<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                        

                                   FORM 10-Q
                                  (MARK ONE)
                                        
    [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                             EXCHANGE ACT OF 1934
                                        
               FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR
                                        
   [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                             EXCHANGE ACT OF 1934
                 FOR THE TRANSITION PERIOD FROM            TO
                                        


                        COMMISSION FILE NUMBER 1-14331
                                        


                        MERISTAR HOTELS & RESORTS, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                                        


              DELAWARE                                 51-0379982
   (STATE OF INCORPORATION)               (IRS EMPLOYER IDENTIFICATION NO.)
                                        


                          1010 WISCONSIN AVENUE, N.W.
                            WASHINGTON, D.C. 20007
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
                                        
                                 202-965-4455
             (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
                                        
                                     NONE
             (Former Name, Former Address and Former Fiscal Year,
                         if Changed Since Last Report)


     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period for which the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X  No
 

     The number of shares of Common Stock, par value $0.01 per share,
outstanding at May 6, 1999 was 27,401,935.
<PAGE>
 
                        MERISTAR HOTELS & RESORTS, INC.


                                     INDEX

<TABLE>
<CAPTION>
                                                                Page
                                                                ----
<S>                                                             <C>
PART I.   FINANCIAL INFORMATION

ITEM 1:   FINANCIAL STATEMENTS (UNAUDITED)

 
          Condensed Consolidated Balance Sheets -
          March 31, 1999 and December 31, 1998                     3
 
          Condensed Consolidated Statements of Operations -
          Three Months Ended March 31, 1999 and 1998               4
 
          Condensed Consolidated Statements of Cash Flows -
          Three Months Ended March 31, 1999 and 1998               5
 
          Notes to Condensed Consolidated Financial Statements     6
 

ITEM 2:   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS           10
 
ITEM 3:   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
          MARKET RISK                                             14
 
PART II.  OTHER INFORMATION
 
ITEM 5:   OTHER INFORMATION                                       14
 
ITEM 6:   EXHIBITS AND REPORTS ON FORM 8-K                        14
</TABLE> 
 
                                       2
<PAGE>
 
PART I.   FINANCIAL INFORMATION
ITEM 1:   FINANCIAL STATEMENTS
MERISTAR HOTELS & RESORTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                             March 31, 1999   December 31, 1998
                                                             ---------------  ------------------
                                                               (unaudited)
<S>                                                          <C>              <C>
Assets
Current Assets:
     Cash and cash equivalents                                     $  7,806            $ 11,155
     Accounts receivable, net of allowance for doubtful
       accounts of $3,232 and $2,285                                 78,219              61,987
     Prepaid expenses                                                 3,832               4,193
     Deposits and other                                              12,680              11,085
                                                                   --------            --------
Total current assets                                                102,537              88,420
 
Fixed assets:
   Furniture, fixtures, and equipment                                 8,119               7,325
   Accumulated depreciation                                          (1,426)             (1,099)
                                                                   --------            --------
Total fixed assets, net                                               6,693               6,226
 
Investments in and advances to affiliates                            19,309               5,495
Intangible assets, net of accumulated
  amortization of $4,482 and $3,338                                 145,797             146,782
Restricted cash                                                          42                 606
                                                                   --------            --------
 
                                                                   $274,378            $247,529
                                                                   ========            ========
 
Liabilities, Minority Interests, and Stockholders' Equity
Current Liabilities:
   Accounts payable                                                $ 33,821            $ 28,401
   Accrued expenses and other liabilities                            84,370              70,016
   Due to affiliates, net                                            25,363               7,437
   Income taxes payable                                                  69                  69
   Long-term debt, current portion                                       19                  27
                                                                   --------            --------
Total current liabilities                                           143,642             105,950
Deferred income taxes                                                 9,058               9,367
Long-term debt                                                       57,623              67,785
                                                                   --------            --------
Total liabilities                                                   210,323             183,102
Minority interests                                                   19,533              19,693
Commitments and contingencies
Stockholders' equity:
   Common stock, par value $.01 per share:
      Authorized - 100,000 shares
      Issued and outstanding - 25,525 and 25,437 shares                 255                 254
   Paid-in capital                                                   44,181              43,929
   Retained earnings                                                     86                 551
                                                                   --------            --------
Total Stockholders' equity                                           44,522              44,734
                                                                   --------            --------
 
                                                                   $274,378            $247,529
                                                                   ========            ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>
 
MERISTAR HOTELS & RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
INCLUDING PREDECESSOR ENTITY
UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                            Three Months Ended
                                                 March 31,
                                                 ---------
                                              1999       1998
                                              ----       ----
<S>                                         <C>        <C>
Revenue:
  Rooms                                     $228,313   $23,404
  Food and beverage                           72,313     1,357
  Other operating departments                 23,367     1,219
  Management and other fees                    1,845     4,150
                                            --------   -------
 
Total revenue                                325,838    30,130
                                            --------   -------
 
Operating expenses by department:
  Rooms                                       51,973     5,124
  Food and beverage                           55,061       995
  Other operating expenses                    11,834       498
 
Undistributed operating expenses:
  Administrative and general                  51,391     6,963
  Property operating costs                    47,464     4,142
  Participating lease expense                106,275    10,655
  Depreciation and amortization                1,549       421
                                            --------   -------
 
Total operating expenses                     325,547    28,798
                                            --------   -------
 
Net operating income                             291     1,332
 
Interest expense, net                          1,226        18
Equity in earnings of affiliates                   -      (521)
                                            --------   -------
 
Income (loss) before minority interests
and income taxes                                (935)      793
 
Minority interests                              (161)       35
 
Income taxes                                    (309)        -
                                            --------   -------
 
Net income (loss)                           $   (465)  $   758
                                            --------   -------
 
Earnings per share :
    Basic                                   $  (0.02)      N/A
    Diluted                                 $  (0.02)      N/A
                                            ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
MERISTAR HOTELS & RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCLUDING PREDECESSOR ENTITY
UNAUDITED (IN THOUSANDS)


<TABLE>
<CAPTION>
 
                                                           Three Months Ended
                                                                March 31,
                                                                ---------
                                                             1999      1998
                                                           --------   -------
<S>                                                        <C>        <C>   
Operating activities:
 
Net income (loss)                                          $   (465)  $   758
 
Adjustments to reconcile net income (loss) to net
 cash provided by operating activities:
 Depreciation and amortization                                1,549       421
 Equity in earnings of affiliates                                 -       521
 Minority interests                                            (161)       35
 Deferred income taxes                                         (309)        -
 
Changes in operating assets and liabilities:
 Accounts receivable, net                                   (16,232)      493
 Deposits and other                                          (1,595)       47
  Prepaid expenses                                              361       124
 Cash and cash equivalents held on behalf of affiliates           -       649
 Accounts payable                                             5,420      (182)
 Accrued expenses and other liabilities                      14,354     3,809
 Due to affiliates, net                                      17,926    (3,915)
                                                           --------   -------
 
Net cash provided by operating activities                    20,848     2,760
                                                           --------   -------
 
Investing activities:
 Purchases of fixed assets, net                                (864)     (697)
 Investments in and advances to affiliates                  (13,814)        -
 Purchases of intangible assets                                (159)     (119)
 Distributions from investments in affiliates                     -       490
 Change in restricted cash                                      564         -
                                                           --------   -------
 
Net cash used in investing activities                       (14,273)     (326)
                                                           --------   -------
 
Financing activities:
 Principal payments on long term debt                       (10,170)     (205)
 Proceeds from issuances of common stock, net                   246         -
                                                           --------   -------
 
Net cash used in financing activities                        (9,924)     (205)
                                                           --------   -------
 
Net increase (decrease) in cash and cash equivalents         (3,349)    2,229
Cash and cash equivalents, beginning of period               11,155     2,477
                                                           --------   -------
 
Cash and cash equivalents, end of period                   $  7,806   $ 4,706
                                                           --------   -------
</TABLE>


See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>
 
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED, DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)


1.   ORGANIZATION

MeriStar Hotels & Resorts, Inc. (the "Company") was spun off by Capstar Hotel
Company ("CapStar") on August 3, 1998 (the "Spin-Off") to become the lessee,
manager and operator of various hotel assets, including those which were
previously owned, leased and managed by CapStar and certain of its affiliates.
CapStar distributed to its stockholders, on a share-for-share basis, all of the
outstanding shares of the Company's common stock, par value $0.01 per share
("Common Stock").  On August 3, 1998, CapStar merged (the "Merger") with and
into American General Hospitality Corporation ("AGH"), a Maryland corporation
operating as a real estate investment trust, to form MeriStar Hospitality
Corporation (the "REIT").

Immediately following the Spin-Off and the Merger, the Company acquired 100% of
the partnership interests in AGH Leasing, L.P. ("AGH Leasing"), the third-party
lessee of most of the hotels owned by AGH, and acquired substantially all of the
assets and certain liabilities of American General Hospitality, Inc. ("AGHI"),
the third-party manager of most of the hotels owned by AGH and certain other
hotels.  The Company thereby became the lessee, manager and operator of most of
the hotels owned by AGH.  The purchase price of $95,000 was funded with a
combination of cash and units of limited partnership interest ("OP Units") in
the Company's subsidiary operating partnership.  In accordance with generally
accepted accounting principles ("GAAP"), the acquisitions have been accounted
for as a purchase and therefore, the operating results of AGHI and AGH Leasing
are included in the Company's consolidated financial statements from the date of
acquisition.

Pursuant to an intercompany agreement, the Company and the REIT provide each
other with, among other things, reciprocal rights to participate in certain
transactions entered into by each party.  In particular, the Company has a right
of first refusal to become the lessee of any real property acquired by the REIT.
The Company also provides the REIT with certain services including
administrative, corporate, accounting, financial, insurance, legal, tax, data
processing, human resources, acquisition identification and due diligence, and
operational services, for which the Company is compensated in an amount that the
REIT would be charged by an unaffiliated third party for comparable services.

As of March 31, 1999, the Company leased or managed 203 hotels with 42,583 rooms
in 34 states, the District of Columbia, Canada and the U.S. Virgin Islands.

The consolidated interim financial statements of the Company for the three
months ended March 31, 1998 include the historical results of the Company's
predecessor entity, the management and leasing operations of CapStar.  The
operating results of AGHI and AGH Leasing have been included in the Company's
consolidated financial statements since August 3, 1998.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed consolidated interim financial statements have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles ("GAAP") have been omitted
pursuant to such rules and regulations. The unaudited condensed consolidated
interim financial statements should be read in conjunction with the financial
statements, notes thereto and other information included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998. Certain 1998 amounts
have been reclassified to conform to 1999 presentation.

                                       6
<PAGE>
 
The accompanying unaudited condensed consolidated interim financial statements
reflect, in the opinion of management, all adjustments, which are of a normal
and recurring nature, necessary for a fair presentation of the financial
condition and results of operations and cash flows for the periods presented.
The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions. Such estimates and assumptions
affect the reported amounts of assets and liabilities, as well as the disclosure
of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
year.

The Company's participating leases have noncancelable remaining terms ranging
from 10 to 15 years , subject to earlier termination on the occurrence of
certain contingencies, as defined. The rent payable under each participating
lease is the greater of base rent or percentage rent, as defined. Percentage
rent applicable to room and food and beverage hotel revenue varies by lease and
is calculated by multiplying fixed percentages by the total amounts of such
revenues over specified threshold amounts. Both the minimum rent and the revenue
thresholds used in computing percentage rents are subject to annual adjustments
based on increases in the United States Consumer Price Index. Percentage rent
applicable to other revenues is calculated by multiplying fixed percentages by
the total amounts of such revenues.

In May 1998, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 98-9, "Accounting for Contingent Rent in Interim Financial Periods".
EITF No. 98-9 affects the recognition of contingent rental expense in interim
periods. This pronouncement requires a lessee to recognize contingent rental
expense for interim periods prior to the achievement of the specified target
that triggers the contingent rental expense, if the achievement of that target
by the end of the fiscal year is considered probable. This accounting
pronouncement relates only to the Company's recognition of lease expense in
interim periods for financial reporting purposes; it has no effect on the timing
of rent payments under the Company's leases or the Company's annual lease
expense calculations. The Company adopted EITF No. 98-9 effective July 1, 1998.
Under the provisions of EITF No. 98-9, the Company has recognized $3.9 million
of additional lease expense as of March 31, 1999. This amount is included in
accrued expenses and other liabilities on the Company's condensed consolidated
balance sheet. The effect of EITF No. 98-9 on the Company's financial statements
is as follows:


<TABLE>
<CAPTION>
                            Before          Effect          After
                           Effect of          of          Effect of
                         EITF No.98-9   EITF No. 98-9   EITF No. 98-9
                         -------------  --------------  --------------
<S>                      <C>            <C>             <C>
Net operating income          $ 4,211         $(3,920)        $   291
Interest expense, net          (1,226)              -          (1,226)
Minority interest                (512)            673             161
Income taxes                     (989)          1,298             309
                              -------         -------         -------
Net income (loss)             $ 1,484         $(1,949)        $  (465)
                              =======         =======         =======
 
Diluted EPS                   $  0.06                         $ (0.02)
                              =======                         =======
</TABLE>

                                       7
<PAGE>
 
3.   EARNINGS PER SHARE

Earnings per share ("EPS") has been calculated using net income for the three
months ended March 31, 1999.  Prior to the Spin-Off, the predecessor entities of
the Company were partnerships. Accordingly, no EPS has been calculated for the
three months ended March 31, 1998.  The following table presents the computation
of basic and diluted EPS for the three months ended March 31, 1999:


BASIC AND DILUTED EPS
COMPUTATION:

<TABLE>
<CAPTION>
<S>                                   <C>
Net loss                                  $  (465)
Weighted average number of shares     
of Common Stock outstanding                25,485
                                      -----------
Basic and Diluted EPS                     $ (0.02)
                                      ===========
</TABLE>


4.   SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE> 
<CAPTION> 
                                                    Three Months Ended
                                                        March 31,
                                                        ---------

                                                   1999            1998
                                                   ----            ----
<S>                                               <C>               <C>  
Supplemental disclosure of cash flow information:
Cash paid for interest                            $1,469            $18
</TABLE> 

5.   SEGMENTS

The Company is organized into three primary operating divisions.  Each division
is managed separately because of its distinctive products and services offered
by the hotel properties within the operating division.  These operating
divisions are the Company's three reportable operating segments: upscale, full-
service hotels ("Hotels"); premium limited-service hotels and inns ("Inns"); and
resort properties ("Resorts").  The Company's management evaluates performance
of each segment based on earnings before interest taxes, depreciation, and
amortization ("EBITDA").  The accounting policies of the segments are the same
as those described in the summary of significant accounting policies.

The Company's financial condition and results of operations as of March 31, 1999
and December 31, 1998 and for the three-months ended March 31, 1999 and 1998
reflect significantly differing numbers of managed and leased hotels throughout
the periods.  Consequently, the Company has determined that it is not
practicable to present the segment information of the management and leasing
operations of CapStar, its predecessor entity, for the three months ended March
31, 1998.  Also, prior to the Spin-Off, the management and leasing operations of
CapStar conducted its business primarily in only one operating segment.
Therefore, the segment disclosures presented below are for the three months
ended March 31, 1999.

<TABLE>
<CAPTION>
                                                      HOTELS            INNS           RESORTS        TOTAL SEGMENTS
--------------------------------------------------------------------------------------------------------------------
<S>                                              <C>               <C>             <C>              <C>
Revenues                                              $191,333          $43,816          $84,915            $320,064
                                                 =============     ============    =============    ================
Participating Lease Expense                           $ 64,892          $18,100          $23,283            $106,275
                                                 =============     ============    =============    ================
EBITDA                                                $ (4,041)         $   170          $10,238            $  6,367
                                                 =============     ============    =============    ================
Total Assets                                          $ 59,495          $14,640          $25,654            $ 99,789
                                                 =============     ============    =============    ================
--------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       8
<PAGE>
 
The following is a reconciliation of the segment information to the Company's
consolidated data:

<TABLE>
<CAPTION>
                                              Participating
                                REVENUES      Lease Expense        EBITDA        ASSETS
                               ------------------------------------------------------------
<S>                            <C>            <C>                  <C>           <C>
Total Segments                     $320,064          $106,275        $ 6,367      $ 99,789
Other Items                           5,774                 -         (4,527)      174,589
                               ------------------------------------------------------------

Per Financial Statements           $325,838          $106,275        $ 1,840      $274,378
                               ============================================================
</TABLE>

     The other items in the table above represent non-operating segment activity
and assets.  These are primarily unallocated corporate expenses and non-segment
activities, and intangible and other miscellaneous assets.

Revenues for Canadian operations totaled $4,484 for the three-month period ended
March 31, 1999.

6.   INVESTMENTS IN AND ADVANCES TO AFFILIATES

During January 1999, the Company purchased from the REIT a 50% investment in a
joint venture which owns the 443-room Radisson Hotel & Suites Downtown in St.
Louis, Missouri, for a price of $7,200.

During March 1999, the Company invested $2,500 as an equity investment in
a joint venture established to acquire upscale, full-service hotels. The
Company's ultimate investment in this joint venture will be up to $10,000. The
Company will manage all hotels acquired by the joint venture. As part of the
joint venture transaction, the Company sold $5,000 of its common stock to the
joint venture partner at a price of $2.75 per share on April 15, 1999. When the
joint venture reaches $200,000 in invested assets, that joint venture partner
has the right to acquire up to an additional $5,000 of common stock at fair
market value, based on a 20-day pricing period.

                                       9
<PAGE>
 
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

GENERAL

On August 3, 1998,  CapStar Hotel Company ("CapStar") spun-off (the "Spin-Off")
its management and leasing operations in a taxable transaction in which CapStar
distributed on a share-for-share basis all shares of common stock, par value
$0.01 per share, ("Common Stock") of MeriStar Hotels & Resorts, Inc. (the
"Company"). The Company thereby became the lessee, manager and operator of
various hotel assets, including those which were previously owned, leased and
managed by CapStar and certain of its affiliates.  On August 3, 1998, CapStar
merged (the "Merger") with and into American General Hospitality Corporation
("AGH"), a Maryland  corporation operating as a real estate investment trust, to
form MeriStar Hospitality Corporation (the "REIT").

Immediately following the Spin-Off and the Merger, the Company acquired 100% of
the partnership interests in AGH Leasing, L.P. ("AGH Leasing"), the third-party
lessee of most of the hotels owned by AGH, and substantially all of the assets
and liabilities of American General Hospitality, Inc. ("AGHI"), the third-party
manager of most of the AGH hotels.  As a result, the Company became the lessee
and manager of most of the hotels owned by the REIT. The purchase price of $95.0
million was paid with a combination of cash and units of limited partnership
interest ("OP Units") in the Company's subsidiary operating partnerships.  In
accordance with generally accepted accounting principles, the acquisitions have
been accounted for as a purchase and therefore, the operating results of AGHI
and AGH Leasing have been included in the Company's consolidated financial
statements since the date of acquisition.

The Company's financial statements include the historical results of the
Company's predecessor entity, the management and leasing operations of CapStar,
for all periods in the year ended December 31, 1998 and include the operating
results of AGH Leasing and AGHI for the period August 3, 1998 through December
31, 1998.  In addition, prior to August 3, 1998, the Company managed
substantially all of the hotels owned by CapStar and received management fee
revenues from such hotels.  Since August 3, 1998, the Company has leased these
hotels from the REIT and therefore records no management fees from such hotels
but instead records room, food and beverage and other operating department
revenues and expenses from such leases.  Therefore, the Company's results of
operations for the periods ended March 31, 1999 and 1998 reflect significantly
differing numbers of managed and leased hotels throughout the periods.  The
following table outlines the Company's historical portfolio of managed and
leased hotels:

<TABLE>
<CAPTION>
                REIT          CAPSTAR       THIRD PARTY       OTHER
               LEASED         MANAGED         MANAGED        LEASED          TOTAL
          ------------------------------------------------------------------------------ 
           HOTELS   ROOMS  HOTELS   ROOMS  HOTELS  ROOMS  HOTELS  ROOMS  HOTELS   ROOMS
          ------------------------------------------------------------------------------ 
<S>       <C>      <C>     <C>     <C>     <C>     <C>    <C>     <C>    <C>     <C>
3/31/99       109  28,175      --      --      41  6,800      53  7,608     203  42,583
12/31/98      109  28,058      --      --      41  6,800      53  7,608     203  42,466
3/31/98        --      --      55  14,414      40  6,899      45  6,410     140  27,723
12/31/97       --      --      47  12,019      27  4,631      40  5,687     114  22,337
</TABLE>

FINANCIAL CONDITION

MARCH 31, 1999 COMPARED WITH DECEMBER 31, 1998

Total assets increased by $26.9 million to $274.4 million at March 31, 1999 from
$247.5 million at December 31, 1998.  Total liabilities increased by $27.2
million to $210.3 million from $183.1 million.  The increase in assets primarily
results from a $16.2 million increase in accounts receivable and a $13.8 million
increase in investments in and advances to affiliates. The increase in accounts
receivable is due to higher sales volume during the period. The increase in
investments in and advances to affiliates is a result of the Company's purchase
of a 50% equity investment in a joint venture and other hotel partnerships. The
increase in liabilities primarily results from a $14.4 million increase in
accrued expenses and other liabilities due to increased sales volume and a $17.9
million increase in due to affiliates, primarily representing a higher amount of
participating lease payable at March 31, 1999 versus December 31, 1998,
partially offset by a $10.2 million decrease in long-term debt.

                                       10
<PAGE>
 
RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998

Total revenue increased by $295.7 million to $325.8 million in the three-month
period ended March 31, 1999 compared to $30.1 million in the three-month period
ended March 31, 1998. This increase results from the increase in the number of
hotels leased as described above.

Operating expenses increased $296.7 to $325.5 million in the three months ended
March 31,1999 compared to $28.8 million in the three months ended March 31,
1998. The increase reflects the greater number of leased and managed hotels,
and includes the costs of additional personnel and other administrative costs
incurred in conjunction with the Company's growth.

Net operating income decreased $1.0 million, to approximately $0.3 million in
the three-months ended March 31, 1999 compared to $1.3 million in the three
months ended March 31, 1998. The decrease in net operating income is due to the
change in the types of revenues and expenses recorded in the Company's financial
statements in periods before and after the Merger.

EBITDA for the Company's three operating segments for the three months ended
March 31, 1999 is as follows:

<TABLE> 
<CAPTION> 
                                                                         Total
                                   Hotels        Inns       Resorts     Segments
                                   ------        ----       -------     --------
<S>                               <C>            <C>        <C>         <C> 
EBITDA..........................  $(4,041)       $170       $10,238      $6,367
</TABLE> 

                                       11
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

The Company's continuing operations are funded through cash generated from hotel
management and leasing operations. Business acquisitions and investments in
affiliates are financed through a combination of internally generated cash,
external borrowings and the issuance of OP Units and/or Common Stock.

Operating activities provided $20.9 million of net cash in the three-months
ended March 31, 1999, mainly due to higher accrued expenses and other
liabilities. The Company used $14.3 million of cash in investing activities for
the first three months of 1999, primarily for the investments in hotel
partnerships. Net cash used by financing activities of $9.9 million resulted
primarily from principal payments on long-term debt.

On March 3, 1999, the Company amended their unsecured revolving credit facility
(the "Credit Facility") with the REIT to increase the total borrowings available
under the Credit Facility to $100.0 million.  At March 31, 1999, the Company had
available $43.0 million under the Credit Facility.  As of May 6, 1999, the
Company had available $44.5 million under the Credit Facility.

On April 15, 1999, the Company issued $5 million of common stock through a
private placement.  The stock was issued at a price of $2.75 per share.  The
proceeds from this sale of stock were used to pay down debt on the Credit 
Facility.

Under the terms of the participating leases and management agreements between
the Company and lessors or third-party owners, the lessors and third-party
owners will generally be required to fund significant capital expenditures at
the hotels operated by the Company.

The Company believes cash generated by operations, together with anticipated
borrowing capacity under the Credit Facility, will be sufficient to fund its
existing working capital, ongoing capital expenditures, and debt service
requirements. In addition, the Company expects to continue to seek acquisitions
of hotel management businesses and management contracts. The Company expects to
finance these future acquisitions through a combination of anticipated borrowing
capacity under its credit facility and the issuance of OP Units and/or Common
Stock. The Company believes these sources of capital will be sufficient to
provide for the Company's long-term capital needs.

SEASONALITY

Demand in the lodging industry is affected by recurring seasonal patterns.
Demand is lower in the winter months due to decreased travel and higher in the
spring and summer months during peak travel season. Therefore, the Company's
operations are seasonal in nature.  Assuming other factors remain constant and
excluding resort hotel properties and the effect of EITF 98-9 on reporting in
interim periods, the Company has lower revenue, operating income and cash flow
in the first and fourth quarters and higher revenue, operating income and cash
flow in the second and third quarters.

YEAR 2000 CONVERSION

     The Company is in the process of conducting a review of its computer
systems to identify the systems that could be affected by the "Year 2000"
problem and has initiated an implementation plan to address the problem.  The
Year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year.  Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000.  If not corrected, this could result in
a major systems failure or miscalculations.

     The Company's leased and managed hotel properties contain various
information technology and embedded technology systems.   Both types of systems
contain microprocessors and microcontrollers that must be assessed for Year 2000
compliance.  The Company has developed a comprehensive implementation plan to
address the potential Year 2000 problems caused by such systems.  This plan
involves six stages: increase awareness of issue; assign responsibility for
coordinating response to issue; information collection; analysis; modification,
repair or replacement; and testing.  The Company is currently in its analysis
stage, and expects to complete this stage in May 1999. As the Company progresses
through the analysis stage, it has also begun portions of its modification,
repair or replacement work. The following stages are expected to be completed as
follows:  modification, repair or replacement -- August 1999; and testing --
September 1999.  As an additional part of its implementation plan to address the
Year 2000 problem, the Company has also initiated 

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<PAGE>
 
communications with third parties with which it has material relationships to
determine the extent of potential Year 2000 problems with these parties'
services provided to the Company.


     The most critical of these services involve such items as reservations
systems for the Company's hotels. Without such systems, the Company could suffer
a material decline in business at many of its properties. The Company expects to
complete its communications and assessment of third parties' services in May
1999. Also, the Company expects to develop contingency plans in 1999 to allow
for manual or other alternative operation of certain computerized systems, in
the event that modification, repair, and replacement efforts are not completed
timely.

     The Company anticipates completing its Year 2000 implementation plan no
later than September 30, 1999, which is prior to any anticipated impact on its
operating systems. As of March 31, 1999, historical costs incurred to address
the Year 2000 problem approximate $0.2 million. The Company expects that
essentially all of the future expenditures required to modify, repair, and
replace computerized systems at its leased and managed hotel properties will be
the financial responsibility of the owners of those properties. The Company has
not yet developed a final cost estimate related to fixing Year 2000 issues, but
an initial estimate of these remediation costs for all of its leased and managed
properties (including those properties leased from the REIT) is $15-20 million.
This cost estimate is based on the Company's preliminary assessment, and will be
refined and adjusted as the Company continues to complete the stages of its
implementation plan to address the potential Year 2000 problems.

     Based on its preliminary assessment, the Company believes that its risks of
Year 2000 non-compliance (that is, its "most reasonably likely worst case
scenario"), with modifications to existing software and converting to new
software, will not pose significant operational problems for the Company's
computer systems as so modified and converted. If, however, such modifications
and conversions are not completed timely, the Year 2000 problem could have a
material impact on the Company's financial position and operations. The
Company's operations are highly dependent upon efficient operating systems at
its properties. To the extent that the Year 2000 problems materially affect the
conduct of operations at those properties, it is likely that the Company's
ability to efficiently manage operations would be materially affected. Also, as
discussed above, the vast majority of expenditures related to Year 2000 problems
at the Company's leased and managed properties will be the financial
responsibility of the owners of those properties. To the extent that those
owners are unable or unwilling to modify, repair, and replace systems with
potential Year 2000 problems, the Company could suffer material adverse
financial consequences.

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<PAGE>
 
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable


PART II.  OTHER INFORMATION

ITEM 5.   OTHER INFORMATION

Forward-Looking Statements

Certain statements in this Form 10-Q and in the future filings by the Company
with the SEC, in the Company's press releases, and in oral statements made by or
with the approval of an authorized executive officer constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors, which may cause the actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievement expressed or implied by such forward-looking
statements. Such factors include: the ability of the Company to successfully
implement its operating strategy; the Company's ability to manage expansion;
lease rental rates; changes in economic cycles; competition from other
hospitality companies; the ability of the REIT to acquire properties which will
be leased to the Company; the availability of financing to the Company and to
the REIT; changes in the laws and governmental regulations applicable to the
relationship between the REIT and the Company; and special risks associated with
the Merger (including the integration of CapStar with AGH and changes in the
laws and governmental regulations applicable to the structure of the Merger and
the related transactions).


ITEM 6:   EXHIBITS AND REPORTS ON FORM  8-K

(a) Exhibits.

4.5    Form of Stock Purchase Agreement dated as of March 31, 1999
4.6    Amendment to Stock Purchase Agreement dated April 15, 1999
4.7    Form of Registration Rights Agreement dated as of March 31, 1999
10.12  Form of Agreement of Limited Partnership of MIP Lessee, LP dated as of 
       March 31, 1999

27 -- Financial Data Schedule

(b)  Reports on Form 8-K

Current Report on Form 8-K dated August 3, 1998 and filed on August 14, 1998,
regarding the spin-off of MeriStar Hotels & Resorts, Inc. and the acquisitions
of American General Hospitality, Inc. and AGH Leasing, L.P.

                                       14
<PAGE>
 
                                  SIGNATURES

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

                              MeriStar Hotels & Resorts, Inc.



Dated: May 7, 1999            /s/ James A. Calder
                              --------------------------
                              James A. Calder
                              Chief Financial Officer

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