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LA QUINTA CORPORATION FORM 10-Q TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

        Indicate by check mark whether the registrants are accelerated filers (as defined in Exchange Act Rule 12b-2). Yes ý    No o

        As of April 28, 2003, La Quinta Corporation had 152,985,945 shares of common stock outstanding and La Quinta Properties, Inc. had 100,000 shares of class A common stock and 143,555,797 shares of class B common stock outstanding.

LA QUINTA CORPORATION
FORM 10-Q
TABLE OF CONTENTS

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About this Joint Quarterly Report

Summary

        This joint quarterly report on Form 10-Q, which we sometimes refer to as this Joint Quarterly Report, is filed by both La Quinta Corporation, a Delaware corporation ("LQ Corporation"), and its controlled subsidiary, La Quinta Properties, Inc., a Delaware corporation ("LQ Properties"), that has elected to be treated as a real estate investment trust, or REIT, for federal income tax purposes. Both LQ Corporation and LQ Properties have securities which are publicly traded and listed on the New York Stock Exchange. Accordingly, this Joint Quarterly Report includes information, including financial statements, about LQ Corporation on a consolidated basis with its controlled subsidiary, LQ Properties, as well as financial statements for LQ Properties on a consolidated basis.

        In this Joint Quarterly Report, unless the context otherwise requires, the term LQ Corporation includes those entities owned or controlled by LQ Corporation (including its controlled subsidiaries LQ Properties and La Quinta Inns, Inc.); the term LQ Properties includes those entities owned or controlled by LQ Properties; and the terms "we," "us," "our," "companies," "La Quinta" or "The La Quinta Companies" refers to LQ Corporation, LQ Properties and their respective subsidiaries, collectively. The terms "common share," "paired shares" and "paired common stock" means the shares of common stock of LQ Corporation that are attached and traded as a single unit with the shares of Class B common stock, par value $0.01 per share, of LQ Properties. On January 2, 2002, LQ Corporation and LQ Properties completed a legal and tax restructuring (the "Restructuring"), which is more fully described in this Joint Quarterly Report. Prior to our Restructuring, the common stock of LQ Corporation was paired and traded as a unit with the common stock of LQ Properties. Unless otherwise indicated in this Joint Quarterly Report, all information with respect to paired shares, or paired common stock, prior to January 2, 2002 means the common stock of LQ Corporation that was paired and traded as a unit with the common stock of LQ Properties.

Forward-Looking Statements

        Certain statements in this Joint Quarterly Report that are not historical facts constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "believes," "anticipates," "expects," "intends," "estimates," "projects" and other similar expressions, which are predictions of or indicate future events and trends, typically identify forward-looking statements.

        We have used forward-looking statements in a number of parts of this Joint Quarterly Report, including, without limitation, "Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations." These forward-looking statements may include statements regarding the intent, belief or current expectations of the companies or their respective directors or officers with respect to the matters discussed in this Joint Quarterly Report. Our forward-looking statements are subject to a number of risks and uncertainties which could cause actual results, or the timing of events to differ materially from those described in the forward-looking statements.

        We have included a discussion of some of these risks and uncertainties in this Joint Quarterly Report under the heading "Cautionary Statements Regarding Forward-Looking Statements in this Joint Quarterly Report." For further information and additional risk factors, please see the risks identified in our Joint Annual Report on Form 10-K for the year ended December 31, 2002 (referred to as our Joint Annual Report), including without limitation, under the heading "Items 1 and 2—Certain Factors You Should Consider About Our Companies, Our Business and Our Securities" and "About this Joint Annual Report—Forward-Looking Statements."

        Given the risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements that may be made in this Joint Quarterly Report. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

LA QUINTA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)

The accompanying condensed notes, together with the Notes to the Consolidated Financial Statements
contained within The La Quinta Companies' Form 10-K for the year ended
December 31, 2002, are an integral part of these financial statements.

1

LA QUINTA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data, unaudited)

The accompanying condensed notes, together with the Notes to the Consolidated Financial Statements
contained within The La Quinta Companies' Form 10-K for the year ended
December 31, 2002, are an integral part of these financial statements.

2

LA QUINTA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)

Supplemental disclosure of cash flow information (note 2)

The accompanying condensed notes, together with the Notes to the Consolidated Financial Statements
contained within The La Quinta Companies' Form 10-K for the year ended
December 31, 2002, are an integral part of these financial statements.

3

LA QUINTA PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)

The accompanying condensed notes, together with the Notes to the Consolidated Financial Statements
contained within The La Quinta Companies' Form 10-K for the year ended
December 31, 2002, are an integral part of these financial statements.

4

LA QUINTA PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data, unaudited)

The accompanying condensed notes, together with the Notes to the Consolidated Financial Statements
contained within The La Quinta Companies' Form 10-K for the year ended
December 31, 2002, are an integral part of these financial statements.

5

LA QUINTA PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)

Supplemental disclosure of cash flow information (note 2)

The accompanying condensed notes, together with the Notes to the Consolidated Financial Statements
contained within The La Quinta Companies' Form 10-K for the year ended
December 31, 2002, are an integral part of these financial statements.

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LA QUINTA CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.     Nature of Business and Summary of Significant Accounting Policies

Nature of Business

        The common stock of La Quinta Corporation ("LQ Corporation") and its controlled subsidiary, La Quinta Properties, Inc. ("LQ Properties") (collectively the "companies" or "La Quinta") are attached and traded together as a single unit on the New York Stock Exchange under the symbol "LQI". LQ Properties became a controlled subsidiary of LQ Corporation effective January 2, 2002. Prior to January 2, 2002, LQ Corporation and LQ Properties were two separate companies that maintained an organizational structure called a "paired share REIT" under the grandfathering provisions of the Internal Revenue Code of 1986, as amended (the "Code"). The term LQ Corporation includes those entities owned or controlled by LQ Corporation (including its controlled subsidiaries LQ Properties and La Quinta Inns, Inc.); the term LQ Properties includes those entities owned or controlled by LQ Properties; and the terms "we," "us," "our," "La Quinta", "the companies" or "The La Quinta Companies" refers to LQ Corporation, LQ Properties and their respective subsidiaries, collectively.

        On January 2, 2002, we completed our legal and tax restructuring (the "Restructuring") of the existing organization of our companies whereby LQ Properties became a subsidiary controlled by LQ Corporation while continuing its status as a real estate investment trust ("REIT"). As a result of the Restructuring, each outstanding share of common stock of LQ Properties held by La Quinta's shareholders was converted into one share of a new class B common stock of LQ Properties and each outstanding share of common stock of LQP Acquisition Corp., a newly formed, wholly owned subsidiary of LQ Corporation that was merged with and into LQ Properties was converted into one share of a new class A common stock of LQ Properties. Following the Restructuring, each share of common stock of LQ Corporation, that was previously paired with the common stock of LQ Properties, is now attached and trades as a single unit with the new class B common stock. The Restructuring was accounted for as a reorganization of two companies under common control with no revaluation of the assets and liabilities of the combining companies (see note 3).

        La Quinta's primary focus is the lodging business. La Quinta conducts the majority of its business and makes its investments through one principal business unit which owns and operates its lodging real estate assets. The lodging facilities include hotels located primarily in the western and southern regions of the United States. La Quinta's lodging real estate assets are owned by LQ Properties or its subsidiaries and operated by LQ Corporation through its subsidiary, La Quinta Inns, Inc.

Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

        Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted in this Joint Quarterly Report on Form 10-Q (referred to as this Joint Quarterly Report), in accordance with the Rules and Regulations of the Securities and Exchange Commission (the "SEC"). We believe the disclosures contained in this Joint Quarterly Report are adequate to make the information presented not misleading. See our Joint Annual Report for additional information relevant to significant accounting policies that we follow.

        We believe the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position as of March 31, 2003 and the results of operations and cash flows for the three months ended March 31,

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2003 and 2002. The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for any other interim period or for the entire year.

        The accompanying consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows represent the financial position and results of operations and cash flows of LQ Corporation and LQ Properties. All significant intercompany and inter-entity balances and transactions have been eliminated in consolidation.

        The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

Seasonality

        The hotel industry is seasonal in nature. Generally, hotel revenues are greater in the second and third quarters than in the first and fourth quarters. This seasonality can be expected to cause quarterly fluctuations in revenue, profit margins and net earnings. In addition, the opening of newly constructed hotels and the timing of any hotel acquisitions or sales may cause a variation of revenue from quarter to quarter.

Valuation of Long-Lived Assets

        La Quinta's management reviews the performance of real estate investments on an on-going basis for impairment as well as when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. La Quinta identifies properties it intends to sell and properties it intends to hold for use. For each lodging asset held for use, La Quinta applies a probability-weighted estimation approach to recovery of the carrying amount of the asset to determine if the sum of expected future cash flows (undiscounted and without interest charges) of the asset exceeds its carrying amount. If the sum of expected future cash flows (undiscounted and without interest charges) is less than the net book value of the asset, the excess of the net book value over La Quinta's estimate of fair value of the asset is charged to current earnings. La Quinta's estimate of fair value of the asset then becomes the new cost basis of the asset and this new cost basis is then depreciated over the asset's remaining life. When an asset is identified by management as held for sale, authority to sell the property has been obtained, and management expects to sell the asset within twelve months, the asset is classified as such and depreciation of the asset is discontinued and the carrying value is reduced, if necessary, to the estimated fair value less costs to sell by recording a charge to current earnings. Fair value is determined based upon an analysis of a number of different valuation methods including discounted cash flows of the assets at rates deemed reasonable for the type of property and prevailing market conditions, appraisal, multiple of revenues consistent with market conditions and, if appropriate, current estimated net sales proceeds from pending offers. All assets held for sale are monitored through the date of sale for potential adjustment based on offers La Quinta is willing to take under serious consideration and continued review of facts and circumstances. Once an asset is sold, contracts are reviewed to determine whether: (1) a sale has been consummated, (2) there has been a complete transfer of risks and rewards, (3) the buyer's investment is adequate and (4) there are any contingencies or obligations to La Quinta that should be taken into consideration in recording the disposition of the asset. A gain or loss on disposition is recorded to the extent that the amounts ultimately received for the sale of assets differ from the adjusted book values of the assets. Gains and losses on sales of assets are recognized at the time the assets are sold provided there is reasonable assurance of the collectibility of the sales price and any future activities to be performed by the companies relating to the assets sold are expected to be insignificant.

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Stock Based Compensation

        In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment to FASB Statement 123" ("SFAS 148"). SFAS 148 provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We adopted the disclosure provisions of SFAS 148 on January 1, 2003.

        SFAS 123 provides companies an alternative to accounting for stock-based compensation as prescribed under Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25"). SFAS 123 encourages, but does not require, companies to recognize expense for stock-based awards based on their fair value at date of grant. SFAS 123 allows companies to follow existing accounting rules (intrinsic value method under APB 25) provided that pro forma disclosures are made of what net income and earnings per share would have been had the fair value method been used. The companies have elected to adopt the disclosure requirements of SFAS 123, but will continue to account for stock-based compensation under APB 25 pending further guidance.

        At March 31, 2003, we had various stock-based employee compensation plans. We account for the plans under the recognition and measurement principles of APB 25 and related interpretations. No stock-based employee compensation cost is charged to earnings for options, as all options granted under those plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. Had compensation cost for the companies' stock option-based compensation plans been determined based on the fair value at the grant dates for awards under the plans consistent with the method pursuant to SFAS 123, the companies' net income and earnings per share would have been reduced to the pro forma amounts indicated below:

        The companies grant restricted stock awards to certain employees. The difference between the price to the employee and the market value at grant date is charged to unearned compensation and carried as a component of equity and amortized over the related vesting period.

Reclassification

        Certain reclassifications have been made to the 2002 presentation to conform to the 2003 presentation.

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Newly Issued Accounting Standards

        On June 28, 2002, the FASB voted in favor of issuing SFAS 146, "Accounting for Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues Task Force ("EITF") has set forth in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The scope of SFAS 146 also includes (1) costs related to terminating a contract that is not a capital lease and (2) termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS 146 will be effective for financial statements issued for exit or disposal activities initiated after December 31, 2002. We have not yet determined the impact of SFAS 146 on our results of operations and financial position as we have no ongoing plans for exit or disposal activities of this nature.

2.     Supplemental Cash Flow Information

        Details of interest and income taxes paid and non-cash investing and financing transactions for LQ Corporation and LQ Properties follow:

3.     Restructuring

        On January 2, 2002, the Restructuring between LQ Corporation and LQ Properties was completed whereby LQ Properties became a subsidiary controlled by LQ Corporation while continuing as a REIT. As a result of the Restructuring, each outstanding share of common stock of LQ Properties was converted into one share of class B common stock of LQ Properties and is attached and trades as a single unit with the common stock of LQ Corporation that had previously been paired with the common stock of LQ Properties. The Restructuring was accounted for as a reorganization of two companies under common control with no revaluation of the assets and liabilities of the combining companies. In connection with the Restructuring, LQ Properties transferred approximately $81 million of brand intangibles and related rights to La Quinta Franchise, LLC and La Quinta Worldwide, LLC (both consolidated subsidiaries of LQ Properties before the transfer). As part of our Restructuring, LQ Properties then transferred an approximate 98% interest in La Quinta Franchise, LLC and an approximate 40% interest in La Quinta Worldwide, LLC to LQ Corporation in exchange for approximately 9,430,000 unpaired shares of LQ Corporation common stock. LQ Properties' investment in the 9,430,000 shares of LQ Corporation common stock has been presented as contra equity on the accompanying LQ Properties' balance sheet as of March 31, 2003 and December 31, 2002, in accordance with EITF 98-2, "Accounting by a Subsidiary or Joint Venture for an Investment in the Stock of Its Parent Company or Joint Venture Partner".

        As a result of the transfer of a majority interest in La Quinta Franchise, LLC to LQ Corporation, La Quinta Franchise, LLC is consolidated into the financial statements of LQ Corporation. The net

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effect of these transactions was an approximate $15 million and $42 million reduction in LQ Properties' assets and shareholders' equity, respectively. As a result of our Restructuring, we recorded a one-time charge of approximately $196,520,000 in January 2002 to establish the net deferred tax liability of La Quinta and recognize the future impact of temporary differences between the book value and tax basis of lodging and healthcare assets and liabilities, including net operating losses ("NOLs") of LQ Properties and LQ Corporation.

4.     Property, Plant and Equipment

        The following is a summary of our investment in property, plant and equipment:

        At March 31, 2003 and December 31, 2002, the net book value of lodging property, plant, and equipment was $2,174,518,000 (net of impairments of $118,986,000) and $2,248,710,000 (net of impairments of $58,243,000), respectively. During the three months ended March 31, 2003, we incurred $14,517,000 in capital improvements related to lodging properties. Additionally, during the three months ended March 31, 2003, we recorded depreciation expense and write-offs of $27,966,000 on lodging property, plant and equipment. During the three months ended March 31, 2003, we recorded $60,743,000 of impairments related to ten held for use properties.

        At March 31, 2003 and December 31, 2002, the net book value of corporate property, plant and equipment was $35,981,000 and $36,033,000, respectively. During the three months ended March 31, 2003, we incurred $2,754,000 in capital improvements related to corporate property, plant and equipment. Additionally, during the three months ended March 31, 2003, we recorded depreciation expense and write-offs of $2,806,000 on corporate property, plant and equipment, of which $183,000 related to the early retirement of certain hardware and software costs.

        At March 31, 2003 and December 31, 2002, certain assets were classified as held for sale based on management having the authority, intent, and ability to enter into commitments for sale transactions expected to close in the next twelve months. At March 31, 2003 and December 31, 2002, the net book value after impairment of assets held for sale was $24,077,000 and $25,346,000, respectively. During the three months ended March 31, 2003, we recorded additional impairments of $1,269,000 related to seven properties held for sale. No lodging asset sales occurred during the three months ended March 31, 2003. The assets classified as held for sale at March 31, 2003 had combined earnings before income taxes, depreciation and amortization of $493,000 and $387,000 for the three months ended March 31, 2003 and 2002, respectively.

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        The following details changes in the net book value of property, plant and equipment for the three months ended March 31, 2003:

        We continue to evaluate the assets in our total portfolio as well as to pursue an orderly disposition of our held for sale assets. There can be no assurance if or when sales will be completed or whether such sales will be completed on terms that will enable us to realize the full carrying value of such assets.

5.     Mortgages and Other Notes Receivable

        At both March 31, 2003 and December 31, 2002, the net book value after impairment of mortgages receivable was $26,212,000. We currently intend to hold two mortgage loans on medical office buildings which serve as the headquarters for a healthcare operator. The interest income on these two facilities was approximately $154,000 and $187,000 for the three months ended March 31, 2003 and 2002, respectively.

        At March 31, 2003 and December 31, 2002, the net book value of other notes receivable was $33,495,000 and $33,931,000, respectively. Included in other notes receivable is $32,681,000 in subordinated notes received as consideration in connection with the sale of certain healthcare assets during 2002. We currently intend to hold these notes to maturity. Interest income on these notes was $1,088,000 and $991,000 for the three months ended March 31, 2003 and 2002, respectively.

6.     Indebtedness

        We had the following debt activity for the three months ended March 31, 2003:

Notes Payable

        During the three months ended March 31, 2003, we repaid approximately $75,247,000 in principal on notes payable scheduled to mature (or that were redeemable at the option of the holders) on September 10, 2003 and September 26, 2003 and recorded a net loss on early extinguishment included in other expense during the three months ended March 31, 2003 of approximately $1,934,000. Additionally, we repaid approximately $44,000 in principal on other notes payable during the three

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months ended March 31, 2003. During this same period, we also issued $325,000,000 of senior notes bearing a coupon rate of 8⁷/8% and having a maturity of March 15, 2011. These notes were issued by LQ Properties, and guaranteed by LQ Corporation. These notes contain, among other types of covenants, certain restrictive financial incurrence covenants, such as limitations on indebtedness and restricted payments.

Bank Notes Payable

        We are a party to a credit agreement with a bank group which provides for a $225,000,000 revolving line of credit (the "Credit Facility"). On March 5, 2003, the Credit Facility was amended, which resulted in extension of the maturity date to January 4, 2004, reduction in the commitment amount to $125,000,000, elimination of the minimum lodging EBITDA covenant and modification of other covenants and other provisions.

        Approximately $102,317,000 (net of a $22,683,000 outstanding letter of credit) was available under the revolving line of credit at March 31, 2003. Borrowings under the revolving line of credit currently bear interest at London Interbank Offered Rate ("LIBOR") plus 3.50%. During the three months ended March 31, 2003, we borrowed and repaid $35,000,000 under the revolving line of credit.

        The Credit Facility, as amended contains several restrictive financial covenants (as defined in the credit agreement), which include the following:

•

net debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") (total leverage) ratio;

•

interest coverage ratio;

•

fixed charge coverage ratio;

•

net debt to total capitalization ratio; and

•

consolidated tangible net worth minimum.

        In addition to the financial covenants, the Credit Facility also includes limitations on capital expenditures, asset sales, secured debt, certain investments, common stock dividends, and debt and share repurchases. In the event that it becomes likely that we will not meet a covenant, we intend to request a waiver or amendment from the bank group. However, we cannot provide assurances that the bank group would be agreeable to such a waiver or amendment.

7.     Commitments and Contingencies

        On December 7, 2000, a legal action was filed in the United States District Court for the District of Colorado, entitled Eric Potteiger v. La Quinta Inns, Inc. and The Meditrust Companies (Civ. Action No. 00-D-2456). On March 29, 2001, a legal action was filed in the United States District Court for the District of Colorado, entitled Dawn Grawe v. La Quinta Inns, Inc. and The Meditrust Companies (Civ. Action No. 01-B-552). We are named as a defendant in each of the complaints. Plaintiffs in each of these suits seek to recover compensatory and punitive damages from us for injuries which they allegedly sustained in October 2000 as a result of carbon monoxide exposure which they experienced while guests at a La Quinta Inn & Suites. We have insurance coverage that may be available to cover some or all of the potential losses resulting from such incidents although losses characterized as punitive or similar damages may not be covered by customary insurance coverage such as ours. On July 17, 2001, the Potteiger and Grawe matters were consolidated. On February 3, 2003, La Quinta Inns, Inc. entered into a confidential settlement agreement with Dawn Grawe. We believe that La Quinta Inns, Inc. has meritorious defenses to the remaining lawsuit that may satisfy all or part of any potential liability that may be found against La Quinta Inns, Inc. We intend to continue vigorously contesting and defending this case.

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        On June 27, 2001, a complaint was filed in the United States District Court for the District of Massachusetts, entitled Steadfast Insurance Co. v. Meditrust Corp., et al. (Civ. Action No. 01-CV-11115-MEL). On November 30, 2001 that complaint was amended, and the amended complaint was entitled Steadfast Insurance Co. v. La Quinta Properties, Inc. (Civ. Action No. 01-CV-11115-MEL). The complaint and the amended complaint were filed by plaintiff under seal. LQ Properties accepted service of the amended complaint on December 19, 2001 and filed an answer and counterclaim on April 3, 2002. The plaintiff, which claims to be the subrogee or assignee of the claims of various entities, alleges purported causes of action including breach of contract, negligence, violation of 15 U.S.C. § 771, violation of Mass. Gen. L. c. 110 § 410, negligent misrepresentation and violation of Mass. Gen. L. c. 93A, § 11, arising out of an alleged misrepresentation in the offering memorandum for Meditrust Corporation's 7.114% Exercisable Put Option Securities. The amended complaint seeks approximately $15 million plus other potential damages. LQ Properties filed a motion for summary judgment on June 27, 2002. The plaintiff opposed that motion on August 26, 2002, at which time the plaintiff also cross-moved for summary judgment, which LQ Properties opposed on October 25, 2002. A hearing on the cross-motions for summary judgment is currently set for May 22, 2003. We believe that LQ Properties has meritorious defenses to the lawsuit, as well as claims against a third-party defendant and non-parties to the lawsuit that may satisfy all or part of any potential liability that may be found against LQ Properties. We intend to continue vigorously contesting and defending this case.

        In January 2002, KSL Desert Resorts, Inc. filed a legal action in the United States District Court for the Central District of California against LQ Corporation, et al. (No. CV-02-007 RT (SGLx)). The plaintiff, which uses the name "La Quinta Resort & Club" for a destination resort and country club located in La Quinta, California, claims that LQ Corporation has infringed its alleged trademark rights, among other allegations, notwithstanding our "incontestable" federal trademark registrations of the mark "La Quinta" and other marks including the mark "La Quinta" for hotel and motel services. The plaintiff seeks an injunction to prevent La Quinta, our agents, servants, employees, and our attorneys from using the mark "La Quinta" in Palm Springs, in the Coachella Valley, or throughout the United States. The plaintiff also seeks to cancel our federal trademark registrations that include the phrase "La Quinta" and to require destruction of any items under our control which include the phrase "La Quinta." In October, 2002, the defendants filed an answer denying the material allegations in the complaint and asserting several affirmative defenses, including defenses alleging that the plaintiff is estopped from asserting its actions. The defendants also filed counterclaims seeking to cancel plaintiff's federal trademark registrations using the "La Quinta" name for its destination resort and club. During settlement negotiations, the parties have reached apparent tentative settlement agreements, but those efforts have failed to result in a final and binding agreement. The action remains in the pre-trial stage, and the Court has stayed proceedings until August 1, 2003, to allow time for the parties to conduct a mediation of the dispute. If the mediation is unsuccessful in settling or satisfactorily resolving the dispute, we intend to vigorously defend the complaint and pursue our counterclaims.

        On March 17, 1997, New York New York Hotel and Casino LLC ("NYNY") purchased from La Quinta Development Partners, L.P. Inn #536 located in Las Vegas, Nevada. La Quinta then leased this hotel back from NYNY. The lease was terminated with proper notice and the property was returned to NYNY on July 31, 2002. On December 4, 2002, NYNY filed suit against La Quinta Development Partners, L.P. and La Quinta Inns, Inc. in the District Court for Clark County, Nevada (Case No. A460092) alleging, among other claims, breach of contract relating to the hotel leased from NYNY. NYNY alleges that the hotel was not returned in the condition required under the lease and the property would have to be demolished. This matter was removed to the United States District Court for the State of Nevada on December 13, 2002 (Case No. CV-S-1639-KJD-RJJ). La Quinta believes it has meritorious defenses to the allegations charged in this matter and intends to vigorously contest and defend this case.

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        We are party to certain claims involving healthcare facilities formerly owned by LQ Properties that were leased to and operated by third party operators. Although we required our third party operators to maintain insurance coverage insuring LQ Properties' interests in the facilities as well as their own, this insurance coverage may not be adequate to fully protect us. We have been notified that one of the companies providing such insurance coverage, Reliance Insurance Company, was ordered into liquidation on October 3, 2001. Although we cannot predict what effect the liquidation of Reliance Insurance Company will have on pending claims, we do not consider our ultimate liability with respect to any of these claims or lawsuits, as well as any other claims and lawsuits arising in the normal course of our business, to be material in relation to our consolidated financial condition or operations.

        We are party to a number of other claims and lawsuits arising out of the normal course of business. We regularly evaluate our ultimate liability and attendant costs with respect to these claims and lawsuits. During the three months ended March 31, 2003, we increased the estimate of our potential exposure on certain claims related to our lodging operations.

        Under certain franchise agreements, we are committed to provide financial assistance, including but not limited to, loans, reimbursements, rebates, credits and other incentive payments to help defray the cost of construction and other costs associated with opening and operating a La Quinta hotel. Our obligation to fund these commitments is contingent upon certain conditions set forth in the respective franchise or joint venture agreements. At March 31, 2003, we had $10.1 million in outstanding commitments of financial assistance to various franchisees, of which $5.2 million had been funded, net of $0.2 million of repayments. The unamortized balance of amounts funded on other incentive payments is included in Other Non-current Assets in the accompanying consolidated balance sheet. These agreements generally require that, in the event that the franchise relationship is terminated, the franchisee either repay the outstanding loan balance or unamortized portion of other incentive payments, or transfer to us any equipment, computer or other property purchased by franchisee with other incentive payments.

        LQ Properties had purchase commitments related to certain new construction and renovation projects of approximately $3,300,000 at March 31, 2003.

8.     Distributions Paid to Shareholders

        On March 31, 2003, LQ Properties paid a quarterly dividend at a rate of 9.00% per annum on the liquidation preference of $25,000 per share to the holder of its 9.00% Series B Cumulative Redeemable Preferred Stock.

        On March 31, 2003, LQ Properties also paid a quarterly dividend of $0.5625 per depositary share of preferred stock to holders of record on March 14, 2003 of its 9.00% Series A Cumulative Redeemable Preferred Stock.

        LQ Properties paid no dividends to the sole holder of its Class A common stock, LQ Corporation, during the three months ended March 31, 2003.

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9.     Other Expense (Income)

        We recorded approximately $3,183,000 in other expense for the three months ended March 31, 2003 compared to $2,660,000 of other income for the three months ended March 31, 2002. Other expense (income) is comprised of the following:

(1)

Amounts relate to recovery of healthcare receivables previously written off.

(2)

Incurred in connection with the prepayment of principal on notes payable.

(3)

Primarily related to an adjustment of actuarial assumptions on deferred compensation agreements and changes in net cash surrender values of key man life policies in the healthcare business.

        Changes in accrued restructuring costs for the three months ended March 31, 2003 were as follows:

10.   Income Taxes

        LQ Properties has elected to be taxed as a REIT under the Code and believes it has met all the requirements for qualification as such. Accordingly, LQ Properties will generally not be subject to federal income taxes on amounts distributed to shareholders, including LQ Corporation, provided it distributes annually at least 90 percent of its REIT taxable income (determined without regard to its dividends paid deduction and by excluding net capital gain) and meets certain other requirements for qualifying as a REIT. Generally no provision for federal income taxes is believed necessary in the financial statements of LQ Properties except for certain transactions resulting in capital gains which may require federal tax provisions and for subsidiaries taxable as C-corporations. LQ Properties utilizes taxable REIT subsidiaries to conduct the operations of TeleMatrix, Inc. and to hold certain assets which LQ Properties could not hold directly. LQ Properties has accrued and paid federal and state income taxes on the earnings of such subsidiaries.

        LQ Corporation income tax benefit (expense) is based on reported earnings before income taxes, adjusted to give effect to the income tax consequences to LQ Corporation of any amounts attributable to minority interests. Deferred income taxes reflect the temporary differences between assets and liabilities recognized for financial reporting and such amounts recognized for tax purposes, which requires recognition of deferred tax assets and liabilities. Deferred income taxes include amounts

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attributable to LQ Properties, as those differences will affect amounts currently or ultimately required to be distributed by LQ Properties to LQ Corporation as taxable dividends. As a result of our Restructuring, we recorded a one-time charge of approximately $196,520,000 in January 2002 to establish the net deferred tax liability of La Quinta and to recognize the future impact of temporary differences between the book value and tax basis of lodging and healthcare assets and liabilities, including NOLs of LQ Properties and LQ Corporation. As a result of recording the one-time charge, the valuation allowance that existed at December 31, 2001 with respect to the net deferred tax asset of LQ Corporation was reversed.

        As of the three months ended March 31, 2003 and the year ended December 31, 2002, our total federal NOL carryforwards were approximately $424,300,000, of which approximately $167,900,000 is available to LQ Properties and its taxable REIT subsidiaries. The related deferred tax asset of $159,800,000 is subject to a valuation allowance of $6,400,000 for certain state operating loss carryovers. No valuation allowance has been provided for federal NOL carryforwards available to LQ Properties and LQ Corporation. LQ Properties and its taxable REIT subsidiaries have recorded a full valuation allowance for capital loss carryforwards of approximately $40,400,000, as utilization of these losses within the statutory five-year carryover period is not reasonably assured. LQ Properties has also recorded a full valuation allowance with respect to federal tax credits of approximately $6,600,000 (primarily alternative minimum tax) made available to LQ Properties as a result of the Restructuring.

        Income tax benefit (expense) for the three months ended March 31, 2003 and 2002 consisted of the following:

11.   Earnings Per Share

        Earnings per share for LQ Corporation is computed as follows:

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        Options to purchase 6,734,000 (exercise prices ranging from $3.86 per share to $16.06 per share) and 2,344,000 (exercise prices ranging from $5.88 per share to $32.77 per share) paired shares were outstanding during the three months ended March 31, 2003 and 2002, respectively, but were not included in the computation of diluted earnings per share ("EPS") because the options' exercise prices were equal to or greater than the average market price of the common shares and because the inclusion would result in an antidilutive effect in periods where a loss was incurred. The options, which expire on dates ranging from September 2004 to February 2013, were still outstanding at March 31, 2003.

        In addition, options to purchase 5,856,000 paired shares (weighted average effect of 103,000 shares for the three months ended March 31, 2003) at exercise prices ranging from $1.94 per share to $3.79 per share were outstanding during the three months ended March 31, 2003 and were not included in the computation of diluted EPS because their inclusion would result in an antidilutive per-share amount as the companies reported a loss from continuing operations for the three months ended March 31, 2003.

        In addition, options to purchase 6,514,000 paired shares (weighted average effect of 2,297,000 shares for the three months ended March 31, 2002) at exercise prices ranging from $1.94 per share to $6.60 per share were outstanding during the three months ended March 31, 2002 and were not included in the computation of dilutive EPS because their inclusion would result in an antidilutive per-share amount as the companies reported a loss from continuing operations for both years.

12.   Transactions between LQ Corporation and LQ Properties

        LQ Corporation, exclusive of its controlled subsidiaries, leases hotel facilities from LQ Properties and its subsidiaries. The hotel facility lease agreements, as modified, between LQ Corporation and LQ Properties are for a five-year term (expiring July 2003). Through March 31, 2002, the leases provided for a fixed payment of base rent plus a percentage rent based on room and other revenues and required LQ Properties to assume costs attributable to property taxes and insurance and to fund certain capital expenditures. Subsequent to March 31, 2002, the modified lease agreements provide for a percentage rent payment only in an amount equal to 40 percent of the gross revenues from the hotel facilities and require LQ Properties to pay property taxes and insurance and to fund certain capital expenditures. LQ Properties and LQ Corporation intend to enter into new leases when the current leases, as modified, expire in July 2003. At March 31, 2003 and December 31, 2002, LQ Corporation owed LQ Properties $148,058,000 related to these leases. LQ Corporation has operated at a substantial loss due in part to the lease payments required to be made under the intercompany leases. The companies believe that the intercompany leases conformed with normal business practices at the time they were entered into and were consistent with leases entered into on an arm's length basis. Due to the unexpected shortfall in the operating revenues generated by the leased hotels, LQ Properties and LQ Corporation modified the intercompany leases, effective April 1, 2002, which has resulted in a decline in revenue for LQ Properties and a decline in expenses for LQ Corporation.

        A subsidiary of LQ Corporation also has a royalty arrangement with a subsidiary of LQ Properties for the use of the La Quinta® tradename at a rate of approximately 2.5% of gross revenue, as defined in the royalty agreement. The royalty agreement expires on July 17, 2003 and will renew automatically for additional five-year terms unless earlier terminated. At March 31, 2003 and December 31, 2002, LQ Corporation owed LQ Properties $7,870,000, related to the royalty arrangement.

        LQ Corporation provides certain management services to LQ Properties primarily related to executive management, general tax preparation, consulting, legal, accounting and certain aspects of human resources. LQ Properties compensates LQ Corporation for the direct costs of providing such services.

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13.   Subsequent Events

        On April 2, 2003, we repaid approximately $105,483,000 in principal on notes payable scheduled to mature (or that were redeemable at the option of the holders) on September 26, 2003, March 15, 2004 and August 15, 2004 and recognized a net loss on early extinguishment of approximately $4,000,000.

        On April 24, 2003, the Board of Directors of LQ Properties declared a dividend of $30,000,000 to be paid on April 25, 2003 to LQ Corporation in its capacity as the sole holder of LQ Properties Class A common stock.

        On April 24, 2003, the Board of Directors, upon the recommendation of the Audit Committee, approved the dismissal of Pricewaterhouse Coopers LLP and the engagement of Ernst & Young LLP as its independent auditors for fiscal year ending December 31, 2003, effective on the date of and immediately following the filing of this Joint Quarterly Report.

        On May 2, 2003, we sold a lodging facility with a net book value of approximately $1,900,000 for gross proceeds of approximately $1,950,000.

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

        You should read the following discussion together with the financial statements and related notes included elsewhere in this Joint Quarterly Report. The results discussed below are not necessarily indicative of the results to be expected in future periods. This discussion contains forward-looking statements based on current expectations, which involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements due to a number of factors. You should read the discussion about forward-looking statements in this Joint Quarterly Report under the heading "About this Joint Quarterly Report—Forward-Looking Statements" and "Cautionary Statements Regarding Forward-Looking Statements." This section will also direct you to the section of our Joint Annual Report under the heading "Items 1 and 2—Description of Our Business and Our Properties—Certain Factors You Should Consider About Our Companies, Our Businesses And Our Securities" and "About this Joint Annual Report—Forward-Looking Statements." We undertake no obligation to publicly update or revise any forward-looking statement to reflect current or future events or circumstances, including those described in our Joint Annual Report in the section entitled "Certain Factors You Should Consider About Our Companies, Our Businesses and Our Securities."

Overview

        The basis of presentation includes Management's Discussion and Analysis of Financial Condition and Results of Operations for each of the separate companies, LQ Corporation and LQ Properties, on a consolidated basis. Our management believes that LQ Corporation's consolidated presentation is more informative to holders of our common stock.

General

        We are a leading limited-service lodging company providing clean and comfortable rooms at affordable prices in convenient locations. We are one of the largest owner/operators of limited-service hotels in the United States. We owned and operated 211 La Quinta Inns® (6 are located on land that is leased from third parties) and 73 La Quinta Inn & Suites® containing approximately 37,000 rooms in 28 states as of March 31, 2003. We strive to design hotels that attract both business and leisure travelers seeking quality rooms that are generally comparable to those of mid-price, full service hotels, but at lower average room rates. We believe that by not providing full-service, management-intensive facilities and services, such as in-house restaurants, cocktail lounges or room service, that typically carry high fixed costs and low margins, we are able to deliver a product that satisfies our customers' needs and price expectations, while also permitting us to concentrate on the variable cost structure and the high-margin nature of our limited-service product.

        In addition to owning and operating our hotel properties we license the use of our proprietary brand names, including La Quinta®, La Quinta Inns® and La Quinta Inn & Suites®, in return for royalty and other fees through franchise agreements with franchisees. As of March 31, 2003, our franchisees operated 35 La Quinta Inns® and 33 La Quinta Inn & Suites® representing over 6,000 rooms under our brands. We also earn interest income on approximately $58,893,000 of healthcare related investments held at March 31, 2003.

        As part of our continued focus on the improvement of revenue performance, we launched our redesigned La Quinta Returns® loyalty program in 2002. While the previous program allowed members to earn "free stay" certificates, the new Returns program allows members to earn points that can be redeemed for a variety of rewards in addition to free stay certificates. In addition, we have added several new electronic distribution channels and have expanded and reshaped our sales force to put more emphasis on local sales efforts.

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La Quinta Corporation—Results of Operations

        We earn revenue primarily by operating 211 La Quinta Inns® and 73 La Quinta Inn & Suites® as well as licensing the use of our brand in return for license and other fees under our franchise program.

Comparison of the Three Months Ended March 31, 2003 to the Three Months Ended March 31, 2002

        Net loss decreased by $409,540,000, or $2.87 per diluted common share, to $50,288,000, or $0.35 per diluted common share, for the three months ended March 31, 2003 compared to a net loss of $459,828,000, or $3.22 per diluted common share, for the three months ended March 31, 2002. The decrease in net loss was primarily due to one time charges recorded in the three months ended March 31, 2002:

•

a one-time charge of approximately $196,520,000 recorded during the three months ended March 31, 2002, to establish the net deferred tax liability of LQ Corporation and recognize the future impact of temporary differences between book value and tax basis of lodging and healthcare assets and liabilities, including NOLs of LQ Properties and LQ Corporation;

•

a charge of approximately $258,957,000 recorded as a cumulative effect of change in accounting principle during the three months ended March 31, 2002, to reflect an adjustment to goodwill as a result of the implementation of SFAS 142; and

•

decreases in lodging and other revenues of approximately $17,049,000 to $121,473,000 for the three months ended March 31, 2003 compared to $138,522,000 for the three months ended March 31, 2002.

        The effect of these charges on the comparison of net loss available to common shareholders for the three months ended March 31, 2003 and 2002 was partially offset by net impairments on property, plant and equipment recorded during the three months ended March 31, 2003 of approximately $62,012,000.

        The following table summarizes statistical lodging data for the three months ended March 31, 2003 and 2002(1):

(1)

Unless otherwise noted, operating data is only for company-owned hotels.

(2)

Available room-night count and room-nights sold in thousands.

(3)

Represents average daily rate.

(4)

Represents net revenue per available room.

(5)

Represents hotels open at least two years as of March 31, 2003.

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        The following table sets forth certain information regarding our top ten markets ranked by the number of rooms owned in each of our top ten markets to our total rooms owned portfolio as of March 31, 2003. The market RevPAR performance data reflects RevPAR performance during the three months ended March 31, 2003 within La Quinta's defined competitive set within each local market, as aggregated by Smith Travel Research. During the three months ended March 31, 2003, the market RevPAR performance for La Quinta's top ten markets declined 7%. La Quinta's RevPAR performance in these top ten markets declined 11%. La Quinta's RevPAR declined more than the market primarily due to weak RevPAR performance in Dallas/Ft. Worth, Denver, New Orleans and Orlando.

Revenues and Expenses

        Lodging revenues decreased by $11,660,000, or 8.8%, to $120,242,000 for the three months ended March 31, 2003 compared to $131,902,000 for the three months ended March 31, 2002. Lodging revenues include revenues from room rentals and other revenue, such as charges to guests for long-distance telephone service, fax machine use, movie and vending commissions, meeting and banquet room revenue and laundry services. In addition, lodging revenues include franchise fees charged to franchisees for operating under the La Quinta brand name and using our hotel designs, operating systems and procedures. Lodging revenues also include approximately $1,703,000 in revenues related to TeleMatrix, a provider of telephones, software and equipment for the lodging industry. The decrease in lodging revenues was primarily due to a decrease in room revenues which accounts for approximately $112,754,000, or 94%, of lodging revenues. Room revenue is dictated by demand, measured as occupancy percentage, pricing, measured as average daily rate, or "ADR," and the level of available room inventory. Room revenues decreased during the three months ended March 31, 2003 compared to the three months ended March 31, 2002 due to several factors, including but not limited to:

•

continuing decreases in demand resulting from the downturn in the national economy, the aftermath of the 2001 terrorist attacks on the United States and the impact of the war in Iraq. Business and leisure travel continued to lag during the three months ended March 31, 2003 as companies reduced corporate travel and the demand from leisure travelers weakened. This reduced demand was reflected in the decrease in our occupancy percentage by 4.7 percentage points to 54.2% for the three months ended March 31, 2003 compared to 58.9% for the three months ended March 31, 2002; and

•

sale of hotel properties during 2002 caused decreases in room revenues for the three months ended March 31, 2003 compared to the three months ended March 31, 2002. Available room inventory decreased by 74,000 room-nights primarily due to the sale of 6 hotels during the last

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nine months of 2002. The impact on room revenues during the three months ended March 31, 2003 due to such sales was approximately $1,225,000.

        Net revenue per available room, or RevPAR, which is the product of ADR and occupancy percentage, decreased $2.22, or 6.2%, to $33.75 for the three months ended March 31, 2003 compared to $35.97 for the three months ended March 31, 2002. RevPAR declined as a result of the above-mentioned factors. We expect these weak demand trends to continue into the second quarter.

        Other revenues, which include revenues from leasing and mortgage financing on healthcare real estate, decreased by $5,389,000, or 81.4%, to $1,231,000 for the three months ended March 31, 2003, compared to $6,620,000 for the three months ended March 31, 2002. The decrease in other revenues was primarily the result of the sale of certain healthcare assets and repayment of healthcare mortgages during the last nine months of 2002 and the first three months of 2003. Assets that were sold in the twelve months subsequent to March 31, 2002 generated revenues of $5,008,000 during the three months ended March 31, 2002.

        Direct lodging operations expenses decreased by $2,766,000, or 4.8%, to $55,278,000 for the three months ended March 31, 2003 compared to $58,044,000 for the three months ended March 31, 2002. Direct lodging operating costs include costs directly associated with the operation of the hotels such as direct labor, utilities and hotel supplies. Direct lodging operating costs decreased during the three months ended March 31, 2003 due to our continued emphasis on cost control and the decrease in occupancy and available rooms which resulted in the reduction of certain variable costs such as:

•

salaries and related benefits decreased $1,570,000, or 5.3%; and

•

other variable expenses, including supplies, travel agency commissions, guest services and credit card processing costs, decreased by $1,066,000, or 10.9%.

        In addition, energy costs decreased by $357,000 for the three months ended March 31, 2003 compared to the three months ended March 31, 2002 as a result of deregulation in certain markets as well as decreases in energy rates coupled with a decrease in usage resulting from the decline in occupancy. These decreases in direct lodging expenses were offset by increases in repair and maintenance of $233,000.

        Other lodging expenses decreased by $1,171,000, or 5.9%, to $18,559,000 for the three months ended March 31, 2003 compared to $19,730,000 for the three months ended March 31, 2002. Other lodging expenses include property taxes, insurance, certain La Quinta Returns loyalty program expenses, franchise program costs, corporate allocations charged to our company owned hotel operations based on a percentage of room revenue and certain costs related to our TeleMatrix subsidiary. The net decrease in other lodging expenses was comprised of:

•

decreases in franchise related expenses of approximately $1,387,000; and

•

increases in insurance costs of approximately $404,000.

        General and administrative expenses increased by approximately $585,000, or 4.0%, to $15,211,000 for the three months ended March 31, 2003 compared to $14,626,000 for the three months ended March 31, 2002. General and administrative expenses include, among other costs, information services, legal, finance and accounting costs, sales, marketing, reservations, human resources and corporate operations. The increase in general and administrative costs primarily relates to additional expenses resulting from sales initiatives, new quality assurance initiatives, sales and use taxes, information systems and increased cost associated with the system wide conference, as well as a decline in corporate allocations related to services provided to our owned hotels that are based on a percentage of hotel revenues. These increases were offset by decreases in expenses incurred to support our healthcare operations during the three months ended March 31, 2003. We anticipate that general and administrative expenses will continue to increase due to the expansion of our sales force, additional information system costs and the continued decline in corporate overhead allocations related to services provided to our owned hotels that are based on a percentage of hotel revenues.

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Interest, Net

        Interest, net decreased by $4,347,000, or 23.4%, to $14,249,000 during the three months ended March 31, 2003 compared to $18,596,000 during the three months ended March 31, 2002. The decrease in interest expense is due to principal payments made on our debt of $431,344,000 from March 31, 2002 to March 31, 2003. We used the proceeds generated from asset sales and mortgage repayments during the last nine months of 2002 and proceeds from the issuance of 8⁷/8% senior notes on March 19, 2003 to fund the principal repayments. This decrease was offset by a decline of $187,000 in interest income from investment of cash reserves from the three months ended March 31, 2003 compared to the same period in 2002.

Depreciation and Amortization Expense

        Depreciation, amortization and write-offs increased by $2,169,000, or 7.3%, to $31,928,000 for the three months ended March 31, 2003 compared to $29,759,000 for the three months ended March 31, 2002. This increase is primarily due to early retirement losses of $2,011,000 on hotel assets replaced during our ongoing renovation program and write-offs of certain internal and external software costs.

Impairment of Property, Plant and Equipment

        An impairment on property, plant and equipment of $62,012,000 was recorded for the three months ended March 31, 2003, when the current facts, circumstances and analysis indicated that the assets were impaired. The impairment was comprised of $60,743,000 of impairments related to ten held for use properties and $1,269,000 of impairments related to seven properties that were held for sale at March 31, 2003. There were no impairments recorded on assets for the three months ended March 31, 2002.

Other Expense (Income)

        We recorded approximately $3,183,000 in other expense for the three months ended March 31, 2003 compared to $2,660,000 of other income for the three months ended March 31, 2002. Other expense (income) is comprised of the following: