##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-Q

|                                                  |  |                                                                                             
|------------------------------------------------- |  | --------------------------------------------------------------------------------------------
|þ                                                 |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended March 31,
    2003
|OR                                               
|                                                 
|o                                                 |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
    from      to       
|Commission file number 1-11903                   

MeriStar Hospitality Corporation

(Exact name of registrant as specified in its
charter)


|                                                                                             |  |                                                   
|-------------------------------------------------------------------------------------------- |  | --------------------------------------------------
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Maryland(State or other jurisdiction of
    incorporation or organization)                   |  | 75-2648842(I.R.S. Employer
    Identification No.)
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|1010 Wisconsin Avenue, N.W.
    Washington, D.C.(Address of principal executive
    offices) |  | 20007(Zip Code)                                   

Registrants telephone number, including area code:
(202) 295-1000

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

|                                       |  |                                           
|-------------------------------------- |  | ------------------------------------------
|Title of each class                    |  | Name of each exchange on which registered:
|                                       |  |                                           
|Common Stock, par value $.01 per share |  | New York Stock Exchange                   

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

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

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

The number of shares of the registrants common stock
outstanding at April 30, 2003 was 46,067,896.



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TABLE OF CONTENTS



|                                                     |                                                                                              |  |  |  |  |  |  | 
|---------------------------------------------------- | -------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I.FINANCIAL INFORMATION                        
|                                                     | ITEM 1.FINANCIAL STATEMENTS                                                                 
|CONSOLIDATED BALANCE SHEETS                         
|CONSOLIDATED STATEMENTS OF OPERATIONS               
|CONSOLIDATED STATEMENTS OF CASH FLOWS               
|NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|                                                     | ITEM 2.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                     | ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                                                     | ITEM 4.CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION                          
|                                                     | ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                                          
|CERTIFICATIONS                                      
|CERTIFICATIONS                                      
|Exhibit 3.2.1                                       
|Exhibit 10.18                                       
|Exhibit 10.19                                       
|Exhibit 10.20                                       
|Exhibit 10.4.2                                      
|Exhibit 13                                          
|Exhibit 99.1                                        
|Exhibit 99.2                                        
|Exhibit 99.3                                        



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##### Table of Contents



INDEX

|                                      |  |                                                                                            |    |      |    | 
|------------------------------------- |  | ------------------------------------------------------------------------------------------ | -- | ---- | -- | 
|                                      |  |                                                                                            |    | Page
|                                      |  |                                                                                            |    |     
|                                     
|                                     
|                                     
|                                     
|PART I.     FINANCIAL
    INFORMATION
|Item 1.                               |  | Financial Statements                                                                       |    |      |    | 
|                                     
|                                     
|                                     
|                                     
|                                      |  | Consolidated Balance
    Sheets  March 31, 2003 and
    December 31, 2002                 |    |      | 2  | 
|                                     
|                                     
|                                     
|                                     
|                                      |  | Consolidated Statements of
    Operations  Three months ended March 31, 2003
    and 2002 |    |      | 3  | 
|                                     
|                                     
|                                     
|                                     
|                                      |  | Consolidated Statements of Cash
    Flows  Three months ended March 31, 2003 and 2002     |    |      | 4  | 
|                                     
|                                     
|                                     
|                                     
|                                      |  | Notes to Unaudited Consolidated Financial
    Statements                                   |    |      | 5  | 
|                                     
|                                     
|                                     
|                                     
|Item 2.                               |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations  |    |      | 12 | 
|                                     
|                                     
|                                     
|                                     
|Item 3.                               |  | Quantitative and Qualitative Disclosures About
    Market Risk                             |    |      | 23 | 
|                                     
|                                     
|                                     
|                                     
|Item 4.                               |  | Controls and Procedures                                                                    |    |      | 23 | 
|                                     
|                                     
|                                     
|                                     
|PART II.     OTHER
    INFORMATION   
|                                     
|                                     
|                                     
|                                     
|Item 6.                               |  | Exhibits and Reports on Form 8-K                                                           |    |      | 24 | 
|                                     
|                                     
|                                     
|                                     
|Signatures                            |  |                                                                                            | 25 |     
|                                     
|                                     
|                                     
|                                     
|Certifications                        |  |                                                                                            | 26 |     

i



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##### Table of Contents






PART
I.          FINANCIAL
INFORMATION






|        |                     
|------- | --------------------
|ITEM 1. | FINANCIAL STATEMENTS

MERISTAR HOSPITALITY CORPORATION




CONSOLIDATED BALANCE SHEETS


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


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

See accompanying notes to the unaudited consolidated financial
statements.

2



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##### Table of Contents



MERISTAR HOSPITALITY CORPORATION




CONSOLIDATED STATEMENTS OF OPERATIONS


UNAUDITED


(Dollars in thousands, except per share amounts)


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

See accompanying notes to the unaudited consolidated financial
statements.

3



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##### Table of Contents



MERISTAR HOSPITALITY CORPORATION




CONSOLIDATED STATEMENTS OF CASH FLOWS


UNAUDITED


(Dollars in thousands)


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

See
accompanying notes to the unaudited consolidated financial
statements.

4



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##### Table of Contents



MERISTAR HOSPITALITY CORPORATION




NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2003


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


1.          Organization

MeriStar Hospitality Corporation is a real estate investment
trust, or REIT. We own a portfolio of upscale, full-service
hotels and resorts in the United States and Canada. Our
portfolio is diversified geographically and by franchise and
brand affiliations. As of March 31, 2003, we owned 106
hotels with 27,432 rooms, all of which were leased by our
taxable subsidiaries and managed by Interstate Hotels &
Resorts, Inc. (Interstate Hotels).

Our taxable subsidiaries are parties to management agreements
with a subsidiary of Interstate Hotels to manage all of our
hotels. Under these management agreements, the taxable
subsidiaries pay a management fee to Interstate Hotels for each
property. The taxable subsidiaries in turn make rental payments
to us under the participating leases. Under the management
agreements, the base management fee is 2.5% of total hotel
revenue, plus incentive payments based on meeting performance
thresholds that could total up to 1.5% of total hotel revenue.
All of the agreements, except for two agreements with terms that
renew annually, have an initial term of 10 years with three
renewal periods of five years each at the option of Interstate
Hotels, subject to some exceptions.

2.          Summary
of Significant Accounting Policies

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

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

Principles of Consolidation.We adopted the Financial
Accounting Standards Board (FASB) Interpretation No. (FIN) 46,
Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, on
January 1, 2003. The interpretation addresses how to
identify variable interest entities and when to consolidate
those entities. Consolidation of variable interest entities is
required by the primary beneficiary. We do not have an interest
in any variable interest entities.

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



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

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

Impairment or Disposal of Long-Lived Assets.We adopted
the provisions of Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, on

5



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

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

Gains and Losses From Extinguishments of Debt.We adopted
the provisions of SFAS No. 145, Rescission of FASB
Statements No. 4, No. 44 and No. 64, Amendment of
SFAS No. 13, and Technical Corrections, on
January 1, 2003. The rescission of SFAS No. 4 and
No. 64 requires that all gains and losses from
extinguishments of debt be classified as extraordinary only if
the gains and losses are from unusual or infrequent
transactions. It also requires prior period gains or losses that
are not from unusual or infrequent transactions to be
reclassified as an operational expense. Adoption of the standard
did not have a material impact on our results of operations for
the three months ended March 31, 2003.

Stock-Based Compensation.We adopted the recognition
provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, as amended in December 2002 by
SFAS No. 148, on January 1, 2003 for new stock options
issued under our compensation programs. As permitted by SFAS
No. 148, we elected to apply the provisions prospectively,
which includes recognizing compensation expense for only those
stock options issued in 2003 and forward. Adoption of the
standard did not have a significant impact on our results of
operations or financial condition. We apply the provisions of
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, in
accounting for our stock options issued under our compensation
programs prior to January 1, 2003. As we granted these
compensation awards at market value, no compensation cost has
been recognized. For our other equity-based compensation plans,
we record the fair value of the cost at the time of issuance and
recognize compensation expense over the respective vesting
periods.

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

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

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

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

Accounting for Guarantees.We adopted FASB FIN 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, an interpretation of FASB Statements No. 5,
57, and 107 and rescission of FASB Interpretation No. 34,
on January 1, 2003. The interpretation requires
disclosures, which we have included in Footnote 9,
Commitments and Contingencies. The interpretation
also requires recognition of liabilities at their fair value for
newly issued guarantees. As we did not issue any new guarantees
during the three months ended March 31, 2003, the adoption
did not have a material impact on our results of operations or
financial condition.

3.          Comprehensive
Loss

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

4.          Investments
in Hotel Properties

Investments in hotel properties consisted of the following:

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

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

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

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

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

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

5.          Investments
in and Advances to Affiliates

In 1999, we invested $40,000 in MeriStar Investment Partners, LP
(MIP), a joint venture established to acquire
upscale, full-service hotels. Our investment is in the form of a
preferred partnership interest, in which we receive a 16%
preferred return on our investment. We account for this
investment using the cost method. As of March 31, 2003,
cumulative preferred returns of $12,840 were due from MIP. We
have included this receivable in accounts receivable on the
accompanying consolidated balance sheet. We evaluate the
collectibility of our preferred return based on the underlying
value of the hotel properties and our preference to
distributions. On March 27, 2003, MIP completed a
refinancing of its long-term debt, which allows the release of
excess cash flow to pay our preferred return currently. We
expect to begin receiving distributions representing payments of
our current return during the second quarter of 2003. In the
future, we expect that our cumulative unpaid preferred returns
will be paid from excess cash flow above our current return and
from potential disposition proceeds in excess of debt allocated
to individual assets. Given the current economic environment, we
do not expect the partnerships operations to provide
adequate cash flow in the near term for significant repayments
of our cumulative unpaid preferred returns.

6.          Long-Term
Debt

Long-term debt consisted of the following:

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

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

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

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

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Senior unsecured notes.The notes are unsecured
obligations of certain subsidiaries of ours, and we guarantee
payment of principal and interest on the notes. These notes
contain various restrictive incurrence covenants, limiting our
ability to transact certain business activities, including
additional borrowings, if specific financial thresholds are not
achieved. One of those thresholds is maintaining a
2 to 1 fixed charge coverage ratio (as defined in the
indentures, fixed charges only include interest on debt
obligations and preferred equity). As of March 31, 2003,
our fixed charge coverage ratio was 1.5 to 1, and
therefore we were not able to enter into certain transactions.
These limitations include the repurchase of our stock, the
issuance of any preferred stock, the payment of dividends
(unless required to maintain our status as a REIT), the
incurrence of any additional debt, or the repayment of
outstanding debt before it comes due.

There are certain exceptions, or carve-out, features
with respect to the incurrence of additional debt and early
repayment of debt features in the indentures. We currently have
the ability to incur $300,000 of secured non-recourse financing
within restricted subsidiaries. Proceeds within the restricted
subsidiaries could not be used to retire the Convertible Notes
prior to their maturity but could be used to repay them at
maturity. Additionally, we are permitted to invest five percent
of consolidated net tangible assets in an unrestricted
subsidiary. We would then be able to leverage the properties
contributed to the unrestricted subsidiary and could use any
proceeds from new financings to retire the Convertible Notes
prior to their maturity. We also have a general carve-out to
incur $50,000 of any type of additional debt within a restricted
subsidiary.

Credit facility. On October 29, 2002, we entered
into a new three-year $100,000 senior revolving credit facility,
secured by the equity interest in most of our subsidiaries. The
initial interest rate is LIBOR plus 388 basis points. We
terminated our previous credit facility with this new revolving
credit facility and wrote off $1,615 of deferred financing costs
related to this termination. As of March 31, 2003, there
were no outstanding borrowings on the new facility.

This facility contains customary compliance measures we must
meet in order to borrow on the facility, which became more
stringent on a quarterly basis beginning in the first quarter of
2003. The sale of two hotels during the fourth quarter of 2002
and one in January 2003, as well as the settlement of our note
receivable with Interstate Hotels, impacted our leverage
covenant due to the loss of trailing 12-month EBITDA (as defined
in the credit agreement) on a pro forma basis. We have obtained
a waiver of compliance with this leverage covenant from our
lending group through May 20, 2003. We currently intend to
request an extension of the waiver for a 90-day period. Because
we do not anticipate needing to draw under the bank line or
having borrowing capacity to do so in the near term, we expect
to significantly reduce or terminate the facility. We have
approximately $1,400 of unamortized capitalized financing costs
related to this facility as of March 31, 2003. These costs,
or a significant portion thereof, would be written off if we
decide to terminate or significantly reduce the facility.

Secured facility.We completed a $330,000 10-year
non-recourse financing secured by a portfolio of 19 hotels in
1999. The loan bears a fixed interest rate of 8.01% and matures
in 2009. The secured facility contains standard provisions that
require the servicer to maintain in escrow cash balances for
certain items such as property taxes and funding of capital
expenditures. In addition, the facility contains a provision
that requires our mortgage servicer to retain in escrow the
excess cash from the encumbered hotels after payment of debt
service (Excess Cash), if net hotel operating income
after payment of FF&E reserves and franchise fees
(NOI) for the trailing twelve months declines below
$57,000. This provision was triggered in October 2002 and will
be effective until the hotels generate the minimum cash flow
required for two consecutive quarters, at which time the cash
being held in escrow will be released to us. Approximately
$8,800 of cash was held in escrow under this provision as of
March 31, 2003. Additional amounts continue to be held in
escrow. The security agreement permits us to substitute
unleveraged properties into the portfolio in place of existing
properties in order to increase the NOI to a level at which the
portfolio will meet this requirement. We have begun discussions
with the servicer regarding this substitution. We are also in
the process of negotiating the release of up to $5,000 of cash
held in escrow for funding of capital expenditures on the 19
encumbered properties.

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

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

7.          Stockholders
Equity and Minority Interests

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

OP Units. Substantially all of our assets are held
indirectly by and operated through MeriStar Hospitality
Operating Partnership, L.P., our subsidiary operating
partnership (Commission file number 333-63768). Our operating
partnerships partnership agreement provides for five
classes of partnership interests: Common OP Units, Class B
OP Units, Class C OP Units, Class D OP Units and
Profits-Only OP Units (POPs).

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

8.          Earnings
Per Share

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

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

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

9.          Commitments
and Contingencies

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

10



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Minimum Lease Payments.We lease the land at certain of
our hotels under long-term arrangements from third parties.
Certain leases contain contingent rent features based on gross
revenues at the respective property. Future minimum lease
payments required under these operating leases as of
March 31, 2003 were as follows:

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

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

We lease certain office, retail and parking space to outside
parties under non-cancelable operating leases with initial or
remaining terms in excess of one year. Future minimum rental
receipts under these leases as of March 31, 2003 were as
follows:

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

10.          Dispositions

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

11.          Consolidating
Financial Statements

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

11



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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Managements Discussion and Analysis of Financial Condition
and Results of Operations may contain forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of
1934, and as such may involve known and unknown risks,
uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different
from future results, performance or achievements expressed or
implied by such forward-looking statements. Forward-looking
statements, which are based on certain assumptions and describe
our future plans, strategies and expectations, are generally
identified by our use of words such as intend,
plan, may, should,
will, project, estimate,
anticipate, believe, expect,
continue, potential,
opportunity, and similar expressions, whether in the
negative or affirmative. All statements regarding our expected
financial position, business and financing plans are
forward-looking statements.

Factors which could have a material adverse effect on our
operations and future prospects include, but are not limited to:



| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the current slowdown of the national economy;                                                                                                                                                  
|
| |  | economic conditions generally and the real estate market
    specifically;                                                                                                                     
|
| |  | the impact of the September 11, 2001 terrorist attacks or
    actual or threatened future terrorist incidents;                                                                                 
|
| |  | governmental actions;                                                                                                                                                                          
|
| |  | legislative/ regulatory changes, including changes to laws
    governing the taxation of real estate investment trusts;                                                                        
|
| |  | level of proceeds from asset sales;                                                                                                                                                            
|
| |  | cash available for capital expenditures;                                                                                                                                                       
|
| |  | availability of capital;                                                                                                                                                                       
|
| |  | ability to refinance debt;                                                                                                                                                                     
|
| |  | rising interest rates;                                                                                                                                                                         
|
| |  | rising insurance premiums;                                                                                                                                                                     
|
| |  | competition;                                                                                                                                                                                   
|
| |  | supply and demand for hotel rooms in our current and proposed
    market areas, including the existing and continuing weakness in
    business travel and lower-than-expected daily room rates;
|
| |  | other factors that may influence the travel industry, including
    health, safety and economic factors; and                                                                                   
|
| |  | generally accepted accounting principles, policies and
    guidelines applicable to real estate investment trusts.                                                                             

These risks and uncertainties should be considered in evaluating
any forward-looking statements contained in this report or
incorporated by reference herein. All forward-looking statements
speak only as of the date of this report or, in the case of any
document incorporated by reference, the date of that document.
All subsequent written and oral forward-looking statements
attributable to us or any person acting on our behalf are
qualified by the cautionary statements in this section. We
undertake no obligation to update or publicly release any
revisions to forward-looking statements to reflect events,
circumstances or changes in expectations after the date of this
report.

12



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##### Table of Contents



BUSINESS SUMMARY

We are a real estate investment trust, or REIT, and own a
portfolio of upscale, full-service hotels and resorts in the
United States and Canada. Our portfolio is diversified by
franchise and brand affiliations. As of March 31, 2003, we
owned 106 hotels, with 27,432 rooms, all of which were leased by
our taxable subsidiaries and managed by Interstate Hotels &
Resorts (Interstate Hotels). In addition, we are
party to an intercompany agreement with Interstate Hotels that
governs a number of aspects of our relationship.

The following discussion should be read in conjunction with our
2002 Annual Report on Form 10-K filed with the Securities
and Exchange Commission and with the unaudited consolidated
financial statements included herein.

RESULTS OVERVIEW

Revenues declined to $243.2 million for the three months
ended March 31, 2003 compared to $248.8 million for
the same period in 2002. Our results reflect the effects of the
conflict in Iraq, an elevated terrorist alert level and the
continued sluggish economy, all of which have caused declines in
business transient travel demand nationwide. We continue to
focus on increasing group sales at our hotels to offset the
decline in business travel.

Hotel operating expenses increased to $96.4 million for the
three months ended March 31, 2003 from $92.4 million
for the same period in 2002. The comparison between the two
periods is difficult, as the 2002 first quarter results reflect
significant cost reductions instituted in the aftermath of the
September 11, 2001 terrorist attacks. These severe
cost-reduction measures were scaled back later in 2002 in an
effort to improve guest satisfaction. As the war in Iraq
commenced in 2003, we also adjusted our expense levels as
appropriate in certain markets. We are continuing to work with
Interstate Hotels to identify revenue enhancement opportunities
as well as additional cost reduction and control measures at our
hotels. Other operating expenses increased to
$185.5 million for the three months ended March 31,
2003 from $133.6 million for the same period in 2002
primarily resulting from an asset impairment charge of
$56.7 million in the first quarter of 2003, which is more
fully described in the Results of Operations section
below.

Our revenues have been derived from the operations of our
hospitality properties, including room, food and beverage
revenues, as well as from our leases of office, retail and
parking rentals. Operating costs include direct costs to run our
hotels, management fees to Interstate Hotels to manage our
properties, depreciation of our properties, as well as sales,
marketing and general and administrative costs. Our expenses
also include interest on our debt and minority interest
allocations, which represent the allocation of income to outside
investors for properties that are not wholly owned. Our expenses
included depreciation of our properties, and related property
tax expense, general and administrative costs, as well as
interest on our debt and minority interest allocations.

RESULTS OF OPERATIONS

The provisions of Statement of Financial Accounting Standards
(SFAS) No. 144 require that 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, including any gain or loss recognized on the sale, be
recorded as discontinued operations. Accordingly, we have
reclassified 2002 results of operations to conform to the
requirements of SFAS No. 144. See Footnote 10
Dispositions, included in Item 1 of this
Quarterly Report on Form 10-Q for further information
regarding the amounts reclassified.

Three months ended March 31, 2003 compared with the
three months ended March 31, 2002

The following table provides our hotels operating
statistics on a comparable hotel basis for the three months
ended March 31 (comparable hotels are those that were owned
for substantially all of both periods):

|                                    |  |      |        |      |  |        |        |  |  |  |        | 
|----------------------------------- |  | ---- | ------ | ---- |  | ------ | ------ |  |  |  | ------ | 
|                                    |  | 2003 |        | 2002 |  | Change
|                                    |  |      |        |      |  |       
|Average daily rate                  |  | $    | 102.14 |      |  | $      | 105.87 |  |  |  | (3.5)% | 
|Occupancy                           |  |      | 63.1%  |      |  |        | 63.3%  |  |  |  | (0.3)% | 
|Revenue per available room (RevPAR) |  | $    | 64.48  |      |  | $      | 67.05  |  |  |  | (3.8)% | 

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The conflict in Iraq, an elevated terrorist alert level and the
sluggish economy, have had a negative effect on our hotel
operations, evidenced by a reduction in transient business
travel. This is reflected in the 3.5% reduction in average daily
rate and a 0.3% reduction in occupancy for the three months
ended March 31, 2003 compared to the same period in 2002.
We have shifted our marketing efforts towards lower-rated group
and contract business in most markets in order to maintain
occupancy at our properties. Due to the short booking window for
most business, including our group and contract customers, we
anticipate being able to shift our customer mix toward more
business transient customers when the economy and corporate
profits strengthen, bringing renewed strength to this vital
customer segment.

Revenues.Total revenue from continuing operations
decreased $5.6 million to $243.2 million for the three
months ended March 31, 2003 from $248.8 million for
the same period in 2002, primarily due to a $6.5 million
decrease in room revenue directly attributable to a decrease in
average daily rate and occupancy. Revenue from other sources
decreased $1.1 million primarily due to a reduction in
telephone services stemming from usage of other communication
devices in lieu of hotel telephones. The overall decrease was
partially offset by a $1.8 million increase in food and
beverage revenue, resulting primarily from an increase in
banquet revenue.

Operating expenses.Total operating expenses increased a
net $56 million to $281.9 million for the quarter
ended March 31, 2003 compared to $225.9 million for
the same period in 2002. Hotel operating expenses increased from
$92.4 million for the three months ended March 31,
2002 to $96.4 million for the same period in 2003 due
primarily to increases in room expenses of $1.1 million and
food and beverage costs of $2.5 million. Operating expenses
in 2002 reflected severe cost cuts instituted in the aftermath
of the September 11, 2001 terrorist attacks.

Other operating expenses.Other operating expenses
increased $51.9 million to $185.5 million for the
three months ended March 31, 2003 from $133.6 million
for the same period in 2002, primarily resulting from an
impairment charge of $56.7 million in the first quarter of
2003. Excluding this charge and the significant charges in 2002
described in greater detail below, other operating expenses
increased $1.5 million for the quarter ended March 31,
2003. This increase stems mainly from an increase in our
property operating costs, which consist of repairs and
maintenance, energy, franchise and management costs. Our
property operating costs increased $1.4 million during the
quarter, primarily due to a $1.1 million increase in energy
costs due to the civil disruptions in Venezuela and the war in
Iraq, as well as an unusually cold winter in the northeastern
United States in 2003. Due to the conclusion of the war in Iraq,
we expect our energy costs to return to more normal levels in
the coming months.

Significant charges.Late in the first quarter of 2003,
we expanded our asset sales program to include a total of 16
non-core assets. This was based on our decision to raise
additional cash to reduce our overall leverage and provide
additional capital for reinvestment in our core holdings. We
recognized an impairment loss of $56.7 million related to
these additional hotels for the three months ended
March 31, 2003.

We also incurred several significant charges for the three
months ended March 31, 2002, as follows:



| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $4.7 million loss on fair value of non-hedging
    derivatives due to the repayment of debt that was originally
    hedged; and                 
|
| |  | a $1.5 million write-off of deferred costs due to the
    reduction in our borrowing capacity on our revolving credit
    agreement in March 2002.

Discontinued operations.During 2002, we sold five hotels
in separate transactions and received $60.7 million in
cash. In mid-January 2003, we completed the sale of one hotel
and received $12.7 million in cash. This hotel was
classified as held for sale at December 31, 2002. We
classified $0.8 million, net of tax, of income from the six
hotels operations as discontinued for the three months
ended March 31, 2002. Results of operations for the three
months ended March 31, 2003 for the one hotel sold in
January were insignificant and were therefore included in
continuing operations.

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##### Table of Contents



FUNDS FROM OPERATIONS AND EBITDA

The National Association of Real Estate Investment Trusts, or
NAREIT, created Funds from Operations, or FFO, as an alternative
earnings measure and defines it as net income (computed in
accordance with accounting principles generally accepted in the
United States, or GAAP), excluding gains (or losses) from sales
or real estate and real estate-related depreciation and
amortization, and after comparable adjustments for our portion
of these items related to unconsolidated partnerships and joint
ventures. Extraordinary items as defined by GAAP are excluded
from the calculation of FFO. We believe FFO is an indicative
measure of our operating performance due to the significance of
our hotel real estate assets and can be used to measure our
ability to service debt, fund capital expenditures, and expand
our business. We also use FFO in our annual budget process. In
addition, some of the restrictive covenants in our debt
instruments are based on FFO.

Substantially all of our assets consist of real estate, and in
accordance with GAAP, those assets are subject to straight-line
depreciation, which reflects the assumption that the value of
real estate assets, other than land, will decline over time.
That assumption is often not true with respect to the actual
market value and other conditions. As a result, we and many
industry investors believe that presentation of GAAP operating
measures for real estate companies to be more informative and
useful when other measures, adjusted for depreciation and
amortization, are also presented. In an effort to address these
concerns, NAREIT adopted a definition of FFO, as described
above, which we adopted.

EBITDA represents consolidated earnings before interest expense,
income taxes, depreciation and amortization and includes
operations from the assets included in discontinued operations.
We believe EBITDA provides useful information to investors for
evaluating our operating performance and the capacity of our
operations to incur and service debt, fund capital expenditures,
and expand our business. Also, we use EBITDA to provide a
measure of unleveraged cash flow that can be isolated on an
asset by asset basis, to determine overall property performance
and to measure our ability to service debt. We believe that the
rating agencies and a number of our lenders also use EBITDA for
those purposes. Restrictive covenants in our senior and
subordinated note indentures contain financial ratios based on
EBITDA. We also use EBITDA as one measure in determining the
value of acquisitions and dispositions and, like FFO, it is also
widely used in our annual budget process.

FFO and EBITDA should not be considered as alternatives to any
other operating or liquidity performance measure prescribed by
GAAP. Although FFO and EBITDA are considered standard benchmarks
utilized by the investment community, our FFO and EBITDA may not
be comparable to similarly titled measures reported by other
companies.

FFO

We use FFO as a measure of our performance. We define FFO as
NAREITs definition as described above. The following
reconciles our GAAP net loss to FFO on a diluted basis for the
three months ended March 31 (in thousands):

|                       |                                             |      |        |         |   |   |        |        |  
|---------------------- | ------------------------------------------- | ---- | ------ | ------- | - | - | ------ | ------ | -
|                       |                                             | 2003 |        | 2002   
|                       |                                             |      |        |        
|                       | Net loss                                    |      | $      | (69,746 | ) |   | $      | (9,943 | )
|                       | Loss on asset impairments                   |      |        | 56,677  |   |   |        |       |  
|                       | Hotel depreciation and amortization         |      |        | 27,613  |   |   |        | 28,651 |  
|                       | Minority interest to common OP unit holders |      |        | (3,818  | ) |   |        | (768   | )
|                       |                                             |      |        |         |   |   |        |       
|FFO                    |                                             |      | 10,726 |         |   |   | 17,940 |       
|                       | Interest on convertible debt                |      |        |        |   |   |        | 1,832  |  
|                       |                                             |      |        |         |   |   |        |       
|FFO on a diluted basis |                                             | $    | 10,726 |         |   | $ | 19,772 |       
|                       |                                             |      |        |         |   |   |        |       

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##### Table of Contents



EBITDA

EBITDA for the three months ended March 31 was as follows
(in thousands):

|                                                   |  |      |         |      |  |   |        |    
|-------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------ | ---
|                                                   |  | 2003 |         | 2002
|                                                   |  |      |         |     
|Operating (loss) income from continuing operations |  | $    | (38,743 | )    |  | $ | 22,906 | (a)
|Loss on asset impairments                          |  |      | 56,677  |      |  |   |       |    
|Depreciation and amortization                      |  |      | 28,994  |      |  |   | 29,853 |    
|                                                   |  |      |         |      |  |   |        |    
|EBITDA from continuing operations                  |  | $    | 46,928  |      |  | $ | 52,759 | (a)
|                                                   |  |      |         |      |  |   |        |    
|Income from discontinued operations                |  | $    |        |      |  | $ | 841    |    
|Income tax expense                                 |  |      |        |      |  |   | 24     |    
|Interest expense, net                              |  |      |        |      |  |   | (34    | )  
|Depreciation and amortization                      |  |      |        |      |  |   | 1,048  |    
|                                                   |  |      |         |      |  |   |        |    
|EBITDA from discontinued operations                |  | $    |        |      |  | $ | 1,879  |    
|                                                   |  |      |         |      |  |   |        |    
|EBITDA, total operations                           |  | $    | 46,928  |      |  | $ | 54,638 | (a)
|                                                   |  |      |         |      |  |   |        |    



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Operating income from continuing operations,
    EBITDA from continuing operations and EBITDA, total operations,
    include the effects of a $4,735 non-cash loss due to our swap
    agreements being converted to non-hedging derivatives in January
    2002 and a $1,529 non-cash write-off of deferred financing costs
    due to reduction in our borrowing capacity on our revolving
    credit agreement in March 2002.

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

Our principal sources of liquidity are cash generated from
operations, funds from borrowings, funds from the sales of
non-core assets and existing cash on hand. Our principal uses of
cash include the funding of working capital obligations, debt
service, and investments in hotels (primarily capital projects
currently), and may include in the future the repurchase of our
debt in the open market.

Factors that may influence our liquidity include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Factors that affect our results of operations, including general
    economic conditions, demand for business and leisure travel,
    public concerns about travel safety related primarily to
    terrorism and the developments in the conflict in Iraq and
    related concerns, and other operating risks described under the
    caption, Risk Factors  Operating Risks in
    Item 1 of our Annual Report on Form 10-K for the year
    ended December 31, 2002;
|
| |  | Factors that affect our access to bank financing and the capital
    markets, including operational risks, high leverage, interest
    rate fluctuations, and other risks described under the caption
    Risk Factors  Financing Risks in
    Item 1 of our Annual Report on Form 10-K for the year
    ended December 31, 2002; and                                                                                                                                 
|
| |  | Other factors described previously under the caption,
    Cautionary Statement Regarding Forward-Looking
    Statements.                                                                                                                                                                                                                                                                                                                                               

We believe we have sufficient free cash flow currently, and we
expect to have adequate cash flow during the next twelve months
in order to fund our operations, capital commitments and debt
service obligations. Our current and future liquidity is,
however, greatly dependent upon our operating results, which are
driven largely by overall economic conditions, and since
September 11, 2001 have been heavily impacted by
geopolitical concerns and other factors impacting business and
leisure travel. If general economic conditions are significantly
worse than we expect for an extended period, this will likely
have a negative effect on our projections of available cash flow
and liquidity. We continue to take steps to strengthen our
balance sheet and to maintain financial flexibility and
liquidity. We sold one non-core asset in the first quarter of
2003 for approximately $12.7 million. We ended the first
quarter of 2003 with a cash balance of approximately
$87.5 million, of which $65.5 million was
unrestricted. We intend to carry balances of similar amounts, or
slightly higher, on our balance sheet for the foreseeable
future, as we believe this cash reserve should be adequate to
protect us from a potential downturn in our business. In April
2003, we sold another non-core hotel asset for approximately
$3.1 million.

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##### Table of Contents



We have been actively marketing 15 non-core hotels for sale,
from which we expect to generate proceeds of approximately
$95 million to $105 million. Subsequent to
March 31, 2003, we identified an additional 19 non-core
assets that we plan to dispose of. We anticipate estimated
proceeds of $180 million to $200 million. Our ability
to realize these estimated proceeds is, however, dependent upon
finding qualified buyers willing to pay a purchase price that we
consider reasonable. Subject to the limits and restrictions
imposed on us by our borrowing arrangements, we are currently
able to utilize any proceeds from the sale of assets to invest
in capital expenditures and repay our senior unsecured notes.

To reduce the overall amount and cost of our debt, we will
consider opportunities to repurchase some of our current
outstanding debt. Any such transactions, however, are subject to
the limits and restrictions imposed by our borrowing
arrangements. See Long-Term Debt section below for a
discussion of such restrictions.

Sources and Uses of Cash

We used a total of $10.2 million of cash from operations
during the first quarter of 2003 compared with $9.1 million
generated in the first quarter of 2002. Our operating results
and the amount of cash generated by our hotel operations have
been negatively impacted by the events of September 11,
2001, the continuing sluggish economy, the threat of further
terrorist attacks, and other factors affecting business and
leisure travel. Cash flow from operations also decreased in 2003
due to the timing of interest payments and higher interest rates
on our senior unsecured notes issued in February 2002. Our first
semi-annual interest payment on these notes was made in July
2002. We made an interest payment of approximately
$9 million on these notes in January 2003. Partially
offsetting this increase in interest was savings of
approximately $2.5 million in interest on our previous
revolving credit facility, which was repaid with the net
proceeds from the February 2002 senior unsecured notes issuance.

Included in our operating results is the 16% preferred return on
our preferred investment in MIP. As of March 31, 2003,
approximately $12.8 million of cumulative preferred returns
remained unpaid. We evaluate the collectibility of our preferred
return based on the underlying value of the hotel properties and
our preference to distributions. On March 27, 2003, MIP
completed a refinancing of its long-term debt, which allows the
release of excess cash flow to pay our preferred return
currently. We expect to begin receiving distributions
representing payments of our current return during the second
quarter of 2003. In the future, we expect that our cumulative
unpaid preferred returns will be paid from excess cash flow
above our current return and from potential disposition proceeds
in excess of debt allocated to individual assets. Given the
current economic environment, we do not expect the
partnerships operations to provide adequate cash flow in
the near term for significant repayments of our cumulative
unpaid preferred returns.

Our investing activities provided a net $44.1 million of
cash during the first quarter of 2003, resulting primarily from:



| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | $42.1 million from Interstate Hotels for the repayment of
    their note receivable; and        
|
| |  | $12.7 million of proceeds from the sale of one hotel;
    partially offset by                   
|
| |  | $8.6 million of hotel capital expenditures (including
    $0.8 million of capitalized interest).

We used $2 million of cash in financing activities during
the first quarter of 2003 due mainly to the repayment of our
long-term debt obligations.

We must distribute to stockholders at least 90% of our REIT
taxable income, excluding net capital gains, to preserve the
favorable tax treatment accorded to REITs under the Internal
Revenue Code. The payment of dividends is restricted under our
senior unsecured notes if our fixed charge coverage ratio falls
below 2 to 1, except that the indenture permits us to pay
dividends necessary to maintain our status as a REIT. Under
certain circumstances, we may be required to make distributions
in excess of available cash in order to meet the Internal
Revenue Code requirements. In that event, we would seek to
borrow additional funds or sell additional non-core assets, or
both, to the extent necessary to obtain cash sufficient to make
the dividends required to retain our qualification as a REIT.
Any future distributions will be at the discretion of our board
of directors and will be based on factors including, but not
limited to, our operating results, restrictions imposed by our
borrowing agreements, capital expenditure requirements, the
economic outlook, and the Internal Revenue Service dividend
payout requirements for REITs. The timing and amount of any
future distributions is dependent upon these

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Long-Term Debt

Convertible notes.As of March 31, 2003, we had
outstanding $154.3 million aggregate principal amount of
4.75% convertible subordinated notes due in 2004. We are
currently actively exploring a variety of sources to repay these
securities. Under the indentures related to our
$950 million of senior unsecured notes and our
$205 million of senior subordinated unsecured notes,
prepayment of our convertible subordinated notes prior to
maturity is prohibited as long as our fixed charge coverage
ratio, as defined, is less than 2 to 1. At March 31, 2003,
such ratio was 1.5 to 1 and, therefore, under these
circumstances, we can only repay these securities at maturity
(our indentures permit such repayment at maturity). We do not
currently expect this ratio to improve to a level that would
permit repayment of the convertible notes prior to their
maturity. Among the sources of repayment of these securities
which are currently under active consideration, all of which are
permitted under our indentures, are:



| |   |                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our available cash flow;                                                                                                                                                                                                                                                                   
|
| |  | The proceeds of borrowings on a non-recourse basis (limited to
    $300 million), with such borrowings secured by certain of
    our hotel properties;                                                                                                                                     
|
| |  | Borrowing under our $50 million general debt
    basket under our indentures;                                                                                                                                                                                                            
|
| |  | CMBS or other secured borrowings through a special purpose,
    unrestricted subsidiary; our indentures permit us to
    fund such a subsidiary with assets equal to up to 5% of our
    Consolidated Net Tangible Assets, as defined (approximately
    $135 million at March 31, 2003);
|
| |  | The proceeds of a pari passu refinancing of our
    convertible subordinated notes; or                                                                                                                                                                                                     
|
| |  | A combination of the above.                                                                                                                                                                                                                                                                

We are currently reviewing these alternatives and believe that a
combination of secured borrowings under the permitted
baskets for this type of financing is the
alternative that we will most likely employ. Our ability to
issue secured debt is enhanced by the fact that our hotel
portfolio contains 82 unencumbered properties out of our total
current portfolio of 105 hotels, and only 13 of these assets are
subject to ground leases. Our ability to incur secured debt is
generally limited by tests in our senior note indentures
requiring us to maintain certain levels of unencumbered assets.
However, we do not believe that these requirements will prevent
us from accessing any of the above sources of secured financing
at the convertible notes maturity in October 2004. While
we generally may not repay the convertible notes prior to
maturity, we may raise our secured financing prior to that date
to take advantage of the favorable rates and borrowing capacity
that currently exists in the market even though such action will
likely result in higher net interest expense for the period
prior to repayment of the convertible notes.

Credit facility.On October 29, 2002, we entered
into a new three-year $100 million senior revolving credit
facility, secured by our equity interests in most of our
subsidiaries. The initial interest rate is LIBOR plus 388 basis
points. As of March 31, 2003, there were no outstanding
borrowings on this facility.

This facility contains customary compliance measures we must
meet in order to borrow on the facility, which became more
stringent on a quarterly basis beginning in the first quarter of
2003. The sale of two hotels during the fourth quarter of 2002
and one in January 2003, as well as the settlement of our note
receivable with Interstate Hotels, impacted our leverage
covenant due to the loss of trailing 12-month EBITDA (as defined
in the credit agreement) on a pro forma basis. While we cannot
currently borrow under the facility, we have obtained a waiver
of compliance with this leverage covenant from our lending group
through May 20, 2003. We currently intend to request an
extension of the waiver for a 90-day period. Because we do not
anticipate needing to draw under the bank line or having
borrowing capacity to do so in the near term, we expect to
significantly reduce or terminate the facility. We have
approximately $1.4 million of unamortized capitalized
financing costs related to this facility as of March 31,
2003. These costs, or a significant portion thereof, would be
written off if we decide to terminate or significantly reduce
the facility.

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##### Table of Contents



Senior unsecured notes. In February 2002, we issued an
additional $200 million ($196.2 million, net of
discount and related fees) aggregate principal amount of 9.13%
senior unsecured notes due 2011. We used the proceeds from the
issuance of these notes to repay approximately $195 million
of the outstanding balance under our previous credit facility.

As of March 31, 2003, we had $950 million of aggregate
principal of these notes outstanding. These notes contain
various restrictive incurrence covenants, limiting our ability
to transact certain business activities, including additional
borrowings, if specific financial thresholds are not achieved.
One of those thresholds is maintaining a 2 to 1 fixed charge
coverage ratio (as defined in the indentures, fixed charges only
include interest on debt obligations and preferred equity). As
of March 31, 2003, our fixed charge coverage ratio was 1.5
to 1, and therefore we were not able to enter into certain
transactions. These limitations include the repurchase of our
stock, the issuance of any preferred stock, the payment of
dividends (unless required to maintain our status as a REIT),
the incurrence of any additional debt, or the repayment of
outstanding debt before it comes due.

There are certain exceptions, or carve-out, features
with respect to the incurrence of additional debt and early
repayment of debt features in the indentures. We currently have
the ability to incur $300 million of secured non-recourse
financing within restricted subsidiaries. Proceeds within the
restricted subsidiaries could not be used to retire the
Convertible Notes prior to their maturity but could be used to
repay them at maturity. Additionally, we are permitted to invest
five percent of consolidated net tangible assets in an
unrestricted subsidiary. We would then be able to leverage the
properties contributed to the unrestricted subsidiary and could
use any proceeds from new financings to retire the Convertible
Notes prior to their maturity. We also have a general carve-out
to incur $50 million of any type of additional debt within
a restricted subsidiary.

Senior subordinated notes.We completed in 1997 the
offering of $150 million aggregate principal amount of
8.75% senior subordinated notes due 2007. The related indenture
contains various restrictive covenants, which are similar to
those in our senior unsecured notes. In 1999, we issued
$55 million aggregate principal amount of 8.75% senior
subordinated notes due 2007 under an indenture substantially
similar to that governing the 1997 notes. These notes are
unsecured obligations and provide for semi-annual payments of
interest each February 15 and August 15.

Secured facility.We completed a $330 million,
10-year non-recourse financing during 1999. The facility is
secured by a portfolio of 19 hotels and contains standard
provisions that require the servicer to maintain in escrow cash
balances for certain items such as property taxes and funding of
capital expenditures. In addition, the facility contains a
provision that requires our mortgage servicer to retain in
escrow the excess cash from the encumbered hotels after payment
of debt service (Excess Cash), if net hotel
operating income after payment of FF&E reserves and
franchise fees (NOI) for the trailing twelve months
declines below $57 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 $8.8 million of cash was held in escrow under
this provision as of March 31, 2003. Additional amounts
continue to be held in escrow. The security agreement permits us
to substitute unleveraged properties into the portfolio in place
of existing properties in order to increase the NOI to a level
at which the portfolio will meet this requirement. We have begun
discussions with the servicer regarding this substitution. We
are also in the process of negotiating the release of up to
$5 million of cash held in escrow for funding of capital
expenditures on the 19 encumbered properties.

Use of Asset Sales Proceeds

As discussed elsewhere, one of our key short-term strategies is
to sell selected non-core assets, many of which were acquired as
part of a portfolio. These non-core assets generally
possess one or more of the following characteristics:



| |   |                                                         
| | - | --------------------------------------------------------
| |  | limited future growth potential;                        
|
| |  | secondary market location;                              
|
| |  | secondary brand affiliation;                            
|
| |  | higher than average capital expenditure requirements; or

19



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| |   |                                              
| | - | ---------------------------------------------
| |  | our portfolio is over-weighted in the market.

We believe that these asset sale transactions will have the
following benefits:



| |   |                                                                                       
| | - | --------------------------------------------------------------------------------------
| |  | improve the overall quality of the hotel assets remaining in our
    portfolio;       
|
| |  | enhance the ability of our portfolio to perform well in all
    cycles of the economy;
|
| |  | enhance future growth prospects when strength returns to the
    economy;             
|
| |  | reduce future capital requirements on a relative basis; and                           
|
| |  | reduce our leverage and requirements on our liquidity resources.                      

Our plan is to monitor our operations and developments in the
economic and geopolitical environment. To the extent we complete
additional asset dispositions, and we believe that our liquidity
levels are appropriate, we will consider applying proceeds from
those dispositions to repurchase debt and reinvest in our core
assets.

Asset Dispositions

We continued to actively market non-core assets as part of our
program to sell assets that do not fit our long-term strategy.
Initially, we intend to retain the proceeds from any asset sales
for additional liquidity. To the extent we complete additional
asset dispositions, and we believe that our liquidity levels are
appropriate, we will consider applying proceeds from asset sales
to repurchase debt and reinvest in our core assets. We sold one
hotel in January 2003 for $12.7 million. Late in the first
quarter of 2003, we expanded our asset disposition program to
include a total of 16 non-core assets. This was based on our
decision to raise additional cash to reduce our overall leverage
and provide additional capital for reinvestment in our core
holdings. Based on our expected proceeds of approximately
$95 million to $105 million, we recorded an impairment
charge in the first quarter of 2003 of $56.7 million. In
April 2003, we sold one of these hotels for $3.1 million.
Also, subsequent to quarter end, we made the determination to
dispose of an additional 19 non-core assets that we anticipate
will generate expected proceeds of $180 million to
$200 million. Our ability to realize these estimated
proceeds is, however, dependent upon finding qualified buyers
willing to pay a purchase price that we consider reasonable. The
34 properties we are disposing of represent approximately
one-third of our total properties, but only ten percent of our
total EBITDA.

We expect to incur an impairment charge of $155 million to
$175 million (excluding contract termination costs) in the
second quarter of 2003. These impairment charges are based on
our estimates of the fair value of the properties we plan to
dispose of. These estimates require us to make assumptions about
the sales prices that we expect to realize for each property as
well as the timing of a potential sale. In making these
estimates, we consider the operating results of the assets, the
market for comparable properties, and quotes from brokers, among
other information. Actual results could differ materially from
these estimates.

As we dispose of these assets, we may incur termination
obligations due to Interstate Hotels of up to a maximum of
$19 million, calculated assuming sale of the properties in
2003 and assuming buyers of our hotel properties elect to have
the properties managed by third-parties other than Interstate
Hotels. Any such obligation would affect the calculation of the
final gain or loss on the sale of a particular asset, since in
accordance with current accounting guidance, the obligation is
not recognized until such time as the asset disposition is
complete and a termination notice is provided to Interstate
Hotels. At that time, the recognition of any termination
obligation will be included in discontinued operations. Payment
of any obligation due under termination provisions of the
contract is payable over a period of 30 months.

In addition, we are frequently approached by potential buyers
interested in other assets that we might consider selling and
have recently engaged in discussions with some of those
potential buyers of hotel assets, both on an individual and a
portfolio basis. Any such portfolio may include both core and
non-core assets, if the disposition arrangement would be
beneficial to shareholder value. However, there can be no
assurance that any such transactions will be initiated or
concluded. Any additional sales of assets under these scenarios
may result in additional impairment charges in future periods,
if and when such transactions might be undertaken. While we
always consider any opportunities that may improve our financial
condition or results of operations, we have not

20



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##### Table of Contents





Capital Resources

We make ongoing capital expenditures in order to keep our hotels
competitive in their markets and to comply with franchise
obligations, as described further in Operating Risks
(the potential adverse impact of our failure to meet the
requirements contained in our franchise and licensing
agreements) included in Item 1  Risk Factors of
our Annual Report on Form 10-K for the year ended
December 31, 2002. We fund our capital expenditures
primarily from cash generated from operations and existing cash
on hand, but may also use proceeds from the sales of non-core
assets to provide capital for renovation work. We invested
approximately $8.6 million (including $0.8 million of
capitalized interest) for ongoing capital expenditures during
the first quarter of 2003, and we anticipate investing a total
of $30 million to $40 million on capital expenditure
programs during 2003. These ongoing programs will include room
and facilities refurbishments, renovations, and furniture and
equipment replacements. We have shifted a portion of our 2003
planned capital expenditures to the second half of the year due
to the current sluggish economy and uncertainty in the current
economic operating environment. If operating conditions warrant,
we may defer elements of our capital expenditure program to
2004. The deferral of capital spending will require that we
spend a higher percentage of future revenue to fund future
capital expenditures. The deferral of capital spending has not
significantly impacted our business as, generally in the past,
we acquired good quality assets and spent a relatively high
level of capital in the early years of ownership. Continued
deferral of capital spending, however, could materially affect
our operations in the future. We believe the properties we are
now marketing for sale typically have higher per room capital
expenditure requirements than our core assets. Sales of these
properties will allow us to focus our capital spending dollars
in the future on our core portfolio.

We believe cash on hand and cash generated by operations will be
sufficient to fund our existing working capital requirements,
ongoing capital expenditures, and debt service requirements. Our
future capital decisions will also be made in response to
specific acquisition and/or investment opportunities, depending
on conditions in the capital and/or other financial markets.

OTHER FINANCIAL INFORMATION

Critical Accounting Policies

Our consolidated financial statements include the accounts of
all wholly-owned and majority-owned subsidiaries. Preparing
financial statements in conformity with accounting principles
generally accepted in the United States requires us to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. On an ongoing basis, we evaluate our estimates and
judgments, including those related to the impairment of
long-lived assets and the recording of certain accrued
liabilities. Some of our estimates are material to the financial
statements. These estimates are therefore particularly sensitive
as future events could cause the actual results to be
significantly different from our estimates.

Our critical accounting policies include the accounting for the
impairment or disposal of long-lived assets and the
classification of properties as held for sale. Our hotel
properties generally fall into two categories, held for use and
held for sale. Our held for use properties may include those
that we are actively marketing. Until such time as our criteria
for held for sale are met, as described below in further detail,
we maintain classification as an operational asset. At the time
we determine an asset to meet the criteria noted below, we
reclassify the asset and its operations to discontinued
operations. Both categories are subject to an impairment
analysis whenever events or changes in circumstances indicate
that the carrying value may be impaired.

21



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##### Table of Contents



Accounting for the 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 had 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. Based on current economic conditions and our
continuing forecast and outlooks for future periods, we may be
required in future periods to recognize additional impairment
charges if circumstances indicate at that time that the carrying
value of the assets may be impaired.

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

Classification of properties as held for sale

Real estate companies have differing standards with respect to
which properties may be classified as held for sale.
We classify the properties we are actively marketing as held for
sale once all of the following conditions are met:



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

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

Off-Balance Sheet Arrangements and Aggregate Contractual
Obligations

We have future long-term debt and ground lease obligations
related to our consolidated entities and properties. As of
March 31, 2003, we were not involved in any off-balance
sheet arrangements with MIP.

22



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##### Table of Contents



The following table summarizes our aggregate contractual
obligations as of March 31, 2003 (in thousands):

|                                                    |                           |       |           |           |  |             |       |            |  |            |         |         |  |   |         |         |  |   |         |         | 
|--------------------------------------------------- | ------------------------- | ----- | --------- | --------- |  | ----------- | ----- | ---------- |  | ---------- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                                    |                           |       |           | Less than |  | One to      |       | Three to   |  |           
|                                                    |                           | Total |           | One Year  |  | Three Years |       | Five Years |  | Thereafter
|                                                    |                           |       |           |           |  |             |       |            |  |           
|Long-term debt, net of unamortized
    discount(a): |                           |       |           |           |  |             |       |            |  |            |         |         |  |   |         |         |  |   |         |        
|                                                    | Senior unsecured notes    |       | $         | 944,140   |  |             | $     |           |  |            | $       |        |  |   | $       | 299,359 |  |   | $       | 644,781 | 
|                                                    | Secured facility          |       |           | 313,270   |  |             |       | 5,211      |  |            |         | 13,362  |  |   |         | 24,338  |  |   |         | 270,359 | 
|                                                    | Senior subordinated notes |       |           | 203,302   |  |             |       |           |  |            |         |        |  |   |         | 203,302 |  |   |         |        | 
|                                                    | Convertible notes         |       |           | 154,300   |  |             |       |           |  |            |         | 154,300 |  |   |         |        |  |   |         |        | 
|                                                    | Mortgage debt and other   |       |           | 37,498    |  |             |       | 2,419      |  |            |         | 12,654  |  |   |         | 8,004   |  |   |         | 14,421  | 
|                                                    |                           |       |           |           |  |             |       |            |  |            |         |         |  |   |         |         |  |   |         |        
|                                                    | Total long-term debt      |       |           | 1,652,510 |  |             |       | 7,630      |  |            |         | 180,316 |  |   |         | 535,003 |  |   |         | 929,561 | 
|                                                    |                           |       |           |           |  |             |       |            |  |            |         |         |  |   |         |         |  |   |         |        
|Ground lease obligations                            |                           |       | 63,177    |           |  |             | 1,317 |            |  |            | 2,995   |         |  |   | 4,308   |         |  |   | 54,557  |        
|                                                    |                           |       |           |           |  |             |       |            |  |            |         |         |  |   |         |         |  |   |         |        
|Aggregate contractual obligations                   |                           | $     | 1,715,687 |           |  | $           | 8,947 |            |  | $          | 183,311 |         |  | $ | 539,311 |         |  | $ | 984,118 |        
|                                                    |                           |       |           |           |  |             |       |            |  |            |         |         |  |   |         |         |  |   |         |        



---



|    |                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | For a description of the material terms of our
    long-term debt, see Financial Condition, Liquidity, and
    Capital Resources  Long-Term Debt section above.






|        |                                                           
|------- | ----------------------------------------------------------
|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes with respect to this item from
the disclosure included in our Annual Report on Form 10-K
for the year ended December 31, 2002.






|        |                        
|------- | -----------------------
|ITEM 4. | CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commissions rules and regulations, and that the
information is accumulated and communicated to our management,
including our chief executive officer and chief financial
officer, as appropriate, to allow timely decisions regarding
required disclosures based closely on the definition of
disclosure controls and procedures in
Rule 13a-1(c) of the Securities Exchange Act of 1934. In
designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired objectives, and
management was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
Also, we have investments in certain unconsolidated entities. As
we do not control or manage these entities, our disclosure
controls and procedures with respect to these entities are
substantially more limited than those we maintain with respect
to our consolidated subsidiaries.

Within 90 days prior to the date of this report, we carried
out an evaluation, under the supervision and with the
participation of our management, including our chief executive
officer and our chief financial and chief accounting officer of
the effectiveness of the design and operation of our disclosure
controls and procedures. Based on this evaluation, we concluded
that our disclosure controls and procedures were effective.

Changes in Internal Controls

Subsequent to the date of our evaluation, there were no
significant changes in our internal controls or in other factors
that could significantly affect these controls.

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##### Table of Contents






PART II. OTHER INFORMATION






|        |                                 
|------- | --------------------------------
|ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K

(a.) Exhibits

|        |    |                         |  |                                                                                                                                                                                                                                                        
|------- | -- | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|No.     |    | Description of Document
|        |    |                        
|        | 3  | .2.1                    |  | Amended and Restated By-laws of the Registrant,
    dated and effective April 22, 2003.                                                                                                                                                                
|        | 10 | .18*                    |  | Amendment to the Executive Employment Agreement
    effective as of November 1, 2001, between MeriStar
    Hospitality Corporation and MeriStar Hospitality Operating
    Partnership, L.P. and Paul W. Whetsell, effective
    November 20, 2002.     
|        | 10 | .19*                    |  | Second Amendment to the Executive Employment
    Agreement effective as of November 1, 2001, between
    MeriStar Hospitality Corporation and MeriStar Hospitality
    Operating Partnership, L.P. and Paul. W. Whetsell, effective
    April 22, 2003.
|        | 10 | .20*                    |  | Executive Employment Agreement, effective
    February 17, 2003, between MeriStar Hospitality
    Corporation, MeriStar Hospitality Operating Partnership, L.P.
    and Jerome J. Kraisinger.                                                          
|        | 10 | .4.2                    |  | Second Amendment, dated as of April 1, 2003,
    to Intercompany Agreement.                                                                                                                                                                            
|        | 13 |                         |  | Financial Statements of MeriStar Hospitality
    Operating Partnership, L.P. as of and for the three months ended
    March 31, 2003.                                                                                                                  
|        | 99 | .1                      |  | Consolidating Financial Information of MeriStar
    Hospitality Operating Partnership, L.P.                                                                                                                                                            
|        | 99 | .2                      |  | Sarbanes-Oxley Act Section 906
    Certifications of Chief Executive Officer.                                                                                                                                                                          
|        | 99 | .3                      |  | Sarbanes-Oxley Act Section 906
    Certifications of Chief Financial Officer.                                                                                                                                                                          



---

|  |                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------
|* | Indicates a management contract or compensatory plan or
    arrangement required to be filed pursuant to Item 14(c) of
    Form 10-K.

(b.) Reports on Form 8-K

On March 10, 2003, we filed a current report on
Form 8-K (Items 7 and 9) displaying the slide
show presented at the investor and analyst meeting on
March 10, 2003.

On February 12, 2003, we filed a current report on
Form 8-K (Items 5 and 7) announcing the financial
results for the fourth quarter and year ended December 31,
2002.

24



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.



| |                                 
| | --------------------------------
| | MERISTAR HOSPITALITY CORPORATION



| |     |                     
| | --- | --------------------
| | By: | /s/ PAUL W. WHETSELL

| |                            
| | ---------------------------
| | Paul W. Whetsell           
| | Chief Executive
    Officer

Dated: May 15, 2003

25



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##### Table of Contents






CERTIFICATIONS

I, Paul W. Whetsell, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this quarterly report on Form 10-Q of
    MeriStar Hospitality Corporation;                                                                                                                                                                                                                                                       
|
| | 2. | Based on my knowledge, this quarterly report does not contain
    any untrue statement of a material fact or omit to state a
    material fact necessary to make the statements made, in light of
    the circumstances under which such statements were made, not
    misleading with respect to the period covered by this quarterly
    report;
|
| | 3. | Based on my knowledge, the financial statements, and other
    financial information included in this quarterly report, fairly
    present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this quarterly report;                       
|
| | 4. | The registrants other certifying officer and I are
    responsible for establishing and maintaining disclosure controls
    and procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant and we have:                                                                                                              



| |    |                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | designed such disclosure controls and procedures to ensure that
    material information relating to the registrant, including its
    consolidated subsidiaries, is made known to us by others within
    those entities, particularly during the period in which this
    quarterly report is being prepared;



| |    |                                                                                                                                                                                                          
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | evaluated the effectiveness of the registrants disclosure
    controls and procedures as of a date within 90 days prior
    to the filing date of this quarterly report (the
    Evaluation Date); and



| |    |                                                                                                                                                                                
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. | presented in this quarterly report our conclusions about the
    effectiveness of the disclosure controls and procedures based on
    our evaluation as of the Evaluation Date;



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



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



| |    |                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | any fraud, whether or not material, that involves management or
    other employees who have a significant role in the
    registrants internal controls; and



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer and I have
    indicated in this quarterly report whether or not there were
    significant changes in internal controls or in other factors
    that could significantly affect internal controls subsequent to
    the date of our most recent evaluation, including any corrective
    actions with regard to significant deficiencies and material
    weaknesses.

Date: May 15, 2003

/s/ Paul W. Whetsell






Chief Executive Officer


MeriStar Hospitality Corporation


26



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##### Table of Contents






CERTIFICATIONS

I, Donald D. Olinger, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this quarterly report on Form 10-Q of
    MeriStar Hospitality Corporation;                                                                                                                                                                                                                                                       
|
| | 2. | Based on my knowledge, this quarterly report does not contain
    any untrue statement of a material fact or omit to state a
    material fact necessary to make the statements made, in light of
    the circumstances under which such statements were made, not
    misleading with respect to the period covered by this quarterly
    report;
|
| | 3. | Based on my knowledge, the financial statements, and other
    financial information included in this quarterly report, fairly
    present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this quarterly report;                       
|
| | 4. | The registrants other certifying officer and I are
    responsible for establishing and maintaining disclosure controls
    and procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant and we have:                                                                                                              



| |    |                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | designed such disclosure controls and procedures to ensure that
    material information relating to the registrant, including its
    consolidated subsidiaries, is made known to us by others within
    those entities, particularly during the period in which this
    quarterly report is being prepared;



| |    |                                                                                                                                                                                                          
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | evaluated the effectiveness of the registrants disclosure
    controls and procedures as of a date within 90 days prior
    to the filing date of this quarterly report (the
    Evaluation Date); and



| |    |                                                                                                                                                                                
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. | presented in this quarterly report our conclusions about the
    effectiveness of the disclosure controls and procedures based on
    our evaluation as of the Evaluation Date;



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



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



| |    |                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | any fraud, whether or not material, that involves management or
    other employees who have a significant role in the
    registrants internal controls; and



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer and I have
    indicated in this quarterly report whether or not there were
    significant changes in internal controls or in other factors
    that could significantly affect internal controls subsequent to
    the date of our most recent evaluation, including any corrective
    actions with regard to significant deficiencies and material
    weaknesses.

Date: May 15, 2003

/s/ Donald D. Olinger






Executive Vice President and Chief Financial Officer


MeriStar Hospitality Corporation


27