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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

|                                              |  |                               
|--------------------------------------------- |  | ------------------------------
|For the quarterly period ended March 31, 2003 |  | Commission file number 0-23732

WINSTON HOTELS, INC.

(Exact name of registrant as specified in its charter)


|                                        |  |                                                
|--------------------------------------- |  | -----------------------------------------------
|North Carolina
(State of incorporation) |  | 56-1624289
(I.R.S. Employer Identification No.)

2626 Glenwood Avenue
Raleigh, North Carolina 27608
(Address of principal executive offices)
(Zip Code)

(919) 510-6010
(Registrants telephone number, including area code)

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

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

The number of shares of Common Stock, $.01 par value, outstanding on April 30,
2003 was 20,193,634.



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WINSTON HOTELS, INC.
Index

|         |  |                                                                                       |  |                     |                                                                                                    |  |      |   | 
|-------- |  | ------------------------------------------------------------------------------------- |  | ------------------- | -------------------------------------------------------------------------------------------------- |  | ---- | - | 
|         |  |                                                                                       |  |                     |                                                                                                    |  | Page
|         |  |                                                                                       |  |                     |                                                                                                    |  |     
|PART I.  |  | FINANCIAL INFORMATION                                                                 |  |                     |                                                                                                    | 
|Item 1.  |  | Financial Statements                                                                  |  |                     |                                                                                                    | 
|         |  |                                                                                       |  | WINSTON HOTELS, INC |                                                                                                    |  |      |  
|         |  |                                                                                       |  |                     | Consolidated Balance Sheets as of March 31, 2003 (unaudited) and
December 31, 2002                 |  |      | 3 | 
|         |  |                                                                                       |  |                     | Unaudited Consolidated Statements of Operations for the three months ended
March 31, 2003 and 2002 |  |      | 4 | 
|         |  |                                                                                       |  |                     | Unaudited Consolidated Statement of Shareholders Equity for the three months ended
March 31, 2003 |  |      | 5 | 
|         |  |                                                                                       |  |                     | Unaudited Consolidated Statements of Cash Flows for the three months ended
March 31, 2003 and 2002 |  |      | 6 | 
|         |  |                                                                                       |  |                     | Notes to Consolidated Financial Statements                                                         |  |      | 7 | 
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results
of Operations |  |                     | 13                                                                                                 | 
|Item 3.  |  | Quantitative and Qualitative Disclosures about Market Risk                            |  |                     | 22                                                                                                 | 
|Item 4.  |  | Controls and Procedures                                                               |  |                     | 22                                                                                                 | 
|PART II. |  | OTHER INFORMATION                                                                     |  |                     |                                                                                                    | 
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                      |  |                     | 23                                                                                                 | 
|         |  |                                                                                       |  | SIGNATURES          |                                                                                                    |  | 24   |  
|         |  |                                                                                       |  | CERTIFICATIONS      |                                                                                                    |  | 25   |  
|         |  |                                                                                       |  | EXHIBIT INDEX       |                                                                                                    |  | 27   |  

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WINSTON HOTELS, INC.
CONSOLIDATED BALANCE SHEETS($ in thousands, except per share amounts)

|                                                                                                                                           |                                    |   |         |         |                |   |                   |         |  |  | 
|------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------- | - | ------- | ------- | -------------- | - | ----------------- | ------- |  |  | 
|                                                                                                                                           |                                    |   |         |         | March 31, 2003 |   | December 31, 2002
|                                                                                                                                           |                                    |   |         |         |                |   |                  
|                                                                                                                                           |                                    |   |         |         | (unaudited)    |   |                   |         | 
|ASSETS                                                                                                                                    
|Land                                                                                                                                       |                                    | $ | 39,394  |         |                | $ | 39,348            |        
|Buildings and improvements                                                                                                                 |                                    |   | 346,306 |         |                |   | 345,511           |        
|Furniture and equipment                                                                                                                    |                                    |   | 45,150  |         |                |   | 44,332            |        
|                                                                                                                                           |                                    |   |         |         |                |   |                   |        
|Operating properties                                                                                                                       |                                    |   | 430,850 |         |                |   | 429,191           |        
|Less accumulated depreciation                                                                                                              |                                    |   | 113,790 |         |                |   | 109,152           |        
|                                                                                                                                           |                                    |   |         |         |                |   |                   |        
|                                                                                                                                           |                                    |   | 317,060 |         |                |   | 320,039           |        
|Properties under development                                                                                                               |                                    |   | 1,800   |         |                |   | 1,800             |        
|                                                                                                                                           |                                    |   |         |         |                |   |                   |        
|                                                                                                                                           | Net investment in hotel properties |   |         | 318,860 |                |   |                   | 321,839 | 
|Corporate FF&E, net                                                                                                                        |                                    |   | 668     |         |                |   | 735               |        
|Cash                                                                                                                                       |                                    |   | 3,918   |         |                |   | 1,510             |        
|Accounts receivable                                                                                                                        |                                    |   | 3,169   |         |                |   | 1,958             |        
|Notes receivable                                                                                                                           |                                    |   | 5,016   |         |                |   | 5,016             |        
|Investment in joint ventures                                                                                                               |                                    |   | 8,875   |         |                |   | 9,117             |        
|Deferred expenses, net                                                                                                                     |                                    |   | 2,741   |         |                |   | 2,954             |        
|Prepaid expenses and other assets                                                                                                          |                                    |   | 6,833   |         |                |   | 6,988             |        
|Deferred tax asset                                                                                                                         |                                    |   | 7,876   |         |                |   | 7,325             |        
|                                                                                                                                           |                                    |   |         |         |                |   |                   |        
|Total assets                                                                                                                               |                                    | $ | 357,956 |         |                | $ | 357,442           |        
|                                                                                                                                           |                                    |   |         |         |                |   |                   |        
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                      
|Long-term debt                                                                                                                             |                                    | $ | 66,072  |         |                | $ | 66,406            |        
|Due to banks                                                                                                                               |                                    |   | 75,800  |         |                |   | 72,300            |        
|Accounts payable and accrued expenses                                                                                                      |                                    |   | 12,423  |         |                |   | 11,679            |        
|Distributions payable                                                                                                                      |                                    |   | 4,958   |         |                |   | 4,951             |        
|Minority interest in Partnership                                                                                                           |                                    |   | 7,369   |         |                |   | 7,591             |        
|                                                                                                                                           |                                    |   |         |         |                |   |                   |        
|Total liabilities                                                                                                                          |                                    |   | 166,622 |         |                |   | 162,927           |        
|                                                                                                                                           |                                    |   |         |         |                |   |                   |        
|Shareholders equity:                                                                                                                      |                                    |   |         |         |                |   |                   |        
|Preferred stock, $.01 par value, 10,000,000 shares authorized,
3,000,000 shares issued and outstanding (liquidation preference of
$76,734) |                                    |   | 30      |         |                |   | 30                |        
|Common stock, $.01 par value, 50,000,000 shares authorized,
20,193,634 and 20,148,334 shares issued and outstanding                        |                                    |   | 202     |         |                |   | 201               |        
|Additional paid-in capital                                                                                                                 |                                    |   | 257,087 |         |                |   | 256,720           |        
|Accumulated other comprehensive income (loss)                                                                                              |                                    |   | (135    | )       |                |   |                  |        
|Unearned compensation                                                                                                                      |                                    |   | (780    | )       |                |   | (596              | )      
|Distributions in excess of earnings                                                                                                        |                                    |   | (65,070 | )       |                |   | (61,840           | )      
|                                                                                                                                           |                                    |   |         |         |                |   |                   |        
|Total shareholders equity                                                                                                                 |                                    |   | 191,334 |         |                |   | 194,515           |        
|                                                                                                                                           |                                    |   |         |         |                |   |                   |        
|Total liabilities and shareholders equity                                                                                                 |                                    | $ | 357,956 |         |                | $ | 357,442           |        
|                                                                                                                                           |                                    |   |         |         |                |   |                   |        

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

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WINSTON HOTELS, INC
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts)

|                                                                                                                        |                                                            |                                                     |        |                    |        |                    |        |        |        |  
|----------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | --------------------------------------------------- | ------ | ------------------ | ------ | ------------------ | ------ | ------ | ------ | -
|                                                                                                                        |                                                            |                                                     |        | Three Months Ended |        | Three Months Ended
|                                                                                                                        |                                                            |                                                     |        | March 31, 2003     |        | March 31, 2002    
|                                                                                                                        |                                                            |                                                     |        |                    |        |                   
|Revenue:                                                                                                                |                                                            |                                                     |        |                    |        |                    |        |       
|                                                                                                                        | Rooms                                                      |                                                     | $      | 26,434             |        |                    | $      |       |       
|                                                                                                                        | Food and beverage                                          |                                                     |        | 1,686              |        |                    |        |       |       
|                                                                                                                        | Other operating departments                                |                                                     |        | 1,109              |        |                    |        |       |       
|                                                                                                                        | Percentage lease revenue                                   |                                                     |        | 810                |        |                    |        | 9,533  |       
|                                                                                                                        | Interest and other income                                  |                                                     |        | 366                |        |                    |        | 347    |       
|                                                                                                                        |                                                            |                                                     |        |                    |        |                    |        |       
|                                                                                                                        |                                                            | Total revenue                                       |        |                    | 30,405 |                    |        |        | 9,880  |  
|                                                                                                                        |                                                            |                                                     |        |                    |        |                    |        |       
|Hotel operating expenses:                                                                                               |                                                            |                                                     |        |                    |        |                    |        |       
|                                                                                                                        | Rooms                                                      |                                                     |        | 6,289              |        |                    |        |       |       
|                                                                                                                        | Food and beverage                                          |                                                     |        | 1,305              |        |                    |        |       |       
|                                                                                                                        | Other operating departments                                |                                                     |        | 756                |        |                    |        |       |       
|Undistributed operating expenses:                                                                                       |                                                            |                                                     |        |                    |        |                    |        |       
|                                                                                                                        | Property operating expenses                                |                                                     |        | 6,135              |        |                    |        |       |       
|                                                                                                                        | Real estate taxes and property and casualty insurance      |                                                     |        | 1,734              |        |                    |        | 1,818  |       
|                                                                                                                        | Franchise costs                                            |                                                     |        | 1,859              |        |                    |        |       |       
|                                                                                                                        | Maintenance and repair                                     |                                                     |        | 1,636              |        |                    |        |       |       
|                                                                                                                        | Management fees                                            |                                                     |        | 560                |        |                    |        |       |       
|                                                                                                                        | Percentage lease expense                                   |                                                     |        | 908                |        |                    |        |       |       
|                                                                                                                        | General and administrative                                 |                                                     |        | 1,485              |        |                    |        | 1,555  |       
|                                                                                                                        | Depreciation                                               |                                                     |        | 4,721              |        |                    |        | 4,829  |       
|                                                                                                                        | Amortization                                               |                                                     |        | 221                |        |                    |        | 197    |       
|                                                                                                                        |                                                            |                                                     |        |                    |        |                    |        |       
|                                                                                                                        |                                                            | Total operating expenses                            |        |                    | 27,609 |                    |        |        | 8,399  |  
|                                                                                                                        |                                                            |                                                     |        |                    |        |                    |        |       
|Operating income                                                                                                        |                                                            |                                                     | 2,796  |                    |        |                    | 1,481  |       
|                                                                                                                        | Interest                                                   |                                                     |        | 1,962              |        |                    |        | 2,832  |       
|                                                                                                                        |                                                            |                                                     |        |                    |        |                    |        |       
|Income (loss) before allocation to minority interest, income
taxes, and equity in income of unconsolidated subsidiaries |                                                            |                                                     | 834    |                    |        |                    | (1,351 | )     
|                                                                                                                        | Income (loss) allocation to minority interest              |                                                     |        | (13                | )      |                    |        | (208   | )     
|                                                                                                                        | Income tax expense (benefit)                               |                                                     |        | (551               | )      |                    |        |       |       
|                                                                                                                        | Equity in income of unconsolidated subsidiaries            |                                                     |        | 135                |        |                    |        | 5      |       
|                                                                                                                        |                                                            |                                                     |        |                    |        |                    |        |       
|Income from continuing operations                                                                                       |                                                            |                                                     | 1,533  |                    |        |                    | (1,138 | )     
|Discontinued operations:                                                                                                |                                                            |                                                     |        |                    |        |                    |        |       
|                                                                                                                        | Income from discontinued operations                        |                                                     |        |                   |        |                    |        | 44     |       
|                                                                                                                        | Loss on sale of discontinued operations                    |                                                     |        |                   |        |                    |        |       |       
|                                                                                                                        |                                                            |                                                     |        |                    |        |                    |        |       
|                                                                                                                        | Net income                                                 |                                                     |        | 1,533              |        |                    |        | (1,094 | )     
|Preferred stock distribution                                                                                            |                                                            |                                                     | (1,734 | )                  |        |                    | (1,734 | )     
|                                                                                                                        |                                                            |                                                     |        |                    |        |                    |        |       
|                                                                                                                        |                                                            | Net income (loss) applicable
to common shareholders |        | $                  | (201   | )                  |        | $      | (2,828 | )
|                                                                                                                        |                                                            |                                                     |        |                    |        |                    |        |       
|Income (loss) per common share:                                                                                         |                                                            |                                                     |        |                    |        |                    |        |       
|Basic and diluted:                                                                                                      |                                                            |                                                     |        |                    |        |                    |        |       
|                                                                                                                        | Income (loss) from continuing operations                   |                                                     | $      | (0.01              | )      |                    | $      | (0.16  | )     
|                                                                                                                        | Income (loss) from discontinued operations                 |                                                     |        |                   |        |                    |        |       |       
|                                                                                                                        |                                                            |                                                     |        |                    |        |                    |        |       
|                                                                                                                        | Net income (loss) per common share                         |                                                     | $      | (0.01              | )      |                    | $      | (0.16  | )     
|                                                                                                                        |                                                            |                                                     |        |                    |        |                    |        |       
|                                                                                                                        | Weighted average number of common shares                   |                                                     |        | 20,074             |        |                    |        | 17,171 |       
|                                                                                                                        | Weighted average number of common shares assuming dilution |                                                     |        | 20,074             |        |                    |        | 17,171 |       

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

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WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2003(in thousands, except per share amounts)

|                                              |                                                       |                            |       |                 |  |              |    |            |  |          |        |              |  |               |     |                   |  |               |         |        |  |   |      |   |  |   |         |       |  |   |      |      |   |   |         |   |       | 
|--------------------------------------------- | ----------------------------------------------------- | -------------------------- | ----- | --------------- |  | ------------ | -- | ---------- |  | -------- | ------ | ------------ |  | ------------- | --- | ----------------- |  | ------------- | ------- | ------ |  | - | ---- | - |  | - | ------- | ----- |  | - | ---- | ---- | - | - | ------- | - | ----- | 
|                                              |                                                       |                            |       | Preferred Stock |  | Common Stock |    | Additional |  |          |        |              |  | Distributions |     | Accumulated Other |  | Total        
|                                              |                                                       |                            |       |                 |  |              |    | Paid-in    |  | Unearned |        | In Excess of |  | Comprehensive |     | Shareholders'    
|                                              |                                                       |                            |       | Shares          |  | Dollars      |    | Shares     |  | Dollars  |        | Capital      |  | Compensation  |     | Earnings          |  | Income (Loss) |         | Equity
|                                              |                                                       |                            |       |                 |  |              |    |            |  |          |        |              |  |               |     |                   |  |               |         |       
|Balances at December 31, 2002                 |                                                       |                            | 3,000 |                 |  | $            | 30 |            |  |          | 20,149 |              |  | $             | 201 |                   |  | $             | 256,720 |        |  | $ | (596 | ) |  | $ | (61,840 | )     |  | $ |     |      |   | $ | 194,515 |  
|Issuance of shares  restricted stock         |                                                       |                            |      |                 |  |              |   |            |  |          | 45     |              |  |               | 1   |                   |  |               | 353     |        |  |   | (354 | ) |  |   |        |       |  |   |     |      |   |   |        |  
|Distributions ($0.15 per common share)        |                                                       |                            |      |                 |  |              |   |            |  |          |       |              |  |               |    |                   |  |               |        |        |  |   |     |   |  |   | (3,029  | )     |  |   |     |      |   |   | (3,029  | )
|Distributions ($0.578125 per preferred
share) |                                                       |                            |      |                 |  |              |   |            |  |          |       |              |  |               |    |                   |  |               |        |        |  |   |     |   |  |   | (1,734  | )     |  |   |     |      |   |   | (1,734  | )
|Unearned compensation amortization            |                                                       |                            |      |                 |  |              |   |            |  |          |       |              |  |               |    |                   |  |               |        |        |  |   | 170  |   |  |   |        |       |  |   |     |      |   |   | 170     |  
|Minority interest equity adjustment           |                                                       |                            |      |                 |  |              |   |            |  |          |       |              |  |               |    |                   |  |               | 14      |        |  |   |     |   |  |   |        |       |  |   |     |      |   |   | 14      |  
|Comprehensive income:                         |                                                       |                            |       |                 |  |              |    |            |  |          |        |              |  |               |     |                   |  |               |         |        |  |   |      |   |  |   |         |       |  |   |      |      |   |   |         |  
|                                              | Net income                                            |                            |       |                |  |              |    |           |  |          |        |             |  |               |     |                  |  |               |         |       |  |   |      |  |  |   |         | 1,533 |  |   |      |     |   |   |         |   |      
|                                              | Unrealized holding loss arising on interest
rate swap |                            |       |                |  |              |    |           |  |          |        |             |  |               |     |                  |  |               |         |       |  |   |      |  |  |   |         |      |  |   |      | (135 | ) |   |         |   |      
|                                              |                                                       | Total comprehensive income |       |                 |  |              |    |            |  |          |        |              |  |               |     |                   |  |               |         |        |  |   |      |   |  |   |         |       |  |   |      |      |   |   |         |   | 1,398 | 
|                                              |                                                       |                            |       |                 |  |              |    |            |  |          |        |              |  |               |     |                   |  |               |         |        |  |   |      |   |  |   |         |       |  |   |      |      |   |   |         |  
|Balances at March 31, 2003                    |                                                       |                            | 3,000 |                 |  | $            | 30 |            |  |          | 20,194 |              |  | $             | 202 |                   |  | $             | 257,087 |        |  | $ | (780 | ) |  | $ | (65,070 | )     |  | $ | (135 | )    |   | $ | 191,334 |  
|                                              |                                                       |                            |       |                 |  |              |    |            |  |          |        |              |  |               |     |                   |  |               |         |        |  |   |      |   |  |   |         |       |  |   |      |      |   |   |         |  

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

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WINSTON HOTELS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS($ in thousands)

|                                                        |                                                                                                                             |                                          |                                           |        |                    |        |                    |         |        |        |  
|------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | ----------------------------------------- | ------ | ------------------ | ------ | ------------------ | ------- | ------ | ------ | -
|                                                        |                                                                                                                             |                                          |                                           |        | Three Months Ended |        | Three Months Ended
|                                                        |                                                                                                                             |                                          |                                           |        | March 31, 2003     |        | March 31, 2002    
|Cash flows from operating activities:                   |                                                                                                                             |                                          |                                           |        |                    |        |                    |        
|                                                        | Net income (loss)                                                                                                           |                                          | $                                         | 1,533  |                    |        | $                  | (1,094  | )     
|                                                        | Adjustments to reconcile net income (loss) to net cash
provided by operating activities:                                    |                                          |                                           |        |                    |        |                    |         |       
|                                                        |                                                                                                                             | Loss allocation to minority interest     |                                           |        | (13                | )      |                    |         | (204   | )     
|                                                        |                                                                                                                             | Depreciation                             |                                           |        | 4,721              |        |                    |         | 5,048  |       
|                                                        |                                                                                                                             | Amortization                             |                                           |        | 221                |        |                    |         | 199    |       
|                                                        |                                                                                                                             | Income tax benefit                       |                                           |        | (551               | )      |                    |         |       |       
|                                                        |                                                                                                                             | Mezzanine loan loss provision            |                                           |        |                   |        |                    |         | 250    |       
|                                                        |                                                                                                                             | Earnings allocations from joint ventures |                                           |        | (135               | )      |                    |         | (5     | )     
|                                                        |                                                                                                                             | Unearned compensation amortization       |                                           |        | 170                |        |                    |         | 138    |       
|                                                        | Changes in assets and liabilities:                                                                                          |                                          |                                           |        |                    |        |                    |         |       
|                                                        |                                                                                                                             | Lease revenue receivable                 |                                           |        |                   |        |                    |         | (1,621 | )     
|                                                        |                                                                                                                             | Accounts receivable                      |                                           |        | (1,211             | )      |                    |         |       |       
|                                                        |                                                                                                                             | Deferred percentage lease revenue        |                                           |        |                   |        |                    |         | 2,685  |       
|                                                        |                                                                                                                             | Prepaid expenses and other assets        |                                           |        | 155                |        |                    |         | (378   | )     
|                                                        |                                                                                                                             | Accounts payable and accrued expenses    |                                           |        | 609                |        |                    |         | (2,434 | )     
|                                                        |                                                                                                                             |                                          |                                           |        |                    |        |                    |         |       
|                                                        |                                                                                                                             |                                          | Net cash provided by operating activities |        |                    | 5,499  |                    |         |        | 2,584  |  
|                                                        |                                                                                                                             |                                          |                                           |        |                    |        |                    |         |       
|Cash flows from investing activities:                   |                                                                                                                             |                                          |                                           |        |                    |        |                    |        
|                                                        | Investment in hotel properties, net                                                                                         |                                          |                                           | (1,675 | )                  |        |                    | (565    | )     
|                                                        | Investment in joint ventures                                                                                                |                                          |                                           | (56    | )                  |        |                    | 1       |       
|                                                        | Distributions from joint ventures                                                                                           |                                          |                                           | 433    |                    |        |                    | 110     |       
|                                                        |                                                                                                                             |                                          |                                           |        |                    |        |                    |         |       
|                                                        |                                                                                                                             |                                          | Net cash used in investing activities     |        |                    | (1,298 | )                  |         |        | (454   | )
|                                                        |                                                                                                                             |                                          |                                           |        |                    |        |                    |         |       
|Cash flows from financing activities:                   |                                                                                                                             |                                          |                                           |        |                    |        |                    |        
|                                                        | Fees paid in connection with financing activities                                                                           |                                          |                                           | (8     | )                  |        |                    | (71     | )     
|                                                        | Proceeds from issuance of common shares, net                                                                                |                                          |                                           |       |                    |        |                    | 23,388  |       
|                                                        | Payment of distributions to shareholders                                                                                    |                                          |                                           | (4,756 | )                  |        |                    | (4,273  | )     
|                                                        | Payment of distributions to minority interest                                                                               |                                          |                                           | (195   | )                  |        |                    | (195    | )     
|                                                        | Net increase (decrease) in due to banks                                                                                     |                                          |                                           | 3,500  |                    |        |                    | (21,400 | )     
|                                                        | Decrease in long-term debt                                                                                                  |                                          |                                           | (334   | )                  |        |                    | (310    | )     
|                                                        |                                                                                                                             |                                          |                                           |        |                    |        |                    |         |       
|                                                        |                                                                                                                             |                                          | Net cash used in financing activities     |        |                    | (1,793 | )                  |         |        | (2,861 | )
|                                                        |                                                                                                                             |                                          |                                           |        |                    |        |                    |         |       
|Net increase (decrease) in cash                         |                                                                                                                             |                                          | 2,408                                     |        |                    |        | (731               | )      
|Cash at beginning of period                             |                                                                                                                             |                                          | 1,510                                     |        |                    |        | 887                |        
|                                                        |                                                                                                                             |                                          |                                           |        |                    |        |                    |         |       
|Cash at end of period                                   |                                                                                                                             | $                                        | 3,918                                     |        |                    | $      | 156                |        
|                                                        |                                                                                                                             |                                          |                                           |        |                    |        |                    |         |       
|Supplemental disclosure:                                |                                                                                                                             |                                          |                                           |        |                    |        |                    |        
|                                                        |                                                                                                                             | Cash paid for interest                   |                                           | $      | 2,620              |        |                    | $       | 2,756  |       
|                                                        |                                                                                                                             |                                          |                                           |        |                    |        |                    |         |       
|Summary of non-cash investing and financing activities: |                                                                                                                             |                                          |                                           |        |                    |        |                    |        
|                                                        | Distributions to shareholders declared but not paid                                                                         |                                          | $                                         | 4,763  |                    |        | $                  | 4,690   |       
|                                                        | Distributions to minority interest declared but not paid                                                                    |                                          |                                           | 195    |                    |        |                    | 195     |       
|                                                        | Deferred equity compensation                                                                                                |                                          |                                           | 354    |                    |        |                    | 255     |       
|                                                        | Fair market value adjustment of interest rate swap                                                                          |                                          |                                           | 135    |                    |        |                    | 563     |       
|                                                        | Minority interest payable adjustment due to the
issuance of common shares and accumulated other
comprehensive income (loss) |                                          |                                           | (14    | )                  |        |                    | (413    | )     

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

6



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##### 



WINSTON HOTELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS($ in thousands, except per share amounts)



|1. |  | ORGANIZATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Winston Hotels, Inc. (the Company), headquartered in Raleigh, North
Carolina, operates so as to qualify as a real estate investment trust
(REIT) for federal income tax purposes. The accompanying unaudited
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. Due
to the seasonality of the hotel business and the revenue recognition
requirements of Staff Accounting Bulletin No. 101 (SAB 101), the
information for the three months ended March 31, 2003 and 2002 is not
necessarily indicative of the results for a full year. SAB 101 effectively
defers percentage lease revenue from the first and second quarters to the
third and fourth quarters. The Company continues to defer recognition of
percentage lease revenue for two wholly owned hotels that continue to be
operated under long term leases. In addition, three joint ventures, in which
the Company owns a 49 percent ownership interest, defer recognition of
percentage lease revenue for three hotels. This Form 10-Q should be read in
conjunction with the Companys Annual Report on Form 10-K for the year ended
December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | As of March 31, 2003, the Company owned or was invested in 52 hotel
properties in 17 states having an aggregate of 7,200 rooms. This included 44
wholly owned properties with 6,141 rooms, a 49 percent ownership in three
joint venture hotels with 453 rooms, a 13.05 percent ownership interest in
two joint venture hotels with 215 rooms, (collectively, the Joint Venture
Hotels) and a mezzanine financing interest in three hotels with 391 rooms.
The Company does not hold an ownership interest in any of the hotels for
which it has provided mezzanine financing. All of the Companys hotels are
operated under franchises from nationally recognized franchisors including
Marriott International, Inc., Hilton Hotels Corporation, Intercontinental
Hotels Group PLC, (formerly Six Continents PLC) and Choice Hotels
International.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|2. |  | ACQUISITION OF LEASEHOLD INTERESTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Effective July 1, 2002, the Company, through its wholly owned taxable REIT
subsidiary, Barclay Hospitality Services Inc. (Barclay), acquired the
leasehold interests for 47 of its hotels from CapStar Winston Company,
L.L.C., a wholly owned subsidiary of MeriStar Hotels & Resorts, Inc.
(MeriStar). MeriStar has since merged with and become Interstate Hotels &
Resorts, Inc. (Interstate). The acquisition included leasehold interests
for 45 wholly owned hotels and two Joint Venture Hotels. Under the REIT
Modernization Act, which became effective January 1, 2001, the Company is
permitted to lease its hotels to wholly owned taxable REIT subsidiaries,
provided that the subsidiary lessees engage a third-party management company
to manage the hotels. Simultaneous with acquiring the leasehold interests,
Barclay entered into new management contracts with Interstate for 39 of the
47 hotels covered by the leases. These five-year contracts are terminable by
Barclay after June 30, 2003, subject to certain conditions and limitations.
On April 25, 2003, the Company announced that it intends to terminate its
management contracts with Interstate (See Note 10). The Company sold two of
the 39 hotels during the third and fourth quarters of 2002 and has signed new
management contracts for another four, one with Sage Client 453, LLC, an
affiliate of Sage Hospitality Resources, LLC (Sage), one with Noble
Investment Group, Ltd., (Noble), one with Prism Hospitality, L.P.
(Prism), and one with Promus Hotels, Inc., an affiliate of Hilton Hotels
Corporation (Hilton). Currently, Interstate manages 33 of the Companys
hotels, Interstate Management and Investment Corporation (IMIC)
headquartered in Columbia, South Carolina (unrelated to and unaffiliated with
Interstate) manages six hotels, Concord Hospitality Enterprises Company
(Concord) manages two hotels, Hilton manages two hotels, and Sage, Noble,
and Prism each manage one hotel.
|  
|   |  | Three other hotels, in which the Company has an ownership interest, including
two wholly owned properties and one joint venture property, continue to be
operated under long-term leases with third parties. Two of these hotels are
leased to Bristol W. Tenant Company, a wholly owned subsidiary of
Intercontinental Hotels Group, Inc. (Intercontinental Group, formerly Six
Continents Hotels, Inc.), the Las Vegas, NV Hampton Inn and the Windsor, CT
Hilton Garden Inn, (see Note 10) and one is leased to Secaucus Holding
Corporation, a wholly owned subsidiary of Prime Hospitality Corp. (Prime),
the Secaucus, NJ Holiday Inn. Under the terms of the leases, the lessees are
obligated to pay the Company the greater of base rent or percentage rent.
The leases are designed to allow the Company to participate in the growth in
revenues at the hotels by requiring that a portion of each hotels room
revenues in excess of specified amounts be paid to the Company as percentage
rent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

7



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##### 





|   |  | The acquisition of the leasehold interests from Interstate entitles Barclay
to retain the operating profits or losses from the related hotels, which
previously accrued to Interstate under the leases and gives the Company (i)
more control over the operations of its hotels, (ii) the benefits from any
operating margin improvements and risk of any operating margin deterioration
at its hotels, and (iii) more flexibility, in that its hotels are no longer
encumbered by long term leases that are difficult to amend and expensive to
terminate. All of the hotels continue to operate under the same franchise
affiliations as prior to the acquisition of the leasehold interests.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. |  | DERIVATIVE INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | The Companys financing facilities consist of a $125,000 variable rate line
of credit and a $71,000 fixed rate loan with a ten-year maturity, due
December 1, 2008, and a twenty-five-year amortization period. To reduce
overall interest rate risk, the Company uses interest rate hedging
instruments to convert a portion of its variable-rate debt to fixed-rate
debt. Interest rate differentials that arise under these instruments are
recognized as interest expense over the life of the contracts. Currently,
the Companys only such instrument is the interest rate swap instrument
described below, the term of which started March 31, 2003 and ends February
27, 2004.         
|  
|   |  | The following table summarizes the notional value and fair value of the
Companys interest rate swap instrument. The notional value at March 31, 2003
provides an indication of the extent of the Companys involvement with
derivative financial instruments at that time, but does not represent the
Companys overall exposure to credit, interest rate or market risks.                                                                                                                                                                                                                                                                                                                    

|                   |  |          |        |          |  |          |       |            |  |  |         |  |  |   |      |  
|------------------ |  | -------- | ------ | -------- |  | -------- | ----- | ---------- |  |  | ------- |  |  | - | ---- | -
|                   |  | Notional |        | Interest |  |          |       |            |  |  |         | 
|At March 31, 2003  |  | Value    |        | Rate     |  | Maturity |       | Fair Value
|                   |  |          |        |          |  |          |       |           
|Interest rate swap |  | $        | 50,000 |          |  |          | 1.505 | %          |  |  | 02/2004 |  |  | $ | (135 | )



|   |  | The derivative financial instrument listed in the table above converts
variable payments to fixed payments and is, therefore, characterized as a
cash flow hedge. Cash flow hedges address the risk associated with future
cash flows of debt transactions. On March 31, 2003 the derivative
instruments fair value was $(135) and included in Accounts payable and
accrued expenses on the Consolidated Balance Sheets. Offsetting adjustments
are represented as deferred gains or losses in Accumulated other
comprehensive income (loss). Over time, the unrealized gains and losses
held in Accumulated other comprehensive income (loss) will be reclassified
into earnings in the same periods in which the hedged interest payments
affect earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|4. |  | SUMMARIZED FINANCIAL STATEMENT INFORMATION FOR JOINT VENTURES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | The Company participates in five joint venture agreements to develop and own
hotel properties, two with Regent Partners, Inc. (Regent), one with Marsh
Landing Investment, L.L.C. (Marsh Landing), and two with Charlesbank
Capital Partners, LLC (Charlesbank). The Company entered into the joint
ventures with Charlesbank during the fourth quarter of 2002 and entered into
the joint ventures with Regent and Marsh Landing during 1999 and 2000,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | During the second quarter of 2002, the Company entered into a joint venture
agreement with Concord Lodging Investment Partners (Winston), LLC, an
affiliate of Concord Hospitality Enterprises Company, (the Concord Joint
Venture). The Company purchased a 50 percent interest in the Concord Joint
Venture. The Concord Joint Venture subsequently purchased an operating
Wingate hotel in West Des Moines, IA, and a non-operating vacant hotel in
Beachwood, OH. The Wingate hotel has been renovated and converted to a
Fairfield Inn & Suites hotel and the Beachwood, OH hotel (Beachwood
Courtyard) has been renovated and opened as a Courtyard by Marriott hotel in
April 2003. The Company and Concord have jointly signed a completion
guarantee for the Beachwood Courtyard, providing a guaranty to the lender of
the full, complete and satisfactory completion of the renovation of the
property. Pursuant to the completion guarantee agreement, the construction
process to renovate the Beachwood Courtyard is to be completed by June 26,
2003. The Company anticipates that the total cost to renovate the property
will be approximately $6,700. Under the completion guarantee, upon default
by the borrower, the Company is required to (a) immediately
assume responsibility for the completion of the project at its sole cost and
expense, or (b) cure or cause the borrower to cure any such default.

8



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##### 





|   |  | During the fourth quarter of 2002, the Company entered into a joint venture
agreement with Charlesbank Capital Partners, LLC (Charlesbank) to acquire
more than $100,000 of hotel assets (the Charlesbank Venture). Charlesbank
is a private investment firm that manages capital on behalf of a range of
institutional investors. During the fourth quarter of 2002, the Charlesbank
Venture and Concord subsequently formed a new joint venture entity, WCC
Project Company LLC. The Charlesbank Venture is the managing member (the
Manager) of WCC Project Company LLC. Both the West Des Moines, IA
Fairfield Inn & Suites hotel and the Beachwood Courtyard were transferred
from the Concord Joint Venture to WCC Project Company LLC. Subsequent to
Charlesbanks equity contribution in WCC Project Company LLC, Charlesbanks
ownership totals 73.95 percent, Concords ownership was reduced from 50
percent to 13 percent and the Companys ownership was reduced from 50 percent
to 13.05 percent.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company owns a 49 percent interest in each of the joint ventures with
Regent and Marsh Landing. Charles Winston and James Winston, both of whom
are directors of the Company, control the remaining 51 percent interest in
the Marsh Landing joint venture. As of March 31, 2003, these three joint
ventures each owned an operating hotel including a Hilton Garden Inn in
Windsor, CT, a Hilton Garden Inn in Evanston, IL and a Hampton Inn in Ponte
Vedra, FL.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | As of March 31, 2003, total assets of the five joint ventures were $57,109,
total liabilities were $35,950, and total equity was $21,159. For the three
months ended March 31, 2003, total revenue of the five joint ventures was
$1,584, total expenses were $1,342, resulting in net income of $242, of which
the Companys share was $135. Pursuant to the requirements of SAB 101, $106
of total revenue was deferred during the three months ended March 31, 2003,
all of which will be recognized during 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|5. |  | EARNINGS PER SHARE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | The following is a reconciliation of the net income (loss) applicable to
common shareholders used in the net income (loss) per common share
calculation to the net income (loss) assuming dilution used in the net income
(loss) per common share  assuming dilution calculation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                                                    |  |                              |       |      |  |   |        |  
|--------------------------------------------------- |  | ---------------------------- | ----- | ---- |  | - | ------ | -
|                                                    |  | Three Months Ended March 31,
|                                                    |  |                             
|                                                    |  | 2003                         |       | 2002
|                                                    |  |                              |       |     
|Net income (loss)                                   |  | $                            | 1,533 |      |  | $ | (1,094 | )
|Less: preferred stock distribution                  |  |                              | 1,734 |      |  |   | 1,734  |  
|                                                    |  |                              |       |      |  |   |        |  
|Net income (loss) applicable to common shareholders |  |                              | (201  | )    |  |   | (2,828 | )
|Plus: income (loss) allocation to minority interest |  |                              | (13   | )    |  |   | (204   | )
|                                                    |  |                              |       |      |  |   |        |  
|Net income (loss) assuming dilution                 |  | $                            | (214  | )    |  | $ | (3,032 | )
|                                                    |  |                              |       |      |  |   |        |  



| |  | The following is a reconciliation of the weighted average shares (in
thousands) used in the calculation of net income (loss) per common share to
the weighted average shares (in thousands) used in the calculation of net
income (loss) per common share  assuming dilution:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                           |  |                              |        |      |  |  |        | 
|---------------------------------------------------------- |  | ---------------------------- | ------ | ---- |  |  | ------ | 
|                                                           |  | Three Months Ended March 31,
|                                                           |  |                             
|                                                           |  | 2003                         |        | 2002
|                                                           |  |                              |        |     
|Weighted average number of common shares                   |  |                              | 20,074 |      |  |  | 17,171 | 
|Minority interest units with redemption rights             |  |                              |       |      |  |  |       | 
|Stock options                                              |  |                              |       |      |  |  |       | 
|                                                           |  |                              |        |      |  |  |        | 
|Weighted average number of common shares assuming dilution |  |                              | 20,074 |      |  |  | 17,171 | 
|                                                           |  |                              |        |      |  |  |        | 



| |  | The number of potential common shares (represented by minority interest and
outstanding options) for the three months ended March 31, 2003 and March 31,
2002 totaled 1,299,000 and 1,299,000, respectively.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company declared quarterly cash dividends of $0.15 per common share and
$0.578125 per preferred share during the first quarter of 2003.                                                                 

9



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##### 





|6. |  | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company 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 Company 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 income tax
benefit for the three months ended March 31, 2003 consists of a deferred
federal income tax benefit of $507 and a deferred state income tax benefit of
$44.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | The benefit from income taxes and related deferred tax asset were calculated
using an effective tax rate of 38 percent applied to the loss of Barclay. The
deferred tax asset also relates to the cost of acquiring the leases for 47 of
the Companys hotel properties from Interstate, which was expensed for
financial reporting purposes in 2002. For tax purposes, this payment is
being amortized over the lives of the leases. The Company believes that
Barclay will generate sufficient future taxable income to realize in full the
deferred tax asset. Accordingly, no valuation allowance has been recorded as
of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|7. |  | STOCK-BASED COMPENSATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | At March 31, 2003, the Company has one stock-based employee compensation
plan, the Winston Hotels, Inc. Stock Incentive Plan. The Company accounts
for this plan under the recognition and measurement principles of APB Opinion
No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. No stock-based employee compensation cost is reflected in
net income (loss) for the issuance of options, as all options granted under
those plans had an exercise price equal to the market value of the underlying
common stock on the date of grant. Had the Company applied the fair value
recognition provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation, net income (loss) to
common shareholders would have been reduced by $5 and $23 for the quarters
ended March 31, 2003 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|8. |  | DISCONTINUED OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | The Company adopted Statement of Financial Accounting Standard No. 144 (SFAS
No. 144) effective January 1, 2002 which requires, among other things, that
the operating results of certain real estate assets which have been sold
subsequent to January 1, 2002, or otherwise qualify as held for disposition
(as defined by SFAS No. 144), be included in discontinued operations in the
statements of operations for all periods presented. Four of the Companys
wholly owned hotels were sold during 2002. The operating results for these
four hotels are included in discontinued operations in the statements of
operations for the quarter ended March 31, 2002. The Company has not
allocated interest expense to the results of the discontinued operations in
accordance with EITF No. 87-24. The Company had no assets that qualified as
held for disposition as defined by SFAS No. 144 at March 31, 2003. This
change has resulted in certain reclassifications to the quarter ended March
31, 2002 financial statement amounts. Condensed financial information of the
results of operations for the quarter ended March 31, 2002, for the four
hotels sold during 2002, consisted of total revenue of $337, total expenses
of $289, an allocation to minority interest of $4, resulting in income from
discontinued operations of $44.
|  
|9. |  | RECENT ACCOUNTING PRONOUNCEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities, an interpretation of Accounting Research Bulletin No. 51 (ARB No.
51), was issued in January 2003. This Interpretation clarifies the
application of
ARB No. 51, Consolidated Financial Statements, to certain entities in which
equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial support from other
parties. FIN 46 also addresses consolidation by business enterprises of
variable interest entities, which have one or both of the following
characteristics:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | 1. The equity investment at risk is not sufficient to permit the entity to
finance its activities without additional subordinated financial support from
other parties, which is provided through other interests that will absorb
some or all of the expected losses of the entity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | 2. The equity investors lack one or more of the following essential
characteristics of a controlling financial interest:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

10



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|    |  | a. The direct or indirect ability to make decisions about the entitys
activities through voting rights or similar rights,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | b. The obligation to absorb the expected losses of the entity if they occur,
which makes it possible for the entity to finance its activities, or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | c. The right to receive the expected residual returns of the entity if they
occur, which is the compensation for the risk of absorbing the expected
losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | This Interpretation is intended to achieve more consistent application of
consolidation policies to variable interest entities and, thus, to improve
comparability between enterprises engaged in similar activities even if some
of those activities are conducted through variable interest entities.
Including the assets, liabilities, and results of activities of variable
interest entities in the consolidated financial statements of their primary
beneficiaries will provide more complete information about the resources,
obligations, risks, and opportunities of the consolidated enterprise.
Disclosures about variable interest entities in which an enterprise has a
significant variable interest but does not consolidate will help financial
statement users assess the enterprise  ́s risks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | This Interpretation requires existing unconsolidated variable interest
entities to be consolidated by their primary beneficiaries if the entities do
not effectively disperse risks among parties involved.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | This Interpretation applies immediately to variable interest entities created
after January 31, 2003, and to variable interest entities in which an
enterprise obtains an interest after that date. It applies in the first
fiscal year or interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | The Company is in the process of evaluating the provisions of FIN 46 and its
effect on the joint ventures as disclosed in Note 4, as well as its mezzanine
financing loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | In April 2003, FASB issued Statement of Financial Accounting Standards No.
149 Amendment of Statement 133 on Derivative Instruments and Hedging
Activities (SFAS No. 149). FASB Statements No. 133 Accounting for
Derivative Instruments and Hedging Activities and No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities, establish
accounting and reporting standards for derivative instruments including
derivatives embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 149 amends Statement 133
for certain decisions made by the Board as part of the Derivatives
Implementation Group (DIG) process. This Statement contains amendments
relating to FASB Concepts Statement No. 7, Using Cash Flow Information and
Present Value in Accounting Measurements, and FASB Statements No. 65,
Accounting for Certain Mortgage Banking Activities, No. 91 Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans
and Initial Direct Costs of Leases, No. 95, Statement of Cash Flows, and
No. 126, Exemption from Certain Required Disclosures about Financial
Instruments for Certain Nonpublic Entities. The Company is presently
evaluating the effect of this pronouncement.
|   
|10. |  | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | On April 25, 2003, the Company announced that it intends to terminate its
management contracts for 33 of its hotels currently managed by Interstate,
effective July 1, 2003. Under its management contracts with Interstate, the
Company has the option of terminating such contracts at any time after June
30, 2003. It is anticipated that these properties along
with the hotels management and employees will transfer to Alliance
Hospitality Management, LLC, (Alliance) a newly created hotel management
company that is owned by Noble and hotel industry veteran Dale M. Turner,
CHA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | In April 2003, the Company received written notice from Intercontinental
Group of its intention to terminate the lease agreements for the Las Vegas,
NV Hampton Inn and the Windsor, CT Hilton Garden Inn. The Company expects
that the lease agreements will be terminated on or about July 1, 2003. The
Windsor Hilton Garden Inn is currently owned by a joint venture entity,
Windsor Hotel Associates, LLC, of which the Company currently owns 49
percent, while Regent Partners, Inc. (Regent) owns 36 percent and
Intercontinental Group owns 15 percent. Subsequent to the expected
termination of the lease agreement, it is expected that Intercontinental
Group will forfeit their share of ownership, in which case the Company would
own approximately 58 percent and Regent would own approximately 42 percent of
Windsor Hotel Associates, LLC. The Company currently wholly owns the Las
Vegas Hampton Inn and                                                                                                                                                                                                                                                                                                                                                                                              

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| |  | would continue to do so subsequent to the expected
termination of the lease agreement. The Company expects to replace
Intercontinental Group with a newly formed lessee owned approximately 58
percent by the Company and 42 percent by Regent to lease the Windsor Hilton
Garden Inn. The Company expects to replace Intercontinental Group with
Barclay as lessee for the Las Vegas Hampton Inn. It is anticipated that both
Barclay and the newly formed lessee would contract with Alliance Hospitality
Management, LLC to operate the properties. As a result of replacing
Intercontinental Group as lessee with Barclay and the newly formed lessee,
the Company would record any profits or losses from the Las Vegas Hampton Inn
and its share of profits or losses from the Windsor Hilton Garden Inn. Based
on the Companys forecast for 2003, the Companys estimated share of the
total net loss from these two properties for the period July 1, 2003 through
December 31, 2003 would be approximately $450.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|       |  |   |  |                                                  
|------ |  | - |  | -------------------------------------------------
|Item 2 |  | - |  | Managements Discussion and Analysis of Financial
|       |  |   |  | Condition and Results of Operations              
|       |  |   |  | ($ in thousands)                                 

Overview

Winston Hotels, Inc. (WHI), headquartered in Raleigh, North Carolina,
operates so as to qualify as a real estate investment trust (REIT) for
federal income tax purposes. During 1994, WHI completed an initial public
offering of its common stock (Common Stock), utilizing the majority of the
proceeds to acquire one hotel and a general partnership interest (as the sole
general partner) in WINN Limited Partnership (the Partnership). The
Partnership used a substantial portion of the proceeds to acquire nine
additional hotel properties. These ten hotels were acquired from affiliates of
WHI. WHI and the Partnership (collectively the Company) began operations as
a REIT on June 2, 1994. As of March 31, 2003, WHIs ownership in the
Partnership was 93.96 percent.

As of March 31, 2003, the Company owned or was invested in 52 hotel properties
in 17 states having an aggregate of 7,200 rooms. This included 44 wholly owned
properties with 6,141 rooms, a 49 percent ownership in three joint venture
hotels with 453 rooms, a 13.05 percent ownership interest in two joint venture
hotels with 215 rooms, (collectively, the Joint Venture Hotels) and a
mezzanine financing interest in three hotels with 391 rooms. The Company does
not hold an ownership interest in any of the hotels for which it has provided
mezzanine financing. All of the Companys hotels are operated under franchises
from nationally recognized franchisors including Marriott International, Inc.,
Hilton Hotels Corporation, Intercontinental Hotels Group PLC, (formerly Six
Continents PLC) and Choice Hotels International.

Effective July 1, 2002, the Company, through its wholly owned taxable REIT
subsidiary, Barclay Hospitality Services Inc. (Barclay), acquired the
leasehold interests for 47 of its hotels from CapStar Winston Company, L.L.C.,
a wholly owned subsidiary of MeriStar Hotels & Resorts, Inc. (MeriStar).
MeriStar has since merged with and become Interstate Hotels & Resorts, Inc.
(Interstate). The acquisition included leasehold interests for 45 wholly
owned hotels and two Joint Venture Hotels. Under the REIT Modernization Act
(the RMA), which became effective January 1, 2001, the Company is permitted
to lease its hotels to wholly owned taxable REIT subsidiaries, provided that
the subsidiary lessees engage a third-party management company to manage the
hotels. Simultaneous with acquiring the leasehold interests, Barclay entered
into new management contracts with Interstate for 39 of the 47 hotels covered
by the leases. These five-year contracts are terminable by Barclay after June
30, 2003, subject to certain conditions and limitations. On April 25, 2003,
the Company announced that it intends to terminate its management contracts
with Interstate (See Note 10 in Notes to Consolidated Financial Statements).
The Company sold two of the 39 hotels during the third and fourth quarters of
2002 and has signed new management contracts for another four, one with Sage
Client 453, LLC, an affiliate of Sage Hospitality Resources, LLC (Sage), one
with Noble Investment Group, Ltd., (Noble), one with Prism Hospitality, L.P.
(Prism), and one with Promus Hotels, Inc., an affiliate of Hilton Hotels
Corporation (Hilton). Currently, Interstate manages 33 of the Companys
hotels, Interstate Management and Investment Corporation (IMIC) headquartered
in Columbia, South Carolina (unrelated to and unaffiliated with Interstate)
manages six hotels, Concord Hospitality Enterprises Company (Concord) manages
two hotels, Hilton manages two hotels, and Sage, Noble, and Prism each manage
one hotel.

Three hotels in which the Company has an ownership interest, including two
wholly owned hotels and one of the Joint Venture Hotels, continue to be
operated under long-term leases with third parties. Two of these hotels are
leased to Bristol W. Tenant Company, a wholly owned subsidiary of
Intercontinental Hotels Group, Inc. (Intercontinental Group formerly Six
Continents Hotels, Inc.), the Las Vegas, NV Hampton Inn and the Windsor, CT
Hilton Garden Inn, (see Note 10 in Notes to Consolidated Financial Statements)
and one is leased to Secaucus Holding Corporation, a wholly owned subsidiary of
Prime Hospitality Corp. (Prime), the Secaucus, NJ Holiday Inn. Under the
terms of the leases, the lessees are obligated to pay the Company the greater
of base rent or percentage rent. The leases are designed to allow the Company
to participate in the growth in revenues at the hotels by requiring that a portion
of each hotels room revenues in excess of specified amounts be paid to the
Company as percentage rent.

In April 2003, the Company received written notice from Intercontinental Group
of its intention to terminate the lease agreements for the Las Vegas, NV
Hampton Inn and the Windsor, CT Hilton Garden Inn. The Company expects that
the lease agreements will be terminated on or about July 1, 2003. The Windsor
Hilton Garden Inn is currently owned by a joint venture entity, Windsor Hotel
Associates, LLC, of which the Company currently owns 49 percent, while Regent
Partners, Inc. (Regent) owns 36 percent and Intercontinental Group owns 15
percent. Subsequent to the expected termination of the lease agreement, it is
expected that Intercontinental Group will forfeit their share of ownership, in
which case the Company would own approximately 58 percent and Regent would own
approximately 42 percent of Windsor Hotel Associates, LLC. The Company
currently wholly owns the Las Vegas Hampton Inn and would continue to do so

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subsequent to the expected termination of the lease agreement. The Company
expects to replace Intercontinental Group with a newly formed lessee owned
approximately 58 percent by the Company and 42 percent by Regent to lease the
Windsor Hilton Garden Inn. The Company expects to replace Intercontinental
Group with Barclay as lessee for the Las Vegas Hampton Inn. It is anticipated
that both Barclay and the newly formed lessee would contract with Alliance
Hospitality Management, LLC to operate the properties. As a result of
replacing Intercontinental Group as lessee with Barclay and the newly formed
lessee, the Company would record any profits or losses from the Las Vegas
Hampton Inn and its share of profits or losses from the Windsor Hilton Garden
Inn. Based on the Companys forecast for 2003, the Companys estimated share
of the total net loss from these two properties for the period July 1, 2003
through December 31, 2003 would be approximately $450.

Critical Accounting Policies

The Companys discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States of America. The preparation of these financial statements
requires the Companys management 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 Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.

Accounts and Notes Receivable
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers, mezzanine loan borrowers, and
other borrowers to make required payments. If the financial condition of its
customers, mezzanine loan borrowers, or other borrowers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.

Accounting for Joint Ventures
The Company has a 49% ownership interest in three joint venture hotels and a
13.05% ownership interest in two joint venture hotels. The Company has
determined that it does not have a controlling interest in any of the joint
ventures and therefore uses the equity method to recognize its share of net
income or loss from the joint ventures and adjusts the carrying value of the
investment accordingly. The joint ventures assets, liabilities, and equity
are not recorded on the Companys balance sheet.

The Company receives current financial information from the joint ventures and
performs an analysis to determine its share of income. This analysis includes
the review of operational data, significant assets and liabilities, and results
of operations to ensure that the Companys interests are realizable. The
Company considers, among other criteria, the operating trends and expectations
for the foreseeable future. The Company believes that these joint venture
operations presently support the carrying value of the investments in joint
ventures. If the operations of the joint ventures do not support such carrying
values in the future, the Company may have to write down its investment in
joint ventures accordingly.

Accounting for Long-Lived Assets
The Company evaluates the potential impairment of individual long-lived assets,
principally the hotel properties. The Company records an impairment charge
when it believes an investment in hotels has been impaired, such that future
undiscounted cash flows, together with an anticipated liquidation amount, would
not recover the then current carrying value of the investment in the hotel
property. The Company considers many factors and makes certain assumptions
when making this assessment, including but not limited to general market and economic
conditions, operating results over the past several years, the performance of
similar properties in the same market and expected future operating results
based on a variety of assumptions. 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 carrying value, thereby possibly requiring an
impairment charge in the future. In addition, if the Companys assumptions
regarding future undiscounted cash flows and anticipated liquidation amounts
are incorrect, a future impairment charge may be required.

Income Taxes
The Company records a valuation allowance to reduce the deferred tax assets to
an amount that it believes is more likely than not to be realized. In
assessing the need for the valuation allowance, future taxable income and
ongoing prudent and

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feasible tax planning strategies have been considered. In
the event the Company 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. Should our estimate of future taxable income be less
than expected, or our tax planning strategy not be carried out as planned, we
would record an adjustment to the deferred tax asset in the period such
determination was made. As of March 31, 2003, the Company has not recorded a
valuation allowance.

Results of Operations

The following table outlines the number of hotels wholly owned by the Company
by service type as of March 31, 2003 and 2002.

|                       |  |                |    |                |  |  |    | 
|---------------------- |  | -------------- | -- | -------------- |  |  | -- | 
|Type of Hotel          |  | March 31, 2003 |    | March 31, 2002
|                       |  |                |    |               
|Limited-service hotels |  |                | 23 |                |  |  | 27 | 
|Extended-stay hotels   |  |                | 10 |                |  |  | 10 | 
|Full-service hotels    |  |                | 11 |                |  |  | 11 | 
|                       |  |                |    |                |  |  |    | 
|Total                  |  |                | 44 |                |  |  | 48 | 
|                       |  |                |    |                |  |  |    | 

The Company adopted Staff Accounting Bulletin No. 101 (SAB 101) on January 1,
2000. SAB 101 requires that a lessor not recognize contingent rental income
until the lessee has achieved annual specified hurdles. SAB 101 effectively
defers percentage lease revenue from the first and second quarters to the third
and fourth quarters. Due to the acquisition of the leasehold interests from
Interstate, effective July 1, 2002, percentage lease payments made by Barclay
to the Company (for all but two of its wholly owned hotels), are eliminated in
consolidation. The Company continues to defer recognition of percentage lease
revenue for the two wholly owned hotels, the Las Vegas, NV Hampton Inn and the
Secaucus, NJ Holiday Inn, that continue to be operated under long term leases
with Intercontinental Group and Prime, respectively. In addition, three joint
ventures, in which the Company owns a 49 percent ownership interest, defer
recognition of percentage lease revenue for three hotels. SAB 101 will have no
impact on the Companys Funds From Operations (FFO), or its interim or annual
cash flow from its third party lessees, and therefore, on its ability to pay
dividends.

The acquisition of the leasehold interests from Interstate entitles Barclay to
retain the operating profits or losses from the related hotels, which
previously accrued to Interstate under the leases and gives the Company (i)
more control over the operations of its hotels, (ii) the benefits from any
operating margin improvements and risk of any operating margin deterioration at
its hotels, and (iii) more flexibility, in that its hotels are no longer
encumbered by long term leases that are difficult to amend and expensive to
terminate. All of the remaining hotels continue to operate under the same
franchise affiliations as prior to the acquisition of the leasehold interests.

Due to the acquisition of the leasehold interests from Interstate, the results
of operations for the three months ended March 31, 2003 versus the results of
operations for the three months ended March 31, 2002 does not result in a
meaningful comparison. This is due primarily to recording the operating
results of the hotels, for which the leasehold interests were acquired, on the
Companys statements of operations beginning in the third quarter of 2002.
Therefore, in an effort to make a more meaningful comparison between periods,
in addition to the comparison of actual results of operations for the three
months ended March 31, 2003 and 2002, shown below is a comparison of selected
actual financial information for the three
months ended March 31, 2003 with selected pro forma financial information for
the three months ended March 31, 2002, as if the acquisition of the leasehold
interests from Interstate occurred on January 1, 2002. The selected pro forma
financial information is also shown as if the sales of hotel properties, which
occurred during 2002, occurred on January 1, 2002 as well. Therefore, the
selected pro forma financial information below is based on both the Companys
and Interstates historical results of operations, after giving effect to
certain pro forma adjustments, for the 44 wholly owned hotels as of March 31,
2003. The pro forma adjustments include the elimination of the transaction to
acquire the leasehold interests from Interstate and the percentage lease
revenue applicable to the 45 wholly owned hotels for which the leasehold
interests were acquired, as well as adjustments to undistributed property
operating expenses to remove management company corporate costs, to make
adjustments to management fees to reflect the fee structure per the new
management agreements, and to make resulting adjustments to the allocation of
earnings to minority interests. The unaudited pro forma financial information
does not purport to be indicative of what the actual results of operations of
the Company would have been had the transaction occurred on the basis assumed
above nor are they indicative of results of future operations. The unaudited

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pro forma financial information is based upon available information and upon
assumptions and estimates that management believes are reasonable under the
circumstances.

Actual Three Months Ended March 31, 2003 versus Actual Three Months Ended March
31, 2002

REVENUE

Rooms, Food and Beverage and Other Operating Departments Revenue- The increase
in hotel revenues is a result of the acquisition of the leasehold interests
from Interstate. The operating results of the hotels, for which the leasehold
interests were acquired, are reflected on the Companys consolidated statements
of operations beginning July 1, 2002.

Percentage Lease Revenue- Percentage lease revenue declined for the quarter
from $9,533 to $810. This decline is primarily due to the acquisition of the
leasehold interests from Interstate. The percentage lease revenue for the
first quarter of 2003 reflects only the percentage lease revenue for the two
wholly owned hotels that remain under long term leases with third parties.

Interest and Other Income- Interest and other income increased from $347 in
2002 to $366 in 2003. The increase is primarily due to an increase in
mezzanine loan interest income, offset by a decrease in third party development
fees.

EXPENSES

Rooms, Food and Beverage and Other Operating Departments Expenses- The
increase in these hotel expenses is a result of the acquisition of the
leasehold interests from Interstate. The operating results of the hotels, for
which the leasehold interests were acquired, are reflected on the Companys
consolidated statements of operations beginning July 1, 2002.

Property Operating Costs, Franchise Costs, Maintenance and Repair Costs and
Management Fees- The increase in these hotel expenses is a result of the
acquisition of the leasehold interests from Interstate. The operating results
of the hotels, for which the leasehold interests were acquired, are reflected
on the Companys consolidated statements of operations beginning July 1, 2002.

Real Estate Taxes and Property and Casualty Insurance- Real estate taxes and
property insurance costs decreased $84 for the quarter, from $1,818 in 2002 to
$1,734 in 2003. This decline is primarily due to lower property taxes as a
result of successful appeals and lower appraised values for some properties.
Insurance expense increased $143 for the quarter as a result of higher premiums
and additional out of pocket costs for the portion of losses that did not
exceed deductibles.

Percentage Lease Expense- Beginning July 1, 2002, this expense represents the
lease expense Barclay, as lessee, pays to third party owners of two Joint
Venture Hotels.

General and Administrative- General and administrative expense decreased $70
for the quarter, from $1,555 in 2002 to $1,485 in 2003. The decrease is
primarily attributable to the write off of a mezzanine loan totaling $250 in
the first quarter of 2002, offset by higher joint venture and mezzanine
financing activity costs during the first quarter of 2003.

Depreciation and Amortization- Depreciation and amortization expenses remained
relatively consistent with the prior quarter. Depreciation expense decreased
slightly due to the sale of four hotels in 2002.

Interest- Interest expense decreased $870 for the quarter, from $2,832 in 2002
to $1,962 in 2003. This decrease is due to both a decline in weighted average
interest rates as well as a decline in the weighted average outstanding debt
balances. The weighted average outstanding debt balances decreased primarily
due to the sale of 3,162 shares of common stock in March 2002, and the use of
the net cash proceeds totaling $26,897 to reduce the then outstanding debt
balance.

Income (loss) Allocation to Minority Interest- Minority interest weighted
average share of ownership totaled 6.04% for the quarter ended March 31, 2003
and 6.80% for the quarter ended March 31, 2002.

Income Tax Benefit- The income tax benefit is a result of the net loss
experienced by Barclay during the first quarter of 2003.

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Equity in Income (loss) of Unconsolidated Subsidiaries- The Companys share of
income from unconsolidated subsidiaries increased from $5 in 2002 to $135 in
2003 as the result of better operating results for the Joint Venture Hotels.

Discontinued Operations- The Company sold the Clearwater, FL Comfort Inn in
May 2002, the Southern Pines, NC Hampton Inn in August 2002, the Augusta, GA
Comfort Inn in November 2002 and the Chester, VA Hampton Inn in December 2002.
The operating results of these properties for the first quarter of 2002 are
shown as discontinued operations.

In an effort to make a more meaningful comparison between periods, in addition
to the comparison of actual results of operations for the three months ended
March 31, 2003 and 2002 shown above, shown below is a comparison of selected
actual financial information for the three months ended March 31, 2003 with
selected pro forma financial information for the three months ended March 31,
2002, as if the acquisition of the leasehold interests from Interstate occurred
on January 1, 2002. This information is shown for the 44 wholly owned hotels
that were open for the entire periods presented.

Selected Financial Information  Actual Three Months Ended March 31, 2003
versus Pro Forma Three Months Ended March 31, 2002

|                          |                                           |  |                    |        |             |  |   |        | 
|------------------------- | ----------------------------------------- |  | ------------------ | ------ | ----------- |  | - | ------ | 
|                          |                                           |  | Three Months Ended
|                          |                                           |  | March 31,         
|                          |                                           |  |                   
|                          |                                           |  | 2003               |        | 2002       
|                          |                                           |  |                    |        |            
|                          |                                           |  | (actual)           |        | (pro forma)
|Revenue:                  |                                           |  |                    |        |             |  |   |       
|                          | Rooms                                     |  | $                  | 26,434 |             |  | $ | 27,256 | 
|                          | Other hotel revenue                       |  |                    | 2,795  |             |  |   | 2,925  | 
|Hotel operating expenses: |                                           |  |                    |        |             |  |   |       
|                          | Rooms and other operating expenses        |  |                    | 8,350  |             |  |   | 8,137  | 
|                          | Undistributed property operating expenses |  |                    | 10,190 |             |  |   | 9,822  | 

REVENUE

Room Revenue- Room revenue decreased $822 to $26,434 for the three months
ended March 31, 2003 versus $27,256 for the three months ended March 31, 2002.
For the quarter, revenue per available room (RevPAR) decreased 3.0% from
$49.26 in 2002 to $47.76 in 2003. Average daily rate for the quarter declined
4.1% from $79.48 in 2002 to $76.25 in 2003, while occupancy rates increased
from 62.0% to 62.6%. The decrease in RevPAR is primarily a result of the
sluggish economy.

Other Hotel Revenue- Other hotel revenue consists of food and beverage revenue
and other operating departments revenue. Other hotel revenue declined from
$2,925 in 2002 to $2,795 in 2003 for the quarter. This decrease is primarily
due to a decrease in long distance telephone revenue as a result of the
increased use of cellular phones by guests as well as lower restaurant and
banquet food sales.

EXPENSES

As a percentage of total hotel revenue, hotel operating expenses increased for
the quarter from 59.5% in 2002 to 64.2% in 2003.

Rooms and Other Operating Expenses- Rooms and other operating expense
increased $213 for the quarter, from $8,137 in 2002 to $8,350 in 2003,
primarily due to an increase in payroll costs. Food and beverage and other
operating departments expenses remained relatively consistent for the quarter.

Undistributed Property Operating Expenses- Undistributed property operating
expenses consist of administrative and general, sales and marketing, energy,
repairs and maintenance, franchise fees, management fees and other costs.
Undistributed property operating expenses increased $368, from $9,822 in 2002
to $10,190 in 2003. These increases are primarily due to higher labor costs in
the general and administration, sales and marketing, and repairs and
maintenance

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departments, and higher utility costs for electricity and gas.
These higher expenses were offset, in part, by lower franchise fees and
management fees due to lower room revenue.

Liquidity and Capital Resources

The Company finances its operations from operating cash flow, which was
principally derived from percentage leases through June 30, 2002 and from the
operations of the hotels for which the leasehold interests were acquired
effective July 1, 2002. For the three months ended March 31, 2003 and 2002,
cash flow provided by operating activities was $5,499 and $2,584, respectively.
The increase is primarily due to an increase of $2,627 in net income and the
timing of payments, both received and made.

Under federal income tax law provisions applicable to REITs, the Company is
required to distribute at least 90% of its taxable income to maintain its tax
status as a REIT. During the first quarter of 2003, the Company declared
distributions of $3,029 to its common shareholders ($0.15 per share) and $1,734
to its preferred shareholders ($0.578125 per share). The Company intends to
monitor its dividend policy closely and to act accordingly as results of
operations dictate. The Company also intends to fund cash distributions to
shareholders out of cash flow from operating activities. The Company may
incur, or cause its affiliate, WINN Limited Partnership (the Partnership), to
incur, indebtedness to meet its dividend policy or distribution requirements
imposed on the Company 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 available capital and cash flow from the
Companys investments are insufficient to make such distributions.

The Companys net cash used in investing activities for the three months ended
March 31, 2003 totaled $1,298. Gross capital expenditures at the wholly owned
hotels totaled $1,675. The Company plans to spend approximately $7,300 to
renovate certain of its wholly owned hotels during the next nine months. These
expenditures exceed the 5% of room revenues for its hotels (7% of room revenues
and food and beverage revenues for one of its full-service hotels) which the
Company is required to spend under its percentage leases for periodic capital
improvements and the refurbishment and replacement of furniture, fixtures and
equipment at its wholly owned hotels. These capital expenditures are funded
from operating cash flow, and possibly from borrowings under the Companys
$125,000 line of credit, sources that are expected to be adequate to fund such
capital requirements. These capital expenditures are in addition to amounts
spent on normal repairs and maintenance which have approximated 5.6% and 4.8%
of room revenues for each of the three months ended March 31, 2003 and 2002,
respectively.

During the second quarter of 2002, the Company entered into a joint venture
agreement with Concord Lodging Investment Partners (Winston), LLC, an affiliate
of Concord Hospitality Enterprises Company, (the Concord Joint Venture). The
Company purchased a 50% interest in the Concord Joint Venture. The Concord
Joint Venture subsequently purchased an operating Wingate hotel in West Des
Moines, IA, and a non-operating vacant hotel in Beachwood, OH. The Wingate
hotel has been renovated and converted to a Fairfield Inn & Suites hotel and
the Beachwood, OH hotel (Beachwood Courtyard) has been renovated and opened
as a Courtyard by Marriott hotel in April 2003. The Company and Concord have
jointly signed a completion guarantee for the Beachwood Courtyard, providing a
guaranty to the lender of the full, complete and satisfactory completion of the
renovation of the property. Pursuant to the completion guarantee agreement,
the construction process to renovate the Beachwood Courtyard is to be completed
by June 26, 2003. The Company anticipates that the total cost to renovate the
property will be approximately $6,700. Under the completion guarantee, upon
default by the borrower, the Company is required to (a) immediately assume
responsibility for the completion of the project at its sole cost and expense,
or (b) cure or cause the borrower to cure any such default.

During the fourth quarter of 2002, the Company entered into a joint venture
agreement with Charlesbank Capital Partners, LLC (Charlesbank) to acquire
more than $100,000 of hotel assets (the Charlesbank Venture). Charlesbank is
a private investment firm that manages capital on behalf of a range of
institutional investors. During the fourth quarter of 2002, the Charlesbank
Venture and Concord subsequently formed a new joint venture entity, WCC Project
Company LLC. The Charlesbank Venture is the managing member of WCC Project
Company LLC. Both the West Des Moines, IA Fairfield Inn & Suites hotel and the
Beachwood Courtyard were transferred from the Concord Joint Venture to WCC
Project Company LLC. Subsequent to Charlesbanks equity contribution in WCC
Project Company LLC, Charlesbanks ownership totals 73.95 percent, Concords
ownership was reduced from 50 percent to 13 percent and the Companys ownership
was reduced from 50 percent to 13.05 percent. At March 31, 2003, the Companys
investment in WCC Project Company LLC totaled $1,064.

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During 2000, the Company entered into a joint venture agreement with Marsh
Landing Investment, L.L.C., (the Marsh Landing Joint Venture) to jointly
develop hotel properties. Marsh Landing Investment, L.L.C. is owned by the
Companys Chairman, Charles M. Winston and Board Member, James H. Winston. The
first hotel developed by the Marsh Landing Joint Venture, a 118-room Hampton
Inn in Ponte Vedra, FL, opened in December 2000. As of March 31, 2003,
subsequent to distributions paid to the Company from the operations of the
hotels, the Companys investment in the Marsh Landing Joint Venture totaled
$1,233.

During 1999, the Company entered into a joint venture agreement with Regent
Partners, Inc., (the Regent Joint Venture) to jointly develop hotel
properties. The Regent Joint Venture has since developed two hotels, a full
service 158-room Hilton Garden Inn in Windsor, CT, which opened in September
2000, and a full service 178-room Hilton Garden Inn in Evanston, IL, which
opened in July 2001. As of March 31, 2003, subsequent to distributions paid to
the Company from the operations of the hotels, the Companys investment in the
Regent Joint Venture totaled $6,578.

As of March 31, 2003, total assets of the five joint venture properties were
$57,109, total liabilities were $35,950, and total equity was $21,159. For the
three months months ended March 31, 2003, total revenue of the five joint
ventures properties was $1,584, total expenses were $1,342, resulting in net
income of $242, of which the Companys share was $135. The Company received
cash distributions totaling $433 from its joint ventures during the first
quarter of 2003.

The Company holds a 49 percent ownership interest in both the Marsh Landing
Joint Venture and the Regent Joint Venture. Under the terms of both of these
joint venture agreements, in addition to having received fees for its services,
which included development fees and purchasing fees during construction, the
Company currently receives ongoing asset management fees. The Company also
receives cash distributions of the Joint Ventures operating profits, if any,
on a quarterly basis. The Company continues to seek additional joint venture
opportunities.

On July 5, 2000, the Company entered into a strategic alliance with Noble
Investment Group, Ltd. (Noble) to partially finance and develop two Hilton
Garden Inn hotels in Atlanta, GA and Tampa, FL and to explore other similar
upscale Hilton and Marriott opportunities. In July 2000, the Company provided
a $1,080 mezzanine loan for a Hilton Garden Inn in Atlanta and in February 2001
provided a $2,186 mezzanine loan for a Hilton Garden Inn in Tampa. Noble
provided the remainder of the funding and owns and operates the hotels. The
Atlanta hotel opened in April 2001 and the Tampa hotel opened in February 2002.
In connection with the alliance, the Company co-developed the Atlanta project
with Noble, provided all development services for the Tampa project, and
accordingly received fees for its development services. During the first
quarter of 2003, the Company continued to receive interest income from these
mezzanine loans.

In the fourth quarter of 2002, the Company funded a $3,500 mezzanine loan for
the purchase and conversion of a historic office building into a 116-room
Hampton Inn & Suites hotel in Baltimore, MDs Inner Harbor (the Baltimore
Hotel). Subsequently, the Company entered into a joint venture agreement (the
Hall Joint Venture), with an affiliate of Hall Financial Group, (Hall).
The Company assigned the $3,500 mezzanine loan to the Hall Joint Venture and
retained a 50 percent interest (or $1,750) in the note through the joint
venture. The total cost of the Baltimore Hotel, which is scheduled to open in
the first quarter of 2004, is expected to be approximately $19,000. The
Company owns 50 percent of the Hall Joint Venture, and Hall owns the remaining
50 percent.

The Companys net cash used in financing activities during the three months
ended March 31, 2003 totaled $1,793. This amount included the payment of
distributions to shareholders of $4,756, the payment of distributions to the
Partnerships minority interest of $195, and long-term debt payments of $334,
offset by a net increase of $3,500 in the outstanding balance under the
Companys $125,000 line of credit (the Line) from $72,300 at December 31,
2002 to $75,800 at March 31, 2003.

The Companys availability under the Line totaled approximately $39,121 as of
March 31, 2003. Availability is calculated each quarter on a trailing
twelve-month basis based upon certain valuation criteria contained within the
Line. The Line requires the Company to maintain certain financial ratios
including maximum leverage, minimum interest coverage and minimum fixed charge
coverage, as well as certain levels of unsecured and secured debt and tangible
net worth, all of which the Company was in compliance with as of March 31,
2003. The failure to comply with any of these covenants would cause a default
under our line of credit. Furthermore, our line of credit provides that any
default under, or acceleration of, any of our other debt, any debt of WINN
Limited Partnership or any debt of our subsidiaries, including any default by
our financing subsidiary under its fixed-rate loan or otherwise, will
constitute a default under the line of credit. Any of these defaults, if not
waived, could result in the acceleration of the indebtedness under our line of
credit. If this occurs, we may not be able to repay our debt or borrow
sufficient funds to refinance it, in which case we would not be able to make
distributions to our shareholders and could lose REIT status, which would
result in the Company not being allowed to

19



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##### 



deduct its distributions to
shareholders in computing its taxable income and would subject the Company to
federal income tax, including any applicable alternative minimum tax, on its
taxable income at regular corporate rates. The Line bears interest generally
at rates from LIBOR plus 1.75% to 2.50%, based on the Companys consolidated
debt leverage ratio. The Companys current rate is LIBOR plus 2.00%.

The Company had $66,072 in debt at March 31, 2003 that was subject to a fixed
interest rate and fixed monthly payments with GE Capital Corporation. This
debt, a ten-year loan with a 25-year amortization period, carries an interest
rate of 7.375%. All unpaid principal and interest are due on December 1, 2008.

All 44 of the Companys wholly owned hotels have been pledged as collateral for
the Companys debt securities, 30 against the outstanding balance under the
Line and 14 against the outstanding balance under the GE Capital loan.

Effective March 31, 2003, the Company completed an interest rate swap on
$50,000 of its outstanding variable rate debt under the Line. This transaction
effectively replaced the Companys variable interest rate based on 30-day LIBOR
on $50,000 of outstanding debt under the Line with a fixed interest rate of
1.505% until February 27, 2004. The Lines interest rate spread is currently
2.00%, equaling a fixed rate of 3.505% on $50,000 until February 27, 2004.

As of March 31, 2003, the Companys contractual obligations and commitments
(excluding obligations and commitments pursuant to the Companys joint
ventures) were as follows:

|                        |                               |       |        |          |  |             |       |             |  |         |       |       |  |   |       |       |  |   |        |        | 
|----------------------- | ----------------------------- | ----- | ------ | -------- |  | ----------- | ----- | ----------- |  | ------- | ----- | ----- |  | - | ----- | ----- |  | - | ------ | ------ | 
|                        |                               |       |        |          |  |             |       |             |  |         |       |       |  |   |       |       |  |   | After 
|Contractual Obligations |                               | Total |        | < 1 Year |  | 1 - 3 Years |       | 3 - 5 Years |  | 5 Years
|                        |                               |       |        |          |  |             |       |             |  |        
|Long-term debt          |                               | $     | 66,072 |          |  | $           | 1,401 |             |  | $       | 3,131 |       |  | $ | 3,627 |       |  | $ | 57,913 |       
|Corporate office lease  |                               |       | 709    |          |  |             | 366   |             |  |         | 343   |       |  |   |      |       |  |   |       |       
|                        |                               |       |        |          |  |             |       |             |  |         |       |       |  |   |       |       |  |   |        |       
|                        | Total contractual obligations |       | $      | 66,781   |  |             | $     | 1,767       |  |         | $     | 3,474 |  |   | $     | 3,627 |  |   | $      | 57,913 | 
|                        |                               |       |        |          |  |             |       |             |  |         |       |       |  |   |       |       |  |   |        |       

|                             |  |       |        |         |  |             |   |             |  |         |        |  |  |   |   |  |  |       |   | 
|---------------------------- |  | ----- | ------ | ------- |  | ----------- | - | ----------- |  | ------- | ------ |  |  | - | - |  |  | ----- | - | 
|                             |  |       |        |         |  |             |   |             |  |         |        |  |  |   |   |  |  | After
|Other Commercial Commitments |  | Total |        | <1 Year |  | 1 - 3 Years |   | 3 - 5 Years |  | 5 Years
|                             |  |       |        |         |  |             |   |             |  |        
|Line of credit               |  | $     | 75,800 |         |  | $           |  |             |  | $       | 75,800 |  |  | $ |  |  |  | $     |  | 
|                             |  |       |        |         |  |             |   |             |  |         |        |  |  |   |   |  |  |       |   | 

The Company intends to continue to seek additional mezzanine loan opportunities
and to acquire and develop additional hotel properties that meet its investment
criteria and is continually evaluating such opportunities. It is expected that
future mezzanine loans and hotel acquisitions will be financed, in whole or in
part, from additional follow-on offerings, from borrowings under the Line, from
joint venture agreements, from the net sale proceeds of hotel properties and/or
from the issuance of other debt or equity securities. There can be no
assurances that the Company will make any further mezzanine loans or any
investment in additional hotel properties, or that any hotel development will
be undertaken, or if commenced, that it will be completed on schedule or on
budget. Further, there can be no assurances that the Company will be able to
obtain any additional financing.

Seasonality

The hotels operations historically have been seasonal in nature, reflecting
higher occupancy during the second and third quarters. This seasonality can be
expected to cause fluctuations in the Companys quarterly operating profits.
To the extent that cash flow from operations is insufficient during any
quarter, due to temporary or seasonal fluctuations in revenue, the Company
expects to utilize cash on hand or borrowings under the line of credit to make
distributions to the equity holders.

Funds From Operations

Funds from operations (FFO), as defined by the National Association of Real
Estate Investment Trusts (NAREIT), is net income (loss) (determined in
accordance with generally accepted accounting principles (GAAP)), excluding
gains (losses) from sales of property, plus depreciation and amortization and
after adjustments for unconsolidated partnerships and joint ventures (which are
calculated to reflect FFO on the same basis). The Company further adjusts FFO
by subtracting preferred share distributions, and income tax benefit, and
adding the change in deferred revenue during the period to eliminate the impact
of Staff Accounting Bulletin No. 101. The calculation of FFO may vary from
entity to entity and as such the presentation of FFO by the Company may not be
comparable to other similarly titled measures of other

20



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##### 



reporting companies.
Some reporting companies have adopted the NAREIT definition of FFO. Due to the
acquisition of the companys leasehold interests from Interstate Hotels and
Resorts in July 2002, the company believes that the adoption of the NAREIT
definition of FFO would not result in a meaningful comparison, and would not be
an accurate reflection of the operating activity of the quarter ended March 31,
2003 compared with the quarter ended March 31, 2002. This is primarily due to
significant amounts of deferred revenue which accrued throughout the first two
quarters of 2002 and were recognized in the third quarter of 2002 pursuant to
SAB 101. The company plans to adopt the NAREIT definition of FFO when the
company believes that the figures will result in a meaningful comparison
between periods presented. FFO is not intended to represent cash flows for the
period. FFO has not been presented as an alternative to operating income, but
as an indicator of operating performance, and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance
with generally accepted accounting principles.

FFO is a supplemental industry-wide measure of REIT operating performance, the
definition of which was first proposed by NAREIT in 1991 (and clarified in
1995, 1999 and 2002) in response to perceived drawbacks associated with net
income under GAAP as applied to REITs. Since the introduction of the
definition by NAREIT, the term has come to be widely used by REITs. Historical
cost accounting for real estate assets implicitly assumes that the value of
real estate assets diminishes predictably over time. Since real estate values
instead have historically risen or fallen with market conditions, most industry
investors have considered presentations of operating results for real estate
companies that use historical GAAP cost accounting to be insufficient by
themselves. Accordingly, the Company believes FFO (combined with the Companys
primary GAAP presentations required by the Securities and Exchange Commission)
helps improve our equity holders ability to understand our operating
performance. The Company only uses FFO as a supplemental measure of operating
performance. Shown below is a reconciliation of Net income (loss) to FFO.

WINSTON HOTELS, INC.
Reconciliation of Net Income (loss) to FFO
For the quarters ended March 31, 2003 and 2002
($ in thousands)

|                                     |  |      |        |      |  |   |        |  
|------------------------------------ |  | ---- | ------ | ---- |  | - | ------ | -
|                                     |  | 2003 |        | 2002
|                                     |  |      |        |     
|Net income (loss)                    |  | $    | 1,533  |      |  | $ | (1,094 | )
|Minority interest allocation         |  |      | (13    | )    |  |   | (204   | )
|Depreciation                         |  |      | 4,721  |      |  |   | 5,048  |  
|Depreciation from joint ventures     |  |      | 194    |      |  |   | 184    |  
|Deferred revenue                     |  |      | 8      |      |  |   | 2,685  |  
|Deferred revenue from joint ventures |  |      | 52     |      |  |   | 158    |  
|Income tax expense (benefit)         |  |      | (551   | )    |  |   |       |  
|Preferred stock dividend             |  |      | (1,734 | )    |  |   | (1,734 | )
|                                     |  |      |        |      |  |   |        |  
|Funds From Operations                |  | $    | 4,210  |      |  | $ | 5,043  |  
|                                     |  |      |        |      |  |   |        |  

Forward Looking Statements

This report contains certain 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. These statements include, among
other things, the Companys planned termination of management contracts with
Interstate and intention to enter into replacement management contracts with
Alliance, the expected termination of leases with Intercontinental Group and
the expected replacement of the management company, its belief that Barclay
will generate sufficient taxable income to fully realize the deferred tax
asset, its plans for renovation expenditures, and the adequacy of current
funding sources for capital expenditures. You can identify these statements by
use of words like guidance, project, target, may, will, expect,
anticipate, estimate, believes, continue or similar expressions. These
statements represent the Companys judgment and are subject to risks and
uncertainties that could cause actual operating results to differ materially
from those expressed or implied in the forward looking statements, including
but not limited to the following risks: changes in general economic conditions,
properties held for sale will not sell, financing risks including the inability
to obtain financing on favorable terms, if at all, development risks including
the risks of construction delays and cost overruns, lower than expected
occupancy and average daily rates, non-issuance or delay of issuance of
governmental permits, zoning restrictions, the increase of development costs in
connection with projects that are not pursued to completion, non-payment of
mezzanine loans, the failure to make additional mezzanine debt investments and
investments in distressed hotel assets, and

21



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##### 



failure to attract joint venture
opportunities. From time to time, these and additional risks are discussed in
the Companys filings with the Securities and Exchange Commission, including
but not limited to its Form S-3 Registration Statements, and its Annual Report
on Form 10-K, Quarterly Reports on Form 10-Q and its other periodic reports.

Item 3  Quantitative and Qualitative Disclosures About Market Risk
                 ($ in thousands)

As of March 31, 2003, the Companys exposure to market risk for a change in
interest rates related solely to debt outstanding under its $125,000 line of
credit (the Line). Debt outstanding under the Line totaled $75,800 at March
31, 2003. The Line, which expires in December 2004, bears interest generally
at rates from 30-day LIBOR plus 1.75% to 2.50%, based on the Companys
consolidated debt leverage ratio. The Companys current interest rate is
30-day LIBOR plus 2.00%. Effective March 31, 2003, the Company completed an
interest rate swap on $50,000 of its outstanding variable rate debt under the
Line. The agreement is a contract to exchange floating rate interest payments
for fixed interest payments periodically over the life of the agreement without
the exchange of the underlying notional amounts. This transaction effectively
replaces the Companys variable interest rate based on 30-day LIBOR on $50,000
of the Line with a fixed interest rate of 1.505% until February 27, 2004. The
Lines interest rate spread is currently 2.00%, equating to an effective fixed
rate of 3.505% on $50,000 until February 27, 2004. The differential actually
paid or received on interest rate agreements is recognized as an adjustment to
interest expense over the life of the swap. The weighted average interest rate
on the Line for the three months ended March 31, 2003 was 3.85%. At March 31,
2003, the Company had $25,800 of variable rate debt outstanding under the Line
that was exposed to fluctuations in the market rate of interest.

The definitive extent of the Companys interest rate risk under the Line is not
quantifiable or predictable because of the variability of future interest rates
and business financing requirements. If interest rates increased by 100 basis
points, the Companys first quarter interest expense would have increased by
approximately $65, based on the weighted-average amount of variable rate debt
outstanding and exposed to fluctuations in the market rate of interest. The
Company does not enter into derivative or interest rate transactions for
speculative purposes.

The following table presents the aggregate maturities and historical cost
amounts of the Companys GE Capital Corporation fixed rate debt principal and
interest rates by maturity dates at March 31, 2003:

|              |      |                 |        |               |  |  |       |       |  
|------------- | ---- | --------------- | ------ | ------------- |  |  | ----- | ----- | -
|Maturity Date |      | Fixed Rate Debt |        | Interest Rate
|              |      |                 |        |              
|              | 2003 |                 | $      | 1,041         |  |  |       | 7.375 | %
|              | 2004 |                 |        | 1,480         |  |  |       | 7.375 | %
|              | 2005 |                 |        | 1,594         |  |  |       | 7.375 | %
|              | 2006 |                 |        | 1,715         |  |  |       | 7.375 | %
|              | 2007 |                 |        | 1,846         |  |  |       | 7.375 | %
|Thereafter    |      |                 | 58,396 |               |  |  | 7.375 | %    
|              |      |                 |        |               |  |  |       |      
|              |      | $               | 66,072 |               |  |  | 7.375 | %    
|              |      |                 |        |               |  |  |       |      

Item 4  Controls and Procedures



| | (a) |  | Evaluation of disclosure controls and procedures.
| | --- |  | -------------------------------------------------

Based on the Companys most recent evaluation, which was completed within
90 days of the filing of this Form 10-Q, the Companys Chief Executive Officer
and Chief Financial Officer believe the Companys disclosure controls and
procedures (as defined in Rules 13a-14 and 15d-14 of the Securities Exchange
Act of 1934, as amended (the Exchange Act)) provide reasonable assurances
that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time period required by the Securities and Exchange
Commissions rules and forms.



| | (b) |  | Changes in internal controls.
| | --- |  | -----------------------------

There have been no significant changes in internal controls or in other
factors that could significantly affect these controls subsequent to the date
of the most recent evaluation of the Companys internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

22



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##### 



PART II  OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K.





| | (a) |  | Exhibits
| | --- |  | --------

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|99.1 |  | Certification of Robert W. Winston, III, President and
Chief Executive Officer of Winston Hotels, Inc., pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and dated May 8, 2003. [Furnished in
accordance with the Commissions guidance published in SEC Rel.
No. 34-47551. This exhibit shall not be deemed to be
incorporated by reference into any document or filed herewith for
purposes of liability under the Securities Exchange Act of 1934.]                   
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|99.2 |  | Certification of Joseph V. Green, Executive Vice
President, Chief Financial Officer and Secretary of Winston
Hotels, Inc., pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and
dated May 8, 2003. [Furnished in accordance with the
Commissions guidance published in SEC Rel. No. 34-47551. This
exhibit shall not be deemed to be incorporated by reference into
any document or filed herewith for purposes of liability under
the Securities Exchange Act of 1934.]



| | (b) |  | Reports on Form 8-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Company filed the following reports on Form 8-K for the
quarter ended March 31, 2003:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | (1) |  | The Company filed a current report on Form 8-K dated
February 13, 2003, pursuant to Item 9 of Form 8-K. Included in
the Form 8-K was the Companys press release announcing its
operating results for the fourth quarter and year ended December
31, 2002, attached as Exhibit 99.1.                                                                                                                                                                                                                                                                                         
|
| | (2) |  | The Company filed a current report on Form 8-K dated
March 14, 2003, pursuant to Item 9 of Form 8-K. Included in this
Form 8-K were copies of the certifications of Robert W. Winston,
the Companys Chief Executive Officer, and Joseph V. Green, the
Companys Chief Financial Officer, which accompanied the
Companys Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission on March 14, 2003, required
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. These
certifications were attached as Exhibits 99.1 and 99.2,
respectively.

23



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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.

|     |  |             |  |                                                                                                                          
|---- |  | ----------- |  | -------------------------------------------------------------------------------------------------------------------------
|     |  |             |  | WINSTON HOTELS, INC                                                                                                      
|     |  |             |  |                                                                                                                          
|     |  |             |  |                                                                                                                          
|Date |  | May 8, 2003 |  | /s/ Joseph V. Green                                                                                                      
|     |  |             |  |                                                                                                                          
|     |  |             |  | Joseph V. Green
Executive Vice President and Chief Financial Officer
(Authorized officer and Principal Financial Officer)

24



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##### 



CERTIFICATIONS

I, Robert W. Winston, III, certify that:



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



| | a. |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the Evaluation
Date); and                                                                                                  
|
| | c. |  | presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        



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



| | a. |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data
and have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



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

|                  |  |                                                | 
|----------------- |  | ---------------------------------------------- | 
|Date: May 8, 2003 |  |                                               
|                  |  | /s/ Robert W. Winston, III                    
|                  |  |                                               
|                  |  | Robert W. Winston, III
Chief Executive Officer

25



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##### 



I, Joseph V. Green, certify that:



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



| | a. |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the Evaluation
Date); and                                                                                                  
|
| | c. |  | presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        



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



| | a. |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data
and have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



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

|                  |  |                                                                           | 
|----------------- |  | ------------------------------------------------------------------------- | 
|Date: May 8, 2003 |  |                                                                          
|                  |  | /s/ Joseph V. Green                                                      
|                  |  |                                                                          
|                  |  | Joseph V. Green
Executive Vice President and
     Chief Financial Officer

26



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##### 



EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       
|99.1    |  | Certification of Robert W. Winston, III, President and
Chief Executive Officer of Winston Hotels, Inc., pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and dated May 8, 2003. [Furnished in
accordance with the Commissions guidance published in SEC Rel.
No. 34-47551. This exhibit shall not be deemed to be
incorporated by reference into any document or filed herewith for
purposes of liability under the Securities Exchange Act of 1934.]                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|99.2    |  | Certification of Joseph V. Green, Executive Vice
President, Chief Financial Officer and Secretary of Winston
Hotels, Inc., pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and
dated May 8, 2003. [Furnished in accordance with the
Commissions guidance published in SEC Rel. No. 34-47551. This
exhibit shall not be deemed to be incorporated by reference into
any document or filed herewith for purposes of liability under
the Securities Exchange Act of 1934.]

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