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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 July 30, 2004, La Quinta Corporation had 187.9 million shares of common stock outstanding and La Quinta Properties, Inc. had 100,000 shares of class A common stock and 178.5 million shares of class B common stock outstanding.

TABLE OF CONTENTS

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About this Joint Quarterly Report

        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 ("REIT") for federal income tax purposes. Both LQ Corporation and LQ Properties have securities that 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," "the companies," "La Quinta" or "The La Quinta Companies" refer to LQ Corporation, LQ Properties and their respective subsidiaries, collectively. The terms "paired shares" and "paired common stock" mean the shares of common stock of LQ Corporation, par value $0.01 per share, that are attached and trade as a single unit with the shares of Class B common stock, par value $0.01 per share, 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 Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and 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 that could cause actual results or the timing of events to differ materially from those described in the forward-looking statements.

        Please see the risks identified in our Joint Annual Report on Form 10-K ("Joint Annual Report") filed with the Securities and Exchange Commission (the "SEC") on March 15, 2004, and other risks described from time to time in our annual, quarterly and current reports filed with the SEC. The risks and uncertainties described in these reports include those related to our lodging business, our investments in real estate, LQ Properties' status as a REIT, our capital expenditures and requirements, our corporate structure, our debt and liquidity needs, acquisition-related risks, including the ability to identify candidates that meet our financial and strategic criteria, successfully completing any acquisitions that we may enter into (including our acquisition of substantially all the assets of The Marcus Corporation's limited service lodging division discussed in this Joint Quarterly Report), and effectively integrating the business of any company that we may acquire (including, if successfully completed, the integration of The Marcus Corporation's limited service lodging division), as well as risks and uncertainties related to our industry, the economy, the aftermath of United States military action in Iraq, the possibility of further terrorist attacks on the United States and global affairs. We have discussed these risks and uncertainties in detail in our Joint Annual Report and we encourage you to read those risk factors in their entirety in order to understand the risks and uncertainties that can affect our forward-looking statements as well as our business generally.

        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 undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or other changes.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

LA QUINTA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)

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, 2003, are an integral part of these financial statements.

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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, 2003, are an integral part of these financial statements.

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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, 2003, are an integral part of these financial statements.

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

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, 2003, are an integral part of these financial statements.

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LA QUINTA PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, 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, 2003, are an integral part of these financial statements.

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LA QUINTA PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, 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, 2003, are an integral part of these financial statements.

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

1.    Nature of Business and Summary of Significant Accounting Policies

Nature of Business

        La Quinta Corporation ("LQ Corporation") and its controlled subsidiary, La Quinta Properties, Inc. ("LQ Properties"), primarily focus on the lodging business. La Quinta's lodging real estate assets are owned by LQ Properties or one or more of its direct and indirect subsidiaries. LQ Corporation operates all of its owned lodging facilities through its subsidiary, La Quinta Inns, Inc. In addition, we franchise our brand to independent owner/operators. Our trade names, trademarks and service marks include La Quinta®, La Quinta Inns®, La Quinta Inn & Suites® and Returns®. As of June 30, 2004, La Quinta either operated or franchised 381 hotels with approximately 45,400 rooms primarily located in the western and southern regions of the United States. As a result, our lodging properties are particularly sensitive to adverse economic and competitive conditions and trends in those regions and such conditions could adversely affect our business, financial condition and results of operations. Our top ten markets are: Atlanta, Austin, Dallas/Ft. Worth, Denver, Houston, Miami/Ft. Lauderdale, New Orleans, Orlando, Phoenix and San Antonio.

        The common stock of LQ Corporation and the Class B common stock of LQ Properties are attached and trade together as a single unit. 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," "the companies," "La Quinta," or "The La Quinta Companies" refer to LQ Corporation, LQ Properties and their respective subsidiaries, collectively.

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 on Form 10-K filed on March 15, 2004 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) considered necessary for a fair presentation of the financial statements. The results of operations for the three and six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for any other interim period or for the entire year.

        The accompanying consolidated financial statements represent the financial position and results of operations and cash flows of LQ Corporation on a consolidated basis with its controlled subsidiary, LQ Properties and LQ Properties on a consolidated basis. In each case, the consolidated financial statements include the assets, liabilities, revenues and expenses of entities (in the absence of other factors determining control) where LQ Corporation and/or LQ Properties own over 50% of the voting shares of another company or, in the case of partnership investments, where LQ Corporation and/or LQ Properties own a majority of the general partnership interest. In addition, other than its two consolidated joint ventures, La Quinta does not currently operate or manage any hotels under management agreements with third parties where we: (1) maintain an equity ownership position, (2) have the ability to exercise significant influence

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and (3) are exposed to risks of operations that are sufficient to require consolidation. Separate financial statements have been presented for LQ Properties because LQ Properties has securities that are publicly traded on the New York Stock Exchange. All significant intercompany 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 may differ from these estimates. Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassified amounts principally relate to discontinued operations (see Note 3) and investments in securities described below.

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.

Investments in Securities

        At June 30, 2004 and December 31, 2003, LQ Properties owned approximately $122.2 million in face amount of 7.114% Exercisable Put Option Securities (the "Securities") due August 15, 2004 issued by the Meditrust Exercisable Put Option Securities Trust (the "Trust"). The Securities represent beneficial interests in the Trust and are classified as held-to-maturity under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." LQ Properties is also the issuer of $150 million of 7.114% notes to the Trust (the "Notes"). The Notes are the sole assets of the Trust (see Note 6).

        As discussed in our Joint Annual Report, during 2003, we reclassified the Securities on our consolidated balance sheets from being netted against long-term debt to investments in securities. The Securities were also reclassified on our consolidated statements of cash flows from repayment of long-term debt to purchase of securities as of June 30, 2003.

Valuation of Long-Lived Assets and Finite Lived Intangible Assets

        La Quinta regularly reviews the performance of long-lived assets on an ongoing 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, 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 management identifies an asset as held for sale, has obtained authority to sell the property, and expects to sell the asset within twelve months, the asset is classified as held for sale. 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. 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. 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 on sales of assets are recognized at the time the assets are sold provided there is reasonable assurance the sales price will be collected and any future activities to be performed by the companies relating to the assets sold are expected to be insignificant.

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        Intangible assets, consisting of La Quinta's trademarks, are amortized on a straight-line basis using an estimated useful life of 21 years based on management's assessment of the life and fair value of the brands.

Stock-Based Compensation

        La Quinta has various stock-based employee compensation plans and accounts for those plans using the intrinsic value method as prescribed under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." 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. 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, carried as a component of equity and amortized over the related vesting period.

        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.

        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 loss and loss per share would have increased to the pro forma amounts indicated below:

Recent Accounting Standards

        In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity, and is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. As a result of further discussion by the FASB on October 8, 2003, the FASB clarified that minority interests in consolidated partnerships with specified finite lives should be reclassified as liabilities and presented at fair market value unless the interests are convertible into the equity of the parent. Fair market value adjustments occurring subsequent to July 1, 2003 would be recorded as a component of interest expense. At their October 29,

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2003 meeting, the FASB agreed to indefinitely defer the implementation of a portion of SFAS 150 regarding the accounting treatment for minority interests in finite life partnerships. Therefore, until a final resolution is reached, we will not implement this aspect of the standard. If we were to adopt this aspect of the standard under its current provisions, we would reclassify approximately $5.8 million of minority interest to a liability and recognize a gain of approximately $0.2 million as a cumulative effect of change in accounting principle, net of taxes.

        In January 2003 and as amended in December 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities," as amended ("FIN 46" or "FIN 46R," respectively), which clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties ("variable interest entities"). Variable interest entities ("VIEs") are required to be consolidated by their primary beneficiaries if they do not effectively disperse risks among the parties involved. Under FIN 46, the primary beneficiary of a VIE is the party that absorbs a majority of the entity's expected losses, receives a majority of its expected residual returns, or both, as a result of holding variable interests. In applying FIN 46, management has utilized available information and reasonable assumptions and estimates in evaluating whether an entity is a VIE and which party is the primary beneficiary. These assumptions and estimates are subjective and the use of different assumptions could result in different conclusions. FIN 46 also requires new disclosures about VIEs.

        We have occasionally provided, and, at our discretion, may upon occasion provide, franchisees with various forms of financing or incentive payments with varying terms, based on a number of factors. These factors include: the amount of the financing, the number of hotels involved and their locations, the number of rooms involved, relevant market conditions, the creditworthiness of the franchisee and any proposed guarantors, and other factors that may warrant the provision of assistance with conversion to our brand. We evaluate these various forms of financing or incentive payments to determine the appropriate accounting treatment under the requirements of FIN 46.

        On February 1, 2003, we adopted FIN 46 for VIEs created after January 31, 2003 and for VIEs in which we obtained an interest after January 31, 2003 and, in both cases, it did not have a material impact on our consolidated financial statements. In December 2003, the FASB issued FIN 46R, under which the consolidation requirement for entities formed prior to February 1, 2003 that are not considered special purpose entities was deferred until the end of the first interim period ending after March 15, 2004. We evaluated whether the provisions of FIN 46R are applicable to the franchise arrangements discussed above as well as other arrangements which may meet the criteria of FIN 46R. We believe that there are currently no material arrangements that either meet the definition of a variable interest entity or where we are the primary beneficiary that would require consolidation.

2.    Supplemental Cash Flow Information

        Details of interest and income taxes paid for LQ Corporation follow:

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3.    Discontinued Operations

        During 2003, discontinued operations included three company-owned hotels and TeleMatrix, Inc., a business component that provides telephone equipment and software for the lodging industry. We classified the assets and liabilities as discontinued components under the provisions of SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). As a result, all periods presented in the financial statements and footnotes have been restated to report the separately identifiable results of operations and cash flows of the components as discontinued operations. During the fourth quarter of 2003, the companies sold the three hotels and TeleMatrix, Inc. for gross proceeds of $13.7 million, resulting in a gain on sale of approximately $0.9 million. At June 30, 2004, no assets held for sale were subject to SFAS 144 classification as discontinued operations.

        The following is a summary of consolidated statements of operations information for discontinued operations:

4.    Property and Equipment

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

        At June 30, 2004 and December 31, 2003, the net book value of lodging property and equipment was $2,057.6 million and $2,098.3 million, respectively. During the six months ended June 30, 2004 and 2003, we expended approximately $23.9 million and $24 million, respectively, in capital improvements related to lodging properties. Additionally, we recorded depreciation expense and write-offs of approximately $26.9 million and $25.8 million for the three months ended June 30, 2004 and 2003, respectively, and $52.3 million and $53.6 million for the six months ended June 30, 2004 and 2003, respectively. We recorded impairments on held for use properties of $7.2 million and $4.3 million for the three months ended June 30, 2004 and 2003, respectively, and $12.2 million and $65 million for the six months ended June 30, 2004 and 2003, respectively.

        At June 30, 2004 and December 31, 2003, the net book value of corporate property and equipment was $35.2 million and $33 million, respectively. During the six months ended June 30, 2004 and 2003, we expended $7.5 million and $6.9 million, respectively, in capital improvements related to corporate property and equipment. Additionally, we recorded depreciation expense and write-offs on corporate property and equipment of approximately $2.4 million and $5.6 million for the three months ended June 30, 2004 and 2003, respectively, and $5.3 million and $8.2 million for the six months ended June 30, 2004 and 2003, respectively.

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        At December 31, 2003, certain properties continued to be classified as held for sale. These properties were classified as held for sale prior to the initial application of SFAS 144 and were being accounted for under the transition provisions of SFAS 144 with respect to the inclusion of these properties' related results of operations in the companies' continuing operations. In addition, during the initial one year period, circumstances arose that resulted in some properties not selling by the end of that period. At December 31, 2003, the estimated fair market value of properties held for sale under the transition provisions of SFAS 144 was $3.5 million. The remaining properties were sold during the three months ended June 30, 2004 for net proceeds of $3.4 million resulting in a loss on sale of $0.1 million. During the three and six months ended June 30, 2003, we sold three hotels with an aggregate net book value of $6.2 million. Net proceeds on these transactions were $6.1 million and resulted in a net loss of $0.1 million. Impairments of $0.3 million and $1.2 million were recorded during the three and six months ended June 30, 2003, respectively.

        At June 30, 2004 certain land parcels continue to be classified as held for sale; however, they are not included in discontinued operations as they do not meet the definition of components of an entity under the provisions of SFAS 144. At June 30, 2004 and December 31, 2003, the estimated fair market value of these properties was approximately $6.6 million and $9.0 million, respectively. During the three and six months ended June 30, 2004, we sold one land parcel with a net book value of $1.9 million for net proceeds of $1.9 million. No land parcels were sold during the comparable periods of 2003. Impairments of $0.5 million were recorded on one land parcel during the three and six months ended June 30, 2004. We recorded impairments of $0.4 million for both the three and six months ended June 30, 2003 related to land parcels held for sale.

        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 June 30, 2004 and December 31, 2003, the net book value after impairment of mortgages receivable was approximately $26.2 million. The interest income on the mortgage loans was approximately $0.1 million and $0.2 million for the three months ended June 30, 2004 and 2003, respectively, and $0.3 million for each of the six month periods ended June 30, 2004 and 2003, respectively.

        At June 30, 2004 and December 31, 2003, the net book value of other notes receivable was approximately $32.3 million and $31.8 million, respectively. Included in other notes receivable was approximately $32.2 million in a subordinated note received as consideration in connection with the sale of certain healthcare assets during 2001. We currently intend to hold the remaining balance of this note to maturity. Interest income on this note was approximately $1.0 million and $1.1 million for the three months ended June 30, 2004 and 2003, respectively, and $2.1 million and $2.2 million for the six months ended June 30, 2004 and 2003, respectively.

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6.    Indebtedness

        Indebtedness at June 30, 2004 and December 31, 2003 was as follows:

Notes Payable

        During the six months ended June 30, 2004, we repaid $19.5 million in principal on notes payable scheduled to mature on March 15, 2004. During 2003, LQ Properties issued $325 million of senior notes bearing a coupon rate of 8.875% and having a maturity of March 15, 2011, which LQ Corporation guaranteed. These notes are subject to, among other types of covenants, certain restrictive financial incurrence covenants, such as limitations on the incurrence of indebtedness (pro forma fixed charge coverage ratio must exceed 2.0 times, excluding certain adjustments, in order to incur additional debt) and restricted payments (generally limited to 95% of funds from operations as defined in the indenture pursuant to which the notes were issued). In addition to the financial covenants, the indenture also includes, among other limitations, limitations on asset sales, issuances of certain capital stock, sale and leaseback transactions and affiliate transactions.

        Included in notes payable is $150 million principal amount of 7.114% notes, due in August 2011 (repayable by LQ Properties in August 2004 at the option of the Trust). The Securities, which have pass-through characteristics, represent beneficial interests in the Trust that holds the Notes. The Trust was established as part of a 1997 financing to hold the Notes. (See Note 1—Investments in Securities.) LQ Properties is both the owner of securities issued by the Trust as well as the issuer of the Notes owed to the Trust. If the Notes are still outstanding from and after August 15, 2004, the interest rate will increase by an amount determined in accordance with the documents that govern the obligations of LQ Properties with respect to the Notes (the "Interest Rate to Maturity"). A third party (the "Call Holder") has the option to purchase the Notes at 100% of their principal amount on August 15, 2004 (the "Call Option"). If the Call Holder exercises the Call Option, we may repurchase the Notes from the Call Holder at a price equal to

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the greater of (a) 100% of the principal amount of the Notes or (b) the sum of the present values of the remaining principal and interest payments, as determined in accordance with the documents that govern the obligations of LQ Properties with respect to the Notes, discounted at the rate of U.S. Treasury securities having maturities similar to the remaining term of the Notes, plus in either case accrued and unpaid interest. The estimated fair value of the repurchase of the Notes from the Call Holder was up to $175.2 million and $176.5 million at June 30, 2004 and December 31, 2003, respectively. The Trust has the right to require us to purchase all of the Notes at 100% of their principal amount on August 15, 2004 (the "Put Option"). The Trust is required to exercise the Put Option if (a) the Call Holder fails to exercise the Call Option or (b) the Call Holder exercises the Call Option but fails to make payment on the date required. As of June 30, 2004 and December 31, 2003, LQ Properties owned $122.2 million of the Securities issued by the Trust. Accordingly, if the Call Option is exercised and LQ Properties does not exercise its repurchase rights described above, LQ Properties will have a non-callable $150 million obligation that matures in August 2011, which will bear interest at the Interest Rate to Maturity. In this event, we will receive a $122.2 million contemporaneous distribution from the Trust, representing a portion of the price paid by the Call Holder to the Trust upon exercise of the Call Option. Upon the initial application of SFAS No. 133, "Accounting for Derivative Instruments and Hedge Accounting" ("SFAS 133"), LQ Properties determined that the Call Option, Put Option, repurchase, and reset of interest did not meet the characteristics of derivative instruments as defined in SFAS 133. During 2003, we reclassified the owned Securities on our consolidated balance sheets from being netted against long-term debt to investments in securities. The Securities were also reclassified on our consolidated statements of cash flows from repayment of long-term debt to purchases of securities as of June 30, 2003.

Bank Notes Payable

        On November 12, 2003, we refinanced our previous credit agreement, as amended, with a bank group that provided a $125 million revolving line of credit (the "2001 Credit Facility") to provide a $150 million revolving line of credit (the "2003 Credit Facility"). The 2003 Credit Facility, which matures in April 2007, is secured by a pledge of stock of our subsidiaries and intercompany debt evidenced by promissory notes and contains a subjective acceleration clause contingent upon a material adverse effect. LQ Properties is the borrower under the facility and LQ Corporation is the guarantor.

        Approximately $129.9 million (net of a $20.1 million outstanding letter of credit) was available under the 2003 Credit Facility at June 30, 2004. Borrowings under the 2003 Credit Facility currently bear interest at the London Interbank Offered Rate ("LIBOR") plus 2.5%. During the six months ended June 30, 2004, there were no borrowings under the 2003 Credit Facility other than the letters of credit.

        The 2003 Credit Facility, as amended, contains several restrictive financial covenants (as defined in the 2003 Credit Facility), which include the following:

•

maximum net debt to EBITDA (total leverage) ratio of 5.30 times in 2004, decreasing to 4.50 times by 2007;



•

minimum interest coverage ratio of 2.10 times in 2004, increasing to 2.40 times by 2007;



•

minimum fixed charge coverage ratio of 1.35 times in 2004, increasing to 1.55 times by 2007; and



•

minimum consolidated tangible net worth of $700 million.

        In addition to the financial covenants, the 2003 Credit Facility also includes limitations on capital expenditures, asset sales, secured debt, certain investments, common stock dividends, and debt and share repurchases. We were in compliance with the covenants related to the 2003 Credit Facility at June 30, 2004. In 2003, we obtained a waiver from our lenders with respect to the reclassification of the Securities and any potential compliance impact on covenants contained in the 2001 Credit Facility.

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7.    Commitments and Contingencies

        In January 2002, KSL Desert Resorts, Inc. filed a legal action in the United States District Court for the Central District of California (the "Court") 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 had reached apparent tentative settlement agreements, but those efforts have failed to result in a final and binding agreement. The action remains in the pretrial stage and the Court has entered a scheduling order setting discovery and other deadlines. If the dispute cannot be settled or resolved, we intend to vigorously defend the complaint and pursue our counterclaims. We cannot currently estimate the potential loss and/or range of potential loss from this matter.

        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 one of these claims or lawsuits, as well as any other uninsured claim or lawsuit involving healthcare facilities formerly owned by LQ Properties that were leased to and operated by third-party operators, to be material in relation to our consolidated financial condition or operations.

        In addition, we are party to a number of other claims and lawsuits arising out of the normal course of business relating to our lodging operations. We regularly evaluate our ultimate liability and attendant costs with respect to these claims and lawsuits. We do not consider our ultimate liability with respect to any single claim or lawsuit to be material in relation to our consolidated financial condition or operations.

        Under certain franchise agreements or joint venture agreements, we have committed to provide certain incentive payments, loans, reimbursements, rebates and other payments, to help defray the costs of construction, marketing 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 June 30, 2004, we had approximately $8.3 million in outstanding commitments of financial assistance to various franchisees, of which approximately $6.0 million had been funded and approximately $2.2 million had been repaid by franchisees or amortized. The unamortized balance of amounts funded or payable on incentive payments of approximately $4.6 million is included in Other Non-current Assets. These agreements generally require that, in the event the franchise relationship is terminated, the franchisee either repay the outstanding loan balance or unamortized portion of the incentive payment, or transfer to us any equipment, computer or other property purchased by the franchisee with the incentive payment.

        We have provided a letter of credit in connection with a 1995 healthcare transaction, which guarantees the payment of certain industrial revenue bonds aggregating approximately $4.5 million that is the

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obligation of an unrelated third party. During 2004, we have continued to provide standby letters of credit under our 2003 Credit Facility for the benefit of the trustee of the bonds in the amount of $4.7 million (consisting of $4.5 million of principal and $0.2 million of interest). As part of the agreement to provide a letter of credit, the unrelated third party has provided La Quinta with collateral in all property and equipment of the related healthcare facility currently estimated to have a fair value of approximately $0.5 million. Due to concern that the unrelated third party will not be able to meet its obligations as they become due and stay in operation, there is a probability that La Quinta will be required to perform under the obligation. At June 30, 2004, La Quinta was carrying a liability of approximately $4.2 million in connection with the obligation.

8.    Shareholders' Equity

        During the six months ended June 30, 2004, LQ Properties paid dividends of $9.0 million on its 9.00% Series A Cumulative Redeemable Preferred Stock.

9.    Other (Income) Expense

        For the three and six month periods ended June 30, 2004 and 2003, other (income) expense consisted of the following:

(1)

During the three months ended June 30, 2004, we recognized income of $0.8 million primarily as a result of settlement of litigation related to the exit of the healthcare business and refunds of public company filing fees partially offset by approximately $0.2 million of expense related to the termination and ongoing settlement of the La Quinta retirement plan. During the three months ended June 30, 2003, we recognized income of approximately $0.4 million primarily related to a refund of relocation costs and an adjustment of amounts previously accrued for healthcare business exit costs. During the six months ended June 30, 2004, we recognized $1.0 million of income primarily as a result of settlement of litigation and return of collateral related to the exit of the healthcare business and refunds of public company filing fees partially offset by approximately $0.4 million of expense related to the termination and ongoing settlement of the La Quinta retirement plan. During the six months ended June 30, 2003, we recognized expenses of approximately $0.9 million 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 reorganization costs for the six months ended June 30, 2004 were as follows:

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10.    Income Taxes

        LQ Properties has elected to be taxed as a REIT under the Internal Revenue 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 that may require federal tax provisions and for subsidiaries taxable as C-corporations. LQ Properties utilizes taxable REIT subsidiaries to hold certain assets that 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's income tax benefit 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 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 of December 31, 2003, our total federal net operating loss ("NOL") carryforwards were approximately $459.5 million, of which approximately $178.4 million is available to LQ Properties and its taxable REIT subsidiaries. As of December 31, 2003, our total capital loss carryforwards were approximately $28.6 million and our federal tax credit carryforwards (primarily alternative minimum tax credit carryforwards available only to LQ Properties) were approximately $5.9 million. A valuation allowance of approximately $27.8 million has been provided with respect to deferred tax assets related to certain NOL carryforwards, capital loss carryforwards and tax credit carryforwards for which realization of the benefit is not reasonably assured.

        LQ Corporation's income tax benefit consisted of the following:

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11.    Earnings Per Share

        Earnings per share ("EPS") for the companies is computed as follows:

        Options to purchase 0.4 million and 6.8 million paired shares at prices ranging from $7.51 to $16.06 and $3.90 to $16.06 were outstanding during the three months ended June 30, 2004 and 2003, respectively, but were not included in the computation of diluted EPS because the options' exercise prices were equal to or greater than the average market price of the paired 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 December 2008 to March 2014, were still outstanding at June 30, 2004.

        In addition, options to purchase 12.3 million and 5.9 million paired shares (weighted average effect of 3.6 million and 0.6 million shares for the three months ended June 30, 2004 and 2003, respectively) at prices ranging from $1.94 to $7.47 and $1.94 to $3.87 were outstanding during the three months ended June 30, 2004 and 2003, respectively, 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 June 30, 2004 and 2003.

        Options to purchase 0.4 million and 6.8 million paired shares at prices ranging from $7.46 to $16.06 and $3.86 to $16.06 were outstanding during the six months ended June 30, 2004 and 2003, respectively, but were not included in the computation of diluted EPS because the options' exercise prices were equal to or greater than the average market price of the paired 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 December 2008 to March 2014, were still outstanding at June 30, 2004.

        In addition, options to purchase 12.3 million and 5.8 million paired shares (weighted average effect of 3.5 million and 0.5 million shares for the six months ended June 30, 2004 and 2003, respectively) at prices ranging from $1.94 to $7.38 and $1.94 to $3.79 were outstanding during the six months ended June 30, 2004 and 2003, respectively, 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 six months ended June 30, 2004 and 2003.

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12.    Transactions between LQ Properties and LQ Corporation

        LQ Corporation leases hotel facilities from LQ Properties and its subsidiaries. The hotel facility lease agreements, as modified, between LQ Corporation and LQ Properties were for a five-year term, which expired in July 2003. These leases were amended to extend the term through December 31, 2003. The modified lease agreements provided for a percentage rent payment only in an amount equal to 40% of the gross revenues from the hotel facilities and required LQ Properties to pay property taxes and insurance and to fund certain capital expenditures.

        New lease agreements were entered into effective January 1, 2004. These agreements have substantially the same terms as the previous lease agreements other than a decrease in the percentage rent rate to 36% and differing initial terms of four, five or six years. At June 30, 2004 and December 31, 2003, LQ Corporation owed LQ Properties $85.9 million related to these leases. Rent expense for the three months ended June 30, 2004 and 2003 was approximately $48.6 million and $50.6 million, respectively, and approximately $93.1 million and $95.7 million for the six months ended June 30, 2004 and 2003, respectively. 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.

        A subsidiary of LQ Corporation also had a royalty arrangement with a subsidiary of LQ Properties for the use of the La Quinta brand name. The royalty agreement expired on July 17, 2003 and automatically renewed for an additional five-year term. The royalty agreement was amended, effective January 1, 2004, to reduce the royalty rate to 1.5% of gross revenue, as defined in the royalty agreement. Royalty expense for the three months ended June 30, 2004 and 2003 was approximately $2.0 million and $3.2 million, respectively, and approximately $3.9 million and $6.1 million for the six months ended June 30, 2004 and 2003, respectively. Minority interest distributions to LQ Corporation from a subsidiary of LQ Properties were $1.9 million and $2.2 million for the six months ended June 30, 2004 and 2003, respectively.

        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.

13.    Subsequent Events

        On July 1, 2004, we received $26.3 million as a partial prepayment of the subordinated note described in Note 5.

        On July 14, 2004, LQ Corporation entered into a definitive asset purchase agreement with certain subsidiaries of The Marcus Corporation ("Marcus") to purchase substantially all the assets of Marcus' limited service lodging division, excluding eight joint ventures, for a total purchase price of approximately $395 million in cash, subject to certain adjustments (the "Acquisition"). Pursuant to that agreement, La Quinta will acquire 86 Baymont Inns & Suites (including one management contract), seven Woodfield Suites, one Budgetel Inn, trade rights associated with the Baymont, Woodfield Suites and Budgetel brands, and the current Baymont franchise system of 84 hotels. These 178 hotels (containing 16,837 rooms), being added to the La Quinta portfolio upon closing of the Acquisition, are located across 32 states, with approximately half the hotels in the Midwest region of the U.S. The Acquisition is expected to close later this summer or the early fall, subject to customary closing conditions, consents and approvals.

        Under the terms of the Acquisition agreement, we have deposited $16 million with an escrow agent, which has deposited the funds in an interest bearing account pending the closing of the Acquisition.

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        In connection with financing the Acquisition, on July 14, 2004, we entered into an amendment to the 2003 Credit Facility that:

•

permits the Acquisition;



•

increases the permitted incremental term loan facility allowed under the 2003 Credit Facility from $150 to $200 million;



•

permits the issuance of up to $200 million of additional senior unsecured notes;



•

increases permitted capital expenditures; and



•

modifies and waives certain other provisions of the 2003 Credit Facility.

        In addition, on July 14, 2004, we entered into a letter agreement with a group of lenders that are proposing to arrange a term loan of up to $200 million as permitted under the 2003 Credit Agreement, as amended. The term loan would be used to finance a portion of the Acquisition purchase price. We have received commitments from lenders for $150 million of this proposed term loan facility. We are not obligated to borrow the term loan and may use other sources of capital to fund this portion of the Acquisition purchase price.

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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 "Forward-Looking Statements." That section will also direct you to our Joint Annual Report on Form 10-K filed with the SEC on March 15, 2004 and other risks described from time to time in our annual, quarterly and current reports filed with the SEC. We undertake no obligation to publicly update or revise any forward-looking statement whether as a result of new information, future events or other changes, including those described in our Joint Annual Report on Form 10-K.

Overview

        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 earn revenue primarily by owning and operating 199 La Quinta Inns (including 6 La Quinta Inns that are located on land that we lease from third parties) and 75 La Quinta Inn & Suites containing approximately 36,000 rooms in 28 states as of June 30, 2004. 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.

        In addition to owning and operating our hotel properties, we also earn revenue by licensing 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 June 30, 2004, our franchisees operated 54 La Quinta Inns and 53 La Quinta Inn & Suites representing over 9,600 rooms under our brand. Other than our two consolidated joint ventures, we do not currently operate or manage any hotels under management agreements with third parties where we maintain an equity ownership position, have the ability to exercise significant influence or are exposed to risks of operations sufficient to require consolidation. We also earn interest income on approximately $58.4 million of healthcare related investments held at June 30, 2004. These investments were reduced to approximately $32.1 million as a result of a partial prepayment of a note receivable in July 2004.

        Over the last four years, we have undergone significant financial and strategic changes. In January 2000, we began a strategy of selling non-lodging real estate assets in order to focus on our lodging business. As a result of that change in strategy, we replaced substantially all of our senior management with executives who have, on average, approximately 25 years of experience in lodging and lodging-related industries. We have improved the operations of our lodging business, including the improvement of revenue performance, reduction of costs and introduction of a franchising program. During that period, we also have sold approximately $1.8 billion of our non-lodging assets, with proceeds from those sales applied to reduce indebtedness and strengthen our balance sheet.

        As part of our continued focus on the improvement of revenue performance, we launched our redesigned La Quinta Returns loyalty program in 2002. We also invested significant capital in our hotels to enhance their competitive position and improve guest satisfaction. 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.

        We have three growth strategies: (1) continue to improve the profitability of the existing company owned La Quinta Inns and La Quinta Inn & Suites, (2) further expand the La Quinta brand through franchising, and (3) invest a portion of our available capital in the lodging business, including but not limited to, the acquisition of other limited service lodging assets and brands.

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        On July 14, 2004, LQ Corporation entered into a definitive asset purchase agreement with certain subsidiaries of Marcus to purchase substantially all the assets of Marcus' limited service lodging division, excluding eight joint ventures, for a total purchase price of approximately $395 million in cash, subject to certain adjustments. Pursuant to the Acquisition agreement, La Quinta will acquire 86 Baymont Inns & Suites (including one management contract), seven Woodfield Suites, one Budgetel Inn, trade rights associated with the Baymont, Woodfield Suites and Budgetel brands, and the current Baymont franchise system of 84 hotels. These 178 hotels (containing 16,837 rooms), being added to the La Quinta portfolio upon closing of the Acquisition, are located across 32 states, with approximately half the hotels in the Midwest region of the U.S. The Acquisition is expected to close later this summer or the early fall, subject to customary closing conditions, consents and approvals. We cannot assure you that the closing conditions will be satisfied or that the consents and approvals will be obtained.

Key Indicators of Financial Condition and Operating Performance

        We use a variety of financial and other information in monitoring the financial condition and operating performance of our business. Some of this information is financial information that is prepared in accordance with generally accepted accounting principles ("GAAP"), while other information may be financial information not prepared in accordance with GAAP. Our management also uses other information that may not be financial in nature, including statistical information and comparative data. Our management uses this information to measure the performance of individual hotel properties, groups of hotel properties within a geographic region and/or our business as a whole. Historical information is periodically compared against our internal budgets as well as against industry-wide information. We use this information for planning and monitoring our business, as well as in determining employee compensation.

Operating Statistics

        Guest Satisfaction.    Guest satisfaction scores are an important indicator of how our products and services are being received and viewed by our customers. We have focused our efforts over the past several years at increasing guest satisfaction scores as we believe guest satisfaction is a driver of repeat and referral business that leads to increased revenue. Guest satisfaction scores are monitored through a number of initiatives, including surveys conducted by an independent market research company. We believe that high levels of guest satisfaction are important to maintaining and growing our brand's reputation and recognition.

        Average Daily Rate ("ADR"), Occupancy Percentage and Revenue per Available Room ("RevPAR"). Room revenue comprises approximately 94% of our revenues and is dictated by demand, as measured by occupancy percentage, pricing, as measured by ADR, and our available supply of hotel rooms. RevPAR, which is another important statistic for monitoring operating performance at the individual property level and across our business as a whole, is the result of the combined impact of ADR and occupancy. RevPAR performance is evaluated on an absolute basis with comparison to budgeted and prior period performance, as well as on a company wide and regional basis. Additionally, RevPAR performance is compared and tracked against industry data for our defined competitive set within each local market as aggregated by Smith Travel Research.

        We believe our ADR, occupancy percentage and RevPAR performance may be impacted by macroeconomic factors such as regional and local employment growth, personal income and corporate earnings, office vacancy rates and business relocation decisions, airport and other business and leisure travel levels and new hotel construction by our competitors, as well as the pricing strategies of our full service lodging competitors. Our ADR, occupancy percentage and/or RevPAR performance is also impacted by factors specific to La Quinta including our guest satisfaction scores, our choice of locations for our hotels, the expenditures that we incur to maintain and improve our hotel properties and the quality of the benefits that we offer our guests, such as our frequent traveler programs. Our available room supply is

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impacted by our access to capital and the expenditures that we incur to develop or acquire new hotels as well as the sale of existing hotels by us.

        Inn Operating Contribution ("IOC").    IOC is a non-GAAP measure of an individual hotel property's level of profitability before fixed costs. IOC focuses on revenues and expenses that management considers are controllable components of the hotel property level operations. As part of IOC, we track and manage our costs per rented room as a measure of the variable costs to sell a room night.

        Franchise Monitoring.    We also monitor and track the number of franchise units opened and the overall growth in franchise revenues to measure the performance of our brand, as well as our franchise program, which we believe is important to increasing our presence in key geographic markets, as well as in entering additional geographic markets. In addition, our management uses ADR, occupancy percentage, RevPAR and guest satisfaction scores to monitor franchisee operating performance.

Adjusted Earnings before Interest, Taxes, Depreciation and Amortization

        We use a variety of measures at the corporate level in order to monitor the performance of our business as a whole. Some of these measures are prepared in accordance with GAAP, while others, such as adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") are non-GAAP measures. We use Adjusted EBITDA as a supplemental measure of performance because we believe it gives us a more complete understanding of our financial condition and operating results. We use this metric to calculate various financial ratios and to measure our performance, and we believe some debt and equity investors also utilize this metric for similar purposes. Adjusted EBITDA includes adjustments for non-cash income or expenses such as depreciation, amortization and other non-cash items. Adjusted EBITDA is also adjusted for discontinued operations, income taxes, interest expense, net and minority interest (which includes our preferred stock dividends of LQ Properties), as well as certain cash income or expense that we believe otherwise distort the comparability of the measure. Adjusted EBITDA is intended to show unleveraged, pre-tax operating results. This is one of the measures we use to set management and executive incentive compensation. Adjusted EBITDA is not intended to represent any measure of performance in accordance with GAAP and our calculation and use of this measure may differ from our competitors. This non-GAAP measure should not be used in isolation or as a substitute for a measure of performance or liquidity prepared in accordance with GAAP.

La Quinta Corporation—Consolidated Results of Operations

Comparison of the Three and Six Months Ended June 30, 2004 and 2003

        Net loss decreased by $6.8 million or $0.06 per diluted paired share and decreased $44.8 million or $0.34 per diluted paired share, to a net loss of $6.8 million, or $0.04 per diluted paired share and $19.1 million or $0.11 per diluted paired share, for the three and six months ended June 30, 2004, compared to a net loss of $13.6 million, or $0.10 per diluted paired share and $63.9 million or $0.45 per diluted paired share, for the three and six months ended June 30, 2003, respectively.

        The decrease in net loss for the three and six months ended June 30, 2004 was primarily due to:

•

increases in lodging revenues of approximately $10.6 million and $23.6 million, respectively;

•

decreases in interest, net of approximately $1.7 million and $0.5 million, respectively;

•

decreases in depreciation and amortization of approximately $2.2 million and $4.3 million, respectively;

•

decrease in impairments of approximately $53.9 million for the six months; and

•

decreases in other (income) expense of approximately $4.6 million and $7.9 million, respectively.

        These improvements were partially offset by:

•

increases in direct lodging operations expense of approximately $5.0 million and $11.2 million, respectively;

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•

increase in other lodging expense of $0.3 million for the six months;

•

increases in general and administrative expenses of approximately $1.1 million and $2.9 million, respectively;

•

increase in impairments of approximately $3.1 million for the three months; and

•

decreases in income tax benefit of approximately $2.7 million and $30.6 million, respectively.

        The following table summarizes statistical lodging data for the three and six months ended June 30, 2004 and 2003: