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 September 30, 1998
                                   Commission file number  0-23732



                        WINSTON HOTELS, INC.
       (Exact name of registrant as specified in its charter)

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


                         2209 Century Drive
                   Raleigh, North Carolina  27612
              (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   __




The number of shares of Common Stock, $.01 par value, outstanding on
October 31, 1998 was 16,313,980.







                        WINSTON HOTELS, INC.
                                Index
                                                                Page
PART I.   FINANCIAL INFORMATION

Item 1.   WINSTON HOTELS, INC.

               Consolidated Balance Sheets as of 
                September 30, 1998 (unaudited) and 
                December 31, 1997                                 3
               Unaudited Consolidated Statements of Income 
                for the three and nine months ended 
                September 30, 1998 and 1997                       4
               
               Unaudited Consolidated Statements of 
                Cash Flows for the nine months ended
                September 30, 1998 and 1997                       5

               Notes to Consolidated Financial Statements         6

          CAPSTAR WINSTON COMPANY, L.L.C.  (1)

               Balance Sheets as of September 30, 1998 
                (unaudited) and December 31, 1997                10

               Unaudited Statements of Income for the three and 
                nine months ended September 30, 1998             11
               
               Unaudited Statement of Cash Flows for the 
                nine months ended September 30, 1998             12

               Notes to Financial Statements                     13

          WINSTON HOSPITALITY, INC.  (1)

               Unaudited Statements of Income for the three 
                and nine months ended September 30, 1997         14

               Unaudited Statement of Cash Flows for the 
                nine months ended September 30, 1997             15

               Notes to Financial Statements                     16

Item 2.   Management's Discussion and Analysis of 
           Financial Condition and Results of Operations         17

PART II.  OTHER INFORMATION

Item 6.   Exhibits and Reports on Form 8-K                       26

          Signature Page                                         27

     (1)  The financial statements of CapStar Winston Company, L.L.C.
          and Winston Hospitality, Inc. are included in this report
          as they contain material information with respect to the
          Company's investment in hotel properties.  For the nine
          months ended September 30, 1998, CapStar Winston Company,
          L.L.C. served as the lessee of 47 of Winston Hotels, Inc.'s
          (the "Company's") 49 hotels.  For the nine months ended
          September 30, 1997, Winston Hospitality, Inc. served as the
          lessee of all 38 of the Company's hotels.  In November
          1997, CapStar Winston Company, L.L.C. replaced Winston
          Hospitality, Inc. as the lessee of all 38 of the Company's
          hotels.  These two companies are not affiliated with the
          Company in any way other than their lessee relationships.


                        WINSTON HOTELS, INC.
                     CONSOLIDATED BALANCE SHEETS
              (in thousands, except per share amounts)
                                  
                                  
                              ASSETS
                                         (See Note 6)         
                                      September 30, 1998    December 31, 1997
                                      ------------------    -----------------
                                         (unaudited)                       
Investment in hotel properties:
   Land                                 $     40,454         $      27,504
   Buildings and improvements                341,007               224,535
   Furniture and equipment                    28,464                22,528
                                      ------------------    -----------------
   Operating properties                      409,925               274,567
   Less accumulated depreciation             (33,145)              (21,572)
                                      ------------------    -----------------
                                             376,780               252,995
   Properties under development               15,623                26,490
                                      ------------------    -----------------
      Net investment in hotel 
       properties                            392,403               279,485
Corporate FF&E, net                              249                    23
Cash and cash equivalents                        136                   164
Lease revenue receivable                      10,564                 5,682
Deferred expenses, net                         1,767                 1,403
Prepaid expenses and other assets                788                 1,070
                                      ------------------    -----------------
     Total assets                       $    405,907         $     287,827
                                      ==================    =================
                                                          
                        LIABILITIES AND SHAREHOLDERS' EQUITY
Due to banks                            $    163,876         $      44,081
Accounts payable and accrued expenses          3,803                 3,527
Deferred revenue                              10,661                     -
Distributions payable                          6,609                 6,950
Minority interest in Partnership              14,171                15,779
                                      ------------------    -----------------
     Total liabilities                       199,120                70,337
                                      ------------------    -----------------
                                                          
Shareholders' equity:
   Preferred stock, $.01 par value,                        
    10,000 shares authorized,
    3,000 shares issued and outstanding                   
    (liquidation preference of
    $76,734 and $77,100)                          30                   30
   Common stock, $.01 par value, 50,000                    
    shares authorized, 16,314 and 16,194
    shares issued and outstanding                163                  162
   Additional paid-in capital                224,759              223,427
   Unearned compensation                        (353)                (106)
   Distributions in excess of earnings       (17,812)              (6,023)
                                      ------------------    -----------------
     Total shareholders' equity              206,787              217,490
                                      ------------------    -----------------
     Total liabilities and 
      shareholders' equity              $    405,907         $    287,827
                                      ==================    =================
                                  
      The accompanying notes are an integral part of the financial statements.


                        WINSTON HOTELS, INC.
             UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
              (in thousands, except per share amounts)
                                  
                                  
                           (See Note 6)           (See Note 6)
                               Three      Three       Nine        Nine
                              Months      Months     Months      Months
                               Ended      Ended       Ended      Ended
                               Sept.       Sept.      Sept.       Sept.
                             30, 1998    30, 1997   30, 1998    30, 1997
                             --------    --------   --------    --------
Revenue:                                                        
  Percentage lease revenue   $ 18,404    $ 10,328   $ 30,640    $ 27,098
  Interest and other income        76          78        190         132
                             --------    --------   --------    --------
     Total revenue             18,480      10,406     30,830      27,230
                             --------    --------   --------    --------
                                                                
Expenses:                                                       
  Real estate taxes and                                            
   property and casualty
   insurance                    1,343         670      3,605       1,826
  General and 
   administrative               1,395         723      3,158       1,585
  Interest                      2,861         977      5,440       2,788
  Depreciation                  4,526       2,612     11,600       7,182
  Amortization                     79          45        256         127
                             --------    --------   --------    --------
     Total expenses            10,204       5,027     24,059      13,508
                             --------    --------   --------    --------
                                                                
     Income before allocation
      to minority interest      8,276       5,379      6,771      13,722
                                                                
Income allocation to minority 
 interest                         630         490        145       1,100
                             --------    --------   --------    --------
                                                                 
      Net income                7,646       4,889      6,626      12,622
Preferred stock distribution    1,735         366      5,203         366
                             --------    --------   --------    --------
      Net income applicable
       to common shareholders$  5,911    $  4,523   $  1,423    $ 12,256
                             ========    ========   ========    ========
                                                                
Earnings per share:                                              
  Net income per common share$   0.36    $   0.28   $   0.09    $   0.77
                             ========    ========   ========    ========
  Net income per common share                                      
   assuming dilution         $   0.36    $   0.28   $   0.09    $   0.77
                             ========    ========   ========    ========
  Weighted average number of
   common shares               16,314      16,129     16,280      15,923
                             ========    ========   ========    ========
  Weighted average number of                                       
   common shares assuming
   dilution                    18,054      17,878     18,050      17,395
                             ========    ========   ========    ========
                                                                 
                                  
     The accompanying notes are an integral part of the financial statements.



                        WINSTON HOTELS, INC.
           UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                          ($ in thousands)
                                             (See Note 6)        
                                             Nine Months       Nine Months
                                                Ended            Ended
                                              September         September
                                              30, 1998          30, 1997
                                              -----------      -----------
Cash flows provided by operating activities:
   Net income                                 $    6,626       $   12,622
   Adjustments to reconcile net income to
    net cash provided by operating actvities:
      Minority interest                              145            1,100
      Depreciation                                11,600            7,182
      Amortization                                   256              127
      Amortization recorded as interest
       expense                                       258              316
   Changes in assets and liabilities:
      Lease revenue receivable                    (4,882)          (2,985)
      Prepaid expenses and other assets              181             (591)
      Accounts payable and accrued expenses          276              683
      Deferred revenue                            10,661                -
                                              -----------      -----------
           Net cash provided by
            operating activities                  25,121           18,454
                                              -----------      -----------

Cash flows used in investing activities:
   Prepaid acquisition costs                        (436)            (335)
   Investment in hotel properties               (124,867)         (57,653)
   Sale of land parcel                               445                -
                                              -----------      -----------
           Net cash used in
            investing activities                (124,858)         (57,988)
                                              -----------      -----------

Cash flows provided by financing activities:
   Fees paid in connection with debt 
    obligations                                     (510)             (90)
   Net proceeds from issuance of stock               588           72,066
   Payment of distributions                      (20,164)         (13,565)
   Net increase (decrease) in line of 
    credit borrowings                             76,895          (18,319)
   Increase in demand notes                       42,900                -
                                              -----------      -----------
           Net cash provided by
            financing activities                  99,709           40,092
                                              -----------      -----------

                                                         
Net increase (decrease) in cash 
 and cash equivalents                                (28)             558
Cash and cash equivalents at beginning 
 of period                                           164              234
Cash and cash equivalents at end of period    $      136       $      792
                                              -----------      -----------

Supplemental disclosure:
      Cash paid for interest                  $    5,789       $    2,809
                                              ===========      ===========
Summary of non-cash investing and                        
  financing activities:
   Distributions declared but not paid        $    6,609       $    5,216
   Issuance of partnership units for the
    acquisition of hotel properties                    -           11,287
   Conversion of partnership units for
    common shares                                    152                -
   Investment in hotel properties payable              -              703
   Unearned compensation                             400                -
   Minority interest payable adjustment                   
    due to follow-on offerings, the                       
    exercise of stock options and
    conversion of partnership units for
    common shares                                    193            1,675
   Amounts included in accounts payable                   
    and accrued expenses related to the
    September 1997 stock offering                      -              363



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


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


1.   ORGANIZATION
     ------------
                                  
     Winston Hotels, Inc. (the "Company") 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 method by which revenue is recognized (see Note 6), the
     information for the three and nine months ended September 30,
     1998 and the information for the three and nine months ended
     September 30, 1997 are not necessarily indicative of the results
     for a full year.
                                  
2.   DEVELOPMENT
     -----------
     
     The Company opened two internally-developed hotels on October 3,
     1998 and November 4, 1998.  These hotels include the Winston-
     Salem, North Carolina Courtyard by Marriott hotel and the
     Durham, North Carolina Homewood Suites hotel.  The addition of
     these two new hotels brings the Company's total portfolio to 51
     hotels.  The Company currently has three hotels in various
     stages of development.  If completed, all three development
     projects will represent a total investment of approximately $40
     million.
     
3.   PRO FORMA FINANCIAL INFORMATION
     -------------------------------
     
     These unaudited pro forma condensed statements of income of the
     Company are presented as if the September 1997 Preferred Stock
     offering had occurred January 1, 1997 and the Company had
     acquired all 49 of the hotels owned as of September 30, 1998 on
     the later of January 1, 1997, or the hotel opening date for the
     eight hotels which opened in the first nine months of 1998.
     These unaudited pro forma condensed statements of income are not
     necessarily indicative of what actual results of operations of
     the Company would have been assuming such transactions had been
     completed as of the dates described above, nor do they purport
     to represent the results of operations for future periods.  As
     discussed in Note 6, percentage lease revenue for the nine
     months ended September 30, 1998 has been calculated under a
     different method than percentage lease revenue for the nine
     months ended September 30, 1997, resulting in a significant
     reduction in the recognition of percentage lease revenue:
     
                                     Pro Forma for the
                                Nine Months Ended September 30,
                                ------------------------------
                                  (See Note 6)
                                     1998            1997
                                -------------    -------------
   Percentage lease and other
    revenue                     $      32,367    $      37,412
                                -------------    -------------
   Expenses:                                       
     Real estate taxes and 
      property and casualty 
      insurance                         3,841            2,999
     General and administrative         3,166            1,650
     Interest expense                   5,194            3,348
     Depreciation                      11,930            9,282
     Amortization                         260              157
                                -------------    -------------
      Total expense                    24,391           17,436
                                -------------    -------------
      Income before allocation to
        minority interest               7,976           19,976
                                -------------    -------------

     Income allocation to 
      minority interest                   269            1,698
     Preferred stock distribution       5,203            5,203
                                -------------    -------------
       Net income applicable to 
        common shareholders     $       2,504    $      13,075
                                -------------    -------------
                                                 
     Net income per common share$        0.15    $        0.82
                                =============    =============
     Net income per common share
      assuming dilution         $        0.15    $        0.82
                                =============    =============
    Weighted average number of 
     common shares                     16,280           15,923
                                =============    =============
    Weighted average number of
     common shares assuming 
     dilution                          18,050           17,974
                                =============    =============

4.   EARNINGS PER SHARE
     ------------------

     The Company adopted Statement of Financial Accounting Standards
     (SFAS) No. 128, "Earnings Per Share," on December 31, 1997.
     SFAS No. 128 requires the Company to change its method of
     computing, presenting and disclosing earnings per share
     information. All prior period data presented has been restated
     to conform to the provisions of SFAS No. 128.
     
     The following is a reconciliation of the net income applicable
     to common shareholders used in the net income per common share
     calculation to the income before allocation to minority interest
     used in the net income per common share - assuming dilution
     calculation.
     
                      (See Note 6)            (See Note 6)
                          Three       Three       Nine        Nine
                          Months      Months     Months      Months
                          Ended       Ended      Ended       Ended
                          Sept.       Sept.      Sept.       Sept.
                          30, 1998    30,1997    30, 1998    30, 1997
                          --------    -------    --------    --------
     Net income           $  7,646    $ 4,889    $  6,626    $ 12,622
     Less: preferred   
     stock distribution      1,735        366       5,203         366
                          --------    -------    --------    --------
   Net income applicable                                    
     to common   
     shareholders            5,911      4,523       1,423      12,256
   Plus: income                                             
     allocation to   
     minority interest         630        490         145       1,100
                          --------    -------    --------    --------
   Net income assuming 
    dilution              $  6,541    $ 5,013    $  1,568    $ 13,356
                          ========    =======    ========    ========

     The following is a reconciliation of the weighted average shares
     used in the calculation of net income per common share to the
     weighted average shares used in the calculation of net income
     per common share - assuming dilution.
     
                          Three       Three       Nine        Nine
                          Months      Months     Months      Months
                          Ended       Ended      Ended       Ended
                          Sept.       Sept.      Sept.       Sept.
                          30, 1998    30, 1997   30, 1998    30, 1997
                          --------    --------   --------    --------
   Weighted average                                         
     number of common     
     shares                16,314      16,129     16,280      15,923

     Units with       
     redemption rights      1,738       1,671      1,749       1,402
     Stock options              2          78         21          70
                          --------    --------   --------    --------
   Weighted average
     number of common                                       
     shares assuming      
     dilution              18,054      17,878     18,050      17,395
                          ========    ========   ========    ========


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

5.   DUE TO BANKS
     ------------

     On October 30, 1998, the Company signed a $45,000 revolving
     demand note.  This note bears interest at the prime rate and is
     collateralized by six of the Company's hotel properties.  The
     note matures at the earliest of (i) lender's written demand for
     repayment, (ii) any default under the note, (iii) the closing of
     any refinancing or the acceleration of indebtedness evidenced by
     the Company's Credit Agreement dated October 29,1996 or (iv) May
     1, 1999.  The note proceeds were used to repay outstanding
     balances under the five 90-day unsecured demand notes totaling
     $42,900, which the Company signed during the second quarter of
     1998.

     On November 3, 1998, the Company entered into a loan agreement
     totaling $71,000.  The loan bears interest at a fixed rate of
     7.375% and is collateralized by 14 of the Company's hotel
     properties. Principal and interest payments are due monthly
     based upon a 25-year amortization schedule.  The loan is
     anticipated to be repaid in full by December 1, 2008 ("the
     Anticipated Payment Date").  If the loan is not repaid by the
     Anticipated Payment Date, the outstanding principal balance of
     the loan shall bear interest at an annual rate equal to the
     greater of (i) 7.375% plus 3%, or (ii) the rate derived by
     calculating the yields on noncallable United States Treasury
     obligations with terms (one longer and one shorter) most nearly
     approximating the period from such date of determination to
     December 1, 2023, plus 3%.  Proceeds from this loan were used to
     repay a portion of the outstanding balances under the Company's
     $125,000 line of credit as well as a portion of outstanding
     balances under the $45,000 revolving demand note mentioned
     above.
     
6.   ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS:
     -----------------------------------------
     
     The Company adopted Statement of Financial Accounting Standards
     No. 130 "Reporting Comprehensive Income" ("SFAS 130") effective
     January 1, 1998.  SFAS 130 requires the Company to display an
     amount representing the total comprehensive income for the
     period in a financial statement which is displayed with the same
     prominence as other financial statements.  The Company does not
     have any items representing differences between net income and
     comprehensive income and therefore has not presented a Statement
     of Comprehensive Income in the accompanying financial
     statements.
     
     The Company will adopt Statement of Financial Accounting
     Standards No. 131 "Disclosure about Segments of an Enterprise
     and Related Information" ("SFAS 131") effective December 31,
     1998.  SFAS 131 requires the Company to report selected
     information about operating segments in its financial reports
     issued to shareholders.  It also establishes standards for
     related disclosures about products and services, geographic
     areas and major customers.  This statement is not expected to
     have a material impact on the Company's financial statements.
     
     On May 21, 1998, the Financial Accounting Standards Board's
     Emerging Issues Task Force issued EITF 98-9 "Accounting for
     Contingent Rent in Interim Financial Periods" ("EITF 98-9").
     EITF 98-9 addresses the recognition of rental revenue during
     interim periods derived from leases which provide for percentage
     rent and requires that a lessor defer recognition of contingent
     rental income in interim periods until specified targets are
     met.  The provisions of EITF 98-9 materially impact the
     Company's revenue recognition on an interim basis, but will have
     no impact on the Company's annual percentage lease revenue and
     annual earnings per share, interim and annual cash flow from its
     third party lessees, or the Company's ability to pay dividends.
     The Company has accounted for EITF 98-9 as a change in
     accounting principle effective January 1, 1998.
     
     Consistent with the provisions of EITF 98-9, the accompanying
     consolidated financial statements as of and for the three and
     nine months ended September 30, 1997 have not been restated,
     however, the following pro forma amounts reflect the effect on
     the prior periods as if EITF 98-9 had been in effect as of the
     beginning of these periods:


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

                                   Three Months               Nine Months
                                      Ended                      Ended
                                September 30, 1997        September 30, 1997
                                ------------------        ------------------  
     Total revenues                $     14,679              $     22,395
     Total expenses                       5,027                    13,508
                                ------------------        ------------------ 
        Income before
         allocation to 
         minority interest                9,652                     8,887
                                ------------------        ------------------
     Income allocation to  
      minority interest                     906                       716
                                ------------------        ------------------
         Net income                       8,746                     8,171
                                ------------------        ------------------
     Preferred stock distribution           366                       366
         Net income applicable 
          to common 
          shareholders             $       8,380             $      7,805
                                ==================        ==================
     Earnings per share:
        Net income per common
         share                     $        0.52             $       0.49
                                ==================        ==================
        Net income per common share 
         assuming dilution         $        0.52             $       0.49
                                ==================        ==================
        Weighted average number 
         of common shares                 16,129                   15,923
                                ==================        ==================
        Weighted average number 
         of common shares assuming 
         dilution                         17,878                   17,395
                                ==================        ==================



                   CAPSTAR WINSTON COMPANY, L.L.C.
                           BALANCE SHEETS
                          ($ in thousands)
                               
                                   ASSETS
                                           September 30, 1998  December 31, 1997
                                           ------------------  -----------------
Current assets:                               (unaudited)      
Cash and cash equivalents                    $      4,383       $        3,393
Accounts receivable                                 4,039                1,614
Due from Winston Hospitality, Inc.                     --                1,636
Due from CapStar Management Company, L.P.           6,377                  385
Deposits and other assets                             331                  197
                                           ------------------  -----------------
Total current assets                               15,130                7,225
                                                               
Furniture, fixtures and equipment, net of                       
 accumulated depreciation of $51 and $5               290                  241
Intangible assets, net of accumulated
 amortization of $781 and $93                      33,442               34,088
Deferred franchise costs, net of        
 accumulated amortization of $55 and $7               553                  601
                                           ------------------  -----------------
                                             $     49,415       $       42,155
                                           ==================  =================
                                  
                                  
                      LIABILITIES AND MEMBERS' CAPITAL
                                                               
Current liabilities:                                           
  Accounts payable                           $      1,700       $       1,459
  Accrued expenses                                  3,511               2,920
  Percentage lease payable                         10,474               5,682
  Advance deposits                                    225                 135
                                           ------------------  -----------------
      Total current liabilities                    15,910              10,196
                                                               
                                                               
Members' capital                                   33,505              31,959
                                           ------------------  -----------------
                                             $     49,415      $       42,155
                                           ==================  =================
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
    The accompanying notes are an integral part of the financial statements.




                   CAPSTAR WINSTON COMPANY, L.L.C.
                   UNAUDITED STATEMENTS OF INCOME
                           ($ in thousands)
                                  
                                          Three Months    Nine Months
                                             Ended           Ended
                                         September 30,    September 30,
                                              1998            1998
                                         -------------    -------------
Revenue:                                                  
  Rooms                                  $      32,244    $      85,083
  Food and beverage                              1,944            4,649
  Telephone and other operating 
   departments                                   1,464            4,121
                                         -------------    -------------
     Total revenue                              35,652           93,853
                                         -------------    -------------
                                                          
Operating costs and expenses:                             
  Rooms                                          7,168           18,655
  Food and beverage                              1,434            3,492
  Telephone and other operating                    684            1,898
   departments
Undistributed expenses:                                   
  Lease expense                                 15,268           40,133
  Administrative and general                     2,832            8,218
  Sales and marketing                            1,339            3,362
  Franchise fees                                 2,344            6,180
  Repairs and maintenance                        1,632            4,398
  Energy                                         1,597            3,706
  Other                                            469            1,483
  Depreciation and amortization                    263              782
                                         -------------    -------------
     Total expenses                             35,030           92,307
                                         -------------    -------------
                                                          
     Net income                               $    622     $      1,546
                                         =============    =============
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
    The accompanying notes are an integral part of the financial statements.
                                  
                   CAPSTAR WINSTON COMPANY, L.L.C.
                  UNAUDITED STATEMENT OF CASH FLOWS
                           ($ in thousands)
                                  
                                                     Nine Months
                                                        Ended
                                                  September 30, 1998
                                                  ------------------
Cash flows from operating activities:               
  Net income                                      $           1,546
  Adjustments to reconcile net income to net cash     
   provided by operating activities:
     Depreciation and amortization                              782
     Loss on sale of fixed assets                                 2
     Increase in accounts receivable and due from
      Winston Hospitality, Inc.                                (789)
     Increase in due from CapStar Management Company,
      L.P.                                                   (5,992)
     Increase in deposits and other assets                     (134)
     Increase in accounts payable and accrued expenses          832
     Increase in percentage lease payable                     4,792
     Increase in advance deposits                                90
                                                  ------------------
Net cash provided by operating activities                     1,129
                                                  ------------------
                                                    
Cash flows from investing activities:               
  Additions of furniture, fixtures and equipment               (112)
  Additions to intangible assets                                (42)
  Proceeds from sale of fixed assets                             15
                                                  ------------------
Net cash used in investing activities                          (139)
                                                  ------------------
                                                    
Net increase in cash and cash equivalents                       990
Cash and cash equivalents at beginning of period              3,393
                                                  ------------------
                                                    
Cash and cash equivalents at end of period        $           4,383
                                                  ------------------
                                                    
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
    The accompanying notes are an integral part of the financial statements.



                   CAPSTAR WINSTON COMPANY, L.L.C.
                    NOTES TO FINANCIAL STATEMENTS
                                  
                                  
The accompanying unaudited financial statements are prepared by and
are the sole responsibility of CapStar Winston Company, L.L.C.
CapStar Winston Company, L.L.C. leased 47 of the Company's 49 hotels
as of September 30, 1998 and other than this lessee relationship, is
not affiliated with the Company.  These financial statements reflect,
in the opinion of CapStar Winston Company L.L.C. management, all
adjustments necessary for a fair presentation of the interim
financial statements.  All such adjustments are of a normal and
recurring nature.

During November 1997, CapStar Management Company ("CMC") and CapStar
Hotel Company purchased substantially all of the assets and assumed
certain liabilities of Winston Hospitality, Inc., including 38 hotel
leases, certain operating assets and liabilities, goodwill and other
intangible assets.  Concurrent with the purchase, CMC
contributed/assigned the assets purchased and liabilities assumed in
the transaction to CapStar Winston Company, L.L.C.

On August 1, 1998, CapStar Hotel Company and American General
Hospitality Corporation merged to form MeriStar Hospitality
Corporation and MeriStar Hotels & Resorts, Inc.  As a result of the
merger, MeriStar Hospitality Operating Partnership, L.P. replaced
CapStar Management Company L.P. as the 99% member of CapStar Winston
Company, L.L.C.


                      WINSTON HOSPITALITY, INC.
                   UNAUDITED STATEMENTS OF INCOME
                           ($ in thousands)
                                  
                               Three Months    Nine Months
                                  Ended           Ended
                                September       September
                                30, 1997        30, 1997
                               ------------    -----------
Revenue:                                       
  Rooms                        $     22,098    $    58,911
  Food and beverage                     700          2,088
  Telephone and other operating
   departments                        1,043          2,809
                               ------------    -----------
     Total revenue                   23,841         63,808
                               ------------    -----------
                                               
Operating costs and expenses:                  
  Rooms                               4,574         12,100
  Food and beverage                     507          1,455
  Telephone and other operating
   departments                          461          1,419
Undistributed expenses:                        
  Lease                              10,328         27,098
  Administrative and general          2,731          7,334
  Sales and marketing                   781          2,198
  Franchise fees                      1,592          4,171
  Repairs and maintenance             1,044          2,969
  Energy                                957          2,376
  Other                                 341          1,127
  Depreciation and amortization           7             61
                               ------------    -----------
    Total expenses                   23,323         62,308
                               ------------    -----------
    Net income                     $    518    $     1,500
                               ============    ===========


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


                      WINSTON HOSPITALITY, INC.
                  UNAUDITED STATEMENT OF CASH FLOWS
                           ($ in thousands)


                                          Nine Months
                                             Ended
                                       September 30, 1997
                                       ------------------
Cash flows from operating activities:
   Net income                          $           1,500
   Adjustments to reconcile net income
    to net cash provided by operating
    activities:
      Depreciation                                    61
   Changes in assets and liabilities:      
      Accounts receivable - trade                   (981)
      Prepaid expenses and other assets              (54)
      Accounts payable - trade                       158
      Percentage lease payable to Lessor           2,985
      Accrued expenses and other
       liabilities                                   577
                                       ------------------
            Net cash provided by
             operating activities                  4,246
                                       ------------------
                                          
Cash flows from investing activites:
   Purchase of furniture, fixtures 
    and equipment                                    (72)
   Advances to lessor, affiliates 
    and shareholders                                 683
       Net cash used in
        investing activities                         611
                                       ------------------

Cash flows from financing activities: 
   Distributions                                    (600)
  
Net increase in cash and cash equivalents          4,257
Cash and cash equivalents at beginning 
 of period                                         5,463

Cash and cash equivalents at end of 
 period                                $           9,720
                                       ==================




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


                      WINSTON HOSPITALITY, INC.
                    NOTES TO FINANCIAL STATEMENTS


The accompanying unaudited 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.

During November 1997, CapStar Management Company ("CMC") and CapStar
Hotel Company purchased substantially all of the assets and assumed
certain liabilities of Winston Hospitality, Inc., including 38 hotel
leases, certain operating assets and liabilities, and goodwill and
other intangible assets.  Concurrent with the purchase, CMC
contributed/assigned the assets purchased and liabilities assumed in
the transaction to CapStar Winston Company, L.L.C.

Certain reclassifications have been made to the 1997 financial
statements to conform with the 1998 presentation as shown in the
CapStar Winston Company, L.L.C. financial statements.  These
reclassifications have no effect on net income or shareholders'
equity previously reported.



ITEM 2 -  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS
          ($ AMOUNTS IN THOUSANDS)

OVERVIEW

Winston Hotels, Inc. (the "Company"), which consummated an
underwritten initial public offering ("IPO") in June 1994, follow-on
Common Stock offerings in May 1995 and in June 1996, and a Preferred
Stock offering in September 1997, operates as a real estate
investment trust ("REIT") to invest in hotel properties.  The Company
owned 49 hotels (the "Current Hotels") as of September 30, 1998.  The
Company owned 16 hotels as of December 31, 1994 (the "1994 Hotels"),
purchased five hotels in 1995 (the "1995 Acquired Hotels"), acquired
10 hotels in 1996 (the "1996 Acquired Hotels"), acquired seven hotels
in 1997 (the "1997 Acquired Hotels") and acquired eight hotels and
opened three internally developed hotels in the first nine months of
1998 (the "1998 Hotels"). It currently leases 47 of the total 49
Current Hotels to CapStar Winston Company, L.L.C. (the "Lessee"), one
of the Current Hotels to Bristol Hotel Company and one of the Current
Hotels to Prime Hospitality Corporation pursuant to leases that
provide for rent payments based, in part, on revenues from the
Current Hotels (the "Percentage Leases").


RESULTS OF OPERATIONS

The table below outlines the Company's investment in hotel properties
for the nine months ended September 30, 1998 and 1997.

                  Nine Months           Nine Months
                     Ended                 Ended
               September 30, 1998     September 30, 1997
               --------------------   --------------------
               Additions Properties   Additions Properties
                during     owned       during     owned
                 the        at          the         at
                period  September 30   period   September 30
               -------  ------------   -------  ------------
 Type of Hotel
 -------------
 Limited-service
  service hotels   1          36          6         34
 Extended-stay
  hotels           5           7          -          2
 Full-service
  hotels           5           6          -          1
                  --          --         --         --
  Total           11          49          6         37
                  ==          ==         ==         ==

In order to present a more meaningful comparison of operations, in
addition to the comparison of actual results of the Company and the
Lessee for the three and nine months ended September 30, 1998 versus
actual results for the three and nine months ended September 30,
1997, the Company has also provided an analysis of the pro forma
results of the Company for the three and nine months ended September
30, 1998 versus pro forma results for the three and nine months ended
September 30, 1997.  These pro forma results are shown as if the 1997
Preferred Stock offering and the 1997 and 1998 acquisitions had
occurred on the later of January 1, 1997, or the hotel opening date
for the five acquired and three internally-developed hotels which
opened in the first nine months of 1998.

On May 21, 1998, the Financial Accounting Standards Board's Emerging
Issues Task Force issued EITF 98-9 "Accounting for Contingent Rent in
Interim Financial Periods" ("EITF 98-9").  EITF 98-9 addresses the
recognition of rental revenue during interim periods derived from
leases which provide for percentage rent and requires that a lessor
defer recognition of contingent rental income in interim periods
until specified targets are met.  The provisions of EITF 98-9
materially impact the Company's revenue recognition on an interim
basis, but will have no impact on the Company's annual percentage
lease revenue and annual earnings per share, interim and annual cash
flow from its third party lessees or the Company's ability to pay
dividends.  The Company has accounted for EITF 98-9 as a change in
accounting principle effective January 1, 1998, resulting in a
deferred revenue balance of $10,661 as of September 30, 1998, as
shown on the accompanying Consolidated Balance Sheets.  This deferred
revenue balance is expected to be recognized in the fourth quarter of
1998.  The actual and pro forma operating results for the three and
nine months ended September 30, 1997 have not been restated according
to the provisions of EITF 98-9.  Accordingly, the operating results
for the three and nine months ended September 30, 1998 and the three
and nine months ended September 30, 1997 included in the accompanying
discussion are not comparable as the results for the periods have
been accounted for under different revenue recognition methods.

The Company's percentage leases provide for the greater of (i) annual
fixed base rent or (ii) rent based on the revenue of hotels
("Percentage Rent") to be remitted to the Company annually.  The
leases contain annual room revenue thresholds used to calculate two
tiers of Percentage Rent.  These annual thresholds have been
allocated equally to each quarter, subject to consumer price index
adjustments, to determine the quarterly lessee Percentage Rent
payments.  The provisions of EITF 98-9 call for straight-line
recognition of the annual base rent throughout the year and for the
deferral of any additional lease amounts collected or due from the
lessees until such amounts exceed the annual fixed base rent.  This
will generally result in base rent being recognized in the first and
second quarters and Percentage Rents, if any, collected or due from
the lessees during the first and second quarters being deferred and
then recognized in the third and fourth quarters due to the structure
of the Company's percentage leases and the seasonality of the hotel
operations.  Prior to the adoption of EITF 98-9, the Company recorded
lease revenue in interim periods on the basis used to determine
quarterly lessee Percentage Rent payments, resulting in the second
and third quarters being the strongest quarters.

At September 30, 1998, deferred revenue of $10,661 represents
Percentage Rent collected or due from lessees under the terms of the
leases in excess of three-quarters of base rent but less than the
annual fixed base rent, which the Company expects to recognize as
lease revenue in the fourth quarter of 1998.  The Company's quarterly
distributions are based on Percentage Rents collected as opposed to
percentage lease revenue recognized.

THE COMPANY

ACTUAL - THREE MONTHS ENDED SEPTEMBER 30, 1998 VS ACTUAL - THREE
----------------------------------------------------------------
MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------

The Company had revenues of $18,480 in 1998, consisting of $18,404 of
Percentage Lease revenues and $76 of interest and other income.
Percentage Lease revenues increased by $8,076 to $18,404 in 1998 from
$10,328 in 1997.  This increase was comprised of an increase in
Percentage Lease revenue of (i) $4,081 due to the 1998 Hotels, (ii)
$613 due to the 1997 Hotels, (iii) $1,207 due to the hotels acquired
prior to 1997, and (iv) recognition of deferred revenue of $2,175 due
to the change in accounting principle regarding revenue recognition
under EITF 98-9 for the quarter ended September 30, 1998.

Real estate taxes and property insurance costs incurred in 1998 were
$1,343, an increase of $673 from $670 in 1997.  This increase was
primarily attributable to the 1997 Acquired Hotels and the 1998
Hotels that were not owned in the third quarter of 1997, as well as
increased property tax assessments and tax rates from 1997 to 1998.
General and administrative expenses increased $672 to $1,395 in 1998
from $723 in 1997. The increase was attributable to the increase in
size and activities of the Company in 1998.  Interest expense
increased by $1,884 to $2,861 in 1998 from $977 in 1997.  This
increase was primarily attributable to an increase of $103,327 in the
weighted-average outstanding debt balance from $58,442 in 1997 to
$161,769 in 1998.  Interest rates remained constant between the two
quarters.  Depreciation expense increased $1,914 to $4,526 in 1998 from
$2,612 in 1997, primarily due to depreciation related to the 1997
Acquired Hotels, the 1998 Hotels and renovations completed during
1997 and 1998.

PRO FORMA - THREE MONTHS ENDED SEPTEMBER 30, 1998 VS PRO FORMA -
----------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------

The Company had revenues of $18,938 for the three months ended
September 30, 1998, consisting of $18,862 of Percentage Lease
revenues and $76 of interest and other income.  Percentage Lease
revenues increased by $5,671 to $18,862 in 1998 from $13,191 in 1997.
This increase was primarily due to recognition of deferred revenue of
$2,491 due to the change in accounting principle regarding revenue
recognition under EITF 98-9, an increase of $3,018 attributable to
the opening of eight hotels in 1998, and an increase of $162
primarily due to higher room rates in 1998 than 1997.

Real estate taxes and property insurance costs incurred in 1998 were
$1,343, an increase of $355 from $988 in 1997.  The increase was due
primarily to increased property tax assessments and tax rates from
1997 to 1998 as well as additional taxes and insurance costs incurred
due to the opening of eight hotels in 1998.  General and
administrative expenses increased $654 to $1,394 in 1998 from $740 in
1997.  The increase was primarily attributable to the increase in
size and activities of the Company from 1997 to 1998.  Interest
expense increased $1,746 to $2,861 in 1998 from $1,115 in 1997.  The
increase was attributable to $1,796 of additional interest expense
related primarily to borrowings under the line of credit to fund
acquisitions of the five new hotels which opened in 1998 as well as
the development of three additional hotels which opened in 1998.
This increase was offset by a reduction in line of credit fees
totaling $50.  Depreciation expense increased $1,347 to $4,525 in 1998 from
$3,178 in 1997 primarily due to the opening of eight hotels in 1998
and renovations and other capital expenditures during 1997 and 1998.

ACTUAL - NINE MONTHS ENDED SEPTEMBER 30, 1998 VS ACTUAL - NINE
--------------------------------------------------------------
MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------

The Company had revenues of $30,830 in 1998, consisting of $30,640 of
Percentage Lease revenues and $190 of interest and other income.
Percentage Lease revenues increased by $3,542 to $30,640 in 1998 from
$27,098 in 1997.  This increase was comprised of an increase in
percentage lease revenue of (i) $7,632 due to the 1998 Hotels, (ii)
$5,164 due to the 1997 Hotels, and (iii) $1,407 due to the hotels
acquired prior to 1997, offset by deferred revenue of $10,661 due to
the change in accounting principle regarding revenue recognition
under EITF 98-9 for the first nine months of 1998.

Real estate taxes and property insurance costs incurred in 1998 were
$3,605, an increase of $1,779 from $1,826 in 1997.  This increase was
primarily attributable to the 1997 Acquired Hotels and 1998 Hotels
that were not owned during the first nine months of 1997, as well as
increased property tax assessments and tax rates from 1997 to 1998.
General and administrative expenses increased $1,573 to $3,158 in
1998 from $1,585 in 1997. The increase was attributable to the
increase in size and activities of the Company in 1998.  Interest
expense increased by $2,652 to $5,440 in 1998 from $2,788 in 1997.
This increase was primarily attributable to an increase of $60,412 in
the weighted average outstanding debt balance from $53,642 in 1997 to
$114,054 in 1998, offset by an increase in capitalized interest costs
related to development and renovation projects.  Interest rates
remained constant between the two periods.  Depreciation expense increased
$4,418 to $11,600 in 1998 from $7,182 in 1997, primarily due to
depreciation related to the 1997 Acquired Hotels, the 1998 Hotels and
renovations completed during 1997 and 1998.

PRO FORMA - NINE MONTHS ENDED SEPTEMBER 30, 1998 VS PRO FORMA - NINE
--------------------------------------------------------------------
MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------

The Company had revenues of $32,367 for the nine months ended
September 30, 1998, consisting of $32,177 of Percentage Lease
revenues and $190 of interest and other income.  Percentage Lease
revenues decreased by $5,008 to $32,177 in 1998 from $37,185 in 1997.
Of this decrease, $10,869 was due to the change in accounting
principle regarding revenue recognition under EITF 98-9.  This
decrease was offset in part by an increase of  $4,680 attributable to
the opening of eight hotels in 1998, as well as an increase of $1,181
primarily due to higher room rates in 1998 than 1997.

Real estate taxes and property insurance costs incurred in 1998 were
$3,841, an increase of $842 from $2,999 in 1997.  The increase was
due primarily to increased property tax assessments and tax rates
from 1997 to 1998 as well as additional taxes and insurance costs
incurred due to the opening of eight hotels in 1998.  General and
administrative expenses increased $1,516 to $3,166 in 1998 from
$1,650 in 1997.  The increase was primarily attributable to the
increase in size and activities of the Company from 1997 to 1998.
Interest expense increased by $1,846 to $5,194 in 1998 from $3,348 in
1997.  The increase was attributable to $2,518 of additional interest
expense related primarily to borrowings under the line of credit to
fund acquisitions of the five new hotels which opened in 1998 as well
as the development of three additional hotels which opened in 1998.
This increase was offset by both the increase in capitalization of
additional interest costs, totaling $586, in connection with the
development and certain renovation projects during the respective
periods, as well as a reduction in line of credit fees totaling $86.
Depreciation expense increased $2,648 to $11,930 in 1998 from $9,282 in 1997
primarily due to the opening of eight hotels in 1998 and renovations
and other capital expenditures during 1997 and 1998.

THE LESSEE

During November 1997, CapStar Management Company ("CMC") and CapStar
Hotel Company purchased substantially all of the assets and assumed
certain liabilities of Winston Hospitality, Inc., including 38 hotel
leases, certain operating assets and liabilities, and goodwill and
other intangible assets.  Concurrent with the purchase, CMC
contributed/assigned the assets purchased and liabilities assumed in
the transaction to CapStar Winston Company, L.L.C. (the "Lessee").

Since the Lessee was not operating prior to the November 1997 Winston
Hospitality, Inc. purchase transaction, no comparative data is
available for the period January 1, 1997 through September 30, 1997.
However, for purposes of this management's discussion and analysis,
the financial information of the Lessee for the three and nine months
ended September 30, 1998 will be compared with the financial
information of Winston Hospitality, Inc. for the three and nine
months ended September 30, 1997.  The Winston Hospitality, Inc.
financial information for the three and nine months ended September
30, 1997 contained in the tables below has been reclassified and
grouped according to the Lessee format in order to facilitate a
comparison of the data.


ACTUAL - THREE MONTHS ENDED SEPTEMBER 30, 1998 VS ACTUAL - THREE
----------------------------------------------------------------
MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------

The following table sets forth certain historical financial
information for the Current Hotels for the periods indicated:

                              Three Months         Three Months
                                 Ended                Ended
                           September 30, 1998   September 30, 1997
                           ------------------   ------------------
Revenue:                                                  
  Rooms                     $ 32,244   90.4%    $ 22,098   92.7%
  Food and beverage            1,944    5.5%         700    2.9%
  Telephone and other
   operating departments       1,464    4.1%       1,043    4.4%
                           ------------------   ------------------

     Total revenue            35,652  100.0%      23,841  100.0%
                           ------------------   ------------------
                                     
Operating costs and expenses:
  Rooms                        7,168   20.1%       4,574   19.2%
  Food and beverage            1,434    4.0%         507    2.1%
  Telephone and other                 
   operating departments         684    1.9%         461    1.9%
Undistributed expenses:                                   
  Lease                       15,268   42.8%      10,328   43.3%
  Administrative and general   2,832    7.9%       2,731   11.5%
  Sales and marketing          1,339    3.8%         781    3.3%
  Franchise fees               2,344    6.6%       1,592    6.7%
  Repairs and maintenance      1,632    4.6%       1,044    4.4%
  Energy                       1,597    4.5%         957    4.0%
  Other                          469    1.3%         341    1.4%
  Depreciation and amortization  263    0.8%           7      -
                           ------------------   ------------------
     Total expenses           35,030   98.3%      23,323   97.8%
                           ------------------   ------------------
     Net income             $    622    1.7%    $    518    2.2%
                           ==================   ==================
                               
The Lessee had room revenues of $32,244 in 1998, an increase of
$10,146 from $22,098 for Winston Hospitality, Inc. in 1997. The
increase was comprised of an increase of (i) $6,634 for the 1998
Hotels, (ii) $3,323 for the 1997 Acquired Hotels, and (iii) $189 for
the 1996 Acquired Hotels, the 1995 Acquired Hotels and the 1994
Hotels.  Food and beverage revenue increased $1,244, to $1,944 in
1998 from $700 for Winston Hospitality, Inc. in 1997, primarily due
to the 1998 Hotels and the 1997 Acquired Hotels.  Telephone and other
operating departments revenue increased $421 to $1,464 in 1998 from
$1,043 for Winston Hospitality, Inc. in 1997, primarily due to an
increase in revenue associated with long distance phone calls and in-
room movies.

The Lessee had total expenses in 1998 of $35,030, an increase of
$11,707 from $23,323 for Winston Hospitality, Inc. in 1997.  The
increase in all expense categories except depreciation and
amortization expense was primarily attributable to the operation of a
greater number of hotels for the three months ended September 30,
1998 as compared with the same period of 1997.  Although
administrative and general expenses increased in 1998 from 1997,
these expenses decreased as a percentage of total revenue from 1997
to 1998 as a result of efficiencies developed within the management
company, decreasing the incremental cost per hotel.  Depreciation and
amortization expense increased due to amortization related to
goodwill and other intangible assets arising out of the purchase of
Winston Hospitality, Inc. by CMC and CapStar Hotel Company.

Net income increased $104 to $622 for 1998 from $518 for 1997.  The
35 hotels operating prior to September 30, 1997 generated income,
excluding amortization of goodwill of $248 not present in 1997,
totaling $756 for the third quarter, a 4.6% increase from the prior
year.  The five hotels acquired by the Company subsequent to
September 30, 1997 generated income of $204 for the third quarter of
1998.  Seven new hotels opened during the first and second quarters
of 1998.  These development hotels endured losses during their first
few months of operation.  These losses totaled $90 for the third
quarter of 1998.  These properties are gaining exposure in their
respective markets and are expected to add to the Lessee's net income
in the near future.



ACTUAL - NINE MONTHS ENDED SEPTEMBER 30, 1998 VS ACTUAL - NINE
--------------------------------------------------------------
MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------

The following table sets forth certain historical financial
information for the Current Hotels for the periods indicated:

                              Nine Months          Nine Months
                                 Ended                Ended
                           September 30, 1998   September 30, 1997
                           ------------------   ------------------
Revenue:                                                  
  Rooms                     $ 85,083   90.7%    $ 58,911   92.3%
  Food and beverage            4,649    4.9%       2,088    3.3%
  Telephone and other
   operating departments       4,121    4.4%       2,809    4.4
                           ------------------   ------------------
   Total revenue              93,853  100.0%      63,808  100.0%
                           ------------------   ------------------
                                   
                                                          
Operating costs and expenses:
  Rooms                       18,655   19.9%      12,100   19.0%
  Food and beverage            3,492    3.7%       1,455    2.3%
  Telephone and other                         
   operating departments       1,898    2.0%       1,419    2.2%
Undistributed expenses:                                   
  Lease                       40,133   42.8%      27,098   42.5%
  Administrative and general   8,218    8.8%       7,334   11.5%
  Sales and marketing          3,362    3.6%       2,198    3.4%
  Franchise fees               6,180    6.6%       4,171    6.5%
  Repairs and maintenance      4,398    4.7%       2,969    4.7%
  Energy                       3,706    3.9%       2,376    3.7%
  Other                        1,483    1.6%       1,127    1.8%
  Depreciation and amortization  782    0.8%          61    0.1%
                           ------------------   ------------------
     Total expenses           92,307   98.4%      62,308   97.7%
                           ------------------   ------------------
     Net income             $  1,546    1.6%    $  1,500    2.3%
                           ==================   ==================

The Lessee had room revenues of $85,083 in 1998, an increase of
$26,172 from $58,911 for Winston Hospitality, Inc. in 1997.  The
increase was comprised of an increase of (i) $11,728 for the 1998
Hotels (ii) $13,481 for the 1997 Acquired Hotels, and (iii) $963 for
the 1996 Acquired Hotels, the 1995 Acquired Hotels and the 1994
Hotels.  Food and beverage revenue increased $2,561, to $4,649 in
1998 from $2,088 for Winston Hospitality, Inc. in 1997, primarily due
to the 1998 Hotels and the 1997 Acquired Hotels.  Telephone and other
operating departments revenue increased $1,312 to $4,121 in 1998 from
$2,809 for Winston Hospitality, Inc. in 1997, primarily due to an
increase in revenue associated with long distance phone calls and in-
room movies.

The Lessee had total expenses in 1998 of $92,307, an increase of
$29,999 from $62,308 for Winston Hospitality, Inc. in 1997.  The
increase in all expense categories except depreciation and
amortization expense was primarily attributable to the operation of a
greater number of hotels for the nine months ended September 30, 1998
as compared with the same period of 1997.  Although administrative
and general expenses increased in 1998 from 1997, these expenses
decreased as a percentage of total revenue from 1997 to 1998 as a
result of efficiencies developed within the management company,
decreasing the incremental cost per hotel.  Depreciation and
amortization expense increased due to amortization related to
goodwill and other intangible assets arising out of the purchase of
Winston Hospitality, Inc. by CMC and CapStar Hotel Company.

Net income increased $46 to $1,546 for 1998 from $1,500 for 1997.
The 35 hotels operating prior to September 30, 1997 generated income,
excluding amortization of goodwill of $736 not present in 1997,
totaling $2,469 for the nine months ended September 30, 1998, a 64.6%
increase from the prior year.  The five hotels acquired by the
Company subsequent to September 30, 1997 generated income of $819 for
the nine months ended September 30, 1998.  Seven new development
hotels opened during the first and second quarters of 1998.  These
new hotels endured losses during their first few months of operation.
These losses totaled $1,006 for the nine months ended September 30,
1998.  These properties are gaining exposure in their respective
markets and are expected to add to the Lessee's net income in the
near future.

LIQUIDITY AND CAPITAL RESOURCES

The Company finances its operations from operating cash flow, which
is principally derived from Percentage Leases. For the nine months
ended September 30, 1998, cash flow provided by operating activities
was $25,121.  Funds from operations, as defined below, was
$8,892 for the quarter ended September 30, 1998 and $23,829 for the
nine months ended September 30, 1998.  Under Federal income tax law
provisions applicable to REITs, the Company is required to distribute
at least 95% of its taxable income to maintain its tax status as a
REIT.  For the nine months ended September 30, 1998, the Company
declared distributions of $18,415 to its shareholders.  Because the
Company's annual cash flow from operating activities is expected to
exceed its annual taxable income due to depreciation and amortization
expenses, the Company expects to be able to meet its distribution
requirements out of cash flow from operating activities.

The Company's net cash used in investing activities for the nine
months ended September 30, 1998 totaled $124,858.  This use of cash
was primarily for investments in hotel properties including $93,863
related to the acquisition of eight of the 1998 Hotels, $8,618
related to the development of three of the 1998 Hotels, $10,126 for
hotel renovations and $12,007 for the development of five additional
hotels, two of which opened by November 4, 1998 (see Note 2).  If the
remaining three development projects are completed, the expected
additional costs are approximately $40,000.  The Company also
purchased corporate assets totaling $253 during the period.

The Company plans to spend approximately $3,227 to renovate certain
of its Current Hotels during the next twelve months.  These
expenditures are in addition to the reserve of 5% of room revenues
for its limited-service hotels and 7% of room revenues and food and
beverage revenues for its full-service hotels which the Company is
required to set aside under its Percentage Leases for periodic
capital improvements and the refurbishment and replacement of
furniture, fixtures and equipment at its Current Hotels.  In the nine
months ended September 30, 1998, the Company set aside $4,556 for
such reserves.  These reserves are in addition to amounts spent on
normal repairs and maintenance which have approximated 5.2% and 5.0%
of room revenues for the nine months ended September 30, 1998 and
1997, respectively, and are paid by the Lessee.

The Company's net cash provided by financing activities during the
nine months ended September 30, 1998 totaled $99,709 including an
increase of $76,895 in the line of credit borrowings, an increase of
$42,900 in demand note borrowings and $588 of net proceeds from the
issuance of common stock related to the exercise of stock options.
These cash receipts were offset by the payment of distributions to
shareholders of $18,756 and the payment of distributions to minority
interest holders of $1,408.  The Company also paid $510 in connection
with obtaining the $71,000 long-term fixed-rate loan explained below.

The Company's outstanding bank debt balance as of September 30, 1998
was $163,876.  This amount consisted of $120,976 outstanding under
its $125,000 line of credit as well as $42,900 outstanding under five
90-day demand notes. On October 30, 1998, the Company signed a
$45,000 revolving demand note, which is collateralized by six of the
Company's hotel properties.  The note proceeds were used to repay
outstanding balances under the five 90-day unsecured demand notes
totaling $42,900, which the Company signed during the second quarter
of 1998. On November 3, 1998, the Company entered into a loan
agreement totaling $71,000, which is collateralized by 14 of the
Company's hotel properties.  The loan bears interest at a fixed rate
of 7.375%.  Approximately $55,000 of the net proceeds was used to
repay a portion of the outstanding balances under the Company's
$125,000 line of credit and approximately $12,000 of the net proceeds
was used to repay a portion of the outstanding balances under the
$45,000 revolving demand note (see Note 5 in the accompanying Notes
to Consolidated Financial Statements).  The Company is currently in
negotiations to refinance its $125 million line of credit.  The
Company anticipates finalizing these negotiations by the end of the
current fiscal year, however, there can be no assurances that the
Company will be successful in these efforts.

As of September 30, 1998, the Company has collateralized $120,884 of
its $125,000 line of credit with 28 of its Current Hotels.  This
amount is calculated quarterly, and increases if cash flow
attributable to the collateral hotels increases and/or the Company
adds additional hotels as collateral.  The total additional, non-
collateralized line availability accessible to the Company as of
September 30, 1998 was $4,116.  The Company's Articles of
Incorporation limit its total amount of indebtedness to 45% of the
purchase prices paid by the Company for its investments in hotel
properties, as defined.  As of September 30, 1998, the Company had
additional borrowing capacity under the debt limitation of
approximately $56,550 assuming it invests all borrowings in
additional hotels.

The Company is continually evaluating its hotel portfolio and
acquisition opportunities and intends to acquire and develop
additional hotel properties  that meet its investment criteria.  As
part of this analysis, the Company is also considering selling
certain assets as attractive opportunities present themselves.  It is
expected that future hotel acquisitions will be financed, in whole or
in part, from additional follow-on offerings, borrowings under the
line of credit or additional demand notes, joint venture agreements,
proceeds from the disposition of hotels and/or the issuance of other
debt or equity securities.  There can be no assurances that the
Company will acquire any additional hotels, 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 REVPAR during the second and third quarters.  This
seasonality, the structure of the Percentage Leases, which provide
for a higher percentage of room revenues above the minimum equal
quarterly levels to be paid as Percentage Rent, as well as the
recognition of Percentage Lease revenue under the provisions of EITF
98-9 can be expected to cause significant fluctuations in the
Company's quarterly lease revenue under the Percentage Leases.

FUNDS FROM OPERATIONS

The Company considers Funds From Operations ("FFO") a widely used and
appropriate measure of performance for an equity REIT.  FFO, as
defined by the National Association of Real Estate Investment Trusts
("NAREIT"), is income (loss) before minority interest (determined in
accordance with generally accepted accounting principles), excluding
gains (losses) from debt restructuring and sales of property, plus
real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures.  FFO
is presented to assist investors in analyzing the performance of the
Company.  The Company's method of calculating FFO may be different
from methods used by other REITs and, accordingly, may not be
comparable to such other REITs.  The formulation of FFO below is
consistent with the NAREIT White Paper definition of FFO with the
exception that deferred revenue has been included as a component of
the calculation.  FFO (i) does not represent cash flows from
operating activities as defined by generally accepted accounting
principles, (ii) is not indicative of cash available to fund all cash
flow and liquidity needs, including the Company's ability to make
distributions, and (iii) should not be considered as an alternative
to net income (as determined in accordance with generally accepted
accounting principles) for purposes of evaluating the Company's
operating performance.

The following presents the Company's calculation of FFO and FFO per
share (in thousands, except per share data):

                          Three Months Ended     Nine Months Ended
                            September 30,          September 30,
                          ------------------     -----------------
                           1998       1997        1998       1997
                           ----       ----        ----       ----
Net income before                                           
 allocation to minority   
 interest                 $ 8,276    $ 5,379      $ 6,771  $ 13,722
Plus: depreciation          4,526      2,612       11,600     7,182
Less: preferred stock
 dividends                  1,735        366        5,203       366
Change in deferred
 revenue                   (2,175)         -       10,661         -
                          --------   --------     -------- ---------

FFO                       $ 8,892    $ 7,625      $23,829  $ 20,538
                          ========   ========     ======== =========

Weighted average number                                     
 of common shares
 assuming dilution         18,054     17,878       18,050    17,395
                          --------   --------     -------- ---------
                                                          
FFO per share             $  0.49    $  0.43      $  1.32  $   1.18
                          ========   ========     ======== =========



YEAR 2000 MANAGEMENT

The "Year 2000 Issue" is the result of computer programs that were
written using two digits rather than four to define the applicable
year.  If the computer programs, with date-sensitive functions, of
the Company or one of its service providers, contractors, or
suppliers, are not Year 2000 compliant, they may recognize a date
using "00" as the Year 1900 rather than the Year 2000.  This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to
process transactions, receive lease payments or engage in similar
normal business activities.

The Company has identified its Year 2000 risk in three categories:
internal software and imbedded chip technology, external
noncompliance by service providers, contractors and suppliers, and
external noncompliance by franchisors and lessees.

Internal Software and Imbedded Chip Technology
----------------------------------------------
The Company will begin its data gathering and testing phase with
regard to internal software and imbedded chip technology during the
fourth quarter of 1998, with the assistance of its systems
integration consultants.  Virtually all of the Company's internal
software are current versions of off-the-shelf, name-brand software.
The Company's hardware systems, which includes computer hardware, a
phone system, copiers and facsimile machines, also contain imbedded
chip technology which could pose a risk of noncompliance.  Because
the majority of this hardware has been installed in the last twelve
months, the cost of achieving Year 2000 compliance is not expected to
be material.  If any of the Company's current software or hardware is
not Year 2000 compliant and is not repairable, the Company plans to
replace the respective software or hardware with readily available
Year 2000 compliant software or hardware.  Full compliance is
expected by the third quarter of 1999.

External Noncompliance by Service Providers, Contractors and
------------------------------------------------------------
Suppliers
---------
The Company is in the process of identifying and contacting its
significant service providers, contractors and suppliers to determine
the extent to which the Company is vulnerable to those third parties'
failure to remedy their own Year 2000 issues.  It is expected that
identification of any Year 2000 exposure with these parties will be
completed by April 30, 1999.  To the extent that responses to Year
2000 readiness are unsatisfactory, the Company will attempt to change
significant service providers, contractors or suppliers to those who
have demonstrated Year 2000 readiness but cannot be assured that it
will be successful in finding such alternative service providers,
contractors or suppliers.  The Company does not currently have any
formal information concerning the Year 2000 compliance status of its
significant service providers, contractors or suppliers, but has
received indications that most are working on Year 2000 compliance.
In the event that any of the Company's significant service providers,
contractors or suppliers do not successfully and timely achieve Year
2000 compliance, and the Company is unable to replace them with
alternate service providers, contractors or suppliers, the Company's
business or operations could be materially and adversely affected.

External Noncompliance by Franchisors and Lessees
-------------------------------------------------
The Company has significant relationships with certain nationally
recognized hotel franchisors and lessees.  These franchisors have
national reservation systems on which the Company relies to receive a
significant portion of its Percentage Lease revenue.  The Company is
in the process of contacting its franchisors and lessees to identify
the extent to which the Company is vulnerable to those third parties'
failure to remedy their own Year 2000 issues.  The Company does not
currently have any formal information concerning the Year 2000
compliance status of these franchisors and lessees, but has received
indications that most are working on Year 2000 compliance.  In the
event that any of these franchisors and lessees do not successfully
and timely achieve Year 2000 compliance, the Company's business or
operations could be materially and adversely affected.

FORWARE LOOKING STATEMENTS

This report, including Management's Discussion and Analysis of
Financial Condition and Results of Operations, contains certain
"forward looking" statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, including, but not
limited to, those paragraphs relating to development and acquisition
of hotels in this section.  These statements represent the Company's
judgment concerning the future and are subject to risks and
uncertainties that could cause actual operating results and financial
condition to differ materially from those expressed or implied in the
forward looking statements.  Such forward looking statements can be
identified by the use of forward looking terminology such as "may,"
"will," "expect," "anticipate," "estimate," "believe," or "continue"
or the negative thereof, or other variations thereof or comparable
terminology.  Important factors that could cause actual results to
differ include, but are not limited to the following: (i) risk
associated with the Company's acquisition of hotels with little or no
operating history, including the risk that such hotels will not
achieve the level of revenue assumed by the Company in calculating
the respective Percentage Rent formula; (ii) development risk,
including risk of construction delay, cost overruns, receipt of
zoning, occupancy and other required governmental permits and
authorizations and the incurrence of development costs in connection
with projects that are not pursued through completion; and (iii)
factors identified in the Company's filings with the Securities and
Exchange Commission, including the factors listed in the Company's
Registration Statement on Form S-3 filed with the Securities and
Exchange Commission on August 1, 1997.




PART II - OTHER INFORMATION


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

          (a)  Exhibits.
 
               3.01     Restated Articles of Incorporation
             
               10.01   Loan  Agreement By and Between Winston  SPE  LLC
                       and  CMF  Capital Company, LLC, dated as of November
                       3, 1998
             
               10.02   Promissory note dated November 3, 1998 by and
                     between Winston SPE LLC and CMF Capital Company, LLC
             
               27.     Financial Data Schedule (For SEC use only)

          (b)  Reports on Form 8-K.

               No reports on Form 8-K were filed during the quarter
               ended September 30, 1998.






                                  
                             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    November 16, 1998           /s/ James D. Rosenberg
      ----------------------       ------------------------------------
                                    James D. Rosenberg
                                    Chief Financial Officer and
                                     Chief Operating Officer
                                     (Authorized officer and Principal
                                     Financial Officer)


                                  
                        WINSTON HOTELS, INC.
         FORM 10-Q for the quarter ended September 30, 1998
                                  
                            EXHIBIT INDEX
Exhibit
Number         Description of Exhibit
------         ----------------------

3.01           Restated Articles of Incorporation

10.01          Loan Agreement By and Between Winston SPE LLC and  CMF
               Capital Company, LLC, dated as of November 3, 1998

10.02          Promissory note dated November 3, 1998 by and  between
               Winston SPE LLC and CMF Capital Company, LLC

27.            Financial Data Schedule (For SEC use only).