MeriStar Hospitality Corporation Reports Second Quarter 2005 Results, Increases Adjusted FFO per Share Guidance

-- Net income increased to $0.9 million or $0.01 per diluted share compared to a net loss of $(11.6) million or $(0.14) per diluted share for the 2004 second quarter;

-- Adjusted funds from operations (FFO) per share of $0.32 increased 33 percent compared to $0.24 per share for the 2004 second quarter;

-- Adjusted EBITDA of $62.0 million increased over 19 percent compared to $51.9 million in the 2004 second quarter;

-- Revenue per available room (RevPAR) increased 9.9 percent for the comparable hotels, as the average daily rate (ADR) rose 9.6 percent and occupancy improved 0.3 percent;

-- Comparable hotel gross operating profit margins improved 196 basis points and comparable hotel EBITDA margins improved 209 basis points; and

-- Business interruption (BI) insurance gain of $2.0 million (based on insurer recognition to date from losses resulting from the 2004 Florida hurricanes) included in net income, adjusted FFO and adjusted EBITDA.

(1)FFO, Adjusted FFO, Adjusted EBITDA, and comparable hotelEBITDA margins are non-GAAP financial measures. See the notes tofinancial information for further discussion of these non-GAAPfinancial measures.

"The positive operating trends produced by our portfolio in recentquarters carried over into the second quarter, and our hotels continueto gain operating momentum," said Paul W. Whetsell, chairman and chiefexecutive officer. "We continue to realize returns from our ongoingrenovation program, reflected in higher rate levels achieved at thoseproperties. Our ability to raise rate was the primary contributor tothe 209 basis point expansion in our comparable hotel EBITDA margins.With the improved asset quality of our portfolio, we plan to continueaggressively driving rate to take advantage of the additional upsidepotential we see in this area," he added.

"We realized double-digit RevPAR gains in several of our keymarkets, including a 19.8 percent increase in Southern California anda 12.0 percent increase in Washington D.C. Significantly, our 49.99percent equity investment in the Radisson Lexington in MidtownManhattan, although not included in our comparable hotel results,achieved a RevPAR gain of 30 percent in the second quarter. The strongperformance of the property resulted in distributable cash on ourequity interest of nearly $800,000 in the quarter in addition to the$1.4 million preferred return on the $40 million mezzanine loan."

Renovation Program

In the second quarter, the company invested $24.3 million innon-hurricane related capital improvements at its properties as partof its $100 million strategic renovation program for 2005. "Year todate, we have invested more than $60 million in non-hurricane relatedcapital projects at our properties that have enhanced the quality ofour product. The positive impact of these upgrades will continue toallow us to drive strong rate increases and generate better bottomlines at the property level," Whetsell stated.

The Embassy Suites in Center City Philadelphia, which underwent acomplete guestroom renovation, lobby remodeling and an exterior facaderepair in the past year, achieved a RevPAR increase in the secondquarter of 15.8 percent, led by a 11.5 percent increase in ADR. Also,the Marriott in Somerset, N.J., which recently renovated itsguestrooms, fitness center and other public areas, saw RevPAR increase25.9 percent and operating profits more than double in the quarter.

Asset Sales

In May, the company sold its Hilton Monterey, Calif. property for$20.5 million. In July, the company completed the sale of its MarinaHotel - San Pedro property for $5.8 million.

The company expects to expand its asset disposition activity forthe year in response to strong market conditions for dispositions andexpressed interest. The company intends to use the proceeds to repaymore expensive debt, particularly its 10 1/2 percent senior noteswhich are callable in December. "Last quarter we announced we wereexploring additional asset sales given the current favorableenvironment for asset dispositions and the opportunity to improve ourcapital structure. We now expect to generate approximately $250 to$300 million of asset sales in total for the year. The sale of theseassets is more opportunistic in nature and dispositions will becompleted only if pricing levels are met," Whetsell added.

The company recently announced the addition of John Plunket asSenior Vice President - Real Estate who will be responsible foroverseeing the company's disposition and acquisition program.

Capital Structure

"We completed a number of financial transactions since the firstquarter aimed at improving our capital structure," said Donald D.Olinger, chief financial officer. In June, the company completed theplacement of a 5.68 percent fixed-rate, 10-year, $44.0 millionmortgage on the Hilton Clearwater hotel in Florida. During the secondquarter, the company repurchased $21.5 million of its senior notesbearing interest between 9 and 10 1/2 percent. In the third quarter,the company has repurchased an additional $12.8 million of seniornotes. Also, the company sent notice to call the remaining $32.7million of 8 3/4 percent senior subordinated notes at par on August15, 2005. "We have taken advantage of the current rate environment toreplace high interest rate debt with long-term, lower-cost debt. Inaddition, retiring our senior subordinated debt will lower our overallinterest expense and remove the company's most restrictive debtcovenants."

In August, the company restructured its secured revolver,expanding the credit line from $50 million to $150 million. "Thistransaction will create additional liquidity and flexibility as weproceed with our renovation program, work toward resolution of ourhurricane insurance claim, and allow us to reduce debt ahead ofreceiving proceeds from our expanded asset sales program," Olingerstated.

The company also expects to close on the refinancing of its $300million CMBS portfolio in August by defeasing the current loan andreplacing it with approximately $335 million of new CMBS debt usingthe same collateral package at a rate over 300 basis points lower."Not only will this transaction produce run-rate interest savings ofapproximately $9 million per year, it will also provide us with muchgreater flexibility in the management of our cash as well as theassets in this portfolio. This refinancing will free up nearly $50million currently held in restricted cash," Olinger added. "Theresults are net present value positive, even with the defeasance cost,and will produce a number of operating benefits.

"Through these transactions, we are making considerable progressin improving our credit statistics, strengthening our balance sheet,and creating shareholder value."

Florida Hotels Update

Strong growth in the Florida travel market was reflected in theperformance of the company's hotels that were open in the secondquarter. The two open Orlando and two Tampa Bay/Clearwater propertiesreported combined RevPAR gains of 15 percent for the period.

The company continues to make significant progress on repairingits hotels affected by the hurricanes that hit Florida last year."Four of the five inns on Sanibel Island reopened in the secondquarter," Whetsell remarked. "These properties are restored toexceptional physical condition and their performance since re-openinghas been promising. The overall restoration of the quality of theproduct following our rebuilding efforts is being reflected in theresults." The Best Western Sanibel Island, the fifth Sanibel property,is expected to open in August. The Holiday Inn Walt Disney World isscheduled to reopen in the fourth quarter. South Seas Island Resort onCaptiva Island is gradually reopening as condominium units are alreadybeing returned for rental and many of the facilities will be fullyoperating by year-end.

Including the BI insurance gain recognized by the insurers todate, the company's seven Florida hotels that were substantiallyclosed at the start of the quarter (four of which reopened during thequarter), together with the Dunes Golf and Tennis Club on SanibelIsland, contributed a total of $1.2 million of EBITDA ($0.4 millionnet loss) in the second quarter 2005, compared to $3.2 million ofEBITDA ($0.6 million net income) in the second quarter 2004. In total,these properties contributed $3.8 million of EBITDA ($0.4 million netincome) in the first half of 2005, compared to $9.7 million ($4.4million net income) in the first half of 2004. Additionally, totalrevenue reported by these properties in the second quarter was $4.4million in 2005 compared to $26.5 million in 2004.

Total adjusted EBITDA of $62.0 million in the second quarterincluded $2.0 million of BI insurance gain. "The operating resultsfrom our comparable hotels provided for another strong quarter,despite the fact that the insurers have thus far allowed recognitionof only a very conservative BI insurance gain in the quarter," Olingersaid. "The $2.0 million of BI recognized in the quarter representsminimum profit recognition independent from the claim payment processand is below both what we ultimately expect to recognize and the $2.5to $5.0 million included in our guidance for the quarter. We remainquite confident that we will be compensated for lost profits at alevel in excess of what we have recognized so far this year, howeverthe timing of the recognition between this year's quarters willcontinue to be challenging to predict."

To date, the company has received over $100 million of hurricanerecovery insurance payments. "We have been receiving regular cashpayments from our insurers and expect these payments to continue as wework through our claim," Olinger added. "However, in order torecognize gains resulting from BI insurance for lost income, allcontingencies related to the recoveries must be resolved, which isdifficult to achieve with the insurers until the claim is moreadvanced."

Guidance

The company is revising its 2005 guidance to reflect the strongperformance of its portfolio, the additional asset sales, and capitalmarkets activity. "Our revised assumptions on the timing and quantityof asset sales, debt reductions, including calling between $175 and$200 million of our 10 1/2 percent senior notes in December, andrefinancings result in an increase in our estimated adjusted FFO pershare," Olinger remarked. RevPAR is projected to increase 9 to 10percent in the third quarter, and the full year RevPAR is estimated toincrease 8.5 to 9.5 percent. Comparable hotel EBITDA margins areexpected to increase 150 to 200 basis points in the third quarter andfor the full year. Additionally, the company provides the followingrange of estimates for the third quarter and full year:

-- Net loss of $18 million to $21 million for the third quarter and $42 million to $46 million for the full year;

-- Net loss per diluted share of $(0.20) to $(0.24) for the third quarter and $(0.48) to $(0.52) for the full year;

-- FFO per diluted share of $0.04 to $0.08 for the third quarter and $0.59 to $0.63 for the full year;

-- Adjusted FFO per diluted share of $0.04 to $0.08 for the third quarter and $0.63 to $0.68 for the full year; and

-- Adjusted EBITDA of $37 million to $40 million for the third quarter and $185 million to $190 million for the full year.

See reconciliations of net loss to FFO per diluted share andAdjusted FFO per diluted share and net loss to Adjusted EBITDAincluded in the tables of this press release. FFO, Adjusted FFO, andAdjusted EBITDA (earnings before interest, income taxes, depreciation,amortization and other items) are non-GAAP financial measures andshould not be considered as alternatives to any measures of operatingresults under GAAP. See the notes to financial information for furtherdiscussion of these non-GAAP financial measures.

MeriStar will hold a conference call to discuss its second-quarterresults today, August 3, 2005, at 10 a.m. Eastern time. Interestedparties may visit the company's Web site at www.meristar.com and clickon Investor Relations and then the webcast link.

Interested parties also may listen to an archived webcast of theconference call on the Web site, or may dial (800) 405-2236, referencenumber 11034186, to hear a telephone replay. The telephone replay willbe available through midnight on Wednesday, August 10, 2005.

Arlington, Va.-based MeriStar Hospitality Corporation owns 71principally upscale, full-service hotels in major markets and resortlocations with 19,889 rooms in 22 states and the District of Columbia.The company owns hotels under such internationally known brands asHilton, Sheraton, Marriott, Ritz-Carlton, Westin, Doubletree andRadisson. For more information about MeriStar Hospitality, visit thecompany's Web site: www.meristar.com.

This press release contains forward-looking statements within themeaning of Section 27A of the Securities Act of 1933 and Section 21Eof 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 ofwords such as "intend," "plan," "may," "should," "will," "project,""estimate," "anticipate," "believe," "expect," "continue,""potential," "opportunity," and similar expressions, whether in thenegative or affirmative. We cannot guarantee that we actually willachieve these plans, intentions or expectations. All statementsregarding our expected financial position, business and financingplans are forward-looking statements. Except for historicalinformation, matters discussed in this press release are subject toknown and unknown risks, uncertainties and other factors which maycause our actual results, performance or achievements to be materiallydifferent from future results, performance or achievements expressedor implied by such forward-looking statements. Factors which couldhave a material adverse effect on our operations and future prospectsinclude, but are not limited to: economic conditions generally and thereal estate market specifically; supply and demand for hotel rooms inour current and proposed market areas; other factors that mayinfluence the travel industry, including health, safety and economicfactors; competition; cash flow generally, including the availabilityof capital generally, cash available for capital expenditures, and ourability to refinance debt; the effects of threats of terrorism andincreased security precautions on travel patterns and demand forhotels; the threatened or actual outbreak of hostilities andinternational political instability; governmental actions, includingnew laws and regulations and particularly changes to laws governingthe taxation of real estate investment trusts; weather conditionsgenerally and natural disasters; rising interest rates; and changes inU.S. generally accepted accounting principles, policies and guidelinesapplicable to real estate investment trusts. These risks anduncertainties should be considered in evaluating any forward-lookingstatements contained in this press release or incorporated byreference herein. All forward-looking statements speak only as of thedate of this press release or, in the case of any documentincorporated by reference, the date of that document. All subsequentwritten and oral forward-looking statements attributable to us or anyperson acting on our behalf are qualified by the cautionary statementsin this section. We undertake no obligation to update or publiclyrelease any revisions to forward-looking statements to reflect events,circumstances or changes in expectations after the date of this pressrelease.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)



Three Months Ended Six Months Ended
June 30, 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 23,837 24,356 48,256 49,464
Property taxes, insurance and
other 12,098 15,232 22,882 31,345
Loss on asset impairments - 310 - 310
-------- -------- -------- --------

Operating expenses 184,751 187,269 359,269 370,343
-------- -------- -------- --------

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

Operating income 37,139 25,611 54,560 37,196

Minority interest (expense)
income (39) 671 308 1,617
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 5,455 (5,788) (7,550) (33,682)

Income tax (expense) benefit (812) (38) (834) 455
-------- -------- -------- --------

Income (loss) from continuing
operations 4,643 (5,826) (8,384) (33,227)
-------- -------- -------- --------

Discontinued operations:
Loss from discontinued
operations before income tax (3,709) (5,784) (4,126) (18,747)
Income tax benefit - 55 - 175
-------- -------- -------- --------

Loss from discontinued
operations (3,709) (5,729) (4,126) (18,572)
-------- -------- -------- --------

Net income (loss) $ 934 $(11,555) $(12,510) $(51,799)
======== ======== ======== ========

Basic earnings (loss) per
share:
Earnings (loss) from
continuing operations $ 0.05 $ (0.07) $ (0.10) $ (0.44)
Loss from discontinued
operations (0.04) (0.07) (0.04) (0.24)
-------- -------- -------- --------
Earnings (loss) per basic
share $ 0.01 $ (0.14) $ (0.14) $ (0.68)
======== ======== ======== ========

Diluted earnings (loss) per
share:
Earnings (loss) from
continuing operations $ 0.05 $ (0.08) $ (0.10) $ (0.45)
Loss from discontinued
operations (0.04) (0.06) (0.04) (0.23)
-------- -------- -------- --------
Earnings (loss) per diluted
share $ 0.01 $ (0.14) $ (0.14) $ (0.68)
======== ======== ======== ========





RECONCILIATION OF NET LOSS TO FUNDS FROM OPERATIONS (a)
(In thousands, except per share amounts)

Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
--------- --------- -------- ---------
Funds From Operations:

Net income (loss) $ 934 $(11,555) $(12,510) $(51,799)
Depreciation and
amortization of real
estate assets 22,503 23,617 45,997 48,120
Loss on disposal of assets 1,037 4,584 1,037 11,530
Unconsolidated affiliate
adjustments 1,163 - 2,417 -
Minority interest to
common OP unit holders (628) (671) (1,215) (1,759)
Interest on convertible
debt 4,038 - - -
-------- -------- -------- --------

Funds from operations $ 29,047 $ 15,975 $ 35,726 $ 6,092
======== ======== ======== ========

Weighted average number of
shares of common stock
outstanding 104,263 (b) 85,333 87,529 78,234
======== ======== ======== ========

Funds from operations per
diluted share $ 0.28 $ 0.19 $ 0.41 $ 0.08
======== ======== ======== ========

Funds From Operations, as
adjusted:

Funds from operations $ 29,047 $ 15,975 $ 35,726 $ 6,092
Loss on asset impairments 2,836 2,430 2,836 7,441
Loss on early
extinguishments of debt 947 1,980 1,007 7,903
Write off of deferred
financing fees 199 453 210 1,719
Minority interest to
common OP unit holders (101) - (98) -
-------- -------- -------- --------

Funds from operations, as
adjusted $ 32,928 $ 20,838 $ 39,681 $ 23,155
======== ======== ======== ========

Weighted average number of
shares of common stock and
common stock equivalents
outstanding 104,263 (b) 85,333 87,529 78,234
======== ======== ======== ========

Funds from operations per
diluted share, as adjusted $ 0.32 $ 0.24 $ 0.45 $ 0.30
======== ======== ======== ========


(a) See the notes to the financial information for discussion of
non-GAAP measures.

(b) The 104,263 weighted average shares of common stock outstanding
for diluted FFO and diluted Adjusted FFO for the three months
ended June 30, 2005, includes 16,700 incremental shares that are
not issued or outstanding, but that are dilutive in calculating
FFO per diluted share and adjusted FFO per diluted share, and
would be issued upon conversion of our convertible subordinated
notes. These $170.0 million notes are convertible into common
stock at a ratio of $10.18 per share.




RECONCILIATION OF NET LOSS TO EBITDA (a)
(In thousands)

Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
--------- --------- -------- ---------
EBITDA and Adjusted EBITDA:

Net income (loss) $ 934 $(11,555) $(12,510) $(51,799
Loss from discontinued
operations (3,709) (5,729) (4,126) (18,572)
-------- -------- -------- --------
Income (loss) from continuing
operations 4,643 (5,826) (8,384) (33,227)
Interest expense, net 30,698 30,090 61,411 64,592
Income tax expense (benefit) 812 38 834 (455)
Depreciation and amortization
(b) 23,837 24,356 48,256 49,464
-------- -------- -------- --------
EBITDA from continuing
operations 59,990 48,658 102,117 80,374

Loss on asset impairments - 310 - 310
Minority interest expense
(income) 39 (671) (308) (1,617)
Loss on early extinguishments
of debt 947 1,980 1,007 7,903
Equity investment adjustments:
Equity in (income) loss of
affiliates (206) - 1,164 -
Distributions accrued from
equity investments 791 - 791 -
-------- -------- -------- --------
Adjusted EBITDA from
continuing operations $ 61,561 $ 50,277 $104,771 $ 86,970
======== ======== ======== ========

Loss from discontinued
operations $ (3,709) $ (5,729) $ (4,126) $(18,572)
Interest expense, net - (367) - (478)
Income tax benefit - (55) - (175)
Depreciation and amortization 237 1,077 704 3,130
-------- -------- -------- --------

EBITDA from discontinued
operations (3,472) (5,074) (3,422) (16,095)

Loss on asset impairments 2,836 2,120 2,836 7,131
Loss on disposal of assets 1,037 4,584 1,037 11,530
-------- -------- -------- --------
Adjusted EBITDA from
discontinued operations $ 401 $ 1,630 $ 451 $ 2,566
======== ======== ======== ========

Adjusted EBITDA, total
operations $ 61,962 $ 51,907 $105,222 $ 89,536
======== ======== ======== ========


(a) See the notes to the financial information for discussion of
non-GAAP measures.

(b) Depreciation and amortization includes the write-off of deferred
financing costs totaling $0.2 million and $0.5 million for the
three months ended June 30, 2005 and 2004, respectively, and $0.2
million and $1.7 million for the six months ended June 30, 2005
and 2004, respectively, related to our early extinguishments of
debt during these periods.





HOTEL OPERATIONAL DATA
SCHEDULE OF COMPARABLE HOTEL RESULTS (a)
(In thousands, except per share amounts)


Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
---------- ---------- --------- ----------
Number of hotels 61 61 61 61
Number of rooms 17,480 17,480 17,480 17,480

Comparable hotel revenues:
Rooms $129,140 $117,441 $241,827 $226,288
Food and beverage 53,865 50,087 99,045 93,847
Other hotel operations 8,771 8,452 16,833 16,666
-------- -------- -------- --------
Comparable hotel
revenues (b) 191,776 175,980 357,705 336,801
-------- -------- -------- --------


Comparable hotel expenses:
Room 30,811 28,780 59,178 56,453
Food and beverage 36,088 34,495 68,684 67,169
Other 5,970 5,846 11,622 11,614
General and
administrative 28,751 27,206 57,115 54,990
Property operating costs,
less management fees 24,074 22,467 46,958 44,888
-------- -------- -------- --------
Comparable hotel
expenses (c) 125,694 118,794 243,557 235,114
-------- -------- -------- --------


-------- -------- -------- --------
Comparable Hotel Gross
Operating Profit 66,082 57,186 114,148 101,687
-------- -------- -------- --------
Margin 34.5 % 32.5 % 31.9 % 30.2 %

Management Fees (c) (4,791) (4,390) (8,936) (8,407)
Property taxes, insurance
and other (c) (9,547) (8,986) (18,685) (18,175)

-------- -------- -------- --------
Comparable Hotel EBITDA,
excluding BI (d) $ 51,744 $ 43,810 $ 86,527 $ 75,105
-------- -------- -------- --------
Margin 27.0 % 24.9 % 24.2 % 22.3 %

Hurricane business
interruption gain 692 - 970 -

-------- -------- -------- --------
Comparable Hotel EBITDA,
including BI (d) $ 52,436 $ 43,810 $ 87,497 $ 75,105
======== ======== ======== ========
Margin 27.3 % 24.9 % 24.5 % 22.3 %


(a) See the notes to the financial information for discussion of
non-GAAP measures, and comparable hotel results and statistics.

(b) The reconciliation of total revenues per the consolidated
statements of operations to the comparable hotel revenues is as
follows (in thousands):


Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
--------- --------- -------- ---------
Revenues per the
consolidated statements
of operations $216,941 $211,280 $404,964 $404,339
Non-comparable hotel
revenues (23,953) (33,972) (44,190) (64,913)
Office rental, parking and
other revenue (1,212) (1,328) (3,069) (2,625)
-------- -------- -------- --------
Comparable hotel revenues $191,776 $175,980 $357,705 $336,801
======== ======== ======== ========

(c) The reconciliation of operating costs per the consolidated
statements of operations to the comparable hotel expenses,
management fees, property taxes, insurance and other is as follows
(in thousands):


Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
--------- --------- -------- ---------
Operating expenses per the
consolidated statements of
operations $184,751 $187,269 $359,269 $370,343
Non-comparable hotel expenses (18,054) (26,960) (33,474) (51,767)
General and administrative,
corporate (2,828) (3,473) (6,361) (7,106)
Depreciation and amortization (23,837) (24,356) (48,256) (49,464)
Loss on asset impairments - (310) - (310)
-------- -------- -------- --------
Comparable hotel expenses,
management fees, property
taxes, insurance and other $140,032 $132,170 $271,178 $261,696
======== ======== ======== ========

(d) The reconciliation of comparable hotel EBITDA to operating income
per the consolidated statements of operations is as follows (in
thousands):


Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
--------- --------- -------- ---------
Comparable hotel EBITDA,
including BI $ 52,436 $ 43,810 $ 87,497 $ 75,105
Non-comparable results, net (e) 5,899 7,012 10,716 13,146
Office rental, parking and
other revenue 1,212 1,328 3,069 2,625
General and administrative,
corporate (2,828) (3,473) (6,361) (7,106)
Depreciation and amortization (23,837) (24,356) (48,256) (49,464)
Loss on asset impairments - (310) - (310)
Equity in income/loss of and
interest earned from
unconsolidated affiliates 2,940 1,600 4,575 3,200
Hurricane business interruption
gain at non-comparable hotels 1,317 - 3,320 -

-------- -------- -------- --------
Operating Income $ 37,139 $ 25,611 $ 54,560 $ 37,196
======== ======== ======== ========

(e) Non-comparable results, net represent all revenues and expenses,
other than those of our comparable hotels, and specific revenues
and expenses identified above: office rental, parking and other
revenue; general and administrative, corporate; depreciation and
amortization; loss on asset impairments and equity in income/loss
of and interest earned from unconsolidated affiliates.




RECONCILIATION OF NET INCOME TO EBITDA (HURRICANE PROPERTIES)
(In thousands)

In August and September 2004, hurricanes caused substantial damage
to a number of our hotels located in Florida. The hurricane damage and
local evacuation orders also caused significant business interruption
at many of our Florida properties, including the complete closure of
certain hotels. As a result, seven of our hotels were substantially
closed for the first quarter of 2005.

During the second quarter, Sanibel Inn, Seaside Inn, Song of the
Sea, and Sundial Beach Resort reopened but were not fully operational
for the entire quarter. Best Western Sanibel Island is expected to
open in August and Holiday Inn Walt Disney World is expected to open
in the fourth quarter. South Seas Island Resort on Captiva Island is
gradually reopening as condominium units are already being returned
for rental and many of the facilities will be fully operating by
year-end.

The following is a reconciliation of Net Income to EBITDA for
those seven hotels and Dunes Golf and Tennis Club on Sanibel Island:


Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
--------- --------- -------- ---------
EBITDA:

Net income (loss) (a) $ (410) $ 586 $ 474 $ 4,387
Depreciation and amortization 1,645 2,642 3,289 5,288

-------- -------- -------- --------
EBITDA (a) $ 1,235 $ 3,228 $ 3,763 $ 9,675
======== ======== ======== ========


(a) Includes $1.3 million and $3.3 million of business interruption
insurance gain at these seven hotels and Dunes Golf and Tennis
Club in the three and six months ended June 30, 2005,
respectively. We received an additional $0.7 million and $1.0
million of business interruption gain included in the 61
comparable hotels in the three and six months ended June 30, 2005,
respectively.




DETAILED OPERATING STATISTICS BY MARKET, REGION AND LOCATION
Comparable hotels, same store basis (a)

2nd Quarter 2005
---------------------------------
Market/Region/Location Hotels Rooms ADR Occ% RevPAR
----------------------------------------------------------------------
Washington DC Metro (b) 10 2,112 $ 144.80 84.6%$ 122.45
New Jersey 4 1,120 $ 132.44 66.7%$ 88.35
Southern California (b) 3 1,034 $ 125.58 76.2%$ 95.72
Northern California 2 764 $ 127.74 74.7%$ 95.45
Orlando (c) 2 1,231 $ 90.80 72.3%$ 65.11
Chicago 2 857 $ 123.26 71.2%$ 87.71
Colorado 2 736 $ 91.05 60.9%$ 55.44
Atlanta 2 650 $ 94.18 75.6%$ 71.19
Dallas 2 598 $ 93.18 64.1%$ 59.68
Houston 2 597 $ 113.49 68.8%$ 78.05
All other markets (c) 30 7,781 $ 102.88 70.6%$ 72.63
----------------------------------------------------------------------
All Markets 61 17,480 $ 112.48 72.2%$ 81.19
----------------------------------------------------------------------
Middle Atlantic (b) 16 3,718 $ 140.56 79.1%$ 111.17
South Central 11 3,281 $ 105.09 69.1%$ 72.63
South Atlantic (c) 12 4,101 $ 100.48 71.8%$ 72.15
Pacific (b) 8 2,593 $ 123.27 70.1%$ 86.45
North Central 7 1,789 $ 103.69 70.0%$ 72.56
Mountain 6 1,798 $ 83.63 69.3%$ 57.93
New England 1 200 $ 91.07 74.7%$ 68.02
----------------------------------------------------------------------
All Regions 61 17,480 $ 112.48 72.2%$ 81.19
----------------------------------------------------------------------
Urban (b) 19 4,933 $ 134.63 78.0%$ 104.97
Resort (c) 7 2,678 $ 107.58 69.8%$ 75.13
Airport (b) 12 3,751 $ 93.21 73.2%$ 68.25
Suburban 23 6,118 $ 106.88 67.9%$ 72.59
----------------------------------------------------------------------
All Locations 61 17,480 $ 112.48 72.2%$ 81.19
----------------------------------------------------------------------

2nd Quarter 2004
---------------------------------
Market/Region/Location Hotels Rooms ADR Occ% RevPAR
----------------------------------------------------------------------
Washington DC Metro (b) 10 2,112 $ 133.46 81.9%$ 109.33
New Jersey 4 1,120 $ 131.79 60.7%$ 79.96
Southern California (b) 3 1,034 $ 105.94 75.4%$ 79.90
Northern California 2 764 $ 118.97 78.7%$ 93.61
Orlando (c) 2 1,231 $ 74.84 75.7%$ 56.62
Chicago 2 857 $ 101.37 76.3%$ 77.33
Colorado 2 736 $ 83.33 64.4%$ 53.65
Atlanta 2 650 $ 81.37 80.3%$ 65.37
Dallas 2 598 $ 89.75 57.2%$ 51.30
Houston 2 597 $ 106.26 69.0%$ 73.36
All other markets (c) 30 7,781 $ 96.02 70.2%$ 67.37
----------------------------------------------------------------------
All Markets 61 17,480 $ 102.60 72.0%$ 73.87
----------------------------------------------------------------------
Middle Atlantic (b) 16 3,718 $ 131.84 75.3%$ 99.34
South Central 11 3,281 $ 99.66 66.9%$ 66.69
South Atlantic (c) 12 4,101 $ 89.19 73.9%$ 65.88
Pacific (b) 8 2,593 $ 110.05 71.0%$ 78.16
North Central 7 1,789 $ 92.11 72.3%$ 66.63
Mountain 6 1,798 $ 78.12 70.2%$ 54.80
New England 1 200 $ 77.14 81.4%$ 62.80
----------------------------------------------------------------------
All Regions 61 17,480 $ 102.60 72.0%$ 73.87
----------------------------------------------------------------------
Urban (b) 19 4,933 $ 120.84 78.6%$ 94.96
Resort (c) 7 2,678 $ 95.47 74.3%$ 70.90
Airport (b) 12 3,751 $ 83.51 73.3%$ 61.20
Suburban 23 6,118 $ 101.55 64.9%$ 65.91
----------------------------------------------------------------------
All Locations 61 17,480 $ 102.60 72.0%$ 73.87
----------------------------------------------------------------------

Percent
Change in
Market/Region/Location Hotels Rooms RevPAR
------------------------------------------------
Washington DC Metro (b) 10 2,112 12.0%
New Jersey 4 1,120 10.5%
Southern California (b) 3 1,034 19.8%
Northern California 2 764 2.0%
Orlando (c) 2 1,231 15.0%
Chicago 2 857 13.4%
Colorado 2 736 3.3%
Atlanta 2 650 8.9%
Dallas 2 598 16.3%
Houston 2 597 6.4%
All other markets (c) 30 7,781 7.8%
------------------------------------------------
All Markets 61 17,480 9.9%
------------------------------------------------
Middle Atlantic (b) 16 3,718 11.9%
South Central 11 3,281 8.9%
South Atlantic (c) 12 4,101 9.5%
Pacific (b) 8 2,593 10.6%
North Central 7 1,789 8.9%
Mountain 6 1,798 5.7%
New England 1 200 8.3%
------------------------------------------------
All Regions 61 17,480 9.9%
------------------------------------------------
Urban (b) 19 4,933 10.5%
Resort (c) 7 2,678 6.0%
Airport (b) 12 3,751 11.5%
Suburban 23 6,118 10.1%
------------------------------------------------
All Locations 61 17,480 9.9%
------------------------------------------------

(a) See notes to financial information for discussion of comparable
hotel operating results and statistics.
(b) Excludes hotels acquired during the second quarter.
(c) Excludes hotels significantly affected by the hurricanes in
Florida.




DETAILED OPERATING STATISTICS BY MARKET, REGION AND LOCATION
Comparable hotels, same store basis (a)

Six Months Ended June 30, 2005
---------------------------------
Market/Region/Location Hotels Rooms ADR Occ% RevPAR
----------------------------------------------------------------------
Washington DC Metro (b) 10 2,112 $ 142.14 74.6%$ 106.07
New Jersey 4 1,120 $ 130.42 59.0%$ 76.92
Southern California (b) 3 1,034 $ 123.32 76.3%$ 94.12
Northern California 2 764 $ 120.31 71.7%$ 86.31
Orlando (c) 2 1,231 $ 95.68 76.6%$ 73.32
Chicago 2 857 $ 113.54 60.6%$ 68.80
Colorado 2 736 $ 87.67 54.0%$ 47.36
Atlanta 2 650 $ 93.96 76.9%$ 72.27
Dallas 2 598 $ 91.66 61.9%$ 56.78
Houston 2 597 $ 110.84 68.5%$ 75.93
All other markets (c) 30 7,781 $ 103.01 68.9%$ 70.99
----------------------------------------------------------------------
All Markets 61 17,480 $ 110.65 69.1%$ 76.44
----------------------------------------------------------------------
Middle Atlantic (b) 16 3,718 $ 137.66 69.9%$ 96.24
South Central 11 3,281 $ 100.94 66.5%$ 67.09
South Atlantic (c) 12 4,101 $ 105.26 73.5%$ 77.36
Pacific (b) 8 2,593 $ 119.90 70.4%$ 84.36
North Central 7 1,789 $ 97.72 62.8%$ 61.35
Mountain 6 1,798 $ 83.82 66.3%$ 55.61
New England 1 200 $ 88.40 71.1%$ 62.81
----------------------------------------------------------------------
All Regions 61 17,480 $ 110.65 69.1%$ 76.44
----------------------------------------------------------------------
Urban (b) 19 4,933 $ 127.35 72.2%$ 92.00
Resort (c) 7 2,678 $ 114.84 72.5%$ 83.26
Airport (b) 12 3,751 $ 93.99 71.3%$ 67.01
Suburban 23 6,118 $ 104.69 63.7%$ 66.68
----------------------------------------------------------------------
All Locations 61 17,480 $ 110.65 69.1%$ 76.44
----------------------------------------------------------------------

Six Months Ended June 30, 2004
---------------------------------
Market/Region/Location Hotels Rooms ADR Occ% RevPAR
----------------------------------------------------------------------
Washington DC Metro (b) 10 2,112 $ 126.50 75.3%$ 95.21
New Jersey 4 1,120 $ 129.19 55.7%$ 71.99
Southern California (b) 3 1,034 $ 110.15 76.1%$ 83.87
Northern California 2 764 $ 113.30 76.3%$ 86.47
Orlando (c) 2 1,231 $ 79.83 75.3%$ 60.09
Chicago 2 857 $ 95.39 65.6%$ 62.58
Colorado 2 736 $ 81.40 61.1%$ 49.76
Atlanta 2 650 $ 81.95 82.5%$ 67.59
Dallas 2 598 $ 88.48 58.1%$ 51.43
Houston 2 597 $ 113.47 72.9%$ 82.70
All other markets (c) 30 7,781 $ 96.54 69.4%$ 66.96
----------------------------------------------------------------------
All Markets 61 17,480 $ 101.63 70.0%$ 71.16
----------------------------------------------------------------------
Middle Atlantic (b) 16 3,718 $ 126.64 69.1%$ 87.48
South Central 11 3,281 $ 98.55 66.2%$ 65.25
South Atlantic (c) 12 4,101 $ 93.05 74.8%$ 69.61
Pacific (b) 8 2,593 $ 110.84 71.9%$ 79.71
North Central 7 1,789 $ 87.97 65.4%$ 57.53
Mountain 6 1,798 $ 78.88 68.7%$ 54.16
New England 1 200 $ 74.65 80.7%$ 60.22
----------------------------------------------------------------------
All Regions 61 17,480 $ 101.63 70.0%$ 71.16
----------------------------------------------------------------------
Urban (b) 19 4,933 $ 115.31 74.1%$ 85.42
Resort (c) 7 2,678 $ 101.94 74.9%$ 76.31
Airport (b) 12 3,751 $ 83.75 73.0%$ 61.10
Suburban 23 6,118 $ 101.15 62.8%$ 63.57
----------------------------------------------------------------------
All Locations 61 17,480 $ 101.63 70.0%$ 71.16
----------------------------------------------------------------------

Percent
Change in
Market/Region/Location Hotels Rooms RevPAR
------------------------------------------------
Washington DC Metro (b) 10 2,112 11.4%
New Jersey 4 1,120 6.8%
Southern California (b) 3 1,034 12.2%
Northern California 2 764 -0.2%
Orlando (c) 2 1,231 22.0%
Chicago 2 857 9.9%
Colorado 2 736 -4.8%
Atlanta 2 650 6.9%
Dallas 2 598 10.4%
Houston 2 597 -8.2%
All other markets (c) 30 7,781 6.0%
------------------------------------------------
All Markets 61 17,480 7.4%
------------------------------------------------
Middle Atlantic (b) 16 3,718 10.0%
South Central 11 3,281 2.8%
South Atlantic (c) 12 4,101 11.1%
Pacific (b) 8 2,593 5.8%
North Central 7 1,789 6.6%
Mountain 6 1,798 2.7%
New England 1 200 4.3%
------------------------------------------------
All Regions 61 17,480 7.4%
------------------------------------------------
Urban (b) 19 4,933 7.7%
Resort (c) 7 2,678 9.1%
Airport (b) 12 3,751 9.7%
Suburban 23 6,118 4.9%
------------------------------------------------
All Locations 61 17,480 7.4%
------------------------------------------------

(a) See notes to financial information for discussion of comparable
hotel operating results and statistics.
(b) Excludes hotels acquired during the second quarter.
(c) Excludes hotels significantly affected by the hurricanes in
Florida.




FORECASTED RECONCILIATION OF NET LOSS TO FUNDS FROM OPERATIONS
(In millions, except per share amounts)

Three Months Ending
September 30, 2005
--------------------
Low-end High-end
of range of range
--------- ---------
Forecasted Funds from Operations:

Net loss (a) $ (21) $ (18)
Adjustments to forecasted net loss:
Depreciation and amortization of real estate
assets 25 25
Unconsolidated affiliate adjustments 1 1
Minority interest to common OP unit holders (1) (1)
Loss on disposal of assets - -
--------- ---------
Funds from operations $ 4 $ 7

Weighted average diluted shares of common stock
and common OP units outstanding 90 90
--------- ---------

Funds from operations per diluted share $ 0.04 $ 0.08
========= =========

Funds From Operations, as adjusted:
Funds from operations $ 4 $ 7
Loss on asset impairments - -
Loss on early extinguishments of debt - -
--------- ---------
Funds from operations, as adjusted $ 4 $ 7
========= =========

Weighted average number of shares of common
stock and common stock equivalents outstanding 90 90
--------- ---------

Funds from operations per diluted share, as
adjusted $ 0.04 $ 0.08
========= =========

Year Ending December
31, 2005
--------------------
Low-end High-end
of range of range
--------- ---------
Forecasted Funds from Operations:

Net loss (a) $ (46) $ (42)
Adjustments to forecasted net loss:
Depreciation and amortization of real estate
assets 95 95
Unconsolidated affiliate adjustments 4 4
Minority interest to common OP unit holders (1) (1)
Loss on disposal of assets 1 1
--------- ---------
Funds from operations $ 53 $ 57

Weighted average number of shares of common
stock and common OP units outstanding 90 90
--------- ---------

Funds from operations per diluted share $ 0.59 $ 0.63
========= =========

Funds From Operations, as adjusted:
Funds from operations $ 53 $ 57
Loss on asset impairments 3 3
Loss on early extinguishments of debt 1 1
--------- ---------
Funds from operations, as adjusted $ 57 $ 61
========= =========

Weighted average number of shares of common
stock and common stock equivalents outstanding 90 90
--------- ---------

Funds from operations per diluted share, as
adjusted $ 0.63 $ 0.68
========= =========

(a) Forecasted net loss does not include any possible future losses on
asset impairments, gains or losses on the sale of assets, gains or
losses on early extinguishment of debt, or gains or losses on
property damage insurance recoveries.




FORECASTED RECONCILIATION OF NET LOSS TO EBITDA
(In millions)


Three Months Ending
September 30, 2005
--------------------
Low-end High-end
of range of range
--------- ---------
EBITDA and Adjusted EBITDA:
Net loss (a) $ (21) $ (18)
Interest expense, net 32 32
Depreciation and amortization 26 26
--------- ---------

EBITDA 37 40

Loss on asset impairments - -
Loss on early extinguishments of debt - -
Equity investment adjustments:
Equity in (income) loss of affiliates - -
Distributions accrued from equity investments 1 1
Minority interest to common OP unit holders (1) (1)
--------- ---------

Adjusted EBITDA $ 37 40
========= =========

Year Ending December
31, 2005
--------------------
Low-end High-end
of range of range
--------- ---------
EBITDA and Adjusted EBITDA:
Net loss (a) $ (46) $ (42)
Interest expense, net 123 124
Depreciation and amortization 100 100
--------- ---------

EBITDA 177 182

Loss on asset impairments 3 3
Loss on early extinguishments of debt 1 1
Equity investment adjustments:
Equity in (income) loss of affiliates 1 1
Distributions accrued from equity investments 3 3
Minority interest to common OP unit holders (1) (1)
Loss on disposal of assets 1 1
--------- ---------

Adjusted EBITDA $ 185 190
========= =========

(a) Forecasted net loss does not include any possible future losses on
asset impairments, gains or losses on the sale of assets, gains or
losses on early extinguishment of debt, or gains or losses on
property damage insurance recoveries.

NOTES TO FINANCIAL INFORMATION

Funds From Operations

Substantially all of our non-current assets consist of realestate, and, in accordance with accounting principles generallyaccepted in the United States, or GAAP, those assets are subject tostraight-line depreciation, which reflects the assumption that thevalue of real estate assets, other than land, will decline ratablyover time. That assumption is often not true with respect to theactual market values of real estate assets (and, in particular,hotels), which fluctuate based on economic, market and otherconditions. As a result, management and many industry investorsbelieve the presentation of GAAP operating measures for real estatecompanies to be more informative and useful when other measures,adjusted for depreciation and amortization, are also presented.

In an effort to address these concerns, the National Associationof Real Estate Investment Trusts, or NAREIT, adopted a definition ofFunds From Operations, or FFO. NAREIT defines FFO as net income(computed in accordance with GAAP) excluding gains or losses fromsales of real estate, real estate-related depreciation andamortization, and after comparable adjustments for our portion ofthese items related to unconsolidated partnerships and joint ventures.Extraordinary items and cumulative effect of changes in accountingprinciples as defined by GAAP are also excluded from the calculationof FFO. As defined by NAREIT, FFO also does not include reductionsfrom asset impairment charges. The SEC, however, recommends that FFOinclude the effect of asset impairment charges, which is thepresentation we have adopted for all historical presentations of FFO.We believe FFO is an indicative measure of our operating performancedue to the significance of our hotel real estate assets and providesbeneficial information to investors.

Adjusted FFO represents FFO excluding the effects of gains orlosses on early extinguishments of debt, write-offs of deferredfinancing costs and, in accordance with the NAREIT definition of FFO,asset impairment charges. We exclude the effects of gains or losses onearly extinguishments of debt, write-offs of deferred financing costsand asset impairment charges because we believe that including them inAdjusted FFO does not fully reflect the operating performance of ourremaining assets. We believe Adjusted FFO is useful for the samereasons we believe that FFO is useful, but we also believe thatAdjusted FFO enables us and the investor to consider our operatingperformance without considering the items we exclude from ourdefinition of Adjusted FFO, which have no cash effect in the periodsconsidered.

Consolidated Earnings Before Interest, Income Taxes, Depreciationand Amortization

EBITDA represents consolidated earnings before interest, incometaxes, depreciation and amortization and includes operations from theassets included in discontinued operations. We further adjust EBITDAfor the effect of capital market transactions that would result in again or loss on early extinguishments of debt, the earnings effect anddistributions accrued related to equity method investments, as well asthe earnings effect of asset dispositions and any impairmentassessments, resulting in the measure that we refer to as "AdjustedEBITDA." We exclude the effect of gains or losses on earlyextinguishments of debt, the earnings effect and distributions accruedrelated to equity method investments, as well as the earnings effectof asset dispositions and impairment assessments because we believethat including them in Adjusted EBITDA does not fully reflect theoperating performance of our remaining assets.

We also believe Adjusted EBITDA provides useful information toinvestors regarding our financial condition and results of operationsbecause Adjusted EBITDA is useful in evaluating our operatingperformance. Furthermore, we use Adjusted EBITDA to provide a measureof performance that can be isolated on an asset by asset basis todetermine overall property performance. We believe that the ratingagencies and a number of our lenders also use Adjusted EBITDA forthose purposes. We also use Adjusted EBITDA as one measure indetermining the value of acquisitions and dispositions.

Comparable Hotel Operating Results and Statistics

We present certain operating statistics (i.e., RevPAR, ADR andaverage occupancy) and operating results (revenues, expenses andoperating profit) for the periods included in this report on acomparable hotel basis as supplemental information for investors. Wedefine our comparable hotels as properties (i) that are owned by usand the operations of which are included in our consolidated resultsfor the entirety of the reporting periods being compared, (ii) thathave not sustained substantial property damage during the reportingperiods being compared, and (iii) that are not planned for dispositionas of the end of the period. Of the 72 hotels that we owned as of June30, 2005, 61 have been classified as comparable hotels. The operatingresults of seven hotels significantly affected by the hurricanes inFlorida in August and September 2004, one sold in July, one which weintend to dispose of, and the two hotels acquired in 2004 that weowned as of June 30, 2005, are excluded from comparable hotel resultsfor these periods.

We present these comparable hotel operating results by eliminatingcorporate-level revenues and expenses, as well as depreciation andamortization and loss on asset impairments. We eliminatecorporate-level revenues and expenses to arrive at property-levelresults because we believe property-level results provide investorswith supplemental information into the ongoing operating performanceof our hotels and the effectiveness of management in running ourbusiness on a property-level basis. We eliminate depreciation andamortization because, even though depreciation and amortization areproperty-level expenses, these non-cash expenses, which are based onhistorical cost accounting for real estate assets, implicitly assumethat the value of real estate assets diminishes over time. Becausereal estate values have historically risen or fallen with marketconditions, many industry investors have considered presentation ofoperating results for real estate companies that use historical costaccounting to be insufficient by themselves. We eliminate loss onasset impairments because these non-cash expenses are primarilyrelated to our non-comparable properties, and do not reflect theoperating performance of our comparable assets.

As a result of the elimination of corporate-level costs andexpenses and depreciation and amortization, the comparable hoteloperating results we present do not represent our total revenues,expenses or operating profit and should not be used to evaluate ourperformance as a whole. Management compensates for these limitationsby separately considering the impact of these excluded items to theextent that they are material to operating decisions or assessments ofour operating performance. Our consolidated statements of operationsinclude such amounts, all of which should be considered by investorswhen evaluating our performance.

We present these hotel operating results on a comparable hotelbasis because we believe that doing so provides investors andmanagement with useful information for evaluating the period-to-periodperformance of our hotels and facilitates comparisons with other hotelREITs and hotel owners. In particular, these measures assistmanagement and investors in distinguishing whether increases ordecreases in revenues and/or expenses are due to growth or decline ofoperations at comparable hotels (which represent the vast majority ofour portfolio) or from other factors, such as the effect ofacquisitions or dispositions. While management believes thatpresentation of comparable hotel results is a "same store"supplemental measure that provides useful information in evaluatingthe ongoing performance of the Company, this measure is not used toallocate resources or to assess the operating performance of each ofthese hotels, as these decisions are based on data for individualhotels and are not based on comparable hotel results. For thesereasons, we believe that comparable hotel operating results, whencombined with the presentation of GAAP operating profit, revenues andexpenses, provide useful information to investors and management.