##### 



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,    |           |             
|                                                                                  |  | 2003        |           | December 31,
|                                                                                  |  | (Unaudited) |           | 2002        
|                                                                                  |  |             |           |             
|ASSETS                                                                            |  |             |           |              |  |   |           |  
|Investments in hotel properties                                                   |  | $           | 2,653,959 |              |  | $ | 3,020,909 |  
|Accumulated depreciation                                                          |  |             | (407,965  | )            |  |   | (460,972  | )
|                                                                                  |  |             |           |              |  |   |           |  
|                                                                                  |  |             | 2,245,994 |              |  |   | 2,559,937 |  
|Restricted cash                                                                   |  |             | 30,105    |              |  |   | 20,365    |  
|Investments in and advances to affiliates                                         |  |             | 41,714    |              |  |   | 41,714    |  
|Note receivable from Interstate Hotels &
    Resorts                              |  |             |          |              |  |   | 42,052    |  
|Prepaid expenses and other assets                                                 |  |             | 32,222    |              |  |   | 39,197    |  
|Accounts receivable, net of allowance for
    doubtful accounts of $980 and $848  |  |             | 68,996    |              |  |   | 56,828    |  
|Marketable securities (Note 2)                                                    |  |             | 18,056    |              |  |   |          |  
|Cash and cash equivalents (Note 2)                                                |  |             | 56,300    |              |  |   | 33,889    |  
|                                                                                  |  |             |           |              |  |   |           |  
|                                                                                  |  | $           | 2,493,387 |              |  | $ | 2,793,982 |  
|                                                                                  |  |             |           |              |  |   |           |  
|                                                                                 
|LIABILITIES AND PARTNERS
    CAPITAL                                             |  |             |           |              |  |   |           |  
|Long-term debt                                                                    |  | $           | 1,292,788 |              |  | $ | 1,296,597 |  
|Notes payable to MeriStar Hospitality Corporation                                 |  |             | 357,699   |              |  |   | 357,505   |  
|Accounts payable and accrued expenses                                             |  |             | 99,231    |              |  |   | 104,677   |  
|Accrued interest                                                                  |  |             | 52,121    |              |  |   | 52,907    |  
|Due to Interstate Hotels & Resorts                                                |  |             | 5,925     |              |  |   | 10,500    |  
|Other liabilities                                                                 |  |             | 13,637    |              |  |   | 15,967    |  
|                                                                                  |  |             |           |              |  |   |           |  
|Total liabilities                                                                 |  |             | 1,821,401 |              |  |   | 1,838,153 |  
|                                                                                  |  |             |           |              |  |   |           |  
|Minority interests                                                                |  |             | 2,565     |              |  |   | 2,624     |  
|Redeemable OP units at redemption value, 3,267
    and 4,195 outstanding          |  |             | 28,851    |              |  |   | 38,205    |  
|Partners capital  Common OP Units,
    46,110 and 45,231 issued and outstanding |  |             | 640,570   |              |  |   | 915,000   |  
|                                                                                  |  |             |           |              |  |   |           |  
|                                                                                  |  | $           | 2,493,387 |              |  | $ | 2,793,982 |  
|                                                                                  |  |             |           |              |  |   |           |  

See accompanying notes to unaudited consolidated
financial statements.

3



---



##### 



MERISTAR HOSPITALITY OPERATING PARTNERSHIP,
L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS 
 UNAUDITED 
 (Dollars in thousands, except per unit amounts)


|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |       |         |  
|-------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------------------------- | -------- | ---------------- | ------- | ---- | ------- | ----- | ------- | - | -------- | ------ | ------- | - | ------- | ----- | ------- | -
|                                                                                       |                                                                             |                                                                           |          |                 
|                                                                                       |                                                                             | Three Months Ended                                                        |          | Six Months Ended
|                                                                                       |                                                                             | June 30,                                                                  |          | June 30,        
|                                                                                       |                                                                             |                                                                           |          |                 
|                                                                                       |                                                                             | 2003                                                                      |          | 2002             |         | 2003 |         | 2002 
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |      
|Revenue:                                                                               |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Hotel operations:                                                           |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |       |        
|                                                                                       |                                                                             | Rooms                                                                     |          | $                | 164,393 |      |         | $     | 174,945 |   |          | $      | 319,610 |   |         | $     | 336,830 |  
|                                                                                       |                                                                             | Food and beverage                                                         |          |                  | 68,496  |      |         |       | 69,817  |   |          |        | 130,196 |   |         |       | 129,673 |  
|                                                                                       |                                                                             | Other hotel operations                                                    |          |                  | 21,693  |      |         |       | 20,614  |   |          |        | 40,402  |   |         |       | 39,298  |  
|                                                                                       | Office rental, parking and other revenue                                    |                                                                           |          | 3,461            |         |      |         | 4,240 |         |   |          | 6,756  |         |   |         | 8,501 |        
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|Total revenue                                                                          |                                                                             |                                                                           | 258,043  |                  |         |      | 269,616 |       |         |   | 496,964  |        |         |   | 514,302 |      
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|Hotel operating expenses:                                                              |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|                                                                                       |                                                                             | Rooms                                                                     |          |                  | 40,036  |      |         |       | 41,199  |   |          |        | 77,902  |   |         |       | 78,085  |  
|                                                                                       |                                                                             | Food and beverage                                                         |          |                  | 47,803  |      |         |       | 48,752  |   |          |        | 93,042  |   |         |       | 91,515  |  
|                                                                                       |                                                                             | Other hotel operating expenses                                            |          |                  | 12,787  |      |         |       | 11,382  |   |          |        | 23,835  |   |         |       | 21,827  |  
|Office rental, parking and other expenses                                              |                                                                             |                                                                           | 583      |                  |         |      | 684     |       |         |   | 1,213    |        |         |   | 1,497   |      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Other operating expenses:                                                              |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|                                                                                       |                                                                             | General and administrative                                                |          |                  | 42,612  |      |         |       | 42,717  |   |          |        | 84,301  |   |         |       | 84,161  |  
|                                                                                       |                                                                             | Property operating costs                                                  |          |                  | 37,893  |      |         |       | 39,085  |   |          |        | 74,116  |   |         |       | 73,999  |  
|                                                                                       |                                                                             | Depreciation and amortization                                             |          |                  | 29,553  |      |         |       | 29,681  |   |          |        | 57,985  |   |         |       | 60,323  |  
|                                                                                       |                                                                             | Loss on asset impairments                                                 |          |                  | 207,630 |      |         |       |        |   |          |        | 262,608 |   |         |       |        |  
|                                                                                       |                                                                             | Property taxes, insurance and other                                       |          |                  | 20,454  |      |         |       | 16,179  |   |          |        | 40,509  |   |         |       | 35,546  |  
|                                                                                       |                                                                             | Change in fair value of non-hedging derivatives,
    net of swap payments |          |                  |        |      |         |       | 3,090   |   |          |        |        |   |         |       | 3,079   |  
|                                                                                       |                                                                             | Loss on fair value of non-hedging derivatives                             |          |                  |        |      |         |       |        |   |          |        |        |   |         |       | 4,735   |  
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|Operating expenses                                                                     |                                                                             |                                                                           | 439,351  |                  |         |      | 232,769 |       |         |   | 715,511  |        |         |   | 454,767 |      
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|Operating (loss) income                                                                |                                                                             |                                                                           | (181,308 | )                |         |      | 36,847  |       |         |   | (218,547 | )      |         |   | 59,535  |      
|Interest expense, net                                                                  |                                                                             |                                                                           | 34,739   |                  |         |      | 34,112  |       |         |   | 69,565   |        |         |   | 68,767  |      
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|(Loss) income before minority interests, income
    taxes, and discontinued operations |                                                                             |                                                                           | (216,047 | )                |         |      | 2,735   |       |         |   | (288,112 | )      |         |   | (9,232  | )    
|Minority interests                                                                     |                                                                             |                                                                           | 5        |                  |         |      | 3       |       |         |   | (6       | )      |         |   | (8      | )    
|Income tax (expense) benefit                                                           |                                                                             |                                                                           | (21      | )                |         |      | (69     | )     |         |   | 127      |        |         |   | 214     |      
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|(Loss) income from continuing operations                                               |                                                                             |                                                                           | (216,063 | )                |         |      | 2,669   |       |         |   | (287,991 | )      |         |   | (9,026  | )    
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Discontinued operations:                                                               |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|                                                                                       | (Loss) income from discontinued operations before
    tax benefit (expense) |                                                                           |          | (598             | )       |      |         | 855   |         |   |          | (1,864 | )       |   |         | 2,260 |        
|                                                                                       | Income tax benefit (expense)                                                |                                                                           |          | 2                |         |      |         | (21   | )       |   |          | (2     | )       |   |         | (55   | )      
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|(Loss) income from discontinued operations                                             |                                                                             |                                                                           | (596     | )                |         |      | 834     |       |         |   | (1,866   | )      |         |   | 2,205   |      
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|Net (loss) income                                                                      |                                                                             | $                                                                         | (216,659 | )                |         | $    | 3,503   |       |         | $ | (289,857 | )      |         | $ | (6,821  | )    
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|Preferred distributions                                                                |                                                                             |                                                                           | (141     | )                |         |      | (141    | )     |         |   | (282     | )      |         |   | (282    | )    
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|Net (loss) income applicable to common
    unitholders                                 |                                                                             | $                                                                         | (216,800 | )                |         | $    | 3,362   |       |         | $ | (290,139 | )      |         | $ | (7,103  | )    
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|Net (loss) income applicable to general
    partner unitholders                        |                                                                             | $                                                                         | (203,867 | )                |         | $    | 3,095   |       |         | $ | (271,172 | )      |         | $ | (6,525  | )    
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|Net (loss) income applicable to limited
    partner unitholders                        |                                                                             | $                                                                         | (12,933  | )                |         | $    | 267     |       |         | $ | (18,967  | )      |         | $ | (578    | )    
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|                                                                                      
|Earnings per unit:                                                                     |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Basic:                                                                      |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |       |        
|                                                                                       |                                                                             | (Loss) income from continuing operations                                  |          | $                | (4.41   | )    |         | $     | 0.05    |   |          | $      | (5.88   | ) |         | $     | (0.19   | )
|                                                                                       |                                                                             | (Loss) income from discontinued operations                                |          |                  | (0.01   | )    |         |       | 0.02    |   |          |        | (0.04   | ) |         |       | 0.04    |  
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|                                                                                       | Net (loss) income per basic unit                                            |                                                                           | $        | (4.42            | )       |      | $       | 0.07  |         |   | $        | (5.92  | )       |   | $       | (0.15 | )      
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|                                                                                       | Diluted:                                                                    |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |       |        
|                                                                                       |                                                                             | (Loss) income from continuing operations                                  |          | $                | (4.41   | )    |         | $     | 0.05    |   |          | $      | (5.88   | ) |         | $     | (0.19   | )
|                                                                                       |                                                                             | (Loss) income from discontinued operations                                |          |                  | (0.01   | )    |         |       | 0.02    |   |          |        | (0.04   | ) |         |       | 0.04    |  
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      
|                                                                                       | Net (loss) income per diluted unit                                          |                                                                           | $        | (4.42            | )       |      | $       | 0.07  |         |   | $        | (5.92  | )       |   | $       | (0.15 | )      
|                                                                                       |                                                                             |                                                                           |          |                  |         |      |         |       |         |   |          |        |         |   |         |      

See accompanying notes to unaudited consolidated
financial statements.

4



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##### 



MERISTAR HOSPITALITY OPERATING PARTNERSHIP,
L.P. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS 
 UNAUDITED 
 (Dollars in thousands)

|                                                                 |                                                                                     |                                                                   |                                                                                |          |         |         |         |          |        |        |  
|---------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------------------------------------------------------------------------------ | -------- | ------- | ------- | ------- | -------- | ------ | ------ | -
|                                                                 |                                                                                     |                                                                  
|                                                                 |                                                                                     | Six Months Ended                                                 
|                                                                 |                                                                                     | June 30,                                                         
|                                                                 |                                                                                     |                                                                  
|                                                                 |                                                                                     | 2003                                                              |                                                                                | 2002    
|                                                                 |                                                                                     |                                                                   |                                                                                |         
|Operating activities:                                            |                                                                                     |                                                                   |                                                                                |          |         |         |         |         
|                                                                 | Net loss                                                                            |                                                                   | $                                                                              | (289,857 | )       |         | $       | (6,821   | )     
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Adjustments to reconcile net loss to net cash
    provided by operating activities: |                                                                   |                                                                                |          |         |         |         |          |       
|                                                                 |                                                                                     | Depreciation and amortization                                     |                                                                                |          | 58,478  |         |         |          | 63,260 |       
|                                                                 |                                                                                     | Loss on asset impairments                                         |                                                                                |          | 264,677 |         |         |          |       |       
|                                                                 |                                                                                     | Loss on fair value of non-hedging derivatives                     |                                                                                |          |        |         |         |          | 4,735  |       
|                                                                 |                                                                                     | Minority interests                                                |                                                                                |          | 6       |         |         |          | 8      |       
|                                                                 |                                                                                     | Amortization of unearned stock-based compensation                 |                                                                                |          | 1,433   |         |         |          | 1,920  |       
|                                                                 |                                                                                     | Unrealized gain on interest rate swaps recognized
    in net loss |                                                                                |          | (3,395  | )       |         |          | (2,905 | )     
|                                                                 |                                                                                     | Deferred income taxes                                             |                                                                                |          | (1,534  | )       |         |          | (332   | )     
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                                                                     | Changes in operating assets and liabilities:                      |                                                                                |          |         |         |         |          |        |       
|                                                                 |                                                                                     |                                                                   | Accounts receivable                                                            |          |         | (12,168 | )       |          |        | (4,817 | )
|                                                                 |                                                                                     |                                                                   | Prepaid expenses and other assets                                              |          |         | 4,225   |         |          |        | 3,098  |  
|                                                                 |                                                                                     |                                                                   | Due from/to Interstate Hotels & Resorts                                        |          |         | (4,575  | )       |          |        | 4,900  |  
|                                                                 |                                                                                     |                                                                   | Accounts payable, accrued expenses, accrued
    interest and other liabilities |          |         | (5,480  | )       |          |        | 3,884  |  
|                                                                 |                                                                                     |                                                                   |                                                                                |          |         |         |         |         
|Net cash provided by operating activities                        |                                                                                     |                                                                   | 11,810                                                                         |          |         |         | 66,930  |         
|                                                                 |                                                                                     |                                                                   |                                                                                |          |         |         |         |         
|Investing activities:                                            |                                                                                     |                                                                   |                                                                                |          |         |         |         |         
|                                                                 | Investments in hotel properties                                                     |                                                                   |                                                                                | (14,547  | )       |         |         | (24,696  | )     
|                                                                 | Proceeds from sales of assets                                                       |                                                                   |                                                                                | 15,720   |         |         |         |         |       
|                                                                 | Purchases of marketable securities                                                  |                                                                   |                                                                                | (18,056  | )       |         |         |         |       
|                                                                 | Net payments from (advances to) Interstate Hotels
    & Resorts                     |                                                                   |                                                                                | 42,052   |         |         |         | (10,000  | )     
|                                                                 | (Increase) decrease in restricted cash                                              |                                                                   |                                                                                | (9,740   | )       |         |         | 4,384    |       
|                                                                 | Other, net                                                                          |                                                                   |                                                                                | (299     | )       |         |         |         |       
|                                                                 |                                                                                     |                                                                   |                                                                                |          |         |         |         |         
|Net cash provided by (used in) investing
    activities          |                                                                                     |                                                                   | 15,130                                                                         |          |         |         | (30,312 | )       
|                                                                 |                                                                                     |                                                                   |                                                                                |          |         |         |         |         
|Financing activities:                                            |                                                                                     |                                                                   |                                                                                |          |         |         |         |         
|                                                                 | Principal payments on long-term debt                                                |                                                                   |                                                                                | (4,208   | )       |         |         | (265,840 | )     
|                                                                 | Proceeds from issuance of long-term debt                                            |                                                                   |                                                                                |         |         |         |         | 234,841  |       
|                                                                 | Deferred financing fees                                                             |                                                                   |                                                                                |         |         |         |         | (3,571   | )     
|                                                                 | Contributions from partners                                                         |                                                                   |                                                                                |         |         |         |         | 3,156    |       
|                                                                 | Distributions paid to partners                                                      |                                                                   |                                                                                | (141     | )       |         |         | (1,212   | )     
|                                                                 | Purchase of limited partnership unit                                                |                                                                   |                                                                                | (65      | )       |         |         |         |       
|                                                                 |                                                                                     |                                                                   |                                                                                |          |         |         |         |         
|Net cash used in financing activities                            |                                                                                     |                                                                   | (4,414                                                                         | )        |         |         | (32,626 | )       
|                                                                 |                                                                                     |                                                                   |                                                                                |          |         |         |         |         
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                     |                                                                   | (115                                                                           | )        |         |         | (28     | )       
|Net increase in cash and cash equivalents                        |                                                                                     |                                                                   | 22,411                                                                         |          |         |         | 3,964   |         
|Cash and cash equivalents, beginning of period                   |                                                                                     |                                                                   | 33,889                                                                         |          |         |         | 23,441  |         
|                                                                 |                                                                                     |                                                                   |                                                                                |          |         |         |         |         
|Cash and cash equivalents, end of period                         |                                                                                     | $                                                                 | 56,300                                                                         |          |         | $       | 27,405  |         
|                                                                 |                                                                                     |                                                                   |                                                                                |          |         |         |         |         
|Supplemental Cash Flow Information                               |                                                                                     |                                                                   |                                                                                |          |         |         |         |         
|                                                                
|                                                                
|                                                                
|                                                                
|Cash paid for interest and income taxes:                         |                                                                                     |                                                                   |                                                                                |          |         |         |         |         
|                                                                 | Interest, net of capitalized interest                                               |                                                                   | $                                                                              | 70,399   |         |         | $       | 60,454   |       
|                                                                 |                                                                                     |                                                                   |                                                                                |          |         |         |         |         
|                                                                 | Income taxes                                                                        |                                                                   | $                                                                              | 1,902    |         |         | $       | 602      |       
|                                                                 |                                                                                     |                                                                   |                                                                                |          |         |         |         |         

See accompanying notes to unaudited consolidated
financial statements.

5



---



##### 



MERISTAR HOSPITALITY OPERATING PARTNERSHIP,
L.P. 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 
 JUNE 30, 2003

1.          Organization

MeriStar Hospitality Operating Partnership, L.P.
is the subsidiary operating partnership of MeriStar Hospitality
Corporation (MeriStar Hospitality, which is a real
estate investment trust, or REIT). We own a portfolio of
upscale, full-service hotels and resorts in the United States
and Canada. Our portfolio is diversified geographically as well
as by franchise and brand affiliations. As of June 30,
2003, we owned 105 hotels, with 27,269 rooms, all of which were
leased by our taxable subsidiaries and managed by Interstate
Hotels & Resorts, Inc. (Interstate Hotels). In
July 2003, we sold two hotels with 422 rooms.

Our taxable subsidiaries are parties to
management agreements with a subsidiary of Interstate Hotels to
manage all of our hotels. Under these management agreements, the
taxable subsidiaries pay a management fee to a subsidiary of
Interstate Hotels for each property. The taxable subsidiaries in
turn make rental payments to us under the participating leases.
Under the management agreements, the base management fee is 2.5%
of total hotel revenue, plus incentive payments based on meeting
performance thresholds that could total up to an additional 1.5%
of total hotel revenue. All of the agreements expire in 2010 and
have three renewal periods of five years each at the option of
Interstate Hotels, subject to some exceptions.

2.          Summary
of Significant Accounting Policies

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

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

Principles of Consolidation.In January 2003, the Financial
Accounting Standards Board (FASB) issued Interpretation No.
(FIN) 46, Consolidation of Variable Interest
Entities, an interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial
Statements. The interpretation addresses how to identify
variable interest entities and when to consolidate those
entities. Consolidation of variable interest entities is
required by the primary beneficiary. The interpretation applied
immediately to variable interest entities created after
January 31, 2003, and applies beginning July 1, 2003
to those variable interest entities that were acquired before
February 1, 2003. The initial application of the
interpretation did not affect our results of operations or
financial condition as we have not obtained an interest in any
qualifying entity on or after January 31, 2003. We do not
expect the application of the second phase to have a material
affect on our results of operations or financial condition.

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



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

6



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

Cash and Cash Equivalents.Our cash equivalents consist of
investments in debt securities, including commercial paper,
overnight repurchase agreements and money market funds, with an
original maturity of three months or less. We classify
investments in these types of securities with original
maturities greater than three months as marketable securities.

Marketable Securities.Our marketable securities consist of
investments in debt securities, including commercial paper and
agency discount notes, with maturities less than six months from
their date of purchase. As of June 30, 2003, the majority
of the securities mature within 90 days. We record these
securities at amortized cost. As of June 30, 2003, the fair
value of these securities was $18.1 million.

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

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

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

Gains and Losses From Extinguishments of Debt.We adopted the provisions of SFAS
No. 145, Rescission of FASB Statements No. 4,
No. 44 and No. 64, Amendment of SFAS No. 13, and
Technical Corrections, on January 1, 2003. The
rescission of SFAS No. 4 and No. 64 requires that all
gains and losses from extinguishments of debt be classified as
extraordinary only if the gains and losses are from unusual or
infrequent transactions. It also requires prior period gains or
losses that are not from unusual or infrequent transactions to
be reclassified as an operating expense. The adoption of the
standard did not have a significant affect on our results of
operation or financial condition.

Stock-Based Compensation.We adopted the recognition provisions
of SFAS No. 123, Accounting for Stock-Based
Compensation, as amended in December 2002 by SFAS
No. 148, on January 1, 2003 for new stock options
issued under our compensation programs. As permitted by SFAS
No. 148, we elected to apply the provisions prospectively,
which includes recognizing compensation expense for only those
stock options issued in 2003 and after. During the six months
ended June 30, 2003, we granted 172,500 stock options to
employees which vest ratably over three years. Compensation
costs related to these stock options were not material to our
results of operations for the six months ended June 30,
2003. We apply the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees, in accounting for our stock options issued
under our compensation programs prior to January 1, 2003.
As we granted these stock

7



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options at 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.


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 prescribed in SFAS
No. 123, as amended by SFAS No. 148, our net loss and
per unit amounts would have been adjusted to the pro forma
amounts indicated as follows (dollars in thousands, except per
unit amounts):

|                               |                                                                                                                                                    |                    |          |                  |   |      |       |        |   |   |          |        |   |   |        |        |  
|------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | -------- | ---------------- | - | ---- | ----- | ------ | - | - | -------- | ------ | - | - | ------ | ------ | -
|                               |                                                                                                                                                    |                    |          |                 
|                               |                                                                                                                                                    | Three Months Ended |          | Six Months Ended
|                               |                                                                                                                                                    | June 30,           |          | June 30,        
|                               |                                                                                                                                                    |                    |          |                 
|                               |                                                                                                                                                    | 2003               |          | 2002             |   | 2003 |       | 2002  
|                               |                                                                                                                                                    |                    |          |                  |   |      |       |       
|Net (loss) income, as reported |                                                                                                                                                    | $                  | (216,659 | )                |   | $    | 3,503 |        |   | $ | (289,857 | )      |   | $ | (6,821 | )     
|                               | Add: Stock-based employee compensation expense
    included in reported net (loss) income, net of related tax effect                               |                    |          | 677              |   |      |       | 1,206  |   |   |          | 1,606  |   |   |        | 2,252  |  
|                               | Deduct: Total stock-based employee compensation
    expense determined under fair value-based method for all awards,
    net of related tax effect |                    |          | (816             | ) |      |       | (1,411 | ) |   |          | (1,900 | ) |   |        | (2,704 | )
|                               |                                                                                                                                                    |                    |          |                  |   |      |       |        |   |   |          |        |   |   |        |       
|Net (loss) income, pro forma   |                                                                                                                                                    | $                  | (216,798 | )                |   | $    | 3,298 |        |   | $ | (290,151 | )      |   | $ | (7,273 | )     
|                               |                                                                                                                                                    |                    |          |                  |   |      |       |        |   |   |          |        |   |   |        |       
|Earnings per unit              |                                                                                                                                                    |                    |          |                  |   |      |       |        |   |   |          |        |   |   |        |       
|                               | Basic, as reported                                                                                                                                 |                    | $        | (4.42            | ) |      | $     | 0.07   |   |   | $        | (5.92  | ) |   | $      | (0.15  | )
|                               | Basic, pro forma                                                                                                                                   |                    | $        | (4.42            | ) |      | $     | 0.07   |   |   | $        | (5.93  | ) |   | $      | (0.15  | )
|                               |                                                                                                                                                    |                    |          |                  |   |      |       |        |   |   |          |        |   |   |        |       
|                               | Diluted, as reported                                                                                                                               |                    | $        | (4.42            | ) |      | $     | 0.07   |   |   | $        | (5.92  | ) |   | $      | (0.15  | )
|                               | Diluted, pro forma                                                                                                                                 |                    | $        | (4.42            | ) |      | $     | 0.07   |   |   | $        | (5.93  | ) |   | $      | (0.15  | )
|                               |                                                                                                                                                    |                    |          |                  |   |      |       |        |   |   |          |        |   |   |        |       

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

Accounting for Guarantees.We adopted FASB FIN 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, an interpretation of FASB Statements No. 5, 57,
and 107 and rescission of FASB Interpretation No. 34, on
January 1, 2003. The interpretation requires recognition of
liabilities at their fair value for newly-issued guarantees. We
have no guarantees which require accounting under the provisions
of this interpretation.

New Accounting Pronouncements.The FASB issued FASB No. 149
Amendment of Statement 133 on Derivative Instruments and
Hedging Activities in April 2003. The statement clarifies
under what circumstances a contract with an initial net
investment meets the characteristics of a derivative, clarifies
when a derivative contains a financing component, amends the
definition of an underlying derivative, and amends certain other
pronouncements. The statement applies to any freestanding
financial derivative instruments entered into or modified after
June 30, 2003. We do not expect adoption of this standard
to have a material effect on our results of operations or
financial condition, but we will assess its impact if and when
we enter into any new derivative instruments that fall within
the scope of this standard.

The FASB issued FASB No. 150
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity in May
2003. The statement establishes standards for how to classify
and measure certain financial instruments with characteristics
of both liabilities and equity. It requires many instruments
which were previously classified as equity to now be classified
as a liability (or an asset in some circumstances), including:
mandatorily redeemable instruments, instruments with repurchase
obligations and instruments with obligations to issue a variable
number of shares. The statement applies immediately to any
freestanding financial instruments entered into or modified
after May 31, 2003, and applies to all other

8



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instruments on July 1, 2003. We have no
financial instruments which are covered by the provisions of
this standard.


3.          Comprehensive
(Loss) Income

Comprehensive loss was $212.8 million and
comprehensive income was $3.8 million for the three months ended
June 30, 2003 and 2002, respectively. Comprehensive
(loss) income consisted of net loss of $216.7 million
and net income of $3.5 million for the three months ended
June 30, 2003 and 2002, respectively, and foreign currency
translation adjustments.

Comprehensive loss was $284.9 million and
$5.6 million for the six months ended June 30, 2003
and 2002, respectively. Comprehensive loss consisted of net loss
of $289.9 million and $6.8 million for the six months
ended June 30, 2003 and 2002, respectively, foreign
currency translation adjustments, and in 2002 a
$0.5 million fair value gain adjustment for derivatives.

4.          Investments
in Hotel Properties

Investments in hotel properties consisted of the
following (dollars in thousands):

|                                  |  |          |           |              |  |   |           | 
|--------------------------------- |  | -------- | --------- | ------------ |  | - | --------- | 
|                                  |  | June 30, |           | December 31,
|                                  |  | 2003     |           | 2002        
|                                  |  |          |           |             
|Land                              |  | $        | 260,613   |              |  | $ | 288,611   | 
|Buildings and improvements        |  |          | 2,063,912 |              |  |   | 2,351,769 | 
|Furniture, fixtures and equipment |  |          | 286,405   |              |  |   | 344,541   | 
|Construction-in-progress          |  |          | 43,029    |              |  |   | 35,988    | 
|                                  |  |          |           |              |  |   |           | 
|                                  |  | $        | 2,653,959 |              |  | $ | 3,020,909 | 
|                                  |  |          |           |              |  |   |           | 

For the six months ended June 30, 2003 and
2002, we capitalized interest of $1.6 million and
$1.9 million, respectively.

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

We recognized an impairment loss in 2002 on
certain non-core assets we were then actively marketing. Late in
the first quarter of 2003, we expanded our asset disposition
program to include a total of 16 non-core assets and recognized
an impairment loss of $56.7 million as a result of the
change in our expected holding period for these assets.

During the second quarter of 2003, we made the
determination to dispose of an additional 19 non-core assets,
for a total of 35 non-core assets included in our disposition
program. Also during the second quarter, due to the market
interest in certain of our other hotel assets, we decided to add
an additional six assets to our disposition program. Due to this
change in our expected holding period for these assets, we
recognized an additional impairment loss of $208 million
related to the disposition of these 41 assets during the three
months ended June 30, 2003. We sold one of these hotels in
April 2003 and two more hotels in July 2003.

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

9



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As of June 30, 2003, our net investments in
hotel properties included $16 million for two assets (both sold
in July 2003), which met our criteria for held-for-sale
classification. The remaining hotels included in our asset
disposition program do not meet the probability criterion as
prescribed by SFAS No. 144 to classify as held-for-sale.

5. Investments in and Advances to
Affiliates

In 1999, we invested $40 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 partnership interest,
in which we earn a 16% cumulative preferred return. We recognize
the return quarterly as it becomes due to us. As of
June 30, 2003, cumulative preferred returns of $15 million
were due from MIP and included in accounts receivable on the
accompanying consolidated balance sheet. We expect that any
cumulative unpaid preferred returns would be paid in the future
from excess cash flow above our current return and from
potential disposition proceeds in excess of debt allocated to
individual assets. Given the current economic environment, we do
not expect MIPs operations to provide adequate cash flow
in the near term for significant payment of our current returns
or repayments of our cumulative unpaid preferred returns. We
evaluate the collectibility of our preferred return based on our
preference to distributions and the underlying value of the
hotel properties. Should the cash flow from MIPs
operations or the underlying value of the hotel properties
continue to weaken over an extended period of time, the value of
our original investment may also decline.

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

Long-term debt consisted of the following
(dollars in thousands):

|                                                                   |                |          |           |              |  |   |           |           | 
|------------------------------------------------------------------ | -------------- | -------- | --------- | ------------ |  | - | --------- | --------- | 
|                                                                   |                | June 30, |           | December 31,
|                                                                   |                | 2003     |           | 2002        
|                                                                   |                |          |           |             
|Senior unsecured notes                                             |                | $        | 950,000   |              |  | $ | 950,000   |          
|Secured facility                                                   |                |          | 311,886   |              |  |   | 314,626   |          
|Mortgage and other debt                                            |                |          | 36,562    |              |  |   | 38,030    |          
|Unamortized issue discount                                         |                |          | (5,660    | )            |  |   | (6,059    | )        
|                                                                   |                |          |           |              |  |   |           |          
|                                                                   | Long-term debt |          | $         | 1,292,788    |  |   | $         | 1,296,597 | 
|                                                                   |                |          |           |              |  |   |           |          
|Notes payable to MeriStar Hospitality                              |                | $        | 359,300   |              |  | $ | 359,300   |          
|Unamortized issue discount                                         |                |          | (1,601    | )            |  |   | (1,795    | )        
|                                                                   |                |          |           |              |  |   |           |          
|                                                                   | Notes payable  |          | $         | 357,699      |  |   | $         | 357,505   | 
|                                                                   |                |          |           |              |  |   |           |          
|Total long-term debt and notes payable to
    MeriStar Hospitality |                | $        | 1,650,487 |              |  | $ | 1,654,102 |          
|                                                                   |                |          |           |              |  |   |           |          

Aggregate future maturities as of June 30,
2003 were as follows (dollars in thousands):

|                  |  |   |           | 
|----------------- |  | - | --------- | 
|2003 (six months) |  | $ | 3,956     | 
|2004              |  |   | 170,720   | 
|2005              |  |   | 8,670     | 
|2006              |  |   | 9,412     | 
|2007              |  |   | 213,616   | 
|Thereafter        |  |   | 1,244,113 | 
|                  |  |   |           | 
|                  |  | $ | 1,650,487 | 
|                  |  |   |           | 

As of June 30, 2003, all of our debt bore
fixed rates of interest. Our overall weighted average interest
rate was 8.59%. The fair value, based on market prices at the
end of the period, of our fixed-rate, long-term debt was
$1.62 billion at June 30, 2003.

10



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Senior unsecured notes.The notes are unsecured obligations of
certain subsidiaries of ours, and MeriStar Hospitality
guarantees payment of principal and interest on the notes. These
notes contain various restrictive incurrence covenants, limiting
our ability to initiate or transact certain business activities
if specific financial thresholds are not achieved. One of those
thresholds is maintaining a 2 to 1 fixed charge coverage ratio
(as defined in the indentures, fixed charges only include
interest on debt obligations and preferred equity). As of
June 30, 2003, our fixed charge coverage ratio was below 2
to 1, and therefore we were not permitted to enter into certain
transactions, including the repurchase of our stock, the
issuance of any preferred stock, the payment of dividends, the
incurrence of any additional debt, or the repayment of
outstanding debt before it comes due.

There are certain exceptions, however, with
respect to the incurrence of additional debt and early repayment
of debt features in the indentures. We currently have the
ability to incur $300 million of secured financing within
restricted subsidiaries. We also have a general carve-out to
incur $50 million of unspecified borrowings within a
restricted subsidiary. Additionally, we are permitted to repay
subordinated debt prior to its maturity from the proceeds of a
pari passuor junior financing with a longer term than
the debt refinanced, an equity offering, or a financing within
an unrestricted subsidiary. We are permitted to invest five
percent of consolidated net tangible assets (as defined in the
indentures) in an unrestricted subsidiary. We would then be able
to mortgage the properties contributed to the unrestricted
subsidiary. See Financial Condition, Liquidity, and
Capital Resources in Item 2 of this Quarterly Report
on Form 10-Q for our expectations in this regard.

Secured facility.We
completed a $330 million, 10-year, non-recourse financing
secured by a portfolio of 19 hotels in 1999. The loan bears a
fixed interest rate of 8.01% and matures in 2009. The secured
facility contains standard provisions that require the servicer
to maintain in escrow cash balances for certain items such as
property taxes and insurance. In addition, the facility contains
a provision that requires our mortgage servicer to retain in
escrow the excess cash from the encumbered hotels after payment
of debt service (Excess Cash), if net hotel
operating income (NOI) for the trailing twelve
months declines below $57 million. This provision was
triggered in October 2002 and will be effective until the hotels
generate the minimum cash flow required for two consecutive
quarters, at which time the cash being held in escrow will be
released to us. Approximately $14.5 million of cash was
held in escrow under this provision as of June 30, 2003. In
July 2003, we signed an amendment to the loan agreement that
permits the release of cash placed in escrow for all capital
expenditures incurred on the 19 encumbered properties on or
after April 1, 2003 (approximately one million as of
June 30, 2003). Although the servicer will continue to
retain in escrow any excess cash from the encumbered hotels,
they will release cash for all capital expenditures we have
incurred from April 1, 2003 through the date of the
amendment and future capital expenditures we incur on the 19
properties.

Notes payable to MeriStar Hospitality.On July 1, 2003, MeriStar
Hospitality completed an offering of $170 million aggregate
principal amount of 9.5% convertible subordinated notes due
2010. The convertible notes are unsecured obligations and
provide for semi-annual payments of interest on October 1 and
April 1. The proceeds from the new issuance were used to
repurchase $150.6 million of their $154.3 million
4.75% convertible notes due 2004 and $22.6 million of their
$205 million senior subordinated notes due in 2007.

In connection with this offering, during the
third quarter of 2003, we anticipate refinancing with MeriStar
Hospitality all or a portion of our term loan that comes due in
2004, under terms matching those of MeriStar Hospitalitys
9.5% convertible notes due 2010.

Credit facility.In
May 2003, we reduced our borrowing capacity on our senior credit
facility from $100 million to $50 million and wrote
off approximately $0.7 million in related deferred
financing costs. As of June 30, 2003, we had no outstanding
borrowings under this facility.

This facility contains customary financial
compliance measures, which became more stringent on a quarterly
basis beginning in the first quarter of 2003. The sale of two
hotels during the fourth quarter of 2002, one in January 2003,
and one in April 2003, as well as the settlement of our note
receivable with Interstate Hotels, impacted our leverage
covenant due to the loss of trailing 12-month EBITDA (as defined
in the credit agreement) on a pro forma basis. If we are not in
compliance with the leverage covenant or any other financial

11



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covenants at the end of a quarterly measuring
period, we will be in default under the credit facility and will
not be permitted to borrow under the credit facility. We have
obtained a waiver of compliance with this leverage covenant from
our lending group, which was extended through August 20,
2003. Because we do not anticipate needing to draw under the
bank line or having borrowing capacity to do so in the near
term, we expect to terminate the facility late in late 2003. We
have approximately $0.6 million of unamortized capitalized
financing costs related to this facility as of June 30,
2003, which would be written off should we decide to terminate
the facility.


Derivatives.As of
June 30, 2003, we had one swap agreement with a notional
principal amount of $100 million that does not qualify for
treatment as a cash-flow hedge under SFAS No. 133. This
swap agreement is currently being marked to market through our
statement of operations. The fair value of this swap as of
June 30, 2003 was a liability of $0.6 million, and is
included in other liabilities in the accompanying consolidated
balance sheet. We made additional cash payments on this swap of
$0.6 million through its date of expiration, July 31,
2003.

During the three and six months ended
June 30, 2003, we recognized $1.3 million and
$3.4 million, respectively, of income related to the
decrease in fair value of the liability recorded for the
interest rate swaps in place in those time periods. For the
three and six months ended June 30, 2003, we made cash
payments on these swaps of $1.3 million and
$3.4 million, respectively. The change in fair value and
the swap payments are netted together on our statement of
operations.

During the six months ended June 30, 2002,
we recognized $2.9 million of income related to the
decrease in fair value of the liability recorded for the
interest rate swaps in place in that time period. For the three
and six months ended June 30, 2002, we made cash payments
on these swaps of $3.1 million and $6 million,
respectively. The change in fair value and the swap payments are
netted together on our statement of operations.

7.          Partnership
Units and Minority Interests

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

Redeemable OP Unit holders converted 878,000 and
400,000 of their OP Units, with a value of $20.1 million
and $6.1 million, into MeriStar Hospitalitys common
stock during the six months ended June 30, 2003 and 2002
respectively. There were no material conversions for cash during
the six months ended June 30, 2003 and 2002.

POPs totaling 50,000 were relinquished in
connection with the formal separation of management functions
with Interstate Hotels during the first quarter of 2003.
MeriStar Hospitality also issued 50,000 shares of its common
stock to a former executive officer and director in connection
with the separation.

In May 2002, we issued 162,500 POPs to an
executive officer pursuant to an employment agreement, with a
value of $2.9 million.

12



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8.          Earnings
Per Unit

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

|                           |                                                                         |                                       |   |                  |   |      |   |        |    |  |   |          |   |  |   |        |   | 
|-------------------------- | ----------------------------------------------------------------------- | ------------------------------------- | - | ---------------- | - | ---- | - | ------ | -- |  | - | -------- | - |  | - | ------ | - | 
|                           |                                                                         |                                       |   |                 
|                           |                                                                         | Three Months Ended                    |   | Six Months Ended
|                           |                                                                         | June 30,                              |   | June 30,        
|                           |                                                                         |                                       |   |                 
|                           |                                                                         | 2003                                  |   | 2002             |   | 2003 |   | 2002  
|                           |                                                                         |                                       |   |                  |   |      |   |       
|Basic Earnings Per Unit:   |                                                                         |                                       |   |                  |   |      |   |        |    |  |   |          |   |  |   |       
|                           | (Loss) income from continuing operations                                |                                       | $ | (216,063         | ) |      | $ | 2,669  |    |  | $ | (287,991 | ) |  | $ | (9,026 | )
|                           | Dividends paid on unvested restricted stock of
    MeriStar Hospitality |                                       |   |                 |   |      |   | (2     | )  |  |   |         |   |  |   | (3     | )
|                           | Preferred distributions                                                 |                                       |   | (141             | ) |      |   | (141   | )  |  |   | (282     | ) |  |   | (282   | )
|                           |                                                                         |                                       |   |                  |   |      |   |        |    |  |   |          |   |  |   |       
|                           | (Loss) income available to common stockholders                          |                                       | $ | (216,204         | ) |      | $ | 2,526  |    |  | $ | (288,273 | ) |  | $ | (9,311 | )
|                           |                                                                         |                                       |   |                  |   |      |   |        |    |  |   |          |   |  |   |       
|                           | Weighted average number of basic OP units
    outstanding               |                                       |   | 49,001           |   |      |   | 48,770 |    |  |   | 49,017   |   |  |   | 48,770 |  
|                           |                                                                         |                                       |   |                  |   |      |   |        |    |  |   |          |   |  |   |       
|                           | Basic (loss) income per unit from continuing
    operations             |                                       | $ | (4.41            | ) |      | $ | 0.05   |    |  | $ | (5.88    | ) |  | $ | (0.19  | )
|                           |                                                                         |                                       |   |                  |   |      |   |        |    |  |   |          |   |  |   |       
|                          
|Diluted Earnings Per Unit: |                                                                         |                                       |   |                  |   |      |   |        |    |  |   |          |   |  |   |       
|                           | (Loss) income available to common unitholders                           |                                       | $ | (216,204         | ) |      | $ | 2,526  |    |  | $ | (288,273 | ) |  | $ | (9,311 | )
|                           |                                                                         |                                       |   |                  |   |      |   |        |    |  |   |          |   |  |   |       
|                           | Weighted average number of basic OP units
    outstanding               |                                       |   | 49,001           |   |      |   | 48,770 |    |  |   | 49,017   |   |  |   | 48,770 |  
|                           |                                                                         | Stock options of MeriStar Hospitality |   |                  |  |      |   |        | 75 |  |   |          |  |  |   |        |  | 
|                           |                                                                         |                                       |   |                  |   |      |   |        |    |  |   |          |   |  |   |       
|                           | Total weighted average number of diluted OP units
    outstanding       |                                       |   | 49,001           |   |      |   | 48,845 |    |  |   | 49,017   |   |  |   | 48,770 |  
|                           |                                                                         |                                       |   |                  |   |      |   |        |    |  |   |          |   |  |   |       
|                           | Diluted (loss) income per unit from
    continuing operations           |                                       | $ | (4.41            | ) |      | $ | 0.05   |    |  | $ | (5.88    | ) |  | $ | (0.19  | )
|                           |                                                                         |                                       |   |                  |   |      |   |        |    |  |   |          |   |  |   |       

For the three months ended June 30, 2003 and
2002, 6,666 units and 5,445 units, respectively, were excluded
from the calculation of diluted earnings per unit as the effect
of their inclusion would be anti-dilutive. For the six months
ended June 30, 2003 and 2002, 6,666 units and 5,373 units,
respectively, were excluded from the calculation of diluted
earnings per unit as the effect of their inclusion would be
anti-dilutive.

9.          Commitments
and Contingencies

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

Minimum Lease Payments.We lease the land at certain of our
hotels under long-term arrangements from third parties. Certain
leases contain contingent rent features based on gross revenues
at the respective

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property. Future minimum lease payments required
under these operating leases as of June 30, 2003 were as
follows (dollars in thousands):


|                  |  |   |        | 
|----------------- |  | - | ------ | 
|2003 (six months) |  | $ | 719    | 
|2004              |  |   | 1,437  | 
|2005              |  |   | 1,440  | 
|2006              |  |   | 1,427  | 
|2007              |  |   | 1,427  | 
|Thereafter        |  |   | 56,368 | 
|                  |  |   |        | 
|                  |  | $ | 62,818 | 
|                  |  |   |        | 

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

We lease certain office, retail and parking space
to outside parties under non-cancelable operating leases with
initial or remaining terms in excess of one year. Future minimum
rental receipts under these leases as of June 30, 2003 were
as follows (dollars in thousands):

|                  |  |   |        | 
|----------------- |  | - | ------ | 
|2003 (six months) |  | $ | 2,349  | 
|2004              |  |   | 4,428  | 
|2005              |  |   | 2,896  | 
|2006              |  |   | 2,027  | 
|2007              |  |   | 1,456  | 
|Thereafter        |  |   | 1,929  | 
|                  |  |   |        | 
|                  |  | $ | 15,085 | 
|                  |  |   |        | 

10.          Asset
Dispositions

We sold three hotels during the third quarter of
2002, two hotels in the fourth quarter of 2002, one in January
2003 and one in April 2003. In July 2003, we sold two hotels
that met our criteria for held-for-sale classification as of
June 30, 2003 (see Note 4). Operating results for the three
and six months ended June 30, 2002 for these nine hotels
have been reclassified to discontinued operations, and where
applicable included in discontinued operations in the current
periods results. Results of operations for the three and
six months ended June 30, 2003 included impairment charges
of $0.4 million and $2.1 million, respectively.

Revenue included in discontinued operations for
these hotels were (dollars in thousands):

|        |  |                    |       |                  |  |      |        |      |  |   |       |  |  |   |        | 
|------- |  | ------------------ | ----- | ---------------- |  | ---- | ------ | ---- |  | - | ----- |  |  | - | ------ | 
|        |  |                    |       |                 
|        |  | Three Months Ended |       | Six Months Ended
|        |  | June 30,           |       | June 30,        
|        |  |                    |       |                 
|        |  | 2003               |       | 2002             |  | 2003 |        | 2002
|        |  |                    |       |                  |  |      |        |     
|Revenue |  | $                  | 2,564 |                  |  | $    | 11,285 |      |  | $ | 6,808 |  |  | $ | 22,724 | 

11.          Consolidating
Financial Statements

Certain of our subsidiaries and MeriStar
Hospitality are guarantors of our senior unsecured notes.
Certain of our subsidiaries are guarantors of MeriStar
Hospitalitys unsecured subordinated notes. All guarantees
are full and unconditional, and joint and several.
Exhibit 99.1 to this Quarterly Report on Form 10-Q
presents our supplementary consolidating financial statements,
including each of our guarantor subsidiaries. This exhibit
presents our consolidating balance sheets as of June 30,
2003 and December 31, 2002, consolidating statements of
operations for the three and six months ended June 30, 2003 and
2002, and consolidating statements of cash flows for the six
months ended June 30, 2003 and 2002.

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