SECURITIESTable ANDof EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Contents

~~FORM~~UNITED ~~10-Q (Mark~~STATES ~~One)~~

~~[X]~~SECURITIES ~~Quarterly~~AND ~~Report~~EXCHANGE ~~Pursuant~~COMMISSION ~~to Section 13 or 15(d) of the Securities Exchange Act of 1934~~

~~For the quarterly period ended September 30~~WASHINGTON, ~~2002~~D.C. or 20549

~~[ ]~~FORM ~~Transition~~10-Q ~~report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to~~

~~COMMISSION~~x ~~FILE~~QUARTERLY ~~NUMBER~~REPORT ~~333-63768~~ PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

MERISTAR HOSPITALITY		MERISTAR HOSPITALITY
OPERATING PARTNERSHIP, L.P.		FINANCE CORP
(Exact name of Registrant as specified in its Charter)		(Exact name of Registrant as specified in its Charter)
DELAWARE		DELAWARE
(State of Incorporation)		(State of Incorporation)
75-2648837		52-2321015
(IRS Employer Identification No.)		(IRS Employer Identification No.)
1010 WISCONSIN AVENUE, N.W.		1010 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20007		WASHINGTON, D.C. 20007
(202) 295-1000		(202) 295-1000
(Address, including zip code, and telephone		(Address, including zip code, and telephone
number, including area code, of Principal		number, including area code, of Principal
Executive Offices)		Executive Offices)
MERISTAR HOSPITALITY		MERISTAR HOSPITALITY
FINANCE CORP II		FINANCE CORP III
(Exact name of Registrant as specified in its Charter)		(Exact name of Registrant as specified in its Charter)
DELAWARE		DELAWARE
(State of Incorporation)		(State of Incorporation)
73-1658708		46-0467463
(IRS Employer Identification No.)		(IRS Employer Identification No.)
1010 WISCONSIN AVENUE, N.W.		1010 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20007		WASHINGTON, D.C. 20007
(202) 295-1000		(202) 295-1000
(Address, including zip code, and telephone		(Address, including zip code, and telephone
number, including area code, of Principal		number, including area code, of Principal
Executive Offices)		Executive Offices)

For the quarterly period ended June 30, 2005

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

~~Yes~~¨ ~~X No~~TRANSITION - REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~MERISTAR~~For ~~HOSPITALITY~~the ~~OPERATING~~transition ~~PARTNERSHIP,~~period ~~L.P.~~from to

~~Explanatory~~Commission ~~Note:~~file ~~This~~number ~~quarterly report on Form 10~~333-Q63768 is being filed jointly by MeriStar Hospitality Operating Partnership, L.P., or MHOP; MeriStar Hospitality Finance Corp, or MeriStar Finance; MeriStar Hospitality Finance Corp II, or MeriStar Finance II; and MeriStar Hospitality Finance Corp III, or MeriStar Finance III. No separate financial or other information of MeriStar Finance, MeriStar Finance II or MeriStar Finance III is material to holders of the securities of MHOP, MeriStar Finance, MeriStar Finance II or MeriStar Finance III since as of September 30, 2002, they had no operations, no employees, only nominal assets and no liabilities other than their obligations under the indenture governing its senior unsecured notes issued in January 2001, December 2001 and February 2002 and for related financing costs.

The following Consolidated Financial Statements, Supplementary Data and Financial Statement Schedules are filed as part of this Quarterly Report on Form 10-Q:


MERISTAR HOSPITALITY		MERISTAR HOSPITALITY
OPERATING PARTNERSHIP, L.P.		FINANCE CORP
(Exact name of registrant as specified in its charter)		(Exact name of registrant as specified in its charter)

75-2648837		52-2321015
(I.R.S. Employer Identification No.)		(I.R.S. Employer Identification No.)

MERISTAR HOSPITALITY		MERISTAR HOSPITALITY
FINANCE CORP II		FINANCE CORP III
(Exact name of registrant as specified in its charter)		(Exact name of registrant as specified in its charter)

73-1658708		46-0467463
(I.R.S. Employer Identification No.)		(I.R.S. Employer Identification No.)

~~INDEX~~ DELAWARE

		Page
PART I.	FINANCIAL INFORMATION
ITEM 1:	FINANCIAL STATEMENTS (UNAUDITED)
	Condensed Consolidated Balance Sheets – September 30, 2002 and December 31, 2001	3
	Condensed Consolidated Statements of Operations – Three and nine months ended September 30, 2002 and 2001	4
	Condensed Consolidated Statements of Partners’ Capital – September 30, 2002 and 2001	6
	Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 2002 and 2001	7
	Notes to Condensed Consolidated Financial Statements	8
ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	14
ITEM 3:	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	23
ITEM 4:	CONTROLS AND PROCEDURES	24
PART II.	OTHER INFORMATION	24
ITEM 5:	OTHER INFORMATION	24
ITEM 6:	EXHIBITS AND REPORTS ON FORM 8-K	25

(State or other jurisdiction of incorporation or organization)

2 4501 NORTH FAIRFAX DRIVE, SUITE 500

PART I.		FINANCIAL INFORMATION
ITEM 1:		FINANCIAL STATEMENTS

ARLINGTON, VA 22203

~~MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P. CONDENSED CONSOLIDATED BALANCE SHEETS~~ (INAddress ~~THOUSANDS,~~of ~~EXCEPT~~principal ~~PER~~executive ~~UNIT AMOUNTS~~offices)

			September 30, 2002				December 31, 2001
				(unaudited)
Assets
Investments in hotel properties				$	3,181,539			$	3,183,677
		Accumulated depreciation			(477,625	)			(397,380	)
					2,703,914				2,786,297
		Cash and cash equivalents			24,728				23,441
		Accounts receivable, net of allowance for doubtful accounts of $650 and $973			52,791				47,178
		Prepaid expenses and other			23,357				18,306
		Income tax receivable			319				—
		Notes receivable from Interstate Hotels & Resorts			56,069				36,000
		Due from Interstate Hotels & Resorts			—				8,877
		Investments in affiliates			41,714				41,714
		Restricted cash			16,443				21,304
		Intangible assets, net of accumulated amortization of $9,067 and $5,289			18,825				21,469
				$	2,938,160			$	3,004,586
Liabilities, Minority Interests and Partners’ Capital
	Accounts payable, accrued expenses and other liabilities			$	117,998			$	123,972
	Accrued interest				41,144				45,009
	Due to Interstate Hotels & Resorts				9,954				—
	Income taxes payable				—				310
	Dividends and distributions payable				449				1,090
	Deferred income taxes				6,358				7,130
	Interest rate swaps				6,802				12,100
	Notes payable to MeriStar Hospitality				357,408				357,117
	Long-term debt				1,312,246				1,343,017
Total liabilities					1,852,359				1,889,745
Minority interests					2,629				2,639
Redeemable OP units at redemption value					45,996				67,012
Partners’ capital – common OP units 45,045,410 and 44,524,147
	issued and outstanding				1,037,176				1,045,190
				$	2,938,160			$	3,004,586

Registrants’ telephone number, including area code: (703) 812-7200

~~See~~Indicate ~~accompanying~~by ~~notes~~check mark whether the registrant (1) has filed all reports required to ~~condensed~~be ~~consolidated~~filed ~~financial~~by ~~statements.~~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 ¨

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

MERISTARTable HOSPITALITYof OPERATING PARTNERSHIP, L.P. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) Contents

			Three months ended						Nine months ended
			September 30,						September 30,
			2002			2001			2002			2001
Revenue:
	Hotel operations:
		Rooms	$	156,935		$	163,568		$	506,054		$	562,497
		Food and beverage		56,548			55,886			189,423			200,273
		Other operating departments		18,306			18,721			57,715			64,511
	Participating lease revenue			—			1,841			—			8,146
Office rental and other revenues				4,017			4,016			14,282			12,183
Total revenue				235,806			244,032			767,474			847,610
Hotel operating expenses by department:
		Rooms		40,895			42,715			122,194			134,225
		Food and beverage		44,187			44,122			138,234			147,320
		Other operating departments		10,967			10,353			33,159			33,845
Office rental, parking and other operating expenses				767			819			2,372			2,444
Undistributed operating expenses:
		Administrative and general		42,136			39,610			129,098			126,774
		Property operating costs		40,166			40,716			117,842			124,812
		Property taxes, insurance and other		16,511			20,811			52,999			57,158
		Depreciation and amortization		30,039			28,500			91,242			85,594
		Expense for non-hedging derivatives		1,132			—			4,211			—
		Write-off of deferred financing costs		—						1,529			—
		Loss on fair value of non-hedging derivatives		—			—			4,735			—
		Write down of investment in STS Hotel Net		—			—			—			2,112
		Swap termination costs		—			—			—			9,297
		FelCor merger costs		—			2,028			—			5,817
		Cost to terminate leases with Prime Hospitality Corporation		—			—			—			1,315
		Restructuring charge		—			1,080			—			1,080
Total operating expenses				226,800			230,754			697,615			731,793
Net operating income				9,006			13,278			69,859			115,817
Interest expense, net				33,846			31,354			102,543			91,661
Income (loss) from continuing operations before minority interests, income tax expense (benefit), discontinued operations, loss on sale of assets and extraordinary loss				(24,840	)		(18,076	)		(32,684	)		24,156
Minority interests				(18	)		(22	)		(10	)		(16	)
Income (loss) from continuing operations before income tax expense (benefit), discontinued operations, loss on sale of assets and extraordinary loss				(24,822	)		(18,054	)		(32,674	)		24,172
Income tax expense (benefit)				(595	)		(521	)		(754	)		721
Income (loss) from continuing operations before discontinued operations, loss on sale of assets and extraordinary loss				(24,227	)		(17,533	)		(31,920	)		23,451
Discontinued operations:
		Income (loss) from operations of assets sold (including loss on disposal of $6,403 in 2002)		(6,640	)		558			(5,768	)		2,264
	Income tax benefit			128			—			128			—
	Income (loss) on discontinued operations			(6,512	)		558			(5,640	)		2,264
Loss on sale of assets, net of tax effect of ($20) and ($39)				—			(1,075	)		—			(2,137	)
Extraordinary loss on early extinguishments of debt, net of tax effect of ($17)				—			—			—			(1,226	)
Net income (loss)			$	(30,739	)	$	(18,050	)	$	(37,560	)	$	22,352
Preferred distributions				(141	)		(141	)		(423	)		(423	)
Net income (loss) applicable to common unitholders			$	(30,880	)	$	(18,191	)	$	(37,983	)	$	21,929

EXPLANATORY NOTE

~~See~~This ~~accompanying~~quarterly ~~notes~~report toon ~~condensed~~Form ~~consolidated~~10-Q ~~financial~~is ~~statements~~being filed jointly by MeriStar Hospitality Operating Partnership, L.P., or MHOP; MeriStar Hospitality Finance Corp, or MeriStar Finance; MeriStar Hospitality Finance Corp II, or MeriStar Finance II; and MeriStar Hospitality Finance Corp III, or MeriStar Finance III. No separate financial or other information of MeriStar Finance, MeriStar Finance II or MeriStar Finance III is material to holders of the securities of MHOP, MeriStar Finance, MeriStar Finance II or MeriStar Finance III since as of June 30, 2005, they had no operations, no employees, only nominal assets and no liabilities other than their obligations as corporate co-issuers under the indentures governing the senior unsecured notes issued in January 2001, December 2001 and February 2002.

4 INDEX

MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)


		Page
PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	Consolidated Balance Sheets – June 30, 2005 (Unaudited) and December 31, 2004	2

	Consolidated Statements of Operations – Three and six months ended June 30, 2005 and 2004 (Unaudited)	3

	Consolidated Statements of Cash Flows – Six months ended June 30, 2005 and 2004 (Unaudited)	4

	Notes to Consolidated Financial Statements (Unaudited)	5

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	16

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	35

ITEM 4.	CONTROLS AND PROCEDURES	36

PART II. OTHER INFORMATION

ITEM 6.	EXHIBITS	37

SIGNATURES

		Three months ended						Nine months ended
		September 30,						September 30,
		2002			2001			2002			2001
	Net income (loss) applicable to common unitholders	$	(30,880	)	$	(18,191	)	$	(37,983	)	$	21,929
	Net income (loss) applicable to general partner common unitholders	$	(28,437	)	$	(16,803	)	$	(34,921	)	$	20,178
Net income (loss) applicable to third party limited partner common unitholders		$	(2,443	)	$	(1,388	)	$	(3,062	)	$	1,751
Earnings per unit:
	Basic:
	Continuing income (loss) before discontinued operations and extraordinary loss	$	(0.50	)	$	(0.39	)	$	(0.66	)	$	0.42
	Discontinued operations		(0.13	)		0.01			(0.12	)		0.05
	Extraordinary loss		—			—			—			(0.03	)
	Net income (loss)	$	(0.63	)	$	(0.38	)	$	(0.78	)	$	0.44
	Diluted:
	Continuing income (loss) before discontinued operations and extraordinary loss	$	(0.50	)	$	(0.39	)	$	(0.66	)	$	0.42
	Discontinued operations		(0.13	)		0.01			(0.12	)		0.05
	Extraordinary loss		—			—			—			(0.03	)
	Net income (loss)	$	(0.63	)	$	(0.38	)	$	(0.78	)	$	0.44

SeeTable accompanyingof notes to condensed consolidated financial statements. Contents

5 PART I. FINANCIAL INFORMATION

~~MERISTAR~~ ITEM ~~HOSPITALITY OPERATING PARTNERSHIP, L~~1.~~P. CONDENSED~~ ~~CONSOLIDATED~~FINANCIAL STATEMENTS ~~OF PARTNERS’ CAPITAL UNAUDITED (IN THOUSANDS)~~

			September 30,
			2002			2001
Balance at beginning of year			$	1,045,190		$	1,142,772
Net income (loss)				(37,560	)		22,352
Foreign currency translation adjustment				112			(1,001	)
Transition adjustment				—			(2,842	)
Change in fair value of cash flow hedges				511			(9,678	)
	Comprehensive income (loss)			(36,937	)		8,831
Reclassification of non-hedging derivatives				4,735			—
Contributions				3,156			844
Contribution from general partner related to amortization of unearned stock-based compensation				3,041			2,628
Repurchase of units				(1,193	)		(4,028	)
Allocations from redeemable OP units				20,528			41,266
Distributions				(1,344	)		(73,568	)
		Balance at end of period	$	1,037,176		$	1,118,745

MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.

~~See~~CONSOLIDATED ~~accompanying~~BALANCE ~~notes~~SHEETS ~~to condensed consolidated financial statements.~~

6 (Dollars and units in thousands)

MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (IN THOUSANDS)


	June 30, 2005 (Unaudited)			December 31, 2004
ASSETS
Property and equipment	$	2,655,676		$	2,581,720
Accumulated depreciation		(545,023	)		(506,632	)

		2,110,653			2,075,088

Assets held for sale		5,063			—
Investments in and advances to unconsolidated affiliates		71,066			84,796
Prepaid expenses and other assets		32,721			34,230
Insurance claim receivable		34,458			76,056
Accounts receivable, net of allowance for doubtful accounts of $349 and $691		42,250			32,979
Restricted cash		69,317			58,413
Cash and cash equivalents		90,967			60,533

	$	2,456,495		$	2,422,095

LIABILITIES AND PARTNERS’ CAPITAL
Long-term debt	$	1,423,033		$	1,369,299
Notes payable to MeriStar Hospitality Corporation		202,552			203,977
Accounts payable and accrued expenses		72,369			71,781
Accrued interest		39,949			41,165
Due to Interstate Hotels & Resorts		14,027			21,799
Other liabilities		13,288			11,553

Total liabilities		1,765,218			1,719,574

Minority interests		2,416			2,418
Redeemable OP units at redemption value, 2,258 and 2,298 outstanding		19,423			19,187
Partners’ capital – Common OP units, 87,497 and 87,367 issued and outstanding		669,438			680,916

	$	2,456,495		$	2,422,095

			Nine months ended
			September 30,
			2002			2001
Operating activities:
Net income (loss)			$	(37,560	)	$	22,352
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization			91,770			86,639
	Loss on fair value of non-hedging derivatives			4,735			—
	Write-off of deferred financing costs			1,529			—
	Loss on sale of assets, before tax effect			6,403			2,176
	Write down of investment in STS Hotel Net			—			2,112
	Extraordinary loss on early extinguishment of debt, before tax effect			—			1,243
	Minority interests			(10	)		(16	)
	Amortization of unearned stock based compensation			3,041			2,628
	Interest rate swaps marked to fair value			(4,787	)		—
	Deferred income taxes			(772	)		(359	)
	Changes in operating assets and liabilities:
		Accounts receivable, net		(5,613	)		11,256
		Prepaid expenses and other		(5,051	)		(6,135	)
		Due to/from Interstate Hotels & Resorts		5,762			9,152
		Accounts payable, accrued expenses and other liabilities		(6,444	)		(18,035	)
		Accrued interest		(3,865	)		3,080
		Income taxes payable		(629	)		233
Net cash provided by operating activities				48,509			116,326
Investing activities:
	Investment in hotel properties, net			(35,824	)		(31,066	)
	Proceeds from disposition of assets			25,150			9,715
	Hotel operating cash received in lease conversions			—			3,257
	Repayments of notes receivable			(7,000	)		(36,000	)
	Change in restricted cash			4,861			(2,741	)
Net cash used in investing activities				(12,813	)		(56,835	)
Financing activities:
	Deferred financing costs			(3,416	)		(11,072	)
	Proceeds from issuance of mortgages and notes payable			283,138			684,710
	Principal payments on mortgages and notes payable			(313,618	)		(608,149	)
	Contributions from partners			3,156			2,157
	Repurchase of units			(1,193	)		(4,028	)
	Distributions paid to partners			(2,467	)		(75,950	)
Net cash used in financing activities				(34,400	)		(12,332	)
Effect of exchange rate changes on cash and cash equivalents				(9	)		245
Net increase in cash and cash equivalents				1,287			47,404
Cash and cash equivalents, beginning of period				23,441			242
Cash and cash equivalents, end of period			$	24,728		$	47,646

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

~~See~~2 ~~accompanying notes to condensed consolidated financial statements.~~

7 Table of Contents

MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P. ~~NOTES~~ ~~TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 UNAUDITED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)~~

1.CONSOLIDATED ~~ORGANIZATION~~ STATEMENTS OF OPERATIONS

~~General~~ UNAUDITED

We(Dollars ~~are a subsidiary operating partnership of MeriStar Hospitality Corporation. We own a portfolio of upscale, full-service hotels~~ in ~~the United States and Canada. Our portfolio is diversified by franchise and brand affiliations. As of September 30~~thousands, ~~2002,~~except weper ~~owned~~unit ~~109 hotels, with 28,099 rooms, all of which are~~amounts) leased by our taxable subsidiaries and managed by Interstate Hotels & Resorts, Inc. Interstate Hotels was created on July 31, 2002 through the merger of MeriStar Hotels & Resorts, Inc. and Interstate Hotels Corporation.

We were created on August 3, 1998, as a result of the merger between CapStar Hotel Company and American General Hospitality Corporation, and the subsequent formation of MeriStar Hospitality, the merged entity. MeriStar Hospitality, a real estate investment trust, or REIT, is our general partner and owns a one percent interest in us as of September 30, 2002. The limited partners are as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Revenue:
Hotel operations:
Rooms	$	142,908		$	137,230		$	266,669		$	265,197
Food and beverage		61,006			57,028			112,187			105,572
Other hotel operations		11,815			15,694			23,039			30,945
Office rental, parking and other revenue		1,212			1,328			3,069			2,625

Total revenue		216,941			211,280			404,964			404,339

Hotel operating expenses:
Rooms		33,785			33,208			64,409			64,153
Food and beverage		40,903			39,877			77,752			76,141
Other hotel operating expenses		7,623			9,943			14,626			19,323
Office rental, parking and other expenses		612			670			1,436			1,255
Other operating expenses:
General and administrative, hotel		31,771			30,152			63,095			61,946
General and administrative, corporate		2,828			3,473			6,361			7,106
Property operating costs		31,294			30,048			60,452			59,300
Depreciation and amortization		23,813			24,204			48,197			48,855
Property taxes, insurance and other		12,098			15,232			22,882			31,345
Loss on asset impairments		—			310			—			310

Operating expenses		184,727			187,117			359,210			369,734

Equity in income/loss of and interest earned from unconsolidated affiliates		2,940			1,600			4,575			3,200
Hurricane business interruption insurance gain		2,009			—			4,290			—

Operating income		37,163			25,763			54,619			37,805

Minority interest		7			20			2			24
Interest expense, net		(30,698	)		(30,090	)		(61,411	)		(64,592	)
Loss on early extinguishments of debt		(947	)		(1,980	)		(1,007	)		(7,903	)

Income (loss) before income taxes and discontinued operations		5,525			(6,287	)		(7,797	)		(34,666	)

Income tax (expense) benefit		(402	)		(12	)		(412	)		373

Income (loss) from continuing operations		5,123			(6,299	)		(8,209	)		(34,293	)

Discontinued operations:
Loss from discontinued operations before income tax		(3,709	)		(5,784	)		(4,126	)		(18,747	)
Income tax benefit		—			32			—			102

Loss from discontinued operations		(3,709	)		(5,752	)		(4,126	)		(18,645	)

Net income (loss)	$	1,414		$	(12,051	)	$	(12,335	)	$	(52,938	)

Preferred distributions		—			—			—			(141	)

Net income (loss) applicable to common unitholders	$	1,414		$	(12,051	)	$	(12,335	)	$	(53,079	)

Net income (loss) applicable to general partner unitholders	$	1,378		$	(11,619	)	$	(12,020	)	$	(50,996	)

Net income (loss) applicable to limited partner unitholders	$	36		$	(432	)	$	(315	)	$	(2,083	)

Basic and diluted loss per unit:
Earnings (loss) from continuing operations	$	0.06		$	(0.07	)	$	(0.09	)	$	(0.44	)
Loss from discontinued operations		(0.04	)		(0.07	)		(0.05	)		(0.23	)

Earnings (loss) per basic and diluted unit	$	0.02		$	(0.14	)	$	(0.14	)	$	(0.67	)

	•		MeriStar LP, Inc., a wholly-owned subsidiary of MeriStar Hospitality, which owns approximately a 90 percent interest as of September 30, 2002; and
	•		various third parties, which owned an aggregate interest of nine percent at September 30, 2002.

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

~~Partners’~~3 capital includes the partnership interests of MeriStar Hospitality and MeriStar LP, Inc. MeriStar Hospitality held 483,745 common OP units as of September 30, 2002. MeriStar LP, Inc. held 44,561,665 common OP units as of September 30, 2002. Due to the redemption rights of the limited partnership units held by third parties, these units have been excluded from partner’s capital and classified as Redeemable OP units and are recorded at redemption value. At September 30, 2002, there were 4,296,307 redeemable units outstanding.

OnTable January 1, 2001, changes to the federal tax laws governing real estate investment trusts became effective. Those changes are commonly known as the REIT Modernization Act, or RMA. The RMA permits real estate investment trusts to create taxable subsidiaries that are subject to taxation similar to subchapter C-Corporations. Because of the RMA, we have created a number of these taxable subsidiaries to lease our real property. The RMA prohibits our taxable subsidiaries from engaging in the following activities: Contents

• MERISTAR ~~managing~~HOSPITALITY ~~the~~OPERATING properties they lease (our taxable subsidiaries must enter into an “arms length” management agreement with an independent third-party manager that is actively involved in the trade or business of hotel management and manages properties on behalf of other owners)PARTNERSHIP, ~~• leasing a property that contains gambling operations; and • owning a brand or franchise~~L.P.

WeCONSOLIDATED ~~believe~~STATEMENTS ~~establishing~~OF ~~taxable~~CASH ~~subsidiaries~~FLOWS to lease the properties we own provides an efficient alignment of and ability to capture the economic interests of property ownership. Our taxable subsidiaries are parties to management agreements with a subsidiary of Interstate Hotels to manage our hotels. Under these management agreements, the taxable subsidiaries pay a management fee to Interstate Hotels for each property. The taxable subsidiaries in turn make rental payments to us under the participating leases. Under the management agreements, the base management fee is 2.5% of total hotel revenue plus incentives payments, based on meeting performance thresholds, that could total up to 1.5% of total hotel revenue. All of the agreements, except for four agreements with terms that renew annually, have an initial term of 10 years with three renewal periods of five years each at the option of Interstate Hotels, subject to some exceptions.

8 UNAUDITED

2.(Dollars ~~SUMMARY~~in OFthousands) ~~SIGNIFICANT ACCOUNTING POLICIES~~

General


	Six Months Ended June 30,
	2005			2004
Operating activities:
Net loss	$	(12,335	)	$	(52,938	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		48,941			51,985
Loss on asset impairments		2,836			7,441
Loss on sale of assets, before tax effect		1,037			11,530
Loss on early extinguishments of debt		1,007			7,903
Minority interests		(2	)		(24	)
Equity in loss of unconsolidated affiliate		1,164			—
Amortization of unearned stock-based compensation		542			1,090
Deferred income taxes		—			(652	)
Changes in operating assets and liabilities:
Insurance claim receivable, less capital expenditure proceeds		35,098			—
Accounts receivable, net		(9,271	)		689
Prepaid expenses and other assets		721			4,864
Receivables from unconsolidated affiliates		12,663			(4,916	)
Due to Interstate Hotels & Resorts		(8,398	)		(3,241	)
Accounts payable, accrued expenses, accrued interest and other liabilities		315			(6,040	)

Net cash provided by operating activities		74,318			17,691

Investing activities:
Acquisition of hotels, net of cash acquired of $3.5 million		—			(182,790	)
Capital expenditures for property and equipment		(109,322	)		(49,898	)
Proceeds from sales of assets		20,500			104,873
Insurance proceeds related to capital expenditures		6,500			—
Increase in restricted cash		(4,580	)		(29,955	)
Costs associated with disposition program and other, net		(596	)		(5,081	)

Net cash used in investing activities		(87,498	)		(162,851	)

Financing activities:
Prepayments on long-term debt		(23,846	)		(105,857	)
Scheduled payments on long-term debt		(5,477	)		(3,691	)
Proceeds from mortgage loans, net of financing costs		73,410			—
Proceeds from debt issuance, net of issuance costs		—			109,687
Distributions to minority investors		—			(141	)
Proceeds from OP units issuance, net of issuance costs		309			72,340
Purchase of subsidiary partnership interests		—			(8,690	)
Repurchase of OP units under employee stock plans		(782	)		(160	)
Other		—			(165	)

Net cash provided by financing activities		43,614			63,323

Effect of exchange rate changes on cash and cash equivalents		—			(227	)

Net increase (decrease) in cash and cash equivalents		30,434			(82,064	)
Cash and cash equivalents, beginning of period		60,533			230,876

Cash and cash equivalents, end of period	$	90,967		$	148,812

Supplemental Cash Flow Information
Cash paid for interest and income taxes:
Interest, net of capitalized interest	$	63,482		$	69,804
Income tax payments, net of (refunds)	$	298		$	(670	)

Non-cash investing and financing activities:
Notes payable to MeriStar Hospitality redeemed in exchange for Common OP units	$	—		$	49,213
Change of fair value of interest rate swap	$	1,430		$	10,074
Issuance of OP units to MeriStar Hospitality for stock bonus	$	1,022		$	—
Redemption of OP units	$	633		$	123

WeThe ~~have~~accompanying ~~prepared these unaudited interim financial statements according to the~~notes ~~rules and regulations of the Securities and Exchange Commission. We have omitted certain information and footnote disclosures that~~ are ~~normally~~an ~~included in~~integral ~~financial~~part ~~statements prepared in accordance with accounting principles generally accepted in the United States~~ of ~~America.~~these ~~These~~consolidated ~~interim~~ financial ~~statements~~ ~~should be read in conjunction with the financial~~ statements~~, accompanying notes and other information included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2001~~. ~~Certain 2001 amounts have been reclassified to conform to the 2002 presentation.~~

In4 our opinion, the accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the financial condition and results of operations and cash flows for the periods presented. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Our actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year.

StatementTable of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” requires a public entity to report selected information about operating segments in financial reports issued to shareholders. Based on the guidance provided in the standard, we have determined that our business is conducted in one reportable segment. The standard also establishes requirements for related disclosures about products and services, geographic areas and major customers. Revenues for Canadian operations totaled $6,166 and $6,716 for the three months ended September 30, 2002 and 2001, respectively. Revenues for Canadian operations totaled $16,573 and $18,299 for the nine months ended September 30, 2002 and 2001, respectively. Contents

~~Our interest rate risk management objective is to limit the impact of interest~~ ~~rate~~MERISTAR ~~changes~~HOSPITALITY onOPERATING ~~earnings and cash flows. We assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows~~PARTNERSHIP, ~~and by evaluating hedging opportunities~~L. ~~We do not enter into derivative instruments for any purpose other than cash flow hedging purposes~~P.

~~Our~~NOTES ~~interest~~TO ~~rate~~UNAUDITED ~~swap~~CONSOLIDATED ~~agreements~~FINANCIAL ~~were~~STATEMENTS initially designated as hedges against changes in future cash flows associated with specific variable rate debt obligations. As of September 30, 2002, we had three swap agreements with notional amounts totaling $300,000. All of these swap agreements have been converted to non-hedging derivatives due to our repayment of the floating-rate borrowings they originally hedged and they are currently being marked to market through our statement of operations. We have interest rate exposure going forward as the change in fair value of our non-hedging derivatives will have an impact on our statement of operations. The interest rate swap agreements are reflected at fair value in our consolidated balance sheet as of September 30, 2002. For more information regarding our interest rate hedging activities, see “Quantitative and Qualitative Disclosures about Market Risk.”

~~New~~JUNE ~~Accounting~~30, ~~Pronouncements~~ 2005

~~In July 2002, the Financial Accounting Standards Board issued SFAS No~~1. ~~146 “Accounting~~ ~~for~~Organization Costs Associated with Exit or Disposal Activities.” If we enter into these transactions in the future, we will have to evaluate the effects this new standard will have on our financial statements. The provisions of this statement are to be applied prospectively to exit or disposal activities initiated after December 31, 2002.

InMeriStar ~~April~~Hospitality ~~2002~~Operating Partnership, L.P. (the ~~Financial~~“Company”) ~~Accounting~~is ~~Standards~~the ~~Board~~subsidiary ~~issued~~operating ~~SFAS~~partnership ~~No. 145~~ of MeriStar Hospitality Corporation Commission file number 1-11903, (“~~Rescission~~MeriStar ofHospitality”, ~~FASB~~which ~~Statements~~is Noa real estate investment trust, or REIT). 4 We own a portfolio of primarily upper upscale, 44full-service hotels and 64resorts in the United States. Our portfolio is diversified geographically as well as by franchise and brand affiliations. As of June 30, ~~Amendment~~2005, we owned 72 hotels with 20,115 rooms, all of ~~SFAS~~which Nowere leased by our taxable subsidiaries. 13 Seventy of these hotels were managed by Interstate Hotels & Resorts (“Interstate”), ~~Technical~~ ~~Corrections~~one hotel was managed by The Ritz-Carlton Hotel Company, LLC (“Ritz-Carlton”), a subsidiary of Marriott International, Inc., Weand ~~plan~~one tohotel ~~adopt~~was ~~this~~managed ~~statement~~by onanother ~~January 1~~subsidiary (“Marriott”) of Marriott International, ~~2003~~Inc. (collectively with Interstate and Ritz-Carlton, the “Managers”).

InThe ~~August~~Managers ~~2001,~~operate the ~~Financial~~72 ~~Accounting~~hotels ~~Standards Board issued SFAS No. 144~~we ~~“Accounting~~owned ~~for~~as ~~the Impairment~~ of ~~Disposal~~June ~~of Long-Lived Assets~~30,” ~~which supersedes~~2005 ~~SFAS~~pursuant ~~No. 121.~~to ~~The~~management ~~provisions~~agreements ofwith ~~SFAS~~our Notaxable subsidiaries. ~~144~~ ~~were~~Under ~~effective~~these ~~on January 1~~management agreements, ~~2002~~each ~~for~~taxable ~~our~~subsidiary ~~financial~~pays ~~statements.~~a ~~SFAS~~management ~~No. 144~~fee ~~requires~~for ~~the current~~each ~~and~~property ~~prior~~to ~~period~~the ~~operating~~Manager ~~results~~ of ~~any~~its ~~asset~~hotels. ~~that~~The ~~has~~taxable ~~been~~subsidiaries ~~disposed~~in ~~of,~~turn onmake orrental ~~after~~payments ~~January 1,~~to ~~2002,~~our ~~including~~subsidiary ~~any~~operating ~~gain~~partnership orunder ~~loss~~the ~~recognized,~~participating toleases. ~~be recorded as~~

9Under the Interstate management agreements, the base management fee is 2.5% of total hotel revenue, plus incentive payments based on meeting performance thresholds that could total up to an additional 1.5% of total hotel revenue. The agreements have initial terms expiring on January 1, 2011 with three renewal periods of five years each at the option of Interstate, subject to some exceptions. Additionally, our franchise fees generally range from 2.0% to 7.6% of hotel room revenues.

~~discontinued~~Under ~~operations~~the Ritz-Carlton and Marriott management agreements, the base management fee is 3.0% Inand ~~August~~2.5% ~~2002~~of total hotel revenue, werespectively, ~~sold~~through ~~three~~2005 ~~hotels~~and 3.0% ~~All~~under ~~operating results~~both thereafter, ~~including~~plus ~~the~~incentive ~~loss~~payments based on meeting ~~disposal,~~performance ~~have~~thresholds ~~been~~that ~~recorded~~could total up to an additional 2.0% of total revenue and 20% of available cash flow (as ~~discontinued operations~~defined in the relevant management agreement), respectively. WeThe agreements have ~~reclassified~~initial ~~prior~~terms expiring in 2015 and 2024, respectively, with four and three renewal periods toof ~~reflect~~10 ~~operations~~and five years each, respectively, at the option of Ritz-Carlton and Marriott. The Ritz-Carlton and Marriott management agreements include certain limited performance guarantees by the relevant ~~three~~manager ~~hotels~~which asare ~~discontinued~~designed ~~operations~~primarily to provide downside performance protection and run through 2005 and up to 2008, respectively. Management, based upon budgets and operating trends, expects payments under these guarantees for 2005 and in the future to be minimal.

32. ~~AMOUNTS~~Summary ~~DUE~~of ~~TO/FROM~~Significant ~~INTERSTATE~~Accounting ~~HOTELS~~Policies

~~Due~~Interim Financial Statements. We have prepared these unaudited interim financial statements according to~~/from~~ ~~Interstate~~the ~~Hotel~~rules and ~~Resorts~~regulations of the United States Securities and Exchange Commission. We have omitted certain information and footnote disclosures that are normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles. These interim financial statements should be read in conjunction with the financial statements, accompanying notes and other information included in our Annual Report on Form 10-K for the year ended December 31, 2004.

In our opinion, the ~~normal~~accompanying ~~course~~unaudited ofconsolidated ~~managing~~interim ~~our~~financial ~~hotel~~statements ~~properties,~~reflect ~~Interstate~~all ~~Hotels~~adjustments, ~~incurs day~~which toare ~~day~~of ~~operating~~a ~~costs~~normal ~~which~~and ~~are~~recurring ~~reimbursed~~nature, bynecessary ~~us.~~for ~~The~~a ~~balance~~fair presentation of ~~$9,954~~the ~~at September 30,~~financial ~~2002,~~condition ~~includes~~and ~~management~~results ~~fees~~of ~~due,~~operations and ~~reimbursements~~cash flows ~~due~~ for ~~insurance,~~the ~~employee~~periods ~~benefits, sales~~presented. ~~and~~The ~~marketing~~results ~~expenses,~~of ~~and~~operations ~~other~~for ~~miscellaneous~~the ~~operating~~interim ~~expenses. These~~periods ~~amounts~~ are ~~normally~~not ~~paid~~necessarily ~~within~~indicative ~~30 days~~of the results for the entire year.

~~Pursuant~~Basis toof anPresentation ~~intercompany~~and ~~agreement,~~Principles weof ~~and~~Consolidation. ~~Interstate~~The ~~Hotels~~accompanying ~~provide~~consolidated ~~each~~financial ~~other~~statements ~~with~~include ~~among~~the ~~other~~accounts ~~things,~~of ~~reciprocal~~the ~~rights~~Company, toits ~~participate~~subsidiaries and its controlled affiliates. We consolidate entities (in ~~certain~~the ~~transactions~~absence ~~entered~~of ~~into~~other byfactors ~~each~~when ~~party.~~determining Incontrol) ~~particular,~~when ~~Interstate~~we ~~Hotels~~own ~~has~~over a50% ~~right~~of the voting shares of ~~first~~another ~~refusal~~company toor, ~~become~~in the ~~manager~~ case of ~~any~~partnership ~~real~~investments, ~~property~~when we ~~acquire.~~own Wea majority ~~also~~of ~~may~~the ~~provide~~general ~~each~~partnership ~~other~~interest. ~~with~~Additionally, ~~certain~~if ~~services.~~we ~~These~~determine ~~may~~that ~~include~~we ~~administrative,~~are ~~renovation~~an ~~supervision, corporate,~~owner ~~accounting,~~in ~~finance,~~a ~~risk~~variable ~~management,~~interest ~~legal,~~entity ~~tax,~~within ~~information~~the ~~technology,~~meaning ~~human~~of ~~resources,~~the ~~acquisition~~Financial ~~identification~~Accounting ~~and~~Standards ~~due diligence~~Board, ~~and operational~~or ~~services~~FASB, ~~for~~revision ~~which~~to ~~Interstate~~Interpretation ~~Hotels~~No. is46, “Consolidation ~~compensated~~of inVariable anInterest ~~amount~~Entities” and that weour ~~would~~variable beinterest ~~charged~~will byabsorb a ~~third party~~majority ~~for~~of ~~comparable~~the ~~services.~~entity’s Asexpected oflosses ~~December~~if ~~31,~~they ~~2001~~occur, ~~Interstate owed~~receive usa ~~$8,877~~majority ~~for~~of ~~working capital deficits at~~ the ~~RMA~~entity’s ~~lease~~expected ~~conversion~~residual ~~date~~returns ~~and~~if ~~these~~they ~~services.~~occur, or both,

~~Note~~5 ~~Receivable From Interstate Hotels and Resorts~~

UnderTable aof revolving credit agreement with Interstate Hotels through July 31, 2002, we had the ability to lend Interstate Hotels up to $50,000 for general corporate purposes. The interest rate on this credit agreement was 650 basis points over the 30-day London Interbank Offered Rate. Contents

~~Interstate~~then ~~Hotels~~we ~~also~~will ~~issued~~consolidate usthe ~~a term note effective January 1, 2002~~entity. ~~This $13,069~~All ~~term~~material ~~note~~intercompany ~~refinanced~~transactions ~~outstanding~~and ~~accounts~~balances ~~payable~~have ~~Interstate~~been ~~Hotels owed~~eliminated ~~to us~~in consolidation. ~~The~~One ~~term~~of ~~loan~~our ~~bore~~properties ~~interest~~reports atresults ~~650 basis points~~ over ~~the~~13 ~~30-day LIBOR.~~four ~~The~~week ~~maturity~~periods ~~date~~each ~~was~~year. ~~the~~We ~~same~~include as12 ~~that~~weeks of ~~the~~results ~~revolving~~in ~~credit agreement.~~each ~~The repayments~~ of ~~the~~quarters ~~credit~~one ~~agreement~~through three and ~~term~~16 ~~note~~weeks ~~were subordinate~~of toresults ~~Interstate’s~~in ~~bank~~quarter ~~debt~~four.

InUse ~~connection~~of ~~with~~Estimates. ~~the~~Preparing ~~merger~~financial ~~that~~statements ~~created~~in ~~Interstate~~conformity ~~Hotels on July 31, 2002,~~with ~~Interstate Hotels paid $3,000 to reduce its borrowings outstanding on the credit agreement~~U.S. ~~Also,~~generally ~~the~~accepted ~~credit~~accounting ~~agreement~~principles ~~and~~requires ~~term~~management ~~note~~to ~~were~~make ~~amended~~estimates and ~~combined~~ ~~into~~assumptions athat ~~term~~affect ~~loan~~the ~~agreement~~reported ~~with~~amounts ~~a principal balance~~ of ~~$56,069~~assets and ~~a maturity~~liabilities ~~date~~and disclosure of ~~July 31,~~contingent ~~2007.~~assets ~~The~~and ~~interest~~liabilities ~~rate remained~~ at ~~650~~the ~~basis~~date ~~points over~~of the ~~30-day~~financial statements ~~LIBOR.~~and ~~This~~the ~~term~~reported ~~loan~~amounts isof ~~subordinate~~revenues toand ~~Interstate’s~~expenses ~~new credit~~during ~~agreement, and~~ the ~~term~~reporting ~~loan~~period. ~~does~~Actual ~~not~~results ~~allow~~could ~~for~~differ ~~any~~significantly ~~additional~~from ~~amount~~these ~~of further borrowings by Interstate Hotels~~estimates.

4Property and Equipment. ~~LONG~~ We record our property and equipment at cost, or at fair value at the time of contribution for contributed property. We use the straight-~~TERM~~line ~~DEBT~~method for depreciation. We depreciate the majority of our buildings and improvements over an estimated useful life of 20 to 40 years, or the remaining term of a ground lease (including consideration of renewal options), if shorter. We depreciate furniture, fixtures and equipment over lives ranging from five to seven years, and computers over three to five years. During the three months ended June 30, 2005 and 2004, we recognized depreciation expense of $22.4 million and $23.6 million, respectively. During the six months ended June 30, 2005 and 2004, we recognized depreciation expense of $45.8 million and $48.0 million, respectively. For the three months ended June 30, 2005 and 2004, we capitalized interest of $3.1 million and $1.2 million, respectively. For the six months ended June 30, 2005 and 2004, we capitalized interest of $5.8 million and $2.0 million, respectively.

~~Long~~Held for Sale Properties. Held-~~term~~for-sale ~~debt~~classification ~~consisted~~requires that the sale be probable and that the transfer of the asset is expected to be completed within one year, among other criteria. Assessing the probability of the sale requires significant judgment due to the uncertainty surrounding completing the transaction, and as a result, we have developed the following policy to aid in the assessment of probability. We classify the properties we are actively marketing as held for sale once all of the following conditions are met:

	September 30, 2002			December 31, 2001
Senior unsecured notes	$	950,000		$	750,000
Credit facility		14,000			224,000
Secured facility		315,955			319,788
Mortgage debt and other		38,550			52,335
		1,318,505			1,346,123
Notes payable to MeriStar Hospitality		359,300			359,300
Unamortized issue discount		(8,151	)		(5,289	)
	$	1,669,654		$	1,700,134

•

Our board has approved the sale,

As• ofWe ~~September 30,~~have ~~2002~~a ~~aggregate~~fully ~~future~~executed ~~maturities~~agreement ofwith ~~the~~a ~~above~~qualified buyer which provides for no significant outstanding or continuing obligations ~~are~~ aswith ~~follows:~~ the property after sale, and

2002	$	1,914
2003		22,188
2004		170,669
2005		8,665
2006		9,407
Thereafter		1,456,811
	$	1,669,654

•

We have a significant non-refundable deposit.

InWe ~~February~~carry ~~2002,~~properties weheld ~~issued~~for ansale ~~additional~~at ~~$200,000~~the ~~($196,250,~~lower ~~net~~ of ~~discount) aggregate~~their ~~principal~~carrying ~~amount~~values ofor ~~9.13%~~estimated ~~senior~~fair ~~unsecured~~values ~~notes~~less ~~due~~costs ~~2011~~to sell. We ~~used the~~cease ~~proceeds~~depreciation ~~from~~at the ~~issuance~~time ofthe asset ~~these~~is ~~notes~~classified as held for sale. If material to ~~repay~~our ~~approximately~~total ~~$195~~portfolio,~~000 of~~ we segregate the ~~outstanding~~assets ~~balance~~and ~~under~~liabilities relating to our ~~revolving~~held ~~credit~~for ~~agreement.~~sale Asproperties aon ~~result of~~our ~~this~~Consolidated ~~financing,~~Balance weSheets. ~~redesignated~~

10Cash Equivalents and Restricted Cash. We classify investments with original maturities of three months or less as cash equivalents. Our cash equivalents include investments in debt securities, including commercial paper, overnight repurchase agreements and money market funds. Restricted cash represents amounts held in escrow in accordance with the requirements of certain of our credit facilities.

~~some~~Impairment ~~swap~~or ~~agreements~~Disposal asof ~~non~~Long-~~hedging~~Lived ~~derivatives~~Assets. We ~~recognized~~record aas ~~$4,735~~discontinued ~~loss when~~operations ~~this~~the ~~amount~~current ~~was~~and ~~transferred~~prior ~~out~~period operating results of ~~accumulated~~any ~~other~~asset ~~comprehensive~~that ~~income~~has been classified as held for sale or has been disposed of ~~because~~and ~~the~~where ~~debt~~we ~~being~~have ~~hedged~~no ~~was~~continuing ~~repaid~~involvement. Any gains or losses on final disposition are also included in discontinued operations.

InWhenever ~~February~~events ~~2002~~or changes in circumstances indicate that the carrying value of a long-lived asset may be impaired, wean ~~amended~~analysis ~~our~~is ~~revolving~~performed ~~credit~~to ~~agreement~~determine the recoverability of the asset’s carrying value. ~~The~~When ~~amendment allowed~~we usconclude that we are more likely than not to ~~reduce~~sell or otherwise dispose of an asset significantly before the ~~revolving~~end ~~commitments~~of toits ~~below~~previously ~~$300,000.~~estimated Inuseful ~~March 2002~~life, we ~~reduced~~perform ~~the~~an ~~borrowing~~impairment ~~capacity~~ analysis on ~~our~~that ~~revolving~~asset ~~credit~~(as ~~agreement~~is ~~from $310,000~~the tocase ~~$150,000~~for assets we are considering for disposition). We ~~recognized~~make aestimates ~~$1,529~~of ~~loss~~the ~~due~~undiscounted tocash flows from the ~~write-off~~expected future operations or potential sale of ~~deferred~~ ~~financing~~the ~~costs~~asset. ~~related~~If tothe ~~reducing~~analysis indicates that the ~~borrowing~~carrying ~~capacity~~value is not recoverable from these estimates of ~~our revolving~~cash ~~credit~~flows, ~~agreement~~we write down the asset to estimated fair value and recognize an impairment loss. Any impairment losses we recognize on assets held for use are recorded as operating expenses. We record any impairment losses on assets held for sale as a component of discontinued operations.

OnAccounting ~~October 29,~~for ~~2002,~~Costs weAssociated ~~entered~~with ~~into~~Exit or Disposal Activities. We recognize a ~~new~~liability ~~three-year,~~for ~~$100~~a cost associated with an exit or disposal activity only when the liability is incurred,~~000~~ ~~senior~~and measure that liability ~~unsecured~~initially ~~revolving~~at ~~credit~~fair ~~facility~~value. ~~The~~Hotels ~~initial~~of ~~interest~~which ~~rate~~we isdispose ~~30-day~~may ~~LIBOR~~be ~~plus~~managed ~~388~~under ~~basis~~agreements ~~points~~that require payments as a result of termination. WeAny ~~repaid~~such liability will be recognized at the time the asset disposition is complete and a termination notice is ~~outstanding balance~~provided. ofAt ~~$14~~that time,~~000~~ the recognition of the termination obligation will be included in the calculation of the final gain or loss on ~~our~~sale. ~~previous~~To ~~credit~~date, ~~facility~~we have not incurred any management agreement termination obligations other than in ~~conjunction~~connection with ~~closing~~ ~~this~~sales ~~facility~~of hotels.

~~5. DIVIDENDS~~6 ~~AND DISTRIBUTIONS PAYABLE~~

OnTable September 25, 2002, we declared a dividend for the three months ended September 30, 2002 of $0.01 per limited partnership unit. We paid the dividend on October 31, 2002. Contents

6Stock-Based Compensation. ~~EARNINGS~~ ~~PER~~We ~~UNIT~~apply the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, for new stock based compensation awards issued under our compensation programs sponsored by MeriStar Hospitality. As permitted by SFAS No. 148, we elected to apply the provisions prospectively, which includes recognizing compensation expense for only those stock options issued in 2003 and after. We grant options with an exercise price equal to the price of our common stock on grant date. Compensation costs related to stock options are included in general and administrative expenses on the accompanying Consolidated Statements of Operations. We apply the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” in accounting for our stock options issued by MeriStar Hospitality under our compensation programs prior to January 1, 2003. As MeriStar Hospitality granted these stock options at fair market value, no compensation cost has been recognized. For our other equity-based compensation plans, we recognize compensation expense over the vesting period based on the fair market value of the award at the date of grant for fixed plan awards, while variable plan awards are re-measured based upon the intrinsic value of the award at each balance sheet date.

~~The~~Had compensation ~~following~~cost ~~table~~been ~~presents~~determined based on fair value at the ~~computation~~grant date for awards granted prior to our adoption of ~~basic~~the ~~and~~fair ~~diluted~~value ~~earnings~~method, ~~per unit~~our net income (loss) and per unit amounts would have been adjusted to the pro forma amounts indicated as follows (in thousands, except per unit amounts):

			Three months ended								Nine months ended
		Three Months EndedJune 30,								Six Months Ended June 30,
			September 30,								September 30,
		2005				2004				2005				2004
			2002				2001				2002				2001
Net income (loss), as reported		$	1,414			$	(12,051	)		$	(12,335	)		$	(52,938	)
BASIC EARNINGS (LOSS) PER UNIT COMPUTATION:
Add: Stock-based employee compensation expense included in reported net loss, net of related tax effect			613				395				1,374				975
Income (loss) from continuing operations before extraordinary loss			$	(24,227	)		$	(18,608	)		$	(31,920	)		$	21,314
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effect			(620	)			(442	)			(1,387	)			(1,077	)
Dividends paid on unvested restricted stock				(2	)			(198	)			(5	)			(593	)
Net income (loss), pro forma		$	1,407			$	(12,098	)		$	(12,348	)		$	(53,040	)
Preferred distributions				(141	)			(141	)			(423	)			(423	)
Earnings (loss) per unit, as reported:
Income (loss) applicable to common unitholders			$	(24,370	)		$	(18,947	)		$	(32,348	)		$	20,298
Basic and diluted		$	0.02			$	(0.14	)		$	(0.14	)		$	(0.67	)
Weighted average number of OP units outstanding				48,950				48,312				48,830				48,359
Weighted average fair value of options granted			N/A	*		$	0.31				N/A	*		$	0.32
Basic earnings (loss) per unit from continuing operations before extraordinary loss			$	(0.50	)		$	(0.39	)		$	(0.66	)		$	0.42
Earnings (loss) per unit, pro forma:
DILUTED EARNINGS (LOSS) PER UNIT COMPUTATION:
Basic and diluted		$	0.02			$	(0.14	)		$	(0.14	)		$	(0.67	)
Adjusted income (loss) applicable to common unitholders			$	(24,370	)		$	(18,947	)		$	(32,348	)		$	20,298
Weighted average number of OP units outstanding				48,950				48,312				48,830				48,359
	Stock options of MeriStar			—				—				—				324
Total weighted average number of diluted OP units outstanding				48,950				48,312				48,830				48,683
Diluted earnings (loss) per unit from continuing operations before extraordinary loss			$	(0.50	)		$	(0.39	)		$	(0.66	)		$	0.42

~~Stock~~* No options ~~are~~were ~~not~~granted ~~included~~during in the ~~computation~~six ofmonths ~~diluted~~ended ~~earnings~~June ~~(loss) per~~30, ~~unit when their effect is antidilutive~~2005.

11 These pro forma compensation costs may not be representative of the actual effects on reported net loss and loss per unit in future years.

7Derivative Instruments and Hedging Activities. ~~SUPPLEMENTAL~~ ~~CASH~~Our ~~FLOW~~interest ~~INFORMATION~~rate risk management objective is to manage the effect of interest rate changes on earnings and cash flows. We look to manage interest rates through the use of a combination of fixed and variable rate debt. We only enter into derivative or interest rate transactions for hedging purposes. We recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income based on the derivative’s effectiveness and whether the derivative has been designated as a cash flow or fair value hedge.

				Nine months ended September 30,
				2002		2001
	Cash paid for interest and income taxes:
	Interest, net of capitalized interest of $3,093 and $5,435 respectively			$	110,619	$	88,522
	Income taxes				643		558
	Non-cash investing and financing activities:
	Issuance of POPs				3,339		—
	Redemption of redeemable OP units				6,146		4,504
Operating assets received and liabilities assumed from lease conversion:
		Accounts receivable		$	—	$	47,200
		Prepaid expenses and other			—		13,500
		Furniture and fixtures, net			—		152
		Investment in affiliates, net			—		1,629
			Total operating assets received	$	—	$	62,481
		Accounts payable and accrued expenses		$	—	$	65,706
		Long-term debt			—		32
		Total liabilities acquired		$	—	$	65,738

Acquisition of Hotels. Our hotel acquisitions consist almost exclusively of land, building, furniture, fixtures and equipment. We allocate the purchase price among these asset classes and any acquired intangible assets based upon their respective fair values as required by SFAS No. 141, “Business Combinations.”

8Investments in Unconsolidated Affiliates. ~~STOCK~~ We have non-~~BASED~~controlling interests ~~COMPENSATION~~in entities which we account for under the cost method or equity method of accounting. Our investment in MeriStar Investment Partners, L.P. (“MIP”) is a limited partner interest with no participation rights in the management, affairs or operations of the entity, and is accounted for using the cost method. We recognize our preferred return on this

As7 ~~of September 30, 2002, MeriStar Hospitality has granted 481,500 shares of restricted stock to employees. This restricted stock vests ratably over three-year or five-year periods.~~

AsTable of September 30, 2002, MeriStar Hospitality has granted 925,000 Profits-Only OP Units, or POPs, to some of our employees pursuant to our POPs Plan. These POPs are fixed awards and vest over three-year or four-year periods. Contents

9investment quarterly as it becomes due to us; this investment is reflected in the “investments in and advances to unconsolidated affiliates” line on our Consolidated Balance Sheets. ~~RESTRUCTURING~~ ~~EXPENSES~~Our investment in Radisson Lexington Avenue Hotel is accounted for using the equity method, since we are presumed to exert significant influence on this entity due to our ownership percentage of 49.99%. Accordingly, we recognize 49.99% of the profit and loss of the entity in which our investment was made. This investment is also reflected in the “investments in and advances to unconsolidated affiliates” line on our Consolidated Balance Sheets. Our investments in unconsolidated affiliates are periodically reviewed for other than temporary declines in market value. An impairment is recorded as a reduction to the carrying value of the investment for any declines which are determined to be other than temporary.

~~During~~Accounting ~~2001,~~for wethe ~~incurred~~Impact aof ~~restructuring~~the ~~charge~~Hurricane ofDamage $1to Florida Properties. In August and September 2004,~~080~~ inhurricanes ~~connection~~caused ~~with operational~~substantial ~~changes~~damage atto a number of our ~~corporate~~hotels ~~headquarters~~located in Florida. The ~~restructuring~~hurricane ~~included~~damage and local evacuation ~~eliminating~~orders ~~seven~~also ~~corporate~~caused ~~staff~~significant ~~positions~~business ~~and~~interruption ~~office~~at ~~space~~many noof ~~longer~~our ~~needed under~~Florida properties, including the ~~new~~complete ~~structure.~~closure ~~During~~of ~~2002,~~certain wehotels. ~~applied~~As ~~$156~~a result, eight of ~~lease~~our ~~termination costs~~hotels ~~against~~were ~~the~~closed ~~restructuring~~for ~~reserve.~~an ~~Approximately~~extended ~~$236~~period of ~~the restructuring~~time, ~~accrual~~and ~~remains~~four atothers ~~September 30,~~were ~~2002.~~affected in varying degrees.

10We have comprehensive insurance coverage for both property damage and business interruption. ~~CONSOLIDATING~~ ~~FINANCIAL~~Some ~~INFORMATION~~properties are requiring substantial repair and reconstruction and have remained closed while such repairs are completed. Our recovery effort is extensive and includes replacing portions of buildings, landscaping and furniture, as well as upgrading to comply with changes in building and electrical codes. As of June 30, 2005, the net book value of the property damage is estimated to be at least $65.5 million; however, we are still assessing the impact of the hurricanes on our properties, and final net book value write-offs could vary from this estimate. Changes to this estimate will be recorded in the periods in which they are determined. We have recorded a corresponding insurance claim receivable for this $65.5 million net book value amount because we believe that it is probable that the insurance recovery, net of deductibles, will exceed the net book value of the damaged portion of these assets. The recovery is based on replacement cost, and we have submitted claims substantially in excess of $65.5 million.

~~Certain~~While ofwe ~~our~~expect ~~subsidiaries~~the ~~and~~insurance ~~MeriStar~~proceeds ~~Hospitality~~will ~~are~~be ~~guarantors~~sufficient ofto ~~senior unsecured~~cover ~~notes.~~most ~~Our~~of ~~guarantor~~the ~~subsidiaries~~replacement ~~also~~cost ~~guarantee~~of the ~~unsecured~~restoration of these hotels, certain deductibles ~~subordinated~~(primarily ~~notes~~windstorm) ofand ~~MeriStar~~limitations ~~Hospitality~~will apply. ~~All~~Moreover, ~~guarantees~~while we are ~~full~~receiving and ~~unconditional,~~ ~~and~~expect ~~joint~~to ~~and~~continue ~~several.~~to ~~Exhibit 99.1~~receive tointerim ~~this~~insurance ~~Quarterly~~payments, ~~Report~~no ~~on Form 10-Q~~determination ~~presents~~has ~~supplementary~~been ~~consolidating~~made ~~information~~as ~~for~~to ~~us,~~the ~~our non-guarantor~~total ~~subsidiaries,~~amount ~~and~~or ~~each~~timing of ~~our~~those ~~guarantor~~insurance ~~subsidiaries.~~payments, ~~The~~and those ~~supplementary~~insurance ~~consolidating~~payments ~~information~~may innot ~~Exhibit 99.1~~be ~~presents~~sufficient ~~our consolidating~~to ~~balance~~cover ~~sheets~~the ascosts of ~~September 30,~~all ~~2002~~the ~~and~~restoration ~~December 31~~of the hotels. To the extent that insurance proceeds, ~~2001~~which are calculated on a replacement cost basis, ~~consolidating~~ ~~statements~~ultimately ofexceed ~~operations~~the ~~for~~net ~~each~~book value of the ~~three~~damaged ~~and~~property, a ~~nine~~gain ~~months ended~~will ~~September 30,~~be ~~2002~~recorded ~~and~~in ~~2001,~~the ~~and~~period ~~consolidating~~when ~~cash~~all ~~flows~~contingencies ~~for~~related to the ~~nine months~~insurance ~~ended~~claim ~~September 30,~~have ~~2002~~been ~~and 2001~~resolved.

12As of June 30, 2005 and August 2, 2005, three of our Florida properties remained substantially closed due to hurricane damage. Additionally, as of June 30, 2005 and August 2, 2005, one property that suffered varying amounts of hurricane damage had certain guest rooms, its restaurants, lounge, registration area and conference facilities out of service. Where possible and in order to mitigate loss of revenues, some permanent repairs to damaged properties were deferred during the Florida “high season,” which generally lasts from late December through early April, in order to have facilities available to meet demand. These damaged facilities will be removed from service for permanent repairs at a later date. We have hired consultants to assess our business interruption claims and are currently negotiating with our insurance carriers regarding the amount of sustained income losses. To the extent that we are entitled to a recovery under the insurance policies, we will recognize a receivable when it can be demonstrated that it is probable that such insurance recovery will be realized. Any gain resulting from business interruption insurance for lost income will not be recognized until all contingencies related to the insurance recoveries are resolved and collection of the relevant payments is probable. These income recognition criteria will likely often result in business interruption insurance recoveries being recorded in a period subsequent to the period that we experience lost income from the affected properties, resulting in fluctuations in our net income that may reduce the comparability of reported quarterly results for some periods into the future.

11Under these income recognition criteria, during the three and six months ended June 30, 2005, we have recorded a business interruption recovery gain of $2. ~~DISPOSITIONS~~0 million and $4.3 million, respectively, due to receiving recognition of a minimal level of business interruption profit that the insurance companies are willing to recognize without any contingencies at this time for certain of our hurricane-affected properties. Our business interruption claims substantially exceed the amount of this minimal recognition to date. We ultimately expect to recognize additional business interruption insurance profit as we proceed further through the claims process.

OnThrough ~~August 1~~June 30, ~~2002~~2005, we ~~sold~~have ~~three~~incurred ~~hotels~~recoverable ~~for~~costs ~~$25,150,~~related ~~which~~to ~~resulted~~both inproperty adamage ~~loss~~and onbusiness interruption ~~sale~~recoveries oftotaling ~~assets of~~ $~~6,403~~64.9 ~~($6,275, net of tax)~~million. ~~Revenue~~In ~~and~~addition, ~~pre-tax~~we ~~income included~~recorded ina ~~discontinued~~receivable ~~operations~~of ~~for~~$65.5 ~~these~~million ~~three~~related ~~hotels~~to ~~were:~~ the

	Three months ended					Nine months ended
	September 30					September 30,
	2002			2001		2002		2001
Revenue	$	981		$	3,506	$	7,233	$	9,779
Pre-tax income (loss)	$	(237	)	$	558	$	635	$	2,264

12. SUBSEQUENTTable EVENTS of Contents

Onwrite-off ~~October 29,~~of ~~2002,~~the wenet ~~entered~~book ~~into~~value aof ~~new~~the ~~three-year~~damaged portion of our assets. We had collected $100~~,000~~.2 ~~senior~~million in insurance ~~unsecured~~advances ~~revolving~~through ~~credit~~June ~~facility~~30, 2005. ~~The~~We ~~initial~~have ~~interest~~collected ~~rate~~an ~~30-day~~additional ~~LIBOR~~$2.5 ~~plus~~million ~~388 basis~~in ~~points.~~insurance Weproceeds ~~repaid~~from ~~the~~July ~~outstanding balance~~1 ofthrough ~~$14~~August 2,~~000~~ 2005. The cost recoveries are recorded on ~~our~~the ~~previous~~expense ~~credit~~line ~~facility~~item into ~~conjunction~~which ~~with~~they ~~closing~~relate; therefore there is no net impact ~~this~~to ~~facility~~any line item or our results.

~~On November 6, 2002, we sold one hotel for $12,500.~~ The ~~book~~following ~~carrying~~is ~~value~~a ofsummary ~~this hotel at the date~~ of ~~sale was~~ ~~approximately~~hurricane-related ~~$26,000.~~activity Inrecorded ~~the~~(in ~~fourth~~millions): ~~quarter, we will record a loss on sale from the disposition of this hotel of approximately $13,500.~~

SFAS No. 144 requires companies to classify long-lived assets as held for sale (as opposed to held for use) as of a balance sheet date if several criteria are met. One of those criteria is that the sale of the asset must be considered probable (that is, likely to occur) as of the balance sheet date. As of September 30, 2002, we did not consider the sale of this asset to be probable and therefore we did not meet the criteria according to SFAS No. 144 to classify this hotel as held for sale on our balance sheet and to reclassify the operations of the hotel to discontinued operations on our statement of operations. We did not consider this sale probable as of September 30, 2002 for the following reasons:


Insurance claim receivable June 30, 2005
Fixed assets net book value write down	$	65.5
Recoverable costs incurred		64.9
Business interruption insurance gain		4.3
Payments received		(100.2	)

	$	34.5

•New ~~although~~Accounting Pronouncements. weIn ~~had~~December ~~listed~~2004, ~~this~~the ~~property~~FASB toissued beSFAS ~~sold~~No. ~~with~~123 an(revised ~~independent~~2004), ~~broker~~“Share-Based ~~prior~~Payment,” towhich ~~September~~requires ~~30,~~companies ~~2002,~~to werecognize ~~believed~~compensation ~~the~~cost ~~probability~~relating ofto ashare-based ~~sale~~payment ~~within~~transactions, ~~one~~and ~~year~~measure ~~was~~that ~~low.~~cost ~~Based~~based on the ~~our~~fair ~~history~~value of ~~listing assets for possible sale, we expected~~ the ~~listing,~~equity ~~bidding,~~or ~~and~~liability ~~negotiation~~instruments ~~process~~issued. ~~for~~We aare ~~possible~~required ~~sale, if any,~~ to becomply ~~extended;~~with • the ~~offer~~provisions toof ~~purchase~~ this ~~property~~statement ~~was~~beginning ~~received~~with ~~after~~ the ~~balance~~first ~~sheet~~quarter ~~date,~~of in2006. ~~mid-October~~We ~~2002;~~do •not expect the ~~offer~~adoption ~~was~~of ~~received~~this ~~from~~revised astandard ~~new~~to ~~prospective~~have ~~buyer~~a ~~with~~material ~~whom~~effect on weour ~~had~~accounting notreatment ~~previous~~for ~~dealings~~share-based ~~and~~payments, ~~therefore~~as itwe ~~was~~adopted ~~difficult to assess~~ the ~~potential~~transition ~~buyer’s~~provisions ~~ability~~of orSFAS ~~willingness~~No. to148, ~~close~~“Accounting afor ~~transaction~~Stock-Based onCompensation a– ~~timely~~Transition ~~basis;~~and •Disclosure” ~~the~~on ~~buyer~~January ~~was~~1, ~~not~~2003 ~~willing~~and elected to ~~put~~recognize compensation upexpense afor ~~nonrefundable~~options ~~deposit;~~granted ~~and~~subsequent •to weDecember ~~did~~31, ~~not~~2002 ~~have~~under anthe ~~executed~~fair-value-based ~~sales contract until November 4, 2002~~method.

~~Based~~The onFASB ~~the~~issued ~~reasons~~Statement ~~above~~No. 153, we“Exchanges ~~did~~of ~~not~~Nonmonetary ~~consider~~Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary ~~this~~Transactions” ~~property~~in asDecember ~~held~~2004. This Statement amends Opinion 29 to eliminate the exception for ~~sale~~nonmonetary asexchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. We are required to comply with the ~~balance~~provisions ~~sheet~~of ~~date~~this statement for the third quarter of 2005. We have not entered into or modified any transactions within the scope of this standard, nor do we have any existing transactions that fall within the scope of SFAS No. 153.

In ~~addition~~June 2005, asthe FASB ofissued ~~September~~Statement ~~30,~~No. ~~2002~~154, we“Accounting ~~did~~Changes ~~not consider~~and ~~this~~Error ~~property~~Corrections ~~impaired~~a inReplacement ~~accordance with the provisions~~ of ~~SFAS~~APB Opinion No. ~~144. In~~20 ~~situations~~and ~~when~~FASB ~~the~~Statement ~~criteria of SFAS~~ No. ~~144~~3”, ~~are~~which ~~met~~changes tothe ~~classify~~requirements ~~an asset as held~~ for ~~sale after~~ the ~~balance~~accounting ~~sheet~~for ~~date~~and ~~but~~reporting ~~before~~of ~~issuance~~a ofchange ~~the~~in ~~financial~~accounting ~~statements~~principle, ~~SFAS~~and ~~No.~~applies ~~144~~to ~~requires~~all ~~that~~voluntary ~~the~~changes ~~asset~~in ~~continue~~accounting toprinciple. beThis ~~classified~~Statement ~~as held~~requires ~~and~~retrospective ~~used~~application into ~~those~~prior periods’ financial statements ~~when~~of ~~issued.~~changes Wein ~~tested~~accounting principle, unless the ~~asset~~change ~~for recoverability~~is onrequired by a ~~held~~new pronouncement and ~~used~~the ~~basis~~pronouncement asstates ofspecific ~~the~~transition ~~balance~~provisions. ~~sheet~~This ~~date.~~Statement ~~The estimates~~carries offorward ~~future~~without ~~cash~~change ~~flows~~the ~~used~~guidance contained in ~~this~~Opinion ~~test~~20 ~~considered~~for reporting the ~~likelihood~~correction of ~~possible~~ ~~outcomes~~an ~~that~~error ~~existed~~in atpreviously ~~the~~issued ~~balance~~financial ~~sheet~~statements ~~date,~~and ~~including the assessment of~~a ~~the~~change ~~likelihood~~in ofaccounting ~~the future sale of the asset~~estimate. We ~~performed~~are ~~the~~required ~~recoverability~~to ~~analysis~~adopt ~~using~~this ~~a probability-weighted~~Statement ~~cash~~for ~~flows~~accounting ~~test~~changes toand ~~assess~~corrections ~~the~~of ~~asset~~errors ~~for~~made ~~possible~~during ~~impairment. Based~~and onafter the ~~results~~first quarter of ~~the~~2006. ~~probability-weighted~~We ~~cash~~do ~~flows~~not ~~test~~expect ~~for impairment,~~ the ~~carrying~~adoption ~~value~~ of this ~~asset~~statement ~~would~~to behave ~~recoverable~~a asmaterial ofeffect ~~September~~on ~~30, 2002;~~our ~~therefore~~results ~~the asset was not considered impaired as~~ of ~~that date~~operations.

WeEmerging ~~sold~~Issues ~~this~~Task ~~asset~~Force (“EITF”) inIssue ~~light~~04-5, of“Investor’s ~~the~~Accounting ~~severe~~for ~~downturn~~an Investment in ~~the~~ ~~overall~~a ~~economy~~Limited ~~that~~Partnership ~~has~~When ~~had~~the aInvestor ~~negative~~Is ~~effect~~the onSole ~~our~~General ~~operating~~Partner ~~results,~~ and ~~decreased~~ the ~~amount~~Limited ofPartners ~~cash~~Have ~~generated~~Certain Rights” was ratified by ~~our~~the ~~operations.~~FASB Wein ~~believe~~June we2005. ~~have~~At ~~sufficient~~issue ~~free~~is ~~cash~~what ~~flow~~rights ~~currently,~~held ~~and~~by ~~project~~the tolimited ~~have~~partner(s) ~~adequate~~preclude ~~cash~~consolidation ~~flow~~in circumstances in ~~future~~ ~~periods.~~which ~~Our~~the ~~current~~sole ~~and~~general ~~future~~partner ~~liquidity~~would ~~is,~~consolidate ~~however,~~the ~~greatly~~limited ~~dependent upon~~partnership. ~~our~~The ~~operating~~assessment ~~results,~~of ~~which~~limited ~~are~~partners’ ~~driven~~rights ~~largely~~and bytheir ~~overall~~impact ~~economic~~on the ~~conditions.~~presumption Ifof control of the ~~general~~limited ~~economic~~partnership ~~conditions~~by ~~continue~~the tosole general partner should be ~~depressed~~made ~~for~~when an ~~extended~~ ~~period,~~investor ~~this~~becomes ~~would~~the ~~negatively~~sole ~~impact~~general ~~our~~partner ~~projections~~and ~~of available~~should ~~cash~~be ~~flow~~reassessed ~~and~~if ~~liquidity.~~there Inis ~~order~~a change to ~~maintain~~the ~~our~~terms ~~current~~or ~~operating flexibility~~in ~~and~~the ~~establish~~exercisability aof ~~further~~the ~~cushion~~rights ~~against~~of the limited ~~slowed~~partners, ~~economy~~the ~~and future~~sole ~~economic~~general ~~and~~partner ~~other~~increases ~~uncertainties,~~or wedecreases ~~are~~its ~~taking~~ownership ~~several~~of ~~steps~~limited topartnership ~~further improve~~interests, ~~our~~or ~~liquidity.~~there ~~One~~is ofan ~~these~~increase ~~steps~~or isdecrease in the ~~marketing~~number of ~~non-core~~outstanding ~~assets~~limited partnership interests. We ~~elected~~are required to adopt the provisions ~~sell~~of ~~this~~EITF ~~asset~~Issue ~~principally~~04-5 ~~because~~for the first quarter of 2006, and for the ~~rapid~~third ~~closing~~quarter ~~offered~~of by2005 ~~the~~for ~~seller~~new or modified arrangements. ~~This~~ ~~allowed~~We usdo tonot ~~improve~~expect ~~our~~the ~~short-term~~adoption ~~liquidity~~of ~~and~~this ~~provide~~EITF anto ~~additional cushion~~have ~~against~~a ~~future~~material ~~operating~~effect ~~results~~on our financial statements.

13Reclassifications. Certain prior period information has been reclassified to conform to the current period presentation. These reclassifications have no impact on consolidated net income (loss).

~~ITEM~~9 ~~2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

GENERAL Table of Contents

~~We are a subsidiary operating partnership of MeriStar Hospitality Corporation~~3. We ~~own~~Comprehensive aIncome ~~portfolio~~(loss) of upscale, full-service hotels in the United States and Canada. Our portfolio is diversified by franchise and brand affiliations. As of September 30, 2002, we owned 109 hotels, with 28,099 rooms, all of which are leased by our taxable subsidiaries and managed by Interstate Hotels & Resorts, Inc. Interstate Hotels was created on July 31, 2002 through the merger of MeriStar Hotels & Resorts, Inc. and Interstate Hotels Corporation.

WeComprehensive ~~were~~loss ~~created~~equaled onnet ~~August 3,~~income ~~1998,~~(loss) asfor athe ~~result~~three ofand ~~the~~six ~~merger~~months ~~between~~ended ~~CapStar Hotel~~June ~~Company~~30, ~~and~~2005, ~~American~~as ~~General~~we ~~Hospitality~~no ~~Corporation,~~longer ~~and~~have ~~the subsequent~~foreign ~~formation~~operations. ofComprehensive ~~MeriStar~~loss ~~Hospitality,~~was ~~the~~$10.8 ~~merged~~million ~~entity~~and $52.0 ~~MeriStar~~million ~~Hospitality,~~for ~~a real~~the ~~estate~~three ~~investment~~and ~~trust,~~six ormonths ~~REIT,~~ended isJune ~~our~~30, ~~general~~2004, ~~partner~~respectively, ~~and~~which ~~owns~~consisted aof ~~one percent~~net ~~interest~~loss in($12.1 usmillion asand of$52.9 ~~September 30~~million, ~~2002.~~respectively) ~~The~~and ~~limited~~foreign ~~partners~~currency ~~are as~~translation ~~follows:~~ adjustments.

	•		MeriStar LP, Inc., a wholly-owned subsidiary of MeriStar Hospitality, which owns approximately a 90 percent interest as of September 30, 2002; and
	•		various third parties, which owned an aggregate interest of nine percent at September 30, 2002.

4. Acquisitions

~~Partners’~~On ~~capital~~May ~~includes~~10, ~~the~~2004 ~~partnership interests of MeriStar Hospitality~~ and ~~MeriStar~~June LP25, ~~Inc. MeriStar Hospitality held 483~~2004,~~745~~ ~~common~~we OPacquired ~~units~~the as366-room ~~of September 30~~Ritz-Carlton, Pentagon ~~2002.~~City ~~MeriStar~~in LPArlington, ~~Inc.~~Virginia ~~held~~and ~~44,561,665 common OP units as of September 30, 2002. Due to~~ the ~~redemption~~485-room ~~rights~~Marriott ofIrvine ~~the~~in ~~limited~~Orange ~~partnership units~~County, ~~held~~California, ~~by third parties~~respectively, ~~these~~for ~~units~~a ~~have~~total ~~been~~purchase ~~excluded~~price ~~from~~of ~~partner’s capital~~$185.5 ~~and~~million, ~~classified~~plus asnet ~~Redeemable~~acquisition OPcosts ~~units~~ and ~~are~~adjustments ~~recorded~~of ~~at redemption value~~$0.9 ~~At September 30, 2002, there were 4,296,307 redeemable units outstanding~~million.

OnThe ~~January 1,~~acquisitions ~~2001,~~were ~~changes~~accounted tofor under the ~~federal~~purchase ~~tax~~method ~~laws~~of ~~governing real estate~~accounting, ~~investment~~and ~~trusts~~the ~~became~~assets ~~effective.~~and ~~Those~~liabilities ~~changes~~and ~~are~~results ~~commonly~~of ~~known~~operations asof the ~~REIT~~ ~~Modernization~~hotels ~~Act,~~have orbeen ~~RMA~~consolidated in our financial statements since the date of purchase. ~~The~~On ~~RMA~~an ~~permits~~unaudited ~~real~~pro ~~estate~~forma ~~investment~~basis, ~~trusts to~~revenues, ~~create~~net ~~taxable~~income ~~subsidiaries~~and ~~that~~basic ~~are~~and ~~subject~~diluted toloss ~~taxation~~per ~~similar~~unit tofor the ~~subchapter~~three ~~C-Corporations.~~and ~~Because~~six ofmonths ~~the~~ended ~~RMA~~June 30, we2004 would have ~~created~~been areported ~~number~~as ~~of these~~follows ~~taxable~~if ~~subsidiaries~~the toacquisitions ~~lease~~had ~~our~~occurred ~~real~~at ~~property.~~the ~~The~~beginning ~~RMA~~of ~~prohibits~~each ~~our taxable~~of ~~subsidiaries~~the ~~from~~respective ~~engaging~~periods (in ~~the~~thousands, ~~following~~except ~~activities~~per unit amounts):

• managing the properties they lease (our taxable subsidiaries must enter into an “arms length” management agreement with an independent third-party manager that is actively involved in the trade or business of hotel management and manages properties on behalf of other owners), • leasing a property that contains gambling operations; and • owning a brand or franchise.


	Three Months Ended June 30, 2004			Six Months Ended June 30, 2004
Total revenue	$	227,046		$	431,516
Net loss		(10,709	)		(50,773	)
Net loss per unit:
Basic and diluted	$	(0.12	)	$	(0.64	)

We believe establishing taxable subsidiaries to lease the properties we own provides an efficient alignment of and ability to capture the economic interests of property ownership. Our taxable subsidiaries are parties to management agreements with a subsidiary of Interstate Hotels to manage our hotels. Under these management agreements, the taxable subsidiaries pay a management fee to Interstate Hotels for each property. Our taxable subsidiaries in turn make rental payments to us under the participating leases. Under the management agreements, the base management fee is 2.5~~% of total hotel revenue~~. ~~Interstate~~ ~~Hotels~~Property ~~can~~and ~~also earn incentive management fees, based on meeting~~Equipment performance thresholds, of up to 1.5% of total hotel revenue. All of the agreements, except for four agreements with terms that renew annually, have an initial term of 10 years with three renewal periods of five years each at the option of Interstate Hotels, subject to some exceptions.

~~Business~~Property ~~Summary~~and equipment consisted of the following (in thousands):

Our results continue to reflect a slowed economy which has caused substantial declines in business and leisure travel demand nationwide. Our group business improved during the first three quarters of 2002 but our transient business continues to be significantly lower than prior to the terrorist attacks on September 11, 2001, and also lower than our initial internal projections for 2002. Overall, our occupancies were ahead of our internal plan for the first three quarters of 2002, but our average daily rate was lower than we projected. We will continue to work with Interstate Hotels to focus on cost


	June 30, 2005		December 31, 2004
Land	$	241,528	$	244,088
Buildings and improvements		1,928,195		1,926,813
Furniture, fixtures and equipment		315,127		295,562
Construction-in-progress		170,826		115,257

	$	2,655,676	$	2,581,720

14We incurred no impairment losses during the first quarter of 2005. During the second quarter of 2005, we recognized an impairment loss of $2.8 million which is recorded in discontinued operations (see Note 12). During the first and second quarters of 2004, we recognized impairment losses of $5.0 million and $2.4 million, respectively, of which $5.0 million and $2.1 million, respectively, are recorded in discontinued operations as of June 30, 2005 (see Note 12).

~~reduction~~The impairment charges recorded during 2005 and ~~control~~2004 ~~measures~~were attriggered ~~our~~by ~~hotels~~an expectation that a property would be sold significantly before the end of its estimated useful life. WeThe ~~have~~impairment ~~also~~charges ~~shifted~~were based on our ~~marketing~~ ~~efforts~~estimates ~~towards~~of ~~our~~the ~~group~~fair ~~and~~value ~~leisure~~of ~~business~~the ~~customers.~~properties Wewe ~~expect~~were actively marketing based on available market data. ~~year-over-year~~These ~~performance~~estimates ~~measures~~required us to ~~improve~~make inassumptions about the ~~fourth~~sales ~~quarter~~prices that we expected to realize for each property as well as the timing of ~~2002~~a potential sale. In making these estimates, we considered the operating results of the assets, the market for comparable properties, and inquotes ~~2003~~from brokers, ~~but~~among other information. In nearly all cases, our ~~business~~estimates isreflected ~~highly~~the ~~dependent~~results ~~upon~~of ~~general~~an ~~economic conditions~~extensive marketing effort and negotiations with prospective buyers. Actual results could differ materially from these estimates.

~~The September 11, 2001 terrorist attacks have had a dramatic effect on the insurance and reinsurance industries~~6. ~~Companies~~Assets inHeld all industry segments are experiencing increases in premiums and restriction of coverage upon renewal of their insurance programs. Some have experienced an inability to obtain insurance. Our facility requires our property insurance carriers to be rated AA or better by Standard & Poors, or S&P. Our manager, Interstate Hotels, is responsible for ~~securing~~Sale property insurance for our properties. In June 2002, Interstate Hotels renewed all expiring programs and obtained coverage from carriers that are appropriately rated by S&P. As the effects of the terrorist attacks on September 11, 2001 are more fully reflected on the financial statements of insurers and reinsurers, however, their ratings may change. If we are unable to maintain insurance that meets our debt covenant requirements and if we are unable to amend or waive those covenants, it could have a material adverse effect on our liquidity and our business. Our total annual property and casualty insurance premiums are approximately $31 million under our renewed policies.

~~Relationships~~At ~~with~~December ~~Interstate~~31, ~~Hotels~~2004, none of our properties met the criteria as prescribed by SFAS No. 144 to classify them as held for sale. At June 30, 2005, one of our properties met our criteria for classification as held for sale. In July 2005, this property was sold. No other assets met the criteria as prescribed by SFAS No. 144 to classify them as held for sale.

~~Since~~10 our formation in 1998, we have had close operating, management and governance relationships with the manager of our hotel properties, MeriStar Hotels (now part of Interstate Hotels). Interstate Hotels manages all of our hotel properties under long-term management contracts. We have shared several key management personnel with Interstate Hotels, and our board of directors has four members who also serve on Interstate Hotels’ board of directors. Due to the merger of Interstate Hotels Corporation and MeriStar Hotels and the resulting increased scale and size of Interstate Hotels, we and Interstate Hotels plan to separate more completely the management teams of the two companies. This separation of management will eliminate all but one shared management position between the two companies. It will allow each company to provide additional, dedicated resources for the management of each respective company. Paul W. Whetsell will remain Chairman and Chief Executive Officer of both companies, but we do not expect any other management positions to be shared between the companies. This plan to further separate the management teams will mainly affect the legal, finance and accounting, and development departments. On November 4, 2002, we announced that Donald D. Olinger will join our company as chief financial officer in December. John Emery previously performed the duties of chief financial officer. On November 5, 2002, we announced that John Emery, who is also our president and chief operating officer, would resign from those positions. Mr. Emery will continue to serve as president and chief operating officer of Interstate Hotels. Bruce Wiles who was our chief investment officer, will be our new chief operating officer. Mr. Olinger will also serve as our chief accounting officer. James A. Calder, our current chief accounting officer, will resign from that position. Mr. Calder will continue to serve as chief financial officer of Interstate Hotels. We expect to complete all other separation of management positions by the first quarter of 2003.

CriticalTable Accountingof Policies Contents

~~Preparing~~Assets ~~financial~~held ~~statements~~for insale ~~conformity~~as ~~with accounting principles generally accepted in the United States~~ of ~~America~~June requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis30, we2005 ~~evaluate~~consisted ~~our estimates and judgments, including those related to the impairment~~ of ~~long-lived assets and~~ the ~~recording~~following of(in ~~certain~~thousands): accrued liabilities. Some of our estimates are material to the financial statements. These estimates are therefore particularly sensitive as future events could cause the actual results to be significantly different from our estimates.

Our critical accounting policies are as follows:


	June 30, 2005
Land	$	392
Buildings and improvements		4,332
Furniture, fixtures and equipment		264
Construction-in-progress		75

	$	5,063

•7. ~~Impairment~~Investments ofin ~~long-lived~~Unconsolidated Affiliates ~~assets; • Estimating certain accrued liabilities; and • Determining the impact of future interest rate changes on our statement of operations.~~

~~Impairment~~Investment ofin ~~long~~Radisson Lexington Avenue Hotel. On October 1, 2004, we acquired a 49.99% interest in the 705-~~lived~~room ~~assets~~Radisson Lexington Avenue Hotel in Midtown Manhattan. We made a total investment of $50 million, which includes a $40 million mezzanine loan that matures on October 1, 2014 and yields $5.8 million of cumulative annual interest, and a $10 million equity interest in the hotel. The mezzanine loan is secured by a pledge of the equity interests held by the borrower in an indirect parent of the owner of the hotel, and has a 10-year term. The loan is subordinate to $150 million in senior notes, but has priority over all equity interests.

~~Whenever~~Our ~~events~~equity orinvestment ~~changes~~is inaccounted ~~circumstances~~for ~~indicate~~under ~~that~~ the ~~carrying~~equity ~~value~~method of accounting, in accordance with our accounting policies as described in Note 2 to the aconsolidated ~~long-lived~~financial ~~asset~~statements. ~~(including~~The ~~property~~interest income from the loan, as well as the income related to the 49.99% share in profits and ~~equipment~~losses, is recorded in a separate line “equity in income/loss of and ~~all~~interest ~~intangibles)~~earned ~~may~~from unconsolidated beaffiliates” ~~impaired,~~within weoperating ~~perform~~activities anas ~~analysis~~the operations of this investment are integral to ~~determine~~our operations. During the ~~recoverability~~three and six months ended June 30, 2005, we recognized interest income of ~~the~~$1.4 million and $2.9 million, respectively, on ~~asset’s~~the ~~carrying~~mezzanine ~~value~~loan, which is recognized as earned. ~~The~~Our ~~carrying~~outstanding ~~value~~loan balance of ~~the~~$40.5 ~~asset~~million includes $0.5 million of unamortized origination costs associated with the ~~original~~loan. Our initial equity investment balance of $10.1 million includes $0.1 ~~purchase~~million ~~price~~of external costs incurred. During the three and six months ended June 30, 2005, we recognized $0.2 million and (~~net~~$1.2) million, respectively, of ~~depreciation~~equity in income (losses) ~~plus~~on ~~the~~our ~~cost~~equity ofinvestment. ~~all~~

15Investment in MIP. In 1999, we invested $40.0 million in MeriStar Investment Partners, L.P. (“MIP”), a joint venture established to acquire upscale, full-service hotels. Our cost-basis investment is in the form of a limited partnership interest, in which we earned (through December 9, 2004) a 16% cumulative preferred return with outstanding balances compounded quarterly. In accordance with MIP’s December 2004 amended and restated partnership agreement, the return on our investment and on our remaining unpaid accrued preferred return was reduced to a 12% annual cumulative return rate, and is subordinate only to the MIP debt; and $12.5 million of our $40.0 million investment was upgraded to receive preference in liquidation over all other investments.

~~capital~~During ~~improvements (net of depreciation). We make estimates of~~ the ~~undiscounted~~ ~~cash~~fourth ~~flows~~quarter ~~from the expected future operations~~ of ~~the asset. If the analysis indicates that the carrying value is not recoverable from future cash flows~~2003, we ~~write~~recognized ~~down~~a ~~the asset to estimated fair value and recognize an impairment loss~~$25.0 ~~Any~~million impairment ~~losses we recognize are recorded as operating~~ ~~expenses.~~loss Weon ~~did~~this ~~not~~investment ~~recognize~~since, ~~any~~at ~~impairment~~that ~~losses~~time, ~~for~~ the ~~nine~~decline ~~months~~in ~~ended September 30, 2002. We did recognize an impairment loss of $43.6 million during~~ the ~~fourth~~underlying ~~quarter~~value of ~~2001~~our toinvestment ~~write-down~~was ~~certain~~deemed ~~hotel~~other ~~assets~~than temporary. ~~These write-downs~~There ~~resulted~~have ~~from~~been ~~the~~no ~~negative impact of~~ changes in ~~the~~circumstances ~~economic climate~~in on2004 ~~the~~and ~~value~~2005 ofthat ~~these~~would ~~assets.~~require ~~Based~~an onadditional ~~current~~impairment. ~~economic conditions and~~After ~~our~~recognition ~~continuing~~of ~~forecast~~this ~~and~~impairment ~~outlooks for future periods~~loss, wethe ~~may~~book bevalue ~~required~~of ~~in future~~the ~~periods~~original toinvestment ~~recognize~~is ~~additional~~$15.0 ~~impairment charges if warranted by then current economic and operational forecasts~~million.

~~Estimating~~In ~~certain~~February ~~accrued~~2005, ~~liabilities~~MIP completed a $175 million commercial mortgage-backed securities financing, secured by its portfolio of eight hotels. Upon the completion of the financing in February 2005, we received a distribution of $15.5 million, which was applied to reduce our outstanding accrued preferred returns receivable to approximately $4 million.

~~Estimates~~As ~~for~~of ~~certain~~June ~~accruals~~30, ~~such~~2005, asour ~~real~~total ~~and~~MIP ~~personal~~carrying ~~property~~value ~~taxes~~was ~~could have a material effect on our financial statements~~$22.1 ~~Currently~~million, ~~we estimate real~~ ~~and~~consisting ~~personal property taxes based on a combination~~ of ~~preliminary~~the ~~estimates from~~$15.0 ~~state~~million ~~and~~adjusted ~~local~~investment ~~jurisdictions,~~balance and ~~historical information~~$7.1 ~~The~~million ~~assessed values~~ of ~~these~~accrued ~~properties~~preferred ~~could~~returns ~~change significantly from the values or rates we use in our estimates~~receivable.

~~Property~~We ~~tax~~recognize ~~assessments are subject to periodic and often lengthy appeals. For example, in instances where a jurisdiction increases~~ our ~~assessed~~preferred ~~value,~~return ~~we frequently~~quarterly ~~appeal that assessment. Similarly, when hotel operations are declining, we may appeal an assessment~~ as ~~too high if~~ it isbecomes ~~based~~due ~~on past operating results. These appeals of assessed values are subject~~ to ~~a potentially wide range of outcomes~~us. AsThe aincome, ~~result~~net of ~~the~~related ~~economic slowdown and events of September 11~~expense, ~~2001,~~if ~~we have filed a number of appeals for lower assessments. As of September 30~~any, ~~2002,~~is werecorded ~~had ongoing appeals~~ in ~~several jurisdictions with respect to approximately nine properties. We accrue for property tax liabilities based on what we believe is a reasonable judgment of~~ the ~~most~~“equity ~~likely outcome of the appeals. We believe our experience~~ in ~~pursuing~~ ~~reductions~~income/loss through the appeals process is very favorable — for example, during the nine months ended September 30, 2002 we completed the appeals process for 1997 through 2001 for approximately 25 properties. Of these appeals, three of ~~the~~ ~~larger~~and ~~ones~~interest ~~resulted~~earned ~~in refunds of approximately $2.7 million~~ from ~~taxing authorities.~~unconsolidated Weaffiliates” ~~cannot~~line ~~predict~~within ~~with~~operating ~~certainty~~activities as the ~~outcome~~operations of ~~these~~this ~~appeals,~~investment ~~or their~~are ~~effect~~integral onto our ~~accruals for such items~~operations. ~~Also,~~For ~~actual property tax expense could vary greatly from our estimates used for~~ the ~~current~~three ~~property tax accrual based on a change in the assessed value, a change in the tax rate, and/or a different outcome of the appeals process than we currently expect.~~

~~Determining~~11 ~~impact of future interest rate changes on our statement of operations~~

SFASTable No. 133, “Accounting for Derivative Instruments and Hedging Activities,” requires a company to recognize all derivatives as either assets or liabilities in the balance sheet and record those instruments at fair value. SFAS No. 137 and No. 138 amended certain provisions of SFAS No. 133. We adopted these accounting pronouncements effective January 1, 2001. Contents

~~Our~~months ~~interest~~ended ~~rate~~June ~~risk~~30, ~~management~~2005 ~~objective~~and is2004, towe ~~limit~~recognized ~~the~~a ~~impact~~preferred return of ~~interest~~$1.3 million and $1.6 million, respectively, ~~rate~~from ~~changes~~this oninvestment. ~~earnings~~For the six months ended June 30, 2005 and ~~cash~~2004, ~~flows~~we recognized a preferred return of $2.9 Wemillion ~~assess~~and ~~interest~~$3.2 ~~rate~~million, ~~cash~~respectively, ~~flow~~from ~~risk by~~this ~~continually~~investment. ~~identifying~~As of June 30, 2005 and ~~monitoring~~December ~~changes~~31, in2004, ~~interest~~cumulative ~~rate~~preferred ~~exposures~~returns of $7.1 million and $19.7 million, respectively, were due from MIP. We expect that ~~may~~any ~~adversely~~cumulative ~~impact~~unpaid ~~expected~~preferred returns will be paid in the future from excess cash ~~flows~~flow above our current return and byfrom ~~evaluating~~potential ~~hedging~~partnership hotel disposition ~~opportunities~~proceeds in excess of debt allocated to individual assets. We doevaluate ~~not~~the ~~enter~~collectibility ~~into~~of ~~derivative~~our ~~instruments~~preferred ~~for~~return ~~any~~based ~~purpose other~~on ~~than~~our ~~cash~~preference ~~flow~~to ~~hedging~~distributions ~~purposes~~and the underlying value of the hotel properties.

~~Our interest rate swap agreements were initially designated as hedges against changes in future cash flows associated with specific variable rate debt obligations~~8. ~~As of September 30, 2002, we had three swap agreements with notional amounts totaling $300 million. These swap agreements have been converted to non~~Long-~~hedging~~Term ~~derivatives~~Debt ~~due to our repayment of the floating-rate borrowings they originally hedged~~ and ~~they~~Notes ~~are~~Payable ~~currently being marked~~ to ~~market through~~MeriStar ~~our~~Hospitality statement of operations. We have interest rate exposure going forward as the change in fair value of our non-hedging derivatives will have an impact on our statement of operations. During the three and nine months ended September 30, 2002, we recognized $1.1 million and $4.2 million of expense, respectively, related to these interest rate swaps. The fair value of these swap agreements is a liability of $6.8 million at September 30, 2002. For more information regarding our interest rate hedging activities, see “Quantitative and Qualitative Disclosures about Market Risk.”

16Long-term debt and notes payable to MeriStar Hospitality consisted of the following (in thousands):

FINANCIAL CONDITION


	June 30, 2005			December 31, 2004
Senior unsecured notes due 2011 – 9.125%	$	347,665		$	355,665
Senior unsecured notes due 2008 – 9.0%		265,500			270,500
Senior unsecured notes due 2009 – 10.5%		215,687			224,187
Secured facility, due 2009		299,765			302,979
Secured facility, due 2013		98,498			99,293
Mortgage and other debt		205,234			125,051
Unamortized issue discount		(3,212	)		(3,702	)

	$	1,429,137		$	1,373,973
Fair value adjustment for interest rate swap		(6,104	)		(4,674	)

Long-term debt	$	1,423,033		$	1,369,299

Notes payable to MeriStar Hospitality	$	202,740		$	204,225
Unamortized issue discount		(188	)		(248	)

Notes payable to MeriStar Hospitality	$	202,552		$	203,977

Total long-term debt and notes payable to MeriStar Hospitality	$	1,625,585		$	1,573,276

~~SEPTEMBER~~Aggregate future maturities as of June 30, ~~2002~~2005 ~~COMPARED~~were ~~WITH~~as ~~DECEMBER~~follows ~~31,~~(in ~~2001~~ thousands):

Our total assets decreased by $66.4 million to $2,938.2 million at September 30, 2002 from $3,004.6 million at December 31, 2001 primarily due to:


2005 (six months)	$	5,671
2006		12,031
2007		45,544
2008		280,116
2009		495,949
Thereafter		792,378

	$	1,631,689
Fair value adjustment for interest rate swap		(6,104	)

	$	1,625,585

•Credit ~~depreciation~~facility. In onAugust ~~hotel~~2005, ~~assets~~we ofcompleted a $~~86.0~~100 million; ~~and~~expansion ~~• the sale~~ of ~~three~~our ~~hotels and the use of the~~ $~~25.2~~50 million incredit ~~proceeds~~facility to ~~pay~~a ~~down~~total ~~debt;~~capacity ~~partially~~of ~~offset~~$150 bymillion. •The ~~the~~total $~~5.6~~150 million ~~increase~~facility inwill ~~accounts~~carry ~~receivable~~an ~~due~~annual tointerest ~~our~~rate ~~accrual~~ of ~~our~~the ~~preferred~~London ~~return~~Interbank onOffered ~~our~~Rate, ~~investment~~or inLIBOR, ~~MeriStar~~plus 350 ~~Investment~~basis ~~Partners.~~points, ~~(We~~which ~~accrue~~is ~~this~~100 ~~preferred~~basis ~~return~~points ~~although~~less ~~MeriStar~~than ~~Investment~~the ~~Partners~~original isannual ~~not~~interest ~~permitted~~rate toof ~~pay~~LIBOR itplus in450 ~~cash~~basis ~~until~~points. ~~they~~The ~~refinance~~additional or$100 ~~re-pay~~million ~~their~~will ~~existing~~mature ~~bank~~in ~~debt.~~August We2006 ~~evaluate~~and ~~the~~consists ~~collectibility~~ of ~~our~~$25 ~~preferred~~million ~~return~~in ~~based~~additional onrevolver ~~the~~capacity ~~underlying~~and ~~value~~$75 million of ~~the~~term ~~hotel~~loan ~~properties~~capacity. ~~MeriStar~~Asset ~~Investment~~disposition ~~Partners’~~proceeds ~~ability~~in toexcess ~~refinance~~of ~~their~~$30 ~~bank~~million ~~debt~~must isbe ~~dependent~~used ~~upon~~to ~~the~~pay ~~operations~~down ofany ~~the~~outstanding ~~hotels~~balance ~~and~~under ~~other factors); •~~ the ~~$5.1~~facility ~~million~~and ~~increase~~permanently inreduce ~~prepaid~~the ~~expenses~~availability ~~due~~if torepaying ~~increased~~borrowings ~~premiums~~under ~~paid~~the onterm ~~2003~~loan. ~~insurance~~The ~~policies;~~original $50 •million ~~net~~revolving ~~additional~~facility ~~borrowings~~matures byin ~~Interstate~~December ~~Hotels~~2006, ofas ~~$11~~originally provided.2 ~~million;~~There ~~and~~are •currently ~~capital~~no ~~expenditures~~outstanding ofborrowings ~~$35.8~~under ~~million at~~ the ~~hotels~~facility.

~~Total~~The ~~liabilities~~facility ~~decreased~~contains byfinancial ~~$37~~and other restrictive covenants.~~3 million~~ The ability to ~~$1,852.4 million~~borrow atunder ~~September~~this facility is subject to compliance with financial 30covenants, ~~2002~~including ~~from $1~~leverage,~~889~~ fixed charge coverage and interest coverage ratios and minimum net worth requirements.~~7 million~~ atCompliance ~~December 31~~with these covenants in future periods will depend substantially upon the financial results of our hotels. The agreement governing the credit facility limits our ability to effect mergers, ~~2001~~asset ~~due~~sales ~~mainly~~and change of control events and limits the payments of dividends other than those required for MeriStar Hospitality to: maintain its status as a REIT and our ability to incur additional secured and total indebtedness.

•12 net payments of long-term debt and notes payable due to MeriStar Hospitality of $30.4 million; • a $5.3 million decrease in market value of our derivative instruments; • a $6.0 million decrease in accounts payable, accrued expenses and other liabilities due to the timing of payments; and • a $3.9 million decrease in accrued interest due to the semi-annual interest payments on our senior unsecured debt issued in December 2001 and February 2002; partially offset by • a $10.0 million increase in due to Interstate Hotels primarily due to our quarterly workers compensation and general liability insurance which has not been paid as of September 30, 2002.

Long-termTable debtof and notes payable to MeriStar Hospitality decreased by $30.4 million to $1,669.7 million at September 30, 2002 from $1,700.1 million at December 31, 2001 due primarily to: Contents

•Senior ~~$210~~unsecured notes.0 ~~million~~During ofthe ~~net~~six ~~repayments~~months onended ~~our~~June ~~previous~~30, ~~revolving~~2005, ~~credit~~we ~~facility~~repurchased, using ~~proceeds~~available cash, of$21.5 ~~the~~million ~~issuance~~ of our senior unsecured notes, inconsisting ~~February~~of ~~and~~$5.0 ~~cash~~million ~~generated~~of bythe ~~operations;~~9.0% •notes due 2008, $138.0 million of the 9.125% notes due 2011, and $8.5 million of ~~net~~the ~~repayments~~10.5% notes due 2009. We recorded a loss on ~~our~~early ~~mortgage~~extinguishment of debt ~~and~~of $0.9 ~~other;~~million and •wrote off deferred financing costs of $30.82 million related to these repurchases which is included in depreciation and amortization expense on the accompanying Consolidated Statements of ~~net~~Operations. ~~repayments~~Between June 30, 2005 and August 2, 2005, using cash on ~~our~~hand, ~~facility;~~we ~~partially~~repurchased ~~offset~~an byadditional •$1.0 million of our 9.0% notes due 2008, $~~200~~5.0 million (of our 9.125% notes due 2011, and $~~196~~6.28 million of our 10.5% notes due 2009, ~~net~~and recorded an additional loss on early extinguishment of debt ~~discount)~~of in$1.0 ~~senior~~million ~~unsecured~~and ~~notes~~wrote ~~issued~~off indeferred ~~February~~financing costs of $0.1 million.

~~Redeemable~~Notes OPpayable ~~units~~to atMeriStar ~~redemption~~Hospitality. ~~value~~During ~~decreased~~the six months ended June 30, 2005, we repurchased, using available cash, $211.0 5 million ~~due~~of ~~primarily to~~our ~~less~~8.75% ~~capital~~notes ~~allocated~~payable to ~~redeemable~~MeriStar OPHospitality ~~unitholders~~due as2007 (plus $0.06 million of accrued interest). We recorded a ~~result~~loss on early extinguishment of ~~decreases in~~debt ~~MeriStar~~of ~~Hospitality’s~~$0.06 ~~stock~~million ~~price~~related to this activity.

~~Partners’~~In ~~capital~~July ~~decreased~~2005, $MeriStar Hospitality provided irrevocable notice that they would exercise their option to redeem all of their outstanding 8.~~0 million~~75% senior subordinated notes due 2007 at a price equal to $1their outstanding principal amount plus interest to the date of redemption. The redemption date is scheduled to be August 15,~~037~~ 2005.2 atIn ~~September~~ conjunction with MeriStar Hospitality’s redemption of these senior subordinated notes, we will redeem our 8.75% notes payable to MeriStar Hospitality due 2007 under the same terms. As of June 30, ~~2002~~2005, ~~from~~ there was $~~1,045~~32.2 7 million atprincipal ~~December 31~~amount of these notes outstanding. The redemption will total $34.2 million, ~~2001~~consisting ~~due~~of ~~primarily~~$32.7 million of principal plus interest. We expect to: record a loss on early extinguishment of debt of $0.2 million related to this activity.

•Mortgage and other debt. On January 26, 2005, we entered into a $37.67 million ofmortgage ~~net~~loan ~~loss~~on ~~for~~our ~~the~~Hilton ~~nine~~Crystal City ~~months~~hotel ~~ended~~that ~~September~~bears ~~30,~~interest ~~2002~~at ~~partially~~a ~~offset~~fixed byrate •of $5.484%. ~~million~~The ~~reduction~~mortgage inrequires ~~accumulated~~monthly ~~other~~payments ~~comprehensive~~of ~~loss~~interest ~~due~~only ~~mainly~~for ~~due~~the tofirst ~~the~~three ~~conversion~~years and then monthly payments of ~~our~~interest ~~swap~~and ~~derivatives~~principal toover ~~non-hedging~~the ~~derivatives;~~remaining •portion ~~$20.5~~of ~~million~~the ~~reduction~~ten year term of ~~capital~~the loan, ~~allocated~~with tothe ~~redeembable~~majority OPof ~~unitholders~~the asprincipal abalance ~~result~~due at the end of ~~decreases~~the inten ~~MeriStar~~year ~~Hospitality’s~~term. ~~stock~~Our ~~price;~~net ~~and~~proceeds •of $334.27 million are net of a $3.0 million escrow reserve for future capital ~~contributions~~expenditures. We incurred financing costs of $0.8 million related to this mortgage.

On June 17, 2005, we entered into a $44.0 million mortgage loan on our Hilton Clearwater hotel that bears interest at a fixed rate of 5.68%. The mortgage requires monthly payments of interest only for the first three years and then monthly payments of interest and principal over the remaining portion of the ten year term of the loan, with the majority of the principal balance due at the end of the ten year term. Our net proceeds of $40.7 million are net of a $3.3 million escrow reserve for future capital expenditures. We incurred financing costs of $1.1 million related to this mortgage.

~~RESULTS~~Derivatives. OFAs ~~OPERATIONS~~of June 30, 2005 and December 31, 2004, the fair value of our interest rate swap was approximately a $6.1 million liability and a $4.7 million liability, respectively. This amount is recorded on our Consolidated Balance Sheets in the other liabilities line with a corresponding debit recorded to long-term debt. During the three and six months ended June 30, 2005, we earned net cash payments of $0.3 million and $1.2 million, respectively, under the swap, which were recorded as a reduction in interest expense. During the three and six months ended June 30, 2004, we earned net cash payments of $1.7 million under the swap, which also were recorded as a reduction in interest expense. In conjunction with the interest rate swap, we have posted collateral of $12.3 million and $12.0 million as of June 30, 2005 and December 31, 2004, respectively, which is recorded as restricted cash. The required collateral amount fluctuates based on the changes in the swap rate and the amount of time left to maturity. During the six months ended June 30, 2005, our posted collateral ranged from $10.9 million to $18.9 million. However, due to the terms of the swap agreement, our posted collateral must be a minimum amount calculated per the agreement, which was $6.3 million as of June 30, 2005. We will receive all remaining collateral upon maturity of the swap.

~~THREE~~9. ~~MONTHS~~Partners’ ~~ENDED~~Capital ~~SEPTEMBER 30, 2002 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 2001~~

~~The~~OP ~~following~~Units. ~~table~~Our operating partnership agreement provides ~~our~~for ~~hotels’~~five ~~operating~~classes ~~statistics~~of onpartnership ainterests: ~~same~~Common ~~store basis~~OP ~~for~~Units, ~~the~~Class ~~three~~B ~~months~~OP ~~ended~~Units, ~~September 30~~Class C OP Units, ~~2002~~Class D OP Units and ~~2001~~Profits-Only OP Units, or POPs.

	2002			2001			Change
Revenue per available room	$	60.95		$	64.36			(5.3	)%
Average daily rate	$	94.36		$	97.79			(3.5	)%
Occupancy		64.6	%		65.8	%		(1.8	)%

During the six months ended June 30, 2005, MeriStar Hospitality awarded 133,937 shares of common stock to employees, with a value of $1.0 million, related to our annual incentive plan for 2004. Of these shares, 63,935 were repurchased as treasury stock to satisfy the tax withholding requirements, and 70,002 shares were

~~Overall,~~13 the lingering softness of the United States economy and the anniversary of the September 11 terrorist attacks had a negative effect on our hotels during the third quarter of 2002. This effect is evidenced by lower than anticipated transient business travel. This is reflected in the 3.5% reduction in average daily rate and the 1.8% reduction in occupancy in the third quarter 2002 compared to 2001. Our group and leisure business has been stronger than transient business travel in most markets. We have shifted our marketing efforts towards these customer groups.

TotalTable revenueof decreased $8.2 million to $235.8 million in 2002 from $244.0 million in 2001 primarily due to: Contents

	•		a $6.6 million decrease in room revenue due to a decrease in average daily rate; and
	•		a $1.8 million decrease in lease revenue following the termination of our hotel leases with Prime Hospitality.

issued. In conjunction with this award, we issued 70,002 OP Units to MeriStar Hospitality. During the six months ended June 30, 2005, we issued 6,302 OP Units to MeriStar Hospitality in conjunction with their issuance of common stock with a value of $0.04 million, related to shares issued under the employee stock purchase plan.

~~Total~~Common ~~operating~~OP ~~expenses~~Unit ~~decreased~~holders converted 39,385 and 25,141 of their OP Units, with a value of $4.0 .6 million toand $~~226~~0.81 ~~for~~million, respectively, into common stock during the ~~three~~six months ended ~~September~~ June 30, ~~2002~~2005 ~~compared~~and to2004, ~~$230~~respectively.~~8 million~~ A POPs unit holder converted 25,000 POPs for cash during the ~~same~~six ~~period~~months inended ~~2001 due~~June ~~primarily~~30, ~~to:~~ 2004.

~~• a $1~~10.8 ~~million~~Earnings ~~decrease~~(Loss) inPer ~~room~~Unit expenses due to lower occupancy; • a $4.3 million decrease in property taxes, insurance and other due to a $3.4 million decrease in property taxes and a $0.4 million decrease in leases; • $2.0 million in costs associated with a proposed merger with Felcor during 2001; and • $1.1 million restructuring costs during 2001; partially offset by • a $1.5 million increase in depreciation and amortization expenses; • a $2.5 million increase in administrative and general expenses due primarily to a $2.0 million increase in sales and marketing expense; and • a $1.1 million increase in expense for non-hedging derivatives for the three months ended September 30, 2002 due to our three swap agreements being converted to non-hedging derivatives in 2002.

~~Expense~~The ~~for~~following ~~non-hedging~~table ~~derivatives~~presents ~~represents~~ the ~~change~~computation inof ~~fair~~basic ~~value~~and ofdiluted ~~our~~earnings ~~non-hedging~~(loss) ~~derivatives,~~per ~~net~~unit of(in ~~cash~~thousands, ~~payments~~except toper ~~the~~unit ~~counterparty.~~ amounts):

Interest expense increased $2.4 million to $33.8 million for the three months ended September 30, 2002 compared to $31.4 million for the same period in 2001 due primarily to the issuance of $250 million of senior secured notes in December 2001 and $200 million of senior secured notes in February 2002 at fixed rates greater than the variable rate of the debt that was repaid.


	Three Months Ended June 30,					Six Months Ended June 30,
	2005		2004			2005			2004
Basic and Diluted Earnings (Loss) Per Unit:

Income (loss) from continuing operations	$	5,123	$	(6,299	)	$	(8,209	)	$	(34,293	)
Preferred distributions		—		—			—			(141	)

Income (loss) available to common unitholders	$	5,123	$	(6,299	)	$	(8,209	)	$	(34,434	)

Weighted average number of OP units outstanding		89,755		85,933			89,722			78,841

Basic and diluted earnings (loss) per unit from continuing operations	$	0.06	$	(0.07	)	$	(0.09	)	$	(0.44	)

In11. ~~the~~Commitments ~~third quarter of 2002, we sold three hotels~~ and ~~received $25.2 million.~~Contingencies ~~This resulted in a loss on the sale of assets of $6.3 million, net of tax.~~

In the ~~third~~course ~~quarter~~of document review with respect to the MIP restructuring, MeriStar Hospitality discovered a potential technical REIT qualification issue relating to a wholly-owned subsidiary of ~~2001~~MIP, of which we ~~sold~~are ~~one~~deemed ~~hotel~~to ~~and~~own ~~received~~a $2de minimis proportionate share.~~4 million.~~ ~~The~~In order to eliminate any uncertainty ~~sale~~regarding ~~resulted~~this inissue, MeriStar Hospitality has negotiated, subject to final approval, a ~~loss~~closing ofagreement $1with the Internal Revenue Service that resolves all REIT qualification matters with respect to this potential issue.~~1. million~~ ~~net~~As ofa partnership for federal income tax purposes, we are not directly affected by the outcome of the discussions by MeriStar Hospitality with the Internal Revenue Service.

~~NINE~~As ~~MONTHS~~part ~~ENDED~~of ~~SEPTEMBER~~our asset renovation program, as of June 30, ~~2002~~2005, ~~COMPARED~~we ~~WITH~~have ~~NINE~~entered ~~MONTHS~~into ~~ENDED~~contractual ~~SEPTEMBER~~obligations with vendors to acquire capital assets and perform renovations totaling approximately $33 million to be expended over the next 12 months. Additionally, as of June 30, ~~2001~~2005, we have entered into contractual obligations related to capital expenditures as a result of hurricanes in the amount of $33 million to be expended over the next 12 months, most of which we expect to be reimbursed by our insurance carriers.

~~The~~12. ~~following~~Dispositions ~~table provides our hotels’ operating statistics on a same store basis for the nine months ended September 30, 2002 and 2001.~~

18One hotel was disposed of in the six months ended June 30, 2005. We disposed of 15 hotels in the six months ended June 30, 2004. As of June 30, 2005, one of our hotels met our criteria for held-for-sale classification (see Note 6). None of our hotels met our criteria for held-for-sale classification as of December 31, 2004. Operating results for the hotels which either have been sold or are classified as held-for-sale, and where applicable, the gain or loss on final disposition, are included in discontinued operations.

	2002			2001			Change
Revenue per available room	$	66.24		$	75.19			(11.9	)%
Average daily rate	$	100.56		$	108.01			(6.9	)%
Occupancy		65.9	%		69.6	%		(5.3	)%

Overall,Table the slowing United States economy had a major negative effect on our hotels during the first three quarters of 2002 compared to the first three quarters 2001. This effect is evidenced by a sharp reduction in transient business travel. This is reflected in the 6.9% reduction in average daily rate and the 5.3% reduction in occupancy in the first three quarters 2002 compared to 2001. Our group and leisure business has been stronger than transient business travel in most markets. We have shifted our marketing efforts towards these customer groups. Contents

~~Total~~Summary ~~revenue~~financial ~~decreased~~information ~~$80.1 million~~for tohotels ~~$767.5 million~~included in ~~2002~~discontinued ~~from~~operations ~~$847.6 million~~is inas ~~2001~~follows ~~primarily due to:~~(in thousands):

• a $56.4 million decrease in room revenue due to a decrease in occupancy and average daily rate; • a $10.9 million decrease in food and beverage revenue due to a decrease in occupancy; • a $6.8 million decrease in other operating departments due to a decrease in occupancy; and • a $8.1 million decrease in lease revenue following the termination of our hotel leases with Prime Hospitality.


	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Revenue	$	3,209		$	17,304		$	6,281		$	42,425

Loss on asset impairments	$	(2,836	)	$	(2,120	)	$	(2,836	)	$	(7,131	)
Pretax (loss) gain from operations		164			920			(253	)		(85	)
Loss on disposal		(1,037	)		(4,584	)		(1,037	)		(11,531	)

	$	(3,709	)	$	(5,784	)	$	(4,126	)	$	(18,747	)

~~Total~~Loss ~~operating~~on ~~expenses~~disposal resulted ~~decreased~~primarily ~~$34.2 million~~from ~~to $697.6 for~~ the ~~nine~~recognition ~~months ended~~of ~~September 30,~~termination ~~2002~~fees ~~compared~~payable to ~~$731.8 million~~Interstate ~~for~~with ~~the~~respect ~~same~~to ~~period~~these inhotels’ ~~2001 due~~management ~~primarily~~contracts. ~~to:~~

~~• a $12~~13.0 ~~million~~Consolidating ~~decrease~~Financial inStatements room expenses due to lower occupancy; • a $9.1 million decrease in food and beverage expenses due to lower occupancy; • a $7.0 million decrease in property operating costs due primarily to a $3.5 million decrease in franchise costs, a $2.0 million decrease in energy costs and a $1.9 million decrease in management fees; • a $4.2 million decrease in property taxes, insurance and other due to a $5.4 million decrease in property taxes and a $0.6 million decrease in leases partially offset by a $2.8 million increase in property and general liability insurance; • $9.3 million in swap termination fees during 2001; • a $2.1 million write down of investment in STS Hotel Net during 2001; • $5.8 million in costs associated with a proposed merger with Felcor during 2001; • $1.1 million of restructuring costs during 2001; and • $1.3 million of costs to terminate leases with Prime Hospitality Corporation; partially offset by • a $4.7 million loss on fair value of non-hedging derivatives in 2002 due to the repayment of debt that was originally hedged; • a $1.5 million write-off of deferred costs due to the reduction in our borrowing capacity on our revolving credit agreement in 2002; • a $5.6 million increase in depreciation and amortization expense; • a $2.3 million increase in administrative and general expenses due primarily to a $2.9 million increase in sales and marketing expense; and • a $4.2 million increase in expense for non-hedging derivatives for the nine months ended September 30, 2002 due to our three swap agreements being converted to non-hedging derivatives in 2002.

~~Interest~~Certain ~~expense~~of ~~increased~~our ~~$10.8 million~~subsidiaries toand ~~$102~~MeriStar Hospitality are guarantors of senior unsecured notes.~~5 million~~ ~~for~~Certain ~~the~~of ~~nine~~our ~~months~~subsidiaries are guarantors of MeriStar ~~ended~~Hospitality’s ~~September 30~~unsecured subordinated notes. All guarantees are full and unconditional, ~~2002~~and ~~compared~~joint toand ~~$91~~several.~~7 million~~ ~~for~~Exhibit ~~the~~99.1 ~~same~~to ~~period~~this inQuarterly ~~2001 due~~Report ~~primarily~~on toForm ~~the~~10-Q ~~issuance~~presents our supplementary consolidating financial statements, including each of the ~~$250 million~~guarantor subsidiaries. This exhibit presents our consolidating balance sheets as of ~~senior~~June ~~secured~~30, ~~notes~~2005 in and December ~~2001~~31, ~~and~~2004, ~~$200 million~~consolidating statements of ~~senior~~operations ~~secured~~for ~~notes~~the inthree ~~February~~and ~~2002~~six ~~at fixed~~months ~~rates~~ended ~~greater~~June ~~than~~30, ~~the~~2005 ~~variable~~and ~~rate~~2004, and consolidating statements of cash flows for the ~~debt~~six ~~that~~months ~~was~~ended ~~repaid~~June 30, 2005 and 2004.

In15 ~~the third quarter of 2002, we sold three hotels and received $25.2 million. This resulted in a loss on the sale of assets of $6.3 million, net of tax.~~

InTable 2001, we paid down $300 million of term loans under our previous senior credit facility. This resulted in an extraordinary loss of $1.2 million, net of tax. Contents

In ITEM ~~2001, we sold two hotels and received $9~~2.~~7 million.~~ ~~This~~MANAGEMENT’S ~~resulted~~DISCUSSION inAND aANALYSIS ~~loss on~~OF ~~the~~FINANCIAL ~~sale~~CONDITION ofAND ~~assets~~RESULTS ofOF ~~$2.1 million,~~OPERATIONS ~~net of tax.~~

19 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

~~LIQUIDITY~~Management’s ~~AND~~Discussion ~~CAPITAL~~and ~~RESOURCES~~Analysis of Financial Condition and Results of Operations may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements, which are based on various assumptions and describe our future plans, strategies and expectations, are generally identified by our use of words such as “intend,” “plan,” “may,” “should,” “will,” “project,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity,” and similar expressions, whether in the negative or affirmative. We cannot guarantee that we actually will achieve these plans, intentions or expectations. All statements regarding our expected financial position, business and financing plans are forward-looking statements.

~~Sources~~Except for historical information, matters discussed in this Management’s Discussion and Analysis of ~~Cash~~Financial Condition and Results of Operations are subject to known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

WeFactors ~~generated~~which ~~$48.5 million~~could ofhave ~~cash from operations during the first nine months~~a ofmaterial ~~2002.~~adverse ~~Our~~effect ~~principal sources of liquidity are cash~~ on ~~hand,~~our ~~cash generated from~~ operations, and ~~funds~~future ~~from~~prospects ~~external~~include, ~~borrowings~~but ~~and~~are ~~debt~~not ~~offerings.~~limited ~~We expect~~ to: fund our continuing operations through cash generated by our hotels. We also use the periodic sales of non-core assets to generate cash. On October 29, 2002 we entered into a new $100 million revolving credit facility, under which November 6, 2002, we sold one hotel for $12.5 million. See footnote 12 of our condensed consolidated financial statements. On October 29, 2002, we entered into a new $100 million revolving credit facility, under which, as of November 12, 2002, $100.0 million was available.

We• ~~also~~economic ~~expect~~conditions togenerally ~~finance hotel acquisitions, hotel renovations~~ and ~~joint venture investments through a combination of internally generated cash, external borrowings, potential proceeds from~~ the ~~sale~~real ofestate ~~non-core~~market ~~assets and the issuance of OP Units and/or common stock.~~ specifically;

~~Factors~~• ~~that~~supply ~~may~~and ~~influence~~demand for hotel rooms in our ~~liquidity~~current ~~include:~~ and proposed market areas;

• ~~factors that affect our results of operations, including general economic conditions, demand for business and leisure travel, public concerns about travel safety and~~ other ~~operating risks described under the caption, “Risk Factors—Operating Risks” in our 2001 Annual Report on Form 10-K; •~~ factors that ~~affect~~may ~~our~~influence ~~access to bank financing and~~ the ~~capital~~travel ~~markets~~industry, including ~~interest rate fluctuations~~health, ~~operational~~safety ~~risks~~ and ~~other~~economic ~~risks described under the caption “Risk Factors—Financing Risks” in our 2001 Annual Report on Form 10-K; and • the other~~ factors ~~described under the caption, “Forward-Looking Statements.”~~;

~~Additionally,~~• MeriStar Hospitality must distribute to stockholders at least 90% of its taxable income, excluding net capital gains to preserve the favorable tax treatment accorded to real estate investment trusts under the Internal Revenue Code. MeriStar Hospitality, as our general partner, must use its best efforts to ensure our partnership distributions meet this requirement. We expect to fund such distributions through cash generated from operations and borrowings on our credit agreement. Due to the sluggish economy, we expect our taxable income to decrease in 2002 compared to 2001. Any future distributions will be at the discretion of MeriStar Hospitality’s Board of Directors and will be determined by factors including our operating results, restrictions imposed by our borrowing agreements, capital expenditure requirements, the economic outlook, the Internal Revenue Service dividend payout requirements for REITs and such other factors as our Board of Directors deems relevant. The timing and amount of any future distributions is dependent upon these factors, and we cannot provide assurance of the amounts of any such distributions that we may make in the future. competition;

~~Uses~~• cash flow generally, including the availability of ~~Cash~~ capital generally, cash available for capital expenditures, and our ability to refinance debt;

We• ~~used~~the ~~$12.8 million~~effects of ~~cash~~threats inof ~~investing~~terrorism ~~activities~~and ~~during~~increased ~~the~~security ~~first~~precautions ~~nine~~on ~~months~~travel ofpatterns ~~2002~~and ~~primarily~~demand for: hotels;

• ~~$7.0~~the ~~million~~threatened ofor ~~notes~~actual ~~receivable~~outbreak ~~from Interstate Hotels; and • $35.8 million~~ of ~~capital~~hostilities ~~expenditures at hotels; partially offset by • $25.2 million of net proceeds related to the sale of three hotels;~~ and •international apolitical ~~$4.9 million change in restricted cash.~~instability;

We• ~~used~~governmental ~~$34.4 million~~actions, ofincluding ~~cash~~new ~~from~~laws ~~financing~~and ~~activities~~regulations ~~during~~and ~~the~~particularly ~~first~~changes ~~nine~~to ~~months~~laws governing the taxation of ~~2002~~real ~~primarily~~estate ~~for:~~ investment trusts;

• ~~$30.5~~weather ~~million~~conditions ofgenerally ~~net payments on our credit facilities; • $3.4 million for additional deferred financing costs related to issuing the $200 million of senior unsecured notes in February 2002~~ and ~~the~~natural ~~$250 million senior unsecured notes in December 2001~~disasters; ~~• $2.5 million of distributions to partners; partially offset by • $3.2 million of contributions.~~

~~Capital~~• ~~Structure~~rising ~~Plan~~ interest rates; and

~~The~~• ~~severe~~changes ~~downturn~~ in ~~the overall economy has had a negative effect on our operating results, and decreased the amount of cash generated by our hotel operations~~U.S. ~~Based~~generally onaccepted ~~current~~accounting ~~expectations~~principles, wepolicies ~~believe~~and weguidelines ~~have~~applicable ~~sufficient free cash flow currently, and project~~ to ~~have~~real ~~adequate~~estate ~~cash~~investment ~~flow in the next twelve months~~trusts. ~~Our current and future liquidity is, however, greatly dependent upon our operating results, which are driven largely by overall economic conditions. If the general economic conditions continue to be~~

20These risks and uncertainties should be considered in evaluating any forward-looking statements contained in this report or incorporated by reference herein. All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are qualified by the cautionary statements in this section. We undertake no obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the date of this report.

~~depressed~~16 for an extended period, this would negatively impact our projections of available cash flow and liquidity. In order to maintain our operating flexibility and establish a further cushion against the slowed economy, we are taking several steps to further improve our liquidity. These steps include:

•Table Marketing of non-core assets — we are marketing eight to 10 non-core assets for sale. If these properties are sold, we expect to generate net proceeds of $80 million to $100 million which will be used to pay down outstanding debt. Our ability to realize these estimated proceed amounts is, however, dependent upon finding qualified buyers willing to pay a purchase price that we consider reasonable. We can give no assurance about the ultimate timing of these sales. On November 6, 2002, we sold one hotel for $12.5 million. See footnote 12 of our condensed consolidated financial statements. • Discussions on repayment of note receivable from Interstate Hotels — we are currently in discussions with Interstate Hotels about possible early repayment of their $56.1 million note payable to us. Interstate Hotels’ ability to repay this note would, however, be dependent on their ability to find an alternative source of funds to provide cash for a repayment. An early repayment of the note, if completed, would likely be at a discount to the current face amount of the note. We have not reached a conclusion as to what, if any, discount we would accept. • Establishing new senior unsecured revolving credit facility — in October 2002, we entered into a new revolving credit facility. As a result of the refinancing the credit facility, we have no significant maturities until October 2004 and have approximately $50.0 of available borrowing capacity currently. • Deferral of certain capital expenditures — we will also be shifting the majority of our 2003 planned capital expenditures to the second half of the year to allow us to better forecast our operations for the year. This deferral could have a negative effect on our properties in their markets.Contents

WeBusiness ~~believe~~Summary the combination of these items will help maintain our liquidity. To reduce the overall amount and cost of our debt, we may also look to repurchase some of our currently outstanding debt. Any such transactions, however, are subject to limits and restrictions imposed by our borrowing arrangements.

~~Long~~MeriStar Hospitality Operating Partnership, L.P. (the “Company”) is the subsidiary operating partnership of MeriStar Hospitality Corporation Commission file number 1-~~Term~~11903, ~~Debt~~(“MeriStar Hospitality,” which is a real estate investment trust, or REIT) and owns a portfolio of primarily upper upscale, full-service hotels and resorts in the United States. Our portfolio is diversified geographically as well as by franchise and brand affiliations. As of June 30, 2005, we owned 72 hotels with 20,115 rooms. Our hotels are located in major metropolitan areas, rapidly growing secondary markets or resort locations in the United States. All of our hotels are leased by our taxable subsidiaries. Seventy of these hotels were managed by Interstate Hotels & Resorts (“Interstate”), one hotel was managed by The Ritz-Carlton Hotel Company, LLC (“Ritz-Carlton”), a subsidiary of Marriott International, Inc., and one hotel was managed by another subsidiary (“Marriott”) of Marriott International, Inc. (collectively with Interstate and Ritz-Carlton, the “Managers”).

~~Our~~The ~~revolving~~Managers ~~credit~~operate ~~agreement contains customary compliance measures we must meet to borrow on~~ the ~~facility.~~72 Athotels ~~September 30, 2002,~~ we ~~did~~owned ~~not~~as ~~meet some~~ of ~~our~~ ~~compliance~~June ~~measures in that facility. However~~30, on2005 ~~October 29,~~pursuant ~~2002, we~~to ~~entered~~management ~~into~~agreements ~~a new $100 million revolving credit facility. This facility contains debt covenants~~ with ~~which~~our wetaxable ~~must comply~~subsidiaries. ~~Our~~Under ~~compliance with~~ these ~~covenants~~management inagreements, ~~future periods~~each ~~will~~taxable ~~depend~~subsidiary ~~substantially~~pays ona ~~the~~management ~~financial~~fee ~~results~~for ~~from~~each ~~our~~property ~~hotels. If we fail~~ to ~~meet a future compliance measure,~~ the ~~availability~~Manager of ~~funds~~its ~~under our credit facility might be restricted~~hotels. WeThe dotaxable ~~not,~~subsidiaries ~~however,~~in ~~currently~~turn ~~believe a~~make ~~restriction~~rental ~~would~~payments ~~have~~to ~~a material impact on~~ our subsidiary ~~operations,~~operating ~~due~~partnership tounder the ~~fact that~~participating ~~we expect to generate sufficient cash flow from operations for our operating purposes~~leases.

InUnder ~~February~~the ~~2002,~~Interstate wemanagement ~~issued $200 million ($196.2 million~~agreements, ~~net~~the ofbase ~~discount) aggregate~~management ~~principal~~fee ~~amount~~is ~~of 9~~2.135% ~~senior~~of ~~unsecured~~total ~~notes~~hotel ~~due~~revenue, ~~2011.~~plus Weincentive ~~used the~~payments ~~proceeds~~based ~~from~~on ~~the~~meeting ~~issuance~~performance ofthresholds ~~these~~that ~~notes~~could total up to ~~repay~~an ~~approximately~~additional ~~$195~~1.~~0 million~~5% of ~~the~~total ~~outstanding~~hotel ~~balance~~revenue. ~~under~~The agreements ~~our~~have ~~previous~~initial ~~senior~~terms ~~credit~~expiring ~~agreement.~~on AsJanuary ~~a result~~1, of2011 ~~this~~with ~~financing,~~three werenewal ~~redesignated~~periods ~~some~~of ~~swap~~five ~~agreements~~years aseach ~~non-hedging derivatives.~~at Wethe ~~recognized~~option aof ~~$4.7 million~~Interstate, ~~loss~~subject ~~when~~to ~~this~~some ~~amount~~exceptions. ~~was transferred~~Additionally, ~~out~~our offranchise ~~accumulated~~fees ~~other~~generally ~~comprehensive~~range ~~income~~from ~~because~~2.0% ~~the~~to ~~debt being~~7.6% ~~hedged~~of ~~was~~hotel ~~repaid.~~room revenues.

InUnder ~~February~~the ~~2002~~Ritz-Carlton and Marriott management agreements, wethe ~~amended~~base ~~our~~management ~~revolving~~fee ~~credit~~is ~~agreement~~3.0% ~~The~~and ~~amendment allows~~2.5% usof tototal ~~reduce~~hotel ~~the~~revenue, ~~revolving~~respectively, ~~commitments~~through to2005 ~~below~~and ~~$300 million~~3.0% Inunder ~~March 2002~~both thereafter, weplus ~~reduced~~incentive ~~the~~payments ~~borrowing~~based ~~capacity~~ on ~~our~~meeting ~~previous~~performance ~~senior~~thresholds ~~credit~~that ~~agreement~~could ~~from $310 million~~total up to ~~$150 million~~an additional 2.0% Weof total ~~recognized~~revenue aand $120% of available cash flow (as defined in the relevant management agreement), respectively.5 ~~million~~The ~~loss~~agreements ~~due~~have toinitial terms expiring in 2015 and 2024, respectively, with four and three renewal periods of 10 and five years each, respectively, at the ~~write~~option of Ritz-~~off~~Carlton and Marriott. The Ritz-Carlton and Marriott management agreements include certain limited performance guarantees by the relevant manager which are designed primarily to provide downside performance ofprotection ~~deferred~~and ~~financing~~run ~~costs~~through ~~related~~2005 and up to ~~this~~2008, ~~reduction~~respectively. Management, based upon budgets and operating trends, expects payments under these guarantees in ~~our~~the ~~borrowing capacity~~future to be minimal.

OnSince ~~October 29,~~the July 2002 merger that formed Interstate, we ~~entered~~and ~~into~~Interstate ahave ~~new~~separated ~~three-year~~the ~~$100 million~~ senior management teams of the two ~~unsecured~~companies ~~revolving~~in ~~credit~~order ~~facility.~~to ~~The~~allow ~~initial~~each ~~interest~~senior ~~rate~~management isteam ~~the~~to ~~London Interbank~~devote ~~Offered~~more ~~Rate~~attention ~~plus~~to ~~388~~its ~~basis~~respective ~~points~~company’s matters. WeDuring ~~paid~~July ~~the~~2004, ~~outstanding~~we ~~balance~~concluded ofnegotiations ~~$14.0~~with ~~million~~Interstate onto ~~our~~terminate ~~previous~~the intercompany agreement. In exchange for ~~credit~~terminating ~~facility~~the inintercompany ~~conjunction~~agreement, ~~with~~we ~~closing~~received, ~~this~~among ~~facility.~~ other things:

21 • the right to terminate up to 600 rooms per year upon the payment of a termination fee equal to 1.5 times the fees earned during the preceding 12 months, with the ability to carry over up to 600 rooms for termination in the succeeding year;

~~Minimum~~• ~~payments~~the ~~due~~right ~~under~~to ~~our~~terminate ~~debt~~the ~~obligations~~management ascontract of ~~September 30~~a hotel, ~~2002~~where ~~are (~~Interstate invests in ~~thousands):~~ a competing hotel, with no termination fee; and

2002	$	1,914
2003		22,188
2004		170,669
2005		8,665
2006		9,407
Thereafter		1,456,811
	$	1,669,654

•

an extension of the termination fee payment period for terminations related to hotel sales, from 30 months to 48 months.

AsThe termination of ~~November~~the ~~12, 2002,~~intercompany weagreement ~~had~~eliminated nothe ~~indebtedness~~last ~~outstanding~~element ~~under~~ of our ~~new~~original “paper ~~revolving~~clip” ~~credit~~relationship ~~agreement~~with Interstate.

~~Capital~~Separately, ~~Resources~~we reached an agreement with Interstate regarding the calculation of termination fees payable upon a sale. Although termination fees for the properties that have been disposed of or were expected to be disposed of under our previously announced disposition program (which includes one of the 72 properties we owned as of June 30, 2005) will be unchanged, we received a $2.5 million credit, which is applicable to fees payable with respect to future dispositions. We have applied the entire $2.5 million credit to terminations that occurred during 2004 and 2005.

WeIn ~~make~~January ~~ongoing~~2005, ~~capital~~we ~~expenditures~~notified inInterstate ~~order~~that to11 ~~keep our~~ hotels ~~competitive~~with ~~in their~~3,655 ~~markets.~~rooms Wehad ~~expect~~apparently afailed ~~combination of internally generated cash and external borrowings~~ to ~~provide~~meet ~~capital~~the ~~for~~performance ~~renovation~~test ~~work.~~involving Wetwo ~~expect~~year tooperating ~~spend approximately~~results 4%versus ofbudgets ~~annual hotel revenues~~ for ~~ongoing~~those ~~capital expenditure programs~~years. ~~These~~We ~~ongoing programs will include room~~ and ~~facilities~~Interstate are ~~refurbishments,~~currently ~~renovations,~~in ~~and~~discussions ~~furniture~~relating ~~and~~to ~~equipment replacements. For~~ the ~~nine~~ ~~months~~apparent ~~ended September 30~~shortfall, ~~2002, we spent $35.8 million on capital expenditures. We expect to spend $12.0 to $14.0 million during~~ the ~~last quarter~~reasons ~~of 2002~~ for ~~our~~such ~~ongoing~~shortfall, ~~capital~~and ~~expenditure~~any ~~programs~~remedies ~~and~~that ~~approximately $40.0~~are available to ~~$50~~us.~~0 million~~ ~~in 2003.~~

We17 believe cash generated by operations, together with anticipated borrowing capacity under our senior credit facility, will be sufficient to fund our existing working capital requirements, ongoing capital expenditures, and debt service requirements. We believe, however, that our future capital decisions will also be made in response to specific acquisition and/or investment opportunities, depending on conditions in the capital and/or other financial markets.

Seasonality Table of Contents

~~Demand~~Results inOverview the lodging industry is affected by recurring seasonal patterns. For non-resort properties, demand is lower in the winter months due to decreased travel and higher in the spring and summer months during peak travel season. For resort properties, demand is generally higher in winter and early spring. Since the majority of our hotels are non-resort properties, our operations generally reflect non-resort seasonality patterns. We generally have lower revenue, operating income and cash flow in the first and fourth quarters and higher revenue, operating income and cash flow in the second and third quarters. These general trends are, however, greatly influenced by overall economic cycles.

22 General

~~ITEM~~While 3we believe that we are still in the early stages, we are seeing a general improvement in the economy and recovery of business. ~~QUANTITATIVE~~ ~~AND~~We ~~QUALITATIVE~~are ~~DISCLOSURES~~experiencing robust ~~ABOUT~~revenue ~~MARKET~~growth ~~RISK~~primarily driven by an increase in room rates, which have improved margins and profitability, in part due to the impact of our renovation program on improving our product. Our strategy currently includes the following key initiatives to increase shareholder value: focus on growth of earnings and cash flow from our existing portfolio using an aggressive asset management program; upgrade our portfolio through extensive renovations; recycle capital into higher yielding hotel investments; improve our capital structure to support internal growth, position the Company for external opportunities and increase our fixed charges coverage; and maintain liquidity.

We are ~~exposed to market risk from changes~~ in ~~interest rates on long-term debt obligations that impact~~ the ~~fair~~process ~~value~~ of ~~these~~upgrading ~~obligations.~~the ~~Our~~product ~~policy~~quality isand togrowth potential ~~manage~~of ~~interest~~our ~~rates~~hotels through ~~the~~our ~~use~~aggressive ofcapital aexpenditure ~~combination~~program ~~of fixed~~ and ~~variable rate~~selective ~~debt~~brand conversions. ~~Our~~We ~~interest~~have ~~rate~~continued ~~risk management objective is~~ to ~~limit~~reshape ~~the impact of interest rate changes on earnings and cash flows and to lower~~ our ~~overall borrowing~~portfolio ~~costs.~~through Tothree ~~achieve~~strategic, ~~our~~high-quality ~~objectives~~acquisitions, weincluding ~~borrow~~one atinvestment acompleted ~~combination~~in ofOctober ~~fixed and variable rates~~2004, and dispositions ~~may~~of ~~enter~~a ~~into~~number ~~derivative~~of ~~financial~~lower ~~instruments~~yielding ~~such~~properties. ~~as interest rate swaps~~Additionally, ~~caps~~we ~~and~~may ~~treasury~~continue ~~locks in order~~ to ~~mitigate~~reposition our ~~interest rate~~portfolio ~~risk~~and onrecycle acapital ~~related~~through ~~financial~~investing ~~instrument.~~in Wecurrent door ~~not~~new ~~enter~~assets, ~~into~~funded ~~derivative~~by ~~or interest~~dispositions ~~rate~~of ~~transactions~~assets, ~~for~~where ~~speculative~~we ~~purposes.~~see Wean ~~have~~opportunity ~~no cash flow~~to ~~exposure~~increase ~~due~~our toreturn ~~general~~on ~~interest~~investment ~~rate~~and ~~changes~~financial ~~for our fixed long-term debt obligations~~results.

~~The~~We have ~~table~~developed ~~below~~a ~~presents~~targeted renovation program that is designed to reduce the time and cost required to renovate hotels, asallowing us to improve the quality of ~~September~~ our hotels faster to take advantage of the rebound in the economy and better manage the disruptions associated with renovations. We accelerated our renovation program for certain key assets, which created some short-term disruption but also positioned these properties to participate more quickly in the lodging industry recovery. We invested approximately $134 million in capital expenditures during 2004. During the six months ended June 30, ~~2002~~2005, ~~the~~we ~~principal~~invested ~~amounts~~approximately ($66 million in non hurricane-related capital expenditures and expect to invest an additional $34 million in ~~thousands~~non hurricane-related capital expenditures during the remainder of ~~dollars)~~2005 ~~for~~to enhance the quality of our ~~fixed~~portfolio ~~and~~to ~~variable~~meet ~~rate~~or ~~debt~~exceed ~~instruments~~the standards of our primary brands – Hilton, Marriott, and Starwood – as well as to improve the ~~weighted-average~~competitiveness ~~interest~~of ~~rates,~~these assets in their markets and ~~fair~~enable ~~values~~them byto ~~year~~more fully participate in the economic recovery. While hotel results are negatively impacted during renovations due to out of ~~expected~~service ~~maturity~~rooms and limitations on the ability to sell other hotel services, we expect to ~~evaluate~~have positioned these renovated properties well to be able to benefit from the ~~expected~~economic ~~cash~~recovery. ~~flows~~During ~~and~~the ~~sensitivity~~six months ended June 30, 2005, we invested approximately $43 million in hurricane-related capital expenditures. The total amount of hurricane-related capital expenditures has not yet been fully determined, however we anticipate it to ~~interest~~be ~~rate~~well ~~changes~~in excess of $150 million, most of which we expect to be reimbursed by our insurance carriers.

	Long-term Debt
			Average					Average
			Interest			Variable		Interest
Expected Maturity	Fixed Rate		Rate			Rate		Rate
2002	$	1,914		7.9	%	$	—		N/A
2003		8,188		7.6	%		14,000		5.8
2004		170,669		5.1	%		—		N/A
2005		8,665		8.1	%		—		N/A
2006		9,407		8.1	%		—		N/A
Thereafter		1,456,811		9.0	%		—		N/A
Total	$	1,655,654		8.6	%	$	14,000		5.8
Fair Value at 9/30/02	$	1,519,075				$	14,000

The August – September 2004 Hurricanes

~~Upon~~In ~~the~~August ~~issuance~~and inSeptember ~~February~~2004, ~~2002~~hurricanes ofcaused ~~$200 million~~substantial ~~aggregate~~damage ~~principal~~to ~~amount~~a number of ~~9.13%~~our ~~senior~~hotels ~~unsecured~~located ~~notes~~in ~~due~~Florida. ~~2011,~~The wehurricane ~~reduced~~damage ~~the~~and ~~borrowings~~local ~~under~~evacuation ~~our~~orders ~~previous senior~~also ~~secured~~caused ~~credit~~significant ~~agreement~~business byinterruption ~~$195.0 million.~~at Asmany aof ~~result~~our ofFlorida ~~this financing~~properties, weincluding ~~redesignated~~the ~~two~~complete ~~swap~~closure ~~agreements~~of ascertain ~~non-hedging derivatives~~hotels. ~~These~~ ~~swap~~As ~~agreements~~a ~~had~~result, ~~notional~~eight ~~principal amounts~~ of ~~approximately $200~~our ~~million~~hotels ~~and~~ were ~~originally~~closed ~~designated~~for toan ~~hedge~~extended ~~variable~~period ~~rate~~of ~~borrowings~~time, ~~under our~~and ~~senior~~four ~~secured~~others ~~credit facility that~~ were ~~repaid.~~affected Wein ~~recognized~~varying ~~a $4~~degrees.~~7 million~~ ~~loss when this amount was transferred out of accumulated other comprehensive income because the debt being hedged was repaid.~~

AsWe have comprehensive insurance coverage for both property damage and business interruption. Some properties are requiring substantial repair and reconstruction and have remained closed while such repairs are completed. Our recovery effort is extensive and includes replacing portions of ~~September 30~~buildings, ~~2002~~landscaping and furniture, weas ~~had~~well ~~three~~as ~~swap~~upgrading ~~agreements~~to comply with ~~notional~~changes ~~principal amounts~~in ~~totaling~~building ~~$300 million~~and electrical codes. ~~All~~As of ~~these~~June ~~swap~~30, ~~agreements~~2005, ~~have~~the ~~been~~net ~~converted~~ book value of the property damage is estimated to ~~non-hedging~~be ~~derivatives~~at least $65.5 ~~The~~million; ~~swap~~however, ~~agreements~~we ~~effectively~~are ~~fix~~still assessing the ~~30-day LIBOR~~impact ~~between~~of ~~4.77%~~the ~~and~~hurricanes ~~6.4%.~~on ~~The~~our ~~swap~~properties, ~~agreements~~and ~~expire~~final ~~between~~net ~~December~~book ~~2002~~value write-offs could ~~and~~vary ~~July~~from ~~2003~~this estimate. ~~For~~Changes ~~the~~to ~~three~~this ~~months~~estimate ~~ended~~will ~~September 30,~~be ~~2002~~recorded ~~and~~in ~~2001,~~the weperiods in which they are determined. We have ~~made~~ ~~net~~recorded ~~payments~~a ofcorresponding ~~approximately~~insurance ~~$3.0 million~~claim ~~and~~receivable for this $265.5 million, ~~respectively. For~~net ~~the~~book ~~nine~~value ~~months~~amount ~~ended~~because ~~September 30~~we believe that it is probable that the insurance recovery, ~~2002~~net ~~and~~of ~~2001~~deductibles, wewill ~~have~~exceed ~~made~~the net ~~payments~~ book value of ~~approximately~~the $9damaged portion of these assets.~~0 million~~ The recovery is based on replacement cost, and we have submitted claims substantially in excess of $465.~~1 million,~~5 ~~respectively~~million.

As18 ~~of September 30, 2002, 99% of our debt was fixed and our overall weighted average interest rate was 8.6%.~~

AlthoughTable we conduct business in Canada, the Canadian operations were not material to our consolidated financial position, results of operations or cash flows during the nine months ended September 30, 2002 and 2001. Additionally, foreign currency transaction gains and losses were not material to our results of operations for the years ended September 30, 2002 and 2001. Accordingly, we were not subject to material foreign currency exchange rate risk from the effects that exchange rate movements of foreign currencies would have on our future costs or on future cash flows we would receive from our foreign subsidiaries. To date, we have not entered into any significant foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. Contents

23While we expect the insurance proceeds will be sufficient to cover most of the replacement cost of the restoration of these hotels, certain deductibles (primarily windstorm) and limitations will apply. Moreover, while we are receiving and expect to continue to receive interim insurance payments, no determination has been made as to the total amount or timing of those insurance payments, and those insurance payments may not be sufficient to cover the costs of all the restoration of the hotels. To the extent that insurance proceeds, which are calculated on a replacement cost basis, ultimately exceed the net book value of the damaged property, a gain will be recorded in the period when all contingencies related to the insurance claim have been resolved.

~~ITEM~~As 4of June 30, 2005 and August 2, 2005, three of our Florida properties remained substantially closed due to hurricane damage. ~~CONTROLS~~ ~~AND~~Additionally, ~~PROCEDURES~~as of June 30, 2005 and August 2, 2005, one property that suffered varying amounts of hurricane damage had certain guest rooms, its restaurants, lounge, registration area and conference facilities out of service. Where possible and in order to mitigate loss of revenues, some permanent repairs to damaged properties were deferred during the Florida “high season,” which generally lasts from late December through early April, in order to have facilities available to meet demand. These damaged facilities will be removed from service for permanent repairs at a later date. We have hired consultants to assess our business interruption claims and are currently negotiating with our insurance carriers regarding the amount of sustained income losses. To the extent that we are entitled to a recovery under the insurance policies, we will recognize a receivable when it can be demonstrated that it is probable that such insurance recovery will be realized. Any gain resulting from business interruption insurance for lost income will not be recognized until all contingencies related to the insurance recoveries are resolved and collection of the relevant payments is probable. These income recognition criteria will result in business interruption insurance recoveries being recorded in a period subsequent to the period that we experience lost income from the affected properties, resulting in fluctuations in our net income that may reduce the comparability of reported quarterly results for some periods into the future. Additionally, current year expenses will reflect reduced operating expenses and recoverable expenses recorded as recoveries, resulting in lower current year expenses as compared to prior year.

~~Evaluation~~Under these income recognition criteria, during the three and six months ended June 30, 2005, we have recorded a business interruption recovery gain of ~~Disclosure~~$2.0 ~~Controls~~million and ~~Procedures~~$4.3 million, respectively, due to receiving recognition of a minimal level of business interruption profit that the insurance companies are willing to recognize without any contingencies at this time for certain of our hurricane-affected properties. Our business interruption claims substantially exceed the amount of this minimal recognition to date. We ultimately expect to recognize additional business interruption insurance profit as we proceed further through the claims process.

WeThrough ~~maintain~~June ~~disclosure~~30, ~~controls~~2005, ~~and~~we ~~procedures~~have ~~that~~incurred ~~are~~recoverable ~~designed~~costs torelated ~~ensure that information required~~ to beboth ~~disclosed~~property indamage ~~our Exchange Act reports is recorded, processed, summarized~~ and ~~reported~~business ~~within~~interruption ~~the~~recoveries ~~time~~totaling ~~periods~~$64.9 ~~specified~~million. ~~in the~~In ~~SEC’s rules and forms~~addition, ~~and~~we ~~that~~recorded ~~the~~a ~~information~~receivable isof ~~accumulated~~$65.5 ~~and~~million ~~communicated to~~related ~~our management, including our chief executive officer and chief accounting officer, as appropriate,~~ to ~~allow timely decisions regarding required disclosure based closely on~~ the ~~definition~~write-off of ~~“disclosure~~the ~~controls~~net ~~and procedures”~~book invalue ~~Rule 13a-1(c~~of ~~). In designing and evaluating~~ the ~~disclosure controls~~damaged ~~and~~portion ~~procedures,~~of ~~management~~our ~~recognized~~assets. ~~that~~We ~~any~~had ~~controls~~collected ~~and procedures,~~$100.2 nomillion ~~matter~~in ~~how~~insurance ~~well~~advances ~~designed~~through ~~and~~June ~~operated~~30, ~~can~~2005. ~~provide~~We ~~only reasonable~~have ~~assurance~~collected ofan ~~achieving the desired objectives, and management was~~additional ~~required~~$2.5 tomillion ~~apply its judgment~~ in ~~evaluating~~insurance ~~the~~proceeds ~~cost-benefit~~from ~~relationship~~July ~~of possible~~1 ~~controls~~through ~~and~~August ~~procedures. Also~~2, we2005. ~~have~~The ~~investments~~cost inrecoveries ~~certain unconsolidated~~are ~~entities.~~recorded Ason wethe doexpense ~~not~~line ~~control~~item orto ~~manage~~which ~~these~~they ~~entities,~~relate; ~~our disclosure~~therefore ~~controls~~there ~~and~~is ~~procedures~~no ~~with~~net ~~respect~~impact to ~~these~~any ~~entities~~line ~~are substantially~~item ~~more~~or ~~limited than those we maintain with respect to~~ our ~~consolidated~~ ~~subsidiaries~~results.

~~Within~~The ~~90 days~~following ~~prior~~is toa ~~the~~summary ~~date~~ of ~~this~~hurricane-related ~~report,~~activity werecorded ~~carried out an evaluation,~~(in ~~under~~millions): the supervision and with the participation of our management, including our chief executive officer and our chief accounting officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, it was concluded that our disclosure controls and procedures were effective.

Changes in Internal Controls


Insurance claim receivable June 30, 2005
Fixed assets net book value write down	$	65.5
Recoverable costs incurred		64.9
Business interruption insurance gain		4.3
Payments received		(100.2	)

	$	34.5

~~N/A~~During the three and six months ended June 30, 2004, the seven hotels that were substantially affected in the first and second quarters of 2005 (four of which reopened in the second quarter of 2005) realized revenues of $26.5 million and $55.4 million, respectively. These hotels recognized revenues of $4.4 million and $8.3 million, respectively, during the three and six months ended June 30, 2005.

~~PART~~19 ~~II. OTHER INFORMATION~~

ITEMTable 5. OTHERof INFORMATION Contents

~~Forward-Looking~~Overall ~~Statements~~ Results

~~Information~~Revenues ~~both~~from ~~included~~continuing ~~and~~operations ~~incorporated~~were by$405.0 ~~reference~~million infor ~~this~~the ~~quaterly~~six ~~report on~~months ~~Form 10-Q~~ended ~~may~~June ~~contain~~30, ~~forward-looking~~2005, ~~statements~~compared ~~within~~to $404.3 million for the ~~meaning~~six ofmonths ended ~~Section 27A~~June of30, ~~the~~2004. ~~Securities~~This ~~Act~~revenue ~~and~~increase ~~Section 21E~~is ofprimarily ~~the~~due ~~Exchange~~to ~~Act,~~improved ~~and~~RevPAR ~~as such~~at ~~may~~our ~~involve~~comparable ~~known~~hotels ~~and~~(see ~~unknown~~“Results ~~risks,~~of ~~uncertainties~~Operations” ~~and~~for ~~other~~a ~~factors~~definition ~~which may~~of ~~cause~~comparable ~~our~~hotels), ~~actual~~higher ~~results,~~food ~~performance~~and orbeverage ~~achievements~~revenues attributable to beincreased ~~materially~~menu pricing ~~different~~in 2005 and revenues from ~~future~~our ~~results~~two hotels acquired in June 2004, ~~performance~~partially oroffset ~~achievements~~by ~~expressed~~a ordisruption ~~implied~~ of all revenues at properties impacted by ~~such~~hurricanes ~~forward-looking~~in ~~statements~~August and September 2004. ~~Forward-looking~~Hotel ~~statements,~~and ~~which~~other ~~are~~operating ~~based~~expenses were 2.8% lower compared to the onsame ~~certain~~periods ~~assumptions~~in ~~and~~2004, ~~describe~~mainly ~~our~~due ~~future~~to ~~plans~~the limited operations of certain hurricane-impacted properties. Property taxes, ~~strategies~~insurance and ~~expectations,~~ ~~are~~other ~~generally~~expense ~~identifiable~~reflects bya ~~use~~reduction ofin rental payments under the ~~words~~best ~~“may,”~~efforts ~~“will,”~~rental programs at two properties in the ~~“should,”~~first ~~“expect,”~~and ~~“anticipate,”~~second ~~“estimate,”~~quarters ~~“believe,”~~of ~~“intend”~~2005 ordue ~~“project” or~~to the ~~negative~~closure of ~~them~~hurricane-impacted orproperties. ~~other~~We ~~variations~~incurred a $1.0 million loss on extinguishment of ~~them~~debt orfor ~~comparable~~the ~~terminology. Factors~~six ~~that~~months ~~could~~ended ~~have~~June 30, 2005, compared to a ~~material~~$7.9 ~~adverse~~million ~~effect~~loss onfor the six months ended June 30, 2004. Additionally, our ~~operations~~2005 and ~~future prospects~~2004 results include losses of $4.1 million and $18.6 million, ~~but~~respectively, ~~are~~realized ~~not~~at ~~limited~~properties ~~to:~~ in discontinued operations.

•The ~~the~~following ~~current~~discussion ~~slowdown~~should ofbe ~~the~~read ~~national~~in ~~economy;~~conjunction •with ~~economic~~our ~~conditions~~Annual ~~generally~~Report ~~and~~on ~~the~~Form ~~real~~10-K ~~estate~~for ~~market specifically; •~~ the ~~impact~~year ofended ~~the~~December ~~September 11~~31, 2004 ~~2001~~as ~~terrorist~~filed ~~attacks~~with ~~or actual or threatened future terrorist incidents; •~~ the ~~threatened~~Securities orand ~~actual~~Exchange ~~outbreak of hostilities; • governmental actions; • legislative/regulatory changes~~Commission, ~~including~~and ~~changes~~with ~~to laws governing~~ the ~~taxation~~unaudited ofconsolidated ~~REITs;~~financial •statements ~~availability of capital; • interest rates; • competition; • supply~~ and ~~demand~~related ~~for~~notes ~~hotel~~included ~~rooms~~ in ~~our~~Item ~~current~~1 ~~and~~of ~~proposed~~this ~~market~~Quarterly ~~areas;~~Report ~~and~~on •Form ~~changes in general accounting principles, policies and guidelines applicable to REITs~~10-Q.

~~These~~Results ~~risks~~of ~~and~~Operations uncertainties, along with the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2001 under “Risk Factors”, should be considered in evaluating any forward-looking statements contained in this Form 10-Q.

WeOur ~~undertake~~revenues noare ~~obligation~~derived tofrom ~~update~~the oroperations ~~revise~~of ~~any~~our ~~forward-looking~~hospitality ~~statement~~properties, including room, food and beverage revenues, as ~~whether~~well as afrom ~~result~~our leases of ~~new information~~office, ~~future~~retail ~~events~~and parking rentals. Included in our operating income (but not in revenues) is our cumulative preferred return on our partnership interest in MIP, orthe ~~otherwise~~interest income on our mezzanine loan to the Radisson Lexington Avenue Hotel and our equity in the income/loss on our Radisson Lexington Avenue Hotel investment. Operating costs include direct costs to run our hotels, ~~other~~management ~~than~~fees to Interstate and others for the management of our properties, ~~required~~depreciation byof ~~law~~our properties, impairment charges, property tax and insurance, as well as sales, marketing and general and administrative costs. Our expenses also include interest on our debt, amortization of related debt-issuance costs and minority interest allocations, which represent the allocation of income and losses to outside investors for properties that are not wholly owned.

24The provisions of Statement of Financial Accounting Standards (SFAS) No. 144 require that current and prior period operating results of any asset that has been classified as held for sale or has been disposed of on or after January 1, 2002, including any gain or loss recognized on the sale, be recorded as discontinued operations. Accordingly, we have reclassified all prior periods presented to comply with this requirement. See Footnote 12, “Dispositions,” included in Item 1 of this Quarterly Report on Form 10-Q for further information regarding the amounts reclassified.

~~ITEM~~20 ~~6: EXHIBITS AND REPORTS ON FORM 8-K~~

(a) Exhibits Table of Contents

~~All~~Summary ~~Exhibits~~data ~~listed~~for ~~below~~the ~~are~~three ~~filed~~and ~~with~~six ~~this~~months ~~Quarterly~~ended ~~Report~~June on30 ~~Form 10-Q~~were ~~unless~~as ~~specifically~~follows ~~stated~~(dollars toin bethousands, ~~incorporated by reference to other~~except ~~documents~~operating ~~previously~~data ~~filed~~statistics): ~~with the Commission.~~

Exhibit No.	Description of Document
	Three Months Ended June 30,								Six Months Ended June 30,
3.1	Second Articles of Amendment and Restatement of Incorporation of the Registrant (incorporated by reference to Exhibit 3.4 to our Registration Statement No. 333-4568).
	2005			2004			PercentChange		2005			2004			PercentChange
3.1.1	Articles of Amendment of Second Articles of Amendment and Restatement of Incorporation dated August 11, 2000 (incorporated by reference to Exhibit 3.1.1 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
Summary of Operations:
3.1.2	Articles of Amendment of Second Articles of Amendment and Restatement of Incorporation dated June 30, 2001 (incorporated by reference to Exhibit 3.1.2 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
Total revenue from continuing operations	$	216,941		$	211,280		2.7	%	$	404,964		$	404,339		0.2	%
3.2	Amended and Restated By-laws of the Registrant (incorporated by reference to Exhibit 3.2 on our Form S-3 (Registration Statement No. 333-66229) filed with the Securities and Exchange Commission on October 28, 1998).
Hotel operating expenses		82,923			83,698		(0.9	)		158,223			160,872		(1.6	)
4.1	Form of Share Certificate (incorporated by reference to Exhibit 4.1 on our Registration Statement No. 333-4568).
Other operating expenses		101,804			103,109		(1.3	)		200,987			208,552		(3.6	)
4.2	Indenture, dated as of August 19, 1997 (the “August 1997 Indenture”), between CapStar Hotel Company and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.4 to our Form 10-K for the year ended December 31, 1999 filed with the Securities and Exchange Commission on March 15, 2000).
Loss on asset impairments		—			310		(100.0	)		—			310		(100.0	)
4.2.1	Specimen Subordinated Note to August 1997 Indenture (incorporated by reference to Exhibit 4.2 to our Form 10-K for the year ended December 31, 1999 filed with the Securities and Exchange Commission on March 15, 2000).
Total operating expenses		184,727			187,117		(1.3	)		359,210			369,734		(2.8	)
4.2.2	First Supplemental Indenture to the August 1997 Indenture (incorporated by reference to Exhibit 4.2.2 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
Equity in income/loss of and interest earned from unconsolidated affiliates		2,940			1,600		83.8			4,575			3,200		43.0
4.2.3	Second Supplemental Indenture to the August 1997 Indenture (incorporated by reference to Exhibit 4.5 to our Form 10-K for the year ended December 31, 1999 filed with the Securities and Exchange Commission on March 15, 2000).
Hurricane business interruption insurance gain		2,009			—		>100.0			4,290			—		>100.0
4.2.4	Third Supplemental Indenture to the August 1997 Indenture (incorporated by reference to Exhibit 4.15 to our Form 10-K for the year ended December 31, 2000 filed with the Securities and Exchange Commission on March 6, 2001).
Operating income		37,163			25,763		44.2			54,619			37,805		44.5
4.2.5	Fourth Supplemental Indenture to the August 1997 Indenture (incorporated by reference to Exhibit 4.2.5 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
Minority interest		7			20		(65.0	)		2			24		(91.7	)
4.2.6	Fifth Supplemental Indenture to the August 1997 Indenture (incorporated by reference to Exhibit 4.2.6 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
Interest expense, net		(30,698	)		(30,090	)	2.0			(61,411	)		(64,592	)	(4.9	)
4.3	Indenture (the “Convertible Notes Indenture”), dated as of October 16, 1997, between CapStar Hotel Company and First Trust, National Association as Trustee (incorporated by reference to Exhibit 4.6 to our Form 10-K filed with the Securities and Exchange Commission on March 15, 2000).
Loss on early extinguishments of debt		(947	)		(1,980	)	(52.2	)		(1,007	)		(7,903	)	(87.3	)
4.3.1	Specimen Convertible Note to the Convertible Notes Indenture (incorporated by reference to Exhibit 4.7 to our Form 10-K for the year ended December 31, 1999 filed with the Securities and Exchange Commission on March 15, 2000).
Income tax (expense) benefit		(402	)		(12	)	>100.0			(412	)		373		>(100.0	)
4.3.2	First Supplemental Indenture to the Convertible Notes Indenture (incorporated by reference to Exhibit 4.8 to our Form 10-K for the year ended December 31, 1999 filed with the Securities and Exchange Commission on March 15, 2000).
Income (loss) from continuing operations		5,123			(6,299	)	>100.0			(8,209	)		(34,293	)	(76.1	)
4.4	Indenture (the “March 1999 Indenture”), dated as of March 18, 1999, between MeriStar Hospitality Corporation and IBJ Whitehall Bank & Trust Company, as Trustee (incorporated by reference to Exhibit B to our Form S-4 (Registration Statement No. 333-78163) filed with the Securities and Exchange Commission on May 10, 1999).
Loss from discontinued operations, net of tax		(3,709	)(A)		(5,752	)(A)	(35.5	)		(4,126	)(B)		(18,645	)(B)	(77.9	)
4.4.1	Specimen Subordinated Note to March 1999 Indenture (incorporated by reference to Exhibit A to our Form S-4 (Registration Statement No. 333-78163) filed with the Securities and Exchange Commission on May 10, 1999).
Net income (loss)	$	1,414		$	(12,051	)	>100.0	%	$	(12,335	)	$	(52,938	)	(76.7	)%
4.4.1a	First Supplemental Indenture to the March 1999 Indenture (incorporated by reference to Exhibit 4.13 to our Form 10-K for the year ended December 31, 2000 filed with the Securities and Exchange Commission on March 6, 2001).
4.4.2	Second Supplemental Indenture to the March 1999 Indenture (incorporated by reference to Exhibit 4.4.2 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
4.4.3	Third Supplemental Indenture to the March 1999 Indenture (incorporated by reference to Exhibit 4.4.3 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
4.5	Indenture (the “January 2001 Indenture”), dated January 26, 2001, between MeriStar Hospitality Operating Partnership, L.P., MeriStar Hospitality Finance Corp., MeriStar Hospitality Corporation, and U.S. Bank Trust National Association (incorporated by reference to Exhibit 4.14 to our Form 10-K for the year ended December 31, 2000 filed with the Securities and Exchange Commission on March 6, 2001).
4.5.1	Specimen Senior Note to the January 2001 Indenture (incorporated by reference to Exhibit 4.5.1 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
4.5.2	First Supplemental Indenture to the January 2001 Indenture (incorporated by reference to Exhibit 4.5.2 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
4.5.3	Second Supplemental Indenture to the January 2001 Indenture (incorporated by reference to Exhibit 4.5.3 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
4.6	Indenture (the “December 2001 Indenture”), dated December 19, 2001, between MeriStar Hospitality Operating Partnership L.P., MeriStar Hospitality Finance Corp., MeriStar Hospitality Corporation, and U.S. Bank Trust National Association (incorporated by reference to Exhibit 4.6 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
4.6.1	Specimen Senior Note to the December 2001 Indenture (incorporated by reference to Exhibit 4.6.1 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
4.6.3	First Supplemental Indenture to the December 2001 Indenture (incorporated by reference to Exhibit 4.6.3 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
4.7	Indenture (the “February 2002 Indenture”), dated February 7, 2002, between MeriStar Hospitality Operating Partnership, L.P., MeriStar Hospitality Finance Corp., MeriStar Hospitality Corporation, and U. S. Bank Trust National Association (incorporated by reference to Exhibit 4.7 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
4.7.1	Specimen Senior Note to the February 2002 Indenture (incorporated by reference to Exhibit 4.7.1 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
10.1	Second Amended and Restated Agreement of Limited Partnership of MeriStar Hospitality Operating Partnership, L.P. dated as of August 3, 1998 (incorporated by reference to Exhibit 10.3 to our Form 10-K for the year ended December 31, 1998 filed with the Securities and Exchange Commission on March 2, 1999).
10.3	Loan Agreement, dated as of August 12, 1999, between MeriStar Hospitality Operating Partnership, L.P. and Lehman Brothers Holdings Inc. D/B/A Lehman Capital, a division of Lehman Brothers Holdings Inc. (incorporated by reference to Exhibit 10.13 to our Form 10-K for the year ended December 31, 1999 filed with the Securities and Exchange Commission on March 15, 2000).
10.4	Intercompany Agreement between MeriStar Hospitality Corporation, MeriStar Hospitality Operating Partnership, L.P., MeriStar Hotels & Resorts, Inc. and MeriStar H&R Operating Company L.P. (“Intercompany Agreement”) (incorporated by reference to Exhibit 10.4 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
10.4.1	Amendment to the Intercompany Agreement (incorporated by reference to Exhibit 10.15 to our Form 10-K for the year ended December 31, 2000 filed with the Securities and Exchange Commission on March 6, 2001).
10.5	Revolving Credit Agreement (the “MeriStar Hotels Revolving Credit Agreement”), dated as of August 3, 1998, by and between MeriStar H&R Operating Company, L.P. and MeriStar Hospitality Operating Partnership, L.P.
10.5.1	Amendment to MeriStar Hotels Revolving Credit Agreement (incorporated by reference to Exhibit 10.5.1 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
10.5.2	Second Amendment to MeriStar Hotels Revolving Credit Agreement (incorporated by reference to Exhibit 10.5.2 to our Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission on March 6, 2002.)
10.5.3	Third Amendment to MeriStar Hotels Revolving Credit Agreement, dated July 31, 2002 (incorporated by reference to Exhibit 10.4 for Interstate Hotels and Resorts, Inc. Form 8-K dated August 7, 2002).
10.5.4	Fourth Amendment to MeriStar Hotels Revolving Credit Agreement, dated August 15, 2002.
10.7	Senior Second Credit Agreement, dated October 28, 2002, between MeriStar Hospitality Operating Partnership, L.P., and SG Cowen Securities Corporation.
13	Unaudited Financial Statements of MeriStar Hospitality Corporation as of September 30, 2002 and December 31, 2001 and for the three and nine months ended September 30, 2002 and 2001.
99.1	Consolidating Financial Information of MeriStar Hospitality Operating Partnership, L.P.
99.2	Certification of Chief Executive Officer
99.3	Certification of Chief Accounting Officer

(bA) ~~Reports~~ Includes loss on ~~Form~~ asset impairments of $2.8-k million and $2.1 million for the three months ended June 30, 2005 and 2004, respectively. Also includes loss on disposal of $1.0 million and $4.6 million for the three months ended June 30, 2005 and 2004, respectively. Income tax benefit was $0.03 million for the three months ended June 30, 2004.

~~Current~~(B) ~~report~~Includes loss on ~~Form 8-K~~asset ~~dated~~impairments ~~(Items~~of 5$2.8 million and $7).1 million for the six months ended June 30, 2005 and ~~filed~~2004, ~~August 7~~respectively. Also includes loss on disposal of $1.0 million and $11.5 million for the six months ended June 30, ~~2002~~2005 ~~regarding~~and 2004, respectively. Income tax benefit was $0.1 million for the ~~second quarter~~six ~~earnings~~months ~~press~~ended ~~release~~June 30, 2004.

~~Current~~Operating ~~report~~Data onfor ~~Form 8-K~~our ~~dated~~71 ~~(Item~~hotels 9)included ~~and~~in ~~filed~~continuing onoperations ~~September 11~~(19,889 ~~2002~~rooms): ~~regarding the search for a Chief Financial Officer.~~

Current report on Form 8-K dated (Items 5 and 7) and filed on September 27, 2002 regarding us lowering earnings guidance for third quarter.


	Three Months Ended June 30,								Six Months Ended June 30,
	2005			2004			Percent Change		2005			2004			Percent Change
Average Daily Rate (ADR)	$	116.58		$	109.81		6.2	%	$	114.72		$	109.84		4.4	%
Occupancy		67.8	%		71.8	%	(5.6	)		64.7	%		69.9	%	(7.4	)
Revenue Per Available Room (RevPAR)	$	79.09		$	78.89		0.3		$	74.20		$	76.75		(3.3	)

25 21

SIGNATURES Table of Contents

~~Pursuant~~Three tomonths ~~the~~ended ~~requirements~~June of30, ~~the~~2005 ~~Securities~~compared ~~Exchange~~with ~~Act of 1934,~~ the ~~registrant~~ ~~has~~three ~~duly~~months ~~caused~~ended ~~this~~June ~~report~~30, to2004 ~~be signed on its behalf by the undersigned thereunto duly authorized.~~

~~MeriStar~~Continuing ~~Hospitality~~Operations ~~Operating~~Results ~~Partnership, L.P.~~

~~Dated:~~Our ~~November~~71 13properties included in continuing operations include two properties acquired in 2004, ~~2002~~one property that we intend to sell, and seven properties in Florida that were significantly impacted by hurricanes that occurred in August and September 2004 and that remained substantially affected the first and second quarters of 2005. Operating results have been impacted by these events. For more information regarding the impact of these hurricanes, see “— Results Overview”. Because of these events, our total results are not comparable between years. In order to provide a useful comparison, where appropriate, this section includes discussion and analysis of our results as a whole and discussion and analysis of results of the 61 comparable hotels that were in normal operations for the current period and the prior year period. The seven Florida hotels that were substantially affected in the first and second quarters of 2005 (four of which reopened in the second quarter of 2005), the one hotel that we intend to sell under our repositioning strategy, and the two hotels acquired in 2004, are excluded from the comparable hotels.

~~/s/~~Total ~~James~~revenue. ABecause of the events and changes to our portfolio noted above, our total revenue for the entire portfolio of our 71 hotels in continuing operations is not comparable between years. ~~Calder~~Total ~~James~~revenue increased Aby $5.7 ~~Calder~~million ~~Chief~~or ~~Accounting~~2.7% ~~Officer~~in 2005 compared to the second quarter of 2004. This increase in revenue is primarily due to an increase in ADR attributable to a strategy of increasing room rates and reducing our exposure to lower rated contract business, higher food and beverage revenues attributable to increased menu pricing in 2005, and the inclusion of a full period of revenues from our two hotels acquired in May and June 2004 ($12.8 million), partially offset by the lost revenue at our hurricane affected properties. Overall ADR increased 6.2% for the quarter ended June 30, 2005 when compared with the same period in 2004, primarily due to a focus on increasing business related to higher rate transient and corporate business, reducing trade with lower rated groups, overall increases in our daily rates in general, the inclusion of a full period of revenues from two higher rate properties acquired in May and June of 2004 and an increase in travel due to a general strengthening of the economy. This favorable impact on rooms revenue was partially offset by revenue losses from our hurricane-impacted hotels ($22.1 million), which generally realize comparatively higher RevPAR during the first two quarters. The decrease in occupancy of 5.6% over the same period for the entire portfolio of our 71 hotels in continuing operations was mainly due to rooms out of service as a result of the Florida hurricanes.

26The following table presents operating data for our 61 comparable hotels:

I,Operating ~~Paul~~Data W.for ~~Whetsell,~~our ~~certify~~61 ~~that~~comparable hotels (17,480 rooms):

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


	Three Months Ended June 30,
	2005			2004			Percent Change
ADR	$	112.48		$	102.60		9.6	%
Occupancy %		72.2	%		72.0	%	0.3
RevPAR	$	81.19		$	73.87		9.9

aFor the 61 comparable hotels, total revenue increased by $15.8 ~~designed~~million ~~such~~or ~~disclosure~~9.0% ~~controls~~from ~~and~~$176.0 ~~procedures~~million toin ~~ensure~~the ~~that~~second ~~material~~quarter ~~information~~of ~~relating~~2004 to $191.8 million in the ~~registrant,~~second ~~including~~quarter ~~its~~of ~~consolidated~~2005. ~~subsidiaries,~~The isincrease ~~made~~in ~~known~~room revenue was primarily due to usan byincrease ~~others~~in ~~within~~ADR ~~those~~of ~~entities,~~$9.88 ~~particularly~~or ~~during~~9.6% ~~the~~and RevPAR ~~period~~of in$7.32 or 9.9%, which ~~this~~resulted ~~quarterly~~from ~~report~~a isstrategy ~~being~~of ~~prepared;~~increasing b.room ~~evaluated~~rates and reducing our exposure to lower rated contract business, and the ~~effectiveness~~general strengthening of the ~~registrant’s~~economy ~~disclosure~~and ~~controls~~lodging ~~and~~industry. ~~procedures~~Occupancy aswas ofrelatively aflat ~~date~~from ~~within~~the second 90quarter ~~days~~of ~~prior~~2004 to the ~~filing~~second ~~date~~quarter of ~~this~~2005, ~~quarterly~~as ~~report~~we ~~(the~~focused ~~“Evaluation~~on ~~Date”);~~increasing ~~and~~ADR, c.rather ~~presented~~than inoccupancy, ~~this~~through ~~quarterly~~increasing ~~report~~business ~~our~~related ~~conclusions~~to ~~about~~higher ~~the~~rate ~~effectiveness~~transient ofand ~~the~~corporate ~~disclosure~~business, ~~controls~~reducing ~~and~~trade ~~procedures~~with ~~based~~lower onrated ~~our~~groups, ~~evaluation~~as well as overall ofincreases ~~the~~in ~~Evaluation~~our ~~Date;~~daily rates in general.

5Hotel operating expenses. ~~The~~Because ~~registrant’s~~of ~~other~~the ~~certifying~~events ~~officers~~noted ~~and~~above, Iour ~~have~~total ~~disclosed,~~hotel ~~based~~operating onexpenses ~~our~~are ~~most~~not ~~recent~~comparable ~~evaluation~~between years. Hotel operating expenses decreased by $0.8 million or 0.9% in the three months ended June 30, 2005 as compared to the same ~~registrant’s~~period ~~auditors~~in ~~and~~2004. The decrease was primarily attributable to the ~~audit~~limited ~~committee~~operations of ~~registrant’s~~certain ~~board~~of the hurricane-impacted properties, including the substantial closure of ~~directors~~certain ~~(or~~properties. ~~persons~~Food ~~performing~~and beverage expense decreased by 2.9% of food and beverage revenue mainly due to menu pricing adjustments that have outpaced the ~~equivalent~~increasing ~~function):~~cost of materials, labor and benefits. Rooms expense decreased by 0.6% of rooms revenue mainly due to a decrease in occupancy and occupancy-driven expenses, as we focused on increasing ADR.

a.22 all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls: and

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

~~Date:~~For ~~November~~the 1361 comparable hotels, ~~2002~~hotel operating expenses increased 5.4% from the second quarter of 2004, primarily related to increases in labor and related costs and new linen programs. As a percentage of revenue, hotel operating expenses decreased 1.3%. Rooms expense margins improved 0.6% points primarily due to the positive impacts of increasing our ADR which generates additional revenues with little additional cost. Food and beverage margins improved 1.9% points mainly due to menu pricing adjustments that have outpaced the increasing cost of materials, labor and benefits.

~~/s/~~Other ~~Paul~~operating Wexpenses. ~~Whetsell~~Other ~~Paul~~operating Wexpenses, which include general and administrative expenses, property operating costs, depreciation and amortization, non-income taxes, and insurance, declined $1.3 ~~Whetsell~~million ~~Chief~~from ~~Executive~~the ~~Officer~~second quarter of 2004 to the second quarter of 2005, primarily due to a $3.1 million decrease in property tax, insurance and other. Property tax, insurance and other expense declined mainly due to a decrease in the second quarter of 2005 of expenses for hurricane-impacted properties, primarily due to a $2.1 million reduction in rental payments mainly under the best efforts rental programs at South Seas Resort and Sundial Beach Resort. Also, the hurricane-impacted properties’ expenses were reduced in 2005 to the extent that these costs were recoverable; these same properties had normal operating expenses in the second quarter of 2004.

27Equity in income/loss of and interest earned from unconsolidated affiliates. Equity in income/loss of and interest earned from unconsolidated affiliates consists of income earned from two investments in which we own non-controlling interests and do not consolidate in our financial statements. We recognize a proportionate share of the profit and loss earned by the Radisson Lexington Avenue Hotel, an equity method investment acquired in 2004, as well as interest income on the $40 million loan made to this entity. For the three months ended June 30, 2005, we recognized interest income of $1.4 million, and a $0.2 million equity share of net income of the investment. In addition, we currently recognize a preferred return of 12% from our investment in MIP, accounted for using the cost method, resulting in current and cumulative preferred return income of $1.3 million in the second quarter of 2005. Our second quarter 2004 income of $1.6 million represents only the current portion of our 16% preferred return; no cumulative portion of the return was recognized.

IHurricane business interruption insurance gain. In the three months ended June 30, ~~James~~2005, Awe recognized $2.0 ~~Calder~~million of business interruption gain, based ~~certify~~on insurance company acknowledgement of this minimal level of profit that: certain of our properties would have earned. For additional information regarding hurricane business interruption gain, see “Results Overview – The August – September 2004 Hurricanes.”

1.Loss ~~I have reviewed this quarterly report~~ on ~~Form~~early extinguishments ~~10-Q~~ of ~~MeriStar Hospitality Operating Partnership, L~~debt.~~P.;~~ 2.During ~~Based~~the oncurrent ~~my knowledge~~quarter, ~~this~~we ~~quarterly~~repurchased ~~report~~$21.5 ~~does~~million ~~not contain any untrue statement~~ of asenior ~~material~~unsecured ~~fact~~notes, orwhich ~~omit~~resulted toin ~~state~~ a ~~material~~$0.9 ~~fact~~million ~~necessary~~loss toon ~~make~~early ~~the~~extinguishment ~~statements made, in light~~ of ~~the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3~~debt. ~~Based~~In ~~on my knowledge,~~ the ~~financial~~same ~~statements,~~period ~~and other financial information included~~ in ~~this quarterly report~~2004, ~~fairly~~we ~~present~~repurchased inapproximately ~~all~~$28.1 million ~~material respects the financial condition, results~~ of ~~operations~~senior ~~and~~unsecured ~~cash flows of the registrant as of~~notes, and ~~for,~~issued ~~the~~common ~~periods~~OP ~~presented~~Units in ~~this~~exchange ~~quarterly~~for ~~report; 4~~$11.2 ~~The~~million ~~registrant’s~~of ~~other~~notes ~~certifying~~payable ~~officers~~to ~~and~~MeriStar IHospitality, ~~are~~which ~~responsible~~resulted ~~for establishing and maintaining disclosure controls and procedures (as defined~~ in ~~Exchange~~a ~~Act~~loss ~~Rules~~on ~~13a~~early –extinguishment 14of ~~and~~debt ~~15d~~of –$2.0 ~~14)~~million. ~~for the registrant and have:~~

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

5.Loss ~~The~~from ~~registrant’s~~discontinued ~~other~~operations ~~certifying~~during ~~officers~~the ~~and~~three Imonths ~~have~~ended ~~disclosed~~June 30, 2005 ~~based~~totaled on$3.7 ~~our~~million, ~~most~~including ~~recent~~impairment ~~evaluation~~charges of $2.8 million, toand ~~the~~a ~~registrant’s~~loss ~~auditors~~on ~~and~~disposition of assets of $1.0 million. Loss from discontinued operations for the ~~audit~~same ~~committee~~period ofin ~~registrant’s~~2004 ~~board~~totaled $5.8 million, including impairment charges of ~~directors~~$2.1 million, ~~(or~~and ~~persons~~a ~~performing~~loss ~~the~~on ~~equivalent~~disposition ~~function):~~of assets of $4.6 million.

a.Six ~~all~~months ended ~~significant~~June ~~deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record~~30, ~~process,~~2005 ~~summarize~~compared ~~and~~with ~~report financial data and have identified for~~ the ~~registrant’s~~six ~~auditors~~months ~~any~~ended ~~material~~June ~~weaknesses in internal controls; and b. any fraud~~30, ~~whether~~2004 ~~or not material, that involves management or other employees who have a significant role in the registrant’s internal controls: and~~

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

~~Date:~~Our results ~~November~~of 13operations for the six months ended June 30, ~~2002~~2005 for the 71 properties included in continuing operations have been affected by the same factors and events that affected our results of operations for the three months ended June 30, 2005, and because of these events, our total results are not comparable between years. In order to provide a useful comparison, where appropriate, this section includes discussion and analysis of our results as a whole and discussion and analysis of results of the 61 comparable hotels that were in normal operations for the current period and the prior year period.

~~/s/~~23 ~~James A. Calder James A. Calder Chief Accounting Officer~~

28 Table of Contents

Total revenue. Because of the events and changes to our portfolio noted previously, our total revenue for the entire portfolio of our 71 hotels in continuing operations is not comparable between years. Total revenue increased by $0.6 million or 0.2% in 2005 compared to the first half of 2004. This increase in revenue is primarily due to an increase in ADR attributable to a strategy of increasing room rates and reducing our exposure to lower rated contract business, higher food and beverage revenues attributable to increased menu pricing in 2005, and the inclusion of a full period of revenues from our two hotels acquired in May and June of 2004 ($28.0 million), partially offset by the lost revenue at our hurricane affected properties. Overall ADR increased 4.4% for the six months ended June 30, 2005 when compared with the same period in 2004, primarily due to a focus on increasing business related to higher rate transient and corporate business, reducing trade with lower rated groups, overall increases in our daily rates in general, the inclusion of a full period of revenues from two higher rate properties acquired in May and June of 2004 and an increase in travel due to a general strengthening of the economy. This favorable impact on rooms revenue was partially offset by revenue losses from our hurricane-impacted hotels ($47.1 million), which generally realize comparatively higher RevPAR during the first two quarters. The decrease in occupancy of 7.4% over the same period for the entire portfolio of our 71 hotels in continuing operations was due to rooms out of service as a result of the Florida hurricanes, the impact of having fewer available rooms due to hotel room renovations, as well as a focus on increasing daily rates, which resulted in lower group, contract, and internet sales. Approximately 82% of the 7.4% decrease in occupancy was specifically due to the rooms out of service as a result of the Florida hurricanes.

The following table presents operating data for our 61 comparable hotels:

Operating Data for our 61 comparable hotels (17,480 rooms):


	Six Months Ended June 30,
	2005			2004			Percent Change
ADR	$	110.65		$	101.63		8.9	%
Occupancy %		69.1	%		70.0	%	(1.3	)
RevPAR	$	76.44		$	71.16		7.4

For the 61 comparable hotels, total revenue increased by $20.9 million or 6.2% from $336.8 million in the second quarter of 2004 to $357.7 million in the second quarter of 2005. The increase in room revenue was primarily due to an increase in ADR of $9.02 or 8.9% and RevPAR of $5.28 or 7.4%, which resulted from a strategy of increasing room rates and reducing our exposure to lower rated contract business, and the general strengthening of the economy and lodging industry. Occupancy decreased 1.3% mainly due to our focus on increasing business related to higher rate transient and corporate business, reducing trade with lower rated groups, as well as overall increases in our daily rates in general.

Hotel operating expenses. Because of the events noted above, our total hotel operating expenses are not comparable between years. Hotel operating expenses decreased by $2.6 million or 1.6% in the six months ended June 30, 2005 as compared to the same period in 2004. The decrease was primarily attributable to the limited operations of certain of the hurricane-impacted properties, including the substantial closure of several properties. Food and beverage expense decreased by 2.8% of food and beverage revenue mainly due to menu pricing adjustments that have outpaced the increasing cost of materials, labor and benefits.

For the 61 comparable hotels, hotel operating expenses increased 3.1% from the second quarter of 2004, primarily related to increases in labor and related costs and new linen programs. As a percentage of revenue, hotel operating expenses decreased 1.2%. Rooms expense margins improved 0.5% points primarily due to the positive impacts of increasing our ADR which generates additional revenues with little additional cost. Food and beverage margins improved 2.2% points mainly due to menu pricing adjustments that have outpaced the increasing cost of materials, labor and benefits.

Other operating expenses. Other operating expenses include general and administrative expenses, property operating costs, depreciation and amortization, non-income taxes, and insurance. Individual variations in these expenses were as follows:

•

General and administrative expense, corporate: The decrease of $0.7 million in general and administrative costs in the six months ended June 30, 2005 was primarily attributable to a $1.1 million expense reduction related to prior years’ workers’ compensation claims and a $0.5 million expense reduction related to legal costs, partially offset by a $0.9 million expense related to incentive plan grants.

•

Property taxes, insurance expense and other expense: In the six months ended June 30, 2005, expenses for hurricane-impacted properties decreased from the same period in 2004, primarily due to a $4.4 million reduction in rental payments mainly under the best efforts rental programs at South Seas Resort and Sundial Beach Resort. Also, the hurricane-impacted properties’ expenses were reduced in 2005 to the extent that these costs were recoverable; these same properties had normal operating expenses in the first quarter of 2004. Additionally, current year expense was reduced by a $2.0 million tax adjustment due to a change in estimate and a $1.0 million reduction to property tax expense related to refunds.

•

Write-off of deferred financing fees: The current year’s repurchase of $21.5 million of senior unsecured notes resulted in a $0.2 million write-off of deferred financing fees. The same period in 2004 reflects the repurchase of approximately $99.6 million of senior unsecured notes, which resulted in a write-off of deferred financing fees of approximately $1.2 million. These expenses are included in depreciation and amortization expense.

Equity in income/loss of and interest earned from unconsolidated affiliates. Equity in income/loss of and interest earned from unconsolidated affiliates consists of income earned from two investments in which we own non-controlling interests and do not consolidate in our financial statements. We recognize a proportionate share of the profit and loss earned by the Radisson Lexington Avenue Hotel, an equity method investment acquired in 2004, as well as interest income on the $40 million loan made to this entity. For the six months ended June 30, 2005, we recognized interest income of $2.9 million, partially offset by a $1.2 million equity share of net losses. In addition, we currently recognize a preferred return of 12% from our investment in MIP, accounted for using the cost method, resulting in current and cumulative preferred return income of $2.9 million in the first half of 2005. Our 2004 income of $3.2 million represents only the current portion of our 16% preferred return; no cumulative portion of the return was recognized.

Hurricane business interruption insurance gain. In the six months ended June 30, 2005, we recognized $4.3 million of business interruption gain, based on insurance company acknowledgement of this minimum level of profit that certain of our properties would have earned. For additional information regarding hurricane business interruption gain, see “Results Overview – The August – September 2004 Hurricanes.”

Loss on early extinguishments of debt. During the first six months of 2005, we repurchased $21.5 million of senior unsecured notes and $1.5 million of notes payable to MeriStar Hospitality, which resulted in a $1.0 million loss on early extinguishment of debt. In the same period in 2004, we repurchased approximately $99.6 million of senior unsecured notes, and issued common OP Units in exchange for $49.2 million of notes payable to MeriStar Hospitality, which resulted in a loss on early extinguishment of debt of approximately $7.9 million.

Interest expense, net. Net interest expense declined 4.9% or $3.2 million in the six months ended June 30, 2005 compared to the same period in 2004, primarily as a result of 2004 repurchases of approximately $99.6 million of senior unsecured notes and the issuance of common OP Units in 2004 in exchange for $49.2 million of notes payable to MeriStar Hospitality. The interest savings from these repurchases were somewhat offset by the placement of lower interest rate mortgages, and increases in LIBOR.

Loss from discontinued operations

Loss from discontinued operations during the six months ended June 30, 2005 totaled $4.1 million, including impairment charges of $2.8 million, and a loss on disposition of assets of $1.0 million. Loss from discontinued operations for the same period in 2004 totaled $18.6 million, including impairment charges of $7.1 million, and a loss on disposition of assets of $11.5 million.

Financial Condition, Liquidity, and Capital Resources

Our principal sources of liquidity are cash generated from operations, funds from borrowings, funds from the sales of assets and existing cash on hand. Our principal uses of cash include the funding of working capital obligations, debt service, debt repurchases, investments in hotels (including capital projects and acquisitions), and escrow requirements. Our strategy includes considering opportunities to repay debt and to reduce our overall cost

of borrowing, such as through repaying more expensive debt with the proceeds from low interest rate mortgages and asset sales and the use of interest rate swaps. We believe we currently have sufficient cash on hand, and we expect to have adequate cash flow during the next twelve months in order to fund our operations, capital commitments and debt service obligations. MeriStar Hospitality did not pay a dividend on its common stock during 2004, nor does it expect to pay one in 2005. Our current and future liquidity is, however, greatly dependent upon our operating results, which are driven largely by overall economic conditions. While economic conditions are generally improving, if general economic conditions are significantly worse than we expect for an extended period, this will likely have a negative effect on our projections of available cash flow and liquidity.

Factors that may influence our liquidity include:

•

Factors that affect our results of operations, including general economic conditions, demand for business and leisure travel, public concerns about travel safety related primarily to terrorism and related concerns, capital investments required to maintain our property’s competitive position, insurance coverage and timing of hurricane-related expenditures and related insurance receipts, and other operating risks described under the caption, “Risk Factors—Operating Risks” in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2004;

•

Factors that affect our access to bank financing and the capital markets, including operational risks, high leverage, covenant compliance, interest rate fluctuations, and other risks described under the caption “Risk Factors—Financing Risks” in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2004; and

•

Other factors described previously under the caption, “Cautionary Statement Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

We generally intend to hold unrestricted cash balances of $40 million to $50 million in our operating accounts as a hedge against economic and geopolitical uncertainties, as well as to provide for our recurring cash requirements. We established a $50 million secured revolving bank line in December 2003, maturing in December 2006. In August 2005, this revolving bank line was expanded by $100 million to a total capacity of $150 million; the additional $100 million will mature in August 2006 and consists of $25 million in additional revolver capacity and $75 million of term loan capacity. The entire $150 million is fully available and increases our flexibility in managing our liquidity, however, asset disposition proceeds in excess of $30 million must be used to pay down any outstanding balance under the facility and permanently reduce the availability if repaying borrowings under the term loan. We expect to borrow approximately $30 million on the revolving bank line in the near future to fund our debt repurchases, renovation program and hurricane-related expenditures, with repayment coming from future asset sales.

In 1999, we invested $40.0 million in MeriStar Investment Partners, L.P. (“MIP”), a joint venture established to acquire upscale, full-service hotels. Our cost-basis investment is in the form of a limited partnership interest, in which we earned (through December 9, 2004) a 16% cumulative preferred return with outstanding balances compounded quarterly. In accordance with MIP’s December 2004 amended and restated partnership agreement, the return on our investment and on our remaining unpaid accrued preferred return was reduced to a 12% annual cumulative return rate, and is subordinate only to the MIP debt; and $12.5 million of our $40.0 million investment was upgraded to receive preference in liquidation over all other investments.

During the fourth quarter of 2003, we recognized a $25.0 million impairment loss on this investment since, at that time, the decline in the underlying value of our investment was deemed other than temporary. There have been no changes in circumstances in 2004 and 2005 that would require an additional impairment. After recognition of this impairment loss, the book value of the original investment is $15.0 million.

In February 2005, MIP completed a $175 million commercial mortgage-backed securities financing, secured by its portfolio of eight hotels. Upon the completion of the financing in February 2005, we received a distribution of $15.5 million, which was applied to reduce our outstanding accrued preferred returns receivable to approximately $4 million.

As of June 30, 2005, our total MIP carrying value was $22.1 million, consisting of the $15.0 million adjusted investment balance and $7.1 million of accrued preferred returns receivable.

We invested approximately $134 million in capital expenditures during 2004. During the six months ended June 30, 2005, we invested approximately $66 million in non hurricane-related capital expenditures and

expect to invest an additional $34 million in non hurricane-related capital expenditures during the remainder of 2005. During the six months ended June 30, 2005, we invested approximately $43 million in hurricane-related capital expenditures. The total amount of hurricane-related capital expenditures has not yet been fully determined, however we anticipate it to be well in excess of $150 million, most of which we expect to be reimbursed by our insurance carriers.

As part of our strategy to manage our leverage, we may repurchase debt with available cash, or retire debt with higher interest rates and issue debt with lower interest rates, therefore reducing our overall interest expense, lowering cost of borrowing and improving financial ratios. This strategy provides us with more liquidity and flexibility in managing our business.

We repurchased, using available cash, $1.5 million of our 8.75% notes payable to MeriStar Hospitality due 2007 (plus $0.06 million of accrued interest) during the six months ended June 30, 2005. In addition, we repurchased, using available cash, $21.5 million of our senior unsecured notes, consisting of $5.0 million of the 9.0% notes due 2008, $8.0 million of the 9.125% notes due 2011, and $8.5 million of the 10.5% notes due 2009 during the six months ended June 30, 2005, and an additional $1.0 million of our 9.0% notes due 2008, $5.0 million of our 9.125% notes due 2011, and $6.8 million of our 10.5% notes due 2009 between June 30, 2005 and August 2, 2005. Following these repurchases, we had $32.7 million of outstanding notes payable to MeriStar Hospitality due 2007 and $816.1 million of outstanding senior unsecured notes. In 2004, we retired $49.2 million of our notes payable to MeriStar Hospitality and purchased $99.6 million of our senior unsecured notes. These transactions have allowed us to reduce our cost of borrowing and improve our credit statistics.

In July 2005, MeriStar Hospitality provided irrevocable notice that they would exercise their option to redeem all of their outstanding 8.75% senior subordinated notes due 2007 at a price equal to their outstanding principal amount plus interest to the date of redemption. The redemption date is scheduled to be August 15, 2005. In conjunction with MeriStar Hospitality’s redemption of these senior subordinated notes, we will redeem our 8.75% notes payable to MeriStar Hospitality due 2007 under the same terms. As of June 30, 2005, there was $32.7 million principal amount of these notes outstanding. The redemption will total $34.2 million, consisting of $32.7 million of principal plus interest.

With our expanded asset disposition program (see discussion below) and the additional capacity of our senior credit facility, we will continue to monitor the market for debt buy-back opportunities and buy back debt when economically and financially advantageous. Toward that end, the remaining $209 million of our 10.5% senior unsecured debt becomes callable on December 15, 2005 at a price of 105.25% of its outstanding principal amount plus interest. We may strategically repurchase our senior unsecured notes through exercising the call provisions on the 10.5% senior unsecured notes or through open market purchases of any of the tranches depending upon pricing and availability in accordance with our expanded asset disposition program, with a focus on repurchasing the 10.5% senior unsecured notes. The actual amount acquired will be a function of pricing and availability as well as the results of our asset disposition program.

We have also announced our plan to refinance our existing $299 million secured loan facility due 2009. The new loan will allow for significant interest savings and increased flexibility compared to the current secured facility loan. The interest rate on the new facility is expected to be 309 basis points lower than the existing secured facility interest rate. Due to the current secured facility’s terms regarding the low net operating income of the secured properties, all cash from the properties securing the current loan is currently retained in an escrow account with a balance in excess of $30 million. We expect that the new secured facility will eliminate the escrow account and release the cash held in the escrow account reserve. We expect that the new secured facility will also eliminate the need for the existing interest rate swap agreement and its related cash collateral balance of approximately $16 million. We expect that the new secured facility will require the defeasance of the current secured facility, and under this defeasance we will incur a loss on early extinguishment of debt of approximately $47 million. We additionally expect to incur a charge for the termination of the existing interest rate swap agreement, based on the swap’s fair value on the date of termination. We expect that the total economics of this transaction, including the associated charges, will be positive on a net present value basis.

On January 26, 2005, we entered into a $37.7 million mortgage loan on our Hilton Crystal City hotel that bears interest at a fixed rate of 5.84%. The mortgage requires monthly payments of interest only for the first three years and then monthly payments of interest and principal over the remaining portion of the ten year term of the loan, with the majority of the principal balance due at the end of the ten year term. Our net proceeds of $34.7 million are net of a $3.0 million escrow reserve for future capital expenditures. We incurred financing costs of $0.8 million related to this mortgage.

While we have substantially completed the disposition program of our non-strategic assets, due to the strong seller’s market and the high pricing that can be obtained, we may sell additional hotels that we would otherwise retain, particularly those with residential development potential, where we believe that we can reinvest the proceeds and obtain a higher return on our investment. We would consider and evaluate any such opportunities that have the potential to improve our financial condition or results of operations through further repositioning of our portfolio and recycling capital. Proceeds from asset dispositions would most likely be reinvested into high yielding projects in our existing portfolio through renovation activities and new investments, or be used to fund debt repurchases.

In August and September 2004, a number of our hotels located in Florida incurred substantial damage and business interruption. While we have comprehensive insurance coverage for both property damage and business interruption, we are experiencing a decline in revenues due to the full or partial closure of certain hotels, and accounting rules do not permit us to recognize any income from business interruption insurance or gains on replacement of damaged property until all contingencies associated with the related insurance payments have been resolved. Additionally, we may experience a timing delay between cash outflows and cash inflows, as we may incur costs to rebuild the damaged properties, and temporary negative cash flows associated with affected properties, that may not be reimbursed by the insurance carriers for several periods. Additionally, we are liable for any policy deductibles. While this timing difference may have some impact on our short term liquidity, we believe that we will be able to meet all of our short term cash needs through a variety of means, including reducing capital expenditures, borrowings under our credit facility and the placement of mortgages, if necessary. For more information regarding the impact of these hurricanes, see “—Results Overview.”

As of June 30, 2005, we had $69.3 million of cash held in escrow, which was required by certain debt agreements and the interest rate swap agreement. Our cash balance held in escrow may increase or decrease based upon the performance of our encumbered hotels, our ability to obtain timely capital reimbursements, and the fair value of our interest rate swap. Of the $69.3 million, approximately $37.3 million was available to fund capital expenditures as of June 30, 2005.

Sources and Uses of Cash

The following table shows our consolidated cash flows, generated by (used in) our various activities, for the six months ended June 30 (in thousands):


	2005			2004			2005 vs 2004
Operating activities	$	74,318		$	17,691		$	56,627
Investing activities		(87,498	)		(162,851	)		75,353
Financing activities		43,614			63,323			(19,709	)
Cash and cash equivalents, end of period – unrestricted		90,967			148,812			(57,845	)

Cash flow from operations increased in the first two quarters of 2005, primarily due to the impact of margin improvements due to the refocusing of our portfolio assets, as well as the generation of new revenues from our hotels acquired in 2004, and as a result of the lodging industry economic recovery. Additionally, we realized net cash inflow of $41.6 million related to our insurance claim receivable. We have estimated that $6.5 million of proceeds received were related to reimbursement of hurricane-related capital expenditures at our properties damaged by the hurricanes, and reflected such insurance proceeds within investing activities. The remaining $35.1 million change in our insurance claim receivable is related to operating expenditures, and is therefore reflected within operating activities.

We used a net $87.5 million of cash for investing activities during the first half of 2005, consisting of:

•

$109.3 million in capital expenditures (including $5.8 million of capitalized interest); and

•

$4.6 million increase in cash restricted, mainly related to mortgage escrows; partially offset by

•

$20.5 million of proceeds from the sale of one hotel asset; and

•

$6.5 million of insurance proceeds related to capital expenditures.

We used a net $162.9 million of cash from investing activities during the first half of 2004, primarily due to:

•

$182.8 million for acquisition of hotels, net of cash acquired;

•

$49.9 million in capital expenditures (including $2.0 million of capitalized interest); and

•

$30.0 million increase in cash restricted for mortgage escrows; partially offset by

•

$104.9 million of proceeds from the sale of 15 hotel assets.

We generated a net $43.6 million of cash from financing activities during the first half of 2005 due mainly to:

•

the incurrence of $73.4 million in mortgage loans, net of financing costs; partially offset by

•

prepayments on long-term debt of $23.8 million; and

•

scheduled payments on long-term debt of $5.5 million.

We generated a net $63.3 million of cash from financing activities during the first half of 2004 primarily due to:

•

proceeds from debt issuance, net of issuance costs, of $109.7 million;

•

net proceeds from OP units issuances of $72.3 million; partially offset by

•

prepayments on long-term debt of $105.9 million;

•

scheduled payments on long-term debt of $3.7 million; and

•

the purchase of OP units for $8.7 million.

MeriStar Hospitality must distribute to stockholders at least 90% of its REIT taxable income, excluding net capital gains, to preserve the favorable tax treatment accorded to REITs under the Internal Revenue Code. MeriStar Hospitality, as our general partner, must use its best efforts to ensure our partnership distributions meet this requirement. Under certain circumstances, MeriStar Hospitality may be required to make distributions in excess of cash available for distribution in order to meet the Internal Revenue Code requirements. In that event, we and/or MeriStar Hospitality would seek to borrow additional funds or sell additional non-core assets for cash, or both, to the extent necessary to obtain cash sufficient to make the distributions required to retain MeriStar Hospitality’s qualification as a REIT. Any future distributions will be at the discretion of MeriStar Hospitality’s Board of Directors and will be determined by factors including our operating results, restrictions imposed by our borrowing agreements, capital expenditure requirements, the economic outlook, the distribution requirements for REITs under the Internal Revenue Code and such other factors as its Board of Directors deems relevant. MeriStar Hospitality’s senior unsecured notes indenture permits the payment of dividends in order to maintain REIT qualification when we fall below a 2 to 1 fixed charge coverage ratio. However, MeriStar Hospitality’s senior subordinated notes indenture is more restrictive in that it permits the payment of dividends only if we exceed the 2 to 1 fixed charge coverage ratio. The timing and amount of any future distributions is dependent upon these factors, and we cannot provide assurance that any such distributions will be made in the future.

In the course of document review with respect to the MIP restructuring, MeriStar Hospitality discovered a potential technical REIT qualification issue relating to a wholly-owned subsidiary of MIP, of which we are deemed to own a de minimis proportionate share. In order to eliminate any uncertainty regarding this issue, MeriStar Hospitality has negotiated, subject to final approval, a closing agreement with the Internal Revenue Service that resolves all REIT qualification matters with respect to this potential issue. As a partnership for federal income tax purposes, we are not directly affected by the outcome of the discussions by MeriStar Hospitality with the Internal Revenue Service.

Long-Term Debt and Notes Payable to MeriStar Hospitality

Long-term debt and notes payable to MeriStar Hospitality consisted of the following (in thousands):


	June 30, 2005			December 31, 2004
Senior unsecured notes due 2011 – 9.125%	$	347,665		$	355,665
Senior unsecured notes due 2008 – 9.0%		265,500			270,500
Senior unsecured notes due 2009 – 10.5%		215,687			224,187
Secured facility, due 2009		299,765			302,979
Secured facility, due 2013		98,498			99,293
Mortgage and other debt		205,234			125,051
Unamortized issue discount		(3,212	)		(3,702	)

	$	1,429,137		$	1,373,973
Fair value adjustment for interest rate swap		(6,104	)		(4,674	)

Long-term debt	$	1,423,033		$	1,369,299

Notes payable to MeriStar Hospitality	$	202,740		$	204,225
Unamortized issue discount		(188	)		(248	)

Notes payable to MeriStar Hospitality	$	202,552		$	203,977

Total long-term debt and notes payable to MeriStar Hospitality	$	1,625,585		$	1,573,276

Credit facility. In August 2005, we completed a $100 million expansion of our $50 million credit facility to a total capacity of $150 million. The total $150 million facility will carry an annual interest rate of the London Interbank Offered Rate, or LIBOR, plus 350 basis points, which is 100 basis points less than the original annual interest rate of LIBOR plus 450 basis points. The additional $100 million will mature in August 2006 and consists of $25 million in additional revolver capacity and $75 million of term loan capacity. Asset disposition proceeds in excess of $30 million must be used to pay down any outstanding balance under the facility and permanently reduce the availability if repaying borrowings under the term loan. The original $50 million revolving facility matures in December 2006, as originally provided. There are currently no outstanding borrowings under the facility. However, we expect to borrow approximately $30 million on the credit facility in the near future to fund our debt repurchases, renovation program and hurricane-related expenditures, with repayment coming from future asset sales.

The facility contains financial and other restrictive covenants. The ability to borrow under this facility is subject to compliance with financial covenants, including leverage, fixed charge coverage and interest coverage ratios and minimum net worth requirements. Compliance with these covenants in future periods will depend substantially upon the financial results of our hotels. The agreement governing the credit facility limits our ability to effect mergers, asset sales and change of control events and limits the payments of dividends other than those required for MeriStar Hospitality to maintain its status as a REIT and our ability to incur additional secured and total indebtedness.

Senior unsecured notes. During the six months ended June 30, 2005, we repurchased, using available cash, $21.5 million of our senior unsecured notes, consisting of $5.0 million of the 9.0% notes due 2008, $8.0 million of the 9.125% notes due 2011, and $8.5 million of the 10.5% notes due 2009. We recorded a loss on early extinguishment of debt of $0.9 million and wrote off deferred financing costs of $0.2 million related to these repurchases which is included in depreciation and amortization expense on the accompanying Consolidated Statements of Operations. Between June 30, 2005 and August 2, 2005, using cash on hand, we repurchased an additional $1.0 million of our 9.0% notes due 2008, $5.0 million of our 9.125% notes due 2011, and $6.8 million of our 10.5% notes due 2009, and recorded an additional loss on early extinguishment of debt of $1.0 million and wrote off deferred financing costs of $0.1 million.

Notes payable to MeriStar Hospitality. During the six months ended June 30, 2005, we repurchased, using available cash, $1.5 million of our 8.75% notes payable to MeriStar Hospitality due 2007 (plus $0.06 million of accrued interest). We recorded a loss on early extinguishment of debt of $0.06 million related to this activity.

Mortgage and other debt. On January 26, 2005, we entered into a $37.7 million mortgage loan on our Hilton Crystal City hotel that bears interest at a fixed rate of 5.84%. The mortgage requires monthly payments of interest only for the first three years and then monthly payments of interest and principal over the remaining portion of the ten year term of the loan, with the majority of the principal balance due at the end of the ten year term. Our net proceeds of $34.7 million are net of a $3.0 million escrow reserve for future capital expenditures. We incurred financing costs of $0.8 million related to this mortgage.

Derivatives. As of June 30, 2005 and December 31, 2004, the fair value of our interest rate swap was approximately a $6.1 million liability and a $4.7 million liability, respectively. This amount is recorded on our Consolidated Balance Sheets in the other liabilities line with a corresponding debit recorded to long-term debt. During the three and six months ended June 30, 2005, we earned net cash payments of $0.3 million and $1.2 million, respectively, under the swap, which were recorded as a reduction in interest expense. During the three and six months ended June 30, 2004, we earned net cash payments of $1.7 million under the swap, which also were recorded as a reduction in interest expense. In conjunction with the interest rate swap, we have posted collateral of $12.3 million and $12.0 million as of June 30, 2005 and December 31, 2004, respectively, which is recorded as restricted cash. The required collateral amount fluctuates based on the changes in the swap rate and the amount of time left to maturity. During the six months ended June 30, 2005, our posted collateral ranged from $10.9 million to $18.9 million. However, due to the terms of the swap agreement, our posted collateral must be a minimum amount calculated per the agreement, which was $6.3 million as of June 30, 2005. We will receive all remaining collateral upon maturity of the swap.

Asset Acquisitions

During 2004, we invested in three properties, each of them having exceptional quality and exhibiting superior growth potential, and being located in three of the top performing markets in the country. We believe these factors will enable these investments to produce superior returns for our shareholders. Our two consolidated hotels, and while not consolidated into our results, the hotel for which we record equity in income/loss, realized three and six months ended June 30, 2005 combined RevPAR of $167.49 and $148.52, respectively. RevPAR for our comparable hotels during the three and six months ended June 30, 2005 was $81.19 and $76.44, respectively. The higher RevPAR of the acquired hotels is indicative of their quality and overall earnings power.

On May 10, 2004 we acquired the four-star, four-diamond rated Ritz-Carlton, Pentagon City in Arlington, Virginia for a purchase price of $93 million. The 366-room luxury hotel is operated by The Ritz-Carlton Hotel Company, LLC under a long-term contract. The hotel features nearly 18,000 square feet of meeting space, which can accommodate meetings of up to 900 guests.

Additionally, on June 25, 2004, we acquired the 485-room Marriott Irvine in Orange County, California, for a purchase price of $92.5 million. The hotel is operated by a subsidiary of Marriott International, Inc. under a long-term contract. The hotel features 30,000 square feet of meeting space, including a 13,000 square foot ballroom, that can accommodate meetings of up to 1,500 guests.

On October 1, 2004, we acquired a 49.99% interest in the 705-room Radisson Lexington Avenue Hotel in Midtown Manhattan. We made a total investment of $50 million, which includes a $40 million mezzanine loan that matures on October 1, 2014 and yields $5.8 million of cumulative annual interest, and a $10 million equity interest in the hotel. The mezzanine loan is secured by a pledge of the equity interests held by the borrower in an indirect parent of the owner of the hotel, and has a 10-year term. The loan is subordinate to $150 million in senior notes, but has priority over all equity interests.

We will continue to be highly selective with potential acquisitions, focusing primarily on larger properties located in major urban markets or high-end resort destinations with high barriers to new competition, premium brand affiliations, significant meeting space and superior growth potential. The terms of our senior note indentures may limit our ability to obtain financing beyond certain limited exceptions (including up to $300 million of mortgage indebtedness, of which $113.2 million was available at June 30, 2005, and $50 million of general indebtedness) to acquire assets as we are below the required fixed charge coverage ratio of 2 to 1, at which level we would be permitted to generally incur debt without restriction.

Asset Dispositions

We have substantially completed our previously announced portfolio repositioning disposition program that repositioned our portfolio into one generally consisting of larger assets with significant meeting space operated under major brands in urban or high-end resort locations. Between January 1, 2003 and June 30, 2005, we disposed of 37 hotels with 8,313 rooms for total gross proceeds of $304.1 million in cash and $11.1 million in reduction of debt. Of these 37 hotels, 15 hotels were disposed of in 2003, 21 hotels were disposed of in 2004 and one hotel was disposed of in 2005. The reshaping of our portfolio over the past two years has contributed to an increase in RevPAR, which, for our entire portfolio of properties (all periods exclude seven properties affected by hurricanes in 2004), increased to $77.88 from $61.51 for the six months ended June 30, 2005 and 2003, respectively.

Furthermore, due to the strong seller’s market and the high pricing that can be obtained, we may sell additional hotels that we would otherwise retain, particularly those with residential development potential, where we believe that we can reinvest the proceeds and obtain a higher return on our investment. We would consider and evaluate any such opportunities that have the potential to improve our financial condition or results of operations through further repositioning of our portfolio and recycling capital. Proceeds from asset dispositions would most likely be reinvested into high yielding projects in our existing portfolio through renovation activities and new investments, or be used to fund debt repurchases.

Capital Expenditures

We have developed a targeted renovation program that is designed to reduce the time and cost required to renovate hotels, allowing us to improve the quality of our hotels faster to take advantage of the rebound in the economy and better manage the disruptions associated with renovations. We accelerated our renovation program for certain key assets, which created some short-term disruption but also positioned these properties to participate more quickly in the lodging industry recovery. We make ongoing capital expenditures in order to keep our hotels competitive in their markets and to comply with franchise obligations, as described further in “Operating Risks” (the potential adverse impact of our failure to meet the requirements contained in our franchise and licensing agreements) included in Item 1 – Risk Factors of our Annual Report on Form 10-K as of December 31, 2004. Additionally, certain of our hotels’ management contracts and franchise agreements contain reserve requirements for property improvements. We fund our capital expenditures primarily from cash generated from operations and existing cash on hand and intend to use a portion of the proceeds from the sales of assets to provide capital for renovation work. We invested approximately $134 million in capital expenditures during 2004. During the six months ended June 30, 2005, we invested approximately $66 million in non hurricane-related capital expenditures and expect to invest an additional $34 million in non hurricane-related capital expenditures during the remainder of 2005. The emphasis is on completing these projects on budget with minimal disruptions to operations. We focus on complete room and facility renovations, eliminating to the degree possible, piecemeal work where the typical consumer might not ascribe value to the improvements. We believe we are timing this work appropriately to take full advantage of the economic recovery. During the six months ended June 30, 2005, we invested approximately $43 million in hurricane-related capital expenditures. The total amount of hurricane-related capital expenditures has not yet been fully determined, however we anticipate it to be well in excess of $150 million, most of which we expect to be reimbursed by our insurance carriers.

Other Financial Information

Hurricane Related Insurance Recoveries

We have comprehensive insurance coverage for both property damage and business interruption. Some properties are requiring substantial repair and reconstruction and have remained closed while such repairs are completed. Our recovery effort is extensive and includes replacing portions of buildings, landscaping and furniture, as well as upgrading to comply with changes in building and electrical codes. As of June 30, 2005, the net book value of the property damage is estimated to be at least $65.5 million; however, we are still assessing the impact of the hurricanes on our properties, and final net book value write-offs could vary from this estimate. Changes to this estimate will be recorded in the periods in which they are determined. We have recorded a corresponding insurance claim receivable for this $65.5 million net book value amount because we believe that it is probable that the insurance recovery, net of deductibles, will exceed the net book value of the damaged portion of these assets. The recovery is based on replacement cost, and we have submitted claims substantially in excess of $65.5 million.

While we expect the insurance proceeds will be sufficient to cover most of the replacement cost of the restoration of these hotels, certain deductibles (primarily windstorm) and limitations will apply. Moreover, while we are receiving and expect to continue to receive interim insurance payments, no determination has been made as to the total amount or timing of those insurance payments, and those insurance payments may not be sufficient to cover the costs of all the restoration of the hotels. To the extent that insurance proceeds, which are on a replacement cost basis, ultimately exceed the net book value of the damaged property, a gain will be recorded in the period when all contingencies related to the insurance claim have been resolved.

As a result of the damage caused by the hurricanes, our properties experienced varying periods of business interruption and impacts on operations, including closure of certain hotels. Where possible and in order to mitigate loss of revenues, some permanent repairs to damaged properties were deferred during the Florida “high season,” which generally lasts from late December through early April, in order to have facilities available to meet demand. These damaged facilities will be removed from service for permanent repairs at a later date. We have hired consultants to assess our business interruption claims and are currently negotiating with our insurance carriers regarding the amount of sustained income losses. To the extent that we are entitled to a recovery under the insurance policies, we will recognize a receivable when it can be demonstrated that it is probable that such insurance recovery will be realized. Any gain resulting from business interruption insurance for lost income will not be recognized until all contingencies related to the insurance recoveries are resolved and collection of the relevant payments is probable. These income recognition criteria will result in business interruption insurance recoveries being recorded in a period subsequent to the period that we experience lost income from the affected properties, resulting in fluctuations in our net income that may reduce the comparability of reported quarterly results for some periods into the future.

New Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment,” which requires companies to recognize compensation cost relating to share-based payment transactions, and measure that cost based on the fair value of the equity or liability instruments issued. We are required to comply with the provisions of this statement beginning with the first quarter of 2006. We do not expect the adoption of this revised standard to have a material effect on our accounting treatment for share-based payments, as we adopted the transition provisions of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” on January 1, 2003 and elected to recognize compensation expense for options granted subsequent to December 31, 2002 under the fair-value-based method.

The FASB issued Statement No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions” in December 2004. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. We are required to comply with the provisions of this statement for the third quarter of 2005. We have not entered into or modified any transactions within the scope of this standard, nor do we have any existing transactions that fall within the scope of SFAS No. 153.

In June 2005, the FASB issued Statement No. 154, “Accounting Changes and Error Corrections a Replacement of APB Opinion No. 20 and FASB Statement No. 3”, which changes the requirements for the accounting for and reporting of a change in accounting principle, and applies to all voluntary changes in accounting principle. This Statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless the change is required by a new pronouncement and the pronouncement states specific transition provisions. This Statement carries forward without change the guidance contained in Opinion 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate. We are required to adopt this Statement for accounting changes and corrections of errors made during and after the first quarter of 2006. We do not expect the adoption of this statement to have a material effect on our results of operations.

Emerging Issues Task Force (“EITF”) Issue 04-5, “Investor’s Accounting for an Investment in a Limited Partnership When the Investor Is the Sole General Partner and the Limited Partners Have Certain Rights” was ratified by the FASB in June 2005. At issue is what rights held by the limited partner(s) preclude consolidation in circumstances in which the sole general partner would consolidate the limited partnership. The assessment of limited partners’ rights and their impact on the presumption of control of the limited partnership by the sole general partner should be made when an investor becomes the sole general partner and should be reassessed if there is a change to the terms or in the exercisability of the rights of the limited partners, the sole general partner increases or decreases its ownership of limited partnership interests, or there is an increase or decrease in the number of outstanding limited partnership interests. We are required to adopt the provisions of EITF Issue 04-5 for the first quarter of 2006, and for the third quarter of 2005 for new or modified arrangements. We do not expect the adoption of this EITF to have a material effect on our financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our interest rate risk management objective is to manage the effect of interest rate changes on earnings and cash flows. We look to manage interest rates through the use of a combination of fixed and variable rate debt. To achieve our objectives, we may borrow at a combination of fixed and variable rates, and may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to mitigate our interest rate risk on a related financial instrument. We only enter into derivative or interest rate transactions for hedging purposes, and not for trading purposes. We do not engage in speculative transactions.

On April 2, 2004, we entered into an interest rate swap on our secured facility due 2009, effectively converting the interest the facility bears from a fixed rate to a floating rate. Under the swap, we receive fixed-rate payments of 8.01% and pay floating rate payments based on a one month LIBOR plus 444 basis points on an initial $307 million notional amount.

We have designated the interest rate swap as a fair value hedge for financial reporting purposes and the amounts paid or received under the swap agreement will be recognized over the life of the agreement as an adjustment to interest expense. Changes in the fair value of the swap and the secured facilities are reflected in the balance sheet as offsetting changes and have no income statement effect. The fair value of the interest rate swap at June 30, 2005 was a liability of approximately $6.1 million, which is included in the other liabilities line on our Consolidated Balance Sheets.

In conjunction with the interest rate swap, we have posted collateral of $12.3 million and $12.0 million as of June 30, 2005 and December 31, 2004, respectively, which is recorded as restricted cash. The required collateral amount fluctuates based on the changes in the swap rate and the amount of time left to maturity. During the six months ended June 30, 2005, our posted collateral ranged from $10.9 million to $18.9 million. However, due to the terms of the swap agreement, our posted collateral must be a minimum amount calculated per the agreement, which was $6.3 million as of June 30, 2005. We will receive all remaining collateral upon maturity of the swap.

The table below provides information about our derivative financial instrument that is sensitive to changes in interest rates. The table presents contractual payments to be exchanged under the contract and weighted average interest rates by expected (contractual) maturity dates for our interest rate swap. Weighted average interest rates and notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average interest rates are based on implied forward rates in the yield curve as of June 30, 2005. The interest rate swap that we have entered into is strictly to hedge interest rate risk and not for trading purposes.

Expected Payment Date

($ in millions)


	2005			2006			2007			2008			2009			Total			Fair Value as of 6/30/05
Interest Rate Derivative
Interest Rate Swap
Fixed to Variable	$	0.9		$	(1.0	)	$	(1.5	)	$	(1.7	)	$	(1.1	)	$	(4.4	)	$	(6.1	)
Average pay rate		7.51	%		8.24	%		8.40	%		8.49	%		8.51	%
Average receive rate		8.01	%		8.01	%		8.01	%		8.01	%		8.01	%

As a result of our interest rate swap, we are exposed to market risks related to changes in interest rates. In the future, we intend to manage our interest rate exposure using a mix of fixed and floating interest rate debt. A change in one month LIBOR of 50 basis points would result in an increase or decrease in current annual interest expense of approximately $1.5 million.

As of June 30, 2005, approximately 18% of our outstanding debt bears fixed rates of interest that have been effectively swapped from a fixed rate to a floating rate, with the remaining 82% of debt bearing fixed rates of interest.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and regulations, and that the information is accumulated and communicated to our management, including our chief executive officer and chief financial and chief accounting officer, as appropriate, to allow timely decisions regarding required disclosures based closely on the definition of “disclosure controls and procedures” in Rule 13a-1(c) of the Securities Exchange Act of 1934. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, we have investments in certain unconsolidated entities. As we do not control or manage these entities, our disclosure controls and procedures with respect to these entities are substantially more limited than those we maintain with respect to our consolidated subsidiaries.

As of June 30, 2005, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer, our chief financial officer, and our chief accounting officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, we concluded that our disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the three months ended June 30, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS


Exhibit No.		Description of Document
3.1		Certificate of Limited Partnership of MeriStar Hospitality Operating Partnership, L.P. (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-4 for MeriStar Hospitality Operating Partnership, L.P. and MeriStar Hospitality Finance Corp. (File No. 333-63768) filed with the Securities and Exchange Commission on June 25, 2001).

3.2		Second Amended and Restated Agreement of Limited Partnership of MeriStar Hospitality Operating Partnership, L.P. (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-4 for MeriStar Hospitality Operating Partnership, L.P. and MeriStar Hospitality Finance Corp. (File No. 333-63768) filed with the Securities and Exchange Commission on June 25, 2001).

3.3		Certificate of Incorporation of MeriStar Hospitality Finance Corp. (incorporated by reference to Exhibit 3.3 to the Registration Statement on Form S-4 for MeriStar Hospitality Operating Partnership, L.P. and MeriStar Hospitality Finance Corp. (File No. 333-63768) filed with the Securities and Exchange Commission on June 25, 2001).

3.4		By-Laws of MeriStar Hospitality Finance Corp. (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-4 for MeriStar Hospitality Operating Partnership, L.P. and MeriStar Hospitality Finance Corp. (File No. 333-63768) filed with the Securities and Exchange Commission on June 25, 2001).

3.5		Certificate of Incorporation of MeriStar Hospitality Finance Corp. II (incorporated by reference to Exhibit 3.5 to our annual report on Form 10-K for the year ended December 31, 2002, and filed with the Commission on March 31, 2003).

3.6		By-Laws of MeriStar Hospitality Finance Corp. II (incorporated by reference to Exhibit 3.6 to our annual report on Form 10-K for the year ended December 31, 2002, and filed with the Commission on March 31, 2003).

3.7		Certificate of Incorporation of MeriStar Hospitality Finance Corp. III (incorporated by reference to Exhibit 3.6 to our annual report on Form 10-K for the year ended December 31, 2002, and filed with the Commission on March 31, 2003).

3.8		By-Laws of MeriStar Hospitality Finance Corp. III (incorporated by reference to Exhibit 3.7 to our annual report on Form 10-K for the year ended December 31, 2002, and filed with the Commission on March 31, 2003).

10.21*		Executive Employment Agreement, effective January 1, 2005, between MeriStar Hospitality Corporation, MeriStar Hospitality Operating Partnership, L.P. and Paul W. Whetsell. **

13		Financial Statements of MeriStar Hospitality Corporation as of and for the three and six months ended June 30, 2005. **

31.1		Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer. **

31.2		Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer. **

32.1		Sarbanes-Oxley Act Section 906 Certification of Chief Executive Officer. **

32.2		Sarbanes-Oxley Act Section 906 Certification of Chief Financial Officer. **

99.1		Consolidating Financial Information of MeriStar Hospitality Operating Partnership, L.P. **

*	Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c) of Form 10-Q.

**	Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.
MERISTAR HOSPITALITY FINANCE CORP.
MERISTAR HOSPITALITY FINANCE CORP. II
MERISTAR HOSPITALITY FINANCE CORP. III
BY:		MERISTAR HOSPITALITY CORPORATION
		ITS GENERAL PARTNER

By:		/s/ Donald D. Olinger
		Donald D. Olinger
		Executive Vice President and
		Chief Financial Officer and
		Duly Authorized Officer

Dated: August 5, 2005

Filing Compare · MERISTAR HOSPITALITY OPERATING PARTNERSHIP LP