Exhibit 13



PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.

CONSOLIDATED BALANCE SHEETS

(Dollars and units in thousands)



|                                                                              |  |                          |           |   |                  |   |           |  
|----------------------------------------------------------------------------- |  | ------------------------ | --------- | - | ---------------- | - | --------- | -
|                                                                              |  | June 30, 2005(Unaudited) |           |   | December 31,2004 |  
|ASSETS                                                                        |  |                          |           |   |                  |   |           |  
|Property and equipment                                                        |  | $                        | 2,655,676 |   |                  | $ | 2,581,720 |  
|Accumulated depreciation                                                      |  |                          | (545,023  | ) |                  |   | (506,632  | )
|                                                                              |  |                          |           |   |                  |   |           |  
|                                                                              |  |                          | 2,110,653 |   |                  |   | 2,075,088 |  
|                                                                              |  |                         
|Assets held for sale                                                          |  |                          | 5,063     |   |                  |   |          |  
|Investments in and advances to unconsolidated affiliates                      |  |                          | 71,066    |   |                  |   | 84,796    |  
|Prepaid expenses and other assets                                             |  |                          | 32,721    |   |                  |   | 34,230    |  
|Insurance claim receivable                                                    |  |                          | 34,458    |   |                  |   | 76,056    |  
|Accounts receivable, net of allowance for doubtful accounts of $349 and $691  |  |                          | 42,250    |   |                  |   | 32,979    |  
|Restricted cash                                                               |  |                          | 69,317    |   |                  |   | 58,413    |  
|Cash and cash equivalents                                                     |  |                          | 90,967    |   |                  |   | 60,533    |  
|                                                                              |  |                          |           |   |                  |   |           |  
|                                                                              |  | $                        | 2,456,495 |   |                  | $ | 2,422,095 |  
|                                                                              |  |                          |           |   |                  |   |           |  
|LIABILITIES AND PARTNERS CAPITAL                                             |  |                          |           |   |                  |   |           |  
|Long-term debt                                                                |  | $                        | 1,423,033 |   |                  | $ | 1,369,299 |  
|Notes payable to MeriStar Hospitality Corporation                             |  |                          | 202,552   |   |                  |   | 203,977   |  
|Accounts payable and accrued expenses                                         |  |                          | 72,369    |   |                  |   | 71,781    |  
|Accrued interest                                                              |  |                          | 39,949    |   |                  |   | 41,165    |  
|Due to Interstate Hotels & Resorts                                            |  |                          | 14,027    |   |                  |   | 21,799    |  
|Other liabilities                                                             |  |                          | 13,288    |   |                  |   | 11,553    |  
|                                                                              |  |                          |           |   |                  |   |           |  
|Total liabilities                                                             |  |                          | 1,765,218 |   |                  |   | 1,719,574 |  
|                                                                              |  |                          |           |   |                  |   |           |  
|Minority interests                                                            |  |                          | 2,416     |   |                  |   | 2,418     |  
|Redeemable OP units at redemption value, 2,258 and 2,298 outstanding          |  |                          | 19,423    |   |                  |   | 19,187    |  
|Partners capital  Common OP units, 87,497 and 87,367 issued and outstanding |  |                          | 669,438   |   |                  |   | 680,916   |  
|                                                                              |  |                          |           |   |                  |   |           |  
|                                                                              |  | $                        | 2,456,495 |   |                  | $ | 2,422,095 |  
|                                                                              |  |                          |           |   |                  |   |           |  



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



1



---

MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

(Dollars in thousands, except per unit amounts)



|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                            |  | Three Months EndedJune 30, |         |   | Six Months Ended June 30, |  
|                                                                            |  | 2005                       |         |   | 2004                      |   |         | 2005 |  |   | 2004    |  
|Revenue:                                                                    |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Hotel operations:                                                           |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Rooms                                                                       |  | $                          | 142,908 |   |                           | $ | 137,230 |      |  | $ | 266,669 |   |  | $ | 265,197 |  
|Food and beverage                                                           |  |                            | 61,006  |   |                           |   | 57,028  |      |  |   | 112,187 |   |  |   | 105,572 |  
|Other hotel operations                                                      |  |                            | 11,815  |   |                           |   | 15,694  |      |  |   | 23,039  |   |  |   | 30,945  |  
|Office rental, parking and other revenue                                    |  |                            | 1,212   |   |                           |   | 1,328   |      |  |   | 3,069   |   |  |   | 2,625   |  
|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Total revenue                                                               |  |                            | 216,941 |   |                           |   | 211,280 |      |  |   | 404,964 |   |  |   | 404,339 |  
|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Hotel operating expenses:                                                   |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Rooms                                                                       |  |                            | 33,785  |   |                           |   | 33,208  |      |  |   | 64,409  |   |  |   | 64,153  |  
|Food and beverage                                                           |  |                            | 40,903  |   |                           |   | 39,877  |      |  |   | 77,752  |   |  |   | 76,141  |  
|Other hotel operating expenses                                              |  |                            | 7,623   |   |                           |   | 9,943   |      |  |   | 14,626  |   |  |   | 19,323  |  
|Office rental, parking and other expenses                                   |  |                            | 612     |   |                           |   | 670     |      |  |   | 1,436   |   |  |   | 1,255   |  
|Other operating expenses:                                                   |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|General and administrative, hotel                                           |  |                            | 31,771  |   |                           |   | 30,152  |      |  |   | 63,095  |   |  |   | 61,946  |  
|General and administrative, corporate                                       |  |                            | 2,828   |   |                           |   | 3,473   |      |  |   | 6,361   |   |  |   | 7,106   |  
|Property operating costs                                                    |  |                            | 31,294  |   |                           |   | 30,048  |      |  |   | 60,452  |   |  |   | 59,300  |  
|Depreciation and amortization                                               |  |                            | 23,813  |   |                           |   | 24,204  |      |  |   | 48,197  |   |  |   | 48,855  |  
|Property taxes, insurance and other                                         |  |                            | 12,098  |   |                           |   | 15,232  |      |  |   | 22,882  |   |  |   | 31,345  |  
|Loss on asset impairments                                                   |  |                            |        |   |                           |   | 310     |      |  |   |        |   |  |   | 310     |  
|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Operating expenses                                                          |  |                            | 184,727 |   |                           |   | 187,117 |      |  |   | 359,210 |   |  |   | 369,734 |  
|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Equity in income/loss of and interest earned from unconsolidated affiliates |  |                            | 2,940   |   |                           |   | 1,600   |      |  |   | 4,575   |   |  |   | 3,200   |  
|Hurricane business interruption insurance gain                              |  |                            | 2,009   |   |                           |   |        |      |  |   | 4,290   |   |  |   |        |  
|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Operating income                                                            |  |                            | 37,163  |   |                           |   | 25,763  |      |  |   | 54,619  |   |  |   | 37,805  |  
|                                                                            |  |                            |         |  
|Minority interest                                                           |  |                            | 7       |   |                           |   | 20      |      |  |   | 2       |   |  |   | 24      |  
|Interest expense, net                                                       |  |                            | (30,698 | ) |                           |   | (30,090 | )    |  |   | (61,411 | ) |  |   | (64,592 | )
|Loss on early extinguishments of debt                                       |  |                            | (947    | ) |                           |   | (1,980  | )    |  |   | (1,007  | ) |  |   | (7,903  | )
|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Income (loss) before income taxes and discontinued operations               |  |                            | 5,525   |   |                           |   | (6,287  | )    |  |   | (7,797  | ) |  |   | (34,666 | )
|                                                                            |  |                            |         |  
|Income tax (expense) benefit                                                |  |                            | (402    | ) |                           |   | (12     | )    |  |   | (412    | ) |  |   | 373     |  
|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Income (loss) from continuing operations                                    |  |                            | 5,123   |   |                           |   | (6,299  | )    |  |   | (8,209  | ) |  |   | (34,293 | )
|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Discontinued operations:                                                    |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Loss from discontinued operations before income tax                         |  |                            | (3,709  | ) |                           |   | (5,784  | )    |  |   | (4,126  | ) |  |   | (18,747 | )
|Income tax benefit                                                          |  |                            |        |   |                           |   | 32      |      |  |   |        |   |  |   | 102     |  
|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Loss from discontinued operations                                           |  |                            | (3,709  | ) |                           |   | (5,752  | )    |  |   | (4,126  | ) |  |   | (18,645 | )
|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Net income (loss)                                                           |  | $                          | 1,414   |   |                           | $ | (12,051 | )    |  | $ | (12,335 | ) |  | $ | (52,938 | )
|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Preferred distributions                                                     |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   | (141    | )
|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Net income (loss) applicable to common unitholders                          |  | $                          | 1,414   |   |                           | $ | (12,051 | )    |  | $ | (12,335 | ) |  | $ | (53,079 | )
|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Net income (loss) applicable to general partner unitholders                 |  | $                          | 1,378   |   |                           | $ | (11,619 | )    |  | $ | (12,020 | ) |  | $ | (50,996 | )
|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Net income (loss) applicable to limited partner unitholders                 |  | $                          | 36      |   |                           | $ | (432    | )    |  | $ | (315    | ) |  | $ | (2,083  | )
|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Basic and diluted loss per unit:                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Earnings (loss) from continuing operations                                  |  | $                          | 0.06    |   |                           | $ | (0.07   | )    |  | $ | (0.09   | ) |  | $ | (0.44   | )
|Loss from discontinued operations                                           |  |                            | (0.04   | ) |                           |   | (0.07   | )    |  |   | (0.05   | ) |  |   | (0.23   | )
|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Earnings (loss) per basic and diluted unit                                  |  | $                          | 0.02    |   |                           | $ | (0.14   | )    |  | $ | (0.14   | ) |  | $ | (0.67   | )
|                                                                            |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  



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



2



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MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

(Dollars in thousands)



|                                                                                          |  |                           |          |   |      |   |          |  
|----------------------------------------------------------------------------------------- |  | ------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                          |  | Six Months Ended June 30, |         
|                                                                                          |  | 2005                      |          |   | 2004 |  
|Operating activities:                                                                     |  |                           |          |   |      |   |          |  
|Net loss                                                                                  |  | $                         | (12,335  | ) |      | $ | (52,938  | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                           |          |   |      |   |          |  
|Depreciation and amortization                                                             |  |                           | 48,941   |   |      |   | 51,985   |  
|Loss on asset impairments                                                                 |  |                           | 2,836    |   |      |   | 7,441    |  
|Loss on sale of assets, before tax effect                                                 |  |                           | 1,037    |   |      |   | 11,530   |  
|Loss on early extinguishments of debt                                                     |  |                           | 1,007    |   |      |   | 7,903    |  
|Minority interests                                                                        |  |                           | (2       | ) |      |   | (24      | )
|Equity in loss of unconsolidated affiliate                                                |  |                           | 1,164    |   |      |   |         |  
|Amortization of unearned stock-based compensation                                         |  |                           | 542      |   |      |   | 1,090    |  
|Deferred income taxes                                                                     |  |                           |         |   |      |   | (652     | )
|Changes in operating assets and liabilities:                                              |  |                           |          |   |      |   |          |  
|Insurance claim receivable, less capital expenditure proceeds                             |  |                           | 35,098   |   |      |   |         |  
|Accounts receivable, net                                                                  |  |                           | (9,271   | ) |      |   | 689      |  
|Prepaid expenses and other assets                                                         |  |                           | 721      |   |      |   | 4,864    |  
|Receivables from unconsolidated affiliates                                                |  |                           | 12,663   |   |      |   | (4,916   | )
|Due to Interstate Hotels & Resorts                                                        |  |                           | (8,398   | ) |      |   | (3,241   | )
|Accounts payable, accrued expenses, accrued interest and other liabilities                |  |                           | 315      |   |      |   | (6,040   | )
|                                                                                          |  |                           |          |   |      |   |          |  
|Net cash provided by operating activities                                                 |  |                           | 74,318   |   |      |   | 17,691   |  
|                                                                                          |  |                           |          |   |      |   |          |  
|Investing activities:                                                                     |  |                           |          |   |      |   |          |  
|Acquisition of hotels, net of cash acquired of $3.5 million                               |  |                           |         |   |      |   | (182,790 | )
|Capital expenditures for property and equipment                                           |  |                           | (109,322 | ) |      |   | (49,898  | )
|Proceeds from sales of assets                                                             |  |                           | 20,500   |   |      |   | 104,873  |  
|Insurance proceeds related to capital expenditures                                        |  |                           | 6,500    |   |      |   |         |  
|Increase in restricted cash                                                               |  |                           | (4,580   | ) |      |   | (29,955  | )
|Costs associated with disposition program and other, net                                  |  |                           | (596     | ) |      |   | (5,081   | )
|                                                                                          |  |                           |          |   |      |   |          |  
|Net cash used in investing activities                                                     |  |                           | (87,498  | ) |      |   | (162,851 | )
|                                                                                          |  |                           |          |   |      |   |          |  
|Financing activities:                                                                     |  |                           |          |   |      |   |          |  
|Prepayments on long-term debt                                                             |  |                           | (23,846  | ) |      |   | (105,857 | )
|Scheduled payments on long-term debt                                                      |  |                           | (5,477   | ) |      |   | (3,691   | )
|Proceeds from mortgage loans, net of financing costs                                      |  |                           | 73,410   |   |      |   |         |  
|Proceeds from debt issuance, net of issuance costs                                        |  |                           |         |   |      |   | 109,687  |  
|Distributions to minority investors                                                       |  |                           |         |   |      |   | (141     | )
|Proceeds from OP units issuance, net of issuance costs                                    |  |                           | 309      |   |      |   | 72,340   |  
|Purchase of subsidiary partnership interests                                              |  |                           |         |   |      |   | (8,690   | )
|Repurchase of OP units under employee stock plans                                         |  |                           | (782     | ) |      |   | (160     | )
|Other                                                                                     |  |                           |         |   |      |   | (165     | )
|                                                                                          |  |                           |          |   |      |   |          |  
|Net cash provided by financing activities                                                 |  |                           | 43,614   |   |      |   | 63,323   |  
|                                                                                          |  |                           |          |   |      |   |          |  
|Effect of exchange rate changes on cash and cash equivalents                              |  |                           |         |   |      |   | (227     | )
|                                                                                          |  |                           |          |   |      |   |          |  
|Net increase (decrease) in cash and cash equivalents                                      |  |                           | 30,434   |   |      |   | (82,064  | )
|Cash and cash equivalents, beginning of period                                            |  |                           | 60,533   |   |      |   | 230,876  |  
|                                                                                          |  |                           |          |   |      |   |          |  
|Cash and cash equivalents, end of period                                                  |  | $                         | 90,967   |   |      | $ | 148,812  |  
|                                                                                          |  |                           |          |   |      |   |          |  
|Supplemental Cash Flow Information                                                        |  |                           |          |   |      |   |          |  
|Cash paid for interest and income taxes:                                                  |  |                           |          |   |      |   |          |  
|Interest, net of capitalized interest                                                     |  | $                         | 63,482   |   |      | $ | 69,804   |  
|Income tax payments, net of (refunds)                                                     |  | $                         | 298      |   |      | $ | (670     | )
|                                                                                          |  |                          
|Non-cash investing and financing activities:                                              |  |                           |          |   |      |   |          |  
|Notes payable to MeriStar Hospitality redeemed in exchange for Common OP units            |  | $                         |         |   |      | $ | 49,213   |  
|Change of fair value of interest rate swap                                                |  | $                         | 1,430    |   |      | $ | 10,074   |  
|Issuance of OP units to MeriStar Hospitality for stock bonus                              |  | $                         | 1,022    |   |      | $ |         |  
|Redemption of OP units                                                                    |  | $                         | 633      |   |      | $ | 123      |  



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



3



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MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2005



1. Organization



MeriStar Hospitality Operating Partnership, L.P. (the Company) is the subsidiary operating partnership of MeriStar Hospitality Corporation Commission file number 1-11903, (MeriStar Hospitality, which is a real estate
investment trust, or REIT). We own a portfolio of primarily upper upscale, full-service hotels and resorts in the United States. Our portfolio is diversified geographically as well as by franchise and brand affiliations. As of June 30, 2005, we
owned 72 hotels with 20,115 rooms, all of which were leased by our taxable subsidiaries. Seventy of these hotels were managed by Interstate Hotels & Resorts (Interstate), one hotel was managed by The Ritz-Carlton Hotel Company, LLC
(Ritz-Carlton), a subsidiary of Marriott International, Inc., and one hotel was managed by another subsidiary (Marriott) of Marriott International, Inc. (collectively with Interstate and Ritz-Carlton, the
Managers).



The Managers operate the 72 hotels we
owned as of June 30, 2005 pursuant to management agreements with our taxable subsidiaries. Under these management agreements, each taxable subsidiary pays a management fee for each property to the Manager of its hotels. The taxable subsidiaries in
turn make rental payments to our subsidiary operating partnership under the participating leases.



Under the Interstate management agreements, the base management fee is 2.5% of total hotel revenue, plus incentive payments based on meeting performance
thresholds that could total up to an additional 1.5% of total hotel revenue. The agreements have initial terms expiring on January 1, 2011 with three renewal periods of five years each at the option of Interstate, subject to some exceptions.
Additionally, our franchise fees generally range from 2.0% to 7.6% of hotel room revenues.



Under the Ritz-Carlton and Marriott management agreements, the base management fee is 3.0% and 2.5% of total hotel revenue, respectively, through 2005 and 3.0% under both thereafter, plus incentive payments based on
meeting performance thresholds that could total up to an additional 2.0% of total revenue and 20% of available cash flow (as defined in the relevant management agreement), respectively. The agreements have initial terms expiring in 2015 and 2024,
respectively, with four and three renewal periods of 10 and five years each, respectively, at the option of Ritz-Carlton and Marriott. The Ritz-Carlton and Marriott management agreements include certain limited performance guarantees by the relevant
manager which are designed primarily to provide downside performance protection and run through 2005 and up to 2008, respectively. Management, based upon budgets and operating trends, expects payments under these guarantees for 2005 and in the
future to be minimal.



2. Summary of Significant Accounting Policies



Interim Financial Statements. We have prepared
these unaudited interim financial statements according to the rules and regulations of the United States Securities and Exchange Commission. We have omitted certain information and footnote disclosures that are normally included in financial
statements prepared in accordance with U.S. generally accepted accounting principles. These interim financial statements should be read in conjunction with the financial statements, accompanying notes and other information included in our Annual
Report on Form 10-K for the year ended December 31, 2004.



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



Basis of Presentation and Principles of Consolidation. The accompanying consolidated financial statements include the accounts of the Company, its
subsidiaries and its controlled affiliates. We consolidate entities (in the absence of other factors when determining control) when we own over 50% of the voting shares of another company or, in the case of partnership investments, when we own a
majority of the general partnership interest. Additionally, if we determine that we are an owner in a variable interest entity within the meaning of the Financial Accounting Standards Board, or FASB, revision to Interpretation No. 46,
Consolidation of Variable Interest Entities and that our variable interest will absorb a majority of the entitys expected losses if they occur, receive a majority of the entitys expected residual returns if they occur, or
both,



4



---

then we will consolidate the entity. All material intercompany transactions and balances have been eliminated in
consolidation. One of our properties reports results over 13 four week periods each year. We include 12 weeks of results in each of quarters one through three and 16 weeks of results in quarter four.



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



Property and Equipment.We record our property and equipment at cost, or at fair value at the time of contribution for contributed property. We use
the straight-line method for depreciation. We depreciate the majority of our buildings and improvements over an estimated useful life of 20 to 40 years, or the remaining term of a ground lease (including consideration of renewal options), if
shorter. We depreciate furniture, fixtures and equipment over lives ranging from five to seven years, and computers over three to five years. During the three months ended June 30, 2005 and 2004, we recognized depreciation expense of $22.4 million
and $23.6 million, respectively. During the six months ended June 30, 2005 and 2004, we recognized depreciation expense of $45.8 million and $48.0 million, respectively. For the three months ended June 30, 2005 and 2004, we capitalized interest of
$3.1 million and $1.2 million, respectively. For the six months ended June 30, 2005 and 2004, we capitalized interest of $5.8 million and $2.0 million, respectively.



Held for Sale Properties.Held-for-sale classification requires that the sale be probable and that the transfer of
the asset is expected to be completed within one year, among other criteria. Assessing the probability of the sale requires significant judgment due to the uncertainty surrounding completing the transaction, and as a result, we have developed the
following policy to aid in the assessment of probability. We classify the properties we are actively marketing as held for sale once all of the following conditions are met:



| |  |  | Our board has approved the sale,
| | - |  | --------------------------------



| |  |  | We have a fully executed agreement with a qualified buyer which provides for no significant outstanding or continuing obligations with the property after sale, and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We have a significant non-refundable deposit.
| | - |  | ---------------------------------------------



We carry properties held for sale at the lower of their carrying values or estimated fair values less costs to sell. We cease depreciation at the time the
asset is classified as held for sale. If material to our total portfolio, we segregate the assets and liabilities relating to our held for sale properties on our Consolidated Balance Sheets.



Cash Equivalents and Restricted Cash.We classify investments with
original maturities of three months or less as cash equivalents. Our cash equivalents include investments in debt securities, including commercial paper, overnight repurchase agreements and money market funds. Restricted cash represents amounts held
in escrow in accordance with the requirements of certain of our credit facilities.



Impairment or Disposal of Long-Lived Assets.We record as discontinued operations the current and prior period operating results of any asset that has been classified as held for sale or has been disposed of
and where we have no continuing involvement. Any gains or losses on final disposition are also included in discontinued operations.



Whenever events or changes in circumstances indicate that the carrying value of a long-lived asset may be impaired, an analysis is performed to determine
the recoverability of the assets carrying value. When we conclude that we are more likely than not to sell or otherwise dispose of an asset significantly before the end of its previously estimated useful life, we perform an impairment analysis
on that asset (as is the case for assets we are considering for disposition). We make estimates of the undiscounted cash flows from the expected future operations or potential sale of the asset. If the analysis indicates that the carrying value is
not recoverable from these estimates of cash flows, we write down the asset to estimated fair value and recognize an impairment loss. Any impairment losses we recognize on assets held for use are recorded as operating expenses. We record any
impairment losses on assets held for sale as a component of discontinued operations.



Accounting for Costs Associated with Exit or Disposal Activities.We recognize a liability for a cost associated with an exit or disposal activity only when the liability is incurred, and measure that liability
initially at fair value. Hotels of which we dispose may be managed under agreements that require payments as a result of termination. Any such liability will be recognized at the time the asset disposition is complete and a termination notice is
provided. At that time, the recognition of the termination obligation will be included in the calculation of the final gain or loss on sale. To date, we have not incurred any management agreement termination obligations other than in connection with
sales of hotels.



5



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Stock-Based Compensation.We apply the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, as amended by SFAS No. 148, for new stock based compensation awards issued under our compensation programs sponsored by MeriStar Hospitality. As permitted by SFAS No. 148, we elected to apply the provisions
prospectively, which includes recognizing compensation expense for only those stock options issued in 2003 and after. We grant options with an exercise price equal to the price of our common stock on grant date. Compensation costs related to stock
options are included in general and administrative expenses on the accompanying Consolidated Statements of Operations. We apply the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, in
accounting for our stock options issued by MeriStar Hospitality under our compensation programs prior to January 1, 2003. As MeriStar Hospitality granted these stock options at fair market value, no compensation cost has been recognized. For our
other equity-based compensation plans, we recognize compensation expense over the vesting period based on the fair market value of the award at the date of grant for fixed plan awards, while variable plan awards are re-measured based upon the
intrinsic value of the award at each balance sheet date.



Had
compensation cost been determined based on fair value at the grant date for awards granted prior to our adoption of the fair value method, our net income (loss) and per unit amounts would have been adjusted to the pro forma amounts indicated as
follows (in thousands, except per unit amounts):



|                                                                                                                                           |  |                            |       |   |                           |   |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------- | ----- | - | ------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                           |  | Three Months EndedJune 30, |       |   | Six Months Ended June 30, |  
|                                                                                                                                           |  | 2005                       |       |   | 2004                      |   |         | 2005 |  |   | 2004    |  
|Net income (loss), as reported                                                                                                             |  | $                          | 1,414 |   |                           | $ | (12,051 | )    |  | $ | (12,335 | ) |  | $ | (52,938 | )
|Add: Stock-based employee compensation expense included in reported net loss, net of related tax effect                                    |  |                            | 613   |   |                           |   | 395     |      |  |   | 1,374   |   |  |   | 975     |  
|Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax
effect |  |                            | (620  | ) |                           |   | (442    | )    |  |   | (1,387  | ) |  |   | (1,077  | )
|                                                                                                                                           |  |                            |       |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Net income (loss), pro forma                                                                                                               |  | $                          | 1,407 |   |                           | $ | (12,098 | )    |  | $ | (12,348 | ) |  | $ | (53,040 | )
|                                                                                                                                           |  |                            |       |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Earnings (loss) per unit, as reported:                                                                                                     |  |                            |       |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Basic and diluted                                                                                                                          |  | $                          | 0.02  |   |                           | $ | (0.14   | )    |  | $ | (0.14   | ) |  | $ | (0.67   | )
|                                                                                                                                           |  |                            |       |  
|Weighted average fair value of options granted                                                                                             |  |                            | N/A   | * |                           | $ | 0.31    |      |  |   | N/A     | * |  | $ | 0.32    |  
|                                                                                                                                           |  |                            |       |  
|Earnings (loss) per unit, pro forma:                                                                                                       |  |                            |       |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Basic and diluted                                                                                                                          |  | $                          | 0.02  |   |                           | $ | (0.14   | )    |  | $ | (0.14   | ) |  | $ | (0.67   | )

---

|* | No options were granted during the six months ended June 30, 2005.
|- | ------------------------------------------------------------------



These pro forma compensation costs may not be representative of the actual effects on reported net loss and loss per unit in future years.



Derivative Instruments and Hedging Activities.Our interest rate risk
management objective is to manage the effect of interest rate changes on earnings and cash flows. We look to manage interest rates through the use of a combination of fixed and variable rate debt. We only enter into derivative or interest rate
transactions for hedging purposes. We recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Changes in the fair value of derivatives are recorded each period in current earnings
or other comprehensive income based on the derivatives effectiveness and whether the derivative has been designated as a cash flow or fair value hedge.



Acquisition of Hotels. Our hotel acquisitions consist almost exclusively of land, building, furniture, fixtures and
equipment. We allocate the purchase price among these asset classes and any acquired intangible assets based upon their respective fair values as required by SFAS No. 141, Business Combinations.



Investments in Unconsolidated Affiliates. We have non-controlling
interests in entities which we account for under the cost method or equity method of accounting. Our investment in MeriStar Investment Partners, L.P. (MIP) is a limited partner interest with no participation rights in the management,
affairs or operations of the entity, and is accounted for using the cost method. We recognize our preferred return on this



6



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investment quarterly as it becomes due to us; this investment is reflected in the investments in and advances to
unconsolidated affiliates line on our Consolidated Balance Sheets. Our investment in Radisson Lexington Avenue Hotel is accounted for using the equity method, since we are presumed to exert significant influence on this entity due to our
ownership percentage of 49.99%. Accordingly, we recognize 49.99% of the profit and loss of the entity in which our investment was made. This investment is also reflected in the investments in and advances to unconsolidated affiliates
line on our Consolidated Balance Sheets. Our investments in unconsolidated affiliates are periodically reviewed for other than temporary declines in market value. An impairment is recorded as a reduction to the carrying value of the investment for
any declines which are determined to be other than temporary.



Accounting for the Impact of the Hurricane Damage to Florida Properties.In August and September 2004, hurricanes caused substantial damage to a number of our hotels located in Florida. The hurricane damage and local evacuation
orders also caused significant business interruption at many of our Florida properties, including the complete closure of certain hotels. As a result, eight of our hotels were closed for an extended period of time, and four others were affected in
varying degrees.



We have comprehensive insurance coverage for
both property damage and business interruption. Some properties are requiring substantial repair and reconstruction and have remained closed while such repairs are completed. Our recovery effort is extensive and includes replacing portions of
buildings, landscaping and furniture, as well as upgrading to comply with changes in building and electrical codes. As of June 30, 2005, the net book value of the property damage is estimated to be at least $65.5 million; however, we are still
assessing the impact of the hurricanes on our properties, and final net book value write-offs could vary from this estimate. Changes to this estimate will be recorded in the periods in which they are determined. We have recorded a corresponding
insurance claim receivable for this $65.5 million net book value amount because we believe that it is probable that the insurance recovery, net of deductibles, will exceed the net book value of the damaged portion of these assets. The recovery is
based on replacement cost, and we have submitted claims substantially in excess of $65.5 million.



While we expect the insurance proceeds will be sufficient to cover most of the replacement cost of the restoration of these hotels, certain deductibles
(primarily windstorm) and limitations will apply. Moreover, while we are receiving and expect to continue to receive interim insurance payments, no determination has been made as to the total amount or timing of those insurance payments, and those
insurance payments may not be sufficient to cover the costs of all the restoration of the hotels. To the extent that insurance proceeds, which are calculated on a replacement cost basis, ultimately exceed the net book value of the damaged property,
a gain will be recorded in the period when all contingencies related to the insurance claim have been resolved.



As of June 30, 2005 and August 2, 2005, three of our Florida properties remained substantially closed due to hurricane damage. Additionally, as of June
30, 2005 and August 2, 2005, one property that suffered varying amounts of hurricane damage had certain guest rooms, its restaurants, lounge, registration area and conference facilities out of service. Where possible and in order to mitigate loss of
revenues, some permanent repairs to damaged properties were deferred during the Florida high season, which generally lasts from late December through early April, in order to have facilities available to meet demand. These damaged
facilities will be removed from service for permanent repairs at a later date. We have hired consultants to assess our business interruption claims and are currently negotiating with our insurance carriers regarding the amount of sustained income
losses. To the extent that we are entitled to a recovery under the insurance policies, we will recognize a receivable when it can be demonstrated that it is probable that such insurance recovery will be realized. Any gain resulting from business
interruption insurance for lost income will not be recognized until all contingencies related to the insurance recoveries are resolved and collection of the relevant payments is probable. These income recognition criteria will likely often result in
business interruption insurance recoveries being recorded in a period subsequent to the period that we experience lost income from the affected properties, resulting in fluctuations in our net income that may reduce the comparability of reported
quarterly results for some periods into the future.



Under
these income recognition criteria, during the three and six months ended June 30, 2005, we have recorded a business interruption recovery gain of $2.0 million and $4.3 million, respectively, due to receiving recognition of a minimal level of
business interruption profit that the insurance companies are willing to recognize without any contingencies at this time for certain of our hurricane-affected properties. Our business interruption claims substantially exceed the amount of this
minimal recognition to date. We ultimately expect to recognize additional business interruption insurance profit as we proceed further through the claims process.



Through June 30, 2005, we have incurred recoverable costs related to both property damage and business interruption
recoveries totaling $64.9 million. In addition, we recorded a receivable of $65.5 million related to the



7



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write-off of the net book value of the damaged portion of our assets. We had collected $100.2 million in insurance
advances through June 30, 2005. We have collected an additional $2.5 million in insurance proceeds from July 1 through August 2, 2005. The cost recoveries are recorded on the expense line item to which they relate; therefore there is no net impact
to any line item or our results.



The following is a summary of
hurricane-related activity recorded (in millions):



|                                         |  |   |        |  
|---------------------------------------- |  | - | ------ | -
|Insurance claim receivable June 30, 2005 | 
|Fixed assets net book value write down   |  | $ | 65.5   |  
|Recoverable costs incurred               |  |   | 64.9   |  
|Business interruption insurance gain     |  |   | 4.3    |  
|Payments received                        |  |   | (100.2 | )
|                                         |  |   |        |  
|                                         |  | $ | 34.5   |  
|                                         |  |   |        |  



New Accounting
Pronouncements.In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, which requires companies to recognize compensation cost relating to share-based payment transactions, and measure that cost based on
the fair value of the equity or liability instruments issued. We are required to comply with the provisions of this statement beginning with the first quarter of 2006. We do not expect the adoption of this revised standard to have a material effect
on our accounting treatment for share-based payments, as we adopted the transition provisions of SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure on January 1, 2003 and elected to recognize
compensation expense for options granted subsequent to December 31, 2002 under the fair-value-based method.



The FASB issued Statement No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions in December 2004. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. We are required to comply with the provisions of this statement for the third quarter of 2005. We have not entered into or modified any transactions within the scope of this standard, nor do we have any existing transactions
that fall within the scope of SFAS No. 153.



In June 2005, the
FASB issued Statement No. 154, Accounting Changes and Error Corrections a Replacement of APB Opinion No. 20 and FASB Statement No. 3, which changes the requirements for the accounting for and reporting of a change in accounting
principle, and applies to all voluntary changes in accounting principle. This Statement requires retrospective application to prior periods financial statements of changes in accounting principle, unless the change is required by a new
pronouncement and the pronouncement states specific transition provisions. This Statement carries forward without change the guidance contained in Opinion 20 for reporting the correction of an error in previously issued financial statements and a
change in accounting estimate. We are required to adopt this Statement for accounting changes and corrections of errors made during and after the first quarter of 2006. We do not expect the adoption of this statement to have a material effect on our
results of operations.



Emerging Issues Task Force
(EITF) Issue 04-5, Investors Accounting for an Investment in a Limited Partnership When the Investor Is the Sole General Partner and the Limited Partners Have Certain Rights was ratified by the FASB in June 2005. At
issue is what rights held by the limited partner(s) preclude consolidation in circumstances in which the sole general partner would consolidate the limited partnership. The assessment of limited partners rights and their impact on the
presumption of control of the limited partnership by the sole general partner should be made when an investor becomes the sole general partner and should be reassessed if there is a change to the terms or in the exercisability of the rights of the
limited partners, the sole general partner increases or decreases its ownership of limited partnership interests, or there is an increase or decrease in the number of outstanding limited partnership interests. We are required to adopt the provisions
of EITF Issue 04-5 for the first quarter of 2006, and for the third quarter of 2005 for new or modified arrangements. We do not expect the adoption of this EITF to have a material effect on our financial statements.



Reclassifications.Certain prior period information has been
reclassified to conform to the current period presentation. These reclassifications have no impact on consolidated net income (loss).



8



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3. Comprehensive Income (loss)



Comprehensive loss equaled net income (loss) for the three and six months ended June 30, 2005, as we no longer have foreign
operations. Comprehensive loss was $10.8 million and $52.0 million for the three and six months ended June 30, 2004, respectively, which consisted of net loss ($12.1 million and $52.9 million, respectively) and foreign currency translation
adjustments.



4. Acquisitions



On May 10, 2004 and June 25, 2004, we acquired the 366-room Ritz-Carlton,
Pentagon City in Arlington, Virginia and the 485-room Marriott Irvine in Orange County, California, respectively, for a total purchase price of $185.5 million, plus net acquisition costs and adjustments of $0.9 million.



The acquisitions were accounted for under the purchase method of accounting,
and the assets and liabilities and results of operations of the hotels have been consolidated in our financial statements since the date of purchase. On an unaudited pro forma basis, revenues, net income and basic and diluted loss per unit for the
three and six months ended June 30, 2004 would have been reported as follows if the acquisitions had occurred at the beginning of each of the respective periods (in thousands, except per unit amounts):



|                   |  |                                 |         |   |                               |   |         |  
|------------------ |  | ------------------------------- | ------- | - | ----------------------------- | - | ------- | -
|                   |  | Three Months EndedJune 30, 2004 |         |   | Six Months EndedJune 30, 2004 |  
|Total revenue      |  | $                               | 227,046 |   |                               | $ | 431,516 |  
|Net loss           |  |                                 | (10,709 | ) |                               |   | (50,773 | )
|Net loss per unit: |  |                                 |         |   |                               |   |         |  
|Basic and diluted  |  | $                               | (0.12   | ) |                               | $ | (0.64   | )



5. Property and Equipment



Property and equipment consisted of the following (in
thousands):



|                                  |  |              |           |                  |   |          
|--------------------------------- |  | ------------ | --------- | ---------------- | - | ---------
|                                  |  | June 30,2005 |           | December 31,2004
|Land                              |  | $            | 241,528   |                  | $ | 244,088  
|Buildings and improvements        |  |              | 1,928,195 |                  |   | 1,926,813
|Furniture, fixtures and equipment |  |              | 315,127   |                  |   | 295,562  
|Construction-in-progress          |  |              | 170,826   |                  |   | 115,257  
|                                  |  |              |           |                  |   |          
|                                  |  | $            | 2,655,676 |                  | $ | 2,581,720
|                                  |  |              |           |                  |   |          



We incurred no
impairment losses during the first quarter of 2005. During the second quarter of 2005, we recognized an impairment loss of $2.8 million which is recorded in discontinued operations (see Note 12). During the first and second quarters of 2004, we
recognized impairment losses of $5.0 million and $2.4 million, respectively, of which $5.0 million and $2.1 million, respectively, are recorded in discontinued operations as of June 30, 2005 (see Note 12).



The impairment charges recorded during 2005 and 2004 were triggered by an
expectation that a property would be sold significantly before the end of its estimated useful life. The impairment charges were based on our estimates of the fair value of the properties we were actively marketing based on available market data.
These estimates required us to make assumptions about the sales prices that we expected to realize for each property as well as the timing of a potential sale. In making these estimates, we considered the operating results of the assets, the market
for comparable properties, and quotes from brokers, among other information. In nearly all cases, our estimates reflected the results of an extensive marketing effort and negotiations with prospective buyers. Actual results could differ materially
from these estimates.



6. Assets Held for Sale



At December 31, 2004, none of our properties met the criteria as prescribed
by SFAS No. 144 to classify them as held for sale. At June 30, 2005, one of our properties met our criteria for classification as held for sale. In July 2005, this property was sold. No other assets met the criteria as prescribed by SFAS No. 144 to
classify them as held for sale.



9



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Assets held for sale as of June 30, 2005 consisted of the following (in thousands):



|                                  |  |               |      
|--------------------------------- |  | ------------- | -----
|                                  |  | June 30, 2005
|Land                              |  | $             | 392  
|Buildings and improvements        |  |               | 4,332
|Furniture, fixtures and equipment |  |               | 264  
|Construction-in-progress          |  |               | 75   
|                                  |  |               |      
|                                  |  | $             | 5,063
|                                  |  |               |      



7. Investments in Unconsolidated
Affiliates



Investment in Radisson Lexington Avenue
Hotel.On October 1, 2004, we acquired a 49.99% interest in the 705-room Radisson Lexington Avenue Hotel in Midtown Manhattan. We made a total investment of $50 million, which includes a $40 million mezzanine loan that matures on October 1, 2014
and yields $5.8 million of cumulative annual interest, and a $10 million equity interest in the hotel. The mezzanine loan is secured by a pledge of the equity interests held by the borrower in an indirect parent of the owner of the hotel, and has a
10-year term. The loan is subordinate to $150 million in senior notes, but has priority over all equity interests.



Our equity investment is accounted for under the equity method of accounting, in accordance with our accounting policies as described in Note 2 to the
consolidated financial statements. The interest income from the loan, as well as the income related to the 49.99% share in profits and losses, is recorded in a separate line equity in income/loss of and interest earned from unconsolidated
affiliates within operating activities as the operations of this investment are integral to our operations. During the three and six months ended June 30, 2005, we recognized interest income of $1.4 million and $2.9 million, respectively, on
the mezzanine loan, which is recognized as earned. Our outstanding loan balance of $40.5 million includes $0.5 million of unamortized origination costs associated with the loan. Our initial equity investment balance of $10.1 million includes $0.1
million of external costs incurred. During the three and six months ended June 30, 2005, we recognized $0.2 million and ($1.2) million, respectively, of equity in income (losses) on our equity investment.



Investment in MIP. In 1999, we invested $40.0 million in MeriStar
Investment Partners, L.P. (MIP), a joint venture established to acquire upscale, full-service hotels. Our cost-basis investment is in the form of a limited partnership interest, in which we earned (through December 9, 2004) a 16%
cumulative preferred return with outstanding balances compounded quarterly. In accordance with MIPs December 2004 amended and restated partnership agreement, the return on our investment and on our remaining unpaid accrued preferred return was
reduced to a 12% annual cumulative return rate, and is subordinate only to the MIP debt; and $12.5 million of our $40.0 million investment was upgraded to receive preference in liquidation over all other investments.



During the fourth quarter of 2003, we recognized a $25.0 million impairment
loss on this investment since, at that time, the decline in the underlying value of our investment was deemed other than temporary. There have been no changes in circumstances in 2004 and 2005 that would require an additional impairment. After
recognition of this impairment loss, the book value of the original investment is $15.0 million.



In February 2005, MIP completed a $175 million commercial mortgage-backed securities financing, secured by its portfolio of eight hotels. Upon the
completion of the financing in February 2005, we received a distribution of $15.5 million, which was applied to reduce our outstanding accrued preferred returns receivable to approximately $4 million.



As of June 30, 2005, our total MIP carrying value was $22.1 million,
consisting of the $15.0 million adjusted investment balance and $7.1 million of accrued preferred returns receivable.



We recognize our preferred return quarterly as it becomes due to us. The income, net of related expense, if any, is recorded in the equity in
income/loss of and interest earned from unconsolidated affiliates line within operating activities as the operations of this investment are integral to our operations. For the three



10



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months ended June 30, 2005 and 2004, we recognized a preferred return of $1.3 million and $1.6 million, respectively,
from this investment. For the six months ended June 30, 2005 and 2004, we recognized a preferred return of $2.9 million and $3.2 million, respectively, from this investment. As of June 30, 2005 and December 31, 2004, cumulative preferred returns of
$7.1 million and $19.7 million, respectively, were due from MIP. We expect that any cumulative unpaid preferred returns will be paid in the future from excess cash flow above our current return and from potential partnership hotel disposition
proceeds in excess of debt allocated to individual assets. We evaluate the collectibility of our preferred return based on our preference to distributions and the underlying value of the hotel properties.



8. Long-Term Debt and Notes Payable to MeriStar Hospitality



Long-term debt and notes payable to MeriStar Hospitality consisted of the
following (in thousands):



|                                                               |  |              |           |   |                  |   |           |  
|-------------------------------------------------------------- |  | ------------ | --------- | - | ---------------- | - | --------- | -
|                                                               |  | June 30,2005 |           |   | December 31,2004 |  
|Senior unsecured notes due 2011  9.125%                       |  | $            | 347,665   |   |                  | $ | 355,665   |  
|Senior unsecured notes due 2008  9.0%                         |  |              | 265,500   |   |                  |   | 270,500   |  
|Senior unsecured notes due 2009  10.5%                        |  |              | 215,687   |   |                  |   | 224,187   |  
|Secured facility, due 2009                                     |  |              | 299,765   |   |                  |   | 302,979   |  
|Secured facility, due 2013                                     |  |              | 98,498    |   |                  |   | 99,293    |  
|Mortgage and other debt                                        |  |              | 205,234   |   |                  |   | 125,051   |  
|Unamortized issue discount                                     |  |              | (3,212    | ) |                  |   | (3,702    | )
|                                                               |  |              |           |   |                  |   |           |  
|                                                               |  | $            | 1,429,137 |   |                  | $ | 1,373,973 |  
|Fair value adjustment for interest rate swap                   |  |              | (6,104    | ) |                  |   | (4,674    | )
|                                                               |  |              |           |   |                  |   |           |  
|Long-term debt                                                 |  | $            | 1,423,033 |   |                  | $ | 1,369,299 |  
|                                                               |  |              |           |   |                  |   |           |  
|Notes payable to MeriStar Hospitality                          |  | $            | 202,740   |   |                  | $ | 204,225   |  
|Unamortized issue discount                                     |  |              | (188      | ) |                  |   | (248      | )
|                                                               |  |              |           |   |                  |   |           |  
|Notes payable to MeriStar Hospitality                          |  | $            | 202,552   |   |                  | $ | 203,977   |  
|                                                               |  |              |           |   |                  |   |           |  
|Total long-term debt and notes payable to MeriStar Hospitality |  | $            | 1,625,585 |   |                  | $ | 1,573,276 |  
|                                                               |  |              |           |   |                  |   |           |  



Aggregate future
maturities as of June 30, 2005 were as follows (in thousands):



|                                             |  |   |           |  
|-------------------------------------------- |  | - | --------- | -
|2005 (six months)                            |  | $ | 5,671     |  
|2006                                         |  |   | 12,031    |  
|2007                                         |  |   | 45,544    |  
|2008                                         |  |   | 280,116   |  
|2009                                         |  |   | 495,949   |  
|Thereafter                                   |  |   | 792,378   |  
|                                             |  |   |           |  
|                                             |  | $ | 1,631,689 |  
|Fair value adjustment for interest rate swap |  |   | (6,104    | )
|                                             |  |   |           |  
|                                             |  | $ | 1,625,585 |  
|                                             |  |   |           |  



Credit facility.In August 2005, we completed a $100 million expansion of our $50 million credit facility to a total capacity of $150 million. The total $150 million facility will carry an annual interest rate of the London Interbank Offered Rate, or LIBOR, plus
350 basis points, which is 100 basis points less than the original annual interest rate of LIBOR plus 450 basis points. The additional $100 million will mature in August 2006 and consists of $25 million in additional revolver capacity and $75
million of term loan capacity. Asset disposition proceeds in excess of $30 million must be used to pay down any outstanding balance under the facility and permanently reduce the availability if repaying borrowings under the term loan. The original
$50 million revolving facility matures in December 2006, as originally provided. There are currently no outstanding borrowings under the facility.



The facility contains financial and other restrictive covenants. The ability to borrow under this facility is subject to compliance with financial
covenants, including leverage, fixed charge coverage and interest coverage ratios and minimum net worth requirements. Compliance with these covenants in future periods will depend substantially upon the financial results of our hotels. The agreement
governing the credit facility limits our ability to effect mergers, asset sales and change of control events and limits the payments of dividends other than those required for MeriStar Hospitality to maintain its status as a REIT and our ability to
incur additional secured and total indebtedness.



11



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Senior unsecured notes.During the six months ended June 30, 2005, we repurchased, using available
cash, $21.5 million of our senior unsecured notes, consisting of $5.0 million of the 9.0% notes due 2008, $8.0 million of the 9.125% notes due 2011, and $8.5 million of the 10.5% notes due 2009. We recorded a loss on early extinguishment of debt of
$0.9 million and wrote off deferred financing costs of $0.2 million related to these repurchases which is included in depreciation and amortization expense on the accompanying Consolidated Statements of Operations. Between June 30, 2005 and August
2, 2005, using cash on hand, we repurchased an additional $1.0 million of our 9.0% notes due 2008, $5.0 million of our 9.125% notes due 2011, and $6.8 million of our 10.5% notes due 2009, and recorded an additional loss on early extinguishment of
debt of $1.0 million and wrote off deferred financing costs of $0.1 million.



Notes payable to MeriStar Hospitality.During the six months ended June 30, 2005, we repurchased, using available cash, $1.5 million of our 8.75% notes payable to MeriStar Hospitality due 2007 (plus $0.06
million of accrued interest). We recorded a loss on early extinguishment of debt of $0.06 million related to this activity.



In July 2005, MeriStar Hospitality provided irrevocable notice that they would exercise their option to redeem all of their outstanding 8.75% senior
subordinated notes due 2007 at a price equal to their outstanding principal amount plus interest to the date of redemption. The redemption date is scheduled to be August 15, 2005. In conjunction with MeriStar Hospitalitys redemption of these
senior subordinated notes, we will redeem our 8.75% notes payable to MeriStar Hospitality due 2007 under the same terms. As of June 30, 2005, there was $32.7 million principal amount of these notes outstanding. The redemption will total $34.2
million, consisting of $32.7 million of principal plus interest. We expect to record a loss on early extinguishment of debt of $0.2 million related to this activity.



Mortgage and other debt.On January 26, 2005, we entered into a $37.7 million mortgage loan on our Hilton Crystal
City hotel that bears interest at a fixed rate of 5.84%. The mortgage requires monthly payments of interest only for the first three years and then monthly payments of interest and principal over the remaining portion of the ten year term of the
loan, with the majority of the principal balance due at the end of the ten year term. Our net proceeds of $34.7 million are net of a $3.0 million escrow reserve for future capital expenditures. We incurred financing costs of $0.8 million related to
this mortgage.



On June 17, 2005, we entered into a $44.0
million mortgage loan on our Hilton Clearwater hotel that bears interest at a fixed rate of 5.68%. The mortgage requires monthly payments of interest only for the first three years and then monthly payments of interest and principal over the
remaining portion of the ten year term of the loan, with the majority of the principal balance due at the end of the ten year term. Our net proceeds of $40.7 million are net of a $3.3 million escrow reserve for future capital expenditures. We
incurred financing costs of $1.1 million related to this mortgage.



Derivatives. As of June 30, 2005 and December 31, 2004, the fair value of our interest rate swap was approximately a $6.1 million liability and a $4.7 million liability, respectively. This amount is recorded on our Consolidated
Balance Sheets in the other liabilities line with a corresponding debit recorded to long-term debt. During the three and six months ended June 30, 2005, we earned net cash payments of $0.3 million and $1.2 million, respectively, under the swap,
which were recorded as a reduction in interest expense. During the three and six months ended June 30, 2004, we earned net cash payments of $1.7 million under the swap, which also were recorded as a reduction in interest expense. In conjunction with
the interest rate swap, we have posted collateral of $12.3 million and $12.0 million as of June 30, 2005 and December 31, 2004, respectively, which is recorded as restricted cash. The required collateral amount fluctuates based on the changes in the
swap rate and the amount of time left to maturity. During the six months ended June 30, 2005, our posted collateral ranged from $10.9 million to $18.9 million. However, due to the terms of the swap agreement, our posted collateral must be a minimum
amount calculated per the agreement, which was $6.3 million as of June 30, 2005. We will receive all remaining collateral upon maturity of the swap.



9. Partners Capital



OP Units.Our operating partnership agreement provides for five classes of partnership interests: Common OP Units, Class B OP Units, Class C OP
Units, Class D OP Units and Profits-Only OP Units, or POPs.



During the six months ended June 30, 2005, MeriStar Hospitality awarded 133,937 shares of common stock to employees, with a value of $1.0 million, related to our annual incentive plan for 2004. Of these shares, 63,935 were repurchased as
treasury stock to satisfy the tax withholding requirements, and 70,002 shares were



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issued. In conjunction with this award, we issued 70,002 OP Units to MeriStar Hospitality. During the six months ended
June 30, 2005, we issued 6,302 OP Units to MeriStar Hospitality in conjunction with their issuance of common stock with a value of $0.04 million, related to shares issued under the employee stock purchase plan.



Common OP Unit holders converted 39,385 and 25,141 of their OP Units, with a
value of $0.6 million and $0.1 million, respectively, into common stock during the six months ended June 30, 2005 and 2004, respectively. A POPs unit holder converted 25,000 POPs for cash during the six months ended June 30, 2004.



10. Earnings (Loss) Per Unit



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



|                                                                      |  |                            |        |      |                           |        |      |  |   |        |   |  |   |         |  
|--------------------------------------------------------------------- |  | -------------------------- | ------ | ---- | ------------------------- | ------ | ---- |  | - | ------ | - |  | - | ------- | -
|                                                                      |  | Three Months EndedJune 30, |        |      | Six Months Ended June 30, |       
|                                                                      |  | 2005                       |        | 2004 |                           |        | 2005 |  |   | 2004   |  
|Basic and Diluted Earnings (Loss) Per Unit:                           |  |                            |        |      |                           |        |      |  |   |        |   |  |   |         |  
|                                                                      |  |                            |        |     
|Income (loss) from continuing operations                              |  | $                          | 5,123  |      | $                         | (6,299 | )    |  | $ | (8,209 | ) |  | $ | (34,293 | )
|Preferred distributions                                               |  |                            |       |      |                           |       |      |  |   |       |   |  |   | (141    | )
|                                                                      |  |                            |        |      |                           |        |      |  |   |        |   |  |   |         |  
|Income (loss) available to common unitholders                         |  | $                          | 5,123  |      | $                         | (6,299 | )    |  | $ | (8,209 | ) |  | $ | (34,434 | )
|                                                                      |  |                            |        |      |                           |        |      |  |   |        |   |  |   |         |  
|Weighted average number of OP units outstanding                       |  |                            | 89,755 |      |                           | 85,933 |      |  |   | 89,722 |   |  |   | 78,841  |  
|                                                                      |  |                            |        |      |                           |        |      |  |   |        |   |  |   |         |  
|Basic and diluted earnings (loss) per unit from continuing operations |  | $                          | 0.06   |      | $                         | (0.07  | )    |  | $ | (0.09  | ) |  | $ | (0.44   | )
|                                                                      |  |                            |        |      |                           |        |      |  |   |        |   |  |   |         |  



11. Commitments and Contingencies



In the course of document review with respect to the MIP
restructuring, MeriStar Hospitality discovered a potential technical REIT qualification issue relating to a wholly-owned subsidiary of MIP, of which we are deemed to own a de minimis proportionate share. In order to eliminate any uncertainty
regarding this issue, MeriStar Hospitality has negotiated, subject to final approval, a closing agreement with the Internal Revenue Service that resolves all REIT qualification matters with respect to this potential issue. As a partnership for
federal income tax purposes, we are not directly affected by the outcome of the discussions by MeriStar Hospitality with the Internal Revenue Service.



As part of our asset renovation program, as of June 30, 2005, we have entered into contractual obligations with vendors to acquire capital assets and
perform renovations totaling approximately $33 million to be expended over the next 12 months. Additionally, as of June 30, 2005, we have entered into contractual obligations related to capital expenditures as a result of hurricanes in the amount of
$33 million to be expended over the next 12 months, most of which we expect to be reimbursed by our insurance carriers.



12. Dispositions



One hotel was disposed of in the six months ended June 30, 2005. We disposed of 15 hotels in the six months ended June 30, 2004. As of June 30, 2005, one
of our hotels met our criteria for held-for-sale classification (see Note 6). None of our hotels met our criteria for held-for-sale classification as of December 31, 2004. Operating results for the hotels which either have been sold or are
classified as held-for-sale, and where applicable, the gain or loss on final disposition, are included in discontinued operations.



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Summary financial information for hotels included in discontinued operations is as follows (in
thousands):



|                                   |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|---------------------------------- |  | -------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------- | -
|                                   |  | Three Months EndedJune 30, |        |   | Six Months Ended June 30, |  
|                                   |  | 2005                       |        |   | 2004                      |   |        | 2005 |  |   | 2004   |  
|Revenue                            |  | $                          | 3,209  |   |                           | $ | 17,304 |      |  | $ | 6,281  |   |  | $ | 42,425  |  
|                                   |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|Loss on asset impairments          |  | $                          | (2,836 | ) |                           | $ | (2,120 | )    |  | $ | (2,836 | ) |  | $ | (7,131  | )
|Pretax (loss) gain from operations |  |                            | 164    |   |                           |   | 920    |      |  |   | (253   | ) |  |   | (85     | )
|Loss on disposal                   |  |                            | (1,037 | ) |                           |   | (4,584 | )    |  |   | (1,037 | ) |  |   | (11,531 | )
|                                   |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  
|                                   |  | $                          | (3,709 | ) |                           | $ | (5,784 | )    |  | $ | (4,126 | ) |  | $ | (18,747 | )
|                                   |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |         |  



Loss on disposal
resulted primarily from the recognition of termination fees payable to Interstate with respect to these hotels management contracts.



13. Consolidating Financial Statements



Certain of our subsidiaries and MeriStar Hospitality are guarantors of senior unsecured notes. Certain of our subsidiaries are guarantors of MeriStar
Hospitalitys unsecured subordinated notes. All guarantees are full and unconditional, and joint and several. Exhibit 99.1 to this Quarterly Report on Form 10-Q presents our supplementary consolidating financial statements, including each of
the guarantor subsidiaries. This exhibit presents our consolidating balance sheets as of June 30, 2005 and December 31, 2004, consolidating statements of operations for the three and six months ended June 30, 2005 and 2004, and consolidating
statements of cash flows for the six months ended June 30, 2005 and 2004.

|
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