Series A preferred share) |  |                 |   |                                   |   |                         |  |                      |        |  |                                   |       |   |                  |   |       |                                           |  |   |        |   |  |   | (10,229 | ) |  |   | (10,229 | )
|Distributions ($ 2.09 per Series B preferred share) |  |                 |   |                                   |   |                         |  |                      |        |  |                                   |       |   |                  |   |       |                                           |  |   |        |   |  |   | (576    | ) |  |   | (576    | )
|Net income                                          |  |                 |   |                                   |   |                         |  |                      |        |  |                                   |       |   |                  |   |       |                                           |  |   | 38,841  |   |  |   |        |   |  |   | 38,841  |  
|                                                    |  |                 |    |                                   |   |                          |  |                      |         |  |                                   |        |   |                  |   |        |                                           |  |   |         |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2003                          |  | $               | 51 |                                   | $ | 241                      |  | $                    | 485,724 |  | $                                 | (3,394 | ) |                  | $ |       |                                           |  | $ |        |   |  | $ | (45,769 | ) |  | $ | 436,853 |  
|                                                    |  |                 |    |                                   |   |                          |  |                      |         |  |                                   |        |   |                  |   |        |                                           |  |   |         |   |  |   |         |   |  |   |         |  



The accompanying notes
are an integral part of these consolidated financial statements.



F-6



---

##### Table of Contents

LASALLE HOTEL PROPERTIES



Consolidated Statements of Cash Flows

(Dollars in thousands, except per share data)



|                                                                                      |  |   |                                 |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------- |  | - | ------------------------------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                                      |  |   | For the year ended December 31, |  
|                                                                                      |  |   | 2003                            |   |  |   | 2002    |   |  |   | 2001    |  
|Cash flows from operating activities:                                                 |  |   |                                 |   |  |   |         |   |  |   |         |  
|Net income                                                                            |  | $ | 38,841                          |   |  | $ | 4,471   |   |  | $ | 3,835   |  
|Adjustments to reconcile net income to net cash flowprovided by operating activities: |  |   |                                 |   |  |   |         |   |  |   |         |  
|Depreciation and other amortization                                                   |  |   | 33,702                          |   |  |   | 33,531  |   |  |   | 31,429  |  
|Amortization of deferred financing costs                                              |  |   | 3,511                           |   |  |   | 2,398   |   |  |   | 1,992   |  
|Bond premium amortization                                                             |  |   |                                |   |  |   |        |   |  |   | (314    | )
|Minority interest in LaSalle Hotel Operating Partnership, L.P.                        |  |   | 819                             |   |  |   | 104     |   |  |   | 103     |  
|Impairment of investment in hotel property                                            |  |   | 2,453                           |   |  |   |        |   |  |   | 1,872   |  
|Gain on sale of property                                                              |  |   | (37,087                         | ) |  |   |        |   |  |   |        |  
|Loss on sale of property                                                              |  |   | 425                             |   |  |   |        |   |  |   |        |  
|Writedown of notes receivable                                                         |  |   |                                |   |  |   | 158     |   |  |   | 1,172   |  
|Loss on investment in LHL                                                             |  |   |                                |   |  |   |        |   |  |   | 8       |  
|Income tax benefit                                                                    |  |   | (5,642                          | ) |  |   | (3,017  | ) |  |   | (1,507  | )
|Deferred compensation                                                                 |  |   | 899                             |   |  |   | 770     |   |  |   | 356     |  
|Equity in income of joint venture                                                     |  |   | (304                            | ) |  |   | (458    | ) |  |   | (616    | )
|Cost of early extinguishment of debt                                                  |  |   |                                |   |  |   |        |   |  |   | 973     |  
|Changes in assets and liabilities:                                                    |  |   |                                 |   |  |   |         |   |  |   |         |  
|Rent receivable                                                                       |  |   | 520                             |   |  |   | 1,004   |   |  |   | 5,460   |  
|Hotel receivables                                                                     |  |   | (5,410                          | ) |  |   | (1,079  | ) |  |   | (780    | )
|Deferred tax asset                                                                    |  |   | (567                            | ) |  |   | (3,096  | ) |  |   | (1,074  | )
|Prepaid expenses and other assets                                                     |  |   | 6,147                           |   |  |   | 1,587   |   |  |   | 4,109   |  
|Due to Jones Lang LaSalle Incorporated                                                |  |   |                                |   |  |   |        |   |  |   | (966    | )
|Mortgage loan premium                                                                 |  |   | 2,015                           |   |  |   |        |   |  |   |        |  
|Accounts payable and accrued expenses                                                 |  |   | (834                            | ) |  |   | 2,618   |   |  |   | (4,414  | )
|Advance deposits                                                                      |  |   | 2,266                           |   |  |   | 63      |   |  |   | (134    | )
|Accrued interest                                                                      |  |   | (560                            | ) |  |   | (1,093  | ) |  |   | (1,488  | )
|                                                                                      |  |   |                                 |   |  |   |         |   |  |   |         |  
|Net cash flow provided by operating activities                                        |  |   | 41,194                          |   |  |   | 37,961  |   |  |   | 40,016  |  
|                                                                                      |  |   |                                 |   |  |   |         |   |  |   |         |  
|Cash flows from investing activities:                                                 |  |   |                                 |   |  |   |         |   |  |   |         |  
|Improvements and additions to hotel properties                                        |  |   | (27,024                         | ) |  |   | (31,685 | ) |  |   | (22,725 | )
|Acquisition of hotel properties                                                       |  |   | (74,895                         | ) |  |   |        |   |  |   | (86,534 | )
|Acquisition of LHL                                                                    |  |   |                                |   |  |   |        |   |  |   | (53     | )
|Distributions from joint venture                                                      |  |   | 1,396                           |   |  |   | 1,198   |   |  |   | 943     |  
|Purchase of office furniture and equipment                                            |  |   | (203                            | ) |  |   | (23     | ) |  |   | (417    | )
|Repayment of notes receivable                                                         |  |   | 1,319                           |   |  |   | 600     |   |  |   | 4,265   |  
|Funding of notes receivable                                                           |  |   |                                |   |  |   | (198    | ) |  |   | (130    | )
|Distributions from LHL                                                                |  |   |                                |   |  |   |        |   |  |   | 5       |  
|Funding of restricted cash reserves                                                   |  |   | (22,207                         | ) |  |   | (15,164 | ) |  |   | (5,479  | )
|Proceeds from restricted cash reserves                                                |  |   | 18,956                          |   |  |   | 2,896   |   |  |   | 13,966  |  
|Proceeds from sale of investment in hotel properties                                  |  |   | 49,949                          |   |  |   | 828     |   |  |   | 14,928  |  
|                                                                                      |  |   |                                 |   |  |   |         |   |  |   |         |  
|Net cash flow used in investing activities                                            |  |   | (52,709                         | ) |  |   | (41,548 | ) |  |   | (81,231 | )
|                                                                                      |  |   |                                 |   |  |   |         |   |  |   |         |  



F-7



---

##### Table of Contents

LASALLE HOTEL PROPERTIES



Consolidated Statements of Cash FlowsContinued

(Dollars in thousands, except per share data)



|                                               |  |   |                                 |   |  |   |          |   |  |   |         |  
|---------------------------------------------- |  | - | ------------------------------- | - |  | - | -------- | - |  | - | ------- | -
|                                               |  |   | For the year ended December 31, |  
|                                               |  |   | 2003                            |   |  |   | 2002     |   |  |   | 2001    |  
|Cash flows from financing activities:          |  |   |                                 |   |  |   |          |   |  |   |         |  
|Borrowings under credit facilities             |  |   | 124,766                         |   |  |   | 64,676   |   |  |   | 159,886 |  
|Repayments under credit facilities             |  |   | (224,156                        | ) |  |   | (140,686 | ) |  |   | (97,986 | )
|Proceeds from issuance of bonds                |  |   |                                |   |  |   |         |   |  |   | 42,500  |  
|Repayments under bond issued                   |  |   |                                |   |  |   |         |   |  |   | (40,000 | )
|Proceeds from mortgage loans                   |  |   | 65,000                          |   |  |   |         |   |  |   |        |  
|Repayments of mortgage loans                   |  |   | (1,673                          | ) |  |   | (1,520   | ) |  |   | (1,402  | )
|Cost of early extinguishment of debt           |  |   |                                |   |  |   |         |   |  |   | (973    | )
|Payment of deferred financing costs            |  |   | (3,022                          | ) |  |   | (567     | ) |  |   | (1,107  | )
|Proceeds from exercise of stock options        |  |   | 662                             |   |  |   |         |   |  |   | 3,725   |  
|Proceeds from issuance of preferred shares     |  |   | 27,500                          |   |  |   | 99,798   |   |  |   |        |  
|Proceeds from issuance of common shares        |  |   | 83,919                          |   |  |   |         |   |  |   |        |  
|Payment of preferred offering costs            |  |   | (732                            | ) |  |   | (3,868   | ) |  |   | (168    | )
|Payment of common offering costs               |  |   | (2,360                          | ) |  |   |         |   |  |   |        |  
|Distributions-preferred shares                 |  |   | (10,229                         | ) |  |   | (5,853   | ) |  |   |        |  
|Distributions-common shares                    |  |   | (19,920                         | ) |  |   | (4,590   | ) |  |   | (21,956 | )
|                                               |  |   |                                 |   |  |   |          |   |  |   |         |  
|Net cash flow provided by financing activities |  |   | 39,755                          |   |  |   | 7,390    |   |  |   | 42,519  |  
|                                               |  |   |                                 |   |  |   |          |   |  |   |         |  
|Net change in cash and cash equivalents        |  |   | 28,240                          |   |  |   | 3,803    |   |  |   | 1,304   |  
|Cash and cash equivalents, beginning of period |  |   | 6,521                           |   |  |   | 2,718    |   |  |   | 1,414   |  
|                                               |  |   |                                 |   |  |   |          |   |  |   |         |  
|Cash and cash equivalents, end of period       |  | $ | 34,761                          |   |  | $ | 6,521    |   |  | $ | 2,718   |  
|                                               |  |   |                                 |   |  |   |          |   |  |   |         |  





The accompanying notes are an integral part of these consolidated financial statements.



F-8



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LASALLE HOTEL PROPERTIES



Notes
to Consolidated Financial Statements

(Dollars in thousands, expect per share data)



1. Organization and Initial Public Offering



LaSalle Hotel Properties (the Company) was organized in the state
of Maryland on January 15, 1998 as a real estate investment trust (REIT) as defined in the Internal Revenue Code. The Company was formed to own hotel properties. The Company had no operations prior to April 29, 1998, at which time the
Company completed its initial public offering. Effective January 1, 2001, the Company became self-administered and self-managed (see Note 14). The Company buys, owns and leases upscale and luxury full-service hotels located in convention, resort and
major urban business markets.



As of December 31, 2003, the
Company owned interests in 17 hotels with approximately 5,600 suites/rooms located in ten states and the District of Columbia. The Company owns 100% equity interests in 15 of the hotels, a controlling 95.1% interest in a partnership that owns one
hotel and a non-controlling 9.9% equity interest in a joint venture that owns one hotel. Each hotel is leased under a participating lease that provides for rental payments equal to the greater of (i) a base rent or (ii) a participating rent based on
hotel revenues. An independent hotel operator manages each hotel. Two of the hotels are leased to unaffiliated lessees (affiliates of whom also operate these hotels) and 14 of the hotels are leased to the Companys taxable REIT subsidiary,
LaSalle Hotel Lessee, Inc. (LHL), or a wholly owned subsidiary of LHL (see Note 16). Lease revenue from LHL and its wholly owned subsidiaries is eliminated in consolidation. The hotel that is owned by the joint venture that owns the
Chicago Marriott Downtown is leased to Chicago 540 Lessee, Inc. in which the Company has a non-controlling 9.9% equity interest (see Note 2).



Substantially all of the Companys assets are held by, and all of its operations are conducted through, LaSalle Hotel Operating Partnership, L.P. The
Company is the sole general partner of the operating partnership. The Company owns approximately 98.3% of the operating partnership at December 31, 2003. The remaining 1.7% is held by other limited partners who hold 424,686 limited partnership
units. Limited partnership units are redeemable for cash, or at the option of the Company, a like number of common shares of beneficial interest of the Company.



2. Summary of Significant Accounting Policies



Basis of Presentation



The consolidated financial statements include the accounts of the Company, the operating partnership, LHL and its subsidiaries and partnerships in which
it has a controlling interest. All significant intercompany balances and transactions have been eliminated.



Reclassification



Certain 2002 and 2001 items have been reclassified to conform with 2003 presentations.



Use of Estimates



The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP)
requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and the amounts of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.



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Fair Value of Financial Instruments



Fair value is determined by using available market information and appropriate valuation methodologies. The Companys
financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, borrowings under the Companys senior unsecured bank facility, borrowings under LHLs credit facility, special project
revenue bonds issued by the Massachusetts Port Authority and mortgage loans on five properties. Due to their short maturities, cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at amounts that
reasonably approximate fair value. As borrowings under the senior unsecured bank facility, borrowings under LHLs credit facility and the Massachusetts Port Authority Special Project Revenue Bonds bear interest at variable market rates,
carrying values approximate market value at December 31, 2003 and 2002, respectively. At December 31, 2003 and 2002, the carrying value of the mortgage loans approximated fair value as the interest rates associated with the borrowings approximated
current market rates available for similar types of borrowing arrangements.



Investment in Hotel Properties



Upon acquisition, the Company allocates the purchase price of assets to asset classes based on the fair value of the acquired real estate, furniture, fixtures and equipment and intangible assets. The Companys investments in hotel
properties are carried at cost and are depreciated using the straight-line method over estimated useful lives ranging from 27.5 to 30 years for buildings and improvements and three to five years for furniture, fixtures and equipment.



The Company periodically reviews the carrying value of each hotel to
determine if circumstances exist indicating impairment to the carrying value of the investment in the hotel or that depreciation periods should be modified. If facts or circumstances support the possibility of impairment, the Company will prepare an
estimate of the undiscounted future cash flows, without interest charges, of the specific hotel and determine if the investment in such hotel is recoverable based on the undiscounted future cash flows. If impairment is indicated, an adjustment will
be made to the carrying value of the hotel to reflect the hotel at fair value.



In July 2003, the Company s management changed its intent from holding its investment in the Holiday Inn Beachside Resort to selling the property due to the projected cost of renovating the property and
receiving an unsolicited offer to purchase the property. As a result, the Company wrote down its investment in the Holiday Inn Beachside Resort by $2,453 to its estimated fair value, net of estimated costs to sell. The Board of Trustees approved
managements plan to sell the asset in July 2003, and the asset was sold in July 2003. The Company does not believe that there are any facts or circumstances indicating impairment of any of its other investments in its hotels.



In accordance with the provisions of Financial Accounting Standards Board
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, a hotel is considered held for sale when a contract for sale is entered into or when management has committed to a plan to sell an asset, the asset is
actively marketed and sale is expected to occur within one year.



Intangible Assets



The Company has an
intangible asset for rights to build in the future at the Lansdowne Resort, which has an indefinite useful life. The Company does not amortize intangible assets with indefinite useful lives. The non-amortizable intangible asset is reviewed annually
for impairment and more frequently if events or circumstances indicate that the asset may be impaired. If a non-amortizable intangible asset is subsequently determined to have a finite useful life, the intangible asset will be written down to the
lower of its fair value or carrying amount and then amortized prospectively, based on the remaining useful life of the intangible asset. The intangible asset for rights to build in the future is included in property under development in the
accompanying consolidated balance sheets.



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Investment in Joint Venture



Investment in joint venture represents the Companys non-controlling 9.9% equity interest in each of (i) the joint
venture that owns the Chicago Marriott Downtown and (ii) Chicago 540 Lessee, Inc., both of which are associated with the Chicago Marriott Downtown. The Carlyle Group owns a 90.1% controlling interest in both the Chicago 540 Hotel Venture and Chicago
540 Lessee, Inc. The Company accounts for its investment in joint venture under the equity method of accounting. The Company also has the opportunity to earn an incentive participation in net sale proceeds based upon the achievement of certain
overall investment returns, in addition to its pro rata share of net sale or refinancing proceeds. Marriott International, Inc. operates the Chicago Marriott Downtown pursuant to a long-term incentive-based operating agreement.



The joint venture that owns the Chicago Marriott Downtown entered into a
$120.0 million interest-only loan that was scheduled to mature on February 1, 2003. On June 17, 2002, the joint venture that owns the Chicago Marriott Downtown and in which the Company holds a non-controlling 9.9% ownership interest, refinanced its
existing $120.0 million mortgage loan with two new mortgage loans from a new lender. The new mortgage loans are for an aggregate amount of $120.0 million and have two-year terms. The mortgage loans can be extended at the option of the joint venture
for three additional one-year terms. The mortgages bear interest at the greater of (i) the London InterBank Offered Rate plus 2.4% or (ii) 4.9%. As of December 31, 2003, the interest rate was 4.9%. Monthly interest-only payments are due in arrears
throughout the term. The Chicago Marriott Downtown secures these mortgages. The Companys pro rata share of the loans in aggregate is approximately $11.9 million and is included in calculating the debt coverage ratios under the Companys
debt covenants. The Company has not guaranteed payment of the refinanced loan.



LHL



Effective January
1, 2001, the Company purchased all of the issued and outstanding shares of capital stock of LHL for $500 (which included an aggregate of $455 in payments to Jones Lang LaSalle Incorporated and LPI Charities for the shares then held by them) in
accordance with a stock purchase agreement dated July 28, 2000. Effective January 1, 2001, LHL became a wholly owned subsidiary of the Company as provided for under the taxable-REIT subsidiary provisions of the Internal Revenue Code (the
Code) (see Note 16).



Derivative/Financial
Instruments



In the normal course of business, the Company
is exposed to the effects of interest rate changes. As of December 31, 2003, approximately 48.8% (including the Companys $11.9 million pro rata portion of indebtedness relating to the Companys joint venture investment in the Chicago
Marriott Downtown) of the Companys borrowings were subject to variable rates. The Company limits the risks associated with interest rate changes by following established risk management policies and procedures including the use of derivatives.
For interest rate exposures, derivatives are used primarily to align rate movements between interest rates associated with the Companys hotel operating revenue, participating lease revenue and other financial assets with interest rates on
related debt, and manage the cost of borrowing obligations. The Company utilizes derivative financial instruments to manage, or hedge, interest rate risk. The Company requires that hedging derivative instruments be effective in reducing the interest
rate risk exposure that they are designated to hedge. This effectiveness is essential in order to qualify for hedge accounting. Some derivative instruments are associated with the hedge of an anticipated transaction. In those cases, hedge
effectiveness criteria also require that it be probable that the underlying transaction will occur. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract. When the terms of an
underlying transaction are modified, or when the underlying hedged item ceases to exist, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income each period until the instrument matures.



The Company has a policy of only entering into contracts with
major financial institutions based upon their credit ratings and other factors. When viewed in conjunction with the underlying and offsetting exposure that the



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derivatives are designed to hedge, the Company has not sustained a material loss from those instruments nor does it anticipate any material adverse effect on
its net income or financial position in the future from the use of derivatives.



To manage interest rate risk, the Company may employ options, forwards, interest rate swaps, caps and floors or a combination thereof depending on the underlying exposure. The Company utilizes a variety of borrowings
including lines of credit and medium and long-term financings. To reduce overall interest cost, the Company uses interest rate instruments, typically interest rate swaps, to convert a portion of its variable rate debt to fixed rate debt. Interest
rate differentials that arise under these swap contracts are recognized in interest expense over the life of the contracts. The resulting cost of funds is usually lower than that which would have been available if debt with matching characteristics
was issued directly.



To determine the fair values of
derivative instruments, the Company uses a variety of methods and assumptions that are based on market conditions and risks existing as of each valuation date. For the majority of financial instruments including most derivatives, long-term
investments and long-term debt, standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost, and termination cost are used to determine fair value. All methods of assessing fair value
result in a general approximation of value, and such value may never actually be realized.



Cash and Cash Equivalents



All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents.



Deferred Financing Fees



Deferred financing fees are recorded at cost and are amortized over the three-year term of the senior unsecured bank facility, over the ten-year terms of
the mortgage loans that are collateralized by the Radisson Convention Hotel, Westin City Center Dallas, and the Le Montrose Suite Hotel, over the five-year term of the mortgage loan collateralized by the San Diego Paradise Point Resort and over the
17-year term of the special project revenue bonds issued by the Massachusetts Port Authority (see Note 8). Accumulated amortization at December 31, 2003 and 2002 was $6,036 and $4,990, respectively.



Distributions



Through 2002, the Company paid quarterly distributions to its common
shareholders of beneficial interest as directed by the Board of Trustees. On October 3, 2002, the Company announced its plans to pay monthly distributions in lieu of quarterly distributions to its common shareholders and unitholders beginning in
2003. The first monthly distribution of $0.07 per common share of beneficial interest and limited partnership unit was paid on February 14, 2003, for the month of January 2003, and monthly distributions were paid throughout the remainder of 2003.
The Companys ability to pay distributions is dependent on the receipt of distributions from the operating partnership.



To date, the Company has paid quarterly distributions to its Series A Preferred Shareholders pursuant to the preferred share prospectus supplement of
February 28, 2002, and to its Series B Preferred Shareholders pursuant to the preferred share prospectus supplement of September 23, 2003.



Revenue Recognition



For properties not leased by LHL, the Company recognizes lease revenue on an accrual basis pursuant to the terms of each participating lease. Base and
participating rent are each recognized based on quarterly thresholds pursuant to each participating lease (see Note 13). For properties leased by LHL, the Company recognizes hotel operating revenue on an accrual basis consistent with the hotel
operations.



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For the Lansdowne Resort, the Company defers golf membership fees and recognizes revenue over the average
expected life of an active membership (currently six years) on a straight-line basis. Golf membership, health club and executive club annual dues are recognized as earned throughout the membership year.



Minority Interest



Minority interest in the operating partnership represents the limited
partners proportionate share of the equity in the operating partnership. During 2003 and 2002, respectively, zero and 18,497 units of limited partnership interest were redeemed by unitholders. At December 31, 2003, the aggregate partnership
interest held by the limited partners in the operating partnership was approximately 1.7%. Income is allocated to minority interest based on the weighted average percentage ownership throughout the year.



Outstanding operating partnership units of limited partnership interest are
redeemable for cash or, at the option of the Company, for a like number of common shares of beneficial interest of the Company.



Minority interest in the LHO Mission Bay Hotel, L. P. represents the limited partners proportionate share of the equity in the LHO Mission Bay
Hotel, L. P. All partnership income is allocated to the general partner until certain cumulative rates of return on the general partners initial contribution are met; thereafter partnership income is allocated to the general partner and
limited partner in proportion to their respective partnership interests. Upon sale of the property owned by the partnership, the limited partner would receive sales proceeds up to its initial capital contribution of $10, and after a preferred return
to the general partner, would share in additional sales proceeds, if any.



Stock-Based Compensation



Prior to 2003, the Company applied Accounting Principles Board Opinion No. 25 and related interpretations in accounting for the 1998 share option and incentive plan. Accordingly, no compensation costs were recognized for stock options
granted to the Companys employees, as all options granted under the plan had an exercise price equal to the market value of the underlying stock on the date of grant. Effective January 1, 2003, the Company adopted the fair value recognition
provisions of Statement No. 123 prospectively for all options granted to employees and members of the Board of Trustees. No options were granted during 2003. Options granted under the 1998 share option and incentive plan vest over three to four
years, therefore the costs related to stock-based compensation for 2003 and 2002 are less than that which would have been recognized if the fair value based method had been applied to all grants since the original effective date of Statement No.
123.



The Company has applied Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for the 1998 share option and incentive plan. Accordingly, no compensation costs have been recognized. Had compensation cost for all of the options granted under the Companys 1998 share
option and incentive plan been determined in accordance with the method required by Statement No. 123, the Companys net income and net income per common share for 2003, 2002 and 2001 would approximate the pro forma amounts below (in thousands,
except per share data).



|                                                              |  |          |        |   |          |   |        |          |  |   |       |  
|------------------------------------------------------------- |  | -------- | ------ | - | -------- | - | ------ | -------- |  | - | ----- | -
|                                                              |  | 2003     |        |   | 2002     |   |        | 2001     | 
|                                                              |  | Proforma |        |   | Proforma |   |        | Proforma | 
|Net income (loss) available to common shareholders            |  | $        | 28,036 |   |          | $ | (3,939 | )        |  | $ | 3,835 |  
|Stock-based employee compensation expense                     |  |          | (89    | ) |          |   | (145   | )        |  |   | (157  | )
|                                                              |  |          |        |   |          |   |        |          |  |   |       |  
|Proforma net income (loss)                                    |  | $        | 27,947 |   |          | $ | (4,084 | )        |  | $ | 3,678 |  
|                                                              |  |          |        |   |          |   |        |          |  |   |       |  
|Proforma net income (loss) per common share:                  |  |          |        |   |          |   |        |          |  |   |       |  
|basic (after dividends paid on unvested restricted shares)    |  | $        | 1.38   |   |          | $ | (0.23  | )        |  | $ | 0.20  |  
|                                                              |  |          |        |   |          |   |        |          |  |   |       |  
|diluted (before dividends paid on unvested restricted shares) |  | $        | 1.36   |   |          | $ | (0.22  | )        |  | $ | 0.20  |  
|                                                              |  |          |        |   |          |   |        |          |  |   |       |  



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Recently Issued Accounting Pronouncements



On April 30, 2002, the Financial Accounting Standards Board issued Statement
No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The rescission of Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and Statement
No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements, which amended Statement No. 4, affects income statement classification of gains and losses from extinguishment of debt. Statement No. 4 requires that
gains and losses from extinguishment of debt be classified as an extraordinary item, if material. Under Statement No. 145, extinguishment of debt is now considered a risk management strategy by the reporting enterprise and the Financial Accounting
Standards Board does not believe it should be considered extraordinary under the criteria in Accounting Principles Board Opinion No. 30, Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, unless the debt extinguishment meets the unusual in nature and infrequency of occurrence criteria in Accounting Principles Board Opinion No. 30. Statement No. 145
is effective for fiscal years beginning after May 15, 2002. Upon adoption on January 1, 2003, extinguishments of debt are classified under the criteria in Accounting Principles Board Opinion No. 30. Adoption did not have a material effect on the
Company.



In December 2002, the Financial Accounting Standards
Board issued Statement No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure  an amendment of FASB Statement No. 123. Statement No. 148 amends Financial Accounting Standards Board Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, Statement No. 148 amends the
disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.
In addition, to address concerns raised by some constituents about the lack of comparability caused by multiple transition methods, Statement No. 148 does not permit the use of the Statement No. 123 prospective method of transition for changes to
the fair value based method made in fiscal years beginning after December 15, 2003. The Company adopted Statements No. 123 and No. 148 effective January 1, 2003. Adoption did not have a material effect on the Company.



In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, Consolidation of Variable Interest Entities, which addresses consolidation by business enterprises of variable interest entities. In general, a variable interest entity is a corporation, partnership, trust, or any
other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. A variable
interest entity often holds financial assets, including loans or receivables, real estate or other property. A variable interest entity may be essentially passive or it may engage in research and development or other activities on behalf of another
company. Until now, a company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. Interpretation No. 46 changes that by requiring a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entitys activities or entitled to receive a majority of the entitys residual returns or both. The consolidation
requirements of Interpretation No. 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in by the end of first reporting period beginning after December 15, 2003.
Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. Adoption is not expected to have a material effect on the Company.



In May, 2003, the Financial Accounting Standards Board issued Statement
No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. Statement No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise are effective
at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial



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instruments of nonpublic entities which are subject to the provisions of the statement for the first fiscal period beginning after December 15, 2003. This
Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. The Company is evaluating the impact of adoption.



Income Taxes



The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with its taxable year ended December 31, 1998. To
qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its adjusted taxable income to its shareholders. It is the Companys current
intention to adhere to these requirements and maintain the Companys qualification for taxation as a REIT. As a REIT, the Company generally is not subject to federal corporate income tax on that portion of its net income that is currently
distributed to shareholders. If the Company fails to qualify for taxation as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to
qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its
undistributed taxable income. In addition, taxable income from non-REIT activities managed through taxable REIT subsidiaries is subject to federal, state and local income taxes. As a wholly owned taxable-REIT subsidiary of the Company, LHL is
required to pay income taxes at the applicable rates.



Earnings Per Share



Basic earnings per share is
based on the weighted average number of common shares of beneficial interest outstanding during the year excluding the weighted average number of unvested restricted shares. Diluted earnings per share is based on the weighted average number of
common shares of beneficial interest outstanding plus the effect of in-the-money stock options.



3. Acquisition of Hotel Properties



The initial hotels were previously owned by various limited and general partnerships. In conjunction with the initial public offering and the related formation transactions, the initial hotels, except for Radisson
Convention Hotel (previously owned by LRP Bloomington Limited Partnership), were purchased by the Company from their then various limited and general partnership owners and were accounted for as purchase transactions. LRP Bloomington Limited
Partnership, the then existing partnership that retained the largest number and percentage of voting rights of the Company after the formation transactions, was designated as the predecessor of the Company for accounting purposes. Therefore, the
Company recorded a purchase accounting adjustment in order to account for the Radisson Convention Hotel using the historical basis of accounting.



On March 8, 2001, the Company acquired a 100% interest in four full-service hotels, which the Company refers to as the D.C. Collection, in
Washington, D.C. with a total of 496 guestrooms for a net purchase price of approximately $42.5 million. Each hotel in the D.C. Collection features large guestrooms or suites. All four hotels were fully renovated, improved and repositioned as unique
high-end, independent hotels. The Company leases each of the hotels to wholly owned subsidiaries of LHL. The Kimpton Hotel & Restaurant Group, L.L.C. manages and operates each of the hotels in the D.C. Collection as independent, non-branded,
hotels.



On June 1, 2001, the Company purchased all of the
issued and outstanding stock of I&G Capitol, Inc., which owns the Holiday Inn on the Hill. The 343-guestroom upscale full-service hotel, located on Capitol Hill in Washington, D.C., was acquired for a net purchase price of approximately $44.0
million. The Company leases the hotel to a wholly owned subsidiary of LHL. Crestline Hotels & Resorts, Inc. has managed the hotel since 1997.



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On June 17, 2003, the Company acquired a 100% interest in Lansdowne Resort, a 296-room, full-service
luxury golf resort and conference center located in Lansdowne, Virginia, for $115.8 million including $52,955 in cash and the assumption of a $62,845 mortgage loan (see Note 8). The source of the funding for the acquisition was the Companys
1031-escrow and Companys senior unsecured bank facility. The Company leases the hotel to LHL. Benchmark Hospitality manages the property under a five-year management agreement. The Company has undertaken a development program, developing a
second golf course, clubhouse, spa and rooms renovation, currently projected at a total of approximately $40,000, which is expected to be completed by mid-2005. As of December 31, 2003, total property under development was $14,743, including $3,734
of future air rights for land development.



On September 18,
2003, the Company acquired a 100% interest in the Hotel George, a 139-room, luxury full-service hotel located in Washington, D.C., for $24.1 million and the Hotel George became the fifth hotel in the Companys D.C. Collection. The source of the
funding for the acquisition was the Companys senior unsecured bank facility. The property is leased to LHL, and Kimpton Hotel and Restaurant Group, LLC manages the property.



4. Investment in Hotel Properties



Investment in hotel properties as of December 31, 2003 and 2002 consists of the following:



|                                  |  |                  |          |   |                  |   |          |  
|--------------------------------- |  | ---------------- | -------- | - | ---------------- | - | -------- | -
|                                  |  | December 31,2003 |          |   | December 31,2002 |  
|Land                              |  | $                | 84,373   |   |                  | $ | 60,645   |  
|Buildings and improvements        |  |                  | 545,010  |   |                  |   | 511,228  |  
|Furniture, fixtures and equipment |  |                  | 114,279  |   |                  |   | 113,407  |  
|                                  |  |                  |          |   |                  |   |          |  
|                                  |  |                  | 743,662  |   |                  |   | 685,280  |  
|Accumulated depreciation          |  |                  | (147,686 | ) |                  |   | (135,466 | )
|                                  |  |                  |          |   |                  |   |          |  
|                                  |  | $                | 595,976  |   |                  | $ | 549,814  |  
|                                  |  |                  |          |   |                  |   |          |  



The December 31, 2003
balance of investment in hotel properties excludes $14,743 of property under development for the Lansdowne Resort. The December 31, 2002 balance of investment in hotel properties includes $54,326 included in assets sold in the accompanying
consolidated financial statements.



The hotels are located in
California (two), the District of Columbia (six), Massachusetts, Minnesota, Nebraska, New Jersey, New York, Rhode Island, Texas and Virginia.



5. Notes Receivable



Prior to December 31, 2001, the Company provided working capital to LHL and the other lessees in the aggregate amount of $1,634 in exchange for working
capital notes receivable. During 2002, $600 of the working capital notes receivable were paid down and an additional $198 was provided to lessees, resulting in a working capital notes receivable balance of $1,232, including $450 due from Le Meridien
New Orleans (see Note 9). Additionally, the Company had a $571 note receivable with an affiliate of the operator of the Le Montrose Suite Hotel. During 2003, $749 of the working capital notes receivable, including the $450 due from Le Meridien
New Orleans, were paid down. Additionally, the $571 note receivable with an affiliate of the Le Montrose Suite Hotel was paid down, leaving a notes receivable balance of $483. The working capital notes receivable bear interest at either 5.6% or
9.0% per annum and have terms identical to the terms of the related participating lease. The working capital notes receivable are payable in monthly installments of interest only.



In addition, the Company sold certain furniture, fixtures and equipment to two of its unaffiliated lessees in exchange for
furniture, fixtures and equipment notes receivable, with a net realizable value of $411 as of



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December 31, 2001. During 2002, the amounts due on certain furniture, fixtures and equipment notes receivable were satisfied by the lessee returning the
furniture, fixtures and equipment. Additionally in 2002, the furniture, fixtures and equipment notes were adjusted based on the Companys valuation estimate of furniture, fixtures and equipment that secure the loans, resulting in a writedown of
$158. As of December 31, 2003, the outstanding balances on the furniture, fixtures and equipment notes receivable were zero.



6. Discontinued Operations



Effective August 1, 2002, the Company entered into an exclusive listing agreement for the sale of the New Orleans property. The asset was classified as
held for sale at that time because sale was expected to occur within one year, and accordingly depreciation was suspended. Effective January 3, 2003, the Company entered into a purchase and sale agreement, which was amended February 10, 2003, to
sell the New Orleans property with expected net sales proceeds of $91,500. The asset was sold on April 21, 2003 (see Note 7). Total revenues related to the asset of $6,267, comprised of primarily participating rent and hotel operating revenues, and
income before income tax expense related to the asset of $62 for the year ended December 31, 2003, are included in discontinued operations. Revenues and expenses for the years ended December 31, 2002 and 2001 have been reclassified to conform with
the current presentation.



On July 16, 2003, the Board of
Trustees approved managements commitment to a plan to sell the Holiday Inn Beachside Resort. The asset was classified as held for sale at that time because sale was expected to occur within one year; accordingly depreciation was suspended. On
July 25, 2003, the Company sold the Holiday Inn Beachside Resort (see Note 7). Total revenues related to the asset of $5,429, comprised of primarily participating rent and hotel operating revenues, and income before income tax benefit related to the
asset of $903 for the year ended December 31, 2003, are included in discontinued operations. Revenues and expenses for the years ended December 31, 2002 and 2001 have been reclassified to conform with the current presentation.



The Company allocates interest expense to discontinued operations for debt
that is to be assumed or that is required to be repaid as a result of the disposal transaction. The Company allocated $1,678 and $4,804 of interest expense to discontinued operations for the years ended December 31, 2003 and 2002, respectively.



7. Disposition of Hotel Properties



On August 15, 2001, the Company sold the Radisson Hotel Tampa for $15,500.
The asset was classified as held for sale on December 6, 2000 at which time depreciation was suspended. Based on initial pricing expectations, the Company recognized a writedown of $11,030, reducing the net book value of the asset to $17,027 in
2000, which included $200 of estimated accrued closing costs. As of July 3, 2001, a purchase and sale agreement was entered into with expected net sales proceeds of $15,084. As a result, the Company recognized an additional writedown of $1,872 in
2001, which included an additional $216 of estimated accrued costs. Actual proceeds, net of prorations and closing costs, were approximately $14,928.



On April 21, 2003, the Company sold the New Orleans Grande Hotel for $92,500 resulting in a gain of approximately $37,087. The gain is recorded in
discontinued operations in the accompanying consolidated financial statements. The asset was classified as held for sale effective August 1, 2002 at which time depreciation was suspended. Based on initial pricing expectations, the Company expected a
gain on the sale of the asset, and, as such, no impairment of the asset was recorded. The Company redeployed the net sale proceeds of approximately $91,500 through an Internal Revenue Code Section 1031 like kind exchange (see Note 3).



In July 2003, management of the Company changed its intent from holding its
investment in the Holiday Inn Beachside Resort, located in Key West, Florida, to selling the property due to the projected cost of renovating the property and receiving an unsolicited offer to purchase the property. As a result, the Company wrote
down its investment in the Holiday Inn Beachside Resort by $2,453 during the second quarter 2003 to its estimated fair value, net of estimated costs to sell. The writedown is recorded in impairment of investment in hotel property in



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the accompanying consolidated financial statements. On July 16, 2003, the Board of Trustees approved managements commitment to a plan to sell the
Holiday Inn Beachside Resort. The asset was classified as held for sale at that time because sale was expected to occur within one year; accordingly depreciation was suspended. On July 25, 2003, the Company sold the Holiday Inn Beachside Resort for
$17,170. The Company recognized a loss on the sale of the asset of $425 at the time of the sale. The loss is recorded in discontinued operations in the accompanying consolidated financial statements.



8. Long-Term Debt



Credit Facility



The Company had a senior unsecured bank facility from a syndicate of banks, which provided for a maximum borrowing of up to $210.0 million and was due to
mature on December 31, 2003. On November 20, 2003, the Company executed a new senior unsecured bank facility from a syndicate of banks, which provides for a maximum borrowing of up to $215.0 million. The new senior unsecured bank facility matures on
December 31, 2006 and has a one-year extension option. Funding for the new unsecured bank facility occurred on December 15, 2003, at which time it replaced the Companys prior senior unsecured bank facility. The senior unsecured bank facility
contains certain financial covenants relating to debt service coverage, net worth and total funded indebtedness and contains financial covenants that, assuming no continuing defaults, allow the Company to make shareholder distributions which, when
combined with the distributions to shareholders in the three immediately preceding fiscal quarters, do not exceed the greater of (i) funds from operations from the preceding four-quarter rolling period or (ii) the greater of (a) the amount of
distributions required for the Company to maintain its status as a REIT or (b) the amount required to ensure the Company will avoid imposition of an excise tax for failure to make certain minimum distributions on a calendar year basis. Borrowings
under the new senior unsecured bank facility bear interest at floating rates equal to, at the Companys option, either (i) London InterBank Offered Rate plus an applicable margin, or (ii) an Adjusted Base Rate plus an applicable
margin. For the year ended December 31, 2003 and 2002, the weighted average interest rate for borrowings under the senior unsecured bank facility was approximately 3.8% and 4.3%, respectively. The Company did not have any Adjusted Base Rate
borrowings outstanding at December 31, 2003. Additionally, the Company is required to pay a variable unused commitment fee determined from a ratings or leverage based pricing matrix, currently set at 0.250% of the unused portion of the senior
unsecured bank facility. The Company incurred an unused commitment fee of approximately $0.5 million and $0.4 million for the years ended December 31, 2003 and 2002, respectively. At December 31, 2003 and 2002, the Company had zero and $94,700,
respectively, outstanding borrowings under the senior unsecured bank facility.



On January 3, 2001, LHL obtained a three-year commitment for a $5,000 senior unsecured revolving credit facility to be used for working capital and general corporate purposes. On September 1, 2002, LHL amended its
unsecured revolving credit facility agreement to allow for maximum borrowings of $7.5 million. Effective January 1, 2003, LHL again amended its unsecured revolving credit facility agreement to allow for maximum borrowings of $10.0 million. This LHL
credit facility matured on December 31, 2003. Effective January 1, 2004, LHL renewed and increased the credit facility to $13.0 million for three additional years. The new LHL credit facility matures December 31, 2006. Borrowings under the LHL
credit facility bear interest at floating rates equal to, at LHLs option, either (i) London InterBank Offered Rate plus an applicable margin, or (ii) an Adjusted Base Rate plus an applicable margin. For the years ended December 31,
2003 and 2002, the weighted average interest rate under the LHL credit facility was 3.5% and 4.2%, respectively. Additionally, LHL is required to pay a variable commitment fee determined from a ratings or leverage based pricing matrix, currently set
at 0.250% of the unused portion of the LHL credit facility. LHL incurred an immaterial commitment fee for each of the years ended December 31, 2003 and 2002. At December 31, 2003 and 2002, the Company had zero and $4,690, respectively, outstanding
borrowings under the LHL credit facility.



Bonds Payable



On March 1, 2001, the Company redeemed its then existing
$40.0 million aggregate principal amount of tax-exempt Massachusetts Port Authority industrial revenue bonds that were secured by the Boston,



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Massachusetts property. Proceeds for the redemption were derived from $37.1 million of newly issued tax-exempt bonds and $5.4 million of newly issued taxable
bonds, each having a 17-year maturity, each bearing interest based on a weekly floating rate and having no principal reductions for the life of the bonds. A call premium of $792 and an interest expense of $435 associated with the escrows, offset in
the second quarter of 2001 by a $254 reimbursement of interest expense, were incurred and were classified as other expenses in the accompanying consolidated financial statements. Due to the nature of these bonds, they can be redeemed at any time
without penalty. Interest expense for the years ended December 31, 2003 and 2002 was $458 and $632, respectively. The weighted average interest rate for the years ended December 31, 2003 and 2002 was 1.1% and 1.5% respectively. These bonds were
secured by letters of credit issued by GE Capital Corporation that were due to expire on March 1, 2004. On October 7, 2003, the Company extended the letters of credit issued by GE Capital Corporation securing the MassPort Bonds. The extended letters
of credit expire in 2007 and are collateralized by the Harborside Hyatt Conference Center & Hotel and a $6.0 million letter of credit from the Company. If GE Capital Corporation fails to renew its letters of credit at that time and an acceptable
replacement provider cannot be found, the Company may be required to pay-off the bonds. The Company incurs a 2.0% annual maintenance fee, which is included in amortization of deferred financing costs. At both December 31, 2003 and 2002, the Company
had outstanding bonds payable of $42,500.



Prior to the
redemption of the bonds on March 1, 2001, certain cash reserves were required to be held in trust for payments of interest, credit enhancement fees and ground rent. In conjunction with the refinancing, cash reserves are no longer required.



Mortgage Loans



The Company, through a wholly owned partnership, is subject to a ten-year
mortgage loan that is secured by the Radisson Convention Hotel, located in Bloomington, Minnesota and the Westin City Center Dallas, located in Dallas, Texas. The mortgage loan matures on July 31, 2009 and does not allow for prepayment prior to
maturity without penalty. The mortgage loan bears interest at a fixed rate of 8.1% and requires interest and principal payments based on a 25-year amortization schedule. The loan agreement requires the partnership to hold funds in escrow sufficient
for the payment of 50% of the annual insurance premiums and real estate taxes related to the two hotels that secure the loan.



The mortgage loan that is collateralized by the Radisson Convention Hotel and the Westin City Center Dallas had principal balances of $43,515 and $44,300
at December 31, 2003 and 2002, respectively. Future scheduled debt principal payments at December 31, 2003 are as follows (dollars in thousands):



|           |  |   |       
|---------- |  | - | ------
|2004       |  | $ | 850   
|2005       |  |   | 922   
|2006       |  |   | 999   
|2007       |  |   | 1,083 
|2008       |  |   | 1,174 
|Thereafter |  |   | 38,487
|           |  |   |       
|           |  | $ | 43,515
|           |  |   |       



The Company, through a
wholly owned partnership, is subject to a ten-year mortgage loan that is secured by the Le Montrose Suite Hotel located in West Hollywood, California. The Company, through wholly owned partnerships, had two additional mortgage loans collateralized
by the New Orleans Grande Hotel and the Holiday Inn Beachside Resort, located in Key West, Florida. These hotels were sold on April 21, 2003 and July 25, 2003, respectively, and the purchasers assumed the principal balances of $46,680 and $11,392,
respectively at the time of sale. The remaining mortgage loan bears interest at a fixed rate of 8.08%, matures on July 31, 2010, and requires interest and principal payments based on a 27-year amortization schedule. The mortgage loan agreement
requires the partnership to hold funds in escrow sufficient for the payment of 50% of the annual insurance premium and real estate taxes on the Le Montrose Suite Hotel.



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The mortgage loan that is collateralized by the Le Montrose Suite Hotel had a principal balance of
$14,231 and $14,402 at December 31, 2003 and 2002. Future scheduled debt principal payments at December 31, 2003 are as follows (dollars in thousands):



|           |  |   |       
|---------- |  | - | ------
|2004       |  | $ | 182   
|2005       |  |   | 201   
|2006       |  |   | 219   
|2007       |  |   | 237   
|2008       |  |   | 254   
|Thereafter |  |   | 13,138
|           |  |   |       
|           |  | $ | 14,231
|           |  |   |       



The Company is subject
to a five-year mortgage loan that is secured by the Lansdowne Resort located in Lansdowne, Virginia. The Company assumed the mortgage upon purchase of the property on June 17, 2003. In conjunction with the assumption of the mortgage, the Company
recorded a premium of $2,380, which is being amortized over the expected remaining life of the mortgage loan. The loan bears interest at a floating rate of the London InterBank Offered Rate plus 4.5%, matures on January 28, 2007, and requires
interest and principal payments based on a 25-year amortization schedule. The loan has a London InterBank Offered Rate floor of 3.0% and permits prepayment beginning on February 11, 2004. As of December 31, 2003, the interest rate was 7.5%. Also in
conjunction with the assumption of the mortgage loan, the seller transferred to the Company a $5,000 debt service reserve escrow, which is included in restricted cash. If the mortgage loan is prepaid, the seller is entitled to the remaining value of
the debt service reserve (after prepayment penalty) in the form of cash or common shares of beneficial interest, as defined. The mortgage loan agreement requires the Company to hold funds in escrow sufficient for the payment of 50% of the annual
insurance premiums and real estate taxes on the Lansdowne Resort in addition to reserves for various property improvements and sales tax.



The principal balance of the mortgage loan that is collateralized by the Lansdowne Resort at December 31, 2003, including the unamortized premium of
$2,015 was $64,411. Future scheduled debt principal payments (excluding premium amortization) at December 31, 2003 are as follows (dollars in thousands):



|     |  |   |       
|---- |  | - | ------
|2004 |  | $ | 950   
|2005 |  |   | 1,039 
|2006 |  |   | 1,121 
|2007 |  |   | 59,286
|     |  |   |       
|     |  | $ | 62,396
|     |  |   |       



On February 11, 2004,
the Company paid in full the $62,326 balance of the mortgage that was secured by the Lansdowne Resort (see Note 22).



On December 12, 2003, the Company entered into a five-year mortgage loan totaling $65,000 that is secured by the San Diego Paradise Point Resort. The
mortgage loan matures on February 1, 2009 and does not allow for prepayment prior to maturity without penalty. The mortgage loan bears interest at a fixed rate of 5.25% and requires interest and principal payments based on a 25-year amortization
schedule. The loan agreement requires the Company to hold funds in escrow sufficient for the payment of 50% of the annual insurance premiums and real estate taxes related to the hotel that secures the loan.



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The principal balance of the mortgage loan that is collateralized by the San Diego Paradise Point Resort
at December 31, 2003 was $65,000. Future scheduled debt principal payments at December 31, 2003 are as follows (dollars in thousands):





|           |  |   |       
|---------- |  | - | ------
|2004       |  | $ | 1,134 
|2005       |  |   | 1,306 
|2006       |  |   | 1,378 
|2007       |  |   | 1,453 
|2008       |  |   | 1,523 
|Thereafter |  |   | 58,206
|           |  |   |       
|           |  | $ | 65,000
|           |  |   |       



9. Commitments and Contingencies



Ground Leases



Three of the hotels, San Diego Paradise Point Resort, Harborside Hyatt
Conference Center & Hotel and Radisson Convention Hotel are subject to ground leases under non-cancelable operating leases with terms ranging out to May 2081. Total ground lease expense (including ground lease expense related to discontinued
operations) for the years ended December 31, 2003, 2002 and 2001 was $3,689, $3,624 and $3,696, respectively. Future minimum ground lease payments are as follows (dollars in thousands):



|           |  |   |        
|---------- |  | - | -------
|2004       |  | $ | 2,582  
|2005       |  |   | 2,558  
|2006       |  |   | 2,471  
|2007       |  |   | 2,471  
|2008       |  |   | 2,471  
|Thereafter |  |   | 87,672 
|           |  |   |        
|           |  | $ | 100,225
|           |  |   |        



Reserve Funds



The Company is obligated to maintain reserve funds for
capital expenditures at the hotels (including the periodic replacement or refurbishment of furniture, fixtures and equipment) as determined pursuant to the participating leases. The Companys aggregate obligation under the reserve funds was
approximately $15,149 at December 31, 2003. The reserve requirements for four hotels, the hotels operated by Marriott International, Inc. and Hyatt Corporation, are contained in certain non-cancelable operating agreements, which require the reserves
for the hotels operated by Marriott International, Inc. and Hyatt Corporation to be maintained through furniture, fixtures and equipment restricted cash escrows. The reserve fund requirements for the Lansdowne Resort are contained in the mortgage
agreement. These four participating leases and one mortgage agreement require that the Company reserve restricted cash ranging from 4.0% to 5.5% of the individual hotels annual revenues. As of December 31, 2003, $5,985 was available in
restricted cash reserves for future capital expenditures. Eleven of the participating leases require that the Company reserve funds of 4.0% of the individual hotels annual revenues but do not require the funds to be set aside in restricted
cash. As of December 31, 2003, the total amount obligated for future capital expenditures but not set aside in restricted cash reserves was $9,164. Amounts will be capitalized as incurred. As of December 31, 2003, purchase orders and letters of
commitment totaling approximately $11,967 have been issued for renovations at the hotels. The Company has committed to these projects and anticipates making similar arrangements with the existing hotels or any future hotels that it may acquire. Any
unexpended amounts will remain the property of the Company upon termination of the participating leases.



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The joint venture lease requires that the joint venture reserve restricted cash of 5.0% of the Chicago
Marriott Downtowns annual revenues; however, the joint venture is not consolidated in the Companys financial statements and the amount of restricted cash reserves relating to the joint venture is not recorded on the Companys books
and records.



Restricted Cash Reserves



At December 31, 2003, the Company held $21,988 in restricted cash reserves.
Included in such amounts are (i) $5,985 of reserve funds relating to the hotels with leases requiring the Company to maintain restricted cash to fund future capital expenditures, (ii) a $5,850 collateral for a surety bond related to the Litigation
with Meridien Hotels, Inc. (see Litigation in this Note), (iii) $1,254 for future renovations and conversion costs expected to be incurred because of the Dallas property re-branding under the Westin brand affiliation and (iv) $8,899 deposited in
mortgage escrow accounts pursuant to mortgages to pre-fund a portion of certain hotel expenses.



Litigation



The Company has engaged Starwood Hotels & Resorts Worldwide, Inc. to manage and operate its Dallas hotel under the Westin brand affiliation. Meridien
Hotels, Inc. (Meridien) had been operating the Dallas property as a wrongful holdover tenant, until the Westin brand conversion occurred on July 14, 2003 under court order.



On December 20, 2002, Meridien abandoned the Companys New Orleans hotel. The Company entered into a lease with a
wholly owned subsidiary of LHL and an interim management agreement with Interstate Hotels & Resorts, Inc., and re-named the hotel the New Orleans Grande Hotel. The New Orleans property thereafter was sold on April 21, 2003 for $92.5 million.



In connection with the termination of Meridien at these
hotels, the Company is currently in litigation with Meridien and related affiliates. The Company believes its sole potential obligation in connection with the termination of the leases is to pay fair market value of the leases, if any. Arbitration
of the fair market value of the New Orleans lease commenced in October 2002. On December 19, 2002, the arbitration panel determined that Meridien was entitled to a net award of approximately $5.4 million in connection with the New Orleans property,
subject to adjustment (reduction) by the courts to account for Meridiens holdover. The Company is disputing the arbitration decision, as well as whether Meridien is entitled to fair market value. In order to dispute the arbitration decision,
the Company was required to post a $7.8 million surety bond, which is secured by $5.9 million of restricted cash.



In 2002 the Company recognized a net $2.5 million contingent lease termination expense and reversed previously deferred assets and liabilities related to
the termination of both the New Orleans property and Dallas property leases, and recorded a corresponding contingent liability included in accounts payable and accrued expenses in the accompanying consolidated financial statements. The Company
believes, however, it is owed holdover rent per the lease terms due to Meridiens failure to vacate the properties as required under the leases. The contingent lease termination expense was therefore net of the holdover rent the Company
believes it is entitled to for both properties and in the first, second and third quarters of 2003 the Company adjusted this liability by additional holdover rent of $395, $380 and $52, respectively, that it believes it is entitled to for the Dallas
property. The additional holdover rent is recorded as other income in the accompanying consolidated financial statements. The net contingent lease termination liability has also been adjusted for legal fees and has a balance of approximately $2.0
million as of December 31, 2003, which is included in accounts payable and accrued expenses in the accompanying consolidated balance sheet. Based on the claims the Company has against Meridien, the Company is and will continue to seek reimbursement
of legal fees and damages, and will challenge the arbitration determination, which may reduce any amounts owed Meridien, and therefore ultimately any contingent lease termination expense. Additionally, the Company cannot provide any assurances that
the holdover rents will be collectible or that the amounts due will not be greater than the recorded contingent lease termination expense.



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The Company maintained a lien on Meridiens security deposit on both disputed properties with an
aggregate value of approximately $3.3 million, in accordance with the lease agreements. The security deposits were liquidated in May 2003 with the proceeds used to partially satisfy Meridiens outstanding obligations, including certain working
capital notes and outstanding base rent.



Additionally,
Meridien is disputing the Companys calculation of participating rents for both properties. The total amount Meridien is disputing is approximately $2.0 million. Consistent with the express terms of the lease, however, Meridien has paid the
participating rent due for 2001 and 2002 in full. The Company continues to believe the calculation is correct, consistent with the lease terms, and it has recognized the revenue in the appropriate periods.



Meridien also has sued the Company and one of the Companys officers
alleging that certain actions taken in anticipation of re-branding the Dallas and New Orleans hotels under the Westin brand affiliation constituted unfair trade practices, false advertising, trademark infringement, trademark dilution and tortious
interference. On August 19, 2002, the Company received an order from the court denying all of Meridiens motions. Meridien continued with the lawsuit, however, and filed an amended complaint. The Company moved to dismiss Meridiens
lawsuit, and on March 11, 2003 the court granted the Companys motion and dismissed all of Meridiens claims. On April 9, 2003, Meridien filed a notice of appeal, which appeal is pending.



The Company does not believe that the amount of any fees or damages it may be
required to pay on any of the litigation related to Meridien will have a material adverse effect on the Companys financial condition or results of operations, taken as a whole. The Companys management has discussed this contingency and
the related accounting treatment with the audit committee of its Board of Trustees.



The Company is not presently subject to any other material litigation nor, to the Companys knowledge, is any other litigation threatened against the Company, other than routine actions for negligence or other
claims and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance and all of which collectively are not expected to have a material adverse effect on the liquidity,
results of operations or business or financial condition of the Company.



10. Shareholders Equity



Common Shares
of Beneficial Interest



In connection with the acquisition
of the initial hotels, the Company issued 912,122 restricted common shares of beneficial interest to Jones Lang LaSalle Incorporated. The common shares of beneficial interest were valued at $18.00 per share or $16,418. The Company also granted
1,280,569 rights to purchase common shares of beneficial interest at the exercise price of $18.00 per share in connection with the acquisition of the initial hotels. Included as part of the 1,280,569 rights granted, were 457,346 rights granted to
the external advisor (see Note 14). The Company has recorded these rights in shareholders equity at their fair value on the date of grant, which was $2,997. All rights had a one-year vesting period and a 10-year term. At December 31, 2003, all
of the rights were exercisable.



On March 5, 2001, the Company
issued an aggregate of 5,793 common shares of beneficial interest, including 2,686 of deferred shares, to the independent members of its Board of Trustees for a portion of their 2000 compensation. The common shares of beneficial interest were issued
in lieu of cash at the trustees election. These common shares of beneficial interest were issued under the 1998 share option and incentive plan.



On April 24, 2001 and November 1, 2001, the Company granted 57,444 and 234,608 restricted common shares of beneficial interest, respectively, to the
Companys executive officers. The restricted shares granted vest over three and four years. These common shares of beneficial interest were issued under the 1998 share option and incentive plan.



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On January 29, 2002, the Company issued 12,331 common shares of beneficial interest, including 5,605
deferred shares, to the independent members of its Board of Trustees for a portion of their 2001 compensation. The common shares of beneficial interest were issued in lieu of cash at the trustees election. These common shares of beneficial
interest were issued under the 1998 share option and incentive plan.



On October 29, 2002, the Company granted 6,400 restricted common shares of beneficial interest to the Companys employees. The restricted shares granted vest over three years, starting January 1, 2004. These common shares of beneficial
interest were issued under the 1998 share option and incentive plan.



On January 27 and 28, 2003, the Company issued an aggregate of 9,792 common shares of beneficial interest, including 7,540 deferred shares, to the independent members of its Board of Trustees for a portion of their 2002 compensation. The
common shares were issued in lieu of cash at the Trustees election. These common shares were issued under the 1998 share option and incentive plan.



On January 29, 2003, the Company issued 500 common shares of beneficial interest to a newly appointed member of the Board of Trustees, Kelly L. Kuhn.
These common shares were issued under the 1998 share option and incentive plan.



On April 29, 2003, the Company granted an aggregate of 3,000 restricted common shares of beneficial interest to the Companys Board of Trustees. These restricted shares vest over three years. These common shares
were issued under the 1998 share option and incentive plan.



On
June 26, 2003, the Company completed an underwritten public offering of 2,041,000 common shares of beneficial interest, par value $0.01 per share. After deducting underwriting discounts and commissions and other offering costs, the Company raised
net proceeds of approximately $29,105. The net proceeds were used to repay existing indebtedness under the Companys senior unsecured credit facility. The Company sold an additional 204,000 common shares on July 1, 2003, pursuant to an over
allotment option for approximately $2,909 after deducting underwriting discounts and commissions.



On October 21, 2003 the Company granted 126,186 restricted common shares of beneficial interest to the Companys executive officers. The restricted
shares granted vest over three and four years, starting January 1, 2005. These common shares were issued under the 1998 share option and incentive plan.



On October 21, 2003, the Company granted 5,250 restricted common shares of beneficial interest to the Companys employees. The restricted shares
granted vest over three years, starting January 1, 2005. These common shares were issued under the 1998 share option and incentive plan.



As of December 31, 2003, the Company has reserved 1,900,000 common shares of beneficial interest for future issuance under the 1998 share option and
incentive plan. The Company has also reserved a total of 1,280,569 common shares of beneficial interest for future issuance pursuant to rights which have been issued and 1,539,147 common shares of beneficial interest for issuance upon the conversion
of the units of limited partnership interest, both of which were issued in connection with the initial public offering, the acquisition of the initial hotels and the formation of the Company.



Preferred Shares



In March 2002, the Company completed an underwritten public offering of
3,991,900 shares of 101/4% Series A Cumulative Redeemable Preferred Shares, par value $0.01 per share
(liquidation preference $25 per share). After deducting underwriting discounts and commissions and other offering costs, the Company raised net proceeds of approximately $96.1 million. The net proceeds were used to repay existing indebtedness under
the Companys senior unsecured bank facility and to fund the redevelopment of the D.C. Hotel Collection.



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On September 30, 2003, the Company completed an underwritten public offering of 1,000,000 shares of
83/8% Series B Cumulative Redeemable Preferred Shares, par value $0.01 per share (liquidation preference $25 per
share). After deducting underwriting discounts and commission, the Company raised net proceeds of approximately $24,409. The net proceeds were used to repay existing indebtedness under the Companys senior unsecured credit facility. On October
1, 2003, the Company issued an additional 100,000 Series B Preferred Shares pursuant to an over allotment option for approximately $2,441 after deducting underwriting discounts and commissions.



The Series A Preferred Shares and Series B Preferred Shares rank senior to
the common shares of beneficial interest and on parity with each other with respect to payment of distributions; the Company will not pay any distributions, or set aside any funds for the payment of distributions, on its common shares of beneficial
interest unless it has also paid (or set aside for payment) the full cumulative distributions on the Series A Preferred Shares and Series B Preferred Shares for the current and all past dividend periods. Neither the Series A Preferred Shares nor the
Series B Preferred Shares have any maturity date, and neither the Series A Preferred Shares nor the Series B Preferred Shares are subject to mandatory redemption. There is no difference between the carrying value and the redemption amount of the
Series A Preferred Shares and Series B Preferred Shares. In addition, the Company is not required to set aside funds to redeem the Series A Preferred Shares or Series B Preferred Shares. Also, the Company may not optionally redeem the Series A
Preferred Shares prior to March 6, 2007, or the Series B Preferred Shares prior to September 30, 2008, except in limited circumstances relating to the Companys continuing qualification as a REIT. After those dates, the Company may, at its
option, redeem the Series A Preferred Shares or Series B Preferred Shares, respectively, in whole or from time to time in part, by payment of $25.00 per share, plus any accumulated, accrued and unpaid distributions to and including the date of
redemption. Accordingly, the Series A Preferred Shares and Series B Preferred Shares will remain outstanding indefinitely unless the Company decides to redeem them.



Operating Partnership Units



The outstanding units of limited partnership interest are redeemable for cash, or at the option of the Company, for a like number of common shares of
beneficial interest of the Company.



On August 16, 2002, 18,497
units of limited partnership interest were converted to common shares.



As of December 31, 2003, the operating partnership had 424,686 units outstanding, representing a 1.7% partnership interest held by the limited partners.



11. Share Option and Incentive Plan



In April 1998, the Board of Trustees adopted and the then current shareholders approved the 1998 share option and incentive plan that is currently
administered by the Compensation Committee of the Board of Trustees. The Companys employees and the hotel operators and their employees generally are eligible to participate in the 1998 share option and incentive plan. Independent members of
the Board of Trustees continuing in office after an annual meeting of shareholders of the Company receive automatic annual grants of 500 restricted common shares of beneficial interest.



The 1998 share option and incentive plan authorizes, among other things: (i) the grant of share options that qualify as
incentive options under the Code, (ii) the grant of share options that do not so qualify, (iii) the grant of share options in lieu of cash trustees fees, (iv) grants of common shares of beneficial interest in lieu of cash compensation, and (v)
the making of loans to acquire common shares of beneficial interest in lieu of compensation. The exercise price of share options is determined by the Compensation Committee of the Board of Trustees, but may not be less than 100% of the fair market
value of the common shares of beneficial interest on the date of grant. Options under the plan vest over a period determined by the Compensation Committee of the Board of Trustees, which is generally a three-year period. The duration of each option
is also determined by the Compensation Committee; however, the duration of each option shall not exceed 10 years from date of grant.



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On May 19, 1999, the common shareholders approved an amendment to the 1998 share option and incentive
plan, increasing the number of common shares of beneficial interest authorized for issuance under the 1998 share option and incentive plan from 757,000 to 1,500,000. On May 16, 2001, the common shareholders approved an amendment to the 1998 share
option and incentive plan, increasing the number of common shares of beneficial interest authorized for issuance under the 1998 share option and incentive plan from 1,500,000 to 1,900,000. Accordingly, at both December 31, 2003 and 2002, 1,900,000
shares were authorized for issuance under the 1998 share option and incentive plan.



On February 1, 2001, an affiliate of the Advisor exercised 300,000 options. Proceeds from the exercise of the options were used to reduce outstanding borrowings on the senior unsecured bank facility.



On April 24, 2001 and November 2, 2001, the Company granted 52,500 and
362,506 non-qualified stock options at a strike price of $15.50 and $8.55, respectively to its employees, including executive officers. The options granted vest over three and four years and expire on January 30, 2011 and November 2, 2011,
respectively. These options were issued under the 1998 share option and incentive plan.



On April 24, 2001 and November 1, 2001, the Company granted 57,444 and 234,608 restricted shares of common stock, respectively, to the Companys executive officers. The restricted shares granted vest over three
and four years. The Company measures compensation cost for restricted shares based upon the fair market value of its common stock at the grant date. Compensation cost is recognized on a straight-line basis over the vesting period. Compensation
expense recognized for the restricted shares issued April 24, 2001 and November 1, 2001, and classified as general and administrative expense in the accompanying consolidated financial statements for the years ended December 31, 2003 and 2002 was
$806 and $766, respectively. These restricted shares were issued under the 1998 share option and incentive plan.



On May 16, 2001, the Company granted 30,000 non-qualified stock options at a strike price of $16.51 to the independent members of its Board of Trustees.
The options granted vest over three years and expire on March 16, 2011. These options were issued under the 1998 share option and incentive plan.



On January 29, 2002, the Company issued 12,331 common shares of beneficial interest, including 5,605 of deferred shares, to the independent members of its
Board of Trustees for a portion of their 2001 compensation. The common shares of beneficial interest were issued in lieu of cash at the trustees election. These common shares of beneficial interest were issued under the 1998 share option and
incentive plan.



On May 15, 2002, the Company granted an
aggregate of 25,000 non-qualified stock options at a strike price of $14.88 to the independent members of its Board of Trustees. The options granted vest over three years and expire on May 14, 2012. These options were issued under the 1998 share
option and incentive plan.



On October 29, 2002, the Company
granted 6,400 restricted shares of common stock to the Companys employees. The restricted shares granted vest over three years, starting January 1, 2004. Compensation expense recognized for the restricted shares issued October 29, 2002, and
classified as general and administrative expense in the accompanying consolidated financial statements for the years ended December 31, 2003 and 2002 was $24 and $4, respectively. These restricted shares were issued under the 1998 share option and
incentive plan.



On January 27 and 28, 2003, the Company issued
an aggregate of 9,792 common shares of beneficial interest, including 7,540 deferred shares, to the independent members of its Board of Trustees for a portion of their 2002 compensation. The common shares were issued in lieu of cash at the
Trustees election. These common shares were issued under the 1998 share option and incentive plan.



On January 29, 2003, the Company issued 500 common shares of beneficial interest to a newly appointed member of the Board of Trustees, Kelly L. Kuhn.
These common shares were issued under the 1998 share option and incentive plan.



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On April 29, 2003, the Company granted an aggregate of 3,000 restricted shares of common stock to the
Companys Board of Trustees. These restricted shares vest over three years. The Company measures compensation cost for restricted shares based upon the fair market value of its common stock at the grant date. The fair market value of the common
stock on the date of the grant was $14.05. Compensation expense recognized for the restricted shares issued April 29, 2003 and classified as general and administrative expense in the accompanying consolidated financial statements for the years ended
December 31, 2003 was $9. These common shares were issued under the 1998 share option and incentive plan.



On June 26, 2003, the Company completed an underwritten public offering of 2,041,000 common shares of beneficial interest, par value $0.01 per share.
After deducting underwriting discounts and commissions and other offering costs, the Company raised net proceeds of approximately $29,105. The net proceeds were used to repay existing indebtedness under the Companys senior unsecured credit
facility. The Company sold an additional 204,000 common shares on July 1, 2003, pursuant to an over allotment option for approximately $2,909 after deducting underwriting discounts and commissions.



On October 21, 2003 the Company granted 126,186 restricted common shares of
beneficial interest to the Companys executive officers. The restricted shares granted vest over three and four years, starting January 1, 2005. The Company measures compensation cost for restricted shares based upon the fair market value of
its common stock at the grant date. Compensation cost is recognized on a straight-line basis over the vesting period. Compensation expense recognized for these restricted shares and classified as general and administrative expense in the
accompanying consolidated financial statements for the year ended December 31, 2003 was $97. These restricted shares were issued under the 1998 share option and incentive plan.



On October 21, 2003, the Company granted 5,250 restricted common shares of beneficial interest to the Companys
employees. The restricted shares granted vest over three years, starting January 1, 2005. Compensation expense recognized for these restricted shares and classified as general and administrative expense in the accompanying consolidated financial
statements for the year ended December 31, 2003 was $5. These restricted shares were issued under the 1998 share option and incentive plan.



At December 31, 2003, there were 283,032 common shares available for future grant under the 1998 share option and incentive plan.



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A summary of the Companys stock option activity for the years ended December 31, 2003, 2002 and
2001 is as follows:



|                                                                         |  |        |            |      |                              |      |        |  |   |                              |   |        |   |       |                              |   |            |   |  |   |      
|------------------------------------------------------------------------ |  | ------ | ---------- | ---- | ---------------------------- | ---- | ------ |  | - | ---------------------------- | - | ------ | - | ----- | ---------------------------- | - | ---------- | - |  | - | -----
|                                                                         |  | 2003   |            | 2002 |                              | 2001
|                                                                         |  | Shares |            |      | WeightedAverageExercisePrice |      | Shares |  |   | WeightedAverageExercisePrice |   | Shares |   |       | WeightedAverageExercisePrice
|Options outstanding at beginning of year                                 |  |        | 792,206    |      |                              | $    | 11.38  |  |   | 785,706                      |   |        | $ | 11.33 |                              |   | 640,867    |   |  | $ | 12.83
|Options granted                                                          |  |        |           |      |                              |      |       |  |   | 25,000                       |   |        |   | 14.88 |                              |   | 445,006    |   |  |   | 9.91 
|Options exercised                                                        |  |        | (49,838    | )    |                              |      | 13.27  |  |   | (3,500                       | ) |        |   | 8.99  |                              |   | (300,167   | ) |  |   | 12.41
|Options forfeited                                                        |  |        |           |      |                              |      |       |  |   | (15,000                      | ) |        |   | 15.54 |                              |   |           |   |  |   |     
|                                                                         |  |        |            |      |                              |      |        |  |   |                              |   |        |   |       |                              |   |            |   |  |   |      
|Outstanding at end of the year                                           |  |        | 742,368    |      |                              | $    | 11.25  |  |   | 792,206                      |   |        | $ | 11.38 |                              |   | 785,706    |   |  | $ | 11.33
|                                                                         |  |        |            |      |                              |      |        |  |   |                              |   |        |   |       |                              |   |            |   |  |   |      
|Weighted average remaining life outstanding                              |  |        | 5.7 years  |      |                              |      |        |  |   | 6.6 years                    |   |        |   |       |                              |   | 7.5 years  |   |  |   |      
|                                                                         |  |        |            |      |                              |     
|                                                                         |  |        | $  8.55 to |      |                              |      |        |  |   | $  8.55  to                  |   |        |   |       |                              |   | $  8.55 to |   |  |   |      
|Range of exercise prices                                                 |  | $      | 18.00      |      |                              |      |        |  | $ | 18.00                        |   |        |   |       |                              | $ | 18.00      |   |  |   |      
|Exercisable at end of the year                                           |  |        | 539,311    |      |                              | $    | 11.78  |  |   | 379,368                      |   |        | $ | 12.62 |                              |   | 200,917    |   |  | $ | 13.80
|Available for future grant at year end                                   |  |        | 283,032    |      |                              |      |        |  |   | 428,911                      |   |        |   |       |                              |   | 457,835    |   |  |   |      
|Weighted average per share fair value of options granted during the year |  |        | n/a        |      |                              |      |        |  | $ | 0.26                         |   |        |   |       |                              | $ | 0.72       |   |  |   |      



The fair value of each
stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:



|                        |  |      |  |       |       |  |       |      
|----------------------- |  | ---- |  | ----- | ----- |  | ----- | -----
|                        |  | 2003 |  | 2002  |       |  | 2001  |      
|Expected life           |  | n/a  |  | 8.27  | years |  | 8.23  | years
|Expected volatility     |  | n/a  |  | 23.94 | %     |  | 23.97 | %    
|Risk-free interest rate |  | n/a  |  | 4.70  | %     |  | 4.80  | %    
|Dividend yield          |  | n/a  |  | 10.40 | %     |  | 10.60 | %    



12. Financial Instruments:
Derivatives and Hedging



The Company employs interest rate
swaps to hedge against interest rate fluctuations. Unrealized gains and losses are reported in other comprehensive income with no effect recognized in earnings as long as the characteristics of the swap and the hedged item are closely matched. On
April 6, 2001, the Company entered into a two-year, nine-month fixed interest rate swap at 4.87% for $30,000 of the balance outstanding on its senior unsecured bank facility, which expired December 31, 2003. The hedge was effective in offsetting the
variable cash flows; therefore no gain or loss was realized during the year ended December 31, 2003. As of December 31, 2003, the Company has no material derivative transactions.



Interest rate hedges that are designated as cash flow hedges hedge the future cash outflows on debt. Interest rate swaps
that convert variable payments to fixed payments, interest rate caps, floors, collars, and forwards are cash flow hedges. The unrealized gains/losses in the fair value of these hedges are reported on the balance sheet with a corresponding adjustment
to either accumulated other comprehensive income/loss or in earnings depending on the type of hedging relationship. If the hedging transaction is a cash flow hedge, then the offsetting gains and losses are reported in accumulated other comprehensive
income/loss. Over time, the unrealized gains and losses reported in accumulated other comprehensive income/loss will be reclassified to earnings. This reclassification is consistent with when the hedged items are also recognized in earnings. For the
year ended December 31, 2003, the Company reclassified $1,105 of accumulated other comprehensive loss to earnings as interest expense in conjunction with the interest rate swap that expired on December 31, 2003.



The Company hedges its exposure to the variability in future cash flows for
transactions it anticipates entering into in the foreseeable future. During the forecast period, unrealized gains and losses in the hedging



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instrument will be reported in accumulated other comprehensive income/loss. Once the hedged transaction takes place, the hedge gains and losses will be
reported in earnings during the same period in which the hedged item is recognized in earnings.



13. Participating Leases



The participating leases have non-cancelable terms ranging from five to 11 years (from commencement), subject to earlier termination upon the occurrence of certain contingencies, as defined. Each participating lease requires the applicable
lessee to pay the greater of (i) base rent in a fixed amount or (ii) participating rent based on certain percentages of room revenue, food and beverage revenue and telephone and other revenue at the applicable hotel. Participating rent applicable to
room and other hotel revenues varies by lease and is calculated by multiplying fixed percentages by the total amounts of such revenues over specified quarterly threshold amounts. Both the base rent and the participating rent thresholds used in
computing percentage rents applicable to room and other hotel revenues, including food and beverage revenues, are subject to annual adjustments based on increases in the United States Consumer Price Index published by the Bureau of Labor Statistics
of the United States of America Department of Labor, U.S. City Average, Urban Wage Earners and Clerical Workers. Participating lease revenues, including participating lease revenues from discontinued operations, for the years ended December 31,
2003, 2002 and 2001 were $21,284, $31,326 and $45,490, of which $8,578, $9,949 and $14,013 respectively, was in excess of base rent.



Future minimum rentals (without reflecting future applicable Consumer Price Index increases) to be received by the Company pursuant to the participating
leases for each of the years in the period 2004 to 2008 and in total thereafter are as follows:



|           |  |     |         |         |   |        |  |   |        
|---------- |  | --- | ------- | ------- | - | ------ |  | - | -------
|           |  | LHL |         | Non-LHL |   | Total 
|2004       |  | $   | 54,100  |         | $ | 11,132 |  | $ | 65,232 
|2005       |  |     | 54,100  |         |   | 11,132 |  |   | 65,232 
|2006       |  |     | 54,100  |         |   | 11,132 |  |   | 65,232 
|2007       |  |     | 54,100  |         |   | 11,132 |  |   | 65,232 
|2008       |  |     | 41,157  |         |   | 5,986  |  |   | 47,143 
|Thereafter |  |     | 19,691  |         |   | 872    |  |   | 20,563 
|           |  |     |         |         |   |        |  |   |        
|           |  | $   | 277,248 |         | $ | 51,386 |  | $ | 328,634
|           |  |     |         |         |   |        |  |   |        



Rent from LHL, a
wholly owned subsidiary, is eliminated in consolidation.



14.
Advisory Agreement and Employee Lease Agreement



Upon
completion of the initial public offering, the Company entered into an advisory agreement with LaSalle Hotel Advisors, Inc. From its inception through December 31, 2000, the external advisor provided management, acquisition, advisory and
administration services pursuant to an advisory agreement and an employee lease agreement.



On November 15, 2000, the Companys Board of Trustees approved the early termination of the advisory agreement and employee lease agreement and voted to become a self-administered and self-managed REIT effective
January 1, 2001. The Company terminated its advisory relationship with LaSalle Hotel Advisors, Inc. in accordance with a termination and services agreement dated December 28, 2000. The Company paid the external advisor $600 for 2001 transition
services including waiving the termination notice period and providing support and advice through the first quarter of 2001. In addition, the Company purchased the assets to operate the Company at book value. The entire management team of LaSalle
Hotel Advisors, Inc. became employees of the Company and continues to oversee and manage all activities of the Company under the self-administered and self-managed structure.



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15. Related Party Transactions



Effective January 1, 2001, the Company became a self-administered and self-managed REIT. The Company terminated its advisory
relationship with LaSalle Hotel Advisors, Inc. in accordance with a termination and services agreement dated December 28, 2000. In connection with the termination, the Company paid LaSalle Hotel Advisors, Inc. $600 for 2001 transition services
including the waiver of termination notice period and for providing support and advice through the first quarter of 2001. The Company purchased assets used to operate the Company at book value of approximately $302 and paid $50 for informational
technology services.



16. LHL



A significant portion of the Companys revenue is derived from operating
revenues generated by the hotels leased by LHL.



Included in
other indirect hotel operating expenses, including indirect operating expenses related to discontinued operations, are the following expenses incurred by the hotels leased by LHL:



|                              |  |                                 |        |      |   |        |  |   |       
|----------------------------- |  | ------------------------------- | ------ | ---- | - | ------ |  | - | ------
|                              |  | For the year ended December 31,
|                              |  | 2003                            |        | 2002 |   | 2001  
|General and administrative    |  | $                               | 18,303 |      | $ | 14,604 |  | $ | 10,279
|Sales and marketing           |  |                                 | 13,143 |      |   | 10,058 |  |   | 6,738 
|Repairs and maintenance       |  |                                 | 8,601  |      |   | 6,873  |  |   | 4,873 
|Utilities and insurance       |  |                                 | 7,604  |      |   | 5,431  |  |   | 4,144 
|Management and incentive fees |  |                                 | 7,175  |      |   | 7,281  |  |   | 6,550 
|Other expenses                |  |                                 | 1,730  |      |   | 1,720  |  |   | 1,262 
|                              |  |                                 |        |      |   |        |  |   |       
|Total other indirect expenses |  | $                               | 56,556 |      | $ | 45,967 |  | $ | 33,846
|                              |  |                                 |        |      |   |        |  |   |       



Effective January 1,
2001, LHL became a wholly owned subsidiary of the Company as provided for under the taxable-REIT subsidiary provisions of the Code. The cost associated with the transaction (which included an aggregate of $455 in payments to Jones Lang LaSalle
Incorporated and LPI charities for the shares then held by them) was expensed during the first quarter of 2001 and was classified as an operating expense in the accompanying consolidated financial statements. As of December 31, 2003, LHL leases the
following 14 hotels owned by the Company:



| |  |  | Marriott Seaview Resort
| | - |  | -----------------------

| |  |  | LaGuardia Airport Marriott
| | - |  | --------------------------

| |  |  | Omaha Marriott Hotel
| | - |  | --------------------

| |  |  | Harborside Hyatt Conference Center & Hotel
| | - |  | ------------------------------------------

| |  |  | Hotel Viking
| | - |  | ------------

| |  |  | Topaz Hotel
| | - |  | -----------

| |  |  | Hotel Rouge
| | - |  | -----------

| |  |  | Hotel Madera
| | - |  | ------------

| |  |  | Hotel Helix
| | - |  | -----------

| |  |  | Holiday Inn on the Hill
| | - |  | -----------------------

| |  |  | Radisson Convention Hotel
| | - |  | -------------------------

| |  |  | Lansdowne Resort
| | - |  | ----------------

| |  |  | Hotel George
| | - |  | ------------



All of the remaining hotels in which the Company owns an interest, excluding the joint venture that owns the Chicago Marriott Downtown, are leased directly to affiliates of the current hotel operators of those
respective hotels.



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On February 26, 2001, the Company terminated the operating lease on the Hotel Viking with Bellevue
Properties, Inc. and entered into a lease with LHL on essentially the same terms. Bellevue Properties, Inc. received $840 in payment relating to termination, tax settlement due under the purchase and sale agreement and other items. Of this amount,
$796 was expensed and classified as lease termination, advisory transaction, subsidiary purchase and contingent lease termination expenses in the accompanying consolidated financial statements. Noble House Hotels and Resorts replaced Bellevue
Properties, Inc. as manager for the property.



On April 12,
2001, the Company and LHL, as the owner and lessee, respectively, of the Marriott Seaview Resort, Marriott Ownership Resorts, Inc., as the developer of timeshare units adjacent to the hotel, and certain Marriott entities related to Marriott
Ownership Resorts, Inc., entered into a comprehensive restructuring agreement, an integration agreement, and fourth amendment to management agreement, all effective as of December 30, 2000 which, in part, provide for the integration of the
operations of the hotel and the timeshare units adjacent to the hotel. Pursuant to the terms of the comprehensive restructuring agreement, the integration agreement, and the fourth amendment to management agreement, the Company will receive on an
annual basis, along with the benefits of the integration of both facilities, 3% of timeshare sales at the timeshare units adjacent to the hotel, 5% of transient rental income from the rental of the timeshare units adjacent to the hotel, and a
performance guarantee which will be in place for a minimum of seven years. In exchange, the Company will, in accordance with the comprehensive restructuring agreement, conditionally release a six night minimum stay provision at the timeshare units
adjacent to the hotel contained in (i) the management agreement, (ii) the ground lease for the Pines Golf Course, and (iii) the deed for the timeshare units adjacent to the hotel.



On December 31, 2001, the Company terminated its third party operating lease
on the Holiday Inn Beachside Resort in Key West, Florida with Beachside Hospitality, Inc., an affiliate of Crestline Hotels & Resorts, Inc. In conjunction with the lease termination the Company was paid $621. Effective January 1, 2002 the
Company entered into a lease with LHL on essentially the same terms with an affiliate of Crestline Hotels & Resorts, Inc. remaining as manager. Interstate Hotels & Resorts, Inc. replaced Crestline Hotels & Resorts, Inc. as manager of the
property effective April 1, 2002.



On January 25, 2002, the
Company terminated its third-party operating lease on the Radisson Convention Hotel with Radisson Bloomington Corporation and entered into a lease with LHL on essentially the same terms. There was no income or cost relating to the lease termination.
Radisson Hotels International, Inc. will continue to operate and manage the hotel.



On December 20, 2002, Meridien Hotels, Inc. abandoned the New Orleans property. The Company entered into a lease with a wholly owned subsidiary of LHL and an interim management agreement with Interstate Hotels &
Resorts, Inc., and re-named the hotel the New Orleans Grande Hotel. On April 29, 2003, the Company sold the New Orleans Grande Hotel and cancelled its operating lease with LHL (see Note 7).



On July 25, 2003, the Company sold the Holiday Inn Beachside Resort, located
in Key West, Florida, and cancelled its operating lease with LHL (see Note 7).



During 2003, the Company purchased the Lansdowne Resort, located in Lansdowne, Virginia, and the Hotel George, located in Washington, D.C., and entered into lease agreements with LHL.



LHL currently expects to engage Starwood Hotels and Resorts Worldwide, Inc.
to manage and operate its Bloomington, Minnesota property under the Sheraton brand affiliation, beginning during March 2004.



17. Income Taxes



The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with its taxable year ended December 31, 1998. To
qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of



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its adjusted taxable income to its shareholders. It is the Companys current intention to adhere to these requirements and maintain the Companys
qualification for taxation as a REIT. As a REIT, the Company generally will not be subject to federal corporate income tax on that portion of its net income that is currently distributed to shareholders. If the Company fails to qualify for taxation
as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company
qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income from non-REIT
activities managed through taxable REIT subsidiaries is subject to federal, state and local income taxes. LHL is a wholly owned taxable-REIT subsidiary of the Company and as such is required to pay income taxes at the applicable rates.



The following is a reconciliation between the GAAP net income and taxable
income for the REIT for the years ended December 31, 2003 (estimated), 2002 and 2001:



|                                                              |  |             |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------- |  | ----------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                              |  | 2003        |         |   | 2002 |   |         | 2001 | 
|                                                              |  | (estimated) |         |   |      |   |         |      | 
|GAAP Net income available to common shareholders              |  | $           | 28,036  |   |      | $ | (3,939  | )    |  | $ | 3,835   |  
|Add: LHL GAAP net loss                                        |  |             | 8,822   |   |      |   | 4,354   |      |  |   | 1,986   |  
|Add: Preferred dividends paid                                 |  |             | 10,805  |   |      |   | 8,410   |      |  |   |        |  
|Add: Book depreciation and amortization                       |  |             | 33,702  |   |      |   | 31,230  |      |  |   | 30,663  |  
|Less: Tax depreciation and amortization                       |  |             | (27,713 | ) |      |   | (27,137 | )    |  |   | (28,575 | )
|Book/tax difference on gains/losses from capital transactions |  |             | (37,787 | ) |      |   |        |      |  |   | (6,176  | )
|Other book/tax differences, net                               |  |             | 1,883   |   |      |   | 2,821   |      |  |   | 2,169   |  
|                                                              |  |             |         |   |      |   |         |      |  |   |         |  
|Adjusted taxable income subject to 90% dividend requirement   |  | $           | 17,748  |   |      | $ | 15,739  |      |  | $ | 3,902   |  
|                                                              |  |             |         |   |      |   |         |      |  |   |         |  



The following is a
reconciliation between cash dividends paid on common shares of beneficial interest and preferred shares and the dividends paid deduction for the years ended December 31, 2003 (estimated), 2002 and 2001:



|                                                            |  |             |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------- |  | ----------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                            |  | 2003        |        |   | 2002 |   |        | 2001 | 
|                                                            |  | (estimated) |        |   |      |   |        |      | 
|Cash dividends paid on common shares of beneficial interest |  | $           | 19,503 |   |      | $ | 4,488  |      |  | $ | 20,965 |  
|Cash dividends paid on preferred shares                     |  |             | 10,229 |   |      |   | 5,853  |      |  |   |       |  
|Less: Dividends designated to prior year                    |  |             | (3,928 | ) |      |   | (187   | )    |  |   | (6,538 | )
|Plus: Dividends designated from following year:             |  |             |        |   |      |   |        |      |  |   |        |  
|Common shares of beneficial interest                        |  |             | 1,690  |   |      |   | 3,928  |      |  |   | 187    |  
|Preferred shares (1)                                        |  |             |       |   |      |   | 1,657  |      |  |   |       |  
|Less: Portion designated return of capital                  |  |             |       |   |      |   |       |      |  |   | (5,446 | )
|                                                            |  |             |        |   |      |   |        |      |  |   |        |  
|Dividends paid deduction                                    |  | $           | 27,494 |   |      | $ | 15,739 |      |  | $ | 9,168  |  
|                                                            |  |             |        |   |      |   |        |      |  |   |        |  

| | (1) |  | The Company made an election pursuant to Section 858 of the Internal Revenue Code to have a portion of the distribution on preferred shares that was paid on January 15, 2003 to
shareholders of record on January 1, 2003 included as a 2002 distribution for purposes of the dividends paid deduction.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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For federal income tax purposes, the cash distributions paid to the Companys common shareholders of
beneficial interest and preferred shareholders may be characterized as ordinary income, return of capital (generally non-taxable) or capital gains. The following characterizes distributions paid per common share of beneficial interest and preferred
share for the years ended December 31, 2003 (estimated), 2002 and 2001:



|                                     |  |             |        |   |        |   |   |      |        |  |        |   |  |   |        |  |        |  
|------------------------------------ |  | ----------- | ------ | - | ------ | - | - | ---- | ------ |  | ------ | - |  | - | ------ |  | ------ | -
|                                     |  | 2003        |        |   | 2002   |   |   | 2001 |       
|                                     |  | $           |        | % |        |   | $ |      | %      |  |        | $ |  | % |       
|                                     |  | (estimated) |        |   |        |   |   |      |        |  |        |   | 
|Common shares of beneficial interest |  |             |        |   |        |   |   |      |        |  |        |   |  |   |        |  |        |  
|Ordinary income                      |  | $           | 0.8400 |   | 100.00 | % |   | $    | 0.4400 |  | 100.00 | % |  | $ | 0.3101 |  | 39.00  | %
|Return of capital                    |  |             |       |   |       |   |   |      |       |  |       |   |  |   | 0.4849 |  | 61.00  | %
|Capital gains                        |  |             |       |   |       |   |   |      |       |  |       |   |  |   |       |  |       |  
|Unrecaptured Section 1250 gain       |  |             |       |   |       |   |   |      |       |  |       |   |  |   |       |  |       |  
|                                     |  |             |        |   |        |   |   |      |        |  |        |   |  |   |        |  |        |  
|                                     |  | $           | 0.8400 |   | 100.00 | % |   | $    | 0.4400 |  | 100.00 | % |  | $ | 0.7950 |  | 100.00 | %
|                                     |  |             |        |   |        |   |   |      |        |  |        |   |  |   |        |  |        |  
|Preferred shares                     |  |             |        |   |        |   |   |      |        |  |        |   |  |   |        |  |        |  
|Ordinary income                      |  | $           | 2.5625 |   | 100.00 | % |   | $    | 1.4663 |  | 100.00 | % |  | $ |       |  |       |  
|Return of capital                    |  |             |       |   |       |   |   |      |       |  |       |   |  |   |       |  |       |  
|Capital gains                        |  |             |       |   |       |   |   |      |       |  |       |   |  |   |       |  |       |  
|Unrecaptured Section 1250 gain       |  |             |       |   |       |   |   |      |       |  |       |   |  |   |       |  |       |  
|                                     |  |             |        |   |        |   |   |      |        |  |        |   |  |   |        |  |        |  
|                                     |  | $           | 2.5625 |   | 100.00 | % |   | $    | 1.4663 |  | 100.00 | % |  | $ |       |  |       | %
|                                     |  |             |        |   |        |   |   |      |        |  |        |   |  |   |        |  |        |  





Income tax benefit of $5,642 is comprised of state and local tax expense of $457 on the operating partnerships income and federal, state and
local tax benefit of $6,199 on LHLs loss of $15,196 before income tax benefit.



The components of the LHL income tax benefit were as follows:



|                         |  |                                 |        |   |      |   |        |      |  |   |        |  
|------------------------ |  | ------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                         |  | For the year ended December 31, |       
|                         |  | 2003                            |        |   | 2002 |   |        | 2001 | 
|Federal:                 |  |                                 |        |   |      |   |        |      |  |   |        |  
|Current                  |  | $                               |       |   |      | $ |       |      |  | $ | (433   | )
|Deferred                 |  |                                 | (4,682 | ) |      |   | (2,297 | )    |  |   | (801   | )
|State and local:         |  |                                 |        |   |      |   |        |      |  |   |        |  
|Current                  |  |                                 |       |   |      |   | (7     | )    |  |   |       |  
|Deferred                 |  |                                 | (1,417 | ) |      |   | (799   | )    |  |   | (273   | )
|                         |  |                                 |        |   |      |   |        |      |  |   |        |  
|Total income tax benefit |  | $                               | (6,099 | ) |      | $ | (3,103 | )    |  | $ | (1,507 | )
|                         |  |                                 |        |   |      |   |        |      |  |   |        |  



The provision for
income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income as a result of the following differences:



|                                                     |  |                                 |        |   |      |   |        |      |  |   |        |  
|---------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                     |  | For the year ended December 31, |       
|                                                     |  | 2003                            |        |   | 2002 |   |        | 2001 | 
|Computed Expected federal tax benefit (at 34.5%)   |  | $                               | (5,147 | ) |      | $ | (2,536 | )    |  | $ | (1,237 | )
|State income taxes, net of federal income tax effect |  |                                 | (1,044 | ) |      |   | (532   | )    |  |   | (273   | )
|Changes in valuation allowance                       |  |                                 |       |   |      |   |       |      |  |   |       |  
|Other, net                                           |  |                                 | 92     |   |      |   | (35    | )    |  |   | 3      |  
|                                                     |  |                                 |        |   |      |   |        |      |  |   |        |  
|Income tax benefit                                   |  | $                               | (6,099 | ) |      | $ | (3,103 | )    |  | $ | (1,507 | )
|                                                     |  |                                 |        |   |      |   |        |      |  |   |        |  





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The components of LHLs deferred tax assets as of December 31, 2003, 2002 and 2001 were as follows:



|                                   |  |      |        |      |   |       |  |   |      
|---------------------------------- |  | ---- | ------ | ---- | - | ----- |  | - | -----
|                                   |  | 2003 |        | 2002 |   | 2001 
|Deferred tax assets (non-current): |  |      |        |      |   |       |  |   |      
|Operating loss carryforward        |  | $    | 10,379 |      | $ | 4,170 |  | $ | 1,074
|Allowance for doubtful accounts    |  |      | 45     |      |   | 45    |  |   | 45   
|                                   |  |      |        |      |   |       |  |   |      
|Gross deferred tax assets          |  |      | 10,424 |      |   | 4,215 |  |   | 1,119
|                                   |  |      |       
|Deferred tax assets (non-current)  |  | $    | 10,424 |      | $ | 4,215 |  | $ | 1,119
|                                   |  |      |        |      |   |       |  |   |      



For the year ended
December 31, 2003, LHL recorded an income tax benefit of $6,099 that is included in the accompanying consolidated financial statements. The Company has estimated its income tax benefit using a combined federal and state rate of 41.5%. As of December
31, 2003, the Company had a deferred tax asset of $10,424 primarily due to past and current years tax net operating losses. These loss carryforwards will expire in 2021 thru 2023 if not utilized by then. Management believes that it is more
likely than not that this deferred tax asset will be realized and has determined that no valuation allowance is required. Reversal of deferred tax asset in the subsequent year cannot be reasonably estimated.



18. Earnings Per Common Share



The limited partners outstanding limited partnership units in the
operating partnership (which may be converted to common shares of beneficial interest) have been excluded from the diluted earnings per share calculation as there would be no effect on the amounts since the limited partners share of income
would also be added back to net income. The computation of basic and diluted earnings per common share is presented below:



|                                                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                                                                                                            |  | For the year ended December 31, |           
|                                                                                                                                                                            |  | 2003                            |            |   | 2002 |   |            | 2001 | 
|Numerator:                                                                                                                                                                  |  |                                 |            |   |      |   |            |      |  |   |            |  
|Net income (loss) applicable to common shareholders before discontinued operations and dividends paid on unvested restricted
shares                                         |  | $                               | (7,821     | ) |      | $ | (5,288     | )    |  | $ | 2,995      |  
|Discontinued operations                                                                                                                                                     |  |                                 | 35,857     |   |      |   | 1,349      |      |  |   | 840        |  
|                                                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |  
|Net income applicable to common shareholders before dividends paid on unvested restricted shares                                                                            |  |                                 | 28,036     |   |      |   | (3,939     | )    |  |   | 3,835      |  
|Dividends paid on unvested restricted shares                                                                                                                                |  |                                 | (215       | ) |      |   | (123       | )    |  |   | (48        | )
|                                                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |  
|Net income applicable to common shareholders, after dividends paid on unvested restricted shares                                                                            |  | $                               | 27,821     |   |      | $ | (4,062     | )    |  | $ | 3,787      |  
|                                                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |  
|Denominator:                                                                                                                                                                |  |                                 |            |   |      |   |            |      |  |   |            |  
|Weighted average number of common sharesbasic                                                                                                                              |  |                                 | 20,030,723 |   |      |   | 18,413,602 |      |  |   | 18,321,730 |  
|Effect of dilutive securities:                                                                                                                                              |  |                                 |            |   |      |   |            |      |  |   |            |  
|Unvested restricted shares                                                                                                                                                  |  |                                 | 250,171    |   |      |   | 275,582    |      |  |   | 63,285     |  
|Common stock options                                                                                                                                                        |  |                                 | 206,512    |   |      |   | 154,346    |      |  |   | 67,867     |  
|                                                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |  
|Weighted average number of common sharesdiluted                                                                                                                            |  |                                 | 20,487,406 |   |      |   | 18,843,530 |      |  |   | 18,452,882 |  
|                                                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |  
|Basic Earnings Per Common Share:                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |  
|Net income (loss) applicable to common shareholders per weighted average common share before discontinued operations and after dividends paid
on unvested restricted shares |  | $                               | (0.40      | ) |      | $ | (0.29      | )    |  | $ | 0.16       |  
|Discontinued operations                                                                                                                                                     |  |                                 | 1.79       |   |      |   | 0.07       |      |  |   | 0.05       |  
|                                                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |  
|Net income applicable to common shareholders per weighted average common share, after dividends paid on unvested restricted
shares                                          |  | $                               | 1.39       |   |      | $ | (0.22      | )    |  | $ | 0.21       |  
|                                                                                                                                                                            |  |                                 |            |   |      |   |            |      |  |   |            |  



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|                                                                                                                     |  |                                |       |   |      |   |       |      |  |   |     
|-------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | ----
|                                                                                                                     |  | For the year endedDecember 31,
|                                                                                                                     |  | 2003                           |       |   | 2002 |   |       | 2001
|Diluted Earnings Per Common Share:                                                                                   |  |                                |       |   |      |   |       |      |  |   |     
|Net income (loss) applicable to common shareholders per weighted average common share before discontinued operations |  | $                              | (0.38 | ) |      | $ | (0.28 | )    |  | $ | 0.16
|Discontinued operations                                                                                              |  |                                | 1.75  |   |      |   | 0.07  |      |  |   | 0.05
|                                                                                                                     |  |                                |       |   |      |   |       |      |  |   |     
|Net income applicable to common shareholders per weighted average common share                                       |  | $                              | 1.37  |   |      | $ | (0.21 | )    |  | $ | 0.21
|                                                                                                                     |  |                                |       |   |      |   |       |      |  |   |     



19. Comprehensive Income



For the year ended December 31, 2003, comprehensive income
was $28,036. As of December 31, 2003 and 2002 the Companys accumulated other comprehensive loss was zero and $1,050, respectively. The change in accumulated other comprehensive loss was entirely due to the Companys unrealized losses on
its interest rate derivative. The interest rate derivative expired on December 31, 2003. For the year ended December 31, 2003, the Company reclassified $1,105 of accumulated other comprehensive loss to earnings as interest expense.



20. Supplemental Information to Statements of Cash Flows



|                                                                                                          |  |                                |         |   |      |   |        |      |  |   |         |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                                                          |  | For the year endedDecember 31, |        
|                                                                                                          |  | 2003                           |         |   | 2002 |   |        | 2001 | 
|Interest paid, net of capitalized interest                                                                |  | $                              | 14,891  |   |      | $ | 16,279 |      |  | $ | 23,561  |  
|                                                                                                          |  |                                |         |   |      |   |        |      |  |   |         |  
|Interest capitalized                                                                                      |  | $                              | 289     |   |      | $ | 1,031  |      |  | $ | 782     |  
|                                                                                                          |  |                                |         |   |      |   |        |      |  |   |         |  
|Distributions payable (common shares)                                                                     |  | $                              | 1,720   |   |      | $ | 4,018  |      |  | $ | 191     |  
|                                                                                                          |  |                                |         |   |      |   |        |      |  |   |         |  
|Distributions payable (preferred shares)                                                                  |  | $                              | 3,133   |   |      | $ | 2,557  |      |  | $ |        |  
|                                                                                                          |  |                                |         |   |      |   |        |      |  |   |         |  
|Issuance of common shares for board of trustees compensation                                              |  | $                              | 36      |   |      | $ | 75     |      |  | $ | 46      |  
|                                                                                                          |  |                                |         |   |      |   |        |      |  |   |         |  
|In conjunction with the LHL lease transitions the Company assumed the following assets and liabilities:   |  |                                |         |   |      |   |        |      |  |   |         |  
|Accounts receivable, net                                                                                  |  | $                              | 9       |   |      | $ | 14     |      |  | $ |        |  
|Other assets                                                                                              |  |                                | 82      |   |      |   | 929    |      |  |   |        |  
|Liabilities                                                                                               |  |                                | (91     | ) |      |   | (943   | )    |  |   |        |  
|                                                                                                          |  |                                |         |   |      |   |        |      |  |   |         |  
|Total net assets                                                                                          |  | $                              |        |   |      | $ |       |      |  | $ |        |  
|                                                                                                          |  |                                |         |   |      |   |        |      |  |   |         |  
|In conjunction with the hotel dispositions, the Company disposed of the following assets and liabilities: |  |                                |         |   |      |   |        |      |  |   |         |  
|Sale of real estate                                                                                       |  | $                              | (71,562 | ) |      | $ | (817   | )    |  | $ | (15,542 | )
|Mortgage loans assumed                                                                                    |  |                                | 58,072  |   |      |   |       |      |  |   |        |  
|Other assets                                                                                              |  |                                | (652    | ) |      |   |       |      |  |   | (5      | )
|Liabilities                                                                                               |  |                                | 855     |   |      |   | (11    | )    |  |   | 619     |  
|Gain/loss on sale of properties disposed of                                                               |  |                                | (36,662 | ) |      |   |       |      |  |   |        |  
|                                                                                                          |  |                                |         |   |      |   |        |      |  |   |         |  
|Disposition of hotel properties                                                                           |  | $                              | (49,949 | ) |      | $ | (828   | )    |  | $ | (14,928 | )
|                                                                                                          |  |                                |         |   |      |   |        |      |  |   |         |  
|In conjunction with the hotel acquisitions, the Company assumed the following assets and liabilities:     |  |                                |         |   |      |   |        |      |  |   |         |  
|Purchase of real estate                                                                                   |  | $                              | 141,908 |   |      | $ |       |      |  | $ | 87,743  |  
|Mortgage loan assumed                                                                                     |  |                                | (62,845 | ) |      |   |       |      |  |   |        |  
|Other assets                                                                                              |  |                                | 7,189   |   |      |   |       |      |  |   |        |  
|Liabilities                                                                                               |  |                                | (11,357 | ) |      |   |       |      |  |   | (1,209  | )
|                                                                                                          |  |                                |         |   |      |   |        |      |  |   |         |  
|Acquisition of hotel properties                                                                           |  | $                              | 74,895  |   |      | $ |       |      |  | $ | 86,534  |  
|                                                                                                          |  |                                |         |   |      |   |        |      |  |   |         |  



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##### Table of Contents

|                                                                                                   |  |                                |   |      |   |      |      |  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------------ | - | ---- | - | ---- | ---- |  | - | ------- | -
|                                                                                                   |  | For the year endedDecember 31, |  
|                                                                                                   |  | 2003                           |   | 2002 |   |      | 2001 | 
|Exchange of units for common shares:                                                               |  |                                |   |      |   |      |      |  |   |         |  
|Minority interest in operating partnership                                                         |  | $                              |  |      | $ | (244 | )    |  | $ | (14,399 | )
|Common shares                                                                                      |  |                                |  |      |   |     |      |  |   | 11      |  
|Additional paid-in capital                                                                         |  |                                |  |      |   | 244  |      |  |   | 14,388  |  
|                                                                                                   |  |                                |   |      |   |      |      |  |   |         |  
|                                                                                                   |  | $                              |  |      | $ |     |      |  | $ |        |  
|                                                                                                   |  |                                |   |      |   |      |      |  |   |         |  
|In conjunction with the LHL acquisition, the Company assumed the following assets and liabilities: |  |                                |   |      |   |      |      |  |   |         |  
|Accounts receivable, net                                                                           |  | $                              |  |      | $ |     |      |  | $ | 4,375   |  
|Other assets                                                                                       |  |                                |  |      |   |     |      |  |   | 8,512   |  
|Liabilities                                                                                        |  |                                |  |      |   |     |      |  |   | (12,834 | )
|                                                                                                   |  |                                |   |      |   |      |      |  |   |         |  
|Acquisition of hotel properties                                                                    |  | $                              |  |      | $ |     |      |  | $ | 53      |  
|                                                                                                   |  |                                |   |      |   |      |      |  |   |         |  



21. Pro Forma Financial Information
(Unaudited)



The following condensed pro forma financial
information is presented as if the following acquisitions as discussed in Note 3 had been consummated and leased as of January 1, 2002.



| |  |  | Lansdowne Resort
| | - |  | ----------------

| |  |  | Hotel George
| | - |  | ------------



The following condensed pro forma financial information is not necessarily indicative of what actual results of operations of the Company would have been assuming the acquisitions had been consummated and all the
hotels had been leased at the beginning of the respective periods presented, nor does it purport to represent the results of operations for future periods.



|                                                                                                              |  |                                |            |      |   |            |  
|------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ---------- | ---- | - | ---------- | -
|                                                                                                              |  | For the year endedDecember 31, |           
|                                                                                                              |  | 2003                           |            | 2002 |  
|Total revenues                                                                                                |  | $                              | 223,113    |      | $ | 220,958    |  
|Net income (loss) applicable to common shareholders of beneficial interest                                    |  | $                              | 27,487     |      | $ | (4,195     | )
|Net income (loss) applicable to common shareholders of beneficial interest per weighted average common share: |  |                                |            |      |   |            |  
|basic (after dividends paid on unvested restricted shares)                                                    |  | $                              | 1.36       |      | $ | (0.23      | )
|diluted (before dividends paid on unvested restricted shares)                                                 |  | $                              | 1.34       |      | $ | (0.22      | )
|Weighted average number of common shares outstanding:                                                         |  |                                |            |      |   |            |  
|basic                                                                                                         |  |                                | 20,030,723 |      |   | 18,413,602 |  
|diluted                                                                                                       |  |                                | 20,487,406 |      |   | 18,843,530 |  



22. Subsequent Events



On January 15, 2004, the Company paid its December 2003
monthly distribution of $0.07 per share/unit on its common shares of beneficial interest and units of limited partnership interest to shareholders and unit holders of record as of December 31, 2003.



On January 15, 2004, the Company paid its preferred distribution of $0.64 per
Series A Preferred Share for the quarter ended December 31, 2003 to preferred shareholders of record at the close of business on January 1, 2004.



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##### Table of Contents

On January 15, 2004, the Company paid its preferred distribution of $0.53 per Series B Preferred Share
for the quarter ended December 31, 2003 to preferred shareholders of record at the close of business on January 1, 2004.



On January 15, 2004, the Company announced its monthly dividend of $0.07 per common share of beneficial interest/unit for each of the months of January,
February and March 2004. The January dividend was paid on February 13, 2004 to common shareholders and unitholders of record at the close of business on January 31, 2004. The February dividend will be paid on March 15, 2004 to common
shareholders and unitholders of record at the close of business on February 28, 2004. The March dividend will be paid on April 15, 2004 to common shareholders and unitholders of record at the close of business on March 31, 2004.



Effective January 16, 2004, the Company entered into an exclusive listing
agreement for the sale of its Omaha property. The asset was classified as held for sale at that time because the property is being actively marketed and sale is expected to occur within one year; accordingly depreciation was suspended. Based on
initial pricing expectations the Company expects to recognize a gain on the sale, therefore no impairment was recognized.



On January 23, 2004 and January 29, 2004, the Company issued an aggregate of 6,761 common shares of beneficial interest, including 5,448 deferred shares,
to the independent members of its Board of Trustees for a portion of their 2003 compensation. The common shares of beneficial interest were issued in lieu of cash at the trustees election. These common shares of beneficial interest were issued
under the 1998 share option and incentive plan.



On February
10, 2004, the Company acquired a 100% interest in the Indianapolis Marriott Downtown, a 615-room, full service hotel located in downtown Indianapolis, Indiana, for $106,000. The source of funding for the acquisition was the Companys senior
unsecured bank facility, however, the Company anticipates entering into a secured debt agreement in the near future. The property was leased to LHL, and White Lodging Services Corporation was retained to manage the property.



On February 10, 2004, the Company announced that its 565-room convention
hotel in Bloomington, Minnesota would be re-flagged as the Sheraton Minneapolis Hotel. Starwood Hotels and Resorts Worldwide, Inc. has been selected to manage the property as a Sheraton, Starwoods upscale brand, when the conversion takes place
in March 2004.



On February 11, 2004, the Company paid in full
the $62,326 balance of the mortgage loan that had been secured by the Lansdowne Resort, which the Company had assumed upon purchase of the property on June 17, 2003. The source of funding for the prepayment was the Companys senior unsecured
bank facility. The mortgage loan permitted prepayment beginning on February 11, 2004. Upon prepayment, the seller was entitled to the $5,019 debt service reserve, less the $1,870 prepayment penalty, that the seller had transferred to the Company in
conjunction with the purchase of the Lansdowne Resort. On February 12, 2004, the Company paid the seller $3,149 in cash representing the remaining value of the debt service reserve escrow. The Company recognized a gain on the debt extinguishment of
$70.



23. Quarterly Operating Results (Unaudited)



The Companys unaudited consolidated quarterly operating data for the
years ended December 31, 2003 and 2002 (in thousands, except per share data) follows. Certain 2002 items have been reclassified to conform to the current presentation of discontinued operations. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of quarterly results have been reflected in the data. It is also managements opinion, however, that quarterly operating data for hotel enterprises are not indicative
of results to be achieved in succeeding quarters or years.



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|                                                                                                                                       |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ------------- | - | ---------- | ------------ |  | - | ------------- | - |  | - | ---------- | -
|                                                                                                                                       |  | Year Ended December 31, 2003 |           
|                                                                                                                                       |  | FirstQuarter                 |            |   | SecondQuarter |   |            | ThirdQuarter |  |   | FourthQuarter |  
|Total revenues from continuing operations                                                                                              |  | $                            | 33,266     |   |               | $ | 48,715     |              |  | $ | 64,444        |   |  | $ | 55,865     |  
|Total expenses from continuing operations                                                                                              |  |                              | 38,064     |   |               |   | 49,512     |              |  |   | 57,999        |   |  |   | 53,731     |  
|                                                                                                                                       |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Net income (loss) from continuing operations                                                                                           |  |                              | (4,798     | ) |               |   | (797       | )            |  |   | 6,445         |   |  |   | 2,134      |  
|Net income (loss) from discontinued operations                                                                                         |  |                              | 1,043      |   |               |   | 35,587     |              |  |   | (634          | ) |  |   | (139       | )
|                                                                                                                                       |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Net income (loss)                                                                                                                      |  |                              | (3,755     | ) |               |   | 34,790     |              |  |   | 5,811         |   |  |   | 1,995      |  
|Distributions to preferred shareholders                                                                                                |  |                              | (2,557     | ) |               |   | (2,558     | )            |  |   | (2,557        | ) |  |   | (3,133     | )
|                                                                                                                                       |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Net income (loss) applicable to common shareholders                                                                                    |  | $                            | (6,312     | ) |               | $ | 32,232     |              |  | $ | 3,254         |   |  | $ | (1,138     | )
|                                                                                                                                       |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Earnings per weighted average common share outstandingbasic:                                                                          |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Income (loss) applicable to common shareholders before discontinued operations and after dividends paid on unvested restricted
shares. |  | $                            | (0.40      | ) |               | $ | (0.18      | )            |  | $ | 0.18          |   |  | $ | (0.05      | )
|Discontinued operations                                                                                                                |  |                              | 0.06       |   |               |   | 1.92       |              |  |   | (0.03         | ) |  |   |           |  
|                                                                                                                                       |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Net income (loss) applicable to common shareholders after dividends paid on unvested restricted shares                                 |  | $                            | (0.34      | ) |               | $ | 1.74       |              |  | $ | 0.15          |   |  | $ | (0.05      | )
|                                                                                                                                       |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Earnings per weighted average common share outstandingdiluted:                                                                        |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Income (loss) applicable to common shareholders before discontinued operations                                                         |  | $                            | (0.39      | ) |               | $ | (0.18      | )            |  | $ | 0.18          |   |  | $ | (0.05      | )
|Discontinued operations                                                                                                                |  |                              | 0.05       |   |               |   | 1.88       |              |  |   | (0.03         | ) |  |   |           |  
|                                                                                                                                       |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Net income (loss) applicable to common shareholders                                                                                    |  | $                            | (0.34      | ) |               | $ | 1.70       |              |  | $ | 0.15          |   |  | $ | (0.05      | )
|                                                                                                                                       |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Weighted average number of common shares outstanding:                                                                                  |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Basic                                                                                                                                  |  |                              | 18,483,506 |   |               |   | 18,517,924 |              |  |   | 20,738,660    |   |  |   | 22,337,143 |  
|Diluted                                                                                                                                |  |                              | 18,838,009 |   |               |   | 18,912,120 |              |  |   | 21,197,051    |   |  |   | 22,945,864 |  



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##### Table of Contents

|                                                                                                                                      |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ------------- | - | ---------- | ------------ |  | - | ------------- | - |  | - | ---------- | -
|                                                                                                                                      |  | Year Ended December 31, 2002 |           
|                                                                                                                                      |  | FirstQuarter                 |            |   | SecondQuarter |   |            | ThirdQuarter |  |   | FourthQuarter |  
|Total revenues from continuing operations                                                                                             |  | $                            | 31,316     |   |               | $ | 47,331     |              |  | $ | 50,461        |   |  | $ | 42,068     |  
|Total expenses from continuing operations                                                                                             |  |                              | 35,125     |   |               |   | 43,676     |              |  |   | 43,919        |   |  |   | 45,334     |  
|                                                                                                                                      |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Net income (loss) from continuing operations                                                                                          |  |                              | (3,809     | ) |               |   | 3,655      |              |  |   | 6,542         |   |  |   | (3,226     | )
|Net income from discontinued operations                                                                                               |  |                              | 1,413      |   |               |   | 83         |              |  |   | 379           |   |  |   | (526       | )
|                                                                                                                                      |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Net income (loss)                                                                                                                     |  |                              | (2,396     | ) |               |   | 3,738      |              |  |   | 6,921         |   |  |   | (3,792     | )
|Distributions to preferred shareholders                                                                                               |  |                              | (739       | ) |               |   | (2,557     | )            |  |   | (2,557        | ) |  |   | (2,557     | )
|                                                                                                                                      |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Net income (loss) applicable to common shareholders                                                                                   |  | $                            | (3,135     | ) |               | $ | 1,181      |              |  | $ | 4,364         |   |  | $ | (6,349     | )
|                                                                                                                                      |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Earnings per weighted average common share outstandingbasic:                                                                         |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Income (loss) applicable to common shareholders before discontinued operations and after dividends paid on unvested restricted
shares |  | $                            | (0.25      | ) |               | $ | 0.06       |              |  | $ | 0.21          |   |  | $ | (0.32      | )
|Discontinued operations                                                                                                               |  |                              | 0.08       |   |               |   |           |              |  |   | 0.02          |   |  |   | (0.03      | )
|                                                                                                                                      |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Net income (loss) applicable to common shareholders after dividends paid on unvested restricted shares                                |  | $                            | (0.17      | ) |               | $ | 0.06       |              |  | $ | 0.23          |   |  | $ | (0.35      | )
|                                                                                                                                      |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Earnings per weighted average common share outstandingdiluted:                                                                       |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Net income (loss) applicable to common shareholders before discontinued operations                                                    |  | $                            | (0.24      | ) |               | $ | 0.06       |              |  | $ | 0.21          |   |  | $ | (0.31      | )
|Discontinued operations                                                                                                               |  |                              | 0.07       |   |               |   |           |              |  |   | 0.02          |   |  |   | (0.03      | )
|                                                                                                                                      |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Net income (loss) applicable to common shareholders                                                                                   |  | $                            | (0.17      | ) |               | $ | 0.06       |              |  | $ | 0.23          |   |  | $ | (0.34      | )
|                                                                                                                                      |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Weighted average number of common shares outstanding:                                                                                 |  |                              |            |   |               |   |            |              |  |   |               |   |  |   |            |  
|Basic                                                                                                                                 |  |                              | 18,399,053 |   |               |   | 18,407,529 |              |  |   | 18,417,919    |   |  |   | 18,429,526 |  
|Diluted                                                                                                                               |  |                              | 18,820,010 |   |               |   | 18,887,917 |              |  |   | 18,826,814    |   |  |   | 18,840,349 |  



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##### Table of Contents

LASALLE HOTEL PROPERTIES



Schedule III  Real Estate and Accumulated Depreciation

As of December 31, 2003

(Dollars in thousands, except per share data)



|    |  |                                            |  |               |         |              |   |                                            |  |                                                   |         |      |   |                          |  |   |                                |  |      |                                                       |                          |  |                                |        |                         |   |               |  |                             |         |                    |   |         |  |   |         |  |   |         |  |      |  |          |  |           
|--- |  | ------------------------------------------ |  | ------------- | ------- | ------------ | - | ------------------------------------------ |  | ------------------------------------------------- | ------- | ---- | - | ------------------------ |  | - | ------------------------------ |  | ---- | ----------------------------------------------------- | ------------------------ |  | ------------------------------ | ------ | ----------------------- | - | ------------- |  | --------------------------- | ------- | ------------------ | - | ------- |  | - | ------- |  | - | ------- |  | ---- |  | -------- |  | ----------
|    |  |                                            |  |               |         | Initial Cost |   | Cost Capitalized Subsequent to Acquisition |  | Gross Amounts at Which Carried at Close of Period |         |      |   |                          |  |   |                                |  |      | Life onWhichDepreciationin IncomeStatement isComputed
|    |  |                                            |  | Encum-brances |         | Land         |   | Building andImprovements                   |  | Furniture,FixturesandEquipment                    |         | Land |   | Building andImprovements |  |   | Furniture,FixturesandEquipment |  | Land |                                                       | Building andImprovements |  | Furniture,FixturesandEquipment |        | AccumulatedDepreciation |   | Net BookValue |  | Date ofOriginalConstruction |         | Date ofAcquisition |  
|1.  |  | Radisson Convention Hotel                  |  | $             | 28,355  |              | $ | 8,172                                      |  | $                                                 | 11,258  |      | $ | 13,811                   |  | $ |                               |  | $    | 3,995                                                 |                          |  | $                              | 6,802  |                         | $ | 8,172         |  | $                           | 15,253  |                    | $ | 20,613  |  | $ | 20,674  |  | $ | 23,364  |  | 1969 |  | 12/01/95 |  | 3-30 years
|2.  |  | Westin City Center Dallas                  |  |               | 15,160  |              |   | 2,452                                      |  |                                                   | 20,847  |      |   | 2,166                    |  |   |                               |  |      | 336                                                   |                          |  |                                | 5,696  |                         |   | 2,452         |  |                             | 21,183  |                    |   | 7,862   |  |   | 9,386   |  |   | 22,111  |  | 1980 |  | 04/29/98 |  | 3-30 years
|3.  |  | Marriott Seaview Resort                    |  |               |        |              |   | 7,415                                      |  |                                                   | 40,337  |      |   | 2,339                    |  |   | 182                            |  |      | 2,613                                                 |                          |  |                                | 10,665 |                         |   | 7,597         |  |                             | 42,950  |                    |   | 13,004  |  |   | 18,238  |  |   | 45,313  |  | 1912 |  | 04/29/98 |  | 3-30 years
|4.  |  | Omaha Marriott Hotel                       |  |               |        |              |   | 4,268                                      |  |                                                   | 22,405  |      |   | 3,086                    |  |   |                               |  |      | 1,466                                                 |                          |  |                                | 3,155  |                         |   | 4,268         |  |                             | 23,871  |                    |   | 6,241   |  |   | 9,112   |  |   | 25,268  |  | 1982 |  | 04/29/98 |  | 3-30 years
|5.  |  | Le Montrose All Suite Hotel                |  |               | 14,231  |              |   | 5,004                                      |  |                                                   | 19,752  |      |   | 2,951                    |  |   |                               |  |      | 1,596                                                 |                          |  |                                | 2,504  |                         |   | 5,004         |  |                             | 21,348  |                    |   | 5,455   |  |   | 8,034   |  |   | 23,773  |  | 1976 |  | 04/29/98 |  | 3-30 years
|6.  |  | LaGuardia Airport Marriott                 |  |               |        |              |   | 8,127                                      |  |                                                   | 32,139  |      |   | 3,976                    |  |   |                               |  |      | 4,050                                                 |                          |  |                                | 5,360  |                         |   | 8,127         |  |                             | 36,189  |                    |   | 9,336   |  |   | 13,047  |  |   | 40,605  |  | 1981 |  | 04/29/98 |  | 3-30 years
|7.  |  | San Diego Paradise Point                   |  |               | 65,000  |              |   |                                           |  |                                                   | 69,639  |      |   | 3,665                    |  |   |                               |  |      | 20,526                                                |                          |  |                                | 9,485  |                         |   |              |  |                             | 90,165  |                    |   | 13,150  |  |   | 25,959  |  |   | 77,356  |  | 1962 |  | 06/01/98 |  | 3-30 years
|8.  |  | Harborside Hyatt Conference Center & Hotel |  |               | 42,500  |              |   |                                           |  |                                                   | 66,159  |      |   | 5,246                    |  |   |                               |  |      | 596                                                   |                          |  |                                | 4,109  |                         |   |              |  |                             | 66,755  |                    |   | 9,355   |  |   | 20,114  |  |   | 55,996  |  | 1993 |  | 06/24/98 |  | 3-30 years
|9.  |  | Hotel Viking                               |  |               |        |              |   | 2,421                                      |  |                                                   | 24,375  |      |   | 353                      |  |   | 77                             |  |      | 12,643                                                |                          |  |                                | 4,447  |                         |   | 2,498         |  |                             | 37,018  |                    |   | 4,800   |  |   | 7,645   |  |   | 36,671  |  | 1850 |  | 06/02/99 |  | 3-30 years
|10. |  | Topaz Hotel                                |  |               |        |              |   | 2,137                                      |  |                                                   | 8,549   |      |   |                         |  |   | 12                             |  |      | 3,818                                                 |                          |  |                                | 2,418  |                         |   | 2,149         |  |                             | 12,367  |                    |   | 2,418   |  |   | 2,030   |  |   | 14,904  |  | 1963 |  | 03/08/01 |  | 3-30 years
|11. |  | Hotel Madera                               |  |               |        |              |   | 1,682                                      |  |                                                   | 6,726   |      |   |                         |  |   | 10                             |  |      | 4,916                                                 |                          |  |                                | 2,332  |                         |   | 1,692         |  |                             | 11,642  |                    |   | 2,332   |  |   | 1,365   |  |   | 14,301  |  | 1963 |  | 03/08/01 |  | 3-30 years
|12. |  | Hotel Rouge                                |  |               |        |              |   | 2,162                                      |  |                                                   | 8,647   |      |   |                         |  |   | 17                             |  |      | 4,898                                                 |                          |  |                                | 3,564  |                         |   | 2,179         |  |                             | 13,545  |                    |   | 3,564   |  |   | 2,440   |  |   | 16,848  |  | 1963 |  | 03/08/01 |  | 3-30 years
|13. |  | Hotel Helix                                |  |               |        |              |   | 2,636                                      |  |                                                   | 10,546  |      |   |                         |  |   | 13                             |  |      | 8,369                                                 |                          |  |                                | 4,680  |                         |   | 2,649         |  |                             | 18,915  |                    |   | 4,680   |  |   | 2,153   |  |   | 24,091  |  | 1962 |  | 03/08/01 |  | 3-30 years
|14. |  | Holiday Inn on the Hill Hotel              |  |               |        |              |   | 8,353                                      |  |                                                   | 33,412  |      |   | 2,742                    |  |   |                               |  |      | 3,585                                                 |                          |  |                                | 4,159  |                         |   | 8,353         |  |                             | 36,997  |                    |   | 6,901   |  |   | 5,386   |  |   | 46,865  |  | 1968 |  | 06/01/01 |  | 3-30 years
|15. |  | Lansdowne (1)                              |  |               | 62,396  |              |   | 27,421                                     |  |                                                   | 74,835  |      |   | 3,114                    |  |   | 69                             |  |      | (244                                                  | )                        |  |                                | 914    |                         |   | 27,490        |  |                             | 74,591  |                    |   | 4,028   |  |   | 1,820   |  |   | 104,289 |  | 1991 |  | 06/17/03 |  | 3-30 years
|16. |  | Hotel George                               |  |               |        |              |   | 1,743                                      |  |                                                   | 22,221  |      |   | 531                      |  |   |                               |  |      |                                                      |                          |  |                                | 9      |                         |   | 1,743         |  |                             | 22,221  |                    |   | 540     |  |   | 283     |  |   | 24,221  |  | 1928 |  | 09/18/03 |  | 3-30 years
|    |  |                                            |  |               |         |              |   |                                            |  |                                                   |         |      |   |                          |  |   |                                |  |      |                                                       |                          |  |                                |        |                         |   |               |  |                             |         |                    |   |         |  |   |         |  |   |         |  |      |  |          |  |           
|    |  | Total                                      |  | $             | 227,642 |              | $ | 83,993                                     |  | $                                                 | 471,847 |      | $ | 43,980                   |  | $ | 380                            |  | $    | 73,163                                                |                          |  | $                              | 70,299 |                         | $ | 84,373        |  | $                           | 545,010 |                    | $ | 114,279 |  | $ | 147,686 |  | $ | 595,976 |  |      |  |          |  |           
|    |  |                                            |  |               |         |              |   |                                            |  |                                                   |         |      |   |                          |  |   |                                |  |      |                                                       |                          |  |                                |        |                         |   |               |  |                             |         |                    |   |         |  |   |         |  |   |         |  |      |  |          |  |           



|(1) |  | Total Investment in hotel properties does not include $14,743 of property under development for the Lansdowne Resort.
|--- |  | ---------------------------------------------------------------------------------------------------------------------





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##### Table of Contents

LASALLE HOTEL PROPERTIES



Schedule IIIReal Estate and Accumulated DepreciationContinued

As of December 31, 2003



Reconciliation of real estate and accumulated depreciation:



|                                               |  |   |         |  
|---------------------------------------------- |  | - | ------- | -
|Reconciliation of Real Estate:                 |  |   |         |  
|Balance at December 31, 2000                   |  | $ | 561,046 |  
|Acquisition of hotel properties                |  |   | 87,592  |  
|Improvements and additions to hotel properties |  |   | 24,666  |  
|Writedown of hotel                             |  |   | (1,610  | )
|Disposal of hotel                              |  |   | (19,476 | )
|                                               |  |   |         |  
|Balance at December 31, 2001                   |  |   | 652,218 |  
|Improvements and additions to hotel properties |  |   | 33,964  |  
|Disposal of hotel                              |  |   | (902    | )
|                                               |  |   |         |  
|Balance at December 31, 2002                   |  |   | 685,280 |  
|Acquisition of hotel properties                |  |   | 127,540 |  
|Improvements and additions to hotel properties |  |   | 25,384  |  
|Disposal of hotel                              |  |   | (94,542 | )
|                                               |  |   |         |  
|Balance at December 31, 2003                   |  | $ | 743,662 |  
|                                               |  |   |         |  
|                                               | 
|Reconciliation of Accumulated Depreciation:    |  |   |         |  
|Balance at December 31, 2000                   |  | $ | 74,862  |  
|Depreciation                                   |  |   | 31,275  |  
|Disposal of hotel                              |  |   | (3,934  | )
|                                               |  |   |         |  
|Balance at December 31, 2001                   |  |   | 102,203 |  
|Depreciation                                   |  |   | 33,348  |  
|Disposal of hotel                              |  |   | (85     | )
|                                               |  |   |         |  
|Balance at December 31, 2002                   |  |   | 135,466 |  
|Depreciation                                   |  |   | 33,501  |  
|Disposal of hotel                              |  |   | (21,281 | )
|                                               |  |   |         |  
|Balance at December 31, 2003                   |  | $ | 147,686 |  
|                                               |  |   |         |  



F-41