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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended March 31, 2002

OR

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

For the transition period from  to

Commission File number 333-84334

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RFS PARTNERSHIP, L.P.(exact name of registrant as specified in its charter)

Tennessee

62-1541639(State or other incorporation)

(I.R.S. Employer Identification Number)850 Ridge Lake Boulevard, Suite 300,
Memphis, TN 38120
(901) 767-7005(Address of principal executive offices
including zip code and telephone number)


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Indicate
by check mark whether the Registrant (i) 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 (ii) has been subject to such filing requirements for the past
90 days. Yes o    No ý

The
number of Partnership units outstanding on June 13, 2002 was 30,920,838.

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RFS PARTNERSHIP, L.P.  INDEX

|         |  |                                                                                                      |  | PAGE
|-------- |  | ---------------------------------------------------------------------------------------------------- |  | ----
|PART I.  |  | FINANCIAL INFORMATION                                                                                |  |     
|Item 1.  |  | Financial Statements                                                                                 |  |     
|         |  | Consolidated Balance SheetsMarch 31, 2002 (unaudited) and December 31, 2001                         |  | 3   
|         |  | Consolidated Statements of OperationsFor the three months ended March 31, 2002 and 2001 (unaudited) |  | 4   
|         |  | Consolidated Statements of Cash FlowsFor the three months ended March 31, 2002 and 2001 (unaudited) |  | 5   
|         |  | Notes to Consolidated Financial Statements                                                           |  | 6   
|Item 2.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                |  | 14  
|Item 3.  |  | Quantitative and Qualitative Disclosure About Market Risk                                            |  | 21  
|PART II. |  | OTHER INFORMATION                                                                                    |  |     
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                     |  | 24  
|         |  |                                                                                                      |  |     

2

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RFS PARTNERSHIP, L.P.  CONSOLIDATED BALANCE SHEETS  (in thousands)

|                                                                                                                            |                         | March 31,
2002                          |         | December 31,
2001 |        
|--------------------------------------------------------------------------------------------------------------------------- | ----------------------- | --------------------------------------- | ------- | ----------------- | -------
|
|ASSETS                                                                                                                      |                         |                                         |         |                   |        
|Investment in hotel properties, net                                                                                         |                         | $                                       | 609,945 |                   | $      
|Cash and cash equivalents                                                                                                   |                         |                                         | 14,124  |                   |        
|Restricted cash                                                                                                             |                         |                                         | 7,155   |                   |        
|Accounts receivable                                                                                                         |                         |                                         | 5,109   |                   |        
|Deferred expenses, net                                                                                                      |                         |                                         | 8,928   |                   |        
|Other assets                                                                                                                |                         |                                         | 3,780   |                   |        
|Deferred income taxes                                                                                                       |                         |                                         | 25,244  |                   |        
|                                                                                                                            |                         |                                         |         |                   |        
|                                                                                                                            | Total assets            |                                         | $       | 674,285           |        
|                                                                                                                            |                         |                                         |         |                   |        
|LIABILITIES AND PARTNERS' CAPITAL                                                                                           |                         |                                         |         |                   |        
|Accounts payable and accrued expenses                                                                                       |                         | $                                       | 22,461  |                   | $      
|Borrowings on Line of Credit                                                                                                |                         |                                         | 18,000  |                   |        
|Mortgage notes payable                                                                                                      |                         |                                         | 161,119 |                   |        
|Senior notes payable                                                                                                        |                         |                                         | 125,000 |                   |        
|                                                                                                                            |                         |                                         |         |                   |        
|                                                                                                                            | Total liabilities       |                                         |         | 326,580           |        
|Commitments and contingencies                                                                                               |                         |                                         |         |                   |        
|Series B Preferred Units, $0.01 par value, 5,000 units authorized, 250 units issued and outstanding                         |                         |                                         | 25,000  |                   |        
|                                                                                                                            |                         |                                         |         |                   |        
|Redeemable limited partnership units at redemption value, 2,459 units at March 31, 2002 and December 31, 2001, respectively |                         |                                         | 36,143  |                   |        
|                                                                                                                            |                         |                                         |         |                   |        
|Partners' Capital:                                                                                                          |                         |                                         |         |                   |        
|Other comprehensive income                                                                                                  |                         |                                         |         |                   |        
|General partnership units, 26,437 units and 25,235 units at March 31, 2002 and December 31, 2001, respectively              |                         |                                         | 286,562 |                   |        
|                                                                                                                            |                         |                                         |         |                   |        
|                                                                                                                            | Total partners' capital |                                         |         | 286,562           |        
|                                                                                                                            |                         |                                         |         |                   |        
|                                                                                                                            |                         | Total liabilities and partners' capital |         | $                 | 674,285
|                                                                                                                            |                         |                                         |         |                   |        

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

3

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RFS PARTNERSHIP, L.P.  CONSOLIDATED STATEMENTS OF OPERATIONS  FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001  (in thousands, except per unit data)  (unaudited)

|                                                     |                                     | 2002                           |        | 2001   |       
|---------------------------------------------------- | ----------------------------------- | ------------------------------ | ------ | ------ | ------
|Revenue:                                             |                                     |                                |        |        |       
|                                                     | Rooms                               |                                | $      | 40,692 |       
|                                                     | Food and beverage                   |                                |        | 4,203  |       
|                                                     | Other operating departments         |                                |        | 1,606  |       
|                                                     | Lease revenue                       |                                |        | 1,634  |       
|                                                     | Deferred revenue                    |                                |        | (1,012 | )     
|                                                     | Other                               |                                |        | 154    |       
|                                                     |                                     |                                |        |        |       
|                                                     |                                     | Total hotel revenue            |        |        | 47,277
|                                                     |                                     |                                |        |        |       
|Hotel operating expenses by department:              |                                     |                                |        |        |       
|                                                     | Rooms                               |                                |        | 8,420  |       
|                                                     | Food and beverage                   |                                |        | 3,161  |       
|                                                     | Other operating departments         |                                |        | 474    |       
|Undistributed operating expenses:                    |                                     |                                |        |        |       
|                                                     | Property operating costs            |                                |        | 5,334  |       
|                                                     | Property taxes, insurance and other |                                |        | 3,359  |       
|                                                     | Franchise costs                     |                                |        | 3,842  |       
|                                                     | Maintenance and repair              |                                |        | 2,315  |       
|                                                     | Management fees                     |                                |        | 1,258  |       
|                                                     | Depreciation                        |                                |        | 7,321  |       
|                                                     | Hilton lease termination            |                                |        |        |       
|                                                     | General and administrative          |                                |        | 5,095  |       
|                                                     |                                     |                                |        |        |       
|                                                     |                                     | Total hotel operating expenses |        |        | 40,579
|                                                     |                                     |                                |        |        |       
|Operating income (loss)                              |                                     |                                | 6,698  |        |       
|Debt extinguishment and swap termination costs       |                                     |                                | 10,122 |        |       
|Interest expense                                     |                                     |                                | 6,401  |        |       
|                                                     |                                     |                                |        |        |       
|Loss before gain on sale of assets and income taxes  |                                     |                                | (9,825 | )      |       
|                                                     | Gain on sale of assets              |                                |        | (972   | )     
|                                                     | Benefit from income taxes           |                                |        | (510   | )     
|                                                     |                                     |                                |        |        |       
|Net loss                                             |                                     |                                | (8,343 | )      |       
|Preferred unit dividends                             |                                     |                                | (781   | )      |       
|Gain on redemption of Series A Preferred Units       |                                     |                                |        |        |       
|                                                     |                                     |                                |        |        |       
|Net loss applicable to unitholders                   |                                     | $                              | (9,124 | )      | $     
|                                                     |                                     |                                |        |        |       
|Loss per unitbasic and diluted                      |                                     | $                              | (0.32  | )      | $     
|Weighted average units outstandingbasic and diluted |                                     |                                | 28,220 |        |       

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

4

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RFS PARTNERSHIP, L.P.  CONSOLIDATED STATEMENTS OF CASH FLOWS  FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001  (in thousands)  (unaudited)

|                                                 |                                                                                        | 2002                               |                                       | 2001                                             |      
|------------------------------------------------ | -------------------------------------------------------------------------------------- | ---------------------------------- | ------------------------------------- | ------------------------------------------------ | -----
|Cash flows from operating activities:            |                                                                                        |                                    |                                       |                                                  |      
|                                                 | Net loss                                                                               |                                    | $                                     | (8,343                                           | )    
|                                                 | Adjustments to reconcile net loss to net cash provided (used) by operating activities: |                                    |                                       |                                                  |      
|                                                 |                                                                                        | Depreciation and amortization      |                                       |                                                  | 7,997
|                                                 |                                                                                        | Loss on swap termination           |                                       |                                                  | 3,220
|                                                 |                                                                                        | Write-off of deferred expenses     |                                       |                                                  | 1,361
|                                                 |                                                                                        | Gain on sale of assets             |                                       |                                                  | (972 
|                                                 |                                                                                        | Changes in assets and liabilities: |                                       |                                                  |      
|                                                 |                                                                                        |                                    | Accounts receivable                   |                                                  |      
|                                                 |                                                                                        |                                    | Other assets                          |                                                  |      
|                                                 |                                                                                        |                                    | Deferred income taxes                 |                                                  |      
|                                                 |                                                                                        |                                    | Accounts payable and accrued expenses |                                                  |      
|                                                 |                                                                                        |                                    |                                       |                                                  |      
|                                                 |                                                                                        |                                    |                                       | Net cash provided (used) by operating activities |      
|                                                 |                                                                                        |                                    |                                       |                                                  |      
|Cash flows from investing activities:            |                                                                                        |                                    |                                       |                                                  |      
|                                                 | Investment in hotel properties                                                         |                                    |                                       | (1,687                                           | )    
|                                                 | Cash paid for franchise fees                                                           |                                    |                                       |                                                  |      
|                                                 | Restricted cash                                                                        |                                    |                                       | (338                                             | )    
|                                                 | Proceeds from sale of assets                                                           |                                    |                                       | 1,111                                            |      
|                                                 |                                                                                        |                                    |                                       |                                                  |      
|                                                 |                                                                                        |                                    |                                       | Net cash used by investing activities            |      
|                                                 |                                                                                        |                                    |                                       |                                                  |      
|Cash flows from financing activities:            |                                                                                        |                                    |                                       |                                                  |      
|                                                 | Net proceeds (payments) on line of credit                                              |                                    |                                       | (63,188                                          | )    
|                                                 | Proceeds from issuance of debt                                                         |                                    |                                       | 125,000                                          |      
|                                                 | Payments on mortgage notes payable                                                     |                                    |                                       | (58,828                                          | )    
|                                                 | Redemption of preferred units                                                          |                                    |                                       |                                                  |      
|                                                 | Distributions to unitholders                                                           |                                    |                                       | (6,912                                           | )    
|                                                 | Issuance of common and preferred units                                                 |                                    |                                       | 14,808                                           |      
|                                                 | Loan fees paid                                                                         |                                    |                                       | (3,715                                           | )    
|                                                 |                                                                                        |                                    |                                       |                                                  |      
|                                                 |                                                                                        |                                    |                                       | Net cash provided by financing activities        |      
|                                                 |                                                                                        |                                    |                                       |                                                  |      
|Net increase in cash and cash equivalents        |                                                                                        |                                    | 8,389                                 |                                                  |      
|Cash and cash equivalents at beginning of period |                                                                                        |                                    | 5,735                                 |                                                  |      
|                                                 |                                                                                        |                                    |                                       |                                                  |      
|Cash and cash equivalents at end of period       |                                                                                        | $                                  | 14,124                                |                                                  | $    
|                                                 |                                                                                        |                                    |                                       |                                                  |      

Supplemental disclosure of non-cash activities:

In
2001, the Partnership:



5

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RFS PARTNERSHIP, L.P.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (UNAUDITED)

1.Organization.RFS Partnership, L.P. (the "Partnership"), owns interests in 58 hotels
with 8,424 room located in 24 states (collectively the "Hotels") at March 31, 2002. RFS Hotel Investors, Inc. ("RFS") is the general partner and owns an approximate 91% ownership in the
Partnership. At March 31, 2002, third party limited partners own the remaining 9%.

These
unaudited consolidated financial statements include the accounts of the Partnership and have been prepared in accordance with generally accepted accounting principles for interim financial
statements pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all the information and footnotes required by generally accepted
accounting principles for audited financial statements and should be read in conjunction with the financial statements and notes thereto of the Partnership for the year ended December 31, 2001
included in the Partnership's Registration Statement on Form S-4, as amended (333-84334). The following notes to the consolidated financial statements highlight
significant changes to notes included in the financial statements that were included in the Form S-4 and present interim disclosures required by the SEC. The accompanying
consolidated financial statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal and
recurring nature. The results of operations for the three months ended March 31, 2002 and 2001 are not necessarily indicative of the results of operations to be expected for the full year or
future periods.

2.Basic and Diluted Earnings Per Unit.Basic earnings per unit
is computed by dividing net loss applicable to unitholders by the weighted average number of units outstanding during the period. Diluted earnings per unit is computed by dividing net loss applicable
to unitholders by the weighted average number of units and equivalents outstanding. Unit equivalents represent units issuable upon exercise of options. For the three months ended March 31, 2002
and 2001, unit equivalents would be antidilutive, and accordingly, for those periods, are not assumed to be converted in the computation of diluted earnings per unit. In addition, the Series B
Preferred Units are non-convertible and accordingly are not included in the computation of diluted earnings per unit.

3.Declaration of Dividends.On May 1, 2002, the
Partnership declared a $0.25 dividend on each general partnership and limited partnership unit outstanding to unitholders of record on May 21, 2002. The dividend will be paid on May 31,
2002.

4.Revenue Recognition.In accordance with Staff Accounting
Bulletin (SAB) 101, lease revenue is recognized as income after certain specific annual hurdles have been achieved by the lessee in accordance with provisions of the Percentage Lease agreements. SAB
101 effectively defers the recognition of revenue from its percentage leases for the first and second quarters to the third and fourth quarters. At March 31, 2002, deferred revenue of
$1.0 million is included in accounts payable and accrued expenses. The lessees are in compliance with their rental obligations under the Percentage Leases. For the three months ended
March 31, 2002 and 2001, five hotels were leased to third-party lessees.

5.Debt.On February 26, 2002, the Partnership sold
$125 million of senior notes. The senior notes mature March 1, 2012 and bear interest at a rate of 9.75% per year, payable semi-annually, in arrears, on March 1 and
September 1 of each year, commencing on September 1, 2002. The senior notes are unsecured obligations of the Partnership and are guaranteed by RFS and certain of the Partnership's
subsidiaries. The senior notes contain covenants that will, among other things, restrict the Partnership's ability to borrow money, pay dividends on or repurchase units, make investments, and sell
assets or enter into mergers and consolidations.

6

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Net
proceeds of $121.5 million were used to retire the 1996 CMBS mortgage debt on March 20, 2002 ($57.5 million outstanding), pay the prepayment penalty on the 1996
CMBS mortgage debt of approximately $5.5 million, terminate the two outstanding interest rate swap agreements for approximately $3.2 million, with the balance used to reduce outstanding
borrowings under the line of credit. As a result of the prepayment of the 1996 CMBS debt, the Partnership expensed $1.4 million in unamortized debt costs.

The
senior notes were co-issued by a wholly-owned subsidiary of the Partnership, RFS 2002 Financing, Inc. ("RFS 2002"). RFS 2002 was formed in February 2002
solely to facilitate the offering of the senior notes. RFS 2002 has no operations or assets and no sources of revenue or cash flow. Consequently, in the event that it becomes necessary for RFS 2002 to
provide credit support for the senior notes, RFS 2002 will not have sufficient cash flow to make any required payments under the senior notes.

6.Issuance of Common Stock.On February 20, 2002, RFS sold 1.15 million
shares of common stock and contributed the net proceeds to the Partnership in exchange for 1.15 million units. Proceeds of approximately $14.2 million (net of $0.2 million
expenses) from the sale of the common stock were used to reduce the outstanding balance on the line of credit. Also see Note 13.

7.Gain on Sale of Assets.The Partnership recognized a gain of approximately
$1.0 million on the sale of an unconsolidated joint venture for approximately $1.1 million. Net proceeds from the sale were used to reduce the borrowings outstanding on the line of
credit.

8.Income Taxes.The Partnership accounts for income taxes in
accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."Under
SFAS 109, the Partnership accounts for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

The
components of income tax benefit for the three months ended March 31, 2002 are as follows:

Deferred:Federal


(510
)Benefit from income taxes

$
(510
)


The
deferred benefit from income taxes and related deferred tax asset was calculated using an effective tax rate of 38% applied to the loss of the TRS Lessees.

The
deferred tax asset relates mainly to the payments to terminate the operating leases, management contracts and ancillary agreements with Hilton in 2001 that were expensed for
financial reporting purposes whereas, for tax purposes, these payments will be amortized over the lives of the leases. The Partnership believes that the TRS Lessees will generate sufficient future
taxable income to realize in full the deferred tax asset. Accordingly, no valuation allowance has been recorded at March 31, 2002. The Partnership anticipates it will not pay any material
federal or state income taxes.

9.Comprehensive Income.SFAS No. 130, "Reporting Comprehensive Income," requires
the disclosure of the components included in comprehensive income (loss). For the quarter ended March 31, 2002, the Partnership comprehensive loss was $5.9 million, comprised of the
Partnership's net loss of $9.1 million
offset by the termination of the interest rate swaps of $3.2 million that was previously included in comprehensive income.

10.Segment Information.SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," requires the disclosure of selected information about operating segments. Based

7

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on the guidance provided in the standard, the Partnership has determined that its business is conducted in one operating segment.

11.Recent Accounting Pronouncements.The Partnership has elected to adopt the
provisions of SFAS 145, "Rescission of FAS Nos. 4, 44, and 64, Amendment of FAS 13, and Technical Corrections as of April 2002". SFAS 145 rescinds the provisions of SFAS 4
that would have required the loss on the extinguishment of debt of $6.9 million described in Note 5 to be reported net of tax as an extraordinary item.

12.Consolidated Financial Information.RFS Leasing VII, Inc., a wholly-owned
subsidiary of the Partnership, has guaranteed on a full and unconditional basis, the payment of amounts due under the Partnership's $125 million senior notes. RFS Leasing, VII, Inc.
(Guarantor Subsidiary) is the only subsidiary of the Partnership that currently guarantees the senior notes. RFS Financing Partnership, L.P., RFS Leasing II, Inc., RFS Financing Corporation and
RFS Financing 2002, LLC (a recently formed entity) are expected to become guarantors on a full and unconditional basis not later that June 26, 2002 ("Future Guarantor Subsidiaries"). The Future
Guarantor Subsidiaries are wholly-owned subsidiaries of the Partnership. RFS Leasing VII had no substantial operations prior to January 1, 2001. Since that date, RFS Leasing VII's only
activities relate to the 24 hotels it leases directly or indirectly from the Partnership. As of and for the three months ended March 31, 2002 and the year ended December 31, 2001, RFS
Leasing VII did not have a material amount of assets, and incurred both operating and net losses. RFS Financing Corporation was initially formed to facilitate the issuance of the 1996 commercial
mortgage bonds, which were redeemed with a portion of the proceeds from the sale of the senior notes. At the time it is expected to become a guarantor, RFS Financing Corporation will have no
operations or assets and no sources of revenue or cash flow. Consequently, in the event that it becomes necessary for RFS Leasing VII or RFS Financing Corporation to provide credit support for the
senior notes, RFS Leasing VII and RFS Financing Corporation likely will not have sufficient cash flow to make any required payments under the senior notes.

8

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The
following tables present consolidating information for the Partnership, the Guarantor Subsidiary, the Future Guarantor Subsidiaries and the non-guarantor subsidiaries.
The Guarantor Subsidiary and one of the Future Guarantor Subsidiaries lease 24 and 15 hotels from the Partnership, respectively.

Consolidating Balance Sheet
March 31, 2002
(in thousands)

|                                                                                                   |                         | RFS
Partnership, L.P. |         | Guarantor
Subsidiary |   | Future
Guarantor
Subsidiaries |        | Non-Guarantor
Subsidiaries |         | Eliminations |   | Total
Consolidated
|-------------------------------------------------------------------------------------------------- | ----------------------- | --------------------- | ------- | -------------------- | - | ----------------------------- | ------ | -------------------------- | ------- | ------------ | - | ------------------
|ASSETS                                                                                             |                         |                       |         |                      |   |                               |        |                            |         |              |   |                   
|Investment in hotel properties, net                                                                |                         | $                     | 214,359 |                      |   |                               |        | $                          | 142,360 |              | $ | 253,226           
|Investment in consolidated entities                                                                |                         |                       | 268,945 |                      |   |                               |        |                            |         |              |   | 19,700            
|Cash and cash equivalents                                                                          |                         |                       | 4,488   |                      | $ | 3,763                         |        |                            | 2,439   |              |   | 3,434             
|Restricted cash                                                                                    |                         |                       | 20      |                      |   |                               |        |                            |         |              |   | 7,135             
|Accounts receivable                                                                                |                         |                       | 603     |                      |   | 6,946                         |        |                            | 3,289   |              |   | 9,393             
|Deferred expenses, net                                                                             |                         |                       | 6,494   |                      |   |                               |        |                            | 138     |              |   | 2,296             
|Other assets                                                                                       |                         |                       | 1,684   |                      |   | 344                           |        |                            | 524     |              |   | 1,228             
|Deferred income taxes                                                                              |                         |                       |         |                      |   | 8,013                         |        |                            | 5,963   |              |   | 11,268            
|                                                                                                   |                         |                       |         |                      |   |                               |        |                            |         |              |   |                   
|                                                                                                   | Total assets            |                       | $       | 496,593              |   | $                             | 19,066 |                            | $       | 154,713      |   | $                 
|                                                                                                   |                         |                       |         |                      |   |                               |        |                            |         |              |   |                   
|LIABILITIES AND
PARTNERS' CAPITAL                                                                  |                         |                       |         |                      |   |                               |        |                            |         |              |   |                   
|Accounts payable and accrued expenses                                                              |                         | $                     | 5,888   |                      | $ | 5,472                         |        | $                          | 4,444   |              | $ | 21,779            
|Borrowings on Line of Credit                                                                       |                         |                       | 18,000  |                      |   |                               |        |                            |         |              |   |                   
|Mortgage notes payable                                                                             |                         |                       |         |                      |   |                               |        |                            |         |              |   | 161,119           
|Senior notes payable                                                                               |                         |                       | 125,000 |                      |   |                               |        |                            |         |              |   |                   
|                                                                                                   |                         |                       |         |                      |   |                               |        |                            |         |              |   |                   
|                                                                                                   | Total liabilities       |                       |         | 148,888              |   |                               | 5,472  |                            |         | 4,444        |   |                   
|                                                                                                   |                         |                       |         |                      |   |                               |        |                            |         |              |   |                   
|Series B Preferred Units, $.01 par value, 5,000 units authorized, 250 units issued and outstanding |                         |                       | 25,000  |                      |   |                               |        |                            |         |              |   |                   
|                                                                                                   |                         |                       |         |                      |   |                               |        |                            |         |              |   |                   
|Redeemable units at redemption value                                                               |                         |                       | 36,143  |                      |   |                               |        |                            |         |              |   |                   
|                                                                                                   |                         |                       |         |                      |   |                               |        |                            |         |              |   |                   
|General partnership units                                                                          |                         |                       | 286,562 |                      |   | 13,594                        |        |                            | 150,269 |              |   | 124,782           
|                                                                                                   |                         |                       |         |                      |   |                               |        |                            |         |              |   |                   
|                                                                                                   | Total partners' capital |                       |         | 286,562              |   |                               | 13,594 |                            |         | 150,269      |   |                   
|                                                                                                   |                         |                       |         |                      |   |                               |        |                            |         |              |   |                   
|Total liabilities and partners' capital                                                            |                         | $                     | 496,593 |                      | $ | 19,066                        |        | $                          | 154,713 |              | $ | 307,680           
|                                                                                                   |                         |                       |         |                      |   |                               |        |                            |         |              |   |                   

9

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Consolidating Balance Sheet
December 31, 2001
(in thousands)

|                                                                                                   |                         | RFS
Partnership, L.P.                   |         | Guarantor
Subsidiary |         | Future
Guarantor
Subsidiaries |        | Non-Guarantor
Subsidiaries |         | Eliminations |         | Total
Consolidated |        
|-------------------------------------------------------------------------------------------------- | ----------------------- | --------------------------------------- | ------- | -------------------- | ------- | ----------------------------- | ------ | -------------------------- | ------- | ------------ | ------- | ------------------ | -------
|ASSETS                                                                                             |                         |                                         |         |                      |         |                               |        |                            |         |              |         |                    |        
|Investment in hotel properties, net                                                                |                         | $                                       | 216,228 |                      |         |                               |        | $                          | 143,523 |              | $       | 255,811            |        
|Investment in consolidated entities                                                                |                         |                                         | 195,290 |                      |         |                               |        |                            |         |              |         | 12,963             |        
|Cash and cash equivalents                                                                          |                         |                                         | 263     |                      | $       | 1,846                         |        |                            | 1,621   |              |         | 2,005              |        
|Restricted cash                                                                                    |                         |                                         | 20      |                      |         |                               |        |                            | 11      |              |         | 6,786              |        
|Accounts receivable                                                                                |                         |                                         | 15,556  |                      |         | 1,592                         |        |                            | 15,377  |              |         | 2,331              |        
|Deferred expenses, net                                                                             |                         |                                         | 3,077   |                      |         |                               |        |                            | 1,512   |              |         | 2,375              |        
|Other assets                                                                                       |                         |                                         | 1,814   |                      |         | 299                           |        |                            | 188     |              |         | 1,216              |        
|Deferred income taxes                                                                              |                         |                                         |         |                      |         | 7,695                         |        |                            | 5,857   |              |         | 11,182             |        
|                                                                                                   |                         |                                         |         |                      |         |                               |        |                            |         |              |         |                    |        
|                                                                                                   | Total assets            |                                         | $       | 432,248              |         | $                             | 11,432 |                            | $       | 168,089      |         | $                  | 294,669
|                                                                                                   |                         |                                         |         |                      |         |                               |        |                            |         |              |         |                    |        
|LIABILITIES AND
PARTNERS' CAPITAL                                                                  |                         |                                         |         |                      |         |                               |        |                            |         |              |         |                    |        
|Accounts payable and accrued expenses                                                              |                         | $                                       | 6,365   |                      | $       | 4,709                         |        |                            |         |              | $       | 26,281             |        
|Borrowings on Line of Credit                                                                       |                         |                                         | 81,188  |                      |         |                               |        |                            |         |              |         |                    |        
|Mortgage notes payable                                                                             |                         |                                         |         |                      |         |                               |        | $                          | 58,181  |              |         | 176,766            |        
|                                                                                                   |                         |                                         |         |                      |         |                               |        |                            |         |              |         |                    |        
|Total liabilities                                                                                  |                         |                                         | 87,553  |                      |         | 4,709                         |        |                            | 58,181  |              |         | 203,047            |        
|                                                                                                   |                         |                                         |         |                      |         |                               |        |                            |         |              |         |                    |        
|Series B Preferred Units, $.01 par value, 5,000 units authorized, 250 units issued and outstanding |                         |                                         | 25,000  |                      |         |                               |        |                            |         |              |         |                    |        
|                                                                                                   |                         |                                         |         |                      |         |                               |        |                            |         |              |         |                    |        
|Redeemable units at redemption value                                                               |                         |                                         | 27,980  |                      |         |                               |        |                            |         |              |         |                    |        
|                                                                                                   |                         |                                         |         |                      |         |                               |        |                            |         |              |         |                    |        
|Other comprehensive income                                                                         |                         |                                         | (3,220  | )                    |         |                               |        |                            |         |              |         |                    |        
|General partnership units                                                                          |                         |                                         | 294,935 |                      |         | 6,723                         |        |                            | 109,908 |              |         | 91,622             |        
|                                                                                                   |                         |                                         |         |                      |         |                               |        |                            |         |              |         |                    |        
|                                                                                                   | Total partners' capital |                                         |         | 291,715              |         |                               | 6,723  |                            |         | 109,908      |         |                    | 91,622 
|                                                                                                   |                         |                                         |         |                      |         |                               |        |                            |         |              |         |                    |        
|                                                                                                   |                         | Total liabilities and partners' capital |         | $                    | 432,248 |                               | $      | 11,432                     |         | $            | 168,089 |                    | $      
|                                                                                                   |                         |                                         |         |                      |         |                               |        |                            |         |              |         |                    |        

10

---

Consolidating Statement of Operations
For the Quarter Ended March 31, 2002
(in thousands)

|                                  |                                                                     | RFS
Partnership, L.P.    |   | Guarantor
Subsidiary |       | Future
Guarantor
Subsidiaries |        | Non-Guarantor
Subsidiaries |   | Eliminations |        | Total
Consolidated |       
|--------------------------------- | ------------------------------------------------------------------- | ------------------------ | - | -------------------- | ----- | ----------------------------- | ------ | -------------------------- | - | ------------ | ------ | ------------------ | ------
|Revenue:                          |                                                                     |                          |   |                      |       |                               |        |                            |   |              |        |                    |       
|                                  | Rooms                                                               |                          |   |                      |       | $                             | 15,901 |                            | $ | 11,171       |        | $                  | 13,620
|                                  | Food and beverage                                                   |                          |   |                      |       |                               | 1,992  |                            |   | 1,054        |        |                    | 1,157 
|                                  | Other operating departments                                         |                          |   |                      |       |                               | 526    |                            |   | 396          |        |                    | 684   
|                                  | Lease revenue                                                       |                          | $ | 7,047                |       |                               |        |                            |   | 4,966        |        |                    | 716   
|                                  | Deferred revenue                                                    |                          |   | (577                 | )     |                               |        |                            |   |              |        |                    | (435  
|                                  | Other                                                               |                          |   | 282                  |       |                               | 2      |                            |   | 12           |        |                    | 41    
|                                  |                                                                     |                          |   |                      |       |                               |        |                            |   |              |        |                    |       
|                                  |                                                                     | Total hotel revenue      |   |                      | 6,752 |                               |        | 18,421                     |   |              | 17,599 |                    |       
|                                  |                                                                     |                          |   |                      |       |                               |        |                            |   |              |        |                    |       
|Hotel operating expenses:         |                                                                     |                          |   |                      |       |                               |        |                            |   |              |        |                    |       
|                                  | Rooms                                                               |                          |   |                      |       |                               | 3,526  |                            |   | 2,182        |        |                    | 2,712 
|                                  | Food and beverage                                                   |                          |   |                      |       |                               | 1,652  |                            |   | 730          |        |                    | 779   
|                                  | Other operating departments                                         |                          |   |                      |       |                               | 209    |                            |   | 126          |        |                    | 139   
|Undistributed operating expenses: |                                                                     |                          |   |                      |       |                               |        |                            |   |              |        |                    |       
|                                  | Property operating costs                                            |                          |   |                      |       |                               | 2,134  |                            |   | 1,599        |        |                    | 1,601 
|                                  | Property taxes, insurance and other                                 |                          |   | 864                  |       |                               | 211    |                            |   | 672          |        |                    | 1,612 
|                                  | Franchise costs                                                     |                          |   | (51                  | )     |                               | 1,339  |                            |   | 1,029        |        |                    | 1,525 
|                                  | Maintenance and repair                                              |                          |   |                      |       |                               | 918    |                            |   | 670          |        |                    | 727   
|                                  | Management fees                                                     |                          |   |                      |       |                               | 501    |                            |   | 321          |        |                    | 436   
|                                  | Percentage lease expense                                            |                          |   |                      |       |                               | 6,129  |                            |   | 4,966        |        |                    |       
|                                  | Depreciation                                                        |                          |   | 2,483                |       |                               |        |                            |   | 1,755        |        |                    | 3,083 
|                                  | General and administrative                                          |                          |   | 126                  |       |                               | 1,607  |                            |   | 1,099        |        |                    | 2,263 
|                                  |                                                                     |                          |   |                      |       |                               |        |                            |   |              |        |                    |       
|                                  |                                                                     | Total operating expenses |   |                      | 3,422 |                               |        | 18,226                     |   |              | 15,149 |                    |       
|                                  |                                                                     |                          |   |                      |       |                               |        |                            |   |              |        |                    |       
|                                  | Operating income (loss)                                             |                          |   | 3,330                |       |                               | 195    |                            |   | 2,450        |        |                    | 906   
|                                  | Debt extinguishment and swap termination costs                      |                          |   | 3,210                |       |                               |        |                            |   | 6,912        |        |                    |       
|                                  | Interest expense                                                    |                          |   | 2,222                |       |                               | 104    |                            |   | 983          |        |                    | 3,275 
|                                  | Equity in loss of consolidated subsidiaries                         |                          |   | 7,226                |       |                               |        |                            |   |              |        |                    | 117   
|                                  |                                                                     |                          |   |                      |       |                               |        |                            |   |              |        |                    |       
|                                  | Income (loss) before (gain) loss on sale of hotels and income taxes |                          |   | (9,328               | )     |                               | 91     |                            |   | (5,445       | )      |                    | (2,486
|                                  | Gain (loss) on sale of assets                                       |                          |   | (985                 | )     |                               |        |                            |   |              |        |                    | 13    
|                                  | Provision for (benefit from) income taxes                           |                          |   |                      |       |                               | 34     |                            |   | (106         | )      |                    | (438  
|                                  |                                                                     |                          |   |                      |       |                               |        |                            |   |              |        |                    |       
|                                  | Net income (loss)                                                   |                          |   | (8,343               | )     |                               | 57     |                            |   | (5,339       | )      |                    | (2,061
|                                  | Preferred unit dividends                                            |                          |   | (781                 | )     |                               |        |                            |   |              |        |                    |       
|                                  |                                                                     |                          |   |                      |       |                               |        |                            |   |              |        |                    |       
|                                  | Net income (loss) applicable to unitholders                         |                          | $ | (9,124               | )     | $                             | 57     |                            | $ | (5,339       | )      | $                  | (2,061
|                                  |                                                                     |                          |   |                      |       |                               |        |                            |   |              |        |                    |       

11

---

Consolidating Statement of Operations
For the Quarter Ended March 31, 2001
(in thousands)

|                                  |                                                                     | RFS
Partnership, L.P.    |   | Guarantor
Subsidiary |       | Future
Guarantor
Subsidiaries |         | Non-Guarantor
Subsidiaries |   | Eliminations |        | Total
Consolidated |        
|--------------------------------- | ------------------------------------------------------------------- | ------------------------ | - | -------------------- | ----- | ----------------------------- | ------- | -------------------------- | - | ------------ | ------ | ------------------ | -------
|Revenue:                          |                                                                     |                          |   |                      |       |                               |         |                            |   |              |        |                    |        
|                                  | Rooms                                                               |                          |   |                      |       | $                             | 19,272  |                            | $ | 12,328       |        | $                  | 18,306 
|                                  | Food and beverage                                                   |                          |   |                      |       |                               | 2,304   |                            |   | 1,139        |        |                    | 1,314  
|                                  | Other operating departments                                         |                          |   |                      |       |                               | 847     |                            |   | 587          |        |                    | 992    
|                                  | Lease revenue                                                       |                          | $ | 9,104                |       |                               |         |                            |   | 5,795        |        |                    | 755    
|                                  | Deferred revenue                                                    |                          |   | (796                 | )     |                               |         |                            |   |              |        |                    | (481   
|                                  | Other                                                               |                          |   | 348                  |       |                               | 35      |                            |   | 3            |        |                    | 1      
|                                  |                                                                     |                          |   |                      |       |                               |         |                            |   |              |        |                    |        
|                                  |                                                                     | Total hotel revenue      |   |                      | 8,656 |                               |         | 22,458                     |   |              | 19,852 |                    |        
|                                  |                                                                     |                          |   |                      |       |                               |         |                            |   |              |        |                    |        
|Hotel operating expenses:         |                                                                     |                          |   |                      |       |                               |         |                            |   |              |        |                    |        
|                                  | Rooms                                                               |                          |   |                      |       |                               | 3,968   |                            |   | 2,267        |        |                    | 3,377  
|                                  | Food and beverage                                                   |                          |   |                      |       |                               | 1,879   |                            |   | 786          |        |                    | 843    
|                                  | Other operating departments                                         |                          |   |                      |       |                               | 254     |                            |   | 146          |        |                    | 140    
|Undistributed operating expenses: |                                                                     |                          |   |                      |       |                               |         |                            |   |              |        |                    |        
|                                  | Property operating costs                                            |                          |   |                      |       |                               | 2,380   |                            |   | 1,680        |        |                    | 1,731  
|                                  | Property taxes, insurance and other                                 |                          |   | 947                  |       |                               | 210     |                            |   | 675          |        |                    | 1,413  
|                                  | Franchise costs                                                     |                          |   | (66                  | )     |                               | 1,500   |                            |   | 1,089        |        |                    | 1,867  
|                                  | Maintenance and repair                                              |                          |   |                      |       |                               | 1,026   |                            |   | 716          |        |                    | 840    
|                                  | Management fees                                                     |                          |   |                      |       |                               | 534     |                            |   | 337          |        |                    | 480    
|                                  | Percentage lease expense                                            |                          |   |                      |       |                               | 7,971   |                            |   | 5,795        |        |                    |        
|                                  | Depreciation                                                        |                          |   | 2,563                |       |                               |         |                            |   | 1,733        |        |                    | 3,098  
|                                  | Lease termination                                                   |                          |   |                      |       |                               | 20,250  |                            |   | 15,414       |        |                    | 29,232 
|                                  | General and administrative                                          |                          |   | 283                  |       |                               | 1,762   |                            |   | 1,098        |        |                    | 2,299  
|                                  |                                                                     |                          |   |                      |       |                               |         |                            |   |              |        |                    |        
|                                  |                                                                     | Total operating expenses |   |                      | 3,727 |                               |         | 41,734                     |   |              | 31,736 |                    |        
|                                  |                                                                     |                          |   |                      |       |                               |         |                            |   |              |        |                    |        
|                                  | Operating income (loss)                                             |                          |   | 4,929                |       |                               | (19,276 | )                          |   | (11,884      | )      |                    | (24,433
|                                  | Interest expense                                                    |                          |   | 2,459                |       |                               | 104     |                            |   | 1,199        |        |                    | 3,321  
|                                  | Equity in loss of consolidated subsidiaries                         |                          |   | 35,738               |       |                               |         |                            |   |              |        |                    | 21,232 
|                                  |                                                                     |                          |   |                      |       |                               |         |                            |   |              |        |                    |        
|                                  | Income (loss) before (gain) loss on sale of hotels and income taxes |                          |   | (33,268              | )     |                               | (19,380 | )                          |   | (13,083      | )      |                    | (48,986
|                                  | Benefit from income taxes                                           |                          |   |                      |       |                               | (7,696  | )                          |   | (5,852       | )      |                    | (10,931
|                                  |                                                                     |                          |   |                      |       |                               |         |                            |   |              |        |                    |        
|                                  | Net income (loss)                                                   |                          |   | (33,268              | )     |                               | (11,684 | )                          |   | (7,231       | )      |                    | (38,055
|                                  | Preferred unit dividends                                            |                          |   | (780                 | )     |                               |         |                            |   |              |        |                    |        
|                                  | Gain on redemption of Series A preferred units                      |                          |   | 5,141                |       |                               |         |                            |   |              |        |                    |        
|                                  |                                                                     |                          |   |                      |       |                               |         |                            |   |              |        |                    |        
|                                  | Net income (loss) applicable to unitholders                         |                          | $ | (28,907              | )     | $                             | (11,684 | )                          | $ | (7,231       | )      | $                  | (38,055
|                                  |                                                                     |                          |   |                      |       |                               |         |                            |   |              |        |                    |        

12

---

Consolidating Statement of Cash Flows
For the Year Quarter Ended March 31, 2002
(in thousands)

|                                                 |  | RFS
Partnership, L.P. |         | Guarantor
Subsidiary |   | Future
Guarantor
Subsidiaries |  | Non-Guarantor
Subsidiaries |         | Total
Consolidated |  
|------------------------------------------------ |  | --------------------- | ------- | -------------------- | - | ----------------------------- |  | -------------------------- | ------- | ------------------ | -
|Cash flows from (used in) operating activities   |  | $                     | 10,743  |                      | $ | 1,917                         |  | $                          | (1,915  | )                  | $
|Cash flows from (used in) investing activities   |  |                       | (72,524 | )                    |   |                               |  |                            | 60,924  |                    |  
|Cash flows from (used in) financing activities   |  |                       | 66,006  |                      |   |                               |  |                            | (58,191 | )                  |  
|                                                 |  |                       |         |                      |   |                               |  |                            |         |                    |  
|Net increase in cash and cash equivalents        |  |                       | 4,225   |                      |   | 1,917                         |  |                            | 818     |                    |  
|Cash and cash equivalents at beginning of period |  |                       | 263     |                      |   | 1,846                         |  |                            | 1,621   |                    |  
|                                                 |  |                       |         |                      |   |                               |  |                            |         |                    |  
|Cash and cash equivalents at end of period       |  | $                     | 4,488   |                      | $ | 3,763                         |  | $                          | 2,439   |                    | $
|                                                 |  |                       |         |                      |   |                               |  |                            |         |                    |  

Consolidating Statement of Cash Flows
For the Year Quarter Ended March 31, 2001
(in thousands)

|                                                 |  | RFS
Partnership, L.P. |         | Guarantor
Subsidiary |   | Future
Guarantor
Subsidiaries |   | Non-Guarantor
Subsidiaries |         | Total
Consolidated |  
|------------------------------------------------ |  | --------------------- | ------- | -------------------- | - | ----------------------------- | - | -------------------------- | ------- | ------------------ | -
|Cash flows from (used in) operating activities   |  | $                     | (17,898 | )                    | $ | (15,793                       | ) | $                          | (10,007 | )                  | $
|Cash flows from (used in) investing activities   |  |                       | (22,738 | )                    |   |                               |   |                            | (1,978  | )                  |  
|Cash flows from (used in) financing activities   |  |                       | 43,277  |                      |   | 20,250                        |   |                            | 14,482  |                    |  
|                                                 |  |                       |         |                      |   |                               |   |                            |         |                    |  
|Net increase in cash and cash equivalents        |  |                       | 2,641   |                      |   | 4,457                         |   |                            | 2,497   |                    |  
|Cash and cash equivalents at beginning of period |  |                       | 1,049   |                      |   |                               |   |                            | 136     |                    |  
|                                                 |  |                       |         |                      |   |                               |   |                            |         |                    |  
|Cash and cash equivalents at end of period       |  | $                     | 3,690   |                      | $ | 4,457                         |   | $                          | 2,633   |                    | $
|                                                 |  |                       |         |                      |   |                               |   |                            |         |                    |  

13.Subsequent Events.On June 4, 2002,
RFS sold 2.0 million shares of common stock and contributed the net proceeds to the Partnership in exchange for 2.0 million common units. RFS expects to use the net proceeds of
approximately $24.6 million, together with available cash contributed to RFS from the Partnership in exchange for 250,000 Series B Preferred Units, to repurchase all of RFS's 250,000
outstanding shares of Series B preferred stock for an aggregate purchase price of $25,850,000. The Series B preferred stock currently pays an annual dividend of 12.5%. Pending such use,
the Partnership used the net proceeds to pay-off the outstanding balance on the line of credit of $18.0 million.

13

---



ITEM 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

General.RFS Partnership, L.P. (the "Partnership"), owns interests in 58 hotels with 8,424 room located in 24 states
(collectively the "Hotels") at March 31, 2002. RFS Hotel Investors, Inc. ("RFS") is the general partner and owns an approximate 91% ownership in the Partnership. At March 31,
2002, third party limited partners own the remaining 9%.

For
the trailing twelve months ended March 31, 2002, the Partnership received 39% of its Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") from full
service hotels, 35% from extended stay hotels and 26% from limited service hotels.

The
following summarizes additional information for the 58 hotels owned at March 31, 2002:

Franchise Affiliation

Hotel
Properties

Rooms/Suites

EBITDA
Three months ended
March 31, 2002Full Service Hotels:Sheraton

4

864

$
1,721Holiday Inn

5

954


1,536Independent

2

331


632Sheraton Four Points

2

412


757Doubletree

1

221


530Hilton

1

234


(49
)15

3,016


5,127Extended Stay Hotels:Residence Inn by Marriott

14

1,851


5,332TownePlace Suites by Marriott

3

285


614Homewood Suites by Hilton

1

83


22618

2,219


6,172Limited Service Hotels:Hampton Inn

17

2,113


3,103Holiday Inn Express

5

637


552Comfort Inn

2

337


240Courtyard by Marriott

1

102


15625

3,189


4,051Total

58

8,424

$
15,350


At
March 31, 2002, the Partnership leased five hotels to two third-party lessees. Fifty-one hotels are managed by Flagstone Hospitality Management Company LLC
("Flagstone") and the remaining seven hotels are managed by four other third party management companies.

Forward-looking Statements

Certain matters discussed herein may constitute forward-looking statements. Such statements may be identified by words such as anticipate, believe, estimate,
expect, intend, predict, and hope or similar expressions. The Partnership has based these forward-looking statements on its current expectations and projections about future events and trends
affecting the financial condition of its business, which may prove to be incorrect. These forward-looking statements relate to future events, the Partnership's future financial performance, and
involve known and unknown risks, uncertainties and other factors which may cause the Partnership's actual results, performance, achievements or industry results to be materially different from any
future results, performance or achievements expressed or implied by such

14

---

forward looking statements. Future events and actual results could differ materially from those identified or contemplated by such forward-looking statements. Important factors that could contribute
to such differences are set forth herein and in the Partnership's Registration Statement on Form S-4, as amended (333-84334) and other filings with the SEC. Except as
required by the federal securities laws, the Partnership disclaims any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this
quarterly report on Form 10-Q to reflect any change in the Partnership's expectations with regard thereto or any change in events, conditions or circumstances on which any such
statement is based.

Results of Operations

Comparison of the three months ended March 31, 2002 and March 31, 2001.

Revenue

Revenue decreased 18.4% from $57.9 million to $47.3 million primarily due to the lagging economy that was fueled by the terrorist activities of
September 11, 2001. Revenue per available room declined 16.6% due to a decline in occupancy of 7.0 percentage points and a 7.5% decline in average daily rate. Excluding the effects of
the Easter/Passover holiday occurring in March of this year versus April of 2001, revenue per available room would have decreased 15.7%. Excluding the timing of the Easter/Passover holiday, revenue
per available room has improved incrementally each month of the quarter. January revenue per available room declined 17%, February 15% and March 14%. Revenue per available room for the
full service, extended stay and limited service hotel portfolios showed decreases in revenue per available room of 27.6%, 7.3% and 9.2%, respectively from the comparable 2001 period.

As
reported by Smith Travel Research, in the first quarter of 2002, the San Francisco/San Mateo Metropolitan Service Area ("MSA") was the worst performing MSA in the United States in
terms of revenue per available room comparison to the prior year with a decline of 35%. The Partnership's six northern California properties experienced an average decline in quarterly revenue per
available room of nearly 37%. Excluding the six northern California properties, revenue per available room declined approximately 10%. Since March 2001, the northern California economy has
suffered from severe declines in demand due to the downturn in the high-tech industry, a weak convention calendar and the weak Japanese economy. The Partnership believes that demand will
rebound due to the low levels of new supply, the completion of the Moscone Convention Center expansion in early 2003 that will bring large conventions back to the market, and the eventual recovery of
the high-tech industry.

The
following shows hotel operating statistics for the 58 comparable hotels for the three months ended March 31, 2002.

COMPARABLE HOTELS OPERATING STATISTICS
For The Three Months Ended March 31, 2002

ADR

OCCUPANCY

Revenue Per
Available RoomHotel Type

2002

Variance
vs. 2001

2001

Variance
vs. 2001

2002

Variance
vs. 2001Full Service

$
110.87

(15.3
)%
60.1
%
(10.2
) pts
$
60.63

(27.6
)%Extended Stay


96.42

(1.2
)%
77.5
%
(5.1
) pts

74.71

(7.3
)%Limited Service


71.47

(1.2
)%
60.8
%
(5.4
) pts

43.45

(9.2
)%Total

$
89.05

(7.5
)%
64.9
%
(7.1
) pts
$
57.83

(16.6
)%


15

---

The
Partnership's full service hotels, which comprised approximately 39% of trailing twelve month EBITDA ("TTM EBITDA"), experienced an average decrease in revenue per available room of
27.6% in the quarter. This decrease was caused by a 10-percentage point decline in occupancy and a 15% decline in average daily rate. The six northern California hotels previously
mentioned make up the
majority of these decreases. The following six full service hotels located in Silicon Valley and San Francisco had decreases in revenue per available room averaging 36.6% in the quarter.

Hotel

Location

Decrease in Revenue Per
Available Room173-room Sheraton

Sunnyvale, CA

(39.6)%235-room Beverly Heritage

Milpitas, CA

(44.9)%229-room Sheraton

Milpitas, CA

(36.3)%214-room Sheraton Four Points

Pleasanton, CA

(29.3)%234-room Hilton

San Francisco, CA

(29.5)%94-room Hotel Rex

San Francisco, CA

(38.4)%


The
extended stay hotels, which comprised approximately 35% of TTM EBITDA, experienced a decline in revenue per available room of 7.3% for the quarter. This market segment has performed
the best in terms of revenue per available room versus the prior year. Fourteen of the eighteen extended stay properties are Residence Inns by Marriott, which experienced a decrease in revenue per
available room of 6.9% for the quarter. The Partnership believes that Residence Inns by Marriott is the extended stay brand of choice for consumers as these hotels benefit from longer duration stays
that include the typically slower weekend days. Similarly most of the extended stay portfolio, with the exception of the 176-room Residence Inn in Orlando, are in markets that can best be
categorized as drive to markets. These hotels have been less affected by the events of the slowing economy and September 11 with revenue per available room declining 5.3% for the quarter. The
Orlando Residence Inn has experienced a decline in revenue per available room of nearly 18.7% for the quarter.

The
limited service hotels, which comprised approximately 26% of TTM EBITDA, experienced a decrease in revenue per available room of 9.2% in the quarter. Seventeen of the
twenty-six limited service hotels are Hampton Inns that experienced a decline in revenue per available room of 5.4% for the quarter. These results are due to a combination of an increase
in limited service room supply and
the slowing economy that translated into guests trading down in price points to stay at limited service hotels.

Expenses

Total operating expenses decreased $68.2 million due primarily to the lease termination expense of $64.9 million in the first quarter of 2001.
Excluding lease termination expense, operating margins (operating income as a percentage of total hotel revenue, excluding the effects of deferred revenue) decreased 9.9 points to 16.0% from 25.9%,
driven by the decrease in revenue of 18.4%. Individual line items comprising hotel operating expenses are discussed below.

Hotel
operating expenses for rooms, food and beverage and other operating departments decreased 11.7% to $12.1 million from $13.7 million; however, as a percentage of total
hotel revenue (excluding deferred revenue), hotel operating expenses increased to 24.9% in 2002 versus 23.0% in 2001. The increased percentage was driven mostly by the sharp decline in revenue, as the
cost reductions that were implemented in 2001 could not fully recover the loss in revenue.

Property
operating costs decreased $0.5 million or 7.9% due primarily to a decrease in energy costs of $0.4 million or 15.5% resulting from the California energy crisis in
the first quarter of 2001. At the ten California properties, energy costs decreased 22.7%.

16

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Property
taxes, insurance and other expenses increased $0.1 million or 3.5%, driven primarily by an increase in earthquake insurance of $0.1 million.

Franchise
costs decreased $0.5 million or 12.5% due primarily to the decrease in hotel revenue of 18.4%.

Depreciation
decreased slightly to $7.3 million from $7.4 million. Beginning in 2001, the Partnership expected depreciation to level off after the substantial capital
expenditures made in prior years.

Lease
termination costs of $64.9 million in 2001 represented the expenditures incurred in connection with the termination of the leases, management contracts and related ancillary
agreements with Hilton. For accounting purposes, this transaction represented the cancellation of executory contracts and was required to be expensed as incurred. Total lease termination costs were
$65.5 million in 2001.

General
and administrative expenses decreased $0.3 million or 6.4% due primarily to austerity programs implemented in the second and third quarters of 2001 at both the hotels and
corporate headquarters aimed at reducing these expenses.

Debt
extinguishment and swap termination costs of $10.1 million are comprised of a yield maintenance premium of $5.5 million to pay off the 1996 CMBS debt,
$3.2 million to terminate two interest rate swaps and $1.4 million to write-off the unamortized debt issuance costs related to the 1996 CMBS debt.

Interest
expense decreased $0.5 million or 7.2% due to the decrease in the weighted average interest rate on borrowings outstanding on the line of credit from 7.9% in 2001 to 7.7%
in 2002 as well as a decrease in the weighted average borrowings outstanding of $11.3 million.

Gain
on sale of assets relates to the sale of the Partnership's interest in an unconsolidated partnership for approximately $1.1 million.

Benefit
from income taxes decreased $24.0 million as a result of the Hilton lease termination in the first quarter of 2001.

Net loss applicable to unitholders

Net loss applicable to unitholders for the first quarter 2002 and 2001 was $(9.1) million and $(28.9) million, respectively. The $19.8 million decrease of
net loss is attributable primarily to the increase in operating income of $57.5 million, offset by the benefit from income taxes of $24.0 million, the gain on the redemption of the
Series A Preferred Units in 2001of $5.1 million and the debt extinguishment and swap termination costs of $10.1 million

Funds from Operations and EBITDA

The Partnership considers Funds From Operations ("FFO") and EBITDA to be appropriate measures of a REIT's performance that should be considered along with, but
not as an alternative to, net income and cash flow as a measure of the Partnership's operating performance and liquidity.

The
National Association of Real Estate Investment Trusts (NAREIT), defines FFO as net income (computed in accordance with generally accepted accounting principles or GAAP), excluding
gains
(losses) from debt restructuring which will be extraordinary items in accordance with GAAP and sales of depreciable operating property, plus real estate related depreciation and amortization and after
comparable adjustments for the Partnership's portion of these items related to unconsolidated partnerships and joint ventures. Recurring FFO represents FFO, as defined by NAREIT, adjusted for
significant non-recurring items including lease termination costs, debt extinguishment and swap

17

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termination costs and deferred income taxes. However, recurring FFO and EBITDA as presented may not be comparable to amounts calculated by other companies. Recurring FFO and EBITDA do not represent
cash flows from operations as determined by GAAP and should not be considered as an alternative to net income as an indication of the Partnership's financial performance or to cash flow from operating
activities determined in accordance with GAAP as a measure of the Partnership's liquidity, nor is it indicative of funds available to fund the Partnership's cash needs, including its ability to make
cash distributions.

The
following details the computation of recurring FFO for the three months ended March 31 (in thousands):

2002

2001Net loss

$
(8,343
)
$
(33,268
)Deferred revenue


1,012


1,277Depreciation


7,321


7,394Debt extinguishment and swap termination costs


10,122Gain on sale of assets


(972
)Hilton lease termination





64,896Deferred income tax benefit


(510
)

(24,531
)Preferred unit dividends


(781
)

(780
)Recurring FFO

$
7,849

$
14,988Weighted average units and potential dilutive units outstanding


28,353


27,468


The
following details the computation of EBITDA for the three months ended March 31 (in thousands):

2002

2001Recurring FFO

$
7,849

$
14,988Interest expense


6,401


6,900Amortization


319


359Current income taxes





52Preferred unit dividends


781


780EBITDA

$
15,350

$
23,079


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Liquidity and Capital Resources

The Partnership's principal source of cash to meet its cash requirements, including distributions to unitholders and repayments of indebtedness, is its cash flow.
For the three months ended March 31, 2002, cash flow provided by operating activities was $2.1 million. The Partnership believes that its cash provided by operating activities will be
adequate to meet some of its liquidity needs for the foreseeable future. The Partnership currently expects to fund its strategic objectives and any other liquidity needs by borrowing on its Line of
Credit, exchanging equity for hotel properties or possibly accessing the capital markets if market conditions permit. At March 31, 2002, the Partnership had $14.1 million of cash and
cash equivalents and had borrowed $18.0 million under its $140.0 million Line of Credit, subject to borrowing base values, as calculated in accordance with the terms of the Line of
Credit, which value may be less than the $140 million Line of Credit facility.

The
following details the Partnership's debt outstanding at March 31, 2002 (dollar amounts in thousands):

|               |  |   |         |  |               |  |          |  |               | Collateral
|-------------- |  | - | ------- |  | ------------- |  | -------- |  | ------------- | ----------
|
|Line of Credit |  | $ | 18,000  |  | LIBOR + 200bp |  | Variable |  | July 2004     |           
|Senior Notes   |  |   | 125,000 |  | 9.75%         |  | Fixed    |  | March 2012    |           
|Mortgage       |  |   | 91,702  |  | 7.83%         |  | Fixed    |  | December 2008 |           
|Mortgage       |  |   | 18,190  |  | 8.22%         |  | Fixed    |  | November 2007 |           
|Mortgage       |  |   | 51,227  |  | 8.00%         |  | Fixed    |  | August 2010   |           
|               |  |   |         |  |               |  |          |  |               |           
|               |  | $ | 304,119 |  |               |  |          |  |               |           
|               |  |   |         |  |               |  |          |  |               |           

The
interest rate on the Line of Credit ranges from 150 basis points to 250 basis points above LIBOR, depending on the Partnership's ratio of total debt to its investment in hotel
properties (as defined). The interest rate was approximately 3.9% at March 31, 2002. The Line of Credit is collateralized by first priority mortgages on 24 hotels that restrict the transfer,
pledge or other hypothecation of the hotels (collectively, the "Collateral Pool"). The Partnership can obtain a release of the pledge of any hotel in the Collateral Pool if it provides a substitute
hotel or reduces the total availability under the Line of Credit. The Line of Credit contains various covenants including the maintenance of a minimum net worth, minimum debt and interest coverage
ratios, and total indebtedness and liability limitations. The Partnership was in compliance with these covenants at March 31, 2002.

On
February 26, 2002, the Partnership sold $125 million of senior notes. The senior notes mature March 1, 2012 and bear interest at a rate of 9.75% per year, payable
semi-annually, in arrears, on March 1 and September 1 of each year, commencing on September 1, 2002. The senior notes are unsecured obligations of the Partnership and
are guaranteed by RFS and certain of its subsidiaries. The senior notes contain covenants that will, among other things, restrict RFS' ability to borrow money, pay dividends on or repurchase capital
stock, make investments, and sell assets or enter into mergers and consolidations. Net proceeds from the issuance of the senior notes of $121.5 million were used to retire the 1996 CMBS
mortgage debt on March 20, 2002 ($57.5 million outstanding), pay the prepayment penalty on the 1996 CMBS mortgage debt of approximately $5.5 million, terminate the two outstanding
interest rate swap agreements for approximately $3.2 million, with the balance used to reduce outstanding borrowings under the line of credit. As a result of the prepayment of the 1996 CMBS
debt, the Partnership expensed $1.4 million in unamortized debt costs. See Notes 5 and 12 to the
Consolidated Financial Statements for additional detail regarding the senior notes and the guarantors thereof.

19

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The
Partnership's other borrowings are nonrecourse to the Partnership and contain provisions allowing for the substitution of collateral, upon satisfaction of certain conditions, after
the respective loans have been outstanding for approximately four years. Most of the mortgage borrowings are repayable and subject to various prepayment penalties, yield maintenance, or defeasance
obligations. At March 31, 2002, approximately 94% of the Partnership's debt is fixed at an average interest rate of 8.7%.

Future
scheduled principal payments of debt obligations at March 31, 2002 are as follows (in thousands):

Amount2002

$
1,8402003


2,6952004


20,8882005


3,1612006


3,424Thereafter


272,111$
304,119


In
addition to the above principal payment of debt obligations as of March 31, 2002, the Partnership had a $2.0 million letter of credit outstanding. The letter of credit
serves as collateral on the worker's compensation plan for the benefit of the hotel employees of Flagstone. There are no outstanding balances on the letter of credit. The Partnership is also committed
to make future payments under various operating leases that are not material.

Certain
significant credit statistics at March 31, 2002 are as follows:



During
the three months ended March 31, 2002, the Partnership spent $1.7 million on capital improvements to its hotels. The Partnership expects to spend approximately
$9 million on capital improvements to its hotels in 2002, which the Partnership is expected to fund from cash generated from operations and borrowings under the Line of Credit.

The
Partnership expects to be able to meet its working capital, capital expenditure and debt service requirements through cash flow from operations and borrowings under the line of
credit. Borrowings under the line of credit bear interest at a floating rate based upon (and including spreads over), at the Partnership's option, LIBOR or the Prime Rate. The line of credit also has
various financial and other covenants. At March 31, 2002, the Partnership had $110.0 million of borrowing availability under the line of credit excluding outstanding letters of credit.
Over the longer term, the Partnership's ability to generate sufficient cash flow from operations to make scheduled payments on its debt obligations will depend on its future financial performance,
which will be affected by a range of economic, competitive and business factors, many of which are outside of the Partnership's control. If the Partnership does not generate sufficient cash flow from
operations to satisfy its debt obligations, the Partnership any may have to undertake alternative financing plans. The Partnership cannot assume that completion of any such alternative financing plans
will be possible. The Partnership's inability to generate sufficient cash

20

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flow to satisfy its debt obligations or to refinance its obligations on commercially reasonable terms would have an adverse effect on its business, financial condition and results of operations.

On
February 20, 2002, RFS sold 1.15 million shares of common stock and contributed the net proceeds to the Partnership in exchange for 1.15 million units. Proceeds
of approximately $14.2 million (net of $0.2 million expenses) from the sale of the common stock were used to reduce the outstanding balance
on the line of credit. On June 4, 2002, RFS sold 2.0 million shares of common stock and contributed the net proceeds to the Partnership in exchange for 2.0 million common units.
RFS expects to use the net proceeds of approximately $24.6 million, together with available cash contributed to RFS from the Partnership in exchange for 250,000 Series B Preferred Units,
to repurchase all of RFS's 250,000 outstanding shares of Series B preferred stock for an aggregate purchase price of $25,850,000. The Series B preferred stock currently pays an annual
dividend of 12.5%. Pending such use, the Partnership used the net proceeds to pay-off the outstanding balance on the line of credit of $18.0 million.

The
Partnership in the future may seek to increase further the amount of its credit facilities, negotiate additional credit facilities, or issue corporate debt instruments. Although the
Partnership has no restrictions on the amount of indebtedness the Partnership may incur under its limited partnership agreement, the Partnership has adopted a current policy limiting the amount of
indebtedness that the Partnership will incur to an amount not in excess of approximately 45% of the Partnership's investment in hotel properties, at cost, (as defined). RFS, as general partner of the
Partnership, may change the debt policy at any time without the approval of RFS's shareholders. RFS has adopted a similar policy.

The
Partnership intends to fund cash distributions to unitholders and limited partners principally out of cash generated from operations. The Partnership may incur, or cause its
subsidiaries to incur, indebtedness to meet distribution requirements imposed on a REIT under the Internal Revenue Code including the requirement that a REIT distribute to its shareholders annually at
least 90% of its taxable income to the extent that working capital and cash flow from the Partnership's investments are insufficient to make such distributions.

Inflation

Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. However, competitive pressures may limit the
ability of the lessees and management companies to raise room rates.

ITEM 3.Qualitative and Quantitative Disclosure about Market Risk

The Partnership is exposed to certain financial market risks, one being fluctuations in interest rates. The Partnership monitors interest rate fluctuations as an
integral part of the Partnership's overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on the Partnership's
results. The effect of interest rate fluctuations historically has been small relative to other factors affecting operating results, such as occupancy.

The
Partnership's operating results are affected by changes in interest rates primarily as a result of borrowing under its line of credit. If interest rates increased by 25 basis points,
quarterly interest
expense would have increased by approximately $2 thousand, based on balances outstanding during the quarter ended March 31, 2002.

The
Partnership's primary market risk exposure is to changes in interest rate as a result of its Line of Credit and long-term debt. At March 31, 2002, the Partnership
had outstanding total indebtedness of approximately $304.1 million. The Partnership's interest rate risk objective is to limit the impact of interest rate fluctuations on earnings and cash
flows and to lower it's overall borrowing costs. To achieve this objective, the Partnership manages its exposure to fluctuations in market interest rates for

21

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its borrowings through the use of fixed rate debt instruments to the extent that reasonably favorable rates are obtainable with such arrangements and derivative financial instruments such as interest
rate swaps, to effectively lock the interest rate on a portion of its variable debt. The Partnership does not enter into derivative or interest rate transactions for speculative purposes.
Approximately 94% of the Partnership's outstanding debt was subject to fixed rates with a weighted average interest rate of 8.7% at March 31, 2002. On February 26, 2002, the Partnership
terminated its two interest rate swap agreements for approximately $3.2 million. The Partnership regularly reviews interest rate exposure on its outstanding borrowings in an effort to minimize
the risk of interest rate fluctuations.

The
following table provides information about the Partnership's instruments that are sensitive to changes in interest rates. For debt obligations outstanding at March 31, 2002,
the table presents principal cash flows and related weighted average interest rates by expected maturity dates. Weighted average variable rates are based on implied forward rates in the yield curve as
of March 31, 2002. The fair value of the Partnership's fixed rate debt indicates the estimated principal amount of debt having similar debt service requirements, which could have been borrowed
by the Partnership at March 31, 2002. The rate assumed in the fair value calculation of fixed rate debt is equal to 7.2%, which consists of the 7-year treasury of 5.2% as of
March 31, 2002, plus 200 basis points.

Expected Principal Cash Flows
(in thousands)

Liabilities

2002

2003

2004

2005

2006

Thereafter

Total

Fair
Value
TotalLong-Term Debt:Fixed Rate

$
1,840

$
2,695

$
2,888

$
3,161

$
3,424

$
272,111

$
286,119

$
305,763Average Interest Rate


8.72
%

8.72
%

8.72
%

8.72
%

8.72
%

8.72
%Variable Rate







$
18,000










$
18,000

$
18,000Average Interest Rate








3.90
%


The
table incorporates only those exposures that exist as of March 31, 2002 and does not consider exposures or positions that could arise after that date. In addition, because
firm commitments are not represented in the table above, the information presented therein has limited predictive value. As a result, the Partnership's ultimate realized gain or loss with respect to
interest rate fluctuations would depend on the exposures that arise during future periods, prevailing interest rates, and the Partnership's strategies at that time. There is inherent rollover risk for
borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and the Partnership's
financing requirements.

Critical Accounting Policies and Estimates

The Partnership's discussion and analysis of its financial condition and results of operations are based upon the Partnership's consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Partnership to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Partnership believes the following critical
accounting policies affect the more significant judgments and estimates used in the preparation of the consolidated financial statements.

On
an on-going basis, the Partnership evaluates its estimates, including those related to bad debts, carrying value of investments in hotels, income taxes, contingencies and
litigation. The Partnership bases its estimates on historical experience and on various other assumptions that the Partnership believes to be reasonable under the circumstances, the results of which
form the basis for making

22

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judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions.

The
Partnership maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. If the financial condition of the
Partnership's customers were to deteriorate, resulting in an impairment of the customers' ability to make payments, additional allowances may be required.

The
Partnership records an impairment charge when it believes an investment in hotel has been impaired such that future undiscounted cash flows would not recover the book basis of the
investment in hotel. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the
investments that may not be reflected in an investment's current carrying value, thereby possibly requiring an impairment charge in the future.

The
Partnership records a valuation allowance to reduce the deferred tax assets to an amount that is more likely than not to be realized. While future taxable income and ongoing prudent
and feasible tax planning strategies in assessing the need for the valuation allowance have been considered, in the event the Partnership were to determine that it would be able to realize its
deferred tax assets in the future in excess of their net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the
Partnership determine that it would not be able to realize all or part of the net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period
such determination was made.

23

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PART IIOTHER INFORMATION

ITEM 6b.Exhibits and Reports on Form 8-K and 8-K/A





24

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SIGNATURES

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

|                   |  | RFS PARTNERSHIP, L.P.                                                                                        
|------------------ |  | -------------------------------------------------------------------------------------------------------------
|                   |  |                                                                                                              
|June 14, 2002
Date |  | /s/DENNIS M. CRAVENDennis M. Craven, Vice President & Chief
Accounting Officer
(Principal Accounting Officer)

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