SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|ý                                           | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|------------------------------------------- | ----------------------------------------------------------------------------------------
|For the fiscal year ended December 31, 2003
|OR                                         
|o                                           | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|Commission File No. 001-13125              

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EXTENDED STAY AMERICA, INC.(Exact name of Registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)    |  | 36-3996573(I.R.S. Employer
Identification Number)
|------------------------------------------------------------------------- |  | -------------------------------------------------
|100 Dunbar Street
Spartanburg, SC(Address of Principal Executive Offices) |  | 29306(Zip Code)                                  
|Registrant's telephone number, including area code:(864) 573-1600        
|Securities registered pursuant to Section 12(b) of the Act:              
|
|Common Stock, par value $.01 per share                                    |  | New York Stock Exchange                          
|Securities registered pursuant to Section 12(g) of the Act:None          

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

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

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

The aggregate market value of the voting stock of the registrant held by stockholders who were not affiliates (as defined by regulations
of the Securities and Exchange Commission) of the registrant was approximately $1,085,760,520 at June 30, 2003 (based on the closing sale price on the New York Stock Exchange, Inc.
("NYSE") on June 30, 2003). At March 3, 2004 the registrant had issued and outstanding an aggregate of 98,076,797 shares of common stock.



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PART I

ITEM 1.    BUSINESS

Our Company

We develop, own, and operate extended stay lodging facilities that provide an affordable and attractive lodging alternative at a variety of price points for
value-conscious guests. Our facilities are designed to offer a superior product at lower rates than most other lodging providers within their respective price segments. Our facilities feature fully
furnished rooms that are generally rented on a weekly basis to guests such as business travelers, professionals on temporary work assignment, persons between domestic situations, and persons
relocating or purchasing a home. We had revenue of $549.7 million in 2003, an increase of less than 1% from $547.9 million in 2002.

We
believe that extended stay properties generally have higher operating margins, lower occupancy break-even thresholds, and higher returns on capital than traditional
hotels, primarily as a result of the typically longer length of stay, lower guest turnover, and lower operating expenses. Of the 4.4 million rooms available in the lodging industry at
December 31, 2003, extended stay hotel chains had only approximately 223,000 rooms. Of these 223,000 total extended stay rooms, approximately 134,000 rooms operated in the lower tier segment of
the extended stay market, a segment defined by weekly room rates generally below $500 and the segment in which we operate. We had approximately 50,000 rooms (or about 37% of the lower tier segment) at
the end of 2003. We believe that strong growth opportunities exist in the lower tier segment of the extended stay market.

As
of December 31, 2003, we owned and operated 472 extended stay lodging facilities and had 11 facilities under construction in a total of 42 states. We currently plan to complete
construction on those 11 sites in 2004 and to commence construction on 18 additional sites. We expect to incur total development costs in 2004 of approximately $155 million. At this time, we
believe we will be successful in obtaining extensions on a majority of the 22 sites we have under option at December 31, 2003, if needed. We will continue to seek the necessary approvals and
permits for these sites and for additional sites. Our future construction plans are limited by the constraints of our amended credit agreement, and are contingent upon a number of factors, including
improvements in the overall U.S. economy, improvements in demand for lodging products in the overall lodging industry, and improvements in demand for our extended stay lodging products. Additionally,
we continue to evaluate opportunistic acquisitions of other lodging companies or facilities. Our future development and growth plans may also be modified as a result of the Agreement and Plan of
Merger entered into on March 5, 2004 with affiliates of The Blackstone Group, as discussed more fully below, and as such, the classification and valuation of certain assets may be modified.

Our Brands

We own and operate three brands in the extended stay lodging marketStudioPLUS Deluxe Studios®, EXTENDED STAYAMERICA Efficiency
Studios®, and Crossland Economy Studios®. Each brand is designed to appeal to different price points generally below $500 per week. All three brands offer the same core
components: a living/sleeping area; a fully-equipped kitchen or kitchenette; and a bathroom. StudioPLUS facilities serve the mid-price category and generally feature guest rooms that are
larger than those of our other brands, an exercise facility, and a swimming pool. EXTENDED STAY rooms are designed to compete in the economy category. Crossland rooms are typically smaller than
EXTENDED STAY rooms and are targeted for the budget category.

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Our Strategy

Our objective is to be the leading national provider of company owned and managed extended stay lodging facilities. Our goal is to maximize value to customers by
providing a superior, consistent, and well-maintained product at each price point while maintaining high operating margins. We attempt to achieve this goal through the following
strategies:

Build Brand Awareness.We believe that guests value a recognizable brand when selecting lodging accommodations. We believe
our increasing national presence, high customer satisfaction, and selective advertising and promotion have established our brands with distinct advantages over their local and
regional competitors. We plan to allocate our capital primarily to the EXTENDED STAYAMERICA brand, but we may include additional StudioPLUS and Crossland properties on an opportunistic basis.

Provide a Superior Product at a Lower Price.We have designed our facilities to offer a superior product at lower rates than
most other lodging providers within their respective price segments. Each of our brands is targeted to a different price point: StudioPLUSmedian rate $289 per week (daily
equivalent$41); EXTENDED STAYmedian rate $279 per week (daily equivalent$40); and Crosslandmedian rate $179 per week (daily
equivalent$26). Room rates at our facilities vary significantly depending upon market factors affecting their locations. These rates contrast with average daily rates in 2003 of $68, $53,
and $43 for the mid-price, economy, and budget segments, respectively, of the general lodging industry.

Achieve Operating Efficiencies.We believe that the design and price level of our facilities attract guest stays of several
weeks. This creates a more stable revenue stream which, together with low cost amenities, leads to reduced administrative and operational costs and higher operating margins. We also use sophisticated
control and information systems to manage individual facility-specific factors such as pricing, payroll, and occupancy levels, on a company-wide basis.

Optimize Low Cost Amenities.We seek to provide the level of amenities needed to offer quality accommodations while
maintaining high operating margins. Our facilities contain a variety of non-labor intensive features that are attractive to extended stay guests. These features include a fully-equipped
kitchen or kitchenette, weekly housekeeping, color television with cable or satellite hook-up, coin-operated laundromat, and telephone service with voice mail messaging. Many
StudioPLUS facilities also include an exercise room and swimming pool. To help maintain affordability of room rates, labor-intensive services such as daily cleaning, room service, and restaurants are
not provided.

Employ a Standardized Concept.We have developed standardized plans and specifications for our facilities. This provides for
lower construction and purchasing costs and establishes uniform quality and operational standards. We believe the uniformity of our facilities is advantageous when consumers are faced with a variety
of lodging options.

Targeted Expansion.We continue to expand nationally into regions of the country that contain the demographic factors we
think are necessary to support one or more of our facilities. We target sites in markets that generally have high barriers to entry and a large and/or growing population in the surrounding area with a
large employment base. These sites also generally have good visibility from a major traffic artery and are in close proximity to convenience stores, restaurants, and shopping centers.

Industry Overview



The U.S. lodging industry is estimated to have generated approximately $79.4 billion in annual room revenues in 2003 and had approximately
4.4 million rooms at the end of 2003. The U.S. lodging industry's performance has historically been strongly correlated to economic activity. Room supply and

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demand
historically have been sensitive to shifts in economic growth, which has resulted in cyclical changes in average daily room and occupancy rates.

The
following table indicates the annual growth in revenue per available room ("REVPAR") and available room nights for 1996 through 2003 for the lodging industry based on data provided
by Smith Travel Research.

|                  |                                  | 1996 |      | 1997 |      | 1998 |      | 1999 |      | 2000 |      | 2001 |      | 2002 |      | 2003 |     
|----------------- | -------------------------------- | ---- | ---- | ---- | ---- | ---- | ---- | ---- | ---- | ---- | ---- | ---- | ---- | ---- | ---- | ---- | ----
|Annual Growth in: |                                  |      |      |      |      |      |      |      |      |      |      |      |      |      |      |      |     
|                  | REVPAR                           |      | 6.2  | %    | 4.8  | %    | 3.4  | %    | 3.0  | %    | 6.3  | %    | (6.9 | %)   | (2.7 | %)   | 0.2 
|                  | Available Room Nights            |      | 2.4  | %    | 3.5  | %    | 3.9  | %    | 3.8  | %    | 2.8  | %    | 2.3  | %    | 1.6  | %    | 1.3 
|                  | Available Room Nights (millions) |      | 30.9 |      | 46.1 |      | 54.4 |      | 54.8 |      | 41.9 |      | 35.8 |      | 25.2 |      | 20.2

Overbuilding
in the lodging industry in the mid and late 1980s, when approximately 500,000 rooms were added, resulted in an oversupply of rooms. We believe this oversupply and the
general downturn in the economy led to depressed industry performance and a lack of capital available to the industry in the late 1980s and early 1990s. From the early 1990s through 2000, we believe
that the lodging industry benefited from an improved supply and demand balance, as evidenced by the compound annual growth rate of 4.9% in REVPAR from 1994 through 2000. REVPARs declined in 2001 and
2002 by (6.9%) and (2.7%), respectively. During 2001, 2002, and 2003, REVPAR was negatively impacted by a recession in the U.S. economy and the adverse effect on travel of the events of
September 11, 2001, subsequent terrorism alerts, and the war in Iraq. As a result of continuing concerns about the U.S. economy, the impact of further terrorist events on the travel and
leisure industries, and the sustained tightening of credit standards by many financial institutions, we expect the rate of growth of new rooms to continue to moderate for the next few years.

The
lodging industry generally can be segmented by the level of service provided and the pricing of the rooms. Level of service can be divided into the following categories:



The
lodging industry may also be segmented by price level and is generally divided into categories based on average daily room rates, which in 2003 were $43 for budget, $53 for economy,
$68 for mid-price, $92 for upscale, and $138 for luxury.

The
all-suite segment of the lodging industry is a relatively new segment. It is principally oriented toward business travelers in the mid-price to upscale price
levels. All-suite hotels were developed partially in response to the increasing number of corporate relocations, transfers, and temporary assignments and the need of business travelers for
more than just a room. To address those needs, all-suite hotels began to offer suites with additional space and, in some cases, an efficiency kitchen. In addition, guests staying for
extended periods of time were offered discounts to daily rates when they paid on a weekly or monthly basis. We believe the extended stay market in which we participate is a distinct segment of the
traditional lodging industry similar to the all-suite segment.

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We believe that extended stay hotels generally have higher operating margins, lower occupancy break-even thresholds, and higher returns on capital
than traditional hotels. This is primarily a result of the typically longer length of stay, lower guest turnover, and lower operating expenses. Of the 3.7 million rooms available in the lodging
industry in 1996, extended stay hotel chains had approximately 60,000 rooms. For 2003, there were 4.4 million rooms available in the lodging industry, of which approximately 223,000 rooms were
at extended stay hotel chains. Of these extended stay rooms, approximately 134,000 rooms operated in the lower tier (less than $500 per week) segment of the extended stay market.

As
of December 31, 2003, the inventory of dedicated extended stay rooms, based on data provided by Smith Travel Research, for the following extended stay hotel chains totaled
approximately 223,000 rooms.

Upscale Extended Stay Chains

Other Extended Stay ChainsHawthorn Inn & SuitesSM

Bradford Homesuites®

MainStay SuitesSMHawthorn Suites®

Candlewood Hotel®

Savannah SuitesHomewood Suites®

Crossland

Sierra SuitesSMResidence Inn®

EXTENDED STAY

Studio 6SMStayBridge Suites®

Homegate Studios & Suites®

StudioPLUSSummerfield Suites®

Homestead Village®

Suburban Extended Stay HotelsWoodfin Suites®

InnSuites Hotels

Suburban Lodge®InTown Suites®

TownPlace Suites®Lexington® Hotel Suites

Villager Lodges®


We
believe that these chains represent the majority of dedicated extended stay rooms available in the U.S. lodging industry.

An
upscale extended stay room generally has a weekly rate of $500 or more, while a lower tier room generally has a weekly rate of less than $500. Our weekly room rates are generally less
than $500. Approximately 60% of the supply of extended stay rooms were in the lower tier segment, and we owned approximately 37% of the rooms operated in this segment. The following table indicates
the
approximate number of total rooms for the extended stay chains listed above, the total rooms for the upscale chains, the total rooms for the lower tier chains, and the total rooms owned by us at the
end of each of the last five years.

|                                    |  | 1999    |  | 2000    |  | 2001    |  | 2002    |  | 2003   
|----------------------------------- |  | ------- |  | ------- |  | ------- |  | ------- |  | -------
|Total extended stay rooms available |  | 140,000 |  | 168,000 |  | 188,000 |  | 205,000 |  | 223,000
|Upscale extended stay rooms         |  | 51,000  |  | 61,000  |  | 69,000  |  | 77,000  |  | 89,000 
|Lower tier extended stay rooms      |  | 89,000  |  | 108,000 |  | 119,000 |  | 127,000 |  | 134,000
|Extended stay rooms owned by us     |  | 38,000  |  | 42,000  |  | 46,000  |  | 48,000  |  | 50,000 

As
a segment of the total U.S. lodging industry, extended stay hotel chains experienced a significant contraction in the availability of capital that began during 1998 and has continued
through 2003. As a result, we expect that the growth in available dedicated extended stay rooms will continue to be moderate for the next few years.

We
believe the continuing significant demand/supply imbalance and the longer average length of stay have caused occupancy rates for extended stay hotels to exceed occupancy rates in the
overall U.S. lodging industry. The table below shows that average occupancy rates for extended stay hotel chains

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have
exceeded the average occupancy rates in the overall U.S. lodging industry for each of the previous five years, based on data provided by Smith Travel Research.

|                         |                                       | Year Ended December 31, |     
|------------------------ | ------------------------------------- | ----------------------- | ----
|
|Average Occupancy Rates: |                                       |                         |     
|                         | Lower tier extended stay hotel chains |                         | 69.5
|                         | Extended stay hotel chains            |                         | 72.0
|                         | All U.S. Lodging Industry             |                         | 62.8

We
believe the increase in occupancy rates for extended stay hotel chains in 2000 reflects the moderation of additional supply during the year as well as the stabilization of existing
supply. We believe that the overall decline in occupancies in 2001 and 2002 reflect the impact of the recession in the U.S. economy and the impact of terrorist events.

Property Development

Our goal is to be the leading provider of company owned and managed extended stay facilities in the United States. We expect that our primary means of expansion
will be the construction and development of new extended stay lodging facilities. We have also acquired, and we may make additional acquisitions of, existing extended stay lodging facilities or other
properties that we can convert to the extended stay concept.

Our
strategy is to continue to expand nationally into regions of the country that contain the demographic factors we think are necessary to support one or more of our facilities. We
target sites that generally have a large and/or growing population in the surrounding area with a large employment base. These sites also generally have good visibility from a major traffic artery and
are in close proximity to convenience stores, restaurants, and shopping centers.

We
have approximately 10 real estate professionals and approximately 22 construction professionals who perform site selection, entitlement, and construction activities according to our
established criteria and procedures from offices throughout the United States. It generally takes us at least twenty-four months to identify a site and complete construction of a facility,
but this process may be substantially longer in certain markets. We try to minimize our capital outlays incurred in this process until after the commencement of construction.

The
site selection process includes assessing the characteristics of a market area based on our development standards, identifying sites for development within a qualified market area,
and negotiating an option to purchase qualified sites. Although the time required to complete the selection process in a market varies significantly based on local market conditions, we typically need
approximately six to eight months to assess a market and obtain an option to purchase a site in a qualified market.

After
we obtain an option to purchase a site, our legal, environmental, and business due diligence begins. During this period, our real estate, construction, and legal professionals
evaluate whether the site is financially suitable for development, obtain necessary approvals and permits, and negotiate construction contracts with third party general contractors. It generally takes
us eight to ten months to complete this process; however, the time needed can vary significantly by market area due to local regulations and restrictions.

The
site selection and due diligence processes are reviewed periodically by our senior management and our approval to begin construction is based on a detailed review of the demographic,
physical, and financial qualifications of each site. Once our senior management approves the development of a site, it is purchased, the construction contract is executed, and construction generally
begins immediately. We

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use
a number of general contractors. The selection of a contractor for a specific site depends upon the geographic area, the negotiated construction costs, and the financial and physical capacities of
the contractors. Our construction professionals regularly inspect the construction process to monitor both the quality and timeliness of completion of construction. Although the construction period
varies significantly based on local construction requirements and weather conditions, it generally takes us eight to ten months to complete construction once it has begun.

Our
development status as of December 31, 2003 was as follows:

|                   |  | StudioPLUS |  | EXTENDED STAY |  | Crossland |  | Total 
|------------------ |  | ---------- |  | ------------- |  | --------- |  | ------
|
|Operating          |  | 95         |  | 7,675         |  | 338       |  | 37,498
|Under Construction |  | 0          |  | 0             |  | 11        |  | 1,155 

The
design plans for our lodging facilities typically call for a newly-constructed apartment style complex. They generally consist of two- to four-story buildings
with laundromat and office areas and primarily use interior corridor building designs, depending primarily on local zoning and weather factors. All three of our brands offer the same core components:
a living/sleeping area; a fully-equipped kitchen or kitchenette with a refrigerator, stovetop, microwave, and sink; and a bathroom. The typical building design criteria for each of our brands is shown
in the table below:

Average
Number
Of Rooms

Average
Living Space
Per Room (Ft.2)StudioPLUS

80

425EXTENDED STAY

110

300Crossland

120

225


The
actual number of rooms and living space per room may vary significantly depending on location and date of construction. In addition, each facility may include certain
non-standard room types.

Property Operations

Each of our facilities employs a property manager who is responsible for the operations of that particular property. The property manager shares duties with and
oversees a staff typically consisting of an assistant manager, desk clerks, maintenance personnel, and a housekeeping/laundry staff of approximately 2-10 persons (many of whom are
part-time employees). The office at each of our facilities is generally open daily as follows: Crosslandfrom 7:00 a.m. to 11:00 p.m.; EXTENDED
STAYfrom 7:00 a.m. to 11:00 p.m.; and StudioPLUSfrom 7:00 a.m. to 11:00 p.m., although an employee normally is on duty at all facilities
twenty-four hours a day to respond to guests' needs.

Our
property managers make the majority of daily operational decisions. Each property manager is supervised by one of our district managers, who typically is responsible for four to
seven facilities, depending on geographic location. Our district managers oversee the performance of our property managers in such areas as guest service, property maintenance, payroll, and cost
control. The district managers report to a regional director who is responsible for the supervision of 6 to 8 district managers. Each facility is evaluated against a detailed revenue and expense
budget, as well as against the performance of our other facilities. Our corporate offices use sophisticated information systems to support the district managers and regional directors.

Our
facilities are kept up to date through a program of continued maintenance. We do not plan to renovate an entire facility at one time, but rather repair individual parts of each
facility on an as needed and ongoing basis. We believe this most effectively ensures that our facilities remain modern

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and
in good operating condition. Due to the large number of facilities we opened in certain years, the costs associated with our program of continued maintenance may vary significantly in certain
years.

Marketing Strategy

We believe that guests value a recognizable brand when selecting lodging accommodations. To date, we have created brand awareness primarily by increasing the
number of our hotels through a rapid national development program, with sites that typically are in highly-visible locations. We have established a toll free reservation number
(1-800-EXT-STAY) and a web site (www.extendedstay.com) to provide information about our locations and to reserve rooms. In addition, our website contains a "Road
Warrior" rapid reservation utility for the convenience of our frequent guests. From 1999 through 2002, we conducted a national consumer advertising campaign inUSA
Todayand a national direct mail campaign. Due to reduced occupancies experienced by the overall lodging industry and by our extended stay lodging products in recent quarters
as a result of the impact of terrorist events, the war in Iraq, and weakness in the U.S. economy, we suspended both campaigns. However, we intend to conduct a national cable television advertising
campaign beginning in the first quarter of 2004 and resume national direct mail campaigns in 2004. Additionally, we intend to utilize the internet more aggressively to generate reservations. We think
that we can increase demand for our facilities by building awareness of both the extended stay concept as well as our various brands.

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Lodging Facilities

As
of December 31, 2003, we had 472 extended stay lodging facilities in operation (95 StudioPLUS, 338 EXTENDED STAY, and 39 Crossland) and 11 EXTENDED STAY facilities under
construction in a total of 42 states. The average age of our properties at December 31, 2003 was 64 months. The following table shows certain information regarding those facilities.

Operating Properties

Under ConstructionState

Facilities

Number
of Rooms

Facilities

Number
of RoomsAlabama

6

557



Arizona

9

1,001



Arkansas

3

306



California

58

6,776

5

521Colorado

10

1,183



Connecticut

3

299



Florida

31

3,108



Georgia

20

2,187



Idaho

1

107



Illinois

29

3,262



Indiana

10

879



Iowa

2

190



Kansas

3

251



Kentucky

9

798



Louisiana

7

792



Maine

1

92



Maryland

10

1,021

2

205Massachusetts

6

578



Michigan

16

1,707



Minnesota

8

817



Mississippi

2

179



Missouri

12

1,297



Montana

2

208



Nebraska

1

86



Nevada

5

738



New Hampshire

1

101



New Jersey

14

1,566



New Mexico

3

351



New York

9

1,117

1

104North Carolina

26

2,549



Ohio

24

2,237



Oklahoma

5

475



Oregon

4

482



Pennsylvania

12

1,289



Rhode Island

3

309



South Carolina

9

918



Tennessee

14

1,375



Texas

43

4,549



Utah

3

378



Virginia

14

1,436

3

325Washington

19

2,161



Wisconsin

5

528



Total

472

50,240

11

1,155


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Competition

The lodging industry is highly competitive. This competition is based on a number of factors including room rates, quality of accommodations, service levels,
convenience of location, reputation, reservation systems, name recognition, and supply and availability of alternative lodging in local markets, including short-term lease apartments and
limited service hotels. All of our facilities are located in developed areas and compete with budget, economy, and mid-price segment hotels and other companies focusing on the extended
stay market. The greater the number of competitive lodging facilities in a particular area, the more likely it is that those competitors may have a material adverse effect on the occupancy levels and
average weekly room rates of our facilities.

We
expect that competition within the budget, economy, and mid-price segments of the extended stay lodging market will continue to increase. Although we expect the
contraction of capital available to the lodging industry that began during 1998 and continued through 2003 to slow the rate of growth of new lodging products in general, we expect our existing
competitors to continue to develop extended stay facilities to the extent that their capital permits, and we expect them to increase their development in the event that additional capital should
become available in the future. Competitors may include new participants in the lodging industry generally and participants in other segments of the lodging industry that may enter the extended stay
market. They may also include existing participants in the extended stay market that may increase their product offerings to include facilities in the budget, economy, or mid-price
segments. Competition is for both quality locations to build new facilities and for guests to fill and pay for those facilities. A number of our competitors have greater financial resources than we do
and better relationships with lenders and sellers, and may therefore be able to find and develop the best sites before we can. Also, we cannot assure you that our competitors will not reduce their
rates, offer greater convenience, services, or amenities, or build new hotels in direct competition with our existing facilities, all of which could have a material adverse effect on our operations.

Environmental Matters

Under various federal, state, and local laws and regulations, an owner or operator of real estate may be liable for the costs of removal or remediation of
hazardous or toxic substances on that property. These laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of those hazardous or toxic
substances. Furthermore, a person who arranges for the disposal or transports for disposal or treatment of a hazardous substance at a property owned by another may be liable for the costs of removal
or remediation of hazardous substances released into the environment
at that property. These costs may be substantial, and the presence of hazardous substances, or the failure to properly remediate hazardous substances, may adversely affect the owner's ability to sell
the real estate or to borrow using that real estate as collateral. We may be liable for any of these costs that occur in connection with our properties.

We
have obtained Phase I environmental site assessments ("Phase I Surveys") on our existing properties and we intend to obtain Phase I Surveys before we purchase any future properties.
Phase I Surveys are intended to identify potential environmental contamination. A Phase I Survey generally includes a historical review of the relevant property, a review of certain public records, a
preliminary investigation of the site and surrounding properties, and the preparation of a written report. A Phase I Survey generally does not include invasive procedures, such as soil sampling or
ground water analysis.

We
have also obtained Phase II environmental site assessments ("Phase II Surveys") on a limited number of our existing properties. Phase II Surveys are intended to provide additional
information on potential environmental contamination identified in a Phase I Survey. A Phase II Survey generally involves soil sampling and/or groundwater analysis.

None
of our Phase I or Phase II Surveys have revealed any environmental liability that we believe would have a material adverse effect on our business, assets, results of operations, or
liquidity, and we

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are
not aware of any such liability. With respect to environmental conditions existing at some of our properties, we have obtained a determination from the appropriate federal, state, or local agency
that we will not be held liable for those conditions by that agency. This determination, however, does not preclude other agencies or private parties from bringing actions against us based upon those
environmental conditions. In certain circumstances, we also have received an indemnification agreement from the previous owner of the property. Despite our customary precautionary and due diligence
measures, it is possible that our Phase I and/or Phase II Surveys did not reveal all environmental liabilities or that there are material environmental liabilities or compliance problems of which we
are not aware. Moreover, new or changed laws, ordinances, or regulations may impose material environmental liabilities. In addition, the environmental condition of our properties may also be affected
by the condition of neighboring properties (such as the presence of leaking underground storage tanks) or by third parties unrelated to us.

Governmental Regulation

A number of states regulate the licensing of hotels by requiring registration, disclosure statements, and compliance with specific standards of conduct. We
believe that each of our facilities has the necessary permits and approvals to operate its respective business, and we intend to continue to obtain these
permits and approvals for our new facilities. We are also subject to laws governing our relationship with our employees, including minimum wage requirements, overtime, working conditions, and work
permit requirements. An increase in the minimum wage rate, employee benefit costs, or other costs associated with employees could adversely affect our business. There are frequently proposals under
consideration, at the federal and state level, to increase the minimum wage.

Under
the Americans With Disabilities Act ("ADA"), all public accommodations are required to meet certain federal requirements related to access and use by disabled persons. We attempt
to satisfy ADA requirements in the designs for our facilities, but we cannot assure you that we will not be subjected to a material ADA claim. If that were to happen, we could be ordered to spend
substantial sums to achieve compliance, fines could be imposed against us, and we could be required to pay damage awards to private litigants. The ADA and other regulatory initiatives could adversely
affect our business as well as the lodging industry in general.

Insurance

We currently have the types and amounts of insurance coverage that we consider appropriate for a company in our business. While we believe that our insurance
coverage is adequate, our business, results of operations, and financial condition could be materially and adversely affected if we were held liable for amounts exceeding the limits of our insurance
coverage or for claims outside of the scope of our insurance coverage.

Employees

At December 31, 2003, we employed approximately 7,600 persons, of which approximately 5,100 were part-time employees. We expect that we will
increase the number of our employees as our business expands. Our employees are not subject to any collective bargaining agreements, and we believe that our relationship with our employees is good.

Recent DevelopmentsThe Blackstone Merger Agreement



On March 5, 2004, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with affiliates of The Blackstone Group (collectively,
"Blackstone"). Under the Merger Agreement, upon consummation of the merger we will merge with a subsidiary of Blackstone and survive the

10

---

merger
as a wholly owned subsidiary of Blackstone. Our Board of Directors unanimously approved the Merger Agreement at a special meeting on March 5, 2004. We expect to complete the merger
during the second quarter 2004.



The Merger Agreement provides that upon consummation of the merger, each share of our common stock will be converted into the right to receive $19.625, in cash.
In addition, each holder of an option to purchase our common stock from us that is outstanding as of the effective time of the merger and that has an exercise price per share that is less than $19.625
will receive a cash payment equal to the product of (1) the difference between $19.625 and the applicable exercise price of the option and (2) the aggregate number of shares issuable
upon exercise of the option.



Consummation of the merger is subject to customary closing conditions and certain other conditions, including:





Either Blackstone or we may terminate the Merger Agreement if the merger is not consummated on or before August 31, 2004. The Merger Agreement may also be
terminated for a number of other reasons, including if our Board of Directors determines in good faith that its fiduciary duties require it to withdraw or modify its recommendation of the Merger
Agreement to our stockholders for various reasons. In the event the Merger Agreement is terminated, we would be required to pay Blackstone up to $50,000,000 as a termination fee under certain
circumstances, and Blackstone would be required to pay us $50,000,000 as a termination fee under certain other circumstances.



For more details regarding the proposed merger, please refer to the copy of the Merger Agreement that we filed with the SEC on March 8, 2004 as
Exhibit 99.1 to our Current Report on Form 8-K. The foregoing description of the Merger Agreement is qualified in its entirety by reference to the Merger Agreement.

ITEM 2.    PROPERTIES

In addition to our lodging facilities described in "Item 1. BusinessLodging Facilities" above, we maintain regional offices throughout the United
States and our corporate headquarters in Spartanburg, SC. In 2003, we completed construction of our new corporate headquarters and executive offices, totaling approximately 118,000 square feet,
located in Spartanburg, SC. Except for our corporate headquarters, we generally rent our office space on a short-term basis. Our offices are sufficient to meet our present needs, and we do
not anticipate any difficulty in securing additional office space, as needed, on terms acceptable to us.

11

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ITEM 3.    LEGAL PROCEEDINGS

On August 5, 2002, one of our subsidiaries was served with a complaint against us and several of our subsidiaries in the Superior Court of California,
County of Alameda. This action alleges violations of certain of California's wage and hour laws. In particular, the action alleges that we misclassified former and existing managers, assistant
managers, and manager trainees for our properties in California as exempt from California's laws regarding overtime pay. In January 2004, the plaintiffs filed a motion to certify the lawsuit as a
class action representing all such property managers in California. We will oppose the motion. The plaintiffs are seeking an injunction, and damages for back pay, penalties, interest, and attorneys'
fees. The case is captioned Rachelle Reid, et al vs. Extended Stay America, Inc., etc., et al. We believe we have meritorious defenses against this claim and intend to defend this case vigorously. The
financial impact, if any, of this case cannot yet be predicted.

In
addition to the litigation noted above, we are from time to time subject to various other claims and lawsuits incidental to our business. In the opinion of management, these claims
and suits, in the aggregate, will not have a material adverse effect on our consolidated financial statements.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

12

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER                MATTERS

Our common stock is traded on the New York Stock Exchange, Inc. (the "NYSE") under the symbol "ESA." On December 31, 2003, the last reported sale
price of our common stock on the NYSE was $14.48 per share. At December 31, 2003, there were approximately 271 record holders of our common stock. The table below sets forth the high and low
sales prices of shares of our common stock on the NYSE for the periods indicated.

Market Information

Common StockHigh

LowYear Ended December 31, 2002:1st Quarter

$
18.20

$
15.512nd Quarter


17.80


14.763rd Quarter


16.46


12.174th Quarter


15.01


10.90Year Ended December 31, 2003:1st Quarter


15.10


9.752nd Quarter


14.49


10.003rd Quarter


16.43


13.184th Quarter


16.38


13.58


In
October 2003, our Board of Directors declared our first quarterly cash dividend, of $0.04 per share of our common stock, which was paid in November 2003. A second
quarterly dividend of $0.04 per share of our common stock was declared in January 2004 and paid in February 2004. Our dividend policy is impacted by, among other items, our operating results,
cash flow, and the need to retain much of our cash for continued growth. In addition, our credit facility and senior subordinated notes contain limitations on our ability to pay cash dividends or
repurchase our common stock that permit us to pay up to $20 million in cash dividends annually and to repurchase up to an aggregate of $35 million of our common stock during the term of
our credit facility.

13

---



ITEM 6.    SELECTED FINANCIAL DATA

The following selected financial data should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our
audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

|                                     |                                                                 | Year Ended December 31,  |  
|------------------------------------ | --------------------------------------------------------------- | ------------------------ | -
|
|
|Income Statement Data:               |                                                                 |                          |  
|                                     | Revenue                                                         |                          | $
|                                     | Property operating expenses                                     |                          |  
|                                     | Corporate operating and property management expenses            |                          |  
|                                     | Loss on debt extinguishment                                     |                          |  
|                                     | Other charges (income)                                          |                          |  
|                                     | Depreciation and amortization                                   |                          |  
|                                     | Income from operations                                          |                          |  
|                                     | Interest expense, net (1)                                       |                          |  
|                                     | Provision for income taxes                                      |                          |  
|                                     | Income before cumulative effect of accounting change            |                          | $
|                                     |                                                                 |                          |  
|                                     | Income before cumulative effect of accounting change per share: |                          |  
|                                     |                                                                 | Basic                    |  
|                                     |                                                                 |                          |  
|                                     |                                                                 | Diluted                  |  
|                                     |                                                                 |                          |  
|Weighted average shares outstanding: |                                                                 |                          |  
|                                     |                                                                 | Basic                    |  
|                                     |                                                                 |                          |  
|                                     |                                                                 | Diluted                  |  
|                                     |                                                                 |                          |  
|Operating Data:                      |                                                                 |                          |  
|                                     | Average occupancy rates (2)                                     |                          |  
|                                     | Average weekly rate                                             |                          | $
|                                     | Operating facilities (at period end)                            |                          |  
|                                     | Weighted average rooms available (3)                            |                          |  
|                                     | Rooms (at period end)                                           |                          |  
|                                     | Facilities under construction (at period end)                   |                          |  
|                                     | Rooms under construction (at period end)                        |                          |  
|Other Financial Data:                |                                                                 |                          |  
|Cash flows provided by (used in):    |                                                                 |                          |  
|                                     |                                                                 | Operating activities (4) |  
|                                     |                                                                 | Investing activities     |  
|                                     |                                                                 | Financing activities     |  
|                                     | EBITDA (4)                                                      |                          |  
|                                     | Capital expenditures                                            |                          |  
|Balance Sheet Data (at period end):  |                                                                 |                          |  
|                                     | Cash and cash equivalents                                       |                          | $
|                                     | Total assets                                                    |                          |  
|                                     | Long-term debt                                                  |                          |  
|                                     | Stockholders' equity                                            |                          |  

---

14

---



|                                                                 |  | Year Ended December 31, |        
|---------------------------------------------------------------- |  | ----------------------- | -------
|
|Net cash provided by operating activities                        |  | $                       | 124,059
|Interest expense, net                                            |  |                         | 56,074 
|Provision for income taxes                                       |  |                         | 32,004 
|Amortization of deferred loan costs included in interest expense |  |                         | (3,859 
|Change in deferred income taxes                                  |  |                         | (19,359
|Non-cash charges included in headquarters relocation costs       |  |                         |        
|Changes in other operating assets and liabilities                |  |                         | 7,361  
|                                                                 |  |                         |        
|EBITDA                                                           |  | $                       | 196,280
|                                                                 |  |                         |        

15

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND                RESULTS OF OPERATIONS

General

Extended Stay America, Inc. was organized on January 9, 1995 as a Delaware corporation. We own and operate three brands in the extended stay lodging
marketStudioPLUS Deluxe Studios®, EXTENDED STAYAMERICA Efficiency Studios®, and Crossland Economy Studios®. Each brand is designed to appeal to
different price points generally below $500 per week. All three brands offer the same core components: a living/sleeping area; a fully-equipped kitchen or kitchenette; and a bathroom. StudioPLUS
facilities serve the mid-price category and generally feature guest rooms that are larger than those in our other brands, an exercise facility, and a swimming pool. EXTENDED STAY rooms are
designed to compete in the economy category. Crossland rooms are typically smaller than EXTENDED STAY rooms and are targeted for the budget category.

The
table below provides a summary of our selected development and operational results for 2001, 2002, and 2003.

|                                            |  | Year Ended
December 31, |    
|------------------------------------------- |  | ----------------------- | ---
|
|Total Facilities (at period end)            |  |                         | 431
|Total Facilities Opened (during the period) |  |                         | 39 
|Average Occupancy Rate                      |  |                         | 74 
|Average Weekly Room Rate                    |  | $                       | 320

Average
occupancy rates are determined by dividing the number of rooms occupied on a daily basis by the total number of rooms. Average weekly room rates are determined by dividing room
revenue by the number of rooms occupied on a daily basis for the applicable period and multiplying by seven. The average weekly room rates generally will be greater than standard room rates because of
(1) stays of less than one week, which are charged at a higher nightly rate, (2) higher weekly rates for rooms that are larger than the standard rooms, and (3) additional charges
for more than one person per room. Occupancy and room rates for each of our brands are affected by a number of factors, including the impact of the U.S. economy on demand for lodging products, the
amount of competing lodging products in markets where we operate, and the number and geographic location of our new facilities. We cannot assure you that we can maintain our occupancy and room rates.

At
December 31, 2003, we had 472 operating facilities (39 Crossland, 338 EXTENDED STAY, and 95 StudioPLUS) and had 11 EXTENDED STAY facilities under construction. We expect to
complete the construction of the facilities currently under construction generally within the next twelve months; however, we cannot assure you that we will complete construction within the time
periods we have historically experienced. Our ability to complete construction may be materially impacted by various factors including final permitting, obtaining certificates of occupancy, and
weather-related construction delays.

On
March 5, 2004, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with affiliates of The Blackstone Group (collectively, "Blackstone"). Under the Merger
Agreement, upon consummation of the merger we will merge with a subsidiary of Blackstone and survive the merger as a wholly owned subsidiary of Blackstone. Our Board of Directors unanimously approved
the Merger Agreement at a special meeting on March 5, 2004. We expect to complete the merger during the second quarter 2004.

16

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Results of Operations

2003 Compared to 2002



Operating results for the year ended December 31, 2002 include the impact of one-time rental contracts during the 2002 Winter Olympics at three
EXTENDED STAY properties located in Salt Lake City, Utah (the "Olympic Properties"). We estimate that these contracts generated additional non-recurring net income of approximately
$1.2 million, or $0.01 per diluted share, for the year ended December 31, 2002.

We
realized average occupancy of 65% and an average weekly room rate of $325 for the year ended December 31, 2003, and, including the Olympic Properties, we realized average
occupancies of 68% and average weekly room rates of $321 for the year ended December 31, 2002. This resulted in a decrease of 3.4% in overall REVPAR for 2003 when compared to 2002.

Excluding
the Olympic Properties, the following is a summary of the number of properties in operation at the end of each year along with the related average occupancy rates and average
weekly room rates during each year:

Year Ended
December 31, 2003

Year Ended
December 31, 2002Facilities
Open

Average
Occupancy
Rate

Average
Weekly
Room
Rate

Facilities
Open

Average
Occupancy
Rate

Average
Weekly
Room
RateCrossland

39

66
%
$
222

39

69
%
$
220EXTENDED STAY

335

65


339

318

68


333StudioPLUS

95

63


333

95

67


331Total

469

65
%
$
326

452

68
%
$
320


Excluding the Olympic Properties, we realized an overall decrease of 3.0% in REVPAR for 2003 when compared to 2002. Excluding the Olympic Properties, our overall
REVPAR decreased 2.8%, 3.9%, 3.8%, and 1.1% in the first, second, third, and fourth quarters of 2003, respectively, when compared to the same periods in the prior year. The decrease in overall average
occupancy rates for 2003 compared to 2002 reflects, primarily, the impact of a general decline in demand for lodging products as a result of the weakened U.S. economy and the war in Iraq. The increase
in overall average weekly room rates for 2003 compared to 2002 is due to increases in rates charged in previously opened properties and, particularly for the EXTENDED STAY brand, the geographic
dispersion of properties opened since December 31, 2002 and the higher standard weekly room rates in certain of those markets. In addition, the higher overall average weekly room rate for the
EXTENDED STAY brand, relative to the Studio PLUS brand, reflects a larger concentration for the EXTENDED STAY brand in higher cost markets with generally higher standard weekly rates.

Comparable
hotels, consisting of the 389 properties opened for at least one year at the beginning of the first quarter of 2002 (excluding the Olympic Properties), realized the following
percentage changes in the components of REVPAR for 2003 when compared with 2002:

Crossland

EXTENDED STAY

StudioPLUS

TotalNumber of Comparable Hotels

39

257

93

389Change in Occupancy Rate

(3.8
)%
(5.4
)%
(5.9
)%
(5.3
)%Change in Average Weekly Rate

0.7
%
1.4
%
0.6
%
1.1
%Change in REVPAR

(3.1
)%
(4.1
)%
(5.4
)%
(4.2
)%


17

---

We believe that the percentage changes in the components of REVPAR for our brands differ primarily as a result of the number and geographic dispersion of the
comparable hotels.

The
percentage change in the components of REVPAR for our comparable hotels experienced in 2003 reflects a decrease in REVPAR of 4.9%, 5.7%, 4.5%, and 1.6% in the first, second, third,
and fourth quarters of 2003, respectively, when compared to the same periods in the prior year. While we believe that improvements in the U.S. economy will result in increased demand for our products,
it is difficult to estimate the timing and magnitude of these improvements.

We
recognized total revenue of $549.7 million in 2003 and $547.9 million in 2002. This is an increase of $1.8 million, or less than 1%. The 431 properties that we
owned and operated throughout both periods experienced an aggregate decrease in revenue of approximately $22.9 million, net of incremental revenue at the Olympic Properties of approximately
$2.0 million.

Property
operating expenses, consisting of all expenses directly allocable to the operation of the facilities but excluding any allocation of corporate operating and property management
expenses, depreciation, and interest were $273.6 million (50% of total revenue) for 2003, as compared to $252.4 million (46% of total revenue) for 2002. We did not incur significant
incremental property operating expenses at the Olympic Properties during 2002. We expect the ratio of property operating expenses to total revenue to generally fluctuate inversely relative to REVPAR
increases or decreases because the majority of these expenses do not vary based on REVPAR. We realized an overall decrease of 3.4% in REVPAR for 2003 as compared to 2002, and our property operating
margins were 50% for 2003 and 54% for 2002.

As
a lodging facility ages, scheduled maintenance and replacement costs for that property generally increase. We capitalize new construction costs, major renewals, and improvements, but
expense repairs, maintenance, and replacements as those costs are incurred. Major renewals and improvements consist of new expenditures for equipment not included in the original construction, while
repairs, maintenance, and replacements include, among other items, expenditures to replace case goods, lighting fixtures, flooring, furnishings, and HVAC equipment ("Refurbishment Expenditures").
Approximately one-half of the decrease in the property operating margin percentage experienced during 2003 compared to 2002 is attributable to an increase in Refurbishment Expenditures. In
2002, we
recorded as part of property operating expenses $17.6 million in Refurbishment Expenditures, which represented 3.2% of revenue. In 2003, we recorded Refurbishment Expenditures of
$29.3 million. In 2004, we anticipate Refurbishment Expenditures of approximately $40 million. The increase in these expenses is primarily attributable to our practice of significantly
refurbishing properties approaching six to seven years old. We opened 230 properties during 1997 and 1998, and we expect to complete the refurbishment of a majority of these properties during 2004.
Subsequent to 2004, the number of our properties approaching six to seven years of age declines, and we anticipate Refurbishment Expenditures will begin to return to more historical levels.

The
provisions for depreciation and amortization for our lodging facilities were $79.4 million for 2003 and $78.1 million for 2002. These provisions were computed using the
straight-line method over the estimated useful lives of the assets. These provisions reflect a pro rata allocation of the annual depreciation and amortization charge for the periods for
which the facilities were in operation. Depreciation and amortization for 2003 increased compared to 2002 because we operated 17 additional facilities in 2003 and because we operated for a full year
the 24 properties that were opened in 2002.

From
time to time, we may incur expenses due to defects in materials, construction, or systems installed in our properties. Most significant products or systems contain manufacturers'
warranties. In addition, contractual agreements with our general contractors typically require general contractors and subcontractors to maintain insurance designed to cover the faulty installation of
significant systems.

18

---

Testing
has revealed that certain of our properties have sustained damage arising from defective materials and/or faulty installation of the Exterior Insulation Finish System ("EIFS").
At this time, the full extent of damage cannot reasonably be estimated, although currently we do not believe the cost of repairs will be material to us overall. We have 44 active lawsuits that we
filed against the EIFS manufacturers, certain applicators, certain general contractors, and others, seeking necessary repairs and recovery rights against expected and incurred expenses. At this time,
the extent of recovery, if any, on these suits cannot reasonably be determined.



Corporate operating and property management expenses include all expenses not directly related to the development or operation of lodging facilities. These
expenses consist primarily of personnel, administrative, and certain marketing costs, as well as development costs that are not directly related to a site that we will develop. We incurred corporate
operating and property management expenses of $51.2 million (9% of total revenue) in 2003 and $48.8 million (9% of total revenue) in 2002. The
increase in the amount of these expenses for 2003 as compared to 2002 reflects the impact of additional personnel and related expenses in connection with the increased number of facilities we
operated. We expect these expenses will continue to increase as we develop, market, and operate additional facilities in the future.

Depreciation
and amortization was $1.0 million for 2003 and $742,000 for 2002. These provisions were computed using the straight-line method over the estimated useful
lives of the assets. These assets were primarily office furniture and equipment.

We
realized $267,000 of interest income during 2003 and $721,000 of interest income during 2002. This interest income was primarily attributable to the temporary investment of excess
funds. We incurred interest charges of $83.2 million during 2003 and $85.4 million during 2002. Of these amounts, $4.7 million during 2003 and $5.5 million during 2002 was
capitalized and included in the cost of buildings and improvements.

Our
effective income tax rate for 2002 decreased from 40.0% to 39.0%, reflecting a reduction in estimated state income taxes resulting from state tax planning and credits. Accordingly,
the provision for income taxes in the first quarter of 2002 reflected a reduction in expense of approximately $3.0 million associated with adjusting our deferred tax assets and liabilities to
reflect the lower rate. The $3.0 million reduction in tax expense and the decrease in our effective rate during 2002 resulted in the recognition of income tax expense of $25.8 million
and $31.6 million (39.0% and 35.6%, respectively, of income before income taxes and cumulative effect of an accounting change) for 2003 and 2002, respectively. Our effective income tax rate
remained 39% for 2003. Our income tax expense differs from the federal income tax rate of 35% primarily due to state and local income taxes.

Results of Operations

2002 Compared to 2001



Operating results for the year ended December 31, 2002 include the impact of one-time rental contracts during the 2002 Winter Olympics at the
three Olympic Properties. We estimate that these contracts generated additional non-recurring net income of approximately $1.2 million, or $0.01 per diluted share, for the year
ended December 31, 2002.

Including
the Olympic Properties, we realized average occupancies of 68% and average weekly room rates of $321 for the year ended December 31, 2002, and we realized average
occupancies of 74% and average weekly room rates of $320 for the year ended December 31, 2001, resulting in a decrease of 7.5% in overall REVPAR for 2002 when compared to 2001.

19

---

Excluding
the Olympic Properties, the following is a summary of the number of properties in operation at the end of each year along with the related average occupancy rates and average
weekly room rates during each year:

Year Ended
December 31, 2002

Year Ended
December 31, 2001Facilities
Open

Average
Occupancy
Rate

Average
Weekly
Room
Rate

Facilities
Open

Average
Occupancy
Rate

Average
Weekly
Room
RateCrossland

39

69
%
$
220

39

76
%
$
221EXTENDED STAY

318

68


333

295

74


332StudioPLUS

95

67


331

94

72


342Total

452

68
%
$
320

428

74
%
$
320


Excluding the Olympic Properties, we realized an overall decrease of 7.8% in REVPAR for 2002 when compared to 2001. Excluding the Olympic Properties, our overall
REVPAR decreased 16.7%, 10.0%, 4.0%, and 0.1% in the first, second, third, and fourth quarters of 2002, respectively, when compared to the same periods in the prior year. The decrease in overall
average occupancy rates for 2002 compared to 2001 reflects, primarily, the impact of a general decline in demand for lodging products as a result of the weakened U.S. economy and the continued impact
on travel of the events of September 11, 2001 and subsequent terrorism alerts. Although overall average weekly room rates for 2002 compared to 2001 did not change, we generally experienced
decreases in rates charged in previously opened properties. Particularly for the EXTENDED STAY brand, this decrease in rates was offset by the geographic dispersion of properties opened since
December 31, 2001 and the higher standard weekly room rates in certain of those markets.

Comparable
hotels, consisting of the 359 properties opened for at least one year at the beginning of the first quarter of 2001 (excluding the Olympic Properties), realized the following
percentage changes in the components of REVPAR for 2002 when compared with 2001:

Crossland

EXTENDED STAY

StudioPLUS

TotalNumber of Comparable Hotels

39

230

90

359Change in Occupancy Rate

(9.7
)%
(8.1
)%
(7.3
)%
(8.2
)%Change in Average Weekly Rate

(0.4
)%
(1.2
)%
(3.1
)%
(1.4
)%Change in REVPAR

(10.1
)%
(9.2
)%
(10.2
)%
(9.5
)%


We believe that the percentage changes in the components of REVPAR for our brands differ primarily as a result of the number and geographic dispersion of the
comparable hotels.

The
percentage change in the components of REVPAR for our comparable hotels experienced in 2002 reflects a decrease in REVPAR of 17.2%, 11.0%, 5.9%, and 2.6% in the first, second, third,
and fourth quarters of 2002, respectively, when compared to the same periods in the prior year.

We
recognized total revenue of $547.9 million in 2002 and $541.5 million in 2001. This is an increase of $6.4 million, or 1%. The 392 properties that we owned and
operated throughout both periods experienced an aggregate decrease in revenue of approximately $49.0 million, net of incremental revenue at the Olympic Properties of approximately
$2.0 million.

Property
operating expenses, consisting of all expenses directly allocable to the operation of the facilities but excluding any allocation of corporate operating and property management
expenses, depreciation, and interest were $252.4 million (46% of total revenue) for 2002, as compared to $230.2 million (43% of total revenue) for 2001. We did not incur significant
incremental property operating expenses at the Olympic Properties during 2002. We realized an overall decrease of 7.5% in

20

---

REVPAR
for 2002 as compared to 2001, and our property operating margins were 54% for 2002 and 57% for 2001.

The
provisions for depreciation and amortization for our lodging facilities were $78.1 million for 2002 and $71.1 million for 2001. These provisions were computed using the
straight-line method over the estimated useful lives of the assets. These provisions reflect a pro rata allocation of the annual depreciation and amortization charge for the periods for
which the facilities were in operation. Depreciation and amortization for 2002 increased compared to 2001 because we operated 24 additional facilities in 2002 and because we operated for a full year
the 39 properties that were opened in 2001.



We incurred corporate operating and property management expenses of $48.8 million (9% of total revenue) in 2002 and $47.5 million (9% of total
revenue) in 2001. The increase in the amount of these expenses for 2002 as compared to 2001 reflects the impact of additional personnel and related expenses in connection with the increased number of
facilities we operated.

Depreciation
and amortization was $742,000 for 2002 and $1.0 million for 2001. These provisions were computed using the straight-line method over the estimated useful
lives of the assets. These assets were primarily office furniture and equipment.

We
realized $721,000 of interest income during 2002 and $509,000 of interest income during 2001. This interest income was primarily attributable to the temporary investment of funds
drawn under our credit facilities. We incurred interest charges of $85.4 million during 2002 and $86.9 million during 2001. Of these amounts, $5.5 million during 2002 and
$10.4 million during 2001 was capitalized and included in the cost of buildings and improvements.

Our
effective income tax rate for 2002 decreased from 40.0% to 39.0%, reflecting a reduction in estimated state income taxes resulting from state tax planning and credits. Accordingly,
the provision for income taxes in the first quarter of 2002 reflected a reduction in expense of approximately $3.0 million associated with adjusting our deferred tax assets and liabilities to
reflect the lower rate. The $3.0 million reduction in tax expense and the decrease in our effective rate during 2002 resulted in the recognition of income tax expense of $31.6 million
and $38.7 million (35.6% and 40.0%, respectively, of income before income taxes, and cumulative effect of an accounting change) for 2002 and 2001, respectively. Excluding the impact of our
effective income tax rate decrease, our income tax expense differs from the federal income tax rate of 35% primarily due to state and local income taxes.

Liquidity and Capital Resources

We had net cash and cash equivalents of $16.0 million as of December 31, 2003 and $6.6 million as of December 31, 2002. Deposits in
excess of $100,000 are not insured by the Federal Deposit Insurance Corporation. We invested excess funds during these periods in an overnight sweep account with a commercial bank, which in turn
invested these funds in short-term, interest-bearing reverse repurchase agreements. Due to the short-term nature of these investments, we did not take possession of the
securities, which were instead held by the financial institutions. The market value of the securities held pursuant to these arrangements approximates the carrying amount.

Net
cash provided by operating activities amounted to $145.8 million during 2003, $164.0 million during 2002, and $176.9 million during 2001.

Net
cash used for investment activities associated with acquiring land, developing sites, and constructing and furnishing new hotels amounted to $127.5 million in 2003,
$193.3 million in 2002, and $311.9 million in 2001.

21

---

Our
cost to develop a property varies significantly by brand and by geographic location due to differences in land and labor costs. Similarly, the average weekly rate charged and the
cash flow from these properties will vary significantly, but generally are expected to be in proportion to the
development costs. For the 422 properties we opened from January 1, 1996 through December 31, 2002, the average development cost was approximately $5.9 million with an average of
107 rooms. However, since January 1, 2000, we have opened a number of properties in the Northeast and West, where average development costs are higher. Accordingly, the average development cost
per property for the 110 properties we opened from January 1, 2000 through December 31, 2003 was $8.1 million. We plan to continue to develop properties in the Northeast and West
and expect overall average development costs to be approximately $8.9 million per property in 2004.

We
did not repurchase any shares of our Common Stock during 2003 or 2002. We received net proceeds from the exercise of options to purchase Common Stock totaling $31.0 million in
2003, $6.6 million in 2002, and $19.8 million in 2001.

In
July 2001, we entered into an agreement with various banks establishing $900 million in credit facilities (the "Credit Facility") that provide for revolving loans and
term loans on a senior collateralized basis. The proceeds of the Credit Facility may be used for general corporate purposes and to retire existing indebtedness under our previously existing credit
agreement. The Credit Facility also provides for up to an additional $250 million in uncommitted facilities.

In
connection with the termination of our previously existing credit facility, we incurred a loss on debt extinguishment of $9.9 million, associated with the write-off
of unamortized debt issue costs during 2001.

Loans
under the Credit Facility bear interest, at our option, at either a prime-based rate or a LIBOR-based rate plus an applicable margin. In addition, the commitment fee on the unused
revolving facility is 0.5% per annum. The following table illustrates the amounts committed under the Credit Facility, their final maturities, and the interest on loans made under the Credit Facility,
subject to the terms of the amendments discussed below:

Applicable Margin OverDescriptionTotal Amount

Prime

LIBOR

MaturityRevolving Facility

$
200 million

2.00
%
3.00
%
July 24, 2007A-1 Facility (term loan)


50 million

2.00
%
3.00
%
July 24, 2007A-2 Facility (term loan)


50 million

2.00
%
3.00
%
July 24, 2007A-3 Facility (term loan)


100 million

2.00
%
3.00
%
July 24, 2007B Facility (term loan)


500 million

2.75
%
3.75
%
January 15, 2008


The Credit Facility was amended to provide additional flexibility for future development as well as flexibility in response to continued economic uncertainty. The
amendments modified certain definitions and established a total leverage covenant (defined as the ratio of our consolidated debt to our consolidated EBITDA, each as defined in the Credit Facility
documents) of 5.50 for the period from July 1, 2003 to June 30, 2005, 5.25 for the period from July 1, 2005 to June 30, 2006, and 5.00 for the period from July 1,
2006 and thereafter. Pursuant to the amendments, the Applicable Margin (as defined in the Credit Agreement, as amended) for the Revolver and A Term Loans is determined each quarter based on a
Consolidated Leverage Ratio-based pricing grid. Under the pricing grid, if the Consolidated Leverage Ratio is less than 4.25:1.00, the Applicable Margin for the Revolver and A Term Loans (the
"Margin") is 2.25% for LIBOR Loans and 1.25% for Prime Rate Loans. If the Consolidated Leverage Ratio is less than 4.75:1.00 but greater than or equal to 4.25:1.00, the Margin is 2.50% for LIBOR Loans
and 1.50% for Prime Rate Loans. If the Consolidated Leverage Ratio is less than 5.00:1.00 but greater than or equal to 4.75:1.00, the Margin is 3.00% for LIBOR Loans and 2.00% for Prime Rate Loans. If
the Consolidated Leverage Ratio exceeds 5.00:1.00, the Margin is 3.25% for

22

---

LIBOR
Loans and 2.25% for Prime Rate Loans. At December 31, 2004, the Company experienced a Consolidated Leverage Ratio, for pricing purposes, of 5.04. As such, the Margin will increase to
3.25% for LIBOR Loans and 2.25% for Prime Rate Loans in April 2004 in conjunction with delivery of certain compliance certificates as required by the Credit Agreement. The amendments also
permit us to pay up to $20 million in cash dividends annually and to repurchase up to an aggregate of $35 million of our common stock during the term of the Credit Facility.

At
December 31, 2003, we had no outstanding loans under the $200 million revolving facility and $631.6 million, net of principal repayments, outstanding under the
term loans, leaving $198 million available and committed under the Credit Facility. In January 2002, we borrowed $100 million pursuant to the delayed draw A-3 term
loan. The proceeds of this borrowing were used to repay amounts outstanding under the revolving facility and for working capital purposes. In order to minimize interest rates charged under the Credit
Facility, we prepaid $25 million in March 2002.

The
loans under the Credit Facility will mature on the dates set forth in the table above. The A-1, A-2, and A-3 term loans will be amortized in
quarterly installments of varying amounts through July 24, 2007, and the B term loan will be subject to principal payments of 1% of the initial loan amounts in each of the first six
years following the closing date with the remaining principal balance to be repaid during the seventh year. Availability of the revolving facility is dependent, however, upon us satisfying certain
financial ratios of debt and interest compared to earnings before interest, taxes, depreciation, and amortization, with these amounts being calculated pursuant to definitions contained in the Credit
Facility documents, as amended.

As
of December 31, 2003, we had $1.5 million in outstanding letters of credit. These letters of credit are being maintained as security for construction related performance
and, in certain circumstances, may be required to be maintained through October 2006. Outstanding letters of credit reduce the amount of availability under the Credit Facility. Additionally,
any draws against the letters of credit may be funded from the revolving facility.

We
are required to repay indebtedness outstanding under the Credit Facility with the net cash proceeds from certain sales of our, and our subsidiaries', assets, from issuances of debt by
us or our subsidiaries, and from insurance recovery events (subject to certain reinvestment rights). We are also required to repay indebtedness outstanding under the Credit Facility annually in an
amount equal to 50% of our excess cash flow, as calculated pursuant to the Credit Facility.

Our
obligations under the Credit Facility are guaranteed by each of our subsidiaries. The Credit Facility is also collateralized by a first priority lien on all stock of our subsidiaries
and all other current and future assets owned by us and our subsidiaries (other than mortgages on real property).

The
Credit Facility contains a number of negative covenants, including, among others, covenants that limit our ability under certain circumstances to incur debt, make investments, pay
dividends, prepay other indebtedness, engage in transactions with affiliates, enter into sale-leaseback transactions, create liens, make capital expenditures, acquire or dispose of assets,
or engage in mergers or acquisitions. In addition, the Credit Facility contains affirmative covenants, including, among others, covenants that require us to maintain our corporate existence, comply
with laws, maintain our properties and insurance, and deliver financial and other information to the lenders. The Credit Facility also requires us to comply with certain financial tests on a
consolidated basis, including a maximum total leverage ratio, a maximum senior leverage ratio, and a minimum interest coverage ratio.

Failure
to satisfy any of the covenants constitutes an event of default under the Credit Facility, notwithstanding our ability to meet our debt service obligations. The loan
documentation includes other customary and usual events of default for these types of credit facilities, including without limitation, an event of default if a change of control occurs. Upon the
occurrence of an event of default, the lenders

23

---

have
the ability to accelerate all amounts then outstanding under the Credit Facility and to foreclose on the collateral. We were in compliance with all covenants during 2003 and at
December 31, 2003.

Our
primary market risk exposures result from the variable nature of the interest rates on borrowings under the Credit Facility. We entered into the Credit Facility for purposes other
than trading or speculation. Based on the levels of borrowings under the Credit Facility at December 31, 2003, if interest rates changed by 1.0%, our annual cash flow and net income would
change by $3.9 million. We manage our market risk exposures by periodic evaluation of such exposures relative to the costs of reducing the exposures, by entering into interest rate swaps, or by
refinancing the underlying obligations with longer term fixed rate debt obligations. We do not own derivative financial instruments or derivative commodity instruments.

In
March 1998, we issued $200 million aggregate principal amount of senior subordinated notes (the "2008 Notes"). The 2008 Notes bear interest at an annual rate of 9.15%,
payable semiannually on March 15 and September 15 of each year and mature on March 15, 2008. We may redeem the 2008 Notes beginning on March 15, 2003. The initial
redemption price is 104.575% of their principal amount, plus accrued interest. The redemption price declines each year after 2003 and is 100% of their principal amount, plus accrued interest, after
2006.

In
June 2001, we issued $300 million aggregate principal amount of senior subordinated notes (the "2011 Notes" and together with the 2008 Notes, the "Notes"). The net
proceeds on the 2011 Notes were used to reduce amounts outstanding under a previously existing credit facility. The 2011 Notes bear interest at an annual rate of 9.875%, payable semiannually on
June 15 and December 15 of each year and mature on June 15, 2011. We may redeem the 2011 Notes beginning on June 15, 2006. The initial redemption price is 104.938% of their
principal amount, plus accrued interest. The redemption price declines each year after 2006 and is 100% of their principal amount, plus accrued interest, beginning June 15, 2009. In addition,
before June 15, 2004, we may redeem up to $105 million of the 2011 Notes at 109.875% of their principal amount plus accrued interest, using the proceeds from sales of certain kinds of
our capital stock.

The
2011 Notes are pari passu with the 2008 Notes. The Notes are not collateralized and are subordinated to our senior indebtedness, including the Credit Facility. The Notes contain
certain covenants for the benefit of the holders. These covenants, among other things, limit our ability under certain circumstances to incur additional indebtedness, pay dividends, and make
investments and other restricted payments, enter into transactions with our 5% stockholders or affiliates, create liens, and sell assets.

In
connection with the Credit Facility and the Notes, we incurred additions to deferred loan costs of $2.3 million during 2003, $2.2 million during 2002, and
$21.5 million during 2001.

At
December 31, 2003, we had 11 sites under construction with total development costs of approximately $96 million. We currently plan to complete construction on those 11
sites in 2004 and to commence construction on 18 additional sites. We expect to incur total development costs in 2004 of approximately $155 million. At this time, we believe we will be
successful in obtaining extensions on a majority of the 22 sites we have under option at December 31, 2003, if needed. We will continue to seek the necessary approvals and permits for these
sites and for additional sites. Our future construction plans are limited by the constraints of our amended Credit Facility and are contingent upon a number of factors, including improvements in the
overall U.S. economy, improvements in demand for lodging products in the overall lodging industry, and improvements in demand for our extended stay lodging products. Our future development and growth
plans may also be modified as a result of the Agreement and Plan of Merger entered into March 5, 2004 with affiliates of The Blackstone Group, and as such, the classification and valuation of
certain assets may be modified.

24

---

At
December 31, 2003, we had commitments under cancelable construction contracts not reflected in our financial statements totaling approximately $53 million to complete
construction of extended stay properties. We believe that the remaining availability under the Credit Facility, together with our cash on hand and cash flows from operations, will provide sufficient
funds to continue our expansion as presently planned and to fund our operating expenses, including our working capital deficit, for the next twelve months. We may increase our capital expenditures and
property openings in future years, in which case our capital needs will increase. We may also need additional capital depending on a number of factors, including the number of properties we construct
or acquire, the timing of that development, the cash flow generated by our properties, the amount of cash dividends we may pay on our common stock, and the amount of open market repurchases we make of
our Common Stock. Also, if capital markets provide favorable opportunities, our plans or assumptions change or prove to be inaccurate, our existing sources of funds prove to be insufficient to fund
our growth and operations, or if we consummate acquisitions, we may seek additional capital sooner than currently anticipated. In the event we obtain additional capital, we may seek to increase
property openings in future years. Sources of capital may include public or private debt or equity financing. We cannot assure you that we will be able to obtain additional financing on acceptable
terms, if at all. Our failure to raise additional capital could result in the delay or abandonment of some or all of our development and expansion plans, and could have a material adverse effect on
us.

The
following table provides a summary of the impact our contractual obligations are expected to have on our future liquidity (in thousands):

|Contractual Obligations       |  | Total |           | Less than
1 year |   | 1-3 years |  | More than
3-5 years |         | 5 years
|----------------------------- |  | ----- | --------- | ---------------- | - | --------- |  | ------------------- | ------- | -------
|Long-term debt(1)             |  | $     | 1,131,565 |                  | $ | 33,748    |  | $                   | 108,475 |        
|Operating leases(2)           |  |       | 3,892     |                  |   | 1,072     |  |                     | 1,795   |        
|                              |  |       |           |                  |   |           |  |                     |         |        
|Total contractual obligations |  | $     | 1,135,457 |                  | $ | 34,820    |  | $                   | 110,270 |        
|                              |  |       |           |                  |   |           |  |                     |         |        

---

Off-Balance Sheet Arrangements

We currently have no "off-balance sheet arrangements" that would be required to be disclosed pursuant to Item 303 of Regulation S-K
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Application of Critical Accounting Policies

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," we evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. SFAS
No. 144 requires that if the sum of the future cash flows expected to result from a company's long-lived assets, undiscounted and without interest charges, is less than the reported
value of those assets, an asset impairment must be recognized in the financial statements. The amount of impairment to recognize is calculated by subtracting the fair value of the assets from the
reported value of the assets.

We
believe that the accounting estimate related to asset impairment is a "critical accounting estimate" because: (1) it is highly susceptible to change from period to period
because it requires us to make assumptions about future revenues and expenses over the estimated useful life of our long-lived assets; and (2) the impact that recognizing an
impairment would have on the assets reported on our

25

---

balance
sheet as well as our net income may be material. Our assumptions about future revenues and expenses require significant judgment because actual revenues and operating expenses have fluctuated
in the past and are expected to continue to do so. We have discussed the development and selection of this critical accounting estimate with the audit committee of our board of directors, and the
audit committee has reviewed our related disclosure.

In
estimating future revenues and expenses, we may consider local market conditions, recent industry REVPAR trends, our recent REVPAR trends, economic forecasts, estimated changes in
operating costs, budgets, and other factors.

We
analyzed our long-lived assets for impairment for the years ended December 31, 2003, 2002, and 2001 and determined there were no events or changes in circumstances
indicating the carrying amount of our long-lived assets may not be recoverable. Accordingly, no impairment charges were recognized for the years ended December 31, 2003, 2002, or
2001.

Depending
on the size of an impairment loss, if any, our liquidity and capital resources may be affected in the future.

New Accounting Releases

In December 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46-R ("FIN 46-R"),
"Consolidation of Variable Interest Entities," to expand upon and strengthen existing accounting guidance that addresses when a company should include the assets, liabilities, and activities of
another entity in its financial statements. To improve financial reporting by companies involved with variable interest entities (more commonly referred to as special-purpose entities or
off-balance sheet structures), FIN 46-R requires that a variable interest entity be consolidated by a company if that company is subject to a majority risk of loss from the
variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. Prior to FIN 46-R, a company generally included another entity in its
consolidated financial statements only if it controlled the entity through voting interests. The consolidation requirements of FIN 46-R apply immediately to variable interest entities
created after January 31, 2003, and to older entities in the first fiscal year or interim
period beginning after December 15, 2003. The adoption of this interpretation did not have a material effect on our financial statements.

In
April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which is effective for contracts entered into or
modified after September 30, 2003 and for hedging relationships designated after September 30, 2003. SFAS No. 149 amends and clarifies the financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The adoption of this statement did not have a material effect on our financial statements.

In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. SFAS
No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The adoption of this statement did not
have a material effect on our financial statements.

Seasonality and Inflation

Based upon the operating history of our facilities, we believe that extended stay lodging facilities are not as seasonal in nature as those in the overall lodging
industry. We do expect, however, that our occupancy rates and revenues will be lower than average during the first and fourth quarters of each

26

---

calendar
year. Because many of our expenses do not fluctuate with changes in occupancy rates, declines in occupancy rates may cause fluctuations or decreases in our quarterly earnings.

The
rate of inflation as measured by changes in the average consumer price index has not had a material effect on our revenue or operating results during any of the periods presented. We
cannot assure you, however, that inflation will not affect our future operating or construction costs.

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

This
Annual Report on Form 10-K includes forward-looking statements. We use the terms "expects", "intends", "plans", "projects", "believes", "estimates", and similar
expressions to identify these forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. However, these forward-looking
statements are subject to risks, uncertainties, assumptions, and other factors that may cause our actual results, performance, or achievements to be materially different. These factors include, among
other things:



Other
matters set forth in this Annual Report may also cause our actual future results to differ materially from these forward-looking statements. We cannot assure you that our
expectations will prove to be correct. In addition, all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their
entirety by the cautionary statements mentioned above. You should not place undue reliance on these forward-looking statements. All of these forward-looking statements are based on our expectations as
of the date of this Annual Report. We do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Copies
of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through our website (www.extendedstay.com) as soon as reasonably practicable after
we electronically file the material with, or furnish it to, the SEC.

27

---

Information
included on our website is not considered part of this filing. A copy of our Code of Ethics for Senior Financial Officers is also available free of charge through our website.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources."

28

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

*****

INDEX TO FINANCIAL STATEMENTS

|                                                                                                      |  | Page
|----------------------------------------------------------------------------------------------------- |  | ----
|EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES                                                          |  |     
|Report of Independent Auditors                                                                        |  | 30  
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                          |  | 31  
|Consolidated Statements of Income for the years ended December 31, 2003, 2002, and 2001               |  | 32  
|Consolidated Statements of Stockholders' Equity for the years ended December 31, 2003, 2002, and 2001 |  | 33  
|Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002, and 2001           |  | 34  
|Notes to Consolidated Financial Statements                                                            |  | 35  

29

---



REPORT OF INDEPENDENT AUDITORS

To
the Board of Directors
Extended Stay America, Inc.

In
our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of stockholders' equity and of cash flows present fairly, in all material
respects, the financial position of Extended Stay America, Inc. and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As
discussed in Note 1 to the consolidated financial statements, in 2001 the Company changed its method of accounting for derivatives.

PRICEWATERHOUSECOOPERS LLP

Spartanburg, South Carolina
February 27, 2004, except as
to Note 11 which is as of
March 5, 2004

30

---

EXTENDED STAY AMERICA, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

|                                            |                                                                                                                                     | December 31,              
|------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | --------------------------
|
|ASSETS                                     
|Current assets:                             |                                                                                                                                     |                           
|                                            | Cash and cash equivalents                                                                                                           |                           
|                                            | Accounts receivable                                                                                                                 |                           
|                                            | Prepaid income taxes                                                                                                                |                           
|                                            | Prepaid expenses                                                                                                                    |                           
|                                            | Deferred income taxes                                                                                                               |                           
|                                            |                                                                                                                                     |                           
|                                            |                                                                                                                                     | Total current assets      
|Property and equipment, net                 |                                                                                                                                     |                           
|Deferred loan costs                         |                                                                                                                                     |                           
|Deferred income taxes                       |                                                                                                                                     |                           
|Other assets                                |                                                                                                                                     |                           
|                                            |                                                                                                                                     |                           
|                                            |                                                                                                                                     | $                         
|                                            |                                                                                                                                     |                           
|LIABILITIES AND STOCKHOLDERS' EQUITY       
|Current liabilities:                        |                                                                                                                                     |                           
|                                            | Accounts payable                                                                                                                    |                           
|                                            | Accrued retainage                                                                                                                   |                           
|                                            | Accrued property taxes                                                                                                              |                           
|                                            | Accrued salaries and related expenses                                                                                               |                           
|                                            | Accrued interest                                                                                                                    |                           
|                                            | Other accrued expenses                                                                                                              |                           
|                                            | Current portion of long-term debt                                                                                                   |                           
|                                            |                                                                                                                                     |                           
|                                            |                                                                                                                                     | Total current liabilities 
|                                            |                                                                                                                                     |                           
|Deferred income taxes                       |                                                                                                                                     |                           
|                                            |                                                                                                                                     |                           
|Long-term debt                              |                                                                                                                                     |                           
|                                            |                                                                                                                                     |                           
|Commitments and Contingencies (see Note 10) |                                                                                                                                     |                           
|Stockholders' equity:                       |                                                                                                                                     |                           
|                                            | Preferred stock, $.01 par value, 10,000,000 shares authorized, no shares issued and outstanding                                     |                           
|                                            | Common stock, $.01 par value, 500,000,000 shares authorized, 97,403,683, and 93,923,169 shares issued and outstanding, respectively |                           
|                                            | Additional paid-in capital                                                                                                          |                           
|                                            | Retained earnings                                                                                                                   |                           
|                                            |                                                                                                                                     |                           
|                                            |                                                                                                                                     | Total stockholders' equity
|                                            |                                                                                                                                     |                           
|                                            |                                                                                                                                     | $                         
|                                            |                                                                                                                                     |                           

See notes to consolidated financial statements.

31

---

EXTENDED STAY AMERICA, INC.

CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

|                                                                             |                                                      | Year Ended December 31,  |        
|---------------------------------------------------------------------------- | ---------------------------------------------------- | ------------------------ | -------
|
|Revenue:                                                                     |                                                      |                          |        
|                                                                             | Room revenue                                         |                          | $      
|                                                                             | Other revenue                                        |                          |        
|                                                                             |                                                      |                          |        
|                                                                             |                                                      | Total revenue            |        
|                                                                             |                                                      |                          |        
|Costs and expenses:                                                          |                                                      |                          |        
|                                                                             | Property operating expenses                          |                          |        
|                                                                             | Corporate operating and property management expenses |                          |        
|                                                                             | Loss on debt extinguishment                          |                          |        
|                                                                             | Other charges                                        |                          |        
|                                                                             | Depreciation and amortization                        |                          |        
|                                                                             |                                                      |                          |        
|                                                                             |                                                      | Total costs and expenses |        
|                                                                             |                                                      |                          |        
|Income from operations                                                       |                                                      |                          | 144,416
|Interest expense, net                                                        |                                                      |                          | 78,257 
|                                                                             |                                                      |                          |        
|Income before income taxes and cumulative effect of accounting change        |                                                      |                          | 66,159 
|Provision for income taxes                                                   |                                                      |                          | 25,803 
|                                                                             |                                                      |                          |        
|Income before cumulative effect of accounting change                         |                                                      |                          | 40,356 
|Cumulative effect of change in accounting, net of income tax benefit of $446 |                                                      |                          |        
|                                                                             |                                                      |                          |        
|Net income                                                                   |                                                      | $                        | 40,356 
|                                                                             |                                                      |                          |        
|Per common shareBasic:                                                      |                                                      |                          |        
|                                                                             | Income before cumulative effect of accounting change |                          | $      
|                                                                             | Cumulative effect of accounting change               |                          |        
|                                                                             |                                                      |                          |        
|                                                                             | Net income                                           |                          | $      
|                                                                             |                                                      |                          |        
|Per common shareDiluted:                                                    |                                                      |                          |        
|                                                                             | Income before cumulative effect of accounting change |                          |        
|                                                                             | Cumulative effect of accounting change               |                          |        
|                                                                             |                                                      |                          |        
|                                                                             | Net income                                           |                          | $      
|                                                                             |                                                      |                          |        
|Weighted average shares:                                                     |                                                      |                          |        
|                                                                             | Basic                                                |                          |        
|                                                                             | Effect of dilutive options                           |                          |        
|                                                                             |                                                      |                          |        
|                                                                             | Diluted                                              |                          |        
|                                                                             |                                                      |                          |        

See notes to consolidated financial statements.

32

---

EXTENDED STAY AMERICA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)

|                                                         |  | Common Stock |     | Additional Paid-in Capital |   | Retained Earnings |   | Total Stockholders' Equity |        
|-------------------------------------------------------- |  | ------------ | --- | -------------------------- | - | ----------------- | - | -------------------------- | -------
|Balance as of December 31, 2000                          |  | $            | 955 |                            | $ | 825,755           |   | $                          | 155,923
|Repurchases of common stock                              |  |              | (42 | )                          |   | (58,320           | ) |                            |        
|Stock options exercised, including tax benefit of $4,970 |  |              | 19  |                            |   | 26,049            |   |                            |        
|Net income                                               |  |              |     |                            |   |                   |   |                            | 57,444 
|                                                         |  |              |     |                            |   |                   |   |                            |        
|Balance as of December 31, 2001                          |  |              | 932 |                            |   | 793,484           |   |                            | 213,367
|Stock options exercised, including tax benefit of $1,677 |  |              | 7   |                            |   | 8,273             |   |                            |        
|Net income                                               |  |              |     |                            |   |                   |   |                            | 57,105 
|                                                         |  |              |     |                            |   |                   |   |                            |        
|Balance as of December 31, 2002                          |  |              | 939 |                            |   | 801,757           |   |                            | 270,472
|Stock option exercised, including tax benefit of $8,206  |  |              | 35  |                            |   | 39,144            |   |                            |        
|Cash dividends paid ($0.04 per common share)             |  |              |     |                            |   |                   |   |                            | (3,885 
|Net income                                               |  |              |     |                            |   |                   |   |                            | 40,356 
|                                                         |  |              |     |                            |   |                   |   |                            |        
|Balance as of December 31, 2003                          |  | $            | 974 |                            | $ | 840,901           |   | $                          | 306,943
|                                                         |  |              |     |                            |   |                   |   |                            |        

See notes to consolidated financial statements.

33

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EXTENDED STAY AMERICA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

|                                                 |                                                                                    | Year Ended December 31,                                          |                                             
|------------------------------------------------ | ---------------------------------------------------------------------------------- | ---------------------------------------------------------------- | --------------------------------------------
|
|Cash flows from operating activities:            |                                                                                    |                                                                  |                                             
|                                                 | Net income                                                                         |                                                                  | $                                           
|                                                 | Adjustments to reconcile net income to net cash provided by operating activities:  |                                                                  |                                             
|                                                 |                                                                                    | Depreciation and amortization                                    |                                             
|                                                 |                                                                                    | Amortization of deferred loan costs included in interest expense |                                             
|                                                 |                                                                                    | Deferred income taxes                                            |                                             
|                                                 |                                                                                    | Non-cash charges included in headquarters relocation costs       |                                             
|                                                 |                                                                                    | Loss on debt extinguishment                                      |                                             
|                                                 |                                                                                    | Cumulative effect of accounting change, net                      |                                             
|                                                 |                                                                                    | Changes in operating assets and liabilities:                     |                                             
|                                                 |                                                                                    |                                                                  | Accounts receivable                         
|                                                 |                                                                                    |                                                                  | Current income taxes                        
|                                                 |                                                                                    |                                                                  | Prepaid expenses                            
|                                                 |                                                                                    |                                                                  | Other current assets                        
|                                                 |                                                                                    |                                                                  | Accounts payable                            
|                                                 |                                                                                    |                                                                  | Accrued property taxes                      
|                                                 |                                                                                    |                                                                  | Accrued salaries and related expenses       
|                                                 |                                                                                    |                                                                  | Accrued interest                            
|                                                 |                                                                                    |                                                                  | Other accrued expenses                      
|                                                 |                                                                                    |                                                                  |                                             
|                                                 |                                                                                    |                                                                  |                                             
|                                                 |                                                                                    |                                                                  |                                             
|Cash flows from investing activities:            |                                                                                    |                                                                  |                                             
|                                                 | Additions to property and equipment                                                |                                                                  |                                             
|                                                 | Other assets                                                                       |                                                                  |                                             
|                                                 |                                                                                    |                                                                  |                                             
|                                                 |                                                                                    |                                                                  |                                             
|                                                 |                                                                                    |                                                                  |                                             
|Cash flows from financing activities:            |                                                                                    |                                                                  |                                             
|                                                 | Proceeds from exercise of Company stock options                                    |                                                                  |                                             
|                                                 | Cash dividends paid                                                                |                                                                  |                                             
|                                                 | Repurchases of Company common stock                                                |                                                                  |                                             
|                                                 | Proceeds from long-term debt                                                       |                                                                  |                                             
|                                                 | Principal payments on long-term debt                                               |                                                                  |                                             
|                                                 | Additions to deferred loan and other costs                                         |                                                                  |                                             
|                                                 |                                                                                    |                                                                  |                                             
|                                                 |                                                                                    |                                                                  |                                             
|                                                 |                                                                                    |                                                                  |                                             
|(Decrease) increase in cash and cash equivalents |                                                                                    |                                                                  | 9,442                                       
|Cash and cash equivalents at beginning of period |                                                                                    |                                                                  | 6,583                                       
|                                                 |                                                                                    |                                                                  |                                             
|Cash and cash equivalents at end of period       |                                                                                    | $                                                                | 16,025                                      
|                                                 |                                                                                    |                                                                  |                                             
|Noncash investing and financing transactions:    |                                                                                    |                                                                  |                                             
|                                                 | Capitalized or deferred items included in accounts payable and accrued liabilities |                                                                  | $                                           
|                                                 |                                                                                    |                                                                  |                                             
|                                                 | Supplemental cash flow disclosures:                                                |                                                                  |                                             
|                                                 |                                                                                    | Cash paid for:                                                   |                                             
|                                                 |                                                                                    |                                                                  | Income taxes, net of refunds                
|                                                 |                                                                                    |                                                                  |                                             
|                                                 |                                                                                    |                                                                  | Interest expense, net of amounts capitalized
|                                                 |                                                                                    |                                                                  |                                             

See notes to consolidated financial statements.

34

---

Note 1Summary of Significant Accounting Policies

Organization and Principles of Consolidation

Extended Stay America, Inc. and subsidiaries (the "Company", "ESA", "we", "our", "ours", or "us") was organized on January 9, 1995, as a Delaware
corporation to develop, own, and operate extended stay lodging facilities. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in consolidation.

Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and on deposit and highly liquid instruments with maturities of three months or less when purchased. The
carrying amount of cash and cash equivalents is the estimated fair value at the respective balance sheet date.

Deposits
in excess of $100,000 are not insured by the Federal Deposit Insurance Corporation. During these periods we invested excess funds in an overnight sweep account with a commercial
bank which invested in short-term, interest-bearing reverse repurchase agreements. Due to the short-term nature of these investments, we did not take possession of the
securities, which were instead held by the financial institution. The market value of the securities held pursuant to the agreements approximated the carrying amount.

Accounts Receivable

Accounts receivable at December 31, 2003, and 2002 is stated net of an allowance for doubtful accounts of $700,000, for each period respectively. We
wrote-off, net of recoveries, uncollectible accounts of $1,499,000 $1,402,000 and $1,331,000 in 2003, 2002, and 2001, respectively.

Property and Equipment

Property and equipment is stated at cost. We capitalize salaries and related costs for site selection, design and construction supervision. We also capitalize
construction period interest.

Depreciation
is computed using the straight-line method over the estimated useful lives of the assets. As a lodging facility ages, scheduled maintenance and replacement costs
for that property generally increase. A significant portion of our operating facilities were opened during 1997-1998 when we opened 230 properties. We capitalize major renewals and
improvements but expense repairs, maintenance, and replacements as incurred. Any gain or loss on the disposition of property and equipment is recorded in the year of disposition.

The
estimated useful lives of the assets are as follows:

Buildings and improvements

40 yearsFurniture, fixtures and equipment

310 years


We utilize general contractors for the construction of our properties. Pursuant to the terms of our contractual agreements with the general contractors, amounts
are retained from payments made to

35

---

them
until such time as the terms of the agreement have been satisfactorily completed. Retained amounts are recorded as accrued retainage.

Impairment of Long-Lived Assets

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we evaluate our long-lived
assets for impairment whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. SFAS No. 144 requires that if the sum of the future
cash flows expected to result from a company's long-lived assets, undiscounted and without interest charges, is less than the reported value of those assets, an asset impairment must be
recognized in the financial statements. The amount of impairment to recognize is calculated by subtracting the fair value of the assets from the reported value of the assets.

We
performed a comprehensive review of long-lived assets as of December 31, 2003. Based on this review, there were no events or changes in circumstances indicating the
carrying value of our long-lived assets may not be recoverable.

Preacquisition Costs

We incur costs related to the acquisition of property sites. These costs are capitalized when it is probable that a site will be acquired. These costs are
included in property and equipment. In the event the acquisition of the site is not consummated, the costs are charged to corporate operating expenses.

Debt Issue Costs

We have incurred costs in obtaining financing. These costs have been deferred and are amortized over the life of the respective loans. In connection with the
termination of our previously existing credit facility in July 2001, we incurred a loss on debt extinguishment of $9.9 million, associated with the
write-off of unamortized debt issue costs. In accordance with the provisions of SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections", this charge was reclassified from an extraordinary item to a loss on debt extinguishment.

Derivative Financial Instruments and Cumulative Effect of a Change in Accounting

We do not enter into financial instruments for trading or speculative purposes. We use interest rate cap contracts to hedge our exposure on variable rate debt.
Through December 31, 2000, the cost of the cap contracts was included in prepaid expenses and amortized to interest expense over the life of the contracts.

SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities," as amended, requires all derivatives to be carried on the balance sheet at fair value. SFAS
No. 133, as amended, is effective for financial statements issued for periods beginning after December 15, 2000. At December 31, 2000, the carrying value of our interest rate cap
contracts was $1,115,000 and their fair value was zero. We adopted SFAS No. 133 on January 1, 2001 and designated our interest rate cap contracts as cash-flow hedges of our
variable rate debt. SFAS No. 133, as interpreted by the Derivatives Implementation Group, required the transition adjustment to be allocated between the cumulative-effect-type
adjustment of earnings and the cumulative-effect-type adjustment of other comprehensive income based on our pre-SFAS No.133 accounting policy for the contracts. Since the fair
value of the interest rate cap contracts at adoption was zero, the entire transition adjustment of $669,000, net of income tax benefit of $446,000, was recognized in earnings as a cumulative effect
adjustment during 2001.

36

---

Revenue Recognition

Effective December 31, 2000, we adopted the SEC's Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition" as amended. SAB No. 101
provides guidance on the recognition, presentation, and disclosure of revenue, including specifying basic criteria which must be met before revenue can be recognized. The adoption of SAB
No. 101 had no impact on our financial statements.

Room
revenue and other revenue are recognized when services are rendered. Amounts paid in advance are deferred until earned. Room revenue on weekly guests is recognized ratably. In the
event guests check-out early making them ineligible for the weekly rate, they are
re-assessed at the daily rate with any resulting adjustment reflected in revenue on the date of check-out. Other revenue consists, primarily, of revenue derived from telephone,
vending, guest laundry, and other miscellaneous fees or services.

Other Charges

In May 2001, we announced that we would relocate our corporate headquarters from Ft. Lauderdale, Florida to Spartanburg, South Carolina. The relocation was
completed in 2001. As a result, we recognized costs associated with the relocation of approximately $9.0 million during 2001. These costs include severance and relocation costs and
approximately $2.1 million in non-cash charges related to the abandonment of unamortized leasehold improvements and charges associated with the valuation of stock options for
employees terminated as a result of the relocation.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and for operating loss and tax carryforwards.

Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the related temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Stock Option Plans

At December 31, 2003, we had six stock-based employee compensation plans, which are described more fully in Note 7. We account for those plans under
the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. In connection with the relocation of our corporate
headquarters in 2001, we incurred approximately $853,000, net of tax, in non-cash charges associated with the valuation of stock options for terminated employees. We also incurred
approximately $632,000, net of tax, in non-cash charges associated with the valuation of stock options for terminated employees during 2003. No other stock-based employee compensation cost
is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share for the years ended December 31, 2003, 2002, and 2001 as if we had applied the fair value recognition provisions of FASB Statement
No. 123, "Accounting for Stock Based Compensation," to stock-based employee compensation (in the following table, and all subsequent tables in these Notes to Consolidated Financial Statements,
unless

37

---

the
context indicates otherwise, all financial information other than share information is presented in thousands).

Year Ended December 31,2003

2002

2001Net income, as reported

$
40,356

$
57,105

$
57,444Stock-based employee compensation expense included in reported net income, net of related tax effects


632





853Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects


(8,135
)

(9,384
)

(8,673
)Pro forma net income

$
32,853

$
47,721

$
49,624Earnings per share:Basicas reported

$
0.42

$
0.61

$
0.61Basicpro forma

$
0.34

$
0.51

$
0.53Dilutedas reported

$
0.42

$
0.59

$
0.59Dilutedpro forma

$
0.34

$
0.49

$
0.51


Net Income Per Share

We determine earnings per share ("EPS") in accordance with SFAS No. 128, "Earnings Per Share". For the years ended December 31, 2003, 2002, and
2001, the computation of diluted EPS does not include approximately 3.1 million, 2.6 million, and 2.4 million weighted average shares, respectively, of common stock, par value
$0.01 per share, of ESA ("Common Stock") represented by outstanding options because the exercise price of the options was greater than the average market price of Common Stock during the period.

Business Segment

We operate principally in one business segment, which is to develop, own, and operate extended stay lodging facilities.

Reclassification

Certain previously reported amounts have been reclassified to conform with the current presentation.

38

---

Note 2Property and Equipment

Property and equipment consist of the following:

December 31,2003

2002Operating Facilities:Land and improvements

$
680,300

$
646,189Buildings and improvements


1,742,589


1,658,888Furniture, fixtures, equipment, and supplies


319,740


306,506Total operating facilities


2,742,629


2,611,583Office:Land and improvements


1,470


Building and improvements


15,522


Furniture, fixtures, equipment and supplies


7,849


7,283Total Offices


24,841


7,283Facilities under development, including land and improvements


71,033


101,4102,838,503


2,720,276Less: Accumulated depreciation


(427,439
)

(347,337
)Total property and equipment

$
2,411,064

$
2,372,939


At December 31, 2003 we had commitments under cancelable construction contracts totaling approximately $53 million to complete construction of
additional extended stay properties.

For
the years ended December 31, 2003, 2002, and 2001, we incurred interest of $83.2 million, $85.4 million, and $86.9 million, respectively, of which
$4.7 million, $5.5 million, and $10.4 million, respectively, was capitalized and included in the cost of buildings and improvements.

Note 3Options to Purchase Property Sites

As of December 31, 2003 we had paid approximately $901,000 in connection with options to purchase parcels of real estate in 22 locations in
11 states. If we do not acquire these parcels, the amounts paid in connection with the options may be forfeited under certain circumstances. These amounts are included in property and
equipment.

Note 4Long-Term Debt

In July 2001, we entered into an agreement with various banks establishing $900 million in credit facilities (the "Credit Facility") that provide
for revolving loans and term loans on a senior collateralized basis. The proceeds of the Credit Facility are to be used for general corporate purposes and to retire existing indebtedness under our
previously existing credit agreement.

Loans
under the Credit Facility bear interest, at our option, at either a prime-based rate or a LIBOR-based rate plus an applicable margin. The following table illustrates the amounts
committed

39

---

under
the Credit Facility, their final maturities, and the interest on loans made under the Credit Facility, subject to the terms of the amendments discussed below:

Applicable Margin OverDescription

Total Amount

Prime

LIBOR

MaturityRevolving Facility

$
200 million

2.00
%
3.00
%
July 24, 2007A-1 Facility (term loan)


50 million

2.00
%
3.00
%
July 24, 2007A-2 Facility (term loan)


50 million

2.00
%
3.00
%
July 24, 2007A-3 Facility (term loan)


100 million

2.00
%
3.00
%
July 24, 2007B Facility (term loan)


500 million

2.75
%
3.75
%
January 15, 2008


The Credit Facility was amended in December 2001, October 2002, and July 2003 to provide additional flexibility for future development as
well as flexibility in response to continued economic uncertainty.
The amendments modified certain definitions and established a total leverage covenant (defined as the ratio of our consolidated debt to our consolidated EBITDA, each as defined in the Credit Facility
documents) of 5.50 for the period from July 1, 2003 to June 30, 2005, 5.25 for the period from July 1, 2005 to June 30, 2006, and 5.00 for the period from July 1,
2006 and thereafter. Pursuant to the amendments, the Applicable Margin (as defined in the Credit Agreement, as amended) for the Revolver and A Term Loans is determined each quarter based on a
Consolidated Leverage Ratio-based pricing grid. Under the pricing grid, if the Consolidated Leverage Ratio is less than 4.25:1.00, the Applicable Margin for the Revolver and A Term Loans (the
"Margin") is 2.25% for LIBOR Loans and 1.25% for Prime Rate Loans. If the Consolidated Leverage Ratio is less than 4.75:1.00 but greater than or equal to 4.25:1.00, the Margin is 2.50% for LIBOR Loans
and 1.50% for Prime Rate Loans. If the Consolidated Leverage Ratio is less than 5.00:1.00 but greater than or equal to 4.75:1.00, the Margin is 3.00% for LIBOR Loans and 2.00% for Prime Rate Loans. If
the Consolidated Leverage Ratio exceeds 5.00:1.00, the Margin is 3.25% for LIBOR Loans and 2.25% for Prime Rate Loans. At December 31, 2004, the Company experienced a Consolidated Leverage
Ratio, for pricing purposes, of 5.04. As such, the Margin will increase to 3.25% for LIBOR Loans and 2.25% for Prime Rate Loans in April 2004 in conjunction with delivery of certain compliance
certificates as required by the Credit Agreement. The amendments also permit us to pay up to $20 million in cash dividends annually and to repurchase up to an aggregate of $35 million of
our common stock during the term of the Credit Facility.

At
December 31, 2003, we had no outstanding loans under the $200 million revolving facility and $631.6 million, net of principal repayments, outstanding under the
term loans, leaving $198 million available and committed under the Credit Facility. In January 2002, we borrowed $100 million pursuant to the delayed draw A-3 term
loan. The proceeds of this borrowing were used to repay amounts outstanding under the revolving facility and for working capital purposes. In order to minimize interest rates charged under the Credit
Facility, we prepaid $25 million in March 2002.

The
loans under the Credit Facility will mature on the dates set forth in the table above. The A-1, A-2, and A-3 term loans will be amortized in
quarterly installments of varying amounts through July 24, 2007, and the B term loan will be subject to principal payments of 1% of the initial loan amounts in each of the first six years
following the closing date with the remaining principal balance to be repaid during the seventh year. Availability of the revolving facility is dependent, however, upon us satisfying certain financial
ratios of debt and interest compared to earnings before interest, taxes, depreciation, and amortization, with these amounts being calculated pursuant to definitions contained in the Credit Facility
documents, as amended.

As
of December 31, 2003, we had $1.5 million in outstanding letters of credit. These letters of credit are being maintained as security for construction related performance
and, in certain circumstances, may be required to be maintained through October 2006. Outstanding letters of credit

40

---

reduce
the amount of availability under the Credit Facility. Additionally, any draws against the letters of credit may be funded from the revolving facility.

We
are required to repay indebtedness outstanding under the Credit Facility with the net cash proceeds from certain sales of our, and our subsidiaries', assets, from issuances of debt by
us or our subsidiaries, and from insurance recovery events (subject to certain reinvestment rights). We are also required to repay indebtedness outstanding under the Credit Facility annually in an
amount equal to 50% of our excess cash flow, as calculated pursuant to the Credit Facility.

Our
obligations under the Credit Facility are guaranteed by each of our subsidiaries. The Credit Facility is also collateralized by a first priority lien on all stock of our subsidiaries
and all other current and future assets owned by us and our subsidiaries (other than mortgages on real property).

The
Credit Facility contains a number of negative covenants, including, among others, covenants that limit our ability under certain circumstances to incur debt, make investments, pay
dividends, prepay other indebtedness, engage in transactions with affiliates, enter into sale-leaseback transactions, create liens, make capital expenditures, acquire or dispose of assets,
or engage in mergers or acquisitions. In addition, the Credit Facility contains affirmative covenants, including, among others, covenants that require us to maintain our corporate existence, comply
with laws, maintain our properties and insurance, and deliver financial and other information to the lenders. The Credit Facility also requires us to comply with certain financial tests on a
consolidated basis. We were in compliance with all covenants during 2003 and at December 31, 2003.

In
March 1998, we issued $200 million aggregate principal amount of senior subordinated notes (the "2008 Notes"). The 2008 Notes bear interest at an annual rate of 9.15%,
payable semiannually on March 15 and September 15 of each year and mature on March 15, 2008. We may redeem the 2008 Notes beginning on March 15, 2003. The initial
redemption price is 104.575% of their principal amount, plus accrued interest. The redemption price declines each year after 2003 and is 100% of their principal amount, plus accrued interest, after
2006.

In
June 2001, we issued $300 million aggregate principal amount of senior subordinated notes (the "2011 Notes" and together with the 2008 Notes, the "Notes"). The 2011
Notes bear interest at an annual rate of 9.875%, payable semiannually on June 15 and December 15 of each year and mature on June 15, 2011. We may redeem the 2011 Notes beginning
on June 15, 2006. The initial redemption price is 104.938% of their principal amount, plus accrued interest. The redemption price declines each year after 2006 and is 100% of their principal
amount, plus accrued interest, beginning June 15, 2009. In addition, before June 15, 2004, we may redeem up to $105 million of the 2011 Notes at 109.875% of their principal amount
plus accrued interest, using the proceeds from sales of certain kinds of our capital stock.

The
2011 Notes are pari passu with the 2008 Notes. The Notes are not collateralized and are subordinated to our senior indebtedness, including the Credit Facility. The Notes contain
certain covenants for the benefit of the holders. These covenants, among other things, limit our ability under certain circumstances to incur additional indebtedness, pay dividends, and make
investments and other restricted payments, enter into transactions with 5% stockholders or affiliates, create liens, and sell assets.

41

---

At
December 31, 2003, aggregate maturities of long-term debt were as follows:

2004

$
33,7482005


48,2112006


60,2642007


262,7502008


426,592Thereafter


300,000$
1,131,565


An aggregate of $1,131.6 million and $1,165.3 million was outstanding at December 31, 2003 and 2002, respectively, with a weighted average
interest rate of 6.86% and 6.56%, respectively. The fair value of long-term debt is based on quoted market prices. The Credit Facility had an estimated fair value of approximately
$640 million and $653 million at December 31, 2003 and 2002, respectively. The 2008 Notes had an estimated fair value of approximately $209 million and $198 million
at December 31, 2003 and 2002, respectively, and the 2011 Notes had an estimated fair value of approximately $339 million and $308 million at December 31, 2003 and 2002,
respectively.

Note 5Income Taxes

Our effective income tax rate for 2002 decreased from 40.0% to 39.0%, reflecting a reduction in state income taxes resulting from state tax planning and credits.
Accordingly, the provision for income taxes for the year ended December 31, 2002 reflects a reduction in expense of approximately $3.0 million associated with adjusting our deferred tax
assets and liabilities to reflect the lower rate. The $3.0 million reduction in tax expense and the decrease in our effective rate during 2002 resulted in the recognition of income tax expense
of $25.8 million and $31.6 million (39.0% and 35.6%, respectively, of income before income taxes and cumulative effect of an accounting change) for 2003 and 2002 respectively.

Income
tax expense before the cumulative effect of a change in accounting consists of the following:

Year Ended December 31,2003

2002

2001Current income taxes:U.S. federal

$
4,918

$
9,030

$
12,480State and local


983


1,561


2,8345,901


10,591


15,314Deferred income taxes:U.S. federal


17,033


21,743


18,773State and local


2,869


(780
)

4,65319,902


20,963


23,426Total income tax expense

$
25,803

$
31,554

$
38,740


42

---

Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 35.0% to pretax income as a result of the following:

Year Ended December 31,2003

2002

2001Computed "expected" tax rate

35.0
%
35.0
%
35.0
%Adjustment to deferred tax balances due to change in effective tax rate



(3.4
)Increase in income taxes resulting from:State and local income taxes, net of federal benefit

3.9

3.9

4.9Other

0.1

0.1

0.1Annual effective income tax rate

39.0
%
35.6
%
40.0
%


The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31,
2003 and 2002 are presented below:

2003

2002Deferred tax assets:Alternative minimum tax credit and other carry forwards

$
29,602

$
30,907Other


6,353


6,013Total deferred tax assets


35,955


36,920Deferred tax liabilityProperty and equipment


(165,983
)

(147,046
)$
(130,028
)
$
(110,126
)


At December 31, 2003, we had alternative minimum tax credits of approximately $30 million, which may be carried forward indefinitely. Approximately
$30 million of the credits are not expected to be utilized within the next twelve months and have been classified as non-current at December 31, 2003.

In
assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion of the deferred tax assets will not be realized. The ultimate
realization of the deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. We considered the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of taxable income and projections for future taxable
income over the periods which the deferred tax assets are deductible, we believe it is more likely than not we will realize the benefits of these deductible differences. The amount of the deferred tax
asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

Note 6Stockholders' Equity

Shares of preferred stock may be issued from time to time, in one or more series, as authorized by the Board of Directors. Prior to issuance of shares of each
series, the Board will designate for each such series, the preferences, conversion, or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications,
and terms or conditions of redemption, as are permitted by law. No shares of preferred stock are outstanding, and we have no present plans to issue any shares of preferred stock.

43

---

Note 7Stock Option Plans

We have six stock option plans including the Amended and Restated 1995, Amended and Restated 1996, 1997, 1998, and 2001 Employee Stock Option Plans (the "Employee
Plans") and the Amended and Restated 1995 Stock Option Plan for Non-Employee Directors (the "Directors' Plan"). The Employee Plans and the Directors' Plan provide for grants to certain
officers, directors, and key employees of stock options to purchase shares of Common Stock. Options granted under the Employee Plans and the Directors' Plan expire ten years from the date of grant.
Options granted under the Employee Plans generally vest ratably over a four year period, and options granted under the Directors' Plan vest six months from the date of grant.

In
addition, we have two stock option plans associated with an acquisition (the "Acquired Plans") we made in 1997. Two types of options, incentive stock options and nonqualified stock
options, were granted under the Acquired Plans. All options granted under the Acquired Plans were granted at an exercise price equal to the market price of the acquired company's common stock on the
date of grant and may not be exercised more than 10 years after the date granted.

A
summary of the status of the Employee Plans, the Directors' Plan, and options granted under the Acquired Plans (collectively the "Plans") as of December 31, 2003, 2002, and 2001
and changes during the years ending on those dates is presented below:

|                                                               |  | 2003   |   | 2002 |             | 2001
|-------------------------------------------------------------- |  | ------ | - | ---- | ----------- | ----
|
|Outstanding at beginning of year                               |  | 20,519 |   | $    | 2.3821.75  |     
|Granted                                                        |  | 1,098  |   |      | 10.3915.98 |     
|Exercised                                                      |  | (3,481 | ) |      | 2.3814.13  |     
|Forfeited                                                      |  | (1,216 | ) |      | 6.9419.25  |     
|                                                               |  |        |   |      |             |     
|Outstanding at end of year                                     |  | 16,920 |   | $    | 2.3821.75  |     
|Options exercisable at year-end                                |  | 11,950 |   | $    | 2.3821.75  |     
|Available for future grants                                    |  | 6,674  |   |      |             |     
|Total shares reserved for issuance as of December 31           |  | 23,594 |   |      |             |     
|Weighted average fair value of options granted during the year |  |        |   | $    | 4.26        |     

As permitted by SFAS No. 123, "Accounting for Stock Based Compensation," we have chosen to apply APB Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related interpretations in accounting for the Plans. Accordingly, no compensation cost has been recognized for options granted under the Plans. Had compensation cost for
the Plans been determined based on the fair value at the date of grant for awards under the Plans consistent with the method of SFAS No. 123,

44

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our
net income and net income per share would have been reduced to the pro forma amounts indicated below.

|                      |         | 2003 |        | 2002 |   | 2001  
|--------------------- | ------- | ---- | ------ | ---- | - | ------
|
|Net income            |         | $    | 40,356 |      | $ | 32,853
|Net income per share: |         |      |        |      |   |       
|                      | Basic   |      | $      | 0.42 |   | $     
|                      | Diluted |      | $      | 0.42 |   | $     

The fair value of each option grant is estimated on the date of grant using the Black-Scholes multiple option-pricing model with the following assumptions used
for grants in 2003, 2002, and 2001: dividend yield of 0% for 2001 and 2002, and 1% for 2003; risk-free interest rate of 4.8% for 2001, 3.9% for 2002, and 3.3% for 2003; expected life of
5.5 years for 2001 and 3 years for 2002 and 2003; and expected volatility of 42% for 2001, and 30% for 2002 and 2003.

The
following table summarizes information about the Company's Plans at December 31, 2003.

|                |  | Options Outstanding |  | Options Exercisable
|--------------- |  | ------------------- |  | -------------------
|
|$  2.38$  8.15 |  | 2,292               |  | 4.40               
|$  8.43$  9.50 |  | 1,308               |  | 4.86               
|$  9.71$11.28  |  | 1,913               |  | 6.73               
|$11.32$11.37   |  | 1,318               |  | 4.07               
|$11.52$12.88   |  | 3,036               |  | 8.70               
|$12.90$13.03   |  | 2,421               |  | 7.83               
|$13.06$14.21   |  | 1,914               |  | 6.53               
|$14.21$18.37   |  | 600                 |  | 6.54               
|$18.50$18.50   |  | 2,035               |  | 3.02               
|$18.87$21.75   |  | 83                  |  | 2.99               
|                |  |                     |  |                    
|$  2.38$21.75  |  | 16,920              |  | 6.08               
|                |  |                     |  |                    

Note 8Related Party Transactions

In 1996, we entered into a ten-year lease for a suite at Pro Player Stadium for a base rental of $115,000 per year. In 1998, we entered into a
seven-year lease for a suite at the National Car Rental Center for a base rental of $120,000 per year. Both of these leases were terminated in 2001. The leases were subject to additional
charges and periodic escalation. The Chairman of our Board of Directors owns Pro Player Stadium. In addition, the Chairman of our Board of Directors was also the Chairman of the Board of Directors of
a company which operated, until June 2001, the National Car Rental Center.

We
incurred charges of approximately $2.9 million in 2003, $2.9 million in 2002, and $3.0 million in 2001 from a company controlled by our Chief Executive Officer
for the use of airplanes. We charged approximately $123,000 in 2003, $50,000 in 2002, and $155,000 in 2001, to our Chief Executive Officer for his use of those airplanes, and we charged approximately
$135,000 in 2003, $17,000 in 2002, and $23,000 in 2001, to other companies controlled by our Chief Executive Officer for their use of those airplanes. In addition, we incurred charges of $9,000 in
2001 for aviation related services from a

45

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company
owned by the Chairman of our Board of Directors. We incurred no such charges during 2002 or 2003.

Our
Chief Executive Officer serves as chairman of the board of a company from which we lease office space under various lease agreements. During 2003, 2002, and 2001, we incurred charges
of approximately $28,000, $85,000, and $70,000, respectively, related to these agreements.

The
Chairman of our Board of Directors serves as a director of a company to which we sublease office space. Effective June 1, 2003 the sublease was amended to extend the sublease
term past its original termination date of December 2004 and to adjust the monthly rent from $52,157 as follows:

June 1, 2003 to December 31, 2003

$39,490 per monthJanuary 1, 2004 to December 31, 2004

$42,255 per monthJanuary 1, 2005 to December 31, 2005

$43,440 per monthJanuary 1, 2006 to December 12, 2006

$47,388 per month


The reduced rate was offered to ensure prompt and continued payments under the terms of the sublease and to reflect current market conditions. In the event of
default, the amendment would be nullified and the monthly rent would return to the amount payable under the original sublease agreement.

On
December 17, 2001, the company to which we sublease this office space filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. We have
continued to receive rent payments under the sublease, and the company has not repudiated the sublease. The Bankruptcy Court approved the amendments to the sublease described above. On June 13,
2003, the company announced it had emerged from Chapter 11 bankruptcy protection.

The
Chairman of our Board of Directors and two of our other directors each own more than 5% of the outstanding stock of a company that performs employment related services for us under
annual contracts. During 2003, 2002, and 2001, we incurred charges of approximately $499,000, $504,000, and $479,000, respectively, for such services.

46

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Note 9Quarterly Results (Unaudited)

The following is a summary of quarterly operations for the years ended December 31, 2003 and 2002:

|                      |         | 2003
|--------------------- | ------- | ----
|
|Total revenue         |         | $   
|Operating income      |         |     
|Net income            |         | $   
|                      |         |     
|Net income per share: |         |     
|                      | Basic   |     
|                      |         |     
|                      | Diluted |     
|                      |         |     
|
|
|Total revenue         |         | $   
|Operating income      |         |     
|Net income            |         | $   
|                      |         |     
|Net income per share: |         |     
|                      | Basic   |     
|                      |         |     
|                      | Diluted |     
|                      |         |     

Note 10Commitments and Contingencies

On August 5, 2002, one of our subsidiaries was served with a complaint against us and several of our subsidiaries in the Superior Court of California,
County of Alameda. This action, filed on behalf of an alleged class of former and existing managers, assistant managers, and manager trainees for our properties in California, alleges violations of
certain of California's wage and hour laws. In particular, the action alleges that we misclassified these property managers as exempt from California's laws regarding overtime pay. In January 2004,
the plaintiffs filed a motion to certify the lawsuit as a class action representing all such property managers in California. We will oppose the motion. The plaintiffs are seeking an injunction and
damages for back pay, penalties, interest, and attorneys' fees. The case is captioned Rachelle Reid, et al vs. Extended Stay America, Inc., etc., et al. We believe we have meritorious defenses
against this claim and intend to defend this case vigorously. The financial impact, if any, of this case cannot yet be predicted.

From
time to time, we may incur expenses due to defects in materials, construction, or systems installed in our properties. Most significant products or systems include manufacturers'
warranties. In addition, contractual agreements with our general contractors typically require general contractors and subcontractors to maintain insurance designed to cover the faulty installation of
significant systems.

Testing
has revealed that certain of our properties have sustained damage arising from defective materials and/or faulty installation of the Exterior Insulation Finish System ("EIFS").
At this time, the full extent of damage cannot be estimated with reasonable certainty, although currently we do not believe the eventual cost of repairs will be material to us overall. We have 44
active lawsuits that we filed against the EIFS manufacturers, certain applicators, certain general contractors, and others, seeking necessary repairs and recovery rights against expected and incurred
expenses. At this time, the extent of recovery, if any, on these suits cannot be determined with reasonable certainty.

47

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In
addition to the litigation noted above, we are, from time to time, subject to various other claims and lawsuits incidental to our business. In the opinion of management, these claims
and suits in the aggregate will not have a material adverse effect on our consolidated financial statements.

We
lease real property under various operating leases with terms of one to twenty years. Rental expense under real property leases for the years ended December 31, 2003, 2002, and
2001, was $756,000, $1.1 million, and $1.6 million, respectively.

Future
minimum lease obligations under non-cancelable real property leases with initial terms in excess of one year at December 31, 2003 are as follows:

Year Ending December 31:2004

$
1,0722005


8902006


9052007


972008


98Thereafter


830$
3,892


Of these lease obligations included in the table above, we sublease to a third party, under a non-cancelable sublease, office space that includes base
rent, parking, and other charges totaling approximately $507,000, $521,000, and $569,000 per year in 2004, 2005, and 2006 respectively. On December 17, 2001, the company to which we sublease
this office space filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. We have continued to receive rent payments under the sublease, and the company has
not repudiated the sublease. On June 13, 2003, that company announced it had emerged from Chapter 11 bankruptcy protection.

In
October 2003, we entered into an agreement to conduct a national cable television advertising campaign, beginning in the first quarter of 2004. The total cost of the campaign
is between $4 million
and $6 million and will be paid partially in cash and partially through the exchange of room credits at our facilities.

Note 11Subsequent Events

General

On March 5, 2004, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with affiliates of The Blackstone Group (collectively,
"Blackstone"). Under the Merger Agreement, upon consummation of the merger we will merge with a subsidiary of Blackstone and survive the merger as a wholly owned subsidiary of Blackstone. Our Board of
Directors unanimously approved the Merger Agreement at a special meeting on March 5, 2004. We expect to complete the merger during the second quarter 2004.

Consideration

The Merger Agreement provides that upon consummation of the merger, each share of our common stock will be converted into the right to receive $19.625, in cash.
In addition, each holder of an option to purchase our common stock from us that is outstanding as of the effective time of the merger and that has an exercise price per share that is less than $19.625
will receive a cash payment equal to the product of (1) the difference between $19.625 and the applicable exercise price of the option and (2) the aggregate number of shares issuable
upon exercise of the option.

48

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Conditions

Consummation of the merger is subject to customary closing conditions and certain other conditions, including:



Termination

Either Blackstone or we may terminate the Merger Agreement if the merger is not consummated on or before August 31, 2004. The Merger Agreement may also be
terminated for a number of other reasons, including if our Board of Directors determines in good faith that its fiduciary duties require it to withdraw or modify its recommendation of the Merger
Agreement to our stockholders for various reasons. In the event the Merger Agreement is terminated, we would be required to pay Blackstone up to $50,000,000 as a termination fee under certain
circumstances, and Blackstone would be required to pay us $50,000,000 as a termination fee under certain other circumstances.

49

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND               FINANCIAL DISCLOSURE

None.

ITEM 9A.    CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure (1) that information required to be disclosed by us in the reports we file or
submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and (2) that this 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 disclosure. As of December 31,
2003, under the supervision and review of our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures. Based on
that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective in alerting them in a timely manner to material
information regarding us (including our consolidated subsidiaries) that is required to be included in our periodic reports filed under the Exchange Act. In addition, since our evaluation there have
been no significant changes in our internal controls or in other factors that could significantly affect those controls.

50

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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors

Biographical information concerning our six directors, their ages as of December 31, 2003, is presented below.

H. Wayne Huizenga, age 66, became one of our directors in August 1995 and serves as the Chairman of our Board of Directors. Since
September 1996, Mr. Huizenga has been Chairman of the Board of Boca Resorts, Inc., which owns and operates luxury resort properties. Mr. Huizenga was also Chairman of the
Board of AutoNation, Inc., which owns the nation's largest chain of franchised automotive dealerships, from August 1995 to December 2002. From August 1995 to
September 1999, Mr. Huizenga served as Chief Executive Officer or Co-Chief Executive Officer of AutoNation, Inc. From May 1998 until December 2002,
Mr. Huizenga served as Chairman of the Board of Republic Services, Inc., a leading provider of non-hazardous solid waste collection and disposal services and served as its
Chief Executive Officer from May 1998 until December 1998. From September 1994 until October 1995, Mr. Huizenga served as the Vice-Chairman of
Viacom Inc. ("Viacom"), a diversified entertainment and communications company. During the same period, Mr. Huizenga also served as the Chairman of the Board of Blockbuster Entertainment
Group, a division of Viacom. From April 1987 through September 1995, Mr. Huizenga served as the Chairman of the Board and Chief Executive Officer of Blockbuster Entertainment
Corporation ("Blockbuster"), during which time he helped build Blockbuster from a 19-store chain into the world's largest video rental company. In September 1994, Blockbuster merged
into Viacom. In 1971, Mr. Huizenga co-founded Waste Management, Inc., which he helped build into the world's largest integrated solid waste services company, and he served in
various capacities, including President, Chief Operating Officer, and a director from its inception until 1984. Mr. Huizenga also owns the Miami Dolphins and Pro Player Stadium in South
Florida.

Donald F. Flynn, age 64, became one of our directors in August 1995. Mr. Flynn is Chairman and Chief Executive Officer of
Flynn Enterprises, Inc., a venture capital, hedging, and consulting firm based in Chicago, Illinois. Mr. Flynn has been a director of LKQ Corporation, a nationwide provider of recycled
automotive replacement parts, since its inception in February 1998 and Chairman since February 1999. Mr. Flynn also was the Vice Chairman of Blue Chip Casino, Inc., an owner and operator
of a riverboat gaming vessel in Michigan City, Indiana, from February 1997 until November 1999, when Blue Chip was sold to Boyd Gaming Corporation. Mr. Flynn was Chairman of the
Board of Discovery Zone from July 1992 until May 1995, and remained a member of the Board until February 1996. He was also Chief Executive Officer of Discovery Zone from July 1992 to April 1995. From
1972 through 1990, Mr. Flynn held various positions with Waste Management, including Senior Vice President and Chief Financial Officer. Mr. Flynn was one of three investors who acquired
control of Blockbuster Entertainment Corporation in 1987 and was a director thereof from February 1987 until September 1994 when Blockbuster was sold to Viacom Inc. Mr. Flynn
serves as a member of the Board of Trustees of Marquette University. Mr. Flynn also served as a director of Psychemedics Corporation, a provider of drug testing services, from 1989 until
September 2003.

George D. Johnson, Jr., age 61, has been our Chief Executive Officer and a director since January 1995. Mr. Johnson is the
former President of the Consumer Products Division of Blockbuster Entertainment Group, a division of Viacom. In this position he was responsible for all U.S. video and music stores. Mr. Johnson
has over 30 years of experience developing and managing various businesses. He was formerly the managing general partner of WJB Video, the largest Blockbuster franchisee which developed over
200 video stores prior to a merger with Blockbuster in 1993. Mr. Johnson also is the managing member of American Storage, LLC, a chain of 28 self-storage facilities located in the
Carolinas and Georgia. He formerly served as a director of Viacom, AutoNation, Inc., and Chairman of the Board of Home Choice Holdings, Inc. and currently serves on the board of
directors of Boca

51

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Resorts, Inc.,
Duke Energy Corporation, and Norfolk Southern Corporation. He has been the Chairman of the Board of Directors of Johnson Development Associates, Inc. since its founding in
1986. Johnson Development Associates, Inc. is a real estate management, leasing, and development company controlling approximately four million square feet of commercial, retail, and industrial
property located in the Carolinas and Georgia which are owned by various partnerships controlled by Mr. Johnson and his brother, Stewart H. Johnson. Mr. Johnson practiced law in
Spartanburg, South Carolina from 1967 until 1986 and served three terms in the South Carolina House of Representatives.

Stewart H. Johnson, age 59, became one of our directors in August 1995. Mr. Johnson is currently the Chairman of the Board
of Directors and Chief Executive Officer of Morgan Corporation, a privately-held construction company specializing in site preparation. Mr. Johnson has been directing the operations
of Morgan Corporation since 1971. Mr. Johnson is the brother of George D. Johnson, Jr., our Chief Executive Officer.

John J. Melk, age 67, became one of our directors in August 1995. Mr. Melk has been Chairman and Chief Executive Officer of
H2O Plus, Inc., a bath and skin care product manufacturer and retail distributor, since 1988. Mr. Melk also has served as Chief Executive Officer of Fisher Island
Holdings, Inc., a real estate development company, since 1998. From August 1995 until March 2003, Mr. Melk served as a director of AutoNation, Inc. Mr. Melk has been
a private investor in various businesses since March 1984 and, prior to March 1984, he held various positions with Waste Management, Inc. and its subsidiaries, including President
of Waste Management International plc, a subsidiary of Waste Management, Inc. From 1991 through 1999, Mr. Melk served as a director of Psychemedics Corporation. From February 1987
until March 1989 and from May 1993 until September 1994, Mr. Melk served as a director of Blockbuster. He also served as the Vice Chairman of Blockbuster from
February 1987 until March 1989.

Peer Pedersen, age 78, became one of our directors in August 1995. In 1957, Mr. Pedersen founded the law firm of
Pedersen & Houpt, P.C., in Chicago, Illinois and currently serves as Chairman of the firm. Mr. Pedersen served as a director of Aon Corporation from 1974 to 1998 and as a director of
Waste Management, Inc. from 1979 to 1998. He also currently serves as a director of several privately-held companies.

Executive Officers

Our executive officers, their ages at December 31, 2003, and their positions with us are set forth below. Our executive officers are elected by and serve
at the discretion of our Board of Directors.

|Name                    |  | Age |  | Position                                         
|----------------------- |  | --- |  | -------------------------------------------------
|H. Wayne Huizenga1      |  | 66  |  | Chairman of the Board of Directors               
|George D. Johnson, Jr.1 |  | 61  |  | Chief Executive Officer and Director             
|Corry W. Oakes, III     |  | 37  |  | President and Chief Operating Officer            
|James A. Ovenden2       |  | 40  |  | Chief Financial Officer, Secretary, and Treasurer

---

1
Member of Executive Committee of the Board of Directors. Biographical information above.

2
Mr. Ovenden joined us as our Chief Financial Officer on January 28, 2004.

Corry W. Oakes, IIIhas been our President and Chief Operating Officer since June 2003. He is
responsible for all aspects of our development, operations, and marketing personnel. Mr. Oakes was our Senior Vice President from January 2003 until June 2003. Prior thereto he
served as our Vice President of Construction since 1995. Prior to joining us, Mr. Oakes was National Director of Construction for Blockbuster Entertainment.

52

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James A. Ovendenhas been our Chief Financial Officer, Secretary, and Treasurer since joining us in January 2004. He is responsible
for overseeing accounting procedures and controls, financing, cash management, and financial and tax reporting. Prior to joining us, Mr. Ovenden was the principal consultant with CFO Solutions
of SC, LLC where he specialized in financial and business advisory consulting services. Prior to CFO Solutions, Mr. Ovenden was employed by CMI Industries, a manufacturer of textile products,
from 1987 until 2002 and served as Chief Financial Officer and Executive Vice President of that company from 1993 until 2002. Mr. Ovenden currently serves as a director of Polymer
Group, Inc.

Gregory R. Moxleywas our Chief Financial Officer and Vice President-Finance from April 2000 until January 2004. He was
responsible for overseeing accounting procedures and controls, financing, cash management, and financial and tax reporting. Prior thereto, he served as our Vice President-Finance and Controller since
October 1995. Prior to joining us, Mr. Moxley was Director of Financial Reporting and Assistant Treasurer for One Price Clothing Stores, Inc. and held various positions as a
Certified Public Accountant including Senior Manager for Ernst & Young.

Audit Committee

As a standing committee, the Audit Committee's functions include selecting our independent auditors; reviewing the arrangements for, and scope of, the independent
auditors' examination; meeting with the
independent auditors and certain of our officers to review the adequacy and appropriateness of our system of internal controls and reporting, our critical accounting policies, and our public financial
disclosures; ensuring compliance with our codes of ethics; and performing any other duties or functions deemed appropriate by the Board of Directors. Messrs. Flynn, Melk, and Pedersen are
currently the members of the Audit Committee. All of the Audit Committee members satisfy the independence, financial literacy, and expertise requirements of the New York Stock Exchange. Our Board of
Directors has determined that Mr. Flynn satisfies the requirements for an "audit committee financial expert" under the rules and regulations of the Securities and Exchange Commission.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers and directors, and any other person who owns more than 10% of the Common Stock, to file
reports of ownership with the Securities and Exchange Commission. They also are required to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of copies of
the forms we received, we believe that during 2003 all filing requirements were complied with.

Code of Ethics

A copy of our Code of Ethics for Senior Financial Officers is available free of charge through our website at www.extendedstay.com.

53

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ITEM 11.    EXECUTIVE COMPENSATION

The following table sets forth, on an annualized basis with respect to salary information, information regarding the compensation we paid to our Chief Executive
Officer and each of our other executive officers (hereinafter, the "Named Executive Officers") for all services they rendered to us during 2001, 2002, and 2003. We do not have a restricted stock award
program or a long-term incentive plan. Our non-employee directors were paid $8,750 per quarter for their services during 2003, and were reimbursed for their
out-of-pocket expenses.

SUMMARY COMPENSATION TABLE

|                                                          |  |                |  | Annual Compensation     |  | Long-Term
Compensation
Awards |  |       | 
|--------------------------------------------------------- |  | -------------- |  | ----------------------- |  | ----------------------------- |  | ----- | 
|
|George D. Johnson, Jr.
Chief Executive Officer            |  | 2003
2002
2001 |  | 

                   |  | 

                         |  | 

 | 
|Corry W. Oakes, III
President and Chief Operating Officer |  | 2003
2002
2001 |  | 288,000
260,000
245,000 |  | 

                         |  | 

 | 
|Gregory R. Moxley(3)
Chief Financial Officer              |  | 2003
2002
2001 |  | 215,000
210,000
200,000 |  | 

                         |  | 

 | 
|Robert A. Brannon(4)                                      |  | 2003
2002
2001 |  | 368,000
370,000
350,000 |  | 

                         |  | 

 | 

---

54

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The
following table sets forth individual grants of stock options made to the Named Executive Officers during 2003.

OPTION GRANTS IN LAST FISCAL YEAR

|                       |  |          |  |         |  |       |   |   |       |  |          | Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
for Option Term(3)
|---------------------- |  | -------- |  | ------- |  | ----- | - | - | ----- |  | -------- | -------------------------------------------------------------------------------------------------
|
|
|
|George D. Johnson, Jr. |  | 12/09/03 |  | 214,018 |  | 19.49 | % | $ | 13.75 |  | 12/09/13 |                                                                                                  
|Corry W. Oakes, III    |  | 7/03/03  |  | 100,000 |  | 9.11  | % | $ | 13.76 |  | 7/03/13  |                                                                                                  
|                       |  | 12/09/03 |  | 68,519  |  | 6.24  | % | $ | 13.75 |  | 12/09/13 |                                                                                                  
|                       |  |          |  |         |  |       |   |   |       |  |          |                                                                                                  
|                       |  |          |  | 168,519 |  | 15.35 | % |   |       |  |          |                                                                                                  
|Gregory R. Moxley      |  | 12/09/03 |  | 44,246  |  | 4.03  | % | $ | 13.75 |  | 12/09/13 |                                                                                                  
|Robert A. Brannon      |  |         |  |        |  |      |   |   |      |  |         |                                                                                                  

---

The
following table provides information about the value of unexercised options to purchase our Common Stock at December 31, 2003 for the Named Executive Officers.

AGGREGATE 2003 OPTION/SAR EXERCISES AND YEAR END VALUES

|                       |  |           |  |            |  | Number of Securities
Underlying Unexercised
Options/SARs at 12/31/03 |  | Value of Unexercised
In-the-Money
Options/SARs
at 12/31/03*
|---------------------- |  | --------- |  | ---------- |  | -------------------------------------------------------------------- |  | -----------------------------------------------------------
|
|George D. Johnson, Jr. |  | 100,000   |  | 962,760    |  | 4,012,500                                                            |  | 1,151,518                                                  
|Robert A. Brannon      |  | 1,657,254 |  | 12,987,364 |  | 800,000                                                              |  |                                                           
|Corry W. Oakes, III    |  |          |  |           |  | 315,898                                                              |  | 243,519                                                    
|Gregory R. Moxley      |  | 61,000    |  | 353,190    |  | 264,078                                                              |  | 131,746                                                    

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55

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Compensation Committee Interlocks and Insider Participation

The Compensation Committee is currently composed of Messrs. Flynn and Melk. It determines the compensation of our Chief Executive Officer and of our other
executive officers. Neither Mr. Flynn nor Mr. Melk is an employee of the Company nor are they officers of any entity for which one of our executive officers makes compensation decisions.

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ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                 AND RELATED STOCKHOLDER
MATTERS

Equity Compensation Plan Information

We have six compensation plans (excluding plans assumed by us in connection with acquisitions) under which we may issue our Common Stock to our employees,
officers, and directors. These plans are our: Amended and Restated 1995 Employee Stock Option Plan; Amended and Restated 1995 Stock Option Plan for Non-Employee Directors; Amended and
Restated 1996 Employee Stock Option Plan; 1997 Employee Stock Option Plan; 1998 Employee Stock Option Plan; and 2001 Employee Stock Option Plan. All of these compensation plans have been approved by
our stockholders. We do not have any equity compensation plans that have not been approved by our stockholders. The following table provides information about our Common Stock that may be issued upon
the exercise of options under all of our equity compensation plans as of December 31, 2003.

EQUITY COMPENSATION PLAN INFORMATION

|Plan Category (*)                                      |  | Number of
securities to be issued
upon exercise of
outstanding options,
warrants, and rights |  | Weighted-average
exercise price of
outstanding options,
warrants, and rights |       | Number of
securities remaining
available for future
issuance under equity
compensation plans
|------------------------------------------------------ |  | -------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------- | ----- | --------------------------------------------------------------------------------------------
|Equity compensation plans approved by stockholders     |  | 16,819,768                                                                                   |  | $                                                                            | 12.52 |                                                                                             
|Equity compensation plans not approved by stockholders |  |                                                                                             |  |                                                                              |      |                                                                                             

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57

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PRINCIPAL STOCKHOLDERS

The
following table sets forth, as of December 31, 2003, certain information regarding the beneficial ownership of our Common Stock by:



There
were approximately 270 record holders and approximately 7,000 beneficial holders of Common Stock and 97,403,683 shares of Common Stock outstanding on that date.

Shares Beneficially OwnedName(1)

Number(2)

PercentCapital Research and Management Company (3)

6,390,000

6.8
%FMR Corp. (4).

5,954,749

6.3Cascade Investment, L.L.C. (5)

5,692,000

6.1H. Wayne Huizenga (6)

11,575,986

11.6George D. Johnson, Jr. (7)

7,953,468

7.8Gregory R. Moxley(8)

345,479

*Corry W. Oakes, III

322,748

*Donald F. Flynn (9)

921,577

*Stewart H. Johnson (10)

966,970

*John J. Melk

50,000

*Peer Pedersen

1,407,512

1.4All directors and officers as a group (8 persons) (6)(7)(8)(9)(10)

23,482,740

22.5
%


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58

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59

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ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In connection with the operation of our business, we have leased airplanes from companies owned by George D. Johnson, Jr., our Chief Executive
Officer, Stewart Johnson, one of our directors, and members of their families. We paid approximately $2.9 million under those leases for 2003. We believe that the terms of the use of these
aircraft were at least as favorable to us as we could have obtained from an unaffiliated third party. We charged approximately $258,000 in 2003 to George D. Johnson, Jr. and other
companies controlled by him for their use of those airplanes.

We
also leased space for our headquarters in Spartanburg, South Carolina from companies controlled by George D. Johnson, Jr. and Stewart Johnson. We terminated these lease
agreements in May 2003 when we moved into our new headquarters building. We incurred charges of approximately $28,000 under those leases during 2003.

In
September 2001, we entered into an agreement to sublease our former corporate headquarters in Fort Lauderdale, Florida to NationsRent, Inc. Mr. Huizenga is a
director of NationsRent. Effective June 1, 2003 the sublease was amended to extend the sublease term past its original termination date of December 2004 and to adjust the monthly rent
from $52,157 as follows:

June 1, 2003 to December 31, 2003

$39,490 per monthJanuary 1, 2004 to December 31, 2004

$42,255 per monthJanuary 1, 2005 to December 31, 2005

$43,440 per monthJanuary 1, 2006 to December 12, 2006

$47,388 per month


The reduced rate was offered to ensure prompt and continued payments under the terms of the sublease and to reflect current market conditions. In the event of
default, the amendment would be nullified and the monthly rent would return to the amount payable under the original sublease agreement. NationsRent is currently a
debtor-in-possession pursuant to a voluntary petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code filed by NationsRent in December 2001.
NationsRent has not repudiated the sublease, and has made all payments required under the sublease to date.

We
use the services of Psychemedics Corporation to perform certain employment related services, including drug screening, with respect to our employees. We paid Psychemedics $499,000 for
these services in 2003. Donald F. Flynn, a director of our Company, was also a director of Psychemedics, which is a publicly-traded company, until September 2003. Messrs. Huizenga,
Flynn, and Melk each beneficially own greater than five percent of Psychemedics' common stock.

60

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ITEM 14.    PRINCIPAL ACCOUNTANTS FEES AND SERVICES

Audit Fees and Non-Audit Fees

PricewaterhouseCoopers LLP acts as our principal auditor and also provides certain audit-related, tax and other services. The Audit Committee
pre-approves all services provided to us by PricewaterhouseCoopers. Pre-approval is accomplished through policies and procedures adopted by the Audit Committee in
May 2003 and later revised in October 2003. These policies and procedures provide a detailed description of the services that may be performed as well as limits on the fees for each
service.

The
following table summarizes the fees billed to us by PricewaterhouseCoopers LLP for audit and other services for the periods indicated.

2002

2003Audit Fees

$
220,397

$
273,413Audit-Related Fees


102,049


57,973Tax Fees


10,872


14,277All Other Fees


273,316


113,036$
606,634

$
458,699


For 2002, audit services consisted of the audit of our annual consolidated financial statements and the review of our quarterly financial statements.
Audit-related services included benefit plan audits. Tax services included federal and state tax compliance and research. Other services included transfer pricing studies and cost segregation
services.

For
2003, audit services consisted of the audit of our annual consolidated financial statements and the review of our quarterly financial statements. Audit-related services included
benefit plan audits, debt compliance letters, and consultations with management. Tax services included federal and state tax compliance and research. Other services included transfer pricing studies,
cost segregation services, and real estate appeal services.

61

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PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1)    Financial Statements

Reference is made to the information set forth in Part II, Item 8 of this Report, which information is incorporated herein by reference.

(a)(2)    Financial Statement Schedules

All schedules for which provision is made in the applicable accounting regulations of the SEC have been omitted because they are not required under the related
instructions, are not applicable, or the information has been provided in the consolidated financial statements or the notes thereto.

(a)(3)    Exhibits

The exhibits to this report are listed in the Exhibit Index included elsewhere herein. Included in the exhibits listed therein are the following exhibits which
constitute management contracts or compensatory plans or arrangements of the Company:

|10.1 |  | Amended and Restated 1995 Employee Stock Option Plan                  
|---- |  | ----------------------------------------------------------------------
|10.2 |  | Amended and Restated 1995 Stock Option Plan for Non-Employee Directors
|10.3 |  | Amended and Restated 1996 Employee Stock Option Plan                  
|10.4 |  | 1997 Employee Stock Option Plan                                       
|10.5 |  | 1998 Employee Stock Option Plan                                       
|10.6 |  | 2001 Employee Stock Option Plan                                       

(b)    Reports on Form 8-K

The Company filed a report on Form 8-K dated October 29, 2003 announcing the declaration of a cash dividend.

(c)    Exhibits

| | Exhibit
Number |  | Description of Exhibit                                                                                                                                                                                                            
| | -------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.1(a)         |  | Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1(a) to the Company's Registration Statement on Form S-1, Registration No. 33-98452)                                          
| | 3.1(b)         |  | Certificate of Amendment of Restated Certificate of Incorporation of the Company dated June 4, 1997 (incorporated herein by reference to Exhibit 3.1(b) to the Company's Report on Form 10-K for the year ended December 31,
1997)
| | 3.1(c)         |  | Conformed copy of Certificate of Incorporation of the Company, as amended (incorporated herein by reference to Exhibit 3.1(c) to the Company's Report on Form 10-K for the year ended December 31, 1997)                          
| | 3.2            |  | Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, Registration No. 33-98452)                                                       
| | 4.1            |  | Specimen certificate representing shares of Common Stock (incorporated herein by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1, Registration No. 33-98452)                                         
| |                |  |                                                                                                                                                                                                                                   

62

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| | 10.1     |  | Amended and Restated 1995 Employee Stock Option Plan of the Company (incorporated herein by reference to Exhibit 10.3 to the Company's Report on Form 10-Q for the quarter ended March 31, 1996)                                                                                                                                                                                                                                                                                         
| | -------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.2     |  | Amended and Restated 1995 Stock Option Plan for Non-Employee Directors of the Company (incorporated herein by reference to Exhibit 10.9 to the Company's Report on Form 10-Q for the quarter ended June 30, 2000)                                                                                                                                                                                                                                                                        
| | 10.3     |  | Amended and Restated 1996 Employee Stock Option Plan of the Company (incorporated herein by reference to Exhibit 10.10 to the Company's Report on Form 10-Q for the quarter ended March 31, 1996)                                                                                                                                                                                                                                                                                        
| | 10.4     |  | 1997 Employee Stock Option Plan of the Company (incorporated herein by reference to Exhibit 10.2 to the Company's Report on Form 10-Q for the quarter ended June 30, 1997)                                                                                                                                                                                                                                                                                                               
| | 10.5     |  | 1998 Employee Stock Option Plan of the Company (incorporated herein by reference to Exhibit 10.9 to the Company's Report on Form 10-K for the year ended December 31, 1998)                                                                                                                                                                                                                                                                                                              
| | 10.6     |  | 2001 Employee Stock Option Plan of the Company (incorporated herein by reference to Exhibit B to the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders on May 1, 2001)                                                                                                                                                                                                                                                                                         
| | 10.7     |  | Joe Robbie Stadium Executive Suite License Agreement dated March 18, 1996 between Robbie Stadium Corporation and the Company (incorporated herein by reference to Exhibit 10.14 to the Company's Report on Form 10-Q for the quarter ended
March 31, 1996)                                                                                                                                                                                                                               
| | 10.8     |  | Broward County Arena Executive Suite License Agreement, between Arena Operating Company, Ltd. and the Company (incorporated herein by reference to Exhibit 10.3 to the Company's Report on Form 10-Q for the quarter ended
September 30, 1998)                                                                                                                                                                                                                                           
| | 10.9     |  | Indenture relating to the $200 million 9.15% Senior Subordinated Notes due 2008 dated as of March 10, 1998 between the Company and Manufacturers and Traders Trust Company, as Trustee (incorporated herein by reference to Exhibit 4.2 to
the Company's Registration Statement on Form S-4 dated June 25, 1998 (Reg. No. 333-57737))                                                                                                                                                    
| | 10.10    |  | Indenture relating to the $300 million 9.875% Senior Subordinated Notes due June 15, 2011 dated as of June 27, 2001 between the Company and Manufacturers and Traders Trust Company, as Trustee (incorporated herein by reference to
Exhibit 99.3 to the Company's Report on Form 8-K dated June 28, 2001)                                                                                                                                                                               
| | 10.11(a) |  | Credit Agreement, dated July 24, 2001, by and among the Company, the various lenders party thereto, Morgan Stanley Senior Funding, Inc., as sole Lead Arranger, Bear Stearns Corporate Lending Inc. and Fleet National Bank, as
Co-Syndication Agents, and the Industrial Bank of Japan, Limited, as Administrative Agent (incorporated herein by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-4 (Registration No. 333-66702))                            
| | 10.11(b) |  | First Amendment, dated as of January 1, 2002, among the Company, the Lenders party to the Credit Agreement referred to therein, Morgan Stanley Senior Funding, Inc., as Sole Lead Arranger and Sole Book Runner, Bear Stearns Corporate
Lending Inc. and Fleet National Bank, as Co-Syndication Agents, and The Industrial Bank of Japan, Limited, as Administrative Agent (incorporated herein by reference to Exhibit 99.2 to the Company's Report on Form 8-K dated
December 17, 2001)
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

63

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| | 10.11(c) |  | Second Amendment, dated as of October 31, 2002, among the Company, the Lenders party to the Credit Agreement referred to therein, Morgan Stanley Senior Funding, Inc., as Sole Lead Arranger and Sole Book Runner, Bear Stearns Corporate
Lending Inc. and Fleet National Bank as Co-Syndication Agents, and The Industrial Bank of Japan, Limited, as Administrative Agent (incorporated herein by reference to Exhibit 99.1 to the Company's Report on Form 8-K dated
October 31, 2002)
| | -------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.11(d) |  | Third Amendment, dated as of July 1, 2003, among Extended Stay America, Inc., the Lenders party to the Credit Agreement referred to therein, Morgan Stanley Senior Funding, Inc., as Sole Lead Arranger and Sole Book Runner, and Mizuho
Corporate Bank, Ltd., as Administrative Agent (incorporated herein by reference to Exhibit 99.2 to the Company's Report on Form 8-K dated July 1, 2003)                                                                                         
| | 10.12(a) |  | Lease Agreement dated as of November 30, 1998 between Bell Hill, LLC and ESA Management, Inc. (incorporated herein by reference to Exhibit 10.11(b) to the Company's Report on Form 10-K for the year ended December 31,
1998)                                                                                                                                                                                                                                                           
| | 10.12(b) |  | Sublease Agreement dated as of July 1, 1999 between Johnson Development Associates, Inc. and ESA Management, Inc. (incorporated herein by reference to Exhibit 10.11(b) to the Company's Report on Form 10-K for the year ended
December 31, 1999)                                                                                                                                                                                                                                       
| | 10.12(c) |  | Sublease Agreement, dated as of September 21, 2001, between NationsRent, Inc. and ESA Management, Inc. (incorporated herein by reference to Exhibit 10.29 to the Company's Report on Form 10-K for the year ended
December 31, 2001)                                                                                                                                                                                                                                                     
| | 10.12(d) |  | Sublease Agreement, dated as of February 11, 2002, between Johnson Development Associates, Inc. and ESA Services, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter
ended March 31, 2002)                                                                                                                                                                                                                                      
| | 10.12(e) |  | Amendment to Sublease Agreement, dated as of June 1, 2003, by and between ESA Management, Inc. and NationsRent, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter ended
June 30, 2003)                                                                                                                                                                                                                                         
| | 10.13(a) |  | Aircraft Dry Sub-Lease Agreement, dated as of July 2, 1998, between the Company and Advance America Cash Advance Centers, Inc. (Learjet 35A, Serial No. 332) (incorporated herein by reference to Exhibit 10.1 to the Company's
Report on Form 10-Q for the quarter ended June 30, 1998)                                                                                                                                                                                                 
| | 10.13(b) |  | Time Sharing Agreement, dated as of March 29, 2000, between Advance America Cash Advance Centers, Inc. and ESA Services, Inc. (Learjet 35A, Serial No. 332) (incorporated herein by reference to Exhibit 10.7 to the
Company's Report on Form 10-Q for the quarter ended June 30, 2000)                                                                                                                                                                                                  
| | 10.13(c) |  | Time Sharing Agreement, dated as of January 19, 2001, between Advance America Cash Advance Centers, Inc. and ESA Services, Inc. (Learjet 35A, Serial No. 332) (incorporated herein by reference to Exhibit 10.2 to the
Company's Report on Form 10-Q for the quarter ended March 31, 2001)                                                                                                                                                                                               
| | 10.14(a) |  | Time Sharing Agreement, dated as of November 6, 2000, between ESA Services, Inc. and George Dean Johnson, Jr. (Learjet 55B, Serial No. 132) (incorporated herein by reference to Exhibit 10.17 to the Company's Report on
Form 10-K for the year ended December 31, 2000)                                                                                                                                                                                                                
| | 10.14(b) |  | Aircraft Dry Lease dated November 13, 2000 between Wyoming Associates, Inc. and ESA Services, Inc. (Learjet 55B, Serial No. 132) (incorporated herein by reference to Exhibit 10.20 to the Company's Report on
Form 10-K for the year ended December 31, 2000)                                                                                                                                                                                                                           
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

64

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| | 10.14(c) |  | Time Sharing Agreement, dated as of July 24, 2002, between ESA Services, Inc. and Advance America, Cash Advance Centers, Inc. (Learjet 55B, Serial No. 132) (incorporated herein by reference to Exhibit 10.1 to the
Company's Report on Form 10-Q for the quarter ended September 30, 2002) 
| | -------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.15(a) |  | Sublease between Wyoming Associates, Inc. and ESA Services, Inc., for hangar space for the Challenger in Spartanburg, South Carolina (incorporated herein by reference to Exhibit 10.3 to the Company's Report on Form 10-Q for the
quarter ended June 30, 2000)                             
| | 10.15(b) |  | Time Sharing Agreement, dated as of November 6, 2000, between ESA Services, Inc. and George Dean Johnson, Jr. (Challenger, Serial No. 3042) (incorporated herein by reference to Exhibit 10.18 to the Company's Report on
Form 10-K for the year ended December 31, 2000)                    
| | 10.15(c) |  | Time Sharing Agreement, dated as of November 10, 2000, between ESA Services, Inc. and Advance America, Cash Advance Centers, Inc. (Challenger, Serial No. 3042) (incorporated herein by reference to Exhibit 10.19 to the
Company's Report on Form 10-K for the year ended December 31, 2000)
| | 10.15(d) |  | Aircraft Dry Lease dated November 13, 2000 between Wyoming Associates, Inc. and ESA Services, Inc. (Challenger, Serial No. 3042) (incorporated herein by reference to Exhibit 10.21 to the Company's Report on Form 10-K for
the year ended December 31, 2000)                               
| | 10.16(a) |  | Time Sharing Agreement, dated as of March 29, 2000, between Advance America Cash Advance Centers, Inc. and ESA Services, Inc. (Learjet 31A, Serial No. 99) (incorporated herein by reference to Exhibit 10.6 to the
Company's Report on Form 10-Q for the quarter ended June 30, 2000)       
| | 10.16(b) |  | Time Sharing Agreement, dated as of January 19, 2001, between Advance America Cash Advance Centers, Inc. and ESA Services, Inc. (Learjet 31A, Serial No. 99) (incorporated herein by reference to Exhibit 10.1 to the
Company's Report on Form 10-Q for the quarter ended March 31, 2001)    
| | 10.17    |  | Agreement and Plan of Merger, dated as of March 5, 2004, among BHAC Capital IV, L.L.C., BHAC Acquisition IV, Inc., and Extended Stay America, Inc. (incorporated herein by reference to Exhibit 99.1 to the Company's
Report on Form 8-K dated March 8, 2004)                                
| | 21.1     |  | List of Subsidiaries of the Company                                                                                                                                                                                                                                                          
| | 23.1     |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                                                                                                                        
| | 31.1     |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                           
| | 31.2     |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                           
| | 32.1     |  | Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                
| | 32.2     |  | Certification of CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                

65

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on March 15, 2004.

| | EXTENDED STAY AMERICA, INC.
| | ---------------------------
| | By:                        

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on March 15, 2004.

|Signature                                       |  | Title                                            
|----------------------------------------------- |  | -------------------------------------------------
|Principal Executive Officer:                    |  |                                                  
|/s/GEORGE D. JOHNSON, JR.George D. Johnson, Jr. |  | Chief Executive Officer                          
|Principal Financial Officer:                    |  |                                                  
|/s/JAMES A. OVENDENJames A. Ovenden             |  | Chief Financial Officer, Secretary, and Treasurer
|Principal Accounting Officer:                   |  |                                                  
|/s/PATRICIA K. TATHAMPatricia K. Tatham         |  | Vice PresidentCorporate Controller              
|A Majority of the Directors:                    |  |                                                  
|/s/H. WAYNE HUIZENGAH. Wayne Huizenga           |  | Director                                         
|/s/DONALD F. FLYNNDonald F. Flynn               |  | Director                                         
|/s/GEORGE D. JOHNSON, JR.George D. Johnson, Jr. |  | Director                                         
|/s/STEWART H. JOHNSONStewart H. Johnson         |  | Director                                         
|/s/JOHN J. MELKJohn J. Melk                     |  | Director                                         
|/s/PEER PEDERSENPeer Pedersen                   |  | Director                                         

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