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

~~FORM~~ Washington, D.C. ~~10-Q~~ 20549

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2004
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

FORM 10-Q

Commission file number 0-9110 Commission file number 0-9109


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the Quarterly Period Ended September 30, 2005

Or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to

LA QUINTA CORPORATION	LA QUINTA PROPERTIES, INC.
(Exact Name of Registrant as Specified in Its Charter)	(Exact Name of Registrant as Specified in Its Charter)
Delaware	Delaware
(State or Other Jurisdiction of Incorporation or Organization)	(State or Other Jurisdiction of Incorporation or Organization)
95-3419438	95-3520818
(I.R.S. Employer Identification No.)	(I.R.S. Employer Identification No.)
909 Hidden Ridge, Suite 600	909 Hidden Ridge, Suite 600
Irving, TX 75038	Irving, TX 75038
(Address of Principal Executive Offices, Including Zip Code)	(Address of Principal Executive Offices, Including Zip Code)
(214) 492-6600	(214) 492-6600
(Registrant's Telephone Number, Including Area Code)	(Registrant's Telephone Number, Including Area Code)


Commission file number 0-9110		Commission file number 0-9109

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



LA QUINTA CORPORATION		LA QUINTA PROPERTIES, INC.
(Exact Name of Registrant as Specified in Its Charter)		(Exact Name of Registrant as Specified in Its Charter)

Delaware		Delaware
(State or Other Jurisdiction of Incorporation or Organization)		(State or Other Jurisdiction of Incorporation or Organization))

95-3419438		95-3520818
(I.R.S. Employer Identification No.)		(I.R.S. Employer Identification No.)

909 Hidden Ridge, Suite 600 Irving, TX 75038		909 Hidden Ridge, Suite 600 Irving, TX 75038
(Address of Principal Executive Offices, Including Zip Code)		(Address of Principal Executive Offices, Including Zip Code)

(214) 492-6600		(214) 492-6600
(Registrant’s Telephone Number, Including Area Code)		(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrants ~~are~~(1) have filed ~~accelerated~~all ~~filers~~reports required to be filed by Section 13 or 15(asd) ~~defined~~of inthe Securities Exchange Act of 1934 during the ~~Rule~~preceding 12 ~~12b-~~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 þ No o

As Indicate ofby ~~July 30,~~check ~~2004,~~mark Lawhether ~~Quinta~~the ~~Corporation~~registrants ~~had~~are ~~187.9 million~~accelerated filers ~~shares~~(as ofdefined ~~common~~in ~~stock~~Exchange ~~outstanding and La Quinta Properties, Inc. had 100,000~~Act ~~shares of class~~Rule ~~A common stock and 178~~12b-2).5 Yes ~~million shares of class~~þ No ~~B common stock outstanding.~~ o

Indicate by check mark whether the registrants are shell ~~TABLE~~companies OF(as ~~CONTENTS~~ defined in Rule 12b-2 of the Exchange Act). Yes o No þ

About this Joint Quarterly Report
Forward-Looking Statements
PART I—Financial Information
	Item 1—Financial Statements
		La Quinta Corporation
			Consolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003
			Consolidated Statements of Operations for the three and six months ended June 30, 2004 (unaudited) and 2003 (unaudited)
			Consolidated Statements of Cash Flows for the six months ended June 30, 2004 (unaudited) and 2003 (unaudited)
		La Quinta Properties, Inc.
			Consolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003
			Consolidated Statements of Operations for the three and six months ended June 30, 2004 (unaudited) and 2003 (unaudited)
			Consolidated Statements of Cash Flows for the six months ended June 30, 2004 (unaudited) and 2003 (unaudited)
			Condensed Notes to Consolidated Financial Statements (unaudited)
		Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations
		Item 3—Quantitative and Qualitative Disclosures About Market Risk
		Item 4—Controls and Procedures
PART II—Other Information
		Item 1—Legal Proceedings
		Item 2—Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
		Item 4—Submission of Matters to Vote of Security Holders
		Item 6—Exhibits and Reports on Form 8-K
		Signatures

As of October 24, 2005, La Quinta Corporation had 202.5 million shares of common stock outstanding (excluding 9.4 million shares held by La Quinta Properties, Inc.) and La Quinta Properties, Inc. had 100,000 shares of class A common stock and 202.5 million shares of class B common stock outstanding.

i TABLE OF CONTENTS

About this Joint Quarterly Report


				Page

About this Joint Quarterly Report					ii
Forward-Looking Statements					ii
*PART I — Financial Information*
	Item 1 — Financial Statements
		La Quinta Corporation
			Consolidated Balance Sheets as of September 30, 2005 (unaudited) and December 31, 2004		1
			Consolidated Statements of Operations for the three and nine months ended September 30, 2005 (unaudited) and 2004 (unaudited)		2
			Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 (unaudited) and 2004 (unaudited)		3
		La Quinta Properties, Inc.
			Consolidated Balance Sheets as of September 30, 2005 (unaudited) and December 31, 2004		4
			Consolidated Statements of Operations for the three and nine months ended September 30, 2005 (unaudited) and 2004 (unaudited)		5
			Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 (unaudited) and 2004 (unaudited)		6
			Condensed Notes to Consolidated Financial Statements (unaudited)		7
	Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations				22
	Item 3 — Quantitative and Qualitative Disclosures About Market Risk				45
	Item 4 — Controls and Procedures				45
*PART II — Other Information*
	Item 1 — Legal Proceedings				46
	Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds				46
	Item 6 — Exhibits				46
	Signatures				47
Certification of the Chairman & CEO Pursuant to Section 302
Certification of the Executive Vice President and CFO Pursuant to Section 302
Certification of the Chairman & CEO and Executive Vice President & CFO Pursuant to Section 906

~~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~~i ~~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 thisTable 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. Contents

About ~~Forward-Looking~~this ~~Statements~~ Joint Quarterly Report

~~Certain~~ This ~~statements~~joint inquarterly report on Form 10-Q, which we sometimes refer to as this Joint Quarterly Report, ~~that~~is ~~are~~filed ~~not~~by both ~~historical~~La Quinta ~~facts~~Corporation, ~~constitute~~a ~~"forward-looking~~Delaware ~~statements"~~corporation (“LQ ~~within~~Corporation”), ~~the~~and ~~meaning~~its ofcontrolled ~~Section 27A~~subsidiary, ofLa Quinta ~~the~~Properties, ~~Securities~~Inc., ~~Act~~a ofDelaware ~~1933,~~corporation (“LQ ~~as amended~~Properties”), ~~Section 21E~~that ofhas ~~the~~elected ~~Securities~~to ~~Exchange~~be ~~Act~~treated ofas ~~1934,~~a real asestate ~~amended~~investment trust (~~the~~“REIT”) ~~"Exchange~~for ~~Act"),~~federal income tax purposes. Both LQ Corporation and ~~the~~LQ ~~Private~~Properties ~~Securities~~have securities ~~Litigation~~that ~~Reform~~are ~~Act~~publicly oftraded ~~1995.~~and ~~Words~~listed on the New York ~~such~~Stock asExchange. ~~"believes~~Accordingly," ~~"anticipates,"~~this ~~"expects,"~~Joint ~~"intends~~Quarterly Report includes information," ~~"estimates~~including financial statements," ~~"projects"~~about ~~and~~LQ Corporation ~~other~~on ~~similar~~a ~~expressions,~~consolidated ~~which~~basis ~~are~~with ~~predictions~~its ofcontrolled subsidiary, orLQ ~~indicate~~Properties, ~~future~~as ~~events~~well ~~and~~as ~~trends,~~financial ~~typically~~statements ~~identify~~for ~~forward-looking~~LQ ~~statements.~~Properties on a consolidated basis.

We ~~have~~In ~~used~~this ~~forward-looking~~Joint ~~statements~~Quarterly inReport, aunless ~~number~~the ofcontext ~~parts~~otherwise requires, ofthe ~~this~~term ~~Joint~~LQ ~~Quarterly~~Corporation ~~Report,~~includes ~~including,~~those ~~without~~entities ~~limitation,~~owned or ~~"Item~~controlled ~~2—Management's~~by ~~Discussion~~LQ ~~and~~Corporation ~~Analysis~~(including ofits controlled ~~Financial~~subsidiaries, ~~Condition~~LQ Properties and ~~Results~~La Quinta ofInns, ~~Operations~~Inc."); ~~These~~the term ~~forward-looking~~LQ ~~statements~~Properties ~~may~~includes ~~include~~those ~~statements~~entities ~~regarding~~owned ~~the~~or ~~intent,~~controlled by ~~belief~~LQ orProperties; ~~current~~and ~~expectations~~the ofterms “we,” “us,” “our,” “the companies,” “La Quinta” or ~~their~~“The ~~respective~~La Quinta ~~directors~~Companies” orrefer ~~officers~~to ~~with~~LQ ~~respect~~Corporation, toLQ ~~the~~Properties ~~matters~~and ~~discussed~~their respective insubsidiaries, ~~this~~collectively. ~~Joint~~The ~~Quarterly~~terms ~~Report.~~“paired shares” ~~Our~~and ~~forward-looking~~“paired ~~statements~~common ~~are~~shares” ~~subject~~mean tothe shares aof ~~number~~common stock of ~~risks~~LQ Corporation, par value ~~and~~$0.01 per ~~uncertainties~~share, that ~~could~~are ~~cause~~attached ~~actual~~and ~~results~~trade oras ~~the~~a ~~timing~~single unit ofwith ~~events~~the toshares ~~differ~~of ~~materially~~Class B ~~from~~common ~~those~~stock, ~~described~~par invalue $0.01 per ~~the~~share, ~~forward-looking~~of ~~statements.~~LQ Properties.

~~Please~~ ~~see~~In ~~the~~September ~~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~~acquired ~~enter into (including our acquisition of~~ substantially all the assets of the ~~The Marcus Corporation's~~ limited service lodging division ~~discussed~~of inThe ~~this~~Marcus ~~Joint~~Corporation (the ~~Quarterly Report~~“Acquisition”), ~~and~~including ~~effectively~~90 ~~integrating the business of any~~Baymont ~~company~~Inn & ~~that~~Suites ~~we may acquire~~ (including, ifone ~~successfully~~management ~~completed~~contract), ~~the~~seven Woodfield ~~integration~~Suites ofand ~~The~~one ~~Marcus~~Budgetel ~~Corporation's~~Inn. ~~limited~~In ~~service lodging division)~~addition, aswe ~~well~~acquired all asthe ~~risks~~trade ~~and~~rights ~~uncertainties~~associated ~~related~~with ~~to our industry,~~ the ~~economy~~Baymont, ~~the~~Woodfield Suites ~~aftermath~~and ofBudgetel ~~United~~brands, ~~States~~and ~~military~~the ~~action~~Baymont infranchise ~~Iraq,~~system ~~the possibility~~ of 87 ~~further~~hotels. ~~terrorist~~In ~~attacks~~December on2004, ~~the~~we ~~United~~acquired ~~States~~three ~~and global affairs~~additional hotels. WeUnless ~~have~~otherwise ~~discussed~~noted, ~~these~~all ~~risks~~financial and operational ~~uncertainties~~information in ~~detail~~this ~~in our~~ Joint ~~Annual~~Quarterly Report ~~and~~includes wethe ~~encourage~~acquired properties ~~you~~and ~~to read those risk factors in~~ their ~~entirety~~results inof ~~order~~operations tofrom ~~understand~~ the ~~risks~~dates ~~and uncertainties that can affect our~~of ~~forward-looking statements as well as our business generally~~acquisition.

~~Given~~ ~~the risks and uncertainties, you are cautioned not to place undue reliance on the forward~~Forward-~~looking~~Looking ~~statements that may be made in this Joint Quarterly Report. We undertake no~~Statements ~~obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or other changes.~~

ii 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 ~~PART~~this IJoint Quarterly Report, including, without limitation, “Item 2 —~~FINANCIAL~~ ~~INFORMATION~~ 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 ~~Item~~Form 10-K 1(“Joint Annual Report”) filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2005, as updated by our Joint Current Report on Form 8-K filed with the SEC on May 27, 2005 (“May 2005 8-K”), and other risks described from time to time in our annual, quarterly and current reports filed with the SEC. ~~Financial~~The ~~Statements~~ risks and uncertainties described in these reports include those related to

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

				June 30, 2004			December 31, 2003
				(unaudited)
ASSETS:
Current Assets:
	Cash and cash equivalents			$	314,533		$	327,083
	Fees, interest and other receivables, net				26,356			20,758
	Deferred income taxes, net				19,821			19,821
	Investments in securities				122,175			122,175
	Other current assets				9,784			7,370
		Total current assets			492,669			497,207
Intangible assets, net					71,489			73,421
Restricted cash					2,900			3,000
Property and equipment, net					2,099,463			2,143,749
Mortgages and other notes receivable, net					58,479			57,965
Other non-current assets					29,676			30,451
		Total assets		$	2,754,676		$	2,805,793
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
	Short-term borrowings and current maturities of long-term debt			$	150,000		$	169,547
	Accounts payable				17,668			20,203
	Accrued payroll and employee benefits				26,100			29,828
	Accrued expenses and other current liabilities				64,617			66,222
		Total current liabilities			258,385			285,800
Long-term debt					725,612			725,607
Deferred income taxes, net					144,057			153,476
Other non-current liabilities					19,384			18,345
		Total liabilities			1,147,438			1,183,228
Commitments and contingencies
Minority interest (including preferred stock liquidation preference of $200,000 in 2004 and 2003)					206,070			206,031
Shareholders' Equity:
	LQ Corporation Common Stock, $0.01 par value; 500,000 shares authorized; 180,487 and 179,902 shares issued and 178,478 and 177,921 shares outstanding at June 30, 2004 and December 31, 2003, respectively				1,805			1,799
	LQ Properties Class B Common Stock, $0.01 par value; 500,000 shares authorized; 180,487 and 179,902 shares issued and 178,478 and 177,921 shares outstanding at June 30, 2004 and December 31, 2003, respectively				1,805			1,799
	Treasury Stock, at par; 2,009 and 1,981 paired shares at June 30, 2004 and December 31, 2003, respectively				(40	)		(40	)
	Additional paid-in-capital				3,671,544			3,669,062
	Unearned compensation				(3,964	)		(5,155	)
	Accumulated other comprehensive income				290			226
	Accumulated deficit				(2,270,272	)		(2,251,157	)
		Total shareholders' equity			1,401,168			1,416,534
			Total liabilities and shareholders' equity	$	2,754,676		$	2,805,793

~~The~~ our ~~accompanying~~lodging ~~condensed~~business, ~~notes~~our investments in real estate, ~~together~~LQ Properties’ ~~with~~status ~~the~~as ~~Notes~~a toREIT, ~~the~~our ~~Consolidated~~capital ~~Financial~~expenditures ~~Statements~~and ~~contained~~requirements, ~~within~~our ~~The~~corporate Lastructure, ~~Quinta~~our ~~Companies'~~debt ~~Form 10~~and liquidity needs, our acquisition-Krelated ~~for~~risks, including our ability to identify candidates that meet our financial and strategic criteria, our ability to successfully complete any acquisitions that we may enter into, and to effectively integrate the business ~~year~~of ~~ended~~any company that we may acquire, as well as risks ~~December 31~~and uncertainties related to our industry, ~~2003~~the economy, ~~are~~weather conditions, anthe ~~integral~~aftermath ~~part~~of United States military action in Iraq, the possibility of further terrorist attacks and global affairs. We have discussed these ~~financial~~risks and uncertainties in detail in our Joint Annual Report and May 2005 8-K 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.

1 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.

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

		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
REVENUE:
	Lodging	$	143,474		$	132,878		$	274,585		$	251,026
	Other		1,191			1,364			2,377			2,595
			144,665			134,242			276,962			253,621
EXPENSES:
	Direct lodging operations		64,019			59,014			124,954			113,789
	Other lodging expenses		18,976			19,076			37,227			36,849
	General and administrative		15,703			14,569			31,876			29,012
	Interest, net		14,756			16,508			30,294			30,751
	Depreciation and amortization		30,215			32,381			59,492			63,772
	Impairment of property and equipment		7,719			4,578			12,733			66,590
	Other (income) expense		(633	)		3,969			(768	)		7,133
			150,755			150,095			295,808			347,896
Loss before minority interest, income taxes and discontinued operations			(6,090	)		(15,853	)		(18,846	)		(94,275	)
	Minority interest		(4,661	)		(4,602	)		(9,229	)		(9,112	)
	Income tax benefit		3,931			6,612			8,960			39,589
Loss before discontinued operations			(6,820	)		(13,843	)		(19,115	)		(63,798	)
	Discontinued operations, net		—			216			—			(117	)
Net loss		$	(6,820	)	$	(13,627	)	$	(19,115	)	$	(63,915	)
EARNINGS PER SHARE—BASIC AND ASSUMING DILUTION
Loss before discontinued operations		$	(0.04	)	$	(0.10	)	$	(0.11	)	$	(0.45	)
Discontinued operations, net			—			—			—			—
Net loss		$	(0.04	)	$	(0.10	)	$	(0.11	)	$	(0.45	)

~~The~~ ~~accompanying condensed notes, together with the Notes to the Consolidated Financial Statements contained within The La Quinta Companies' Form~~PART ~~10-K for the year ended December~~I ~~31,~~— ~~2003,~~FINANCIAL ~~are an integral part of these financial statements.~~ INFORMATION

2 LA QUINTA CORPORATION

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

		Six Months Ended June 30,
		2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(19,115	)	$	(63,915	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization		59,492			63,772
	Impairment of property and equipment		12,733			66,590
	Minority interest		9,229			9,112
	Stock based compensation		1,395			1,186
	Amortization of debt issuance costs		907			1,332
	Loss (gain) on sale of assets		212			(4	)
	Deferred tax benefit		(9,066	)		(39,788	)
	Loss on early extinguishments of debt		—			6,202
	Discontinued operations, net		—			117
	Net change in other assets and liabilities		(18,491	)		(13,554	)
	Net cash provided by operating activities		37,296			31,050
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(28,944	)		(31,743	)
Proceeds from sale of assets			5,165			6,246
Proceeds from notes receivable			674			—
Investment in trust			—			(61,084	)
Other			(32	)		(4,282	)
	Net cash used in investing activities		(23,137	)		(90,863	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings of long-term debt			—			360,000
Repayment of long-term debt			(19,541	)		(154,646	)
Dividends to shareholders			(9,000	)		(9,000	)
Debt issuance costs			—			(8,439	)
Debt repurchase premium			—			(6,095	)
Proceeds from employee stock purchase and other			2,046			510
Purchase of treasury shares			—			(1,338	)
Other			(214	)		(352	)
	Net cash (used in) provided by financing activities		(26,709	)		180,640
	Net (decrease) increase in cash and cash equivalents		(12,550	)		120,827
Cash and cash equivalents at:
Beginning of period			327,083			9,099
End of period		$	314,533		$	129,926


Item 1.	*Financial Statements*

Supplemental disclosure of cash flow information (note 2)


				September 30,			December 31,
				2005			2004

				(In millions, except
				share data)
				(Unaudited)
ASSETS
Current Assets:
	Cash and cash equivalents			$	212.6		$	103.3
	Fees, interest and other receivables, net of allowances of $4.2 and $3.3, respectively				41.1			26.9
	Assets held for sale				15.0			5.5
	Assets of discontinued components held for sale				19.2			26.1
	Deferred income taxes, net				20.5			20.5
	Other current assets				9.3			8.9

		Total current assets			317.7			191.2
Intangible assets, net					114.8			117.3
Restricted cash					10.1			4.2
Property and equipment, net					2,368.1			2,434.0
Mortgages and other notes receivable, net of allowances of $1.0 and $1.1, respectively					26.4			26.4
Other non-current assets					38.5			37.8

			Total assets	$	2,875.6		$	2,810.9


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
	Current maturities of long-term debt			$	20.0		$	116.0
	Accounts payable				28.8			35.3
	Accrued payroll and employee benefits				35.8			35.8
	Accrued expenses and other current liabilities				70.1			79.3
	Liabilities of discontinued components held for sale				2.2			2.6

		Total current liabilities			156.9			269.0
Long-term debt					789.6			809.6
Deferred income taxes, net					135.0			126.3
Other non-current liabilities					13.5			12.4

		Total liabilities			1,095.0			1,217.3

Commitments and contingencies
Minority interest (including preferred stock liquidation preference of $200)					203.7			203.9

Shareholders’ Equity:
	LQ Corporation Common Stock, $0.01 par value; 500,000,000 shares authorized; 204,025,382 and 183,128,029 shares issued and 201,932,610 and 181,077,026 shares outstanding at September 30, 2005 and December 31, 2004, respectively				2.0			1.8
	LQ Properties Class B Common Stock, $0.01 par value; 500,000,000 shares authorized; 204,025,382 and 183,128,029 shares issued and 201,932,610 and 181,077,026 shares outstanding at September 30, 2005 and December 31, 2004, respectively				2.0			1.8
	Treasury Stock, at par; 2,092,772 and 2,051,003 paired common shares at September 30, 2005 and December 31, 2004, respectively				—			—
	Additional paid-in-capital				3,863.1			3,688.0
	Unearned compensation				(9.2	)		(6.7	)
	Accumulated other comprehensive income				0.6			0.5
	Accumulated deficit				(2,281.6	)		(2,295.7	)

		Total shareholders’ equity			1,576.9			1,389.7

			Total liabilities and shareholders’ equity	$	2,875.6		$	2,810.9

~~The~~ 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.~~

3 contained within The La Quinta Companies’ Form 10-K for the year ended

December 31, ~~LA QUINTA PROPERTIES~~2004, ~~INC. CONSOLIDATED~~ ~~BALANCE~~are ~~SHEETS (In~~an ~~thousands,~~integral ~~except~~part ~~par~~of ~~value)~~ these financial statements.

				June 30, 2004			December 31, 2003
				(unaudited)
ASSETS:
Current Assets:
	Cash and cash equivalents			$	220,746		$	228,055
	Fees, interest and other receivables, net				5,583			5,539
	Rent receivable				85,928			85,928
	Investments in securities				122,175			122,175
	Other current assets, net				2,393			1,749
		Total current assets			436,825			443,446
Note receivable from La Quinta Corporation					30,947			22,128
Restricted cash					400			500
Deferred income taxes, net					9,376			9,563
Intangible assets, net					58,433			60,012
Property and equipment, net					2,033,638			2,079,834
Mortgages and other notes receivable, net					62,843			62,329
Other non-current assets					12,140			13,581
		Total assets		$	2,644,602		$	2,691,393
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
	Short-term borrowings and current maturities of long-term debt			$	150,000		$	169,547
	Accounts payable				7,704			13,473
	Accrued expenses and other current liabilities				36,178			39,025
		Total current liabilities			193,882			222,045
Long-term debt					725,612			725,607
Other non-current liabilities					9,510			9,573
		Total liabilities			929,004			957,225
Commitments and contingencies
Minority interest					25,343			26,309
Shareholders' Equity:
	LQ Properties Preferred Stock, $0.10 par value; 6,000 shares authorized; 800 and 701 shares issued and outstanding at June 30, 2004 and December 31, 2003, respectively				80			70
	LQ Properties Class A Common Stock, $0.01 par value; 1,000 shares authorized; 100 shares issued and outstanding				1			1
	LQ Properties Class B Common Stock, $0.01 par value; 500,000 shares authorized; 180,487 and 179,902 shares issued and 178,478 and 177,921 shares outstanding at June 30, 2004 and December 31, 2003, respectively				1,805			1,799
	Treasury Stock, at par; 2,009 and 1,981 paired shares at June 30, 2004 and December 31, 2003, respectively				(20	)		(20	)
	Additional paid-in-capital				3,533,096			3,532,820
	Equity investment in La Quinta Corporation				(41,595	)		(41,595	)
	Accumulated deficit				(1,803,112	)		(1,785,216	)
		Total shareholders' equity			1,690,255			1,707,859
			Total liabilities and shareholders' equity	$	2,644,602		$	2,691,393

TheTable 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. Contents

4 LA QUINTA CORPORATION

~~LA QUINTA PROPERTIES, INC.~~ CONSOLIDATED STATEMENTS OF OPERATIONS ~~(In thousands, unaudited)~~

		Three Months Ended June 30,						Six Months Ended June 30,
		Three Months								Nine Months
		2004			2003			2004			2003
		Ended								Ended
REVENUE:
		September 30,								September 30,
	Lodging	$	1,314		$	1,512		$	3,033		$	3,029
		2005				2004				2005				2004
	Rent from La Quinta Corporation		48,570			50,588			93,130			95,656
		(In millions, except per share data)
	Royalty from La Quinta Corporation		2,044			3,214			3,916			6,072
		(Unaudited)
	Other		1,191			1,364			2,377			2,595
REVENUE:
			53,119			56,678			102,456			107,352
	Hotel operations	$	192.5			$	147.5			$	540.2			$	406.3
EXPENSES:
	Franchise fees		9.2				4.9				23.5				11.6
	Direct lodging operations		161			157			319			341
	Other		2.8				2.7				8.1				9.5
	Other lodging expenses		7,213			7,273			14,429			14,950
			204.5				155.1				571.8				427.4
	General and administrative		265			1,087			638			2,326
EXPENSES:
	Interest, net		14,513			16,333			29,847			30,292
	Direct lodging operations		85.0				67.3				243.5				189.4
	Depreciation and amortization		27,150			26,813			53,358			54,893
	Other lodging and operating expenses		25.6				19.9				73.5				56.4
	Impairment of property and equipment		7,719			4,578			12,733			66,590
	Selling, general and administrative		17.0				13.8				59.3				45.6
	Other (income) expense		(663	)		4,225			(1,019	)		6,152
	Interest, net of interest income of $2.5, $2.0 $4.3 and $7.9, respectively		16.0				15.9				52.1				46.2
			56,358			60,466			110,305			175,544
	Depreciation and amortization		35.3				32.8				105.5				91.4
Loss before minority interest, income taxes and discontinued operations			(3,239	)		(3,788	)		(7,849	)		(68,192	)
	Impairment of property and equipment		—				—				—				12.7
	Minority interest		(510	)		(985	)		(946	)		(1,822	)
	Loss on early extinguishment of debt		—				21.4				—				21.4
	Income tax expense		(247	)		(153	)		(101	)		(321	)
	Other (income) expense		(3.0	)			(1.1	)			(0.3	)			(1.8	)
Loss before discontinued operations			(3,996	)		(4,926	)		(8,896	)		(70,335	)
			175.9				170.0				533.6				461.3
	Discontinued operations, net		—			219			—			(64	)
	Income (loss) before minority interest, income taxes and discontinued operations		28.6				(14.9	)			38.2				(33.9	)
Net loss			(3,996	)		(4,707	)		(8,896	)		(70,399	)
	Minority interest		(4.5	)			(4.5	)			(13.7	)			(13.7	)
	Preferred stock dividends		(4,500	)		(4,500	)		(9,000	)		(9,000	)
	Income tax (expense) benefit		(10.6	)			7.3				(11.6	)			16.3
Net loss available to common shareholders		$	(8,496	)	$	(9,207	)	$	(17,896	)	$	(79,399	)
	Income (loss) before discontinued operations		13.5				(12.1	)			12.9				(31.3	)
	Income from discontinued operations, net		0.2				—				1.2				0.1
Net income (loss)		$	13.7			$	(12.1	)		$	14.1			$	(31.2	)
EARNINGS PER SHARE — BASIC AND ASSUMING DILUTION
Income (loss) before discontinued operations		$	0.07			$	(0.07	)		$	0.07			$	(0.18	)
Income from discontinued operations, net			—				—				—				—
Net income (loss)		$	0.07			$	(0.07	)		$	0.07			$	(0.18	)

~~The~~ 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~~2004, are an integral part of these financial statements.

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

			Six Months Ended June 30,
			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss			$	(8,896	)	$	(70,399	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization			53,358			54,893
	Impairment of property and equipment			12,733			66,590
	Minority interest			946			1,822
	Amortization of debt issuance costs			907			1,332
	Loss (gain) on sale of assets			212			(4	)
	Deferred tax expense			187			122
	Loss on early extinguishments of debt			—			6,202
	Stock based compensation			—			68
	Discontinued operations, net			—			64
	Net change in other assets and liabilities			(20,211	)		(35,738	)
		Net cash provided by operating activities		39,236			24,952
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures				(21,253	)		(24,588	)
Proceeds from sale of assets				5,165			6,246
Investment in trust				—			(61,084	)
Other				(2	)		(3,866	)
		Net cash used in investing activities		(16,090	)		(83,292	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings of long-term debt				—			360,000
Repayment of long-term debt				(19,541	)		(154,646	)
Dividends to shareholders				(9,000	)		(9,000	)
Dividends/distributions to La Quinta Corporation				(1,914	)		(32,234	)
Proceeds from intercompany note				—			25,125
Debt issuance costs				—			(8,439	)
Purchase of treasury shares				—			(172	)
Debt repurchase premium				—			(6,095	)
	Net cash (used in) provided by financing activities			(30,455	)		174,539
	Net (decrease) increase in cash and cash equivalents			(7,309	)		116,199
Cash and cash equivalents at:
Beginning of period				228,055			7,564
End of period			$	220,746		$	123,763

LA QUINTA CORPORATION

~~The~~ ~~accompanying~~CONSOLIDATED ~~condensed~~STATEMENTS ~~notes,~~OF ~~together~~CASH ~~with the Notes to the Consolidated Financial Statements~~FLOWS ~~contained within The La Quinta Companies' Form 10-K for the year ended December 31, 2003, are an integral part of these financial statements.~~


		Nine Months Ended
		September 30,

		2005			2004

		(In millions,
		unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	14.1		$	(31.2	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization		105.5			91.4
	Minority interest		13.7			13.7
	Deferred tax expense (benefit)		9.3			(17.0	)
	Stock based compensation		2.7			1.8
	Amortization of debt issuance costs		2.1			1.7
	Loss on early extinguishment of debt		—			21.4
	Impairment of property and equipment		—			12.7
	Discontinued operations, net		(1.2	)		(0.1	)
	(Gain) loss on sale of assets — continuing operations		(3.5	)		0.1
	Net change in other assets and liabilities		(36.2	)		(15.3	)

	Net cash provided by operating activities		106.5			79.2

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(51.2	)		(45.2	)
Baymont acquisition			(0.3	)		(417.7	)
Net proceeds from sale of assets, including sales of assets classified in discontinued operations			17.0			5.8
Proceeds from notes receivable			0.1			35.0
Redemption of securities			—			122.2
Other			(1.8	)		(0.1	)

	Net cash used in investing activities		(36.2	)		(300.0	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from equity offering			164.6			—
Proceeds from borrowing of long-term debt			—			200.0
Repayment of long-term debt			(116.0	)		(169.5	)
Dividends to preferred shareholders (characterized as minority interest)			(13.5	)		(13.5	)
Debt issuance costs			—			(4.1	)
Debt repurchase premium			—			(21.4	)
Proceeds from employee stock purchase and other			3.9			2.3

	Net cash provided by (used in) financing activities		39.0			(6.2	)

	Net increase (decrease) in cash and cash equivalents		109.3			(227.0	)
Cash and cash equivalents at:
Beginning of period			103.3			327.1

End of period		$	212.6		$	100.1

The accompanying condensed notes, together with the Notes to the Consolidated Financial Statements contained within The LALa Quinta ~~QUINTA~~Companies’ ~~CORPORATION LA~~Form 10-K ~~QUINTA~~for ~~PROPERTIES.~~the ~~INC. CONDENSED~~year ~~NOTES~~ended December 31, TO2004, ~~CONSOLIDATED~~are ~~FINANCIAL~~an ~~STATEMENTS (Unaudited)~~ integral part of these financial statements.

~~1. Nature of Business and Summary of Significant Accounting Policies~~ 3

NatureTable of Business Contents

~~La Quinta Corporation ("LQ Corporation") and its controlled subsidiary, La Quinta Properties, Inc. ("LQ Properties"), primarily focus on the lodging~~ ~~business.~~LA LaQUINTA 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 subsidiaryPROPERTIES, ~~La Quinta Inns, Inc~~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~~CONSOLIDATED ~~stock~~BALANCE ~~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~~SHEETS 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


				September 30,			December 31,
				2005			2004

				(In millions, except
				share data)
				(Unaudited)
ASSETS
Current Assets:
	Cash and cash equivalents			$	27.3		$	33.4
	Fees, interest and other receivables, net of allowances of $0.1				5.2			5.0
	Assets held for sale				15.0			5.5
	Assets of discontinued components held for sale				16.2			22.7
	Other current assets				1.1			1.0

		Total current assets			64.8			67.6
Note receivable from La Quinta Corporation					—			3.2
Restricted cash					3.6			0.4
Deferred income taxes, net					8.6			8.6
Intangible assets, net					57.9			58.2
Property and equipment, net					2,213.7			2,275.7
Mortgages and other notes receivable, net of allowances of $1.0 and $1.1, respectively					29.0			29.0
Other non-current assets					13.5			15.4

		Total assets		$	2,391.1		$	2,458.1


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
	Current maturities of long-term debt			$	20.0		$	116.0
	Accounts payable				16.4			25.0
	Accrued expenses and other current liabilities				34.6			48.0
	Liabilities of discontinued components held for sale				0.2			0.4

		Total current liabilities			71.2			189.4
Long-term debt					789.6			809.6
Payable to La Quinta Corporation					47.8			—
Other non-current liabilities					0.6			0.7

		Total liabilities			909.2			999.7

Commitments and contingencies
Minority interest					25.2			25.0

Shareholders’ Equity:
	LQ Properties Preferred Stock, $0.10 par value; 6,000,000 shares authorized; 800,000 shares issued and outstanding				0.1			0.1
	LQ Properties Class A Common Stock, $0.01 par value; 1,000,000 shares authorized; 100,000 shares issued and outstanding				—			—
	LQ Properties Class B Common Stock, $0.01 par value; 500,000,000 shares authorized; 204,025,382 and 183,128,029 shares issued and 201,932,610 and 181,077,026 shares outstanding at September 30, 2005 and December 31, 2004, respectively				2.0			1.8
	Treasury Stock, at par; 2,092,772 and 2,051,003 paired common shares at September 30, 2005 and December 31, 2004, respectively				—			—
	Additional paid-in-capital				3,323.7			3,309.7
	Equity investment in La Quinta Corporation				(41.5	)		(41.6	)
	Accumulated deficit				(1,827.6	)		(1,836.6	)

		Total shareholders’ equity			1,456.7			1,433.4

			Total liabilities and shareholders’ equity	$	2,391.1		$	2,458.1

~~Basis~~ The ofaccompanying ~~Presentation~~condensed ~~and~~notes, ~~Consolidation~~ together with the Notes to the Consolidated Financial Statements

~~Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in~~ ~~the~~contained ~~United~~within ~~States~~The ~~of America, have been condensed or omitted in this Joint Quarterly Report on Form~~La ~~10-Q~~Quinta ~~(referred to as this Joint Quarterly Report), in accordance with the Rules~~Companies’ 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~~the ~~information~~year ~~relevant~~ended toDecember 31, ~~significant accounting policies that we follow.~~ 2004,

We ~~believe~~are ~~the~~an ~~accompanying~~integral ~~unaudited~~part ~~consolidated financial statements reflect all adjustments (consisting~~ of ~~normal~~these ~~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~~4 ~~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

7Table of Contents

~~and~~ ~~(3) are~~LA ~~exposed~~QUINTA toPROPERTIES, ~~risks of operations that are sufficient to require consolidation~~INC. ~~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~~CONSOLIDATED ofSTATEMENTS ~~financial~~OF ~~statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported~~OPERATIONS 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


		Three Months						Nine Months
		Ended						Ended
		September 30,						September 30,

		2005			2004			2005			2004

		(In millions, unaudited)
REVENUE:
	Rent from La Quinta Corporation	$	63.3		$	51.0		$	178.6		$	142.9
	Royalty from La Quinta Corporation		2.3			2.1			6.5			5.9
	Other		2.0			1.9			5.5			7.2

			67.6			55.0			190.6			156.0

EXPENSES:
	Direct lodging expenses		0.2			0.1			0.5			0.3
	Other lodging expenses		8.8			7.6			26.1			21.8
	General and administrative		0.3			0.3			1.1			0.9
	Interest, net of interest income of $0.9, $2.1, $1.6 and $8.5, respectively		17.6			15.8			54.6			45.6
	Depreciation and amortization		29.6			29.3			88.4			82.1
	Impairment of property and equipment		—			—			—			12.7
	Loss on early extinguishment of debt		—			21.4			—			21.4
	Other (income) expense		(3.6	)		(2.8	)		(3.5	)		(3.8	)

			52.9			71.7			167.2			181.0

Income (loss) before minority interest, income taxes and discontinued operations			14.7			(16.7	)		23.4			(25.0	)
	Minority interest		(0.9	)		(0.6	)		(2.7	)		(1.6	)
	Income tax expense		(0.4	)		(0.8	)		(0.7	)		(0.9	)

Income (loss) before discontinued operations			13.4			(18.1	)		20.0			(27.5	)
	Income from discontinued operations, net		0.2			0.1			2.5			0.6

Net income (loss)			13.6			(18.0	)		22.5			(26.9	)
	Preferred stock dividends		(4.5	)		(4.5	)		(13.5	)		(13.5	)

Net income (loss) available (attributable) to common shareholders		$	9.1		$	(22.5	)	$	9.0		$	(40.4	)

The ~~hotel~~accompanying ~~industry~~condensed ~~is seasonal in nature. Generally~~notes, ~~hotel~~together ~~revenues~~with ~~are greater in~~ the ~~second~~Notes ~~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~~ orConsolidated ~~sales~~Financial ~~may cause a variation of revenue from quarter to quarter.~~ Statements

~~Investments~~ contained inwithin ~~Securities~~ The La Quinta Companies’ Form 10-K for the year ended

~~At June 30, 2004 and~~ December 31, ~~2003~~2004, 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~~an asintegral ~~held-to-maturity~~part ~~under the provisions~~ of ~~Statement~~these ~~of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and~~financial ~~Equity Securities~~statements.~~" 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).~~

As5 ~~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.~~

ValuationTable of Long-Lived Assets and Finite Lived Intangible Assets Contents

~~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~~LA ~~that~~QUINTA ~~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~~PROPERTIES, 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 earningsINC. ~~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.

8 CONSOLIDATED STATEMENTS OF CASH FLOWS

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.


			Nine Months Ended
			September 30,

			2005			2004

			(In millions,
			unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)			$	22.5		$	(26.9	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization			88.4			82.1
	Minority interest			2.7			1.6
	Amortization of debt issuance costs			2.1			1.7
	Stock based compensation			0.2			—
	Loss on early extinguishment of debt			—			21.4
	Impairment of property and equipment			—			12.7
	Deferred tax expense			—			0.9
	Discontinued operations, net			(2.5	)		(0.6	)
	(Gain) loss on sale of asset — continuing operations			(3.5	)		0.1
	Net change in other assets and liabilities			10.1			(27.3	)

		Net cash provided by operating activities		120.0			65.7

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures				(39.1	)		(33.4	)
Baymont acquisition				(0.2	)		(290.0	)
Net proceeds from sale of assets, including sales of assets classified in discontinued operations				17.0			5.8
Proceeds from notes receivable				0.1			34.3
Redemption of securities				—			122.2
Other				—			(0.1	)

		Net cash used in investing activities		(22.2	)		(161.2	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from equity offerings				11.1			—
Proceeds from borrowings of long-term debt				—			200.0
Repayment of long-term debt				(116.0	)		(169.5	)
Dividends to preferred shareholders				(13.5	)		(13.5	)
Dividends/distributions to La Quinta Corporation				(2.5	)		(192.7	)
Proceeds from intercompany borrowings				17.0			43.9
Proceeds from rent and royalty receivable				—			85.9
Debt issuance costs				—			(4.2	)
Debt repurchase premium				—			(21.4	)

	Net cash used in financing activities			(103.9	)		(71.5	)

	Net decrease in cash and cash equivalents			(6.1	)		(167.0	)
Cash and cash equivalents at:
Beginning of period				33.4			228.1

End of period			$	27.3		$	61.1

~~Stock-Based~~ The ~~Compensation~~ accompanying condensed notes, together with the Notes to the Consolidated Financial Statements

~~La Quinta has various stock-based employee compensation plans and accounts for those plans using the intrinsic value method as prescribed under Accounting~~ ~~Principles~~contained ~~Board~~within ~~Opinion~~The ~~No. 25,~~La ~~"Accounting~~Quinta ~~for~~Companies’ ~~Stock Issued to Employees." No stock~~Form 10-~~based employee compensation cost is charged to earnings~~ K for ~~options, as all options granted under those plans had an exercise price equal to or greater than~~ the ~~market~~year ~~value of the underlying common stock on the date of grant. The companies grant restricted stock awards to certain employees. The~~ended ~~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~~31, ~~the Financial Accounting Standards Board ("FASB") issued SFAS No. 148~~2004, ~~"Accounting~~are ~~for Stock-Based Compensation-Transition and Disclosure,~~ an ~~amendment~~integral ~~to FASB~~part ~~Statement 123" ("SFAS 148"). SFAS 148 provides alternative methods~~ of ~~transition~~these 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~~6 ~~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:~~

		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
		(In millions, except per share data)
Net loss, as reported		$	(6.8	)	$	(13.6	)	$	(19.1	)	$	(63.9	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(1.1	)		(1.4	)		(2.1	)		(2.5	)
Pro forma net loss		$	(7.9	)	$	(15.0	)	$	(21.2	)	$	(66.4	)
Loss per share:
	Basic and assuming dilution—as reported	$	(0.04	)	$	(0.10	)	$	(0.11	)	$	(0.45	)
	Basic and assuming dilution—pro forma	$	(0.04	)	$	(0.10	)	$	(0.12	)	$	(0.46	)

~~Recent~~ LA QUINTA ~~Accounting Standards~~ CORPORATION

~~In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity"~~ ~~("SFAS~~LA ~~150").~~QUINTA ~~This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity~~PROPERTIES, ~~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~~INC. ~~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,

9 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~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,~~(Unaudited) 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~~1. ~~46,~~ ~~"Consolidation~~Nature of ~~Variable~~Business 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~~Summary ~~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~~Significant ~~assumptions~~Accounting ~~could result in different conclusions. FIN 46 also requires new disclosures about VIEs.~~ Policies

We ~~have~~Nature ~~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~~Business 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~~La 1,Quinta ~~2003,~~Corporation ~~we adopted FIN 46 for VIEs created after January~~(“LQ ~~31,~~Corporation”) ~~2003~~ and its ~~for~~controlled ~~VIEs~~subsidiary, ~~in which we obtained an interest after January~~La ~~31,~~Quinta ~~2003 and~~Properties, ~~in both~~Inc. ~~cases~~(“LQ Properties”), itprimarily ~~did~~focus ~~not have a material impact~~ on ~~our~~the ~~consolidated financial statements~~lodging business. ~~In December~~La ~~2003,~~Quinta’s ~~the~~lodging ~~FASB~~real ~~issued~~estate ~~FIN~~assets ~~46R,~~are primarily ~~under~~owned ~~which~~by ~~the consolidation requirement for entities formed prior to February~~LQ 1,Properties ~~2003~~or ~~that~~one ~~are~~or ~~not~~more ~~considered special purpose entities was deferred until the end~~ of ~~the~~its direct ~~first~~and ~~interim~~indirect ~~period ending after March 15, 2004~~subsidiaries. WeLQ ~~evaluated~~Corporation ~~whether~~operates ~~the provisions~~all of its ~~FIN~~owned ~~46R~~lodging ~~are~~properties ~~applicable~~through toits ~~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~~subsidiary, ~~arrangements~~La Quinta ~~that~~Inns, ~~either meet the definition of a variable interest entity or where we are the primary beneficiary that would require consolidation~~Inc.

2 The common stock of LQ Corporation and the class B common stock of LQ Properties are attached and trade together as a single unit. ~~Supplemental~~ ~~Cash~~The ~~Flow~~term ~~Information~~ 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.

~~Details~~ La Quinta ofowns ~~interest~~rights in numerous marks that it has used for hotel and ~~income~~motel ~~taxes~~services ~~paid~~through the La Quinta, Baymont, Woodfield Suites and Budgetel properties. La Quinta owns U.S. trademark registrations for LQmany ~~Corporation~~of these ~~follow~~marks including, but not limited to, registrations for the following marks: La Quinta®, Baymont®, Woodfield Suites®, Budgetel® and Returns®, as well as U.S. registrations for marks that feature the “Great Sign” logos for the La Quinta, Baymont, Woodfield Suites, and Budgetel properties. We franchise our La Quinta and Baymont brands to independent owner/operators. As of September 30, 2005, our system of owned, managed and franchised hotels contained 604 hotels (excluding owned hotels reported in discontinued operations and including 13 hotels located on land all or part of which we lease from third parties), representing approximately 65,500 rooms located across the U.S. and approximately 50 rooms in Canada. As of September 30, 2005, we owned and operated 359 hotels (excluding owned hotels reported in discontinued operations), representing approximately 44,800 rooms, and our franchisees operated 245 hotels, representing approximately 20,700 rooms under our brands. Our lodging properties are particularly sensitive to adverse economic and competitive conditions and trends and such conditions could adversely affect our business, financial condition and results of operations.

	Six Months Ended June 30,
	2004		2003
	(In millions)
Interest paid during the period	$	31.3	$	26.3
Interest capitalized during the period		0.5		—
Income taxes paid during the period		0.7		0.4

Summary of Significant Accounting Policies

10Basis of Presentation and Consolidation

3 Certain information and footnote disclosures, normally included in financial statements prepared in accordance with U. ~~Discontinued~~S. generally ~~Operations~~ accepted accounting principles (“GAAP”), have been condensed or omitted in this Joint Quarterly Report on Form 10-Q (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, together with the disclosures contained in our Joint Annual Report on Form 10-K filed with the SEC on March 15, 2005 (“Joint Annual 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.

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 followingTable is a summary of consolidated statements of operations information for discontinued operations: Contents

	Three Months Ended June 30, 2003			Six Months Ended June 30, 2003
	(In millions)
Revenues	$	4.4		$	6.9
Income (loss) before income taxes		0.3			(0.2	)
Income tax (expense) benefit		(0.1	)		0.1
Income (loss) from discontinued operations	$	0.2		$	(0.1	)

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 nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for any other interim period or for the entire year.

4 The accompanying consolidated financial statements represent the financial position, 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. ~~Property~~ In each case, the consolidated financial statements include the assets, liabilities, revenues and expenses ~~Equipment~~ 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 controls or is the primary beneficiary of the general partnership interest. In addition, we currently manage one hotel under a management agreement with a third party. We determined that we do not: (1) maintain an equity ownership position, (2) have the ability to exercise significant influence or (3) have exposure to risks of operations that are sufficient to require consolidation of the managed hotel. 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 ~~following~~preparation isof afinancial ~~summary~~statements ofin ~~our~~conformity ~~investment~~with GAAP requires management to make estimates and assumptions that affect the amounts reported in ~~property~~the financial statements and accompanying ~~equipment:~~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 — Assets Held for Sale).

	June 30, 2004		December 31, 2003
	(In millions)
Land	$	360.9	$	360.6
Buildings and improvements, net of accumulated depreciation of $541.4 million and $486.6 million, respectively		1,732.0		1,770.7
Assets held for sale, at fair value		6.6		12.5
Property and equipment, net	$	2,099.5	$	2,143.8


	*Seasonality*

At ~~June 30,~~The ~~2004 and December 31, 2003, the net book value of~~ lodging ~~property~~industry ~~and~~is ~~equipment~~seasonal ~~was~~in ~~$2,057~~nature.~~6 million~~ ~~and~~The ~~$2,098.3 million,~~periods ~~respectively. During~~during ~~the~~which ~~six~~our ~~months~~lodging ~~ended~~properties ~~June 30,~~experience ~~2004~~higher ~~and~~revenues ~~2003,~~vary from weproperty ~~expended~~to ~~approximately $23.9 million and $24 million~~property, ~~respectively,~~depending inprincipally ~~capital~~upon ~~improvements related to lodging properties~~location. ~~Additionally~~Generally, wehotel ~~recorded~~revenues ~~depreciation~~are ~~expense~~greater ~~and~~in ~~write-offs~~the ofsecond ~~approximately $26.9 million~~ and ~~$25.8 million~~third quarters ~~for~~than in the ~~three~~first ~~months~~and ~~ended~~fourth ~~June 30,~~quarters. ~~2004~~This ~~and 2003,~~seasonality ~~respectively,~~can ~~and~~be ~~$52.3 million~~expected ~~and~~to ~~$53.6 million~~cause ~~for~~quarterly ~~the~~fluctuations ~~six~~in ~~months ended June 30~~revenue, profit ~~2004~~margins and ~~2003,~~net ~~respectively~~earnings. WeIn ~~recorded~~addition, ~~impairments~~the onopening ~~held for use properties~~ of ~~$7.2 million~~newly ~~and~~constructed ~~$4.3 million~~hotels ~~for~~and the ~~three~~timing ~~months~~of ~~ended~~any ~~June 30,~~hotel acquisitions ~~2004~~or ~~and~~sales ~~2003,~~may ~~respectively,~~cause ~~and~~a ~~$12.2 million~~variation ~~and~~of ~~$65 million~~revenue, ~~for~~profit margins ~~the~~and ~~six~~net ~~months~~earnings ~~ended June 30,~~from ~~2004~~quarter ~~and~~to ~~2003, respectively~~quarter.

~~At June 30,~~Valuation ~~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 writeLong-~~offs~~Lived 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. Assets

11 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. We estimate fair value primarily (1) by discounting expected future cash flows or (2) based on expected liquidated sales proceeds, relying on common hotel valuation methods such as multiples of room revenues or per room valuations. 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.

At8 ~~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,Table 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. Contents

We ~~continue~~When management identifies an asset as held for sale, has obtained authority to ~~evaluate~~sell the ~~assets~~property, inis ~~our~~actively ~~total~~marketing the ~~portfolio~~property, asand ~~well~~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 ~~pursue~~the anestimated ~~orderly~~fair ~~disposition~~value ofless ~~our~~costs to sell by recording a charge to current earnings. All assets held for sale are ~~assets.~~monitored ~~There~~through ~~can~~the bedate noof ~~assurance~~sale iffor orpotential ~~when~~adjustment based ~~sales~~on ~~will~~offers beLa Quinta is willing to take under serious ~~completed~~consideration orand ~~whether~~continued ~~such~~review ~~sales~~of ~~will~~facts beand ~~completed~~circumstances. A gain or loss on ~~terms~~disposition is recorded to the extent that ~~will~~the amounts ~~enable~~ultimately usreceived tofor ~~realize~~the sale of assets differ from the ~~full~~adjusted ~~carrying~~book ~~value~~values of ~~such~~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.

5 We continue to evaluate the assets in our total portfolio as well as to pursue an orderly disposition of our held for sale assets. ~~Mortgages~~ ~~and~~There ~~Other~~can ~~Notes~~be ~~Receivable~~ 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.

AtStock-Based 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. Compensation

At ~~June~~La ~~30,~~Quinta ~~2004~~has various stock-based employee compensation plans and ~~December 31,~~accounts ~~2003,~~for ~~the~~those ~~net~~plans ~~book~~using ~~value~~the ofintrinsic ~~other~~value method ~~notes~~as ~~receivable~~prescribed ~~was~~under ~~approximately~~Accounting ~~$32.3 million~~Principles ~~and~~Board ~~$31~~Opinion No.8 ~~million~~25, ~~respectively.~~“Accounting ~~Included in~~for ~~other~~Stock ~~notes~~Issued ~~receivable~~to Employees” ~~was~~(“APB ~~approximately $32~~25”).~~2 million~~ inNo astock-based ~~subordinated~~employee compensation ~~note~~cost ~~received~~is ascharged ~~consideration~~to inearnings ~~connection~~for ~~with~~options, ~~the~~as ~~sale~~all options ofgranted ~~certain~~under ~~healthcare~~those ~~assets~~plans ~~during~~had ~~2001.~~an Weexercise ~~currently intend~~price equal to or ~~hold~~greater than the ~~remaining~~market ~~balance~~value of ~~this~~the ~~note~~underlying topaired ~~maturity.~~common shares ~~Interest~~on ~~income~~the ondate ~~this~~of ~~note~~grant. ~~was~~The ~~approximately~~companies ~~$1.0 million~~grant ~~and~~restricted stock ~~$1.1 million~~awards ~~for~~to ~~the~~certain ~~three~~employees. ~~months~~The ~~ended~~difference ~~June 30,~~between the ~~2004~~price ~~and~~to ~~2003,~~the ~~respectively,~~employee and ~~$2.1 million~~the ~~and~~market ~~$2.2 million~~value ~~for~~at ~~the~~grant ~~six~~date ~~months~~is charged ~~ended~~to ~~June 30~~unearned compensation, ~~2004~~carried as a component of equity and ~~2003,~~amortized ~~respectively.~~over the related vesting period.

12 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 Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” the companies’ net income (loss) and net income (loss) per share would have changed as indicated below:

6. Indebtedness


		Three Months						Nine Months
		Ended						Ended
		September 30,						September 30,

		2005			2004			2005			2004

		(In millions, except per share data)
Net income (loss), as reported		$	13.7		$	(12.1	)	$	14.1		$	(31.2	)
Deduct:
	Total stock option compensation expense determined under fair value based method for all awards		(1.1	)		(1.1	)		(2.9	)		(3.2	)
	Tax effect		0.4			0.4			1.1			1.2

Pro forma net income (loss)		$	13.0		$	(12.8	)	$	12.3		$	(33.2	)

Net income (loss) per share:
	Basic — as reported	$	0.07		$	(0.07	)	$	0.07		$	(0.18	)
	Basic — pro forma	$	0.07		$	(0.07	)	$	0.07		$	(0.19	)
	Assuming dilution — as reported	$	0.07			N/A		$	0.07			N/A
	Assuming dilution — pro forma	$	0.06			N/A		$	0.06			N/A

~~Indebtedness at June 30, 2004 and December 31, 2003 was as follows:~~ 9

	June 30, 2004			December 31, 2003
	(In millions)
Notes payable:
Principal payments aggregating $19.5 due in March 2004, bearing interest at 7.25%	$	—		$	19.5
Principal payments aggregating $100 due in September 2005, bearing interest at 7.40%		100.0			100.0
Principal payments aggregating $41 due from September 2005 to September 2015, bearing interest at rates between 7.51% and 8.625%		40.5			40.5
Principal payments aggregating $50 due in February 2007, bearing interest at 7.27%		50.0			50.0
Principal payments aggregating $160 due in August 2007, bearing interest at 7%		160.0			160.0
Principal payments aggregating $50 due in April 2008, bearing interest at 7.33%		50.0			50.0
Principal payments aggregating $325 due in March 2011, bearing interest at 8.875%		325.0			325.0
Principal payments aggregating $150 due in August 2011 (redeemable in August 2004 at the option of the note holder), bearing interest at 7.114%		150.0			150.0
Principal payments aggregating $0.1 due in September 2026, bearing interest at 7.82%		0.1			0.1
Total indebtedness		875.6			895.1
Less current portion		(150.0	)		(169.5	)
Long-term debt	$	725.6		$	725.6

~~Notes~~ The ~~Payable~~ fair value of each option grant is estimated on the date of grant using a Black-Scholes option-pricing model. Stock options totaling approximately 0.1 million shares and 1.4 million shares were granted during the three and nine months ended September 30, 2005, respectively.

~~During~~ In ~~the~~December ~~six~~2004, ~~months~~the ~~ended~~Financial ~~June 30,~~Accounting ~~2004,~~Standards weBoard ~~repaid~~(the “FASB”) ~~$19~~issued SFAS No.5 ~~million~~123R, “Share-Based inPayment” ~~principal~~(“SFAS 123R”), that onrequires ~~notes~~an ~~payable~~entity ~~scheduled~~ to ~~mature~~measure onthe ~~March 15,~~cost ~~2004.~~of employee services ~~During~~received ~~2003,~~in LQexchange ~~Properties~~for ~~issued~~an ~~$325 million~~award of ~~senior~~equity ~~notes~~instruments ~~bearing~~based aon the ~~coupon~~grant-date ~~rate~~fair value of 8the award (with limited exceptions).~~875%~~ ~~and~~That ~~having~~cost awill ~~maturity~~be ofrecognized ~~March 15,~~in ~~2011,~~the ~~which~~consolidated statements LQof ~~Corporation~~operations ~~guaranteed.~~over ~~These~~the ~~notes~~period ~~are~~during which an ~~subject~~employee is required to, ~~among~~provide ~~other~~service ~~types~~in ofexchange ~~covenants,~~for ~~certain~~the award — ~~restrictive~~the ~~financial~~requisite ~~incurrence~~service ~~covenants,~~period ~~such~~(usually asthe vesting ~~limitations~~period). onNo ~~the~~compensation ~~incurrence~~cost ofis ~~indebtedness~~recognized ~~(pro~~for ~~forma~~equity instruments ~~fixed~~for ~~charge~~which ~~coverage~~employees ~~ratio~~do ~~must~~not ~~exceed~~render the requisite 2service.0 ~~times~~Presently, ~~excluding~~we ~~certain~~record ~~adjustments,~~stock-based incompensation ~~order~~expense attributable to ~~incur~~restricted ~~additional~~stock ~~debt)~~performance ~~and~~awards; ~~restricted~~however, ~~payments~~we present ~~(generally~~pro ~~limited~~forma disclosures with respect to ~~95%~~the compensation cost associated with stock options in lieu of ~~funds~~recording ~~from~~stock option ~~operations~~related asexpense. ~~defined~~On inApril 14, 2005, the ~~indenture~~SEC ~~pursuant~~adopted a torule ~~which~~ that amends the ~~notes~~effective ~~were~~date ~~issued)~~of SFAS 123R. InThe ~~addition~~new effective todate is the ~~financial~~beginning ~~covenants,~~of the ~~indenture~~fiscal ~~also~~year ~~includes~~that begins after June 15, ~~among~~2005. ~~other~~We ~~limitations~~plan to adopt SFAS 123R effective January 1, ~~limitations~~2006, onusing ~~asset~~the ~~sales~~modified-prospective transition method. Consequently, ~~issuances~~we ofwill ~~certain~~recognize ~~capital~~compensation expense related to outstanding unvested stock-based performance awards commencing January 1, ~~sale~~2006 ~~and~~over ~~leaseback~~the remaining ~~transactions~~requisite ~~and~~service ~~affiliate~~period. ~~transactions~~We are currently assessing the financial statement impact of implementing SFAS 123R. The actual impact in 2006 of implementing SFAS 123R will be directly affected by any additional stock-based performance awards granted.

~~Included in~~Intangible 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 Assets

13 During September 2004, we determined that the La Quinta trademarks have an indefinite useful life based on changes in circumstances of factors used to determine the useful lives primarily as a result of the establishment and growth of our franchise program. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), these assets are no longer amortized and are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Management determined that the Baymont trademarks have an indefinite useful life. These assets will be tested for impairment annually, or more frequently if events or changes in circumstances indicate that these assets might be impaired. The intangible asset related to the Baymont franchising agreements was deemed to have a finite life and is being amortized over the average life of the associated franchise agreements, including potential renewals, based on the interest method of amortization.

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. Acquisition

~~Bank~~ In ~~Notes~~September ~~Payable~~ 2004, La Quinta acquired substantially all of the assets of the limited service lodging division of The Marcus Corporation for a total purchase price of approximately $419.2 million, including estimated transaction costs and net working capital adjustments (the “Acquisition”). As of September 30, 2005, approximately $12.8 million of the total purchase price was being held in escrow pending completion of certain transfer requirements. As part of the agreement, La Quinta acquired 90 Baymont Inn & Suites (including one management contract), seven Woodfield Suites and one Budgetel Inn. In addition, La Quinta acquired all of the trade rights associated with the Baymont, Woodfield Suites, and Budgetel brands, and the Baymont franchise system of 87 hotels. The 185 hotels (containing approximately 17,700 rooms) are located across 33 states, with approximately one-half of the hotels in the Midwestern region of the United States. With this

~~On November 12, 2003, we refinanced our previous credit agreement, as amended, with a bank group that provided a $125 million revolving line of~~10 ~~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 millionTable (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. Contents

~~The~~ ~~2003 Credit Facility~~acquisition, aswe ~~amended,~~gained ~~contains~~an ~~several~~additional ~~restrictive~~limited ~~financial~~service ~~covenants~~lodging brand ~~(as~~and ~~defined~~increased inour ~~the~~geographic ~~2003 Credit Facility), which include the following:~~ diversity.

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 repurchases3. WeAssets ~~were~~Held inFor 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. Sale

14 When management identifies an asset as held for sale, has obtained authority to sell the property, is actively marketing 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.

~~7. Commitments~~Discontinued ~~and Contingencies~~ Operations

In At ~~January~~September ~~2002~~30, ~~KSL~~2005 ~~Desert~~and ~~Resorts,~~December ~~Inc. filed a legal action in the United States District Court for the Central District of California (the "Court") against LQ Corporation~~31, ~~et al. (No. CV-02-007 RT (SGLx)). The plaintiff~~2004, ~~which~~we ~~uses~~have classified the ~~name~~related ~~"La~~assets ~~Quinta Resort & Club" for a destination resort~~ and ~~country~~liabilities 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~~eight ~~"La Quinta"~~ hotels and ~~other~~11 ~~marks~~hotels ~~including~~held ~~the mark "La Quinta"~~ for ~~hotel and motel services. The plaintiff seeks an injunction to prevent La Quinta~~sale, ~~our agents~~respectively, ~~servants,~~as ~~employees, and our~~discontinued ~~attorneys~~components ~~from~~under ~~using~~ the ~~mark~~provisions ~~"La~~of ~~Quinta" in Palm Springs~~SFAS 144, “Accounting infor the ~~Coachella~~Impairment ~~Valley,~~ or ~~throughout~~Disposal ~~the~~of ~~United~~Long-Lived Assets” ~~States.~~(“SFAS 144”) ~~The~~as ~~plaintiff~~both ~~also~~of ~~seeks~~the following toconditions ~~cancel~~are ~~our~~met: ~~federal trademark registrations that include~~ (a) the ~~phrase~~operations ~~"La Quinta"~~ and tocash flows ~~require~~of ~~destruction~~the ofhotels ~~any~~have ~~items~~been ~~under~~(or ~~our~~will ~~control,~~be) ~~which~~eliminated ~~include~~from the ongoing ~~phrase~~operations ~~"La~~of ~~Quinta." In October 2002,~~ the ~~defendants~~companies ~~filed~~as ana ~~answer~~result ~~denying~~of the ~~material~~disposal ~~allegations~~transaction inand (b) the ~~complaint~~companies ~~and~~will ~~asserting~~not ~~several~~have ~~affirmative~~any significant ~~defenses,~~continuing ~~including~~involvement ~~defenses~~in ~~alleging that~~ the ~~plaintiff~~operations isof ~~estopped from asserting its actions. The defendants also filed counterclaims~~the ~~seeking~~hotels toafter ~~cancel plaintiff's federal trademark registrations using~~ the ~~"La~~disposal ~~Quinta" name for its destination resort and club~~transaction. During ~~settlement negotiations,~~ the ~~parties~~three ~~had reached apparent tentative~~months ~~settlement~~ended ~~agreements~~September 30, ~~but~~2005, ~~those~~one ~~efforts~~hotel ~~have~~was ~~failed~~sold to ~~result in~~ a ~~final~~buyer ~~and~~who will ~~binding~~convert ~~agreement. The action remains in~~ the ~~pretrial~~hotel ~~stage~~to ~~and the Court has entered~~ a ~~scheduling~~Baymont ~~order~~franchise. ~~setting~~We ~~discovery~~determined ~~and~~that ~~other~~this ~~deadlines.~~franchise Ifarrangement ~~the~~would ~~dispute~~constitute ~~cannot~~significant continuing beinvolvement; ~~settled or resolved~~therefore, we ~~intend~~have toreclassified ~~vigorously defend~~ the ~~complaint and pursue our counterclaims. We cannot currently estimate the potential loss and/or~~ ~~range~~operations of ~~potential~~this ~~loss~~hotel ~~from~~to ~~this~~continuing ~~matter~~operations.

We ~~are~~During ~~party~~the tothree ~~certain~~and ~~claims~~nine ~~involving~~months ~~healthcare~~ended ~~facilities~~September 30, ~~formerly~~2005, we ~~owned~~have bypresented LQthe ~~Properties~~separately ~~that~~identifiable ~~were~~results ~~leased~~of operations toand cash flows of nine hotels and ~~operated~~11 byhotels, respectively, ~~third-party~~as ~~operators~~discontinued operations. ~~Although~~During wethe ~~required~~three ~~our~~and ~~third-party~~nine ~~operators~~months toended ~~maintain~~September 30, ~~insurance~~2005, ~~coverage~~we ~~insuring~~sold LQor ~~Properties'~~settled condemnation ~~interests~~proceedings inon ~~the~~one ~~facilities~~and asthree ~~well~~hotels asfor ~~their~~gross proceeds ~~own,~~of ~~this~~approximately ~~insurance~~$2.5 million ~~coverage~~and $7.5 million, ~~may~~respectively, ~~not~~resulting bein ~~adequate~~no togain ~~fully~~or ~~protect~~loss ~~us.~~on sale Weand ~~have been~~a ~~notified~~gain ~~that~~on ~~one~~sale of ~~the~~approximately ~~companies~~$0.8 million, respectively. ~~providing~~The ~~such~~decision ~~insurance~~to ~~coverage,~~sell ~~Reliance~~certain ~~Insurance~~of ~~Company,~~these hotels was based ~~ordered~~on ~~into~~(1) local ~~liquidation~~market onconditions, ~~October~~(2) 3,historical operating ~~2001.~~and ~~Although~~financial weresults ~~cannot~~associated ~~predict~~with ~~what~~the ~~effect~~hotel, and ~~the~~(3) future ~~liquidation~~capital ofexpenditure ~~Reliance~~requirements. ~~Insurance~~The ~~Company~~sales ~~will~~or condemnation ~~have~~proceedings onfor ~~pending~~most ~~claims,~~of wethe doremaining ~~not~~hotels ~~consider~~are expected ~~our~~to ~~ultimate~~close ~~liability~~or ~~with~~otherwise ~~respect~~be toconcluded ~~any~~during ~~one~~2005. One of the ~~these~~remaining ~~claims~~hotels orwas ~~lawsuits,~~severely asdamaged ~~well~~by asHurricane ~~any~~Katrina. We ~~other~~have ~~uninsured claim~~yet orto ~~lawsuit~~determine ~~involving~~whether ~~healthcare~~it ~~facilities~~is ~~formerly~~feasible ~~owned~~to byever LQreturn this ~~Properties~~property ~~that~~to ~~were~~service. ~~leased~~Aggregate toimpairment ~~and~~charges ~~operated~~of $8.7 million bywere ~~third-party~~recorded ~~operators~~from December 2004 through September 30, 2005 to bewrite ~~material~~down insix ~~relation~~of tothe ~~our~~11 ~~consolidated~~hotels ~~financial~~to ~~condition~~estimated orfair ~~operations.~~value less costs of sale.

In11 ~~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 certainTable 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. Contents

We ~~have~~The ~~provided~~following ais ~~letter of credit in connection with~~ a ~~1995~~summary ~~healthcare transaction, which guarantees the payment~~ of ~~certain~~balance ~~industrial~~sheet ~~revenue~~information ~~bonds aggregating approximately~~for ~~$4.5 million~~discontinued ~~that is the~~ operations:


	September 30,		December 31,
	2005		2004

	(In millions)
Current assets	$	0.6	$	0.4
Property and equipment, net		17.9		24.9
Other		0.7		0.8

Total assets	$	19.2	$	26.1

Total liabilities	$	0.5	$	0.6
Minority interest		1.7		2.0
Total La Quinta Companies’ investment		17.0		23.5

Total liabilities and La Quinta Companies’ investment	$	19.2	$	26.1

~~obligation~~ ofThe anfollowing ~~unrelated~~is 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~~summary of ~~credit,~~consolidated ~~the~~statements ~~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~~operations ~~third~~information ~~party~~for ~~will~~discontinued ~~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~~operations: ~~June 30, 2004, La Quinta was carrying a liability of approximately $4.2 million in connection with the obligation.~~

8. Shareholders' Equity


	Three Months					Nine Months
	Ended					Ended
	September 30,					September 30,

	2005			2004		2005			2004

	(In millions)
Revenues	$	2.6		$	2.5	$	8.3		$	7.2

Gain on sale of assets	$	—		$	—	$	0.8		$	—

Income before minority interest and income taxes	$	0.4		$	—	$	1.8		$	0.3
Minority interest		(0.1	)		—		0.1			(0.1	)
Income tax expense		(0.1	)		—		(0.7	)		(0.1	)

Income from discontinued operations, net	$	0.2		$	—	$	1.2		$	0.1

~~During~~Continuing ~~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.~~ Operations

9 At September 30, 2005 and December 31, 2004, a land parcel continued to be classified as held for sale; however, the land parcel is not included in discontinued operations as it does not meet the definition of a component of an entity under the provisions of SFAS 144. ~~Other~~ ~~(Income)~~At ~~Expense~~ September 30, 2005 and December 31, 2004, the net book value of this land parcel was approximately $5.8 million and $5.5 million, respectively.

~~For~~ The ~~the~~United ~~three~~States ~~and~~Environmental ~~six~~Protection ~~month~~Agency (“EPA”) ~~periods~~has ~~ended~~notified ~~June~~La 30Quinta Inns, ~~2004~~Inc. that it is a potentially responsible party (“PRP”) under certain federal environmental laws with respect to a storage building and ~~2003~~parking lot located on the owned land parcel in Salt Lake City, ~~other~~Utah (~~income~~the “Site”) ~~expense~~discussed ~~consisted~~above. The EPA has also identified other PRPs for the Site and adjacent properties and has issued a demand for payment with respect to remediation costs incurred to date. The EPA has proposed a preliminary allocation of costs for remediating the ~~following:~~Site and the adjacent properties among the PRPs, although each PRP is currently contesting the proposal. While the ultimate liability to La Quinta Inns, Inc. is not yet determinable and will be dependent on both the final remediation costs and the allocation of such costs among the PRPs, we believe that the liability will not have a material adverse impact on our consolidated financial position.

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In millions)
Loss on sale of assets and related costs	$	0.2		$	0.1		$	0.2		$	—
Loss on early extinguishments of debt		—			4.3			—			6.2
Other(1)		(0.8	)		(0.4	)		(1.0	)		0.9
Total other (income) expense	$	(0.6	)	$	4.0		$	(0.8	)	$	7.1

Changes inTable accruedof reorganization costs for the six months ended June 30, 2004 were as follows: Contents

	Severance and Employment Costs			Other			Total
	(In millions)
December 31, 2003	$	0.4		$	1.3		$	1.7
Payments		(0.1	)		(0.1	)		(0.2	)
Accrual adjustments		—			(0.1	)		(0.1	)
June 30, 2004	$	0.3		$	1.1		$	1.4

At September 30, 2005, four hotels are classified as held for sale; however, these hotels are not included in discontinued operations because it is probable that these hotels will be operated by the buyers as Baymont franchises. In accordance with EITF 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations,” the companies determined that this constitutes significant continuing involvement in the operations of the hotel and, therefore, presentation as discontinued operations is not appropriate. We have entered into binding contracts for the four hotels for estimated aggregate net proceeds of approximately $11.8 million that may result in an estimated aggregate gain on sale of approximately $2.5 million. The sales of these four hotels are expected to close prior to the end of 2005. During the three months ended September 30, 2005, we sold three hotels for gross proceeds of approximately $9.4 million, resulting in a gain on sale of approximately $3.7 million.

164. Property and Equipment

~~10. Income~~ The ~~Taxes~~ following is a summary of our investment in property and equipment (excluding property and equipment classified as held for sale under discontinued operations and held for sale under continuing operations):

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.


	September 30,		December 31,
	2005		2004

	(In millions)
Land	$	395.6	$	403.7
Buildings and improvements, net of accumulated depreciation of $409.3 and $373.1, respectively		1,826.2		1,869.6
Furniture, fixtures, equipment and other, net of accumulated depreciation of $247.0 and $217.8, respectively		146.3		160.7

	$	2,368.1	$	2,434.0

LQ ~~Corporation's~~The ~~income~~following ~~tax~~summarizes ~~benefit~~the ischanges ~~based~~in ~~on reported earnings before income taxes, adjusted to give effect to~~ the ~~income~~net ~~tax~~book ~~consequences~~value ~~to LQ Corporation~~ of ~~any amounts~~ ~~attributable~~property ~~to minority interests. Deferred income taxes reflect the temporary differences between assets~~ and ~~liabilities~~equipment ~~recognized~~ for ~~financial~~the ~~reporting~~nine ~~and~~months ~~such amounts recognized for tax~~ended ~~purposes~~September 30, ~~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~~2005: ~~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.


		Lodging			Corporate			Total

		(In millions)
Property and equipment, net at December 31, 2004		$	2,384.3		$	49.7		$	2,434.0
	Capital improvements		42.2			9.5			51.7
	Depreciation expense		(90.2	)		(11.2	)		(101.4	)
	Transfer to held for sale		(14.5	)		—			(14.5	)
	Sale of real estate, net		(0.6	)		—			(0.6	)
	Retirements, net		(1.1	)		—			(1.1	)

Property and equipment, net at September 30, 2005		$	2,320.1		$	48.0		$	2,368.1

LQ ~~Corporation's~~We ~~income~~regularly ~~tax~~review ~~benefit~~the ~~consisted~~performance of long-lived assets on an ongoing basis for impairment as well as when events or changes in circumstances indicate that the ~~following:~~carrying amount of an asset may not be recoverable. 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. We estimate fair value primarily (1) by discounting expected future cash flows or

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In millions)
Current income tax expense	$	(0.3	)	$	(0.1	)	$	(0.1	)	$	(0.2	)
Deferred income tax benefit		4.2			6.7			9.1			39.8
Total income tax benefit	$	3.9		$	6.6		$	9.0		$	39.6

17Table of Contents

~~11. Earnings~~ (2) based ~~Per~~on ~~Share~~ expected liquidated sales proceeds, relying on common hotel valuation methods such as multiples of room revenues or per room valuations.

~~Earnings~~ During the nine months ended September 30, 2005, we changed our estimate of the remaining useful life related to two hotels to be redeveloped. The impact of the changes in useful life was an increase in depreciation expense and a decrease in net income of approximately $7.6 million and $4.4 million, or $0.02 per share-basic ~~("EPS")~~and ~~for~~assuming ~~the~~dilution, ~~companies~~respectively, during isthe ~~computed~~nine asmonths ~~follows:~~ended September 30, 2005.

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In millions, except per share data)
Loss before discontinued operations	$	(6.8	)	$	(13.8	)	$	(19.1	)	$	(63.8	)
Discontinued operations, net		—			0.2			—			(0.1	)
Net loss	$	(6.8	)	$	(13.6	)	$	(19.1	)	$	(63.9	)
Average outstanding equivalent shares of paired common stock		176.6			143.4			176.4			143.1
Dilutive effect of stock options and unvested restricted stock		—			—			—			—
Average outstanding equivalent shares of paired common stock		176.6			143.4			176.4			143.1
Basic and assuming dilution
Loss before discontinued operations	$	(0.04	)	$	(0.10	)	$	(0.11	)	$	(0.45	)
Discontinued operations, net		—			—			—			—
Net loss	$	(0.04	)	$	(0.10	)	$	(0.11	)	$	(0.45	)


5.	Indebtedness

~~Options~~ toIndebtedness ~~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~~September 30, ~~2004~~2005 and ~~2003~~December 31, ~~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~~2004 ~~shares and because the inclusion would result in an antidilutive effect in periods where a loss~~ was ~~incurred.~~as ~~The options, which expire on dates ranging from December 2008 to~~follows: ~~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.


	September 30,			December 31,
	2005			2004

	(In millions)
Notes payable:
Principal payments aggregating $100 due in September 2005, bearing interest at 7.4%	$	—		$	100.0
Principal payments aggregating $16 due in September 2005, bearing interest at rates between 7.6% and 7.63%		—			16.0
Principal payments aggregating $24.5 due from January 2006 to September 2015, bearing interest at rates between 7.3% and 8.625%		24.5			24.5
Principal payments aggregating $50 due in February 2007, bearing interest at 7.27%		50.0			50.0
Principal payments aggregating $160 due in August 2007, bearing interest at 7%		160.0			160.0
Principal payments aggregating $50 due in April 2008, bearing interest at 7.33%		50.0			50.0
Principal payments aggregating $325 due in March 2011, bearing interest at 8.875%		325.0			325.0
Principal payments aggregating $200 due in August 2012, bearing interest at 7%		200.0			200.0
Principal payments aggregating $0.1 due in September 2026, bearing interest at 7.82%		0.1			0.1

Total indebtedness		809.6			925.6
Less current portion		(20.0	)		(116.0	)

Long-term debt	$	789.6		$	809.6

~~Options~~ toDuring ~~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~~three months ended ~~June~~ September 30, ~~2004 and 2003~~2005, ~~respectively,~~we ~~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~~repaid ~~paired~~$116 million ~~shares and because the inclusion would result~~ in anprincipal ~~antidilutive effect in periods where a loss was incurred. The options, which expire~~ on ~~dates~~notes ~~ranging~~payable ~~from~~scheduled ~~December 2008~~ to ~~March 2014,~~mature ~~were~~in ~~still~~September ~~outstanding at June 30, 2004~~2005.

In ~~addition,~~In ~~options~~November to2003, ~~purchase~~we ~~12.3 million~~refinanced ~~and~~our ~~5.8 million~~previous ~~paired~~credit ~~shares~~agreement with ~~(weighted~~a ~~average~~bank ~~effect~~group ofto ~~3.5 million~~provide ~~and~~a ~~0.5~~$150 million ~~shares~~revolving ~~for~~line of credit (the ~~six~~“2003 ~~months~~Credit Facility”). The 2003 ~~ended~~Credit ~~June 30~~Facility, ~~2004~~which ~~and~~matures ~~2003,~~in ~~respectively)~~April at2007, ~~prices~~is ~~ranging~~secured ~~from~~by ~~$1.94~~a pledge toof ~~$7.38~~stock ~~and~~of ~~$1.94~~our tosubsidiaries, ~~$3.79~~intercompany ~~were~~debt ~~outstanding~~evidenced by ~~during~~promissory ~~the~~notes ~~six~~and ~~months~~our ~~ended~~mortgage ~~June 30,~~notes ~~2004~~receivable. ~~and~~The 2003~~, respectively,~~ ~~and~~Credit ~~were~~Facility is not ~~included~~subject into ~~the~~a ~~computation~~lockbox ofarrangement, ~~diluted~~but does ~~EPS~~contain ~~because~~a ~~their~~subjective ~~inclusion~~acceleration ~~would~~clause ~~result~~contingent inupon ana material ~~antidilutive~~adverse ~~per~~effect. ~~share~~LQ ~~amount~~Properties asis the ~~companies~~borrower ~~reported~~under athe facility ~~loss~~and ~~from~~LQ ~~continuing~~Corporation ~~operations~~is ~~for~~ the ~~six~~guarantor. Approximately ~~months~~$133.5 million ~~ended~~(net ~~June~~of $16.5 ~~30,~~million ~~2004~~in ~~and~~outstanding letters ~~2003.~~of credit) was

1814

12. TransactionsTable betweenof LQ Properties and LQ Corporation Contents

LQ available ~~Corporation~~under ~~leases~~the ~~hotel~~2003 ~~facilities~~Credit ~~from~~Facility LQat ~~Properties and its subsidiaries~~September 30, 2005. ~~The~~Borrowings ~~hotel~~under ~~facility~~the ~~lease~~2003 ~~agreements,~~Credit asFacility ~~modified,~~currently ~~between LQ Corporation and LQ~~bear ~~Properties~~interest ~~were~~at ~~for~~the aLondon ~~five-year~~Interbank ~~term,~~Offered ~~which~~Rate (“LIBOR”) ~~expired~~plus ~~in July 2003~~2.0%. ~~These~~Commitment ~~leases~~fees ~~were~~are ~~amended~~based toon 0.5% per ~~extend~~annum of the ~~term~~unused ~~through~~balance ~~December 31,~~for ~~2003.~~any ~~The~~period ~~modified lease agreements~~where ~~provided~~utilization ~~for~~is aless ~~percentage~~than ~~rent~~50% ~~payment~~and ~~only~~0.375% per inannum anif utilization ~~amount~~is ~~equal~~greater tothan 4050%. ofDuring the ~~gross~~three ~~revenues~~and ~~from~~nine months ~~the~~ended ~~hotel~~September 30, ~~facilities~~2005, ~~and~~there ~~required~~were LQno ~~Properties~~borrowings under tothe ~~pay~~2003 ~~property~~Credit ~~taxes~~Facility ~~and~~other ~~insurance~~than ~~and~~the toletters ~~fund~~of ~~certain capital expenditures~~credit.

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,~~Shareholders’ 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. Equity

A ~~subsidiary~~On ofJanuary 23, 2004, LQ ~~Corporation~~Properties ~~also~~exchanged 1,000 shares ~~had a royalty arrangement with a subsidiary~~ of LQ Properties ~~for~~Series B ~~the~~Cumulative Redeemable ~~use~~Preferred ofStock (the La“Series B ~~Quinta~~Preferred Stock”), ~~brand~~which ~~name.~~represented ~~The~~all ~~royalty~~of ~~agreement~~the ~~expired~~outstanding Series B onPreferred ~~July 17~~Stock, ~~2003~~ ~~and automatically renewed~~ for ~~an additional five-year term. The royalty agreement was amended, effective January~~ 1, ~~2004~~000,000 todepositary ~~reduce~~shares, which ~~the~~represent ~~royalty~~100,000 shares ~~rate to 1.5%~~ of ~~gross~~LQ ~~revenue,~~Properties asSeries A ~~defined~~Cumulative inRedeemable ~~the~~Preferred ~~royalty~~Stock (“Series A ~~agreement~~Preferred Stock”). ~~Royalty~~The ~~expense for the three months ended June~~Series ~~30,~~B Preferred ~~2004~~Stock ~~and~~exchanged ~~2003~~stood ~~was~~pari ~~approximately~~passu ~~$2.0 million~~with ~~and $3.2~~the Series ~~million,~~A ~~respectively,~~Preferred ~~and approximately~~Stock ~~$3.9 million~~ and ~~$6.1 million for~~ the ~~six months ended June~~Series ~~30,~~A ~~2004~~Preferred Stock ~~and~~issued ~~2003,~~pursuant ~~respectively. Minority interest distributions~~ to LQan ~~Corporation~~exchange ~~from~~agreement acollects ~~subsidiary~~the ofsame LQaggregate ~~Properties~~dividends ~~were~~ ($12.925 million ~~and~~per ~~$2.2 million~~year) ~~for~~and has the same ~~six~~aggregate ~~months~~liquidation ~~ended~~preference ~~June 30,~~as ~~2004~~did ~~and~~the ~~2003,~~Series B Preferred ~~respectively~~Stock.

LQ ~~Corporation~~During ~~provides~~each ~~certain~~of ~~management~~the ~~services~~three toand nine months ended September 30, 2005 and 2004, LQ Properties ~~primarily~~paid ~~related~~dividends of to$4.5 million ~~executive~~and ~~management~~$13.5 million, ~~general~~respectively, ~~tax~~or $0.5625 per ~~preparation,~~depositary ~~consulting,~~share ~~legal,~~for ~~accounting~~each ~~and~~three ~~certain~~month ~~aspects~~period, ofon ~~human~~its ~~resources~~9% Series A Preferred Stock. During the nine months ended September 30, 2004, LQ Properties ~~compensates~~paid LQdividends ~~Corporation~~of $190 million ~~for~~to the ~~direct~~sole ~~costs~~holder of ~~providing~~its ~~such~~class A ~~services.~~common stock, LQ Corporation.

13 During the nine months ended September 30, 2005, the following shares were issued under our stock-based employee compensation plans: (1) approximately 0. ~~Subsequent~~8 million stock ~~Events~~ options were exercised, (2) approximately 0.6 million restricted stock grants were issued and (3) approximately 0.1 million shares were purchased by employees under the now terminated La Quinta Employee Stock Purchase Plan.

On July 115, ~~2004~~2002, weour ~~received~~shelf ~~$26~~registration statement on file with the SEC became effective.~~3 million~~ asUnder athe ~~partial~~shelf ~~prepayment~~registration statement, either or both of ~~the~~LQ ~~subordinated~~Corporation ~~note~~and ~~described~~LQ Properties may offer, from time to time, in ~~Note 5.~~one or more offerings, the following securities:

~~On July 14,~~• ~~2004~~debt securities, LQwhich ~~Corporation~~may ~~entered~~be ~~into~~senior aor ~~definitive~~subordinated; ~~asset~~• ~~purchase~~shares ~~agreement with certain subsidiaries~~ of ~~The~~common ~~Marcus~~stock; ~~Corporation~~• ~~("Marcus")~~shares ~~to purchase substantially all the assets~~ of ~~Marcus'~~preferred ~~limited~~stock; ~~service~~• ~~lodging~~depositary ~~division,~~shares; ~~excluding~~and ~~eight~~• ~~joint~~warrants ~~ventures,~~exercisable for adebt ~~total purchase price of approximately $395 million in cash~~securities, ~~subject~~common tostock 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~~preferred ~~fall, subject to customary closing conditions, consents and approvals~~stock.

~~Under~~ ~~the~~On ~~terms~~May 31, ~~of the Acquisition agreement~~2005, we ~~have~~issued ~~deposited $16~~19.4 million ~~with~~paired ancommon shares ~~escrow~~for ~~agent,~~net ~~which~~proceeds ~~has~~of ~~deposited~~$164.7 million ~~the~~under ~~funds~~this ~~in an interest bearing account pending the closing~~shelf ofregistration ~~the Acquisition~~statement.

197. Income Taxes

In ~~connection~~LQ ~~with~~Corporation ~~financing~~is ~~the~~a ~~Acquisition,~~C-corporation onfor ~~July~~U.S. 14federal income tax purposes and, ~~2004~~as such, wepays ~~entered~~taxes ~~into~~on anits ~~amendment~~taxable toincome as determined under the ~~2003~~Internal ~~Credit~~Revenue ~~Facility~~Code of 1986 (the “Code”). The taxable income or loss of LQ Properties is not included in the income tax return of LQ Corporation except to the extent that: LQ Properties pays taxable dividends with respect to its class A common stock held by LQ Corporation. Therefore, any separate company annual tax

In15 ~~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.~~

20Table of Contents

liability of LQ Corporation is based on its current taxable income (including any taxable dividends received from LQ ~~Item~~Properties), 2.reduced ~~Management's~~by ~~Discussion~~any ~~and~~net ~~Analysis~~operating ofloss ~~Financial~~(“NOL”) carryforwards ~~Condition~~available ~~and~~to ~~Results~~offset oftaxable ~~Operations~~ income.

~~You~~ LQ ~~should~~Properties ~~read~~has ~~the~~elected ~~following~~to ~~discussion~~be ~~together~~treated ~~with~~as ~~the~~a ~~financial~~real ~~statements~~estate investment ~~and~~trust ~~related~~(“REIT”) ~~notes~~for ~~included~~federal ~~elsewhere~~income ~~in this Joint Quarterly Report. The results~~tax ~~discussed~~purposes ~~below~~and ~~are~~believes ~~not~~it ~~necessarily~~has ~~indicative~~met ofall the ~~results~~requirements ~~to be expected in future periods~~for qualification. ~~This~~Accordingly, ~~discussion~~LQ ~~contains~~Properties ~~forward-looking~~generally ~~statements~~will ~~based~~not ~~on current expectations, which involve risks~~be ~~and~~taxed ~~uncertainties.~~on ~~Actual~~that ~~results~~portion ~~and the timing~~ of ~~certain~~its ~~events~~REIT ~~may~~taxable ~~differ~~income ~~significantly~~that ~~from~~it distributes ~~those projected in such forward-looking statements due~~ to aits ~~number~~common ofand ~~factors.~~preferred ~~You~~shareholders, ~~should read the~~provided ~~discussion~~that ~~about~~it ~~forward-looking~~continues ~~statements in this Joint Quarterly Report under the heading "Forward-Looking Statements." That section will also direct you~~ to ~~our~~comply ~~Joint Annual Report on Form 10-K filed~~ with the ~~SEC~~requirements onof ~~March 15,~~the ~~2004~~ Code and ~~other~~regulations ~~risks~~thereunder. ~~described~~LQ ~~from~~Properties ~~time~~utilizes tosubsidiaries taxable ~~time~~as inC-corporations ~~our~~(“taxable ~~annual, quarterly and current reports filed with the SEC. We undertake no~~REIT ~~obligation~~subsidiaries”) to ~~publicly~~hold ~~update~~certain orassets ~~revise~~that ~~any~~could ~~forward-looking~~otherwise adversely ~~statement~~affect ~~whether~~its status as a ~~result of new information, future events or other changes, including those described in our Joint Annual Report on Form 10-K~~REIT.

~~Overview~~ For financial reporting purposes, the consolidated income tax expense or benefit is based on consolidated reported financial accounting income or loss before income taxes and discontinued operations. Deferred income tax assets and liabilities reflect the temporary differences between consolidated assets and liabilities recognized for financial reporting and the analogous consolidated amounts recognized for tax purposes using the tax rates in effect for the year in which the differences are expected to reverse. The separate financial statements for LQ Properties reflect only a tax provision and related balance sheet accounts recorded for its taxable REIT subsidiaries, taxes payable with respect to recognized built-in gains, and alternative minimum taxes currently payable.

We For ~~are~~interim afinancial ~~leading~~reporting ~~limited-service~~purposes, ~~lodging~~tax ~~company~~expense ~~providing~~or ~~clean~~benefit is ~~and~~calculated ~~comfortable~~based ~~rooms~~on atthe ~~affordable~~estimated ~~prices~~annual ineffective ~~convenient~~tax ~~locations. We are one of the largest~~rate, ~~owner/operators~~adjusted ofto ~~limited-service~~give ~~hotels~~effect into ~~the~~anticipated ~~United~~permanent ~~States.~~differences ~~We earn revenue primarily by owning~~ and amounts ~~operating~~attributable ~~199~~to Laminority ~~Quinta~~interest. ~~Inns~~The ~~(including~~results associated 6with Ladiscontinued ~~Quinta~~operations ~~Inns that~~ are ~~located~~reported onnet ~~land that we lease~~of ~~from~~federal ~~third parties)~~ and 75state Laincome ~~Quinta~~taxes ~~Inn &~~applicable ~~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~~operations.

In ~~addition~~LQ toCorporation’s 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~~tax ~~approximately $32.1~~(expense) ~~million~~benefit asconsisted ~~a result~~ of athe ~~partial prepayment of a note receivable in July 2004.~~ following:

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.


	Three Months						Nine Months
	Ended						Ended
	September 30,						September 30,

	2005			2004			2005			2004

	(In millions)						(In millions)
Current income tax expense	$	(1.1	)	$	(0.5	)	$	(2.3	)	$	(0.7	)
Deferred income tax (expense) benefit		(9.5	)		7.8			(9.3	)		17.0

Total income tax (expense) benefit	$	(10.6	)	$	7.3		$	(11.6	)	$	16.3

As16 ~~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 haveTable 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. Contents

218. Earnings Per Share

On ~~July 14,~~Earnings ~~2004,~~per LQshare 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~~“EPS”), ~~seven~~for ~~Woodfield Suites, one Budgetel Inn, trade rights associated with~~ the ~~Baymont,~~companies 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~~computed ~~conditions,~~as ~~consents and approvals. We cannot assure you that the closing conditions will be satisfied or that the consents and approvals will be obtained.~~ follows:

Key Indicators of Financial Condition and Operating Performance


	Three Months					Nine Months
	Ended					Ended
	September 30,					September 30,

	2005		2004			2005		2004

	(In millions, except per share data)
Income (loss) before discontinued operations	$	13.5	$	(12.1	)	$	12.9	$	(31.3	)
Income from discontinued operations, net		0.2		—			1.2		0.1

Net income (loss)	$	13.7	$	(12.1	)	$	14.1	$	(31.2	)

Average outstanding equivalent of paired common shares		199.4		176.7			188.4		176.5
Dilutive effect of stock options and unvested restricted shares		3.7		—			3.7		—

Average outstanding equivalent of paired common shares		203.1		176.7			192.1		176.5

Basic and assuming dilution:
Income (loss) before discontinued operations	$	0.07	$	(0.07	)	$	0.07	$	(0.18	)
Income from discontinued operations, net		—		—			—		—

Net income (loss)	$	0.07	$	(0.07	)	$	0.07	$	(0.18	)

We The ~~use~~following aoptions ~~variety~~to ofpurchase ~~financial~~paired ~~and~~common ~~other~~shares ~~information~~were outstanding inbut ~~monitoring~~were ~~the~~not ~~financial~~included ~~condition~~in ~~and~~the ~~operating~~computation ~~performance~~ of ~~our~~diluted earnings ~~business.~~per ~~Some~~share ofbecause ~~this~~the ~~information~~options’ ~~is financial~~exercise ~~information that is prepared in~~prices ~~accordance~~were ~~with~~equal ~~generally~~to ~~accepted~~or ~~accounting~~greater ~~principles~~than ~~("GAAP"),~~the ~~while~~average ~~other~~market ~~information~~price ~~may~~of ~~be financial information not prepared in accordance with GAAP. Our management also uses other information~~the ~~that~~paired ~~may~~common ~~not~~shares ~~be financial in nature, including statistical information~~ and ~~comparative~~because ~~data. Our management uses this information to measure~~ the ~~performance~~inclusion ofwould ~~individual~~result ~~hotel properties, groups of~~in ~~hotel~~an ~~properties~~antidilutive ~~within a geographic region and/or our business as a whole~~effect. ~~Historical~~The ~~information~~options, iswhich ~~periodically~~expire ~~compared~~on ~~against our internal budgets as well as against industry-wide~~dates ~~information.~~ranging Wefrom ~~use~~December ~~this~~2008 ~~information~~to ~~for~~July ~~planning~~2015, ~~and~~were ~~monitoring~~still ~~our~~outstanding at ~~business~~September 30, ~~as well as in determining employee compensation~~2005.

Operating Statistics


	Three Months				Nine Months
	Ended				Ended
	September 30,				September 30,

	2005		2004		2005		2004

	(In millions, except per share prices)
Stock options:
Paired common shares		0.4		0.2		0.4		0.3
Highest exercise price	$	16.06	$	16.06	$	16.06	$	16.06
Lowest exercise price	$	9.57	$	8.13	$	9.57	$	7.68

~~Guest~~ In ~~Satisfaction. Guest~~periods ~~satisfaction~~where ~~scores~~a ~~are~~loss anbefore ~~important~~discontinued ~~indicator~~operations ~~of how our products and services are being received~~was ~~and~~incurred, ~~viewed by our customers. We have focused our efforts over~~ the ~~past~~following ~~several~~unvested ~~years~~restricted atshares ~~increasing guest satisfaction scores as we believe guest satisfaction is a driver of repeat~~ and ~~referral~~options ~~business~~to ~~that~~purchase ~~leads~~paired tocommon ~~increased~~shares ~~revenue.~~were ~~Guest~~outstanding ~~satisfaction~~and ~~scores~~were ~~are~~not included ~~monitored~~in ~~through~~the acomputation ~~number~~ of ~~initiatives,~~diluted ~~including~~EPS ~~surveys~~because ~~conducted by an independent market research company. We believe~~their ~~that~~inclusion ~~high~~would ~~levels~~result ofin ~~guest~~an ~~satisfaction are important to maintaining and growing our brand's reputation and recognition.~~ antidilutive

~~Average Daily Rate ("ADR"), Occupancy Percentage and Revenue per Available Room~~17 ~~("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 believeTable 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 Contents

22 per share amount. The following unvested restricted shares and options were outstanding at September 30, 2004.

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.


	Three Months				Nine Months
	Ended				Ended
	September 30,				September 30,

	2005		2004		2005		2004

	(In millions, except per share
	prices)
Stock options:
Paired common shares		—		12.2		—		12.1
Weighted-average effect		—		3.8		—		3.6
Highest exercise price	$	—	$	7.85	$	—	$	7.51
Lowest exercise price	$	—	$	1.94	$	—	$	1.94

Unvested restricted shares:
Paired common shares		—		1.8		—		1.8
Weighted-average effect		—		1.3		—		1.3
Highest exercise price	$	—	$	0.20	$	—	$	0.20
Lowest exercise price	$	—	$	0.02	$	—	$	0.02

~~Inn Operating Contribution ("IOC")~~9. ~~IOC~~ isCommitments ~~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. Contingencies

~~Franchise~~Casualty 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. Losses

~~Adjusted~~ The ~~Earnings~~Gulf ~~before~~Coast ~~Interest~~region of the U.S. was severely impacted by Hurricanes Katrina and Rita on August 29, ~~Taxes~~2005 and September 24, ~~Depreciation~~2005, respectively. Eight of our company owned hotels in the New Orleans area were damaged by Katrina. We have yet to determine whether it is feasible to ever return to service two of these hotels, one of which is included in discontinued operations. It is anticipated that the other six hotels (four of which were partially operational as of September 30, 2005) will be substantially returned to service by the end of 2005. An additional 14 company owned hotels in Texas, Louisiana, Mississippi, Alabama and ~~Amortization~~ Florida experienced varying degrees of damage from the two hurricanes and most were substantially returned to service prior to September 30, 2005.

We The ~~use~~companies ahave ~~variety~~insurance offor ~~measures~~property atdamage, ~~the~~subject ~~corporate level in order~~ to ~~monitor the performance of our business as a whole. Some of these measures are prepared in~~ ~~accordance with GAAP~~deductibles, ~~while~~attributable ~~others,~~to ~~such~~both aswind ~~adjusted earnings before interest, taxes, depreciation~~ and ~~amortization ("Adjusted EBITDA") are non-GAAP measures~~flood. WeBased ~~use~~on ~~Adjusted EBITDA as~~ a ~~supplemental~~preliminary ~~measure~~assessment, ofthe ~~performance~~companies ~~because~~estimate wethat ~~believe~~expenditures related itto ~~gives~~property usdamage afrom ~~more~~the ~~complete~~hurricanes ~~understanding~~will ofaggregate approximately ~~our~~$25 million ~~financial~~to ~~condition~~$30 million, ~~and~~excluding the ~~operating~~expenditures ~~results.~~associated Wewith ~~use~~the ~~this~~two ~~metric~~hotels tothat ~~calculate~~may ~~various financial~~never ~~ratios~~be ~~and~~returned to ~~measure~~service. ~~our~~The ~~performance,~~companies ~~and~~anticipate wethat substantially ~~believe~~all ~~some~~of ~~debt~~the ~~and~~expenditures ~~equity~~in ~~investors~~excess ~~also~~of ~~utilize~~the deductibles ~~this~~associated ~~metric~~with ~~for~~restoring ~~similar~~the ~~purposes.~~properties ~~Adjusted~~will ~~EBITDA includes adjustments for non-cash income~~be orrecovered ~~expenses~~from ~~such~~insurance ~~as depreciation, amortization and other non-cash items~~proceeds. ~~Adjusted~~During ~~EBITDA~~the isthree ~~also~~months ~~adjusted for discontinued operations~~ended September 30, ~~income taxes~~2005, ~~interest~~we ~~expense,~~recognized ~~net and minority~~approximately ~~interest~~$1.7 million ~~(which~~of ~~includes~~hurricane ~~our~~related ~~preferred~~charges, ~~stock~~net ~~dividends~~ of LQestimated property ~~Properties)~~insurance recovery, asrelated ~~well~~to asdamage ~~certain~~from ~~cash income or expense that we believe otherwise distort~~ the ~~comparability of the measure. Adjusted EBITDA~~two ~~is intended to show unleveraged~~hurricanes, ~~pre-tax operating results. This is one~~ of ~~the~~which ~~measures~~approximately ~~we use to set management and executive incentive compensation~~$0.9 million ~~Adjusted~~of ~~EBITDA~~ repairs is ~~not~~included ~~intended to represent any measure of performance~~ in ~~accordance~~other ~~with~~lodging ~~GAAP~~ and ~~our~~operating ~~calculation~~expenses and $0.8 million ~~use~~ of ~~this~~casualty ~~measure~~losses ~~may~~is ~~differ~~included ~~from our competitors. This non-GAAP measure should not be used~~ in ~~isolation or as a~~depreciation ~~substitute~~and ~~for a measure of performance or liquidity prepared in accordance with GAAP~~amortization.

La As ~~Quinta~~of ~~Corporation—Consolidated~~September 30, ~~Results~~2005, the net book value, including land, of ~~Operations~~ the two New Orleans properties that may not be returned to service aggregated approximately $10 million. We are presently unable to reliably estimate the ultimate gains or losses that may be realized in the event these properties are not returned to service. Any gain will be recognized when realized and any loss will be recognized when we are able to estimate a probable loss.

~~Comparison of the Three and Six Months Ended June 30, 2004 and 2003~~ 18

NetTable 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. Contents

The companies have business interruption insurance coverage; ~~decrease~~however, inbecause ~~net~~the ~~loss~~amount ~~for~~to be recovered under our insurance policy is undetermined at this time, the ~~three~~financial ~~and~~statements for ~~six~~the three months ended ~~June~~September 30, ~~2004~~2005 ~~was~~do ~~primarily~~not include ~~due~~an estimate of the amount to: be recovered under the business interruption coverage. Business interruption recoveries will be recognized when the amount to be collected is assured.

~~These~~ ~~improvements~~The ~~were~~estimated ~~partially~~expenditures, ~~offset~~expected ~~by:~~insurance proceeds, any asset related gains or losses and the estimated damage related expense are all subject to substantial uncertainties and will change as additional information becomes available. Also, the availability of contractors, materials and replacement furniture and fixtures may adversely impact the timing of restoring some of these properties to full service.

23Self-insurance

~~The~~ ~~following~~We ~~table~~are ~~summarizes~~a ~~statistical~~party ~~lodging~~to ~~data~~certain insurance policy contracts for workers’ ~~the~~compensation, ~~three~~commercial general liability and automobile ~~six~~liability ~~months~~exposures ~~ended~~inclusive of the period June ~~30,~~ ~~2004~~1990 through ~~and~~May 2003:. The financial strength ratings for the insurance carrier underwriting these insurance programs have been significantly downgraded by various industry rating agencies. The carrier subsequently ceased all underwritings and submitted to voluntary oversight by the Illinois Insurance Commission and filed a formal runoff plan with the Commissioner. The carrier continues to operate under this runoff plan and pay claims filed under these insurance programs. We cannot predict the success or failure of this plan nor can we predict the ability of the insurance carrier to pay pending claims; however, we believe that any failure by the insurance carrier to pay any one of our pending claims will not have a material adverse impact on our consolidated financial position or operations.

		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
Number of Company Owned Hotels in Operation:(1)
	Inns		199			205			199			205
	Inn & Suites		75			73			75			73
Franchise Hotels Open			107			75			107			75
Occupancy Percentage(2)
	Inns		68.5	%		63.2	%		65.3	%		58.2	%
	Inn & Suites		75.3	%		63.7	%		72.6	%		60.3	%
	Total Company		70.4	%		63.3	%		67.4	%		58.8	%
ADR(2,3)
	Inns	$	55.65		$	56.75		$	55.33		$	57.60
	Inn & Suites	$	65.88		$	67.65		$	66.24		$	69.78
	Total Company	$	58.71		$	59.67		$	58.61		$	60.92
RevPAR(2,4)
	Inns	$	38.12		$	35.87		$	36.15		$	33.55
	Inn & Suites	$	49.57		$	43.06		$	48.07		$	42.09
	Total Company	$	41.33		$	37.78		$	39.48		$	35.82
Available Room-Nights (2,5)			3,274			3,331			6,556			6,640
Room-Nights Sold(2,5)			2,304			2,109			4,416			3,904
Comparable Hotels:
	Hotels(6)		274			274			274			274
	Occupancy Percentage(2,6)		70.5	%		63.6	%		67.4	%		59.0	%
	ADR(2,3,6)	$	58.77		$	59.91		$	58.69		$	61.16
	RevPAR(2,4,6)	$	41.41		$	38.10		$	39.56		$	36.11
	Available Room-Nights(5,6)		3,260			3,264			6,520			6,493
	Room-Nights Sold(5,6)		2,297			2,076			4,396			3,833


	*Franchise Agreements*

~~The~~ ~~following~~Under ~~table~~certain ~~sets~~franchise ~~forth~~agreements or joint venture agreements, we have committed to provide certain ~~information~~incentive ~~regarding~~payments, ~~our~~loans, reimbursements, ~~top~~rebates ~~ten~~and ~~markets~~other ~~ranked~~payments byto ~~the~~help ~~number~~defray the cost of ~~rooms~~construction, ~~owned~~marketing inand ~~each~~other ofcosts ~~our~~associated ~~top~~with opening ~~ten~~and ~~markets~~operating a La Quinta or Baymont hotel. Our obligation to ~~our~~fund ~~total~~these ~~rooms~~commitments ~~owned~~is ascontingent ofupon certain ~~June~~conditions set forth in the respective franchise or joint venture agreements. As of September 30, ~~2004~~2005, we had approximately $15.6 million in outstanding commitments of financial assistance to various franchisees, of which approximately $9.8 million has been funded and approximately $3.2 million has been repaid by franchisees or amortized. The ~~market~~unamortized ~~RevPAR~~balance ~~performance~~of ~~data~~commitments ~~reflects~~to franchises ~~RevPAR~~is ~~performance~~included ~~during~~in other non-current assets. These agreements generally require that, in the ~~three~~event ~~and~~that ~~six~~the franchise ~~months~~relationship ~~ended~~is ~~June 30~~terminated, ~~2004~~the ~~for~~franchisee Laeither repays ~~Quinta's~~the ~~defined~~outstanding ~~competitive~~loan ~~set~~balance ~~(which~~or ~~includes~~unamortized portion of Lathe ~~Quinta's~~incentive ~~RevPAR~~payments, ~~data)~~or ~~within~~transfers to us any equipment, computer or other property purchased by the franchisee with the incentive payment.

24Guarantee

~~each~~ ~~local~~We ~~market,~~have asprovided ~~aggregated~~a bystandby ~~Smith~~letter ~~Travel~~of ~~Research.~~credit ~~During~~in ~~both~~connection with a 1995 health care transaction, which guarantees the ~~three~~payment ~~and~~of certain ~~six~~industrial ~~months~~revenue ~~ended~~bonds ~~June~~aggregating approximately $4.5 ~~30,~~million ~~2004,~~that are the ~~market~~obligation ~~RevPAR~~of ~~performance~~an ~~for~~unrelated ~~the~~third party. ~~top~~As ~~ten~~of ~~markets~~September 30, ~~increased~~2005, ~~7%.~~we ~~La Quinta's~~continued ~~RevPAR~~to ~~performance~~provide this inletter ~~these~~of ~~top~~credit ~~ten~~under ~~markets~~our ~~increased~~2003 ~~10%~~Credit ~~and~~Facility ~~11%~~for ~~during~~the benefit of the ~~three~~trustee ~~and~~of ~~six~~the ~~months~~bonds ~~ended~~in ~~June~~the amount of $4.7 ~~30,~~million ~~2004,~~(consisting ~~respectively~~of $4.5 million Laof ~~Quinta's~~principal and ~~RevPAR~~$0.2 million ~~increased~~of ~~faster~~interest). ~~than~~As part of the ~~market~~agreement to ~~primarily~~provide ~~due~~this toletter ~~improved~~of ~~RevPAR~~credit, ~~performance~~the inunrelated ~~all~~third ~~markets~~party has provided La Quinta with ~~the~~collateral ~~exception~~consisting of ~~Houston~~all property ~~during~~and ~~the~~equipment ~~three~~of ~~months~~the ~~ended~~related ~~June 30~~healthcare facility, currently ~~2004~~estimated ~~and~~to ~~all~~have ~~markets~~a ~~with~~fair ~~the~~value ~~exception~~ of ~~Austin~~approximately $0.5 million. ~~during~~Due to concern that the ~~six~~unrelated third party ~~months~~will ~~ended~~not ~~June 30~~be able to meet its obligations as they become due, there ~~2004.~~is a

							Market		Market
	Owned Hotels			Owned Rooms
							2004 Second Quarter RevPAR % Change		2004 Year-to-Date RevPAR % Change
Market	No.	% of Total		No.	% of Total
Dallas/Ft. Worth	21	8	%	2,857	8	%	9	%	7	%
Houston	16	6	%	2,053	6	%	(2	)%	4	%
San Antonio	10	4	%	1,516	4	%	2	%	4	%
Denver	10	4	%	1,314	4	%	6	%	5	%
Austin	9	3	%	1,185	3	%	3	%	(2	)%
New Orleans	8	3	%	1,177	3	%	3	%	0	%
Phoenix	8	3	%	1,009	3	%	18	%	14	%
Atlanta	7	2	%	900	2	%	8	%	4	%
Miami/Ft. Lauderdale	7	2	%	964	3	%	13	%	14	%
Orlando	6	2	%	918	3	%	27	%	25	%
Top Ten Markets	102	37	%	13,893	39	%	7	%	7	%
Other Markets	172	63	%	21,928	61	%	6	%	6	%
All Markets	274	100	%	35,821	100	%	7	%	6	%

RevenuesTable andof Expenses Contents

~~Lodging~~ probability ~~revenues~~that ~~were $143.5~~La ~~million~~Quinta ~~and~~will ~~$274.6 million~~be ~~for~~required ~~the~~to ~~three and six months ended~~perform ~~June 30,~~under ~~2004,~~the ~~respectively, and $132~~obligation.~~9 million~~ ~~and~~The ~~$251~~September ~~million for the three and six months ended June~~ 30, ~~2003,~~2005 ~~respectively.~~consolidated balance ~~The~~sheet ~~increases~~included ina ~~lodging~~liability ~~revenues~~ of approximately $104.62 million, orin ~~8.0%~~connection ~~and~~with ~~$23.6 million,~~the ~~or 9~~obligation.~~4%,~~ ~~during~~During the three ~~and six~~ months ended June 30, ~~2004~~2005, ~~respectively,~~La Quinta ~~were~~and ~~primarily due to increases in room revenues. Lodging~~this ~~revenues~~unrelated ~~include~~third ~~revenues~~party ~~from~~entered ~~room~~into ~~rentals~~a ~~and~~letter ~~other~~of ~~revenue,~~intent ~~such as charges~~ to terminate ~~guests~~our ~~for~~guarantee ~~long-distance~~contingent ~~telephone~~on ~~service,~~the ~~fax~~sale ~~machine~~by ~~use,~~the ~~movie~~third party ~~and~~of ~~vending~~the ~~commissions,~~healthcare ~~meeting~~facility and ~~banquet~~ ~~room~~the ~~use~~retirement ~~and~~of ~~laundry~~the industrial ~~services. Room~~ revenue, ~~which accounted for approximately 94~~bonds.3% ~~and~~Upon ~~94.7%~~the termination of La Quinta’s ~~lodging~~guarantee, ~~revenues~~we ~~for~~would ~~each~~reverse of the $4.2 million ~~three~~liability ~~and~~discussed ~~six~~above ~~month~~and ~~periods~~may ~~ended~~recognize ~~June 30, 2004 and~~a ~~2003,~~recovery ~~respectively,~~of isapproximately ~~dictated by demand~~$3.2 million, ~~measured~~contingent asupon ~~occupancy~~the terms ~~percentage,~~of ~~pricing, measured as ADR, and~~ the ~~level~~letter of ~~available room inventory~~intent. ~~Operating~~We ~~statistics~~were ~~such~~notified assubsequent ~~occupancy percentage, ADR~~to ~~and RevPAR~~September 30, ~~which~~2005 isthat the ~~product~~unrelated ofthird ~~ADR~~party ~~and~~has executed ~~occupancy~~a ~~percentage,~~sale ~~are~~agreement ~~calculated~~for ~~based~~the onsale ~~all~~of ~~company~~the ~~owned~~related ~~hotels~~healthcare facility, ~~including~~which ~~properties~~is ~~held~~expected ~~for~~to ~~sale~~close ~~and~~in ~~excluding~~early ~~discontinued operations~~2006.

Room revenues increased by $9.4 million, or 7.5%, to $135.3 million and increased $21 million, or 8.8%, to $258.8 million for the three and six months ended June 30, 2004, respectively, compared to $125.9 million and $237.8 million for the three and six months ended June 30, 2003, respectively, primarily due to an increase in occupancy, partially offset by a decrease in ADR. Occupancy increased approximately 7.1 percentage points from 63.3% to 70.4% and increased 8.6 percentage points from 58.8% to 67.4% during the three and six months ended June 30, 2004 and 2003, respectively. The increase in occupancy and RevPAR are primarily attributable to higher demand from leisure travelers, increased volume from various Internet travel sites including our website, www.LQ.com, increased national sales revenue, growth in membership of our La Quinta Returns program, our advertising and promotion incentives and improving guest satisfaction. This increased demand was partially offset by declines in the percentage of full rate customers and the introduction of lower net rates to La Quinta through third-party Litigation

25 We are a party to certain claims involving healthcare facilities formerly owned by LQ Properties that were leased to and operated by third party operators. Although we require 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 in 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 position or operations.

~~websites.~~ AsIn ~~a result~~addition, ~~our~~we ~~ADR~~are ~~decreased~~party ~~$0.96,~~to ora ~~1.6%,~~number toof ~~$58.71~~other claims and lawsuits ~~decreased~~arising ~~$2.31,~~out orof ~~3.8%,~~the normal course of business relating to ~~$58.61~~our ~~for~~lodging ~~the~~operations. ~~three~~We ~~and~~regularly ~~six~~evaluate ~~months~~our ~~ended~~ultimate liability ~~June 30,~~and ~~2004,~~attendant ~~respectively,~~costs ~~compared~~with respect to ~~$59.67~~these claims and ~~$60~~lawsuits.92 ~~for~~We ~~the~~do ~~three~~not ~~and~~consider ~~six~~our ~~months~~ultimate ~~ended~~liability ~~June 30,~~with ~~2003,~~respect to ~~respectively.~~any single claim or lawsuit to be material in relation to our consolidated financial position or operations.

~~RevPAR from company owned hotels increased $3.55, or 9.4%, to $41.33 and increased $3.66, or~~ 10.~~2%,~~ toTransactions ~~$39.48~~between ~~for~~LQ ~~the~~Properties ~~three~~ and six months ended June 30, 2004, respectively, compared to $37.78 and $35.82 for the three and six months ended June 30, 2003, respectively. RevPAR increased as a result of the above-mentioned factors. We believe this positive RevPAR trend will continue during the remainder of 2004 but at a slower pace than the last two quarters, and be driven primarily by higher demand from business and leisure travelers, increased volume from various Internet travel sites including our website, www.LQ~~.com,~~ increased national sales revenue, growth in membership of our La Quinta Returns program, our advertising and promotion incentives, rate increases and improving guest satisfaction. However, approximately 60% of our business is booked within zero to seven days of the stay; therefore, forecasting such a trend is difficult and declines in business and leisure traveler demand could impact our results. We can give no assurance that the trends experienced in the first half of 2004 will continue for the remainder of the year. Corporation

In ~~addition~~LQC Leasing, ~~lodging~~LLC, ~~revenues~~a ~~include~~direct ~~franchise~~subsidiary ~~fees~~of ~~charged~~LQ toCorporation, ~~franchisees~~leases hotel ~~for~~facilities ~~operating~~from ~~under~~LQ ~~the~~Properties Laand ~~Quinta~~its ~~brand~~subsidiaries. ~~and~~The lease ~~using~~agreements ~~our~~provide ~~hotel~~for ~~designs,~~a ~~operating~~percentage ~~systems~~of ~~and~~rent ~~procedures.~~payments in ~~Franchise~~amounts ~~fees~~equal ~~increased~~to by36% ~~$1.7 million,~~of orthe ~~77.3%~~gross revenues of the hotel facilities, initial lease terms ranging from four to ~~$3.9 million~~six years and ~~increased~~require ~~$3.0 million,~~LQ orProperties ~~81.1%,~~to pay property taxes and insurance and to $6fund certain capital expenditures.~~7 million~~ LQ Properties and LQC Leasing, LLC have entered into leases for the ~~three~~Baymont properties owned by LQ Properties with substantially the same terms and conditions ~~six~~as ~~months~~the ~~ended~~existing ~~June~~La 30Quinta leases, except that ~~2004,~~the ~~respectively,~~rent payments are 29% of the gross revenues provided by the Baymont properties. LQ Properties’ rent income from LQ Corporation was $263.23 million and $351.70 million ~~for~~ during the three ~~and six~~ months ended ~~June~~September 30, ~~2003,~~2005 and 2004, respectively., ~~Franchise~~and ~~revenue~~$178.6 million isand ~~expected to increase in connection with~~$142.9 million during the ~~continued~~nine ~~expansion~~months ofended ~~our~~September 30, ~~franchise~~2005 ~~program.~~and 2004, respectively.

~~Other~~ A ~~revenues,~~subsidiary ~~which~~of ~~include~~LQ ~~revenues~~Corporation ~~from~~also ~~mortgage~~has ~~financing~~a ~~and~~royalty ~~other~~arrangement with ~~notes~~a ~~receivable~~subsidiary onof ~~healthcare~~LQ ~~real~~Properties ~~estate~~for ~~and~~the ~~other~~use ~~assets, decreased~~of ~~$0.2~~the La ~~million,~~Quinta orbrand 14name.~~3%,~~ toThe ~~$1.2 million~~royalty ~~and~~agreement ~~decreased~~provides ~~$0.2 million,~~for royalties orof 71.75% of gross revenue, toas ~~$2.4 million~~defined ~~for~~in the ~~three~~royalty agreement. ~~and~~LQ ~~six~~Properties’ ~~months~~royalty ~~ended~~income ~~June 30,~~from ~~2004,~~LQ ~~respectively,~~Corporation ~~compared~~was to $12.43 million and $2.61 million ~~for~~ during the three ~~and six~~ months ended ~~June~~September 30, ~~2003,~~2005 ~~respectively.~~and ~~Other revenue is expected to decrease going forward by~~2004, ~~approximately~~respectively, and $36.45 million onand ~~an annual basis due to a~~ $265.39 million ~~partial~~during the ~~prepayment~~nine ~~received~~months inended ~~July~~September ~~2004~~30, of2005 aand ~~note receivable~~2004, respectively.

~~Direct lodging operating expenses were $64 million, or $27.79 per occupied room, and $125 million, or $28.30 per occupied~~20 ~~room for the three and six months ended June 30, 2004, respectively, and $59 million, or $27.98 per occupied room, and $113.8 million, or $29.15 per occupied room, for the three~~ ~~and six months ended June 30, 2003, respectively. Direct lodging expenses include costs directly associated with the operation of the hotels such as direct labor, utilities, and hotel supplies.~~

The increaseTable in direct lodging operating expenses of $5.0 million, or 8.5%, and $11.2 million, or 9.8%, during the three and six months ended June 30, 2004, respectively, is primarily due to increases in certain variable expenses associated with increases in occupancy such as: Contents

~~Other~~ Minority ~~lodging~~interest ~~expenses~~distributions ~~decreased~~to byLQ ~~$0.1 million,~~Corporation orfrom ~~0.5%,~~a subsidiary toof ~~$19 million~~LQ ~~and~~Properties ~~increased~~were approximately $02.35 million~~, or 0.8%, to~~ and $~~37.~~2.7 million ~~for~~during the ~~three~~nine ~~and six~~ months ended ~~June~~ September 30, ~~2004,~~2005 ~~respectively, compared to $19.1 million~~ and ~~$36.9 million for the three and six months ended June 30~~2004, ~~2003,~~ respectively. ~~Other~~

26 During the nine months ended September 30, 2004, LQ Properties paid dividends of $190 million to the sole holder of its class A common stock, LQ Corporation. LQ Corporation used the dividends to pay accrued interest and the entire balance, as of July 31, 2004, of the revolving note payable to LQ Properties and to pay off in its entirety the deferred rent receivable.

~~lodging~~ ~~expenses~~LQ ~~include~~Corporation ~~property~~provides ~~taxes,~~certain ~~insurance~~management services to LQ Properties primarily related to executive management, ~~franchise~~general tax ~~program~~preparation ~~costs~~and consulting, legal, accounting and ~~corporate~~certain aspects ~~allocations~~of ~~charged~~human toresources. ~~our~~LQ ~~owned~~Properties ~~hotel~~compensates ~~operations~~LQ Corporation ~~based~~for onthe adirect ~~percentage~~costs of ~~room~~providing ~~revenue.~~such services.

~~The decrease~~11. inSubsequent ~~other lodging expenses during the three months ended June 30, 2004 was primarily comprised of:~~ Event

On October 24, 2005, Hurricane Wilma made landfall in South Florida, impacting 13 of our properties with varying degrees of damage. The companies have insurance for property damage, ~~increase~~subject to deductibles, attributable to both wind and flood. We anticipate that substantially all of the expenditures in ~~other~~excess of ~~lodging~~the ~~expenses~~deductibles ~~during~~associated with restoring the ~~six~~properties ~~months~~will be ~~ended~~recovered ~~June 30,~~from ~~2004~~insurance ~~was~~proceeds. ~~primarily~~We ~~comprised~~are currently assessing the extent of: the property damage, however, we believe the ultimate impact from this hurricane will not be material to our consolidated financial position.

~~General and administrative expenses increased by approximately $1.1 million, or 7.5%, to $15.7 million and increased~~21 ~~$2.9 million, or 10.0%, to $31.9 million for the three and six months ended June 30, 2004, respectively, compared to $14.6 million and $29 million for the three and~~ ~~six months ended June 30, 2003, respectively. General and administrative expenses include, among other costs, information technology services, legal, finance and accounting, sales, marketing,~~ ~~reservations, human resources and operations.~~

The increaseTable in general and administrative expenses is primarily due to an increase in advertising and marketing expenses associated with our spring and summer promotion and customer relationship and marketing research initiatives, as well as increases in our Returns program expenses and reservation center expenses. These increases were partially offset by increases in corporate allocations to our owned hotels that are based on a percentage of revenue generated. Increases in the executive, finance, accounting and legal areas related to support of ongoing compliance matters and information systems projects, as well as increases in severance and other employee related costs, also contributed to the increase in corporate overhead over the prior periods. These increases were offset by decreases in the human resources and information systems areas. Contents

~~We anticipate~~Item ~~that~~2. ~~general~~Management’s Discussion and ~~administrative~~Analysis ~~expenses~~of ~~may~~Financial ~~continue~~Condition ~~to increase in 2004 compared to prior periods due to continuing marketing initiatives, on-going compliance matters~~ and ~~continuing~~Results ~~expansion~~ of ~~our franchise program.~~ Operations

~~Interest,~~ You ~~net~~should ~~decreased~~read bythe ~~$1.7 million,~~following ordiscussion ~~10.3%,~~together towith ~~$14.8 million~~the financial statements and ~~decreased~~related ~~$0.5,~~notes orincluded ~~1.6%,~~elsewhere toin this ~~$30~~Joint Quarterly Report.~~3 million during~~ ~~the~~The ~~three~~results ~~and~~discussed ~~six~~below ~~months~~are ~~ended~~not necessarily ~~June 30,~~indicative ~~2004,~~of ~~respectively,~~the ~~compared~~results to ~~$16.5 million~~be ~~and~~expected ~~$30~~in future periods.~~8 million~~ ~~during~~This ~~the~~discussion ~~three~~contains ~~and~~forward-looking ~~six~~statements based ~~months~~on ~~ended~~current ~~June 30~~expectations, ~~2003,~~which involve risks and ~~respectively~~uncertainties. ~~Interest~~Actual ~~expense~~results isand ~~presented~~the ~~net~~timing of ~~interest~~certain ~~income~~events may ondiffer ~~cash~~significantly ~~and~~from ~~investments~~those projected in ~~securities~~such forward-looking ofstatements ~~$2.9 million~~due ~~and~~to ~~$5.9 million~~a ~~for~~number ~~the~~of ~~three~~factors. ~~and~~You should ~~six~~read ~~months~~the ~~ended June 30,~~discussion ~~2004,~~about ~~respectively,~~forward-looking ~~and~~statements ~~$2.4 million~~in this ~~and~~Joint ~~$3.4 million~~Quarterly ~~for~~Report under the ~~three~~heading “Forward-Looking ~~and~~Statements.” ~~six~~That ~~months~~section ~~ended~~will ~~June 30,~~also direct ~~2003,~~you ~~respectively.~~to ~~The~~risks ~~decrease~~identified in ~~interest~~our ~~expense~~Joint ~~was primarily~~Annual ~~due~~Report, toas updated ~~$50.7 million~~by ofour ~~principal~~May ~~payments~~2005 8-K, ~~made~~and onother ~~our~~risks ~~debt~~described from time ~~June 30,~~to ~~2003~~time toin ~~June 30~~our annual, ~~2004~~quarterly and ancurrent ~~increase~~reports infiled with ~~interest~~the ~~income of $0~~SEC.~~6 million~~ ~~and $2.4 million~~We ~~for~~undertake ~~the~~no ~~three~~obligation ~~and~~to ~~six~~publicly ~~months~~update ~~ended~~or revise ~~June 30,~~any ~~2004,~~forward-looking ~~respectively.~~statement ~~The~~whether ~~decreases~~as ~~were~~a ~~partially~~result ~~offset~~of bynew information, ~~higher~~future ~~interest~~events ~~expense~~or ~~related~~other tochanges, ~~the~~including ~~March 2003~~those described ~~issuance~~in of our ~~$325 million~~Joint ~~8.875%~~Annual ~~senior~~Report ~~notes.~~and May 2005 8-K.

27 Overview

~~Depreciation~~ La Quinta ~~and~~is ~~amortization~~one ~~expense~~of ~~decreased~~the bylargest ~~$2.2 million,~~owner/operators orof ~~6.8%, to $30.2 million and decreased~~limited ~~$4.3 million,~~service orhotels ~~6.7%,~~in ~~to $59.5 million for~~ the ~~three~~United ~~and~~States. ~~six~~We ~~months~~strive ~~ended~~to ~~June 30,~~offer ~~2004,~~hotels that ~~respectively,~~attract ~~compared~~both tobusiness ~~$32.4 million~~ and ~~$63.8 million~~leisure ~~for~~travelers ~~the~~seeking consistently ~~three~~clean and ~~six~~ ~~months~~comfortable ~~ended~~rooms ~~June 30,~~that ~~2003,~~generally ~~respectively,~~are comparable ~~primarily due~~ to athose ~~decrease in depreciation as a result~~ of ~~significant~~mid-priced, ~~impairments~~full ofservice ~~property~~hotels, ~~and~~but ~~equipment during March 2003 and a~~at ~~decrease~~lower inaverage ~~losses~~room ~~on asset retirements~~rates.

~~Impairments~~ In ofSeptember ~~property and equipment increased by $3.1 million~~2004, orwe ~~67.4%,~~acquired tosubstantially ~~$7.7 million~~all ~~and~~the ~~decreased~~assets byof ~~$53.9 million,~~the orlimited ~~80.9%,~~service tolodging ~~$12.7 million~~division ~~for~~of ~~the~~The ~~three~~Marcus ~~and~~Corporation (the ~~six months ended June 30~~“Acquisition”), ~~2004,~~including ~~respectively, compared to $4.6~~90 ~~million and $66.6~~Baymont Inn ~~million~~& ~~for~~Suites ~~the~~(including ~~three and~~one ~~six~~management ~~months ended June 30~~contract), ~~2003,~~seven Woodfield ~~respectively.~~Suites Weand ~~recorded~~one ~~impairments~~Budgetel onInn. ~~lodging~~In ~~properties~~addition, ~~held~~we ~~for~~acquired all ~~use~~the oftrade ~~$7.2 million~~rights ~~and~~associated ~~$12.2 million~~with ~~during~~ the ~~three~~Baymont, ~~and six months~~Woodfield ~~ended~~Suites ~~June 30,~~and ~~2004,~~Budgetel ~~respectively~~brands, and ~~$4.3 million and $65 million during~~ the ~~three~~Baymont ~~and~~franchise ~~six~~system ~~months~~of 87 ~~ended~~hotels. ~~June 30,~~In ~~2003,~~December ~~respectively~~2004, ~~where~~we ~~facts,~~acquired ~~circumstances,~~three ~~and analysis~~additional ~~indicated~~ hotels that ~~the~~have ~~assets~~been ~~were~~or ~~impaired.~~will Webe ~~recorded~~converted ~~impairments~~to onour ~~lodging~~brands. ~~properties~~The ~~held~~hotels acquired ~~for~~in ~~sale~~September of2004, ~~approximately~~excluding ~~$0.5 million~~four ~~during~~Baymont ~~both~~hotels currently ~~the~~reported ~~three~~in ~~and~~discontinued ~~six~~operations ~~months~~(two ~~ended~~have been ~~June 30,~~sold ~~2004 and $0.3 million and $1.6 million~~ during ~~the~~2005), ~~three~~are ~~and~~referred ~~six~~to ~~months~~collectively ~~ended~~as ~~June 30,~~the “Acquired ~~2003, respectively~~Hotels. ”

~~Discontinued~~ La Quinta ~~Operations~~derives its revenue by owning and operating hotels under our proprietary La Quinta, ~~net~~ Baymont, Woodfield Suites and Budgetel brands. In addition, we franchise our La Quinta and Baymont brands to independent owner/operators. La Quinta owns U.S. trademark registrations for many of its trademarks including, but not limited to, La Quinta®, Baymont®, Woodfield Suites®, Budgetel®and Returns®, as well as U.S. registrations for marks that feature the “Great Sign” logos for the La Quinta, Baymont, Woodfield Suites and Budgetel properties. As of September 30, 2005, our system of owned, managed and franchised hotels contained 604 hotels (excluding owned hotels reported in discontinued operations and including 13 hotels located on land all or part of which we lease from third parties), representing approximately 65,500 rooms located across the U.S., and approximately 50 rooms in Canada. As of September 30, 2005, we owned and operated 359 hotels (excluding owned hotels reported in discontinued operations), representing approximately 44,800 rooms, and our franchisees operated 245 hotels, representing approximately 20,700 rooms under our brands.

~~For~~ Our ~~the~~growth ~~three~~strategy ~~and~~includes ~~six~~improving ~~months~~the ~~ended~~profitability ~~June 30, 2003, income from discontinued operations~~ of ~~approximately $0.2 million and loss of $0.1 million,~~our ~~net~~existing ofcompany ~~income~~owned ~~tax benefit and expense~~hotels, ~~respectively,~~continuing ~~represents~~expansion ~~the results~~ of ~~TeleMatrix,~~our La ~~Inc.~~Quinta and ~~room~~Baymont ~~and~~brands ~~rental~~through ~~income~~franchising, ~~direct~~ and ~~other lodging expenses, property insurance, real estate~~ ~~taxes~~investing ~~and~~a ~~depreciation~~portion ~~expense related to the operation and ownership~~ of ~~three~~our ~~company~~available ~~owned~~capital ~~hotels.~~in ~~During 2003, we sold~~ the ~~three~~lodging business ~~hotels and TeleMatrix~~including, ~~Inc.,~~ abut ~~business~~not ~~component~~limited ~~that provides~~to, ~~telephone equipment and software for~~ the ~~lodging~~acquisition ~~industry. As~~ of ~~June 30,~~other lodging ~~2004, no~~ assets ~~held~~and/or ~~for~~brands. ~~sale~~We ~~were~~believe ~~subject~~that towe ~~SFAS 144~~benefit ~~classification as discontinued operations and~~from ~~there~~certain ~~was~~competitive ~~no income or loss from discontinued operations.~~ strengths

~~Other (Income) Expense~~ 22

OtherTable (income) expense consisted of the following: Contents

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In millions)
Loss on sale of assets and related costs	$	0.2		$	0.1		$	0.2		$	—
Loss on early extinguishments of debt		—			4.3			—			6.2
Other(1)		(0.8	)		(0.4	)		(1.0	)		0.9
Total other (income) expense	$	(0.6	)	$	4.0		$	(0.8	)	$	7.1

that support implementation of our growth strategy, including significant brand awareness, operational expertise, experienced management team, capital structure and strong infrastructure.

28 We also believe the overall lodging industry environment today is positive. In 2001, the U.S. lodging industry experienced a substantial downturn as a result of a slowing national economy and the impact on the U.S. of the terrorist attacks on September 11, 2001, as well as the aftermath. Toward the end of 2003, however, year-over-year revenue per available room, or RevPAR, changes turned positive for the industry as leisure travel began to increase. Based on data provided by Smith Travel Research, RevPAR in the U.S. lodging industry experienced a year-over-year increase of 7.8% in 2004, as leisure travel continued to increase and was accompanied by improvement in business travel.

~~Income~~ Assets ~~Taxes~~ Held For Sale

As At ~~of December~~September 3130, ~~2003~~2005, ~~our~~we ~~total~~have ~~federal~~a ~~NOL~~total ~~carryforwards~~of ~~were~~12 ~~approximately~~hotels ~~$459~~held for sale.~~5 million,~~ The decision to sell certain of ~~which~~these ~~approximately~~hotels ~~$178.4 million~~was isbased ~~available~~on to(1) local LQmarket ~~Properties~~conditions, (2) historical operating and ~~its~~financial ~~taxable~~results ~~REIT~~associated ~~subsidiaries.~~with Asthe ofhotel, ~~December~~and (3) ~~31,~~future ~~2003, our total~~ capital ~~loss~~expenditure ~~carryforwards~~requirements. ~~were~~The ~~approximately~~sale ~~$28.6 million,~~of ~~and~~a hotel ~~our~~to ~~federal~~a ~~tax~~buyer ~~credit carryforwards~~who ~~(primarily~~will ~~alternative~~operate ~~minimum~~it ~~tax~~as ~~credits~~a ~~available~~Baymont ~~only~~franchise is believed to LQconstitute ~~Properties)~~significant ~~were~~continuing ~~approximately~~involvement ~~$5.9 million.~~in Athe operations ~~valuation~~of ~~allowance~~the ofhotel ~~approximately~~and, ~~$27.8 million~~therefore, ~~has~~presentation ~~been~~as ~~provided~~discontinued ~~with~~operations ~~respect~~is tonot ~~deferred~~appropriate. ~~tax~~We ~~assets~~believe ~~related~~it tois probable ~~certain~~that ~~NOL~~four ~~carryforwards,~~of ~~capital~~the ~~loss~~hotels ~~carryforwards,~~currently ~~and~~held ~~tax~~for ~~credit~~sale ~~carryforwards~~will ~~for~~be sold ~~which~~to ~~realization~~buyers ofwho ~~the~~will ~~benefit~~operate isthem ~~not~~as ~~reasonably assured.~~Baymont franchises.

~~Liquidity~~ Casualty ~~and Capital Resources~~ Losses

~~Overview~~ The Gulf Coast region of the U.S. was severely impacted by Hurricanes Katrina and Rita on August 29, 2005 and September 24, 2005, respectively. Eight of our company owned hotels in the New Orleans area were damaged by Katrina. We have yet to determine whether it is feasible to ever return to service two of these hotels, one of which is classified as discontinued operations. It is anticipated that the other six hotels (four of which were partially operational as of September 30, 2005) will be substantially returned to service by the end of 2005. An additional 14 company owned hotels in Texas, Louisiana, Mississippi, Alabama and Florida experienced varying degrees of damage from the two hurricanes and most were substantially returned to service prior to September 30, 2005.

As During ofthe ~~June~~three months ended September 30, ~~2004~~2005, wethe two hurricanes had ~~approximately~~a ~~$444.4 million~~net offavorable ~~liquidity,~~impact ~~which~~on ~~was~~operating ~~comprised~~revenues of approximately $~~314.~~5 million ofas ~~cash~~the ~~and~~system-wide ~~cash equivalents and~~favorable ~~$129.9 million~~impact of ~~unused~~accommodating ~~capacity~~displaced ~~under~~residents ~~our~~and ~~$150 million~~relief ~~2003~~workers exceeded ~~Credit~~the ~~Facility,~~localized ~~after~~unfavorable ~~giving~~impact ~~effect~~of tothe ~~approximately~~suspension ~~$20.1 million~~ of operations ~~letters~~at ofseven ~~credit~~hotels ~~issued~~(excluding ~~under~~one ~~the~~hotel ~~2003 Credit~~currently ~~Facility.~~classified Ofas ~~the~~discontinued ~~$20~~operations).~~1 million~~ ofDuring ~~letters~~the ofthree ~~credit,~~months ended ~~approximately $15.4~~September ~~million~~30, ~~support~~2005, ~~insurance~~we ~~arrangements~~recognized ~~and~~ approximately $41.7 million ~~guarantees~~of ~~the~~hurricane ~~payment~~related ofcharges, ~~principal~~net ~~and~~of ~~interest~~estimated onproperty ~~industrial revenue~~insurance ~~bonds~~recovery, ~~which~~related ~~are~~to damage from the ~~obligation~~two hurricanes, of anwhich ~~unrelated~~approximately ~~third party~~$0.9 million ~~The letter~~ of ~~credit~~ repairs is aincluded ~~remaining~~in ~~obligation~~other ~~from~~lodging aand ~~1995~~operating ~~healthcare~~expenses ~~transaction~~and $0.8 million of casualty losses is included in depreciation and amortization.

~~Effective~~ ~~November~~During the three months ended September 1230, ~~2003~~2004, we recorded ~~refinanced~~casualty ~~our~~loss ~~previous~~expense, ~~$125 million~~net ~~credit~~of ~~facility,~~estimated ~~which~~property insurance ~~was~~recovery, ~~scheduled~~of toapproximately ~~mature~~$1.7 million, included in ~~January 2004~~depreciation and amortization, related to ~~provide~~property ~~for~~damage ~~the~~as ~~$150 million~~a ~~2003~~result ~~Credit~~of ~~Facility~~the ~~maturing~~hurricanes in ~~April 2007~~the State of Florida during 2004. During ~~Borrowings~~2005, ~~under~~we reduced a portion of the ~~2003~~previously ~~Credit~~recorded casualty ~~Facility~~loss ~~currently~~expense ~~bear~~as ~~interest~~a atresult ~~LIBOR~~of ~~plus~~insurance 2recoveries by approximately $0.5%8 million.

We23 ~~have $150 million of debt maturing (or redeemable at the option of the holder) during the period from July 1, 2004 through June 30, 2005. As of June 30,~~ ~~2004, none of our debt obligations were floating rate obligations.~~

CashTable Flowsof from Operating Activities Contents

~~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~~Key ~~and~~Indicators ~~the timing~~ of ~~working~~Financial ~~capital~~Condition ~~changes can be expected to cause quarterly fluctuations in revenue~~ and ~~operating cash flows. Our operating cash flows have improved during the six months~~Operating ~~ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to increases in revenue.~~ Performance

~~Cash~~ We ~~Flows~~use ~~from~~a ~~Investing~~variety of financial and ~~Financing~~other ~~Activities~~ 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 U.S. generally accepted accounting principles, or GAAP, while other information may be financial in nature and may not be 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 to 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.

AsOperating of June 30, 2004, our gross investment in property and equipment totaled approximately $2.6 billion, consisting of hotel facilities in service and corporate assets. During the six months ended June 30, 2004, we spent approximately $28.9 million on capital improvements and renovations to existing hotels, redevelopment and corporate expenditures. Statistics

~~Under~~ ~~certain~~Average ~~franchise~~Daily ~~and~~Rate ~~joint venture agreements~~(“ADR”), weOccupancy ~~have~~Percentage and ~~committed~~RevPAR. toRoom ~~provide~~revenue ~~certain~~comprises ~~incentive~~approximately ~~payments,~~93% ~~loans,~~of ~~reimbursements,~~our revenues ~~rebates,~~ and ~~other~~is ~~payments~~dictated toby ~~help~~demand, ~~defray~~as ~~the~~measured ~~costs~~by occupancy ofpercentage, ~~construction~~pricing, ~~marketing~~as ~~and~~measured ~~other~~by ~~costs~~ADR, ~~associated with opening~~ and ~~operating~~our aavailable supply Laof ~~Quinta~~ hotel rooms. ~~Our~~RevPAR, ~~obligation~~which ~~to fund these commitments~~ is ~~contingent~~the ~~upon~~result ~~certain~~of ~~conditions set forth in~~ the ~~respective~~combined ~~franchise~~impact orof ~~joint~~ADR ~~venture~~and ~~agreements. At June 30~~occupancy, ~~2004,~~is weanother ~~had~~important statistic ~~approximately~~for ~~$8.3 million~~monitoring inoperating ~~outstanding~~performance ~~commitments~~at ofthe ~~financial assistance to various franchisees, of which~~individual ~~approximately~~hotel ~~$6.0 million~~property ~~had~~level ~~been funded~~ and ~~approximately~~across ~~$2.2 million~~our ~~had~~business ~~been~~as ~~either~~a ~~repaid or amortized by franchisees~~whole. ~~The~~RevPAR performance ~~unamortized~~is ~~balance~~evaluated ofon ~~amounts~~an ~~funded~~absolute orbasis, ~~payable~~with oncomparison ~~incentive~~to ~~payments~~budgeted ofand ~~approximately~~prior ~~$4.6 million~~period isperformance, ~~included~~as inwell ~~Other~~as ~~Non-current~~on ~~Assets.~~a company ~~These~~wide ~~agreements~~and ~~generally~~regional ~~require~~basis. ~~that~~Additionally, inRevPAR performance ~~the~~is ~~event~~compared ~~the~~and ~~franchise~~tracked ~~relationship~~against ~~is terminated,~~industry ~~the~~data ~~franchisee~~for our ~~either~~defined ~~repays~~competitive ~~the~~set ~~outstanding~~within ~~loan~~each ~~balance~~local ormarket ~~unamortized~~as aggregated ~~portion~~by ofSmith ~~the~~Travel Research.

29 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 limited service and 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 customer loyalty program. Our available room supply is impacted by our access to third party financing, the amount we spend to develop or acquire hotels and our sale of existing hotels.

~~incentive~~ ~~payment,~~Inn orOperating ~~transfers~~Contribution to(“IOC”). usIOC ~~any~~is ~~equipment,~~a non-GAAP ~~computer~~measure orof ~~other~~an individual hotel property’s ~~purchased~~level byof profitability ~~the~~before ~~franchisee~~fixed ~~with~~costs. IOC focuses on revenues and expenses that management considers to be controllable components of the ~~incentive~~hotel ~~payment~~property level operations. As part of IOC, we track and manage our cost per rented room as a measure of the variable cost to offer a room night.

We ~~expect~~Guest toSatisfaction. ~~provide~~Guest ~~funding~~satisfaction ~~for~~scores ~~new~~are ~~investments~~an important ~~through~~indicator ~~a combination~~ of ~~long-term~~how ~~and~~our ~~short-term~~products ~~financing, including debt~~ and ~~equity.~~services Weare ~~also provide funding~~being ~~for~~received ~~new investments through internally generated cash flow~~ and ~~the~~viewed ~~sale~~by ofour ~~selected assets~~customers. We ~~may~~believe ~~obtain~~guest satisfaction ~~long-term~~is ~~financing~~a ~~through~~driver ~~the issuance~~ of ~~equity~~repeat ~~securities, long-term secured or unsecured notes, convertible debentures~~ and ~~the~~referral ~~assumption~~business ofthat leads ~~mortgage~~to ~~notes~~increased revenue. WeGuest ~~may~~satisfaction ~~obtain~~scores ~~short-term~~are monitored ~~financing~~ through ~~the~~a ~~use~~number of ~~our~~initiatives ~~2003~~including ~~Credit~~surveys ~~Facility,~~conducted ~~which~~by ~~may~~an beindependent ~~replaced~~market ~~with~~research ~~long-term financing as appropriate~~company. ~~From~~We ~~time~~believe that tohigh ~~time,~~levels weof ~~may~~guest ~~utilize~~satisfaction ~~interest~~are ~~rate~~important ~~swaps~~ to maintaining ~~manage~~and ~~any~~growing ~~variable~~our ~~interest~~brands’ ~~rate~~reputation ~~exposure~~and recognition.

We ~~have~~Franchise anMonitoring. ~~effective~~We ~~shelf~~also ~~registration~~monitor ~~statement~~and ontrack ~~file with~~ the number ~~SEC. Under the shelf registration statement, either or both~~ of LQfranchise ~~Corporation~~units opened and LQthe ~~Properties~~overall ~~may~~growth ~~offer,~~in ~~from~~our franchise ~~time~~revenues to ~~time,~~ inmeasure ~~one or more offerings~~ the ~~following~~performance ~~securities: debt securities, which may be senior or subordinated; shares~~ of ~~common~~our ~~stock; shares of preferred stock; depositary shares; and warrants exercisable for debt securities~~brands, ~~common stock or preferred stock. In November 2003, we issued 34.5 million paired shares for net proceeds of approximately $184.3 million under the~~as ~~shelf~~well ~~registration statement.~~ as

On24 ~~November 12, 2003, we refinanced our previous $125 million credit facility to provide for the $150 million 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. Borrowings under the 2003 Credit Facility currently bear interest at LIBOR plus 2.50%. During the six months ended June 30, 2004, there were no borrowings under the 2003 Credit Facility other than the letters of credit.

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

In ~~addition~~our tofranchise ~~the~~programs, ~~financial~~which ~~covenants,~~we ~~the~~believe ~~2003~~are ~~Credit~~important ~~Facility~~to increase ~~also~~our ~~includes~~presence ~~limitations~~in onkey ~~capital~~geographic ~~expenditures,~~markets ~~asset~~and ~~sales,~~enter additional ~~secured~~geographic ~~debt,~~markets. ~~certain~~In ~~investments~~addition, ~~common~~our ~~stock~~management uses ~~dividends~~ADR, ~~and~~occupancy ~~debt~~percentage, RevPAR and ~~share~~guest ~~repurchases.~~satisfaction scores to monitor franchisee operating performance.

~~During 2003,~~Adjusted weEarnings ~~issued~~Before ~~$325 million of senior notes bearing a coupon rate of 8.875% and having a maturity of March 15~~Interest, 2011. These notes were issued by LQ Properties and guaranteed by LQ Corporation. The notes were offered only to qualified institutional buyers in reliance on Rule 144A and Regulation S under the Securities Act of 1933Taxes, asDepreciation ~~amended. Pursuant to a registration rights agreement with the initial purchasers of our senior 8.875% notes, we registered with the SEC an offer to exchange new notes issued by LQ Properties~~ and guaranteed by LQ Corporation, which we refer to as the "exchange notes," for the original notes. We closed the exchange offer on December 3, 2003. The exchange notes are in the same aggregate principal amount as, and have terms substantially identical to, the original notes, but the exchanges notes are freely tradable by the holders, while the original notes were subject to resale restrictions. The exchange offer did not generate any cash proceeds to us. These notes are subject to, among other types of covenants, certain restrictive financial incurrence covenants, including limitations on the incurrence of indebtedness (pro forma fixed charge coverage ratios 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 Amortization

30 We use a variety of measures at the corporate level 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, or 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 and minority interest (which includes the 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.

~~the~~ ~~financial~~La Quinta ~~covenants,~~Corporation — ~~the~~Consolidated ~~indenture also includes, among other limitations, limitations on asset sales, issuances~~ Results of ~~certain capital stock, sale and leaseback transactions and affiliate~~Operations ~~transactions.~~

~~Also during~~Comparison of the ~~six~~Three ~~months~~and ~~ended~~Nine ~~June 30,~~Months ~~2004,~~Ended weSeptember ~~repaid~~30, ~~approximately~~2005 ~~$19.5 million~~and ~~in principal on notes payable scheduled to mature on March 15,~~ 2004.

~~The~~ ~~following~~Net isincome awas ~~summary~~$13.7 million, ofor ~~our~~$0.07 per ~~future~~basic ~~debt~~and diluted ~~maturities~~common asshare, and $14.1 million, or $0.07 per basic and diluted common share, during the three and nine months ended September 30, 2005, respectively, compared to net losses of ~~June~~$12.1 million, or $0.07 per basic and diluted common share and $31.2 million, or $0.18 per basic and diluted common share, for the three and nine months ended September 30, 2004:, respectively.

Year		Total
		(In millions)
2004(1)		$	150
2005			116
2006			20
2007			210
2008			50
2009 and thereafter			330
	Total debt	$	876

The change from net loss to net income of $25.8 million, or $0.14 per basic and diluted common share, and $45.3 million, or $0.25 per basic and diluted common share, during the three and nine months ended September 30, 2005, respectively, compared to the three and nine months ended September 30, 2004, was primarily due to:

~~Included in~~• ~~notes~~an ~~payable~~increase ~~is $150 million principal amount of 7.114% notes, due~~ in ~~August 2011~~revenues ~~(repayable~~from byhotel LQoperations ~~Properties in August 2004 at the option~~ of ~~the Trust)~~$45.0 ~~The~~million 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 and ~~Note 6—Notes Payable in our Condensed Notes to Consolidated Financial Statements in this Joint Quarterly Report on Form 10-Q~~$133.)9 ~~LQ Properties is both the owner of the 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~~million, ~~2004~~respectively, ~~the interest rate will increase by an amount determined in accordance with the documents that govern the obligations~~ of ~~LQ Properties~~which ~~with~~approximately ~~respect~~$5 tomillion ~~the Notes~~represents (the ~~"Interest~~net ~~Rate~~favorable toimpact ~~Maturity"). A third party (the "Call Holder") has the option to purchase the Notes at 100%~~ of ~~their~~accommodating ~~principal~~residents ~~amount~~displaced onby ~~August 15, 2004 (~~the ~~"Call~~hurricanes Option"). If the Call Holder exercises the Call Option, we may repurchase the Notes from the Call Holder at a price equal to 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~~relief ~~payments,~~workers; as• ~~determined~~an inincrease 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~~franchise ~~case~~fees ~~accrued and unpaid interest. The estimated fair value~~ of ~~the repurchase~~approximately ~~of the Notes from the Call Holder was up to~~ $~~175~~4.2 3 million and $~~176~~11.~~5 million~~9 ~~at June 30~~million, ~~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~~decrease ~~Holder fails~~in toimpairment ~~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,~~property ~~2004~~ and ~~December 31,~~equipment ~~2003,~~of ~~LQ Properties owned~~ $~~122~~12.2 7 million ofduring the ~~Securities~~nine ~~issued~~months byended ~~the~~September ~~Trust. Accordingly~~30, if2005; ~~the~~• ~~Call Option is exercised and LQ Properties does not exercise its repurchase rights described above, LQ Properties will have~~ a ~~non-callable~~decrease ~~$150 million obligation that matures~~ in ~~August 2011,~~loss ~~which~~on ~~will~~early ~~bear~~extinguishment ~~interest~~of atdebt ~~the~~of ~~Interest Rate to Maturity. In this event, we will receive a~~ $~~122~~21.2 4 million ~~contemporaneous~~during ~~distribution from~~ the ~~Trust,~~three ~~representing~~and anine ~~portion~~months ofended ~~the~~September ~~price paid by the Call Holder to the Trust upon exercise of the Call Option. Upon the initial application of SFAS 133~~30, LQ2005; ~~Properties determined that the Call Option, Put Option, repurchase,~~ and ~~reset~~• ofan ~~interest~~increase ~~did~~in ~~not~~other ~~meet~~(income) ~~the~~expense ~~characteristics~~ of ~~derivative instruments as defined in SFAS 133~~$1.9 ~~During~~million ~~2003,~~during ~~we reclassified~~ the ~~owned~~three ~~Securities~~months onended ~~our~~September 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~~2005.

3125

We hadTable shareholders' equity of approximately $1.4 billion and our net debt (total indebtedness less investments in securities less cash and cash equivalents) constituted approximately 22% of our total capitalization (total shareholders' equity plus minority interest plus total indebtedness less investments in securities less cash and cash equivalents) as of June 30, 2004. LQ Properties had shareholders' equity of approximately $1.7 billion as of June 30, 2004. Contents

~~During~~ ~~the~~The ~~six~~foregoing ~~months~~changes ~~ended~~were ~~June 30,~~partially ~~2004,~~offset ~~LQ Properties paid total dividends of $9.0 million on its 9.00% Series A Cumulative Redeemable Preferred Stock.~~ by:

~~Our Board~~• ofan ~~Directors~~increase ~~previously~~in ~~approved~~direct alodging operations expense of $20 17.7 million ~~share~~and ~~repurchase~~$54.1 ~~program~~million, torespectively; ~~allow~~• usan toincrease ~~repurchase~~in ~~common~~other lodging and~~/or~~ ~~preferred~~operating ~~stock~~expense inof ~~the~~$5.7 ~~open~~million ~~market~~and or$17.1 million, respectively; • an aggregate increase in ~~privately negotiated~~selling, ~~transactions.~~general Asand ofadministrative ~~June 30~~expense and interest, ~~2004~~net of $3.3 million and $19.6 million, werespectively; ~~had~~• ~~repurchased~~an ~~approximately~~increase in depreciation and amortization expense of $92.5 million and $14.1 million, respectively; • a decrease in other (orincome) expense of $1.9 5 million ~~shares)~~during ofthe ~~our~~nine ~~equity~~months ~~securities~~ended ~~under~~September ~~the~~30, ~~program~~2005; and • a change from income tax benefit to income tax expense of approximately $17.9 million and $27.9 million, respectively.

As26 ~~more fully described above, LQ Corporation entered into a definitive 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. We expect to finance the Acquisition~~ ~~with cash on hand and additional sources of funding. In connection with financing the Acquisition, on July 14, 2004, we entered into an amendment to the 2003 Credit Facility that:~~

In addition,Table 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. Contents

~~Under~~ ~~the~~The ~~terms~~following oftable ~~the~~summarizes ~~Acquisition~~statistical ~~Agreement,~~lodging wedata ~~have~~for ~~deposited~~the three ~~$16 million~~and ~~with~~nine anmonths ~~escrow~~ended ~~agent~~September 30, ~~which~~2005 ~~has~~and ~~deposited the funds in an interest bearing account pending the closing~~2004: ~~of the Acquisition.~~

We believe that our current sources of capital, including cash on hand, operating cash flows, and expected proceeds from the sale of certain lodging assets are adequate to finance our current operations, including 2004 capital expenditures which we currently expect to be approximately $80 million.


			As of and For						As of and For
			the Three						the Nine
			Months Ended						Months Ended
			September 30,						September 30,

			2005			2004			2005			2004

Number of Hotels in Operation:
Comparable Owned Hotels(1)
	La Quinta Inns			185			185			185			185
	La Quinta Inn & Suites			75			75			75			75
	Baymont Inn & Suites(2)			—			—			—			—
Total Comparable Owned Hotels				260			260			260			260

Total Company Owned Hotels(3)
	La Quinta Inns			186			190			186			190
	La Quinta Inn & Suites			78			77			78			77
	Baymont Inn & Suites(2)			85			85			85			85
	Other(4)			10			8			10			8
Total Company Owned Hotels				359			360			359			360

Franchised/ Managed Hotels
	La Quinta Inns			72			56			72			56
	La Quinta Inn & Suites			67			53			67			53
	Baymont Inn & Suites(2)			106			88			106			88
Total Franchised/ Managed Hotels				245			197			245			197
Total System Wide Hotels(5)				604			557			604			557

Occupancy Percentage:
Comparable Owned Hotels(1)
	La Quinta Inns			72.0	%		69.2	%		68.0	%		66.9	%
	La Quinta Inn & Suites			74.4	%		72.9	%		74.3	%		72.7	%
		Composite (La Quinta comparable owned)		72.7	%		70.3	%		69.8	%		68.6	%
	Baymont Inn & Suites(2)			N/A			N/A			N/A			N/A
Total Comparable Owned Hotels				72.7	%		70.3	%		69.8	%		68.6	%

Total Company Owned Hotels(3)
	La Quinta Inns			71.9	%		69.1	%		67.9	%		66.8	%
	La Quinta Inn & Suites			74.2	%		72.9	%		73.9	%		72.7	%
		Composite (La Quinta owned)		72.6	%		70.2	%		69.7	%		68.5	%
	Baymont Inn & Suites(2)			70.6	%		65.8	%		65.7	%		65.0	%
Total Company Owned Hotels(3,4)				72.1	%		69.9	%		68.8	%		68.4	%

System Wide Hotels(5)
	La Quinta Inns			71.2	%		68.8	%		67.3	%		65.9	%
	La Quinta Inn & Suites			74.8	%		73.0	%		73.0	%		71.4	%
		Composite (La Quinta system wide)		72.4	%		70.2	%		69.2	%		67.6	%
	Baymont Inn & Suites(2)			67.6	%		63.3	%		62.4	%		63.0	%

~~Effects of Certain Events on Lodging Demand~~ 27

TheTable combination of terrorist attacks and the impact of the war with Iraq and its aftermath and the downturn in the national economy, along with our concentration of hotels in certain markets, resulted in substantial declines in demand for lodging for both business and leisure travelers across all lodging segments and increased price competition during the first half of 2003. Although we continually and actively manage the operating costs of our hotels in order to respond to changes in demand at our lodging properties, we must also continue to provide the level of service that our guests expect. Although operating results and cash flow from operating activities have improved, our operating results and cash flow from operating activities could be impacted should such events occur again. Contents


			As of and For				As of and For
			the Three				the Nine
			Months Ended				Months Ended
			September 30,				September 30,

			2005		2004		2005		2004

ADR:
Comparable Owned Hotels(1)
	La Quinta Inns		$	61.23	$	57.16	$	59.93	$	56.16
	La Quinta Inn & Suites		$	71.11	$	66.19	$	71.85	$	66.22
		Composite (La Quinta comparable owned)	$	64.22	$	59.92	$	63.67	$	59.31
	Baymont Inn & Suites(2)			N/A		N/A		N/A		N/A
Total Comparable Owned Hotels			$	64.22	$	59.92	$	63.67	$	59.31

Total Company Owned Hotels(3)
	La Quinta Inns		$	61.01	$	56.83	$	59.61	$	55.79
	La Quinta Inn & Suites		$	72.50	$	66.48	$	73.07	$	66.56
		Composite (La Quinta owned)	$	64.58	$	59.78	$	63.92	$	59.13
	Baymont Inn & Suites(2)		$	57.40	$	53.67	$	55.95	$	53.04
Total Company Owned Hotels(3,4)			$	63.50	$	59.45	$	62.70	$	58.99

System Wide Hotels(5)
	La Quinta Inns		$	63.37	$	57.61	$	61.33	$	56.35
	La Quinta Inn & Suites		$	74.71	$	68.83	$	73.80	$	67.51
		Composite (La Quinta system wide)	$	67.39	$	61.42	$	65.78	$	60.15
	Baymont Inn & Suites(2)		$	61.05	$	58.12	$	59.38	$	57.38

RevPAR:
Comparable Owned Hotels(1)
	La Quinta Inns		$	44.06	$	39.55	$	40.73	$	37.57
	La Quinta Inn & Suites		$	52.90	$	48.28	$	53.35	$	48.14
		Composite (La Quinta comparable owned)	$	46.67	$	42.13	$	44.46	$	40.69
	Baymont Inn & Suites(2)			N/A		N/A		N/A		N/A
Total Comparable Owned Hotels			$	46.67	$	42.13	$	44.46	$	40.69

Total Company Owned Hotels(3)
	La Quinta Inns		$	43.85	$	39.28	$	40.48	$	37.28
	La Quinta Inn & Suites		$	53.79	$	48.49	$	53.98	$	48.40
		Composite (La Quinta owned)	$	46.87	$	41.99	$	44.56	$	40.53
	Baymont Inn & Suites(2)		$	40.51	$	35.32	$	36.77	$	34.47
Total Company Owned Hotels(3,4)			$	45.77	$	41.55	$	43.11	$	40.37

System Wide Hotels(5)
	La Quinta Inns		$	45.13	$	39.65	$	41.24	$	37.11
	La Quinta Inn & Suites		$	55.85	$	50.23	$	53.87	$	48.20
		Composite (La Quinta system wide)	$	48.81	$	43.10	$	45.52	$	40.68
	Baymont Inn & Suites(2)		$	41.28	$	36.78	$	37.06	$	36.15

Room Night Data(6):
Comparable Owned Hotels(1)
	Available Room-Nights			3,136		3,138		9,309		9,348
	Room-Nights Sold			2,279		2,206		6,500		6,413

Total Company Owned Hotels(3)
	Available Room-Nights			4,149		3,496		12,347		9,902
	Room-Nights Sold			2,991		2,443		8,489		6,775

~~RevPAR~~28 ~~results for company owned hotels for the six months ended June 30, 2004 were favorable. We believe this trend will continue for the remainder of 2004 but at a slower pace~~ ~~than in the last two quarters, and be driven primarily by higher demand from business and leisure travelers, increased volume from various Internet travel sites including our website, www.LQ.com,~~ increased national sales revenue, growth in membership of our La Quinta Returns program, our advertising and promotion incentives, rate increases and improving guest satisfaction. However, approximately 60% of our business is booked within zero to seven days of the stay, therefore, forecasting such a trend is difficult and declines in business and leisure traveler demand could impact our results. We can give no assurance that the trends experienced in the first half will continue for the remainder of the year.

LQTable Properties—Consolidated Results of Operations Contents

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


(1)	Excludes hotels undergoing redevelopment or brand conversions, as well as hotels reported in discontinued operations and one New Orleans hotel that was severely damaged on August 29, 2005 by Hurricane Katrina and is yet to be determined whether it is feasible to ever return to service.

(2)	Represents statistics for Baymont Inn & Suites acquired on September 3, 2004.

(3)	Excludes hotels reported in discontinued operations.

(4)	Includes statistics for seven Woodfield Suites and one Budgetel property acquired on September 3, 2004 and two of the hotels acquired on December 9, 2004.

(5)	Includes all company owned, franchised and managed hotels but excludes hotels reported in discontinued operations.

(6)	Represents available room-night count and room-nights sold in thousands.

~~Net loss available to common shareholders decreased by $0.7 million, or 7.6%, to a net loss of~~ ~~$8.5 million~~Revenues and ~~decreased $61.5 million, or 77.5%, to a net loss of $17.9 million for the three and six months ended June 30, 2004, respectively, compared to a net loss~~Expenses ~~available to common shareholders of $9.2 million and $79.4 million, for the three and six months ended June 30, 2003, respectively.~~

~~The~~ ~~decrease~~Hotel inoperations ~~net~~revenues ~~loss~~were ~~for~~$192.5 million and $540.2 million during the three and ~~six~~nine months ended September 30, ~~June~~2005, respectively, compared to $147.5 million and $406.3 million during the three and nine months ended September 30, 2004, ~~was~~respectively. ~~primarily~~Hotel operations ~~due~~revenues include revenues from room rentals and other hotel revenues, such as charges to: guests for services and vending commissions. Room revenues, which accounted for approximately 98% of hotel operations revenues during each of the three and nine months ended September 30, 2005 and 2004, respectively, is dictated by demand, measured as occupancy percentage, pricing, measured as ADR, and the level of available room inventory. Operating statistics such as occupancy percentage, ADR and RevPAR are calculated based on company owned hotels, excluding franchised hotels and company owned hotels reported as discontinued operations.

~~These~~ ~~improvements~~The ~~were~~increase ~~partially~~in ~~offset~~hotel ~~by:~~operations revenues of $45.0 million, or 30.5%, and $133.9 million, or 33.0%, during the three and nine months ended September 30, 2005, respectively, compared to the three and nine months ended September 30, 2004, respectively, was due to several factors, including the net favorable impact of approximately $5 million from accommodating displaced residents and relief workers from Hurricanes Katrina and Rita as well as but not limited to:

~~Revenue~~• hotel operations revenues from the Acquired Hotels increased $27.8 million to $38.2 million and ~~Expenses~~ increased $92.6 million to $103.0 million during the three and nine months ended September 30, 2005, respectively, compared to $10.4 million during both the three and nine months ended September 30, 2004; • an increase in ADR for La Quinta branded hotels of $4.80, or 8.0%, to $64.58 and $4.79, or 8.1%, to $63.92 during the three and nine months ended September 30, 2005, respectively, compared to $59.78 and $59.13 during the three and nine months ended September 30, 2004, respectively. The increase in ADR for La Quinta branded hotels contributed approximately $10.8 million and $32.3 million in room revenue during the three and nine months ended September 30, 2005, respectively; and • an increase in occupancy for La Quinta branded hotels of 2.4 percentage points to 72.6% and 1.2 percentage points to 69.7% during the three and nine months ended September 30, 2005, respectively, compared to 70.2% and 68.5% during the three and nine months ended September 30, 2004, respectively. The increase in occupancy for La Quinta branded hotels contributed approximately $4.3 million and $6.4 million in room revenue during the three and nine months ended September 30, 2005, respectively.

~~Lodging revenues primarily include rent revenues from restaurants leased to third parties. Lodging revenues~~29 ~~decreased by $0.2 million, or 13.3%, to $1.3 million during the three months ended June 30, 2004 compared to $1.5 million for the three months ended June 30, 2003,~~ ~~primarily due to a decrease in rent and other revenue. Revenues remained constant at $3.0 million for the six months ended June 30, 2004 and 2003 primarily as a result of a decrease in~~ ~~other revenue.~~

RentTable from La Quinta Corporation decreased by $2.0 million, or 4.0%, to $48.6 million and decreased $2.6 million, or 2.7%, to $93.1 million for the three and six months ended June 30, 2004, respectively, compared to $50.6 million and $95.7 million for the three and six months ended June 30, 2003, respectively, due to new lease agreements that became effective as of January 1, 2004. These agreements have substantially the same terms as the previous lease agreements other than a decrease in the percentage Contents

33 The increases above were partially offset by a decrease in room revenue of approximately $0.1 million and $1.6 million due to a net decrease in available rooms during the three and nine months ended September 30, 2005, respectively, for company owned La Quinta branded hotels, primarily as a result of the sale of hotels classified in continuing operations during 2004 and 2005.

~~rent~~ ~~payment~~RevPAR from 40company owned La Quinta branded hotels increased $4.88, or 11.6%, to 36$46.87 and $4.03, or 9.9%, ofto $44.56 ~~room~~during the three and ~~other~~nine ~~revenues~~months ended September 30, 2005, respectively, compared to $41.99 and ~~differing~~$40.53 ~~initial~~during ~~terms~~the three ofand ~~four~~nine months ended September 30, ~~five~~2004, respectively, ordue ~~six~~to ~~years~~the favorable changes in ADR and occupancy discussed above. Prior to September, which was impacted by Hurricanes Katrina and Rita, company owned La Quinta branded hotels were already trending at 9% RevPAR growth with particular strength in the Northwest with 13% RevPAR growth. After the hurricanes, occupancy at our hotels in Texas and the Gulf Coast significantly increased. RevPAR for La Quinta owned hotels in Dallas, Austin, San Antonio and Houston metropolitan areas increased 20% for the quarter primarily due to displaced residents from the New Orleans area as well as displaced residents from Hurricane Rita. Additionally, for company owned La Quinta branded hotels, during both the three and nine months ended September 30, 2005, we experienced average daily rate increases across all of our revenue channels. Revenues for our proprietary website, www.lq.com, increased approximately 59% and 53%, respectively, during the three and nine months ended September 30, 2005.

~~Royalty~~ We ~~from~~believe Lathis ~~Quinta~~positive ~~Corporation~~RevPAR ~~decreased~~trend bywill ~~$1.2 million,~~continue orduring ~~37.5%,~~the remainder toof $22005.~~0 million~~ ~~and~~We ~~decreased~~anticipate ~~$2.2 million, or~~it ~~36.1%,~~will tobe ~~$3.9 million~~driven ~~for~~by ~~the~~continued rate ~~three~~increases, ~~and~~as ~~six~~well ~~months~~as ~~ended~~occupancy ~~June 30,~~increases ~~2004,~~resulting ~~respectively,~~from the ~~compared to $3~~hurricanes.~~2 million~~ ~~and~~However, ~~$6.1 million~~approximately ~~for~~50% ~~the~~of ~~three~~our ~~and~~business ~~six months ended~~is ~~June 30,~~booked ~~2003,~~within ~~respectively, due~~zero to anseven ~~amended~~days ~~royalty~~of ~~agreement,~~the ~~effective~~stay. ~~January 1~~Therefore, forecasting ~~2004,~~such ~~that~~a ~~reduced~~trend ~~the~~is ~~rate~~difficult ~~from~~and ~~2.5%~~declines toin ~~1.5%~~business and ofleisure ~~gross~~traveler ~~revenue,~~demand ascould ~~defined~~impact inour ~~the~~future ~~royalty agreement~~results. ~~This decrease was partially offset~~We bycan angive ~~increase~~no inassurance ~~lodging~~that ~~revenues~~the trends experienced byduring LQthe first ~~Corporation~~nine ~~during~~months ~~the~~of ~~three~~2005 ~~and~~will ~~six~~continue ~~months~~during ~~ended~~the ~~June 30,~~remainder ~~2004.~~of the year.

~~Other~~ During ~~revenue~~February ~~decreased~~and byMarch ~~$0.2 million~~2005, orwe ~~14.3%,~~replaced tothe ~~$1.2 million~~third party property management and ~~decreased~~central reservation systems used by ~~$0.2 million,~~the Baymont orhotel 7properties with our own systems.~~7%,~~ The migration to ~~$2.4 million~~our ~~for~~systems is aimed at improving effectiveness of the ~~three~~Baymont hotel and ~~six~~central ~~months~~reservations ~~ended~~sales ~~June 30~~activities, ~~2004,~~enhancing customer ~~respectively,~~service ~~compared~~and tofacilitating ~~$1.4 million~~management and ~~$2.6 million~~analysis ~~for~~of customer ~~the~~data ~~three~~across ~~and~~brands. ~~six~~Additionally, ~~months~~we ~~ended~~migrated ~~June 30,~~Baymont ~~2003,~~customer ~~respectively,~~reservations ~~primarily~~from ~~due~~a tothird-party acall ~~decrease~~center into ~~interest~~our ~~income~~own call ~~due~~center. toWe aalso ~~September 17,~~migrated ~~2003~~Baymont’s ~~receipt~~website ofto ~~payment~~the platform inwe ~~full~~use onfor athe ~~$2.0~~La ~~million~~Quinta ~~subordinated~~brand. ~~note~~We ~~receivable~~believe ~~received as~~this ~~consideration~~migration ~~with~~will facilitate the ~~sale~~growth of ~~certain~~our ~~healthcare~~website ~~assets.~~reservations for the Baymont brand as it has for the La Quinta brand.

~~Other~~ During ~~lodging~~2005, ~~expenses~~we ~~decreased~~also bymerged ~~$0.1 million,~~the orBaymont ~~1.4%,~~Ovations tocustomer loyalty ~~$7.2 million~~program ~~compared~~with tothe ~~$7.3~~La ~~million~~Quinta ~~for~~Returns ~~the~~customer ~~three~~loyalty ~~months~~program ~~ended~~so ~~June 30,~~that ~~2004~~members ~~and 2003, respectively, as a result~~ of ~~decreases~~each inprogram ~~property~~now ~~taxes~~have ~~and~~access ~~insurance. The decrease of $0.6 million, or 4.0%,~~ to ~~$14.4 million for~~ the ~~six~~ ~~months~~same ~~ended~~benefits ~~June 30,~~under ~~2004~~our ~~compared~~Returns tocustomer ~~$15 million~~loyalty ~~for the six months ended June 30, 2003, was a result of decreases in property taxes partially offset by increases in insurance costs~~program.

~~General~~ Franchise ~~and~~fees ~~administrative~~increased ~~expenses decreased by~~ $04.83 million, or 7287.78%, to $09.32 million and ~~decreased~~ $111.79 million, or 73102.96%, to $023.65 million ~~for~~during the three and ~~six~~nine months ended ~~June~~ September 30, ~~2004~~2005, respectively, compared to $4.9 million and $111.16 million during the three and nine months ended September 30, 2004, respectively. Franchise fees for Baymont branded franchise hotels, including new Baymont franchise agreements added subsequent to the Acquisition, increased $2.7 million to $3.4 million and ~~for~~increased ~~the~~$7.4 million to $8.1 million during the three and ~~six~~nine months ended September 30, 2005, ~~June~~respectively, compared to $0.7 million during both the three and nine months ended September 30, ~~2003~~2004. Our franchise system of hotels increased by 15 and 27 hotels during the three and nine months ended September 30, 2005, respectively. ~~The~~Franchise ~~decreases~~fees ~~were~~include ~~primarily~~fees ~~attributable~~charged to ~~decreases~~franchisees for inoperating ~~allocated~~under ~~expenses~~the ~~related~~La Quinta toand ~~finance~~Baymont brands and for ~~accounting.~~using our hotel designs, operating systems and procedures and central reservations system, as well as for participating in our national

~~Interest, net decreased by $1.8 million, or 11.0%, to $14.5 million and decreased $0.4 million, or 1.3%, to $29.9 million during the three and six months ended June~~ 30~~, 2004, respectively, compared to $16.3 million and $30.3 million during the three and six months ended~~ ~~June 30, 2003, respectively. Interest expense is presented net of interest income on cash and investments in securities of $2.7 million and $5.4 million during the three and six~~ ~~months ended June 30, 2004, respectively, and $2.4 million and $3.4 million during the three and six months ended June 30, 2003, respectively. The decreases in interest~~ expense were primarily due to decreases in interest expense resulting from the $50.7 million of principal payments made on our debt from June 30, 2003 to June 30, 2004 and an increase in interest income of $0.3 million and $2.0 million for the three and six months ended June 30, 2004, respectively. The decreases were partially offset by higher interest expense related to the March 19, 2003 issuance of our $325 million 8.875% senior notes.

34Table of Contents

~~Depreciation~~marketing and ~~amortization~~advertising ~~expense increased by $0~~campaigns.~~4 million,~~ orWe ~~1.5%,~~anticipate ~~to $27.2 million and decreased by~~continuing ~~$1.5 million,~~increases orin ~~2.7%,~~2005 tofranchise ~~$53.4 million~~fee ~~during~~revenue ~~the three and six months ended June 30, 2004, respectively,~~ compared to ~~$26.8 million and $54.9 million during the~~2004 ~~three~~franchise ~~and~~fee ~~six~~revenue ~~months~~as ~~ended~~a ~~June 30,~~result ~~2003,~~of ~~respectively.~~the ~~The~~impact ~~increase~~of ~~during~~ the Acquisition, ~~three~~new ~~months ended June~~La ~~30,~~Quinta ~~2004~~and ~~was~~Baymont ~~primarily~~branded ~~due to an increase in losses on asset retirements partially~~hotel ~~offset~~openings byprojected ~~a decrease in depreciation expense. The decrease~~ during the ~~six~~remainder ~~months~~of ~~ended June 30~~2005, ~~2004 was the result of significant impairments of property~~ and ~~equipment during March 2003~~revenue ~~and~~improvements aat ~~decrease~~existing infranchised ~~losses on asset retirements~~hotels.

~~Impairments~~ Other ofrevenues ~~property and equipment~~ increased by $30.1 million, or 673.47%, to $72.78 million and decreased by $531.94 million, or 8014.97%, to $128.71 million ~~for~~during the three and ~~six~~nine months ended ~~June~~ September 30, ~~2004~~2005, respectively, compared to $42.67 million and $669.65 million ~~for~~during the three and nine ~~six~~ months ended ~~June~~September 30, ~~2003~~2004, respectively. WeOther revenues ~~recorded~~primarily ~~impairments~~include onrent ~~lodging~~revenues ~~properties~~from ~~held~~restaurants ~~for~~leased to ~~use~~third ofparties ~~$7.2 million~~ and ~~$12~~other revenue from mortgage financing on healthcare real estate.~~2 million~~ ~~during~~The increase in other revenues during the three ~~and~~months ~~six~~ended ~~months~~September 30, 2005 compared to the three months ended ~~June~~September 30, 2004, ~~respectively,~~was ~~and~~primarily due to an increase of $40.31 million ~~and~~in ~~$65 million~~restaurant ~~during~~rent ~~the~~revenue. ~~three~~The decrease ~~and~~during ~~six~~the nine months ended ~~June~~September 30, ~~2003,~~2005 compared ~~respectively,~~to ~~where~~the ~~facts,~~nine ~~circumstances~~months ended September 30, ~~and~~2004 was ~~analysis~~primarily ~~indicated~~due ~~that~~to the ~~assets~~full ~~were~~repayment ~~impaired.~~during Wethe ~~recorded~~three ~~impairments~~months ended onSeptember 30, ~~lodging~~2004 ~~properties~~of ~~held~~a ~~for~~subordinated note previously issued in connection with the sale of ~~approximately~~certain healthcare assets. Interest income on this subordinated note was approximately $02.52 million during ~~both~~ the ~~three~~nine ~~and six~~ months ended ~~June~~September 30, 2004 ~~and $0~~.~~3 million~~ ~~and~~This ~~$1.6 million~~decrease ~~during~~was ~~the~~partially ~~three~~offset ~~and~~by an ~~six~~increase ~~months~~of ~~ended~~approximately ~~June~~$0.8 ~~30,~~million ~~2003,~~in ~~respectively.~~restaurant rent and other revenue.

~~Discontinued~~ Direct ~~Operations~~lodging operations expenses were $85.0 million, ~~net~~ or $28.42 per occupied room, and $243.5 million, or $28.68 per occupied room, during the three and nine months ended September 30, 2005, respectively, compared to $67.3 million, or $27.53 per occupied room, and $189.4 million, or $27.95 per occupied room, during the three and nine months ended September 30, 2004, respectively. Direct lodging expenses include costs directly associated with the operation of the hotels such as direct labor, utilities and hotel supplies. Direct lodging operations expenses during the three and nine months ended September 30, 2005 for the Acquired Hotels increased $12.3 million to $17.9 million and increased $44.3 million to $49.9 million, respectively, compared to $5.6 million during both the three and nine months ended September 30, 2004.

~~For~~ The ~~the~~increase ~~three~~in ~~and~~direct ~~six~~lodging ~~months ended June 30, 2003, income from discontinued~~ operations ofexpenses ~~approximately~~ of $017.27 million, ~~and~~or ~~loss~~26.3%, ofand $054.1 million, ~~net~~ ofor ~~income tax benefit~~28.6%, during ~~respectively, represents~~ the ~~results~~three ~~of TeleMatrix, Inc.~~ and ~~rental~~nine ~~income~~months ~~and~~ended ~~property insurance~~September 30, ~~real estate taxes and depreciation expense related to the ownership~~2005, ~~of three company owned hotels. During 2003~~respectively, wecompared ~~sold~~to the three ~~hotels~~ and ~~TeleMatrix, Inc.,~~nine amonths ~~business component that provides telephone equipment and software for the lodging industry. As of~~ended ~~June~~September 30, 2004, norespectively, ~~assets~~was ~~held~~primarily ~~for~~due ~~sale were subject~~ to ~~SFAS 144~~an increase ~~classification~~in ascertain ~~discontinued~~variable ~~operations~~expenses ~~and~~such ~~there was no income or loss from discontinued operations.~~ as:

Other (Income) Expense


	•	salaries and related taxes and benefits, which increased approximately $8.1 million, or 24.3%, and $25.6 million, or 26.8%, respectively. Salaries and related taxes and benefits expense increased approximately $5.9 million and $21.7 million during the three and nine months ended September 30, 2005 compared to the three and nine months ended September 30, 2004, respectively, for the Acquired Hotels. During the nine months ended September 30, 2005, we reduced benefits expense approximately $1.1 million for a reduction in our liability for workers compensation, of which approximately $0.8 million relates to a revision in our estimated liability and approximately $0.3 million relates to the impact of a reduction in trends for the number of workers compensation claims;

	•	utilities, which increased approximately $3.2 million, or 27.5%, and $10.2 million, or 33.6%, respectively. These increases were the result of increased occupancy, increases in energy prices as well as increases in phone line expense resulting from the roll-out of high speed internet access to certain of our hotels. Utilities increased approximately $2.0 million and $7.3 million during the three and nine months ended September 30, 2005 compared to the three and nine months ended September 30, 2004, respectively, for the Acquired Hotels; and

~~Other (income) expense for the three months ended June 30, 2004 and 2003 consisted of the following:~~ 31

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In millions)
Loss on sale of assets and related costs	$	0.2		$	0.1		$	0.2		$	—
Loss on early extinguishments of debt		—			4.3			—			6.2
Other (1)		(0.9	)		(0.2	)		(1.2	)		—
Total other (income) expense	$	(0.7	)	$	4.2		$	(1.0	)	$	6.2

35• other variable expenses, including supplies, repair and maintenance, credit card discounts and other, which increased approximately $6.4 million, or 29.1%, and $18.3 million, or 28.8%, respectively, primarily as a result of increased occupancy at La Quinta branded hotels as well as the addition of the Acquired Hotels. Other variable expenses increased approximately $4.4 million and $15.3 million during the three and nine months ended September 30, 2005 compared to the three and nine months ended September 30, 2004, respectively, for the Acquired Hotels.

~~Recent~~ Other ~~Accounting~~lodging ~~Standards~~ and operating expenses were $25.6 million and $73.5 million during the three and nine months ended September 30, 2005, respectively, compared to $19.9 million and $56.4 million during the three and nine months ended September 30, 2004, respectively. Other lodging and operating expenses include property taxes, insurance, costs of the franchise programs, and corporate allocations charged to our company owned hotel operations based on a percentage of room revenue. During the three and nine months ended September 30, 2005 compared to the three and nine months ended September 30, 2004, other lodging and operating expenses increased $5.7 million, or 28.6%, and $17.1 million, or 30.3%, respectively. Other lodging and operating expenses increased approximately $3.4 million to $4.5 million and increased $11.2 million to $12.3 million during the three and nine months ended September 30, 2005, respectively, compared to $1.1 million during both the three and nine months ended September 30, 2004, respectively, for the Acquired Hotels.

~~In May 2003, the FASB issued SFAS No. 150, which establishes standards for how an issuer classifies and measures certain financial instruments with~~ ~~characteristics~~The ofincrease ~~both~~during ~~liabilities~~the ~~and~~three ~~equity,~~ and isnine ~~effective~~months ~~for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first~~ended ~~interim period beginning after June~~September 1530, ~~2003.~~2005 Ascompared ato ~~result of further discussion by~~ the ~~FASB~~three ~~on October 8, 2003, the FASB clarified that minority interests in consolidated partnerships with specified finite lives should be reclassified as liabilities~~ and ~~presented~~nine ~~at fair market value unless the interests are convertible into the equity of the parent. Fair market value adjustments~~months ~~occurring~~ended ~~subsequent to July~~September 130, ~~2003 would be recorded as a component of interest expense. At their October 29~~2004, ~~2003~~was ~~meeting,~~primarily ~~the~~due ~~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~~• an increase in corporate overhead allocations of approximately $2.3 million and as$6.6 ~~amended~~million, inrespectively, ~~December 2003~~of which approximately $1.6 million and $4.8 million, respectively, is attributable to the ~~FASB~~Acquired ~~issued~~Hotels. ~~FIN~~The ~~46,~~remaining ~~which~~increase ~~clarifies~~was a result of the ~~application~~increase in room revenue from La Quinta branded company owned hotels; • an increase in property taxes of ~~Accounting~~approximately ~~Research~~$1.5 ~~Bulletin~~million Noand $5. 514 million, ~~"Consolidated Financial Statements~~respectively," related to ~~variable~~the ~~interest~~Acquired ~~entities.~~Hotels ~~VIEs~~and ~~are~~an ~~required~~increase toin beproperty ~~consolidated~~tax byrates ~~their~~for ~~primary~~La ~~beneficiaries~~Quinta ifbranded ~~they~~hotels. doProperty ~~not~~tax ~~effectively~~expense ~~disperse~~increased ~~risks~~approximately ~~among~~$1.2 ~~the~~million ~~parties~~and ~~involved~~$4.8 ~~Under FIN~~million ~~46,~~during the ~~primary~~three ~~beneficiary~~and ofnine amonths ~~VIE~~ended isSeptember 30, 2005 compared to the ~~party~~three ~~that~~and ~~absorbs~~nine amonths ~~majority~~ended ofSeptember 30, 2004, respectively, for the ~~entity's~~Acquired ~~expected~~Hotels; ~~losses,~~• ~~receives~~repairs aexpense, ~~majority~~net of ~~its~~estimated ~~expected~~property ~~residual~~insurance ~~returns~~recovery, orof approximately $0.9 million for both the three and nine months ended September 30, as2005, which is attributable to damage from Hurricanes Katrina and Rita; • a ~~result~~decrease in insurance costs of ~~holding variable~~approximately ~~interests~~$0.1 Inmillion ~~applying~~and ~~FIN~~an ~~46,~~increase ~~management~~in ~~has~~insurance ~~utilized~~costs ~~available~~of ~~information~~approximately $0.9 million during the three and ~~reasonable~~nine ~~assumptions~~months ended September 30, 2005, respectively. The increase attributable to the Acquired Hotels was approximately $0.3 million and ~~estimates~~$0.9 inmillion, ~~evaluating~~respectively. ~~whether~~The anincrease ~~entity~~attributable isto the Acquired Hotels during the three months ended September 30, 2005 was partially offset by a ~~VIE~~reduction ~~and~~in ~~which~~our ~~party~~insurance isliability relating to the ~~primary beneficiary.~~impact ~~These~~of ~~assumptions~~a reduction in trends for the number of insurance claims at company owned La Quinta branded hotels; and ~~estimates~~• ~~are~~an ~~subjective~~increase in our customer loyalty program fees and ~~the~~other ~~use~~direct expenses of ~~different~~approximately ~~assumptions~~$1.0 ~~could~~million ~~result~~and $3.3 million, respectively, primarily attributable to an increase in ~~different~~customer ~~conclusions~~loyalty program fees, expenses of our 2005 spring and summer promotions and costs of the franchise programs, respectively. ~~FIN~~Customer 46loyalty ~~also~~program ~~requires~~fees ~~new~~and ~~disclosures~~other ~~about~~direct ~~VIEs~~expenses increased approximately $0.3 million and $0.7 million during the three and nine months

We32 ~~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,Table 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. Contents

~~Seasonality~~ ended September 30, 2005 compared to the three and nine months ended September 30, 2004, respectively, for the Acquired Hotels.

~~The~~ Selling, ~~hotel~~general ~~industry~~and isadministrative ~~seasonal~~expenses inwere $17.0 million ~~nature~~and $59.3 million ~~Generally,~~during ~~hotel~~the ~~revenues~~three ~~are~~and nine ~~greater~~months inended ~~the~~September 30, ~~second~~2005, ~~and~~respectively, compared ~~third~~to ~~quarters~~$13.8 million ~~than~~and in$45.6 million during the three ~~first~~ and ~~fourth~~nine ~~quarters~~months ended September 30, 2004, respectively. ~~This~~Selling, general and administrative expenses ~~seasonality~~include, ~~can~~among beother ~~expected~~costs, toinformation ~~cause~~technology ~~quarterly~~services, legal, ~~fluctuations~~finance inand ~~revenue~~accounting, ~~profit~~sales, ~~margins~~marketing, ~~and~~reservations, human ~~net~~resources ~~earnings~~and operations. InAdditionally, ~~addition~~selling, ~~the~~general and ~~opening~~administrative ofexpenses ~~newly~~include ~~constructed~~the ~~hotels~~costs ~~and~~incurred to support the ~~timing~~franchise ofoperations. ~~any~~GAAP ~~hotel~~requires ~~acquisitions~~that we orrecognize ~~sales~~all ~~may~~franchise ~~cause~~income, aincluding ~~variation~~pass ofthrough ~~revenue~~expenses, such ~~from~~as ~~quarter~~advertising toand ~~quarter~~reservation fees, as revenues. The pass through amounts are offset by the costs included in selling, general and administrative expense.

36 The increase in selling, general and administrative expenses during the three and nine months ended September 30, 2005 compared to the three and nine months ended September 30, 2004 was primarily due to increases in corporate employee compensation, advertising and marketing expenses associated with our 2005 spring and summer promotions and customer loyalty program, corporate expenses incurred to support the franchise operations as well as the Acquisition. Additionally, we experienced an increase in expenses related to our annual system-wide conference and professional and consulting fees. We anticipate that selling, general and administrative expenses may continue to increase during the remainder of 2005 in comparison to prior periods due to continuing expenses to support the franchise operations and Acquired Hotels and continuing marketing initiatives.

~~Off-Balance~~Interest, ~~Sheet Arrangements~~ Net

~~As of June 30~~ Interest, ~~2004,~~net weis ~~had~~comprised noof ~~material~~the ~~off-balance sheet arrangements.~~ following:

Item 3. Quantitative and Qualitative Disclosures About Market Risk


	Three Months						Nine Months
	Ended						Ended
	September 30,						September 30,

	2005			2004			2005			2004

	(In millions)
Interest expense	$	17.8		$	17.3		$	54.3		$	52.4
Amortization of debt issue costs		0.7			0.6			2.1			1.7
Interest income		(2.5	)		(2.0	)		(4.3	)		(7.9	)

Interest, net	$	16.0		$	15.9		$	52.1		$	46.2

As The of$0.5 million ~~June~~increase and $3.6 million decrease in interest income during the three and nine months ended September 30, 2005, respectively, compared to the three and nine months ended September 30, 2004, werespectively, ~~had~~was primarily noattributable ~~variable~~to ~~rate~~the ~~debt~~August 2004 retirement of our investment in the 7.114% Exercisable Put Option Securities (the “Securities”) offset by an increase in the average interest rates earned on our cash equivalents and an increase in average cash and cash equivalents for the ~~reported~~three ~~period~~months ended September 30, 2005. During the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004, our average cash and cash equivalents decreased; however, this decrease was partially offset by an increase in the average interest rates earned on our cash equivalents.

The $0.5 million and $1.9 million increase in interest expense during the three and nine months ended ~~Item~~September 30, 4.2005, ~~Controls~~respectively, compared to the three and nine ~~Procedures~~ months ended September 30, 2004, respectively, was primarily attributable to the August 2004 issuance of our $200 million 7% senior notes partially offset by decreases in interest expense as a result of the September

~~(a)~~33 ~~Evaluation of disclosure controls and procedures.~~

As requiredTable by Rule 13a-15 under the Exchange Act, as of the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating our disclosure controls and procedures, we and our management recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based upon the required evaluation, the Chief Executive Officer and Chief Financial Officer believe that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. In connection with the rules, we are continuing the process of reviewing and documenting our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business. Contents

~~(b) Changes~~ 2005 repayment of $116 million in ~~internal~~principal ~~controls~~on notes payable with interest rates ranging from 7.4% to 7.63%, the redemption in August 2004 of our $150 million 7.114% senior notes, the March 2004 repayment of the $19.5 million 7.25% senior notes, as well as decreases in expenses associated with our 2003 Credit Facility.

~~There was~~Depreciation noand change in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Amortization

37 Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. We periodically re-evaluate fixed asset lives based on current assessments of remaining utility that may result in changes in estimated useful lives. Such changes are accounted for prospectively and will increase or decrease depreciation expense.

Depreciation and amortization expense was $35.3 million and $105.5 million during the three and nine months ended ~~PART~~September 30, ~~II—OTHER~~2005, ~~INFORMATION~~ respectively, compared to $32.8 million and $91.4 million during the three and nine months ended September 30, 2004, respectively. Depreciation and amortization expense increased by $2.5 million, or 7.6%, and $14.1 million, or 15.4%, during the three and nine months ended September 30, 2005, respectively, compared to the three and nine months ended September 30, 2004, respectively. The increase in depreciation and amortization expense during the three and nine months ended September 30, 2005, respectively, is primarily the result of additions to property and equipment, as well as approximately:

• ~~Item~~$0.3 million increase to $0.5 million and $1.4 ~~Legal~~million ~~Proceedings~~ increase to $1.6 million in amortization expense on intangibles associated with the Acquisition compared to $0.2 million during both the three and nine months ended September 30, 2004, respectively; • $0.3 million and $0.5 million increase in loss on early retirement of assets compared to the three and nine months ended September 30, 2004, respectively; • $0.7 million and $3.5 million increase in depreciation and amortization expense related to additions to computer equipment and related software compared to the three and nine months ended September 30, 2004, respectively; • $0.8 million increase in casualty losses, net of estimated property insurance recovery, for both the three and nine months ended September 30, 2005, which is attributable to damage from Hurricanes Katrina and Rita; • $2.8 million and $7.6 million of accelerated depreciation related to two hotels that are being redeveloped during 2005; and • $3.2 million increase to $4.6 million and $12.0 million increase to $13.4 million in depreciation expense related to the Acquired Hotels compared to $1.4 million during both the three and nine months ended September 30, 2004, respectively.

~~Incorporated~~ The byincrease ~~reference~~in todepreciation ~~the description of legal proceedings is Note 7, "Commitments~~ and ~~Contingencies,"~~amortization inexpense ~~the condensed notes to the consolidated~~was ~~financial~~partially ~~statements~~offset ~~set~~by ~~forth~~a indecrease ~~Part I, Item 1, "Financial Statements."~~ in:

• amortization ~~Item~~expense of approximately $0.6 million and $2.6 ~~Changes~~million inassociated ~~Securities,~~with ~~Use~~the La Quinta trademark (that is no longer amortized); • depreciation expense of ~~Proceeds~~approximately $0.4 million and ~~Issuer~~$1.1 ~~Purchases~~million during the three and nine months ended September 30, 2005 related to discontinuing depreciation on assets classified as held for sale in continuing operations during 2005; • depreciation expense of ~~Equity~~approximately ~~Securities~~ $1.7 million during both the three and nine months ended September 30, 2005 related to certain assets that have fully depreciated;

~~Issuer Purchases of Equity Securities~~ 34

Period	(a) Total Number of Shares (or Units) Purchased(1)	(b) Average Price Paid per Share (or Unit)(2)	(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(3)
April 1-30, 2004	2,391	$7.60	—	$10.9 million
May 1-31, 2004	1,186	7.32	—	10.9 million
June 1-30, 2004	17,598	1.13	—	10.9 million
Total	21,175	$2.20	—	$10.9 million

Item 4. Submission of Matters to Vote of Security Holders


	•	casualty losses, net of estimated property insurance recovery, of approximately $1.7 million recorded during the three months ended September 30, 2004 related to property damage as a result of the hurricanes in the State of Florida during 2004. During 2005, we reduced a portion of the previously recorded casualty losses as a result of insurance recoveries by approximately $0.8 million, resulting in a net decrease during the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004 of approximately $2.5 million; and

	•	depreciation expense of approximately $2.2 million and $6.7 million of accelerated depreciation recorded during the three and nine months ended September 30, 2004, respectively, related to a hotel that completed redevelopment during 2004.

LQImpairment ~~Corporation held its annual meeting~~ of ~~shareholders~~Property ~~on May 20, 2004 to elect two directors~~ and ~~to ratify the appointment of Ernst & Young LLP as its independent auditors for the fiscal year ending December 31, 2004.~~ Equipment

38 No impairments were recorded for continuing operations during the three and nine months ended September 30, 2005 or during the three months ended September 30, 2004. We recorded impairments of $12.7 million during the nine months ended September 30, 2004, where facts, circumstances and analysis indicated that the assets were potentially impaired.

~~The following~~Other ~~table~~(Income) ~~sets forth, with respect to each matter voted upon at the annual meeting, the number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as applicable:~~ Expense

Description of Matter		For	Against or Withheld	Abstentions	Broker Non-votes
1. To elect the following individuals to serve as Directors until 2007:
	(01) William G. Byrnes	167,902,735	2,299,465	—	—
	(02) Francis W. Cash	168,074,331	2,127,873	—	—
2. To ratify appointment of Ernst & Young LLP as independent auditors for the fiscal year ending December 31, 2004.		168,421,336	1,488,740	292,127	—

Other (income) expense consisted of the following:

William G. Byrnes and Francis W. Cash were each elected as Directors of LQ Corporation. Clive D. Bode, James P. Conn and Terrell B. Jones will continue as Directors of LQ Corporation, their terms to expire in 2005. William C. Baker and John C. Cushman, III will continue as Directors of LQ Corporation, their terms to expire in 2006.


	Three Months						Nine Months
	Ended						Ended
	September 30,						September 30,

	2005			2004			2005			2004

	(In millions)
(Gain) loss on sale of assets and related costs(1)	$	(3.6	)	$	(0.1	)	$	(3.4	)	$	0.1
Gain on early repayment of notes receivable		—			(2.1	)		—			(2.1	)
Gain on settlement(2)		—			—			—			(0.4	)
Acquisition, retirement plan and other(3)		0.6			1.1			3.1			0.6

Total other (income) expense	$	(3.0	)	$	(1.1	)	$	(0.3	)	$	(1.8	)

On May 20, 2004, LQ Corporation, the sole voting shareholder of LQ Properties, executed a written consent electing William G. Byrnes and Francis W. Cash as Directors of LQ Properties and ratifying the appointment of Ernst & Young LLP as independent auditors for the fiscal year ending December 31, 2004. Clive D. Bode, James P. Conn and Terrell B. Jones will continue as Directors of LQ Properties, their terms to expire in 2005. William C. Baker and John C. Cushman, III will continue as Directors of LQ Properties, their terms to expire in 2006.


(1)	This caption includes sales of hotels, restaurants and other property as well as the accumulation of costs to sell assets held for sale in continuing operations. During the three months ended September 30, 2005, we sold three hotels for gross proceeds of approximately $9.4 million, resulting in a gain on sale of $3.7 million. These hotels are not included in discontinued operations because it is probable that these hotels will be operated by the buyers as Baymont franchises, which we believe would constitute significant continuing involvement in the operations of the hotels and, therefore, presentation as discontinued operations is not appropriate.

(2)	During the nine months ended September 30, 2004, we settled obligations related to assets previously sold that resulted in a net gain of $0.4 million.

(3)	During the three and nine months ended September 30, 2005, we recognized expense of $0.6 million and $3.1 million, respectively, consisting of approximately $0.2 million and $2.7 million primarily related to integration costs related to the Acquisition and approximately $0.4 million during each period for fees related to abandoned transaction costs.

During the three and nine months ended September 30, 2004, ~~Item~~we 6.recognized ~~Exhibits~~expense of approximately $1.7 million and $1.9 million, ~~Reports~~consisting onof ~~Form~~approximately $1.5 ~~8-K~~ million during

10.1		Asset Purchase Agreement dated July 14, 2004 by and between La Quinta Corporation and certain subsidiaries of The Marcus Corporation.
31.1		Certification of the President and Chief Executive Officer of La Quinta Corporation and La Quinta Properties, Inc. pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Executive Vice President and Chief Financial Officer of La Quinta Corporation and La Quinta Properties, Inc. pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer of La Quinta Corporation and La Quinta Properties, Inc. pursuant to section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350.

The companiesTable furnishedof a joint current report on Form 8-K to the SEC on April 29, 2004 announcing under Item 12 their earnings for the three months ended March 31, 2004. Contents

39 each period for integration costs related to the Acquisition and $0.2 million and $0.4 million, respectively, related to the termination and ongoing settlement of the La Quinta retirement plan. These expenses were partially offset by income of approximately $0.6 million and $1.3 million, respectively, primarily as a result of settlement of litigation related to the healthcare business, adjustments of amounts previously accrued related to the exit of the healthcare business and refunds of public company filing fees.

Income ~~SIGNATURES~~ Taxes

~~Pursuant~~ toFor ~~the~~interim ~~requirements~~financial ofreporting purposes, tax expense or benefit is calculated based on the ~~Securities~~estimated ~~Exchange~~annual ~~Act~~effective oftax ~~1934~~rate, adjusted ~~the~~to ~~registrants~~give ~~have~~effect ~~duly~~to ~~caused~~anticipated ~~this~~permanent ~~Joint~~differences ~~Quarterly~~and amounts ~~Report~~attributable to beminority ~~signed~~interest. onThe ~~their~~results associated ~~behalf~~with bydiscontinued ~~the~~operations ~~undersigned,~~are reported net of ~~thereunto~~federal ~~duly~~and ~~authorized.~~state income taxes applicable to those operations.

	LA QUINTA CORPORATION
	By:	/s/ DAVID L. REA David L. Rea Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
Dated: August 4, 2004
	LA QUINTA PROPERTIES, INC.
	By:	/s/ DAVID L. REA David L. Rea Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
Dated: August 4, 2004


	*Income from Discontinued Operations, net*

40 During the three and nine months ended September 30, 2005, respectively, income from discontinued operations, net was $0.2 million and $1.2 million compared to break even income and $0.1 million in income from discontinued operations during the three and nine months ended September 30, 2004, respectively, net of income tax expense. Income from discontinued operations represents the revenues and expenses related to the results of ownership and operation of nine hotels during the three months ended September 30, 2005, and 11 hotels during each of the nine months ended September 30, 2005 and the three and nine months ended September 30, 2004, that have been reclassified as discontinued operations. During the three and nine months ended September 30, 2005, we sold or settled condemnation proceedings on one and three hotels for gross proceeds of approximately $2.5 million and $7.5 million, respectively, resulting in no gain or loss on sale and a gain on sale of approximately $0.8 million, respectively. Aggregate impairment charges of $8.7 million were recorded from December 2004 through September 30, 2005 to write down six of the 11 hotels to estimated fair value less costs of sale.

LQ ~~Exhibit~~Properties — ~~Index~~ Consolidated Results of Operations

10.1		Asset Purchase Agreement dated July 14, 2004 by and between La Quinta Corporation and certain subsidiaries of The Marcus Corporation.
31.1		Certification of the President and Chief Executive Officer of La Quinta Corporation and La Quinta Properties, Inc. pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Executive Vice President and Chief Financial Officer of La Quinta Corporation and La Quinta Properties, Inc. pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer of La Quinta Corporation and La Quinta Properties, Inc. pursuant to section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350.


	*Comparison of the Three and Nine Months Ended September 30, 2005 and 2004*

Net income available to common shareholders was $9.1 million and $9.0 million during the three and nine months ended September 30, 2005, respectively, compared to net loss attributable to common shareholders of $22.5 million and $40.4 million during the three and nine months ended September 30, 2004, respectively.

The change from net loss attributable to common shareholders to net income available to common shareholders during the three and nine months ended September 30, 2005 compared to the three and nine months ended September 30, 2004 of $31.6 million, or 140.4%, and $49.4 million, or 122.3%, respectively, was primarily attributable to:


	•	a decrease in loss on early extinguishment of debt of $21.4 million during the three and nine months ended September 3, 2005;

	•	increases in rent from LQ Corporation of $12.3 million and $35.7 million, respectively, of which approximately $2 million is attributable to the net favorable impact on revenues from Hurricanes Katrina and Rita;

	•	decreases in impairments of $12.7 million during the nine months ended September 30, 2005; and


	•	an increase in other (income) expense of $0.8 million during the three months ended September 30, 2005.

These changes were partially offset by:


	•	increases in other lodging expenses of $1.2 million and $4.3 million, respectively;

	•	increases in interest, net of $1.8 million and $9.0 million, respectively; and

	•	increases in depreciation and amortization of $0.3 million and $6.3 million, respectively.


	*Revenue and Expenses*

Rent from La Quinta Corporation was $63.3 million and $178.6 million during the three and nine months ended September 30, 2005, respectively, compared to $51.0 million and $142.9 million during the three and nine months ended September 30, 2004, respectively. The increase in rental income from LQ Corporation of $12.3 million, or 24.1%, and $35.7 million, or 25.0%, during the three and nine months ended September 30, 2005, respectively, was primarily due to an increase in rent from LQ Corporation related to the Acquired Hotels and an increase of approximately $6.0 million and $14.5 million, respectively, in rent as a result of an increase in gross revenue, as defined in the rental agreements, from the other company owned hotels, of which approximately $2 million is attributable to the net favorable impact on revenues from Hurricanes Katrina and Rita. Rent from La Quinta Corporation for the Acquired Hotels increased $6.3 million to $8.6 million and increased $21.2 million to $23.5 million during the three and nine months ended September 30, 2005, respectively, compared to $2.3 million during both the three and nine months ended September 30, 2004.

Royalty from La Quinta Corporation was $2.3 million and $6.5 million during the three and nine months ended September 30, 2005, respectively, compared to $2.1 million and $5.9 million during the three and nine months ended September 30, 2004, respectively. Royalty from LQ Corporation increased $0.2 million, or 9.5%, and $0.6 million, or 10.2%, during the three and nine months ended September 30, 2005, respectively, compared to the three and nine months ended September 30, 2004, respectively, as a result of an increase in gross revenue, as defined in the rental agreements, from company owned La Quinta branded hotels.

Other revenues were $2.0 million and $5.5 million during the three and nine months ended September 30, 2005, respectively, and $1.9 million and $7.2 million during the three and nine months ended September 30, 2004, respectively. Other revenues primarily include rent revenues from restaurants leased to third parties and other revenue from mortgage financing on healthcare real estate. Other revenues increased $0.1 million, or 5.3%, and decreased $1.7 million, or 23.6%, during the three and nine months ended September 30, 2005, respectively, compared to the three and nine months ended September 30, 2004, respectively. The decrease during the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004 was primarily due to the full repayment during the three months ended September 30, 2004 of a subordinated note previously issued in connection with the sale of certain healthcare assets. Interest income on this subordinated note was approximately $2.2 million during the nine months ended September 30, 2004. This decrease was partially offset by an increase of approximately $0.5 million in other interest income and other revenue.

Other lodging expenses were $8.8 million and $26.1 million during the three and nine months ended September 30, 2005, respectively, and $7.6 million and $21.8 million during the three and nine months ended September 30, 2004, respectively. Other lodging expenses increased by $1.2 million, or 15.8%, and $4.3 million, or 19.7%, during the three and nine months ended

September 30, 2005, respectively, compared to the three and nine months ended September 30, 2004, respectively, primarily due to increases in property tax and insurance expense. Other lodging expenses for the Acquired Hotels increased $0.9 million to $1.4 million and increased $3.8 million to $4.3 million during the three and nine months ended September 30, 2005, respectively, compared to $0.5 million during both the three and nine months ended September 30, 2004.


	*Interest, Net*

Interest, net is comprised of the following:


	Three Months						Nine Months
	Ended						Ended
	September 30,						September 30,

	2005			2004			2005			2004

	(In millions)
Interest expense	$	17.8		$	17.3		$	54.1		$	52.4
Amortization of debt issue costs		0.7			0.6			2.1			1.7
Interest income		(0.9	)		(2.1	)		(1.6	)		(8.5	)

Interest, net	$	17.6		$	15.8		$	54.6		$	45.6

The decrease in interest income of $1.2 million and $6.9 million during the three and nine months ended September 30, 2005, respectively, compared to the three and nine months ended September 30, 2004, respectively, was primarily attributable to the August 2004 retirement of our investments in the Securities and a decrease in average cash and cash equivalents partially offset by an increase in the average interest rates earned on our cash equivalents.

The increase in interest expense of $0.5 million and $1.7 million during the three and nine months ended September 30, 2005, respectively, compared to the three and nine months ended September 30, 2004, respectively, was primarily attributable to the August 2004 issuance of our $200 million 7% senior notes partially offset by decreases in interest expense as a result of the September 2005 repayment of $116 million in principal on notes payable with interest rates ranging from 7.4% to 7.63%, the redemption in August 2004 of our $150 million 7.114% senior notes, the March 2004 repayment of the $19.5 million 7.25% senior notes, as well as decreases in expenses associated with our 2003 Credit Facility.


	*Depreciation and Amortization Expense*

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. We periodically re-evaluate fixed asset lives based on current assessments of remaining utility that may result in changes in estimated useful lives. Such changes are accounted for prospectively and will increase or decrease depreciation expense.

Depreciation and amortization expense was $29.6 million and $88.4 million during the three and nine months ended September 30, 2005, respectively, compared to $29.3 million and $82.1 million during the three and nine months ended September 30, 2004, respectively. Depreciation and amortization expense increased by $0.3 million, or 1.0%, and $6.3 million, or 7.7%, during the three and nine months ended September 30, 2005, respectively, compared to the three and nine months ended September 30, 2004, respectively. The increase in depreciation and amortization expense was primarily the result of additions to property and equipment, as well as approximately:


	•	$2.8 million and $7.6 million of accelerated depreciation related to two hotels that are being redeveloped during 2005;


	•	$0.8 million increase in casualty losses, net of estimated property insurance recovery, for both the three and nine months ended September 30, 2005, which is attributable to property damage from Hurricanes Katrina and Rita; and

	•	$2.6 million increase to $3.7 million and $9.6 million increase to $10.7 million in depreciation expense related to the Acquired Hotels compared to $1.1 million during both the three and nine months ended September 30, 2004, respectively.

The increase in depreciation and amortization expense was partially offset by a decrease in:


	•	amortization expense of approximately $0.5 million and $2.1 million associated with the La Quinta trademark (that is no longer amortized);

	•	depreciation expense of approximately $0.4 million and $1.1 million during the three and nine months ended September 30, 2005 related to discontinuing depreciation on assets classified as held for sale in continuing operations during 2005;

	•	depreciation expense of approximately $1.7 million during both the three and nine months ended September 30, 2005 related to certain assets that have fully depreciated;

	•	casualty losses, net of estimated property insurance recovery, of approximately $1.7 million recorded during the three months September 30, 2004 related to property damage as a result of the hurricanes in the State of Florida during 2004. During 2005, we reduced a portion of the previously recorded casualty losses as a result of insurance recoveries by approximately $0.8 million, resulting in a net decrease during the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004 of approximately $2.5 million; and

	•	depreciation expense of approximately $2.2 million and $6.7 million of accelerated depreciation recorded during the three and nine months ended September 30, 2004, respectively, related to a hotel that completed redevelopment during 2004.


	*Impairment of Property and Equipment*

No impairments were recorded for continuing operations during the three and nine months ended September 30, 2005 or during the three months ended September 30, 2004. We recorded impairments of $12.7 million during the nine months ended September 30, 2004, where facts, circumstances and analysis indicated that the assets were potentially impaired.


	*Other (Income) Expense*

Other (income) expense consisted of the following:


	Three Months						Nine Months
	Ended						Ended
	September 30,						September 30,

	2005			2004			2005			2004

	(In millions)
(Gain) loss on sale of assets and related costs(1)	$	(3.6	)	$	(0.1	)	$	(3.5	)	$	0.1
Gain on early repayment of notes receivable		—			(2.1	)		—			(2.1	)
Gain on settlement(2)		—			—			—			(0.4	)
Exit of the healthcare business and other(3)		—			(0.6	)		—			(1.4	)

Total other (income) expense	$	(3.6	)	$	(2.8	)	$	(3.5	)	$	(3.8	)


(1)	This caption includes sales of hotels, restaurants and other property as well as the accumulation of costs to sell assets held for sale in continuing operations. During the three months ended September 30, 2005, we sold three hotels for gross proceeds of approximately $9.4 million, resulting in a gain on sale of approximately $3.7 million. These hotels are not included in discontinued operations because it is probable that these hotels will be operated by the buyers as Baymont franchises, which we believe would constitute significant continuing involvement in the operations of the hotels and, therefore, presentation as discontinued operations is not appropriate.

(2)	During the nine months ended September 30, 2004, we settled obligations related to assets previously sold that resulted in a net gain of $0.4 million.

(3)	During the three and nine months ended September 30, 2004, we recognized income of $0.6 million and $1.4 million, respectively, primarily as a result of settlement of litigation related to the healthcare business and adjustments of amounts previously accrued related to the exit of the healthcare business.


	*Income from Discontinued Operations, net*

During the three and nine months ended September 30, 2005, respectively, income from discontinued operations was $0.2 million and $2.5 million compared to $0.1 million and $0.6 million during the three and nine months ended September 30, 2004, respectively, net of income tax expense, and represents rent and royalty income, as well as property insurance, real estate taxes and impairment expenses from eight hotels during each of the three and nine months ended September 30, 2005, and 10 hotels during each of the three and nine months ended September 30, 2004, that have been reclassified as discontinued operations. During the three and nine months ended September 30, 2005, we sold or settled condemnation proceedings on one and three hotels for gross proceeds of approximately $2.5 million and $7.5 million, respectively, resulting in no gain or loss on sale and a gain on sale of approximately $0.8 million, respectively. Aggregate impairment charges of $8.2 million were recorded from December 2004 through September 30, 2005 to write down five of the 10 hotels to estimated fair value less costs of sale.

Consolidated Liquidity and Capital Resources


	*Overview*

As of September 30, 2005, we had approximately $346.1 million of liquidity, which was comprised of $212.6 million of cash and cash equivalents and $133.5 million of unused capacity under our $150 million senior credit facility (the “2003 Credit Facility”), after giving effect to approximately $16.5 million of letters of credit issued under the 2003 Credit Facility. Of the $16.5 million of letters of credit, approximately $11.8 million supports insurance arrangements and $4.7 million guarantees the payment of principal and interest on industrial revenue bonds, which are the obligation of an unrelated third party. The $4.7 million letter of credit is a remaining obligation from a 1995 healthcare transaction.

Borrowings under the 2003 Credit Facility, which matures in April 2007, currently bear interest at LIBOR plus 2.0%. During the nine months ended September 30, 2005, there were no borrowings under the 2003 Credit Facility other than the letters of credit.

We have $20 million of debt maturing during the period from October 1, 2005 through September 30, 2006. As of September 30, 2005, none of our debt obligations were floating rate obligations.

As of September 30, 2005, our gross investment in property and equipment totaled approximately $3 billion, consisting of hotels in service and corporate assets (excluding property and equipment classified as held for sale under discontinued operations and held for sale under continuing operations). We had shareholders’ equity of approximately $1.6 billion and our net debt (total indebtedness less cash and cash equivalents) constituted approximately 25% of our total capitalization (total shareholders’ equity plus minority interest plus total indebtedness less cash and cash equivalents) as of September 30, 2005. LQ Properties had shareholders’ equity of approximately $1.5 billion as of September 30, 2005.

Hurricanes Katrina and Rita damaged eight of our company owned hotels in the New Orleans area. We have yet to determine whether it is feasible to ever return to service two of these hotels, one of which is included in discontinued operations. It is anticipated that the other six hotels (four of which were partially operational as of September 30, 2005) will be substantially returned to service by the end of 2005. An additional 14 company owned hotels in Texas, Louisiana, Mississippi, Alabama and Florida experienced varying degrees of damage from the two hurricanes and most were substantially returned to service prior to September 30, 2005. During the three months ended September 30, 2005, the two hurricanes had a net favorable impact on operating revenues of approximately $5 million because the system-wide favorable impact of accommodating displaced residents and relief workers exceeded the localized unfavorable impact of the suspension of operations at seven hotels (excluding one hotel currently classified as discontinued operations).

The companies have insurance for property damage, subject to deductibles, attributable to both wind and flood. Based on a preliminary assessment, the companies estimate that expenditures related to property damage from the hurricanes will aggregate approximately $25 million to $30 million, excluding the expenditures associated with the two hotels that may never be returned to service. The companies anticipate that substantially all of the expenditures in excess of the deductibles associated with restoring the properties will be recovered from insurance proceeds. During the three months ended September 30, 2005, we recognized approximately $1.7 million of hurricane related charges, net of estimated property insurance recovery, related to damage from the two hurricanes, of which approximately $0.9 million of repairs is included in other lodging and operating expenses and $0.8 million of casualty losses is included in depreciation and amortization.

As of September 30, 2005, the net book value, including land, of the two New Orleans properties that may not be returned to service aggregated approximately $10 million. We are presently unable to reliably estimate the ultimate gains or losses that may be realized in the event these properties are not returned to service. Any gain will be recognized when realized and any loss will be recognized when we are able to estimate a probable loss.

The companies have business interruption insurance coverage; however, because the amount to be recovered under our insurance policy is undetermined at this time, the financial statements for the three months ended September 30, 2005 do not include an estimate of the amount to be recovered under the business interruption coverage. Business interruption recoveries will be recognized when the amount to be collected is assured.

The estimated expenditures, expected insurance proceeds, any asset related gains or losses and the estimated repair and maintenance expense are all subject to substantial uncertainties and will change as additional information becomes available. We are unable to predict the extent to which accommodating displaced residents and relief workers will continue to have a favorable impact on revenues. Also, the availability of contractors, materials and replacement furniture and fixtures may adversely impact the timing of restoring some of the properties to full service. Additionally, we are

unable to predict the extent to which the 2005 hurricanes will adversely impact property insurance premiums in 2006 and beyond for the lodging industry in general.


	*Cash Flows from Operating Activities*

The lodging 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 and the timing of working capital changes can be expected to cause quarterly fluctuations in revenue and operating cash flows.

Cash provided by operating activities was $106.5 million during the nine months ended September 30, 2005. Cash provided by operating activities is the result of receiving cash from customers in excess of cash paid to employees and vendors as well as the changes in other assets and liabilities during the period. The net change in other assets and liabilities of approximately $36.2 million reduced cash flows from operating activities during the nine months ended September 30, 2005 as the result of (1) payments that reduced accrued interest expense, trade accounts payable, and other accrued liabilities by approximately $27.6 million, (2) an increase of approximately $21.8 million in accounts receivable, restricted cash and other assets and (3) an increase in accrued property taxes, other deferred liabilities, other accrued liabilities and accrued payroll and benefits of approximately $13.2 million.


	*Cash Flows from Investing and Financing Activities*

During the nine months ended September 30, 2005, we had cash outlays of $51.2 million for capital expenditures including $10.0 million for renovations and conversions to our systems for the Acquired Hotels, $5.5 million for redevelopment of two hotels, $5.4 million for product improvements such as mattresses and lighting, $9.9 million in renovation at company owned La Quinta branded hotels, and $6.4 million in information systems and software. During the nine months ended September 30, 2005, we also received net proceeds from sales of assets, including sales of assets classified in discontinued operations, of approximately $17.0 million.

During the nine months ended September 30, 2005, LQ Properties paid total dividends of $13.5 million on its 9.0% Series A Cumulative Redeemable Preferred Stock.

We have an effective shelf registration statement on file with the SEC. Under the shelf registration statement, either or both of LQ Corporation and LQ Properties may offer, from time to time, in one or more offerings, the following securities: debt securities, which may be senior or subordinated; shares of common stock; shares of preferred stock; depositary shares; and warrants exercisable for debt securities, common stock or preferred stock. In May 2005, we issued 19.4 million paired common shares for net proceeds of approximately $164.7 million under the shelf registration statement. The proceeds of the offering are intended to be used for general corporate purposes, including for potential acquisitions of lodging properties, lodging companies and brands, hotel development and redevelopment projects, debt reduction, and/or redemption of preferred stock.

During the three months ended September 30, 2005, we repaid $116 million in principal on notes payable scheduled to mature in September 2005.

The following is a summary of our future debt maturities as of September 30, 2005:


Calendar Year		Total

		(In millions)
2005		$	—
2006			20
2007			210
2008			50
2009			—
2010 and thereafter			530

	Total debt	$	810

We believe that our current sources of capital, including cash on hand, operating cash flows, and expected proceeds from the sale of certain assets are adequate to finance our current operations, including 2005 capital expenditures which we currently expect to be approximately $120 million, excluding expenditures related to property damage from the hurricanes because we anticipate that substantially all of the hurricane related expenditures in excess of the deductibles will be recovered from insurance proceeds.

On a continuing basis we evaluate and may pursue other opportunities such as construction of hotels in urban centers, redevelopment of existing hotel properties and acquisition of hotels from third parties. Also, we may elect to pursue a strategic acquisition of another hotel company or brand or chain of hotels. The amounts and sources of capital needed to pursue such opportunities will be dependent on the specific opportunities. We expect to obtain funding for new investments through a combination of long-term and short-term financing, including debt and equity, internally generated cash flow and the sale of selected assets.

We have entered into an asset purchase agreement for a building including land for a purchase price of approximately $9.2 million. This purchase is expected to close in April 2006, subject to customary closing conditions. Upon closing of the building and land purchase, we expect to redevelop the property for an estimated additional project cost of approximately $24 million.

Our Board of Directors previously approved a $20 million share repurchase program to allow us to repurchase paired common shares and/or preferred stock in the open market or in privately negotiated transactions. As of September 30, 2005, we had repurchased approximately $9.1 million (or approximately 1.9 million paired shares) of our equity securities under the program. No paired shares were repurchased under this program during the nine months ended September 30, 2005.


	*Effects of Certain Events on Lodging Demand*

The combination of terrorist attacks and the impact of the war in Iraq and its aftermath and the downturn in the national economy, along with our concentration of hotels in certain markets, resulted in substantial declines in demand for lodging for both business and leisure travelers across all lodging segments and increased price competition during 2002 and the first half of 2003. Although we continually and actively manage the operating costs of our hotels in order to respond to changes in demand at our lodging properties, we must also continue to provide the level of service that our guests expect. Our operating results and cash flow from operating activities improved during 2004 and the improvement in operating results and cash flow from operating activities continued during the nine months ended September 30, 2005; however, our operating results and cash flow from operating activities could be adversely impacted should such events occur again.

RevPAR results for company owned hotels for the nine months ended September 30, 2005 were favorable. We believe this positive RevPAR trend will continue during the remainder of 2005. We anticipate it will be driven by continued rate increases, as well as occupancy increases resulting from the hurricanes. However, approximately 50% of our business is booked within zero to seven days of the stay. Therefore, forecasting such a trend is difficult and declines in business and leisure traveler demand could impact our future results. We can give no assurance that the trends experienced in the first nine months of 2005 will continue during the remainder of the year.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. As discussed in Note 9 to the consolidated financial statements, 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 or Baymont hotel.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP 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. Additional information regarding key financial accounting estimates, assumptions and policies is contained in the “Critical Accounting Policies and Estimates” discussion in our Joint Annual Report.

Recent Accounting Standards

In December 2004, the FASB issued SFAS 123R that requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized in the consolidated statements of operations over the period during which an employee is required to provide service in exchange for the award — the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Presently, we record stock-based compensation expense attributable to restricted stock performance awards; however, we present pro forma disclosures with respect to the compensation cost associated with stock options in lieu of recording stock option related expense. On April 14, 2005, the SEC adopted a rule that amends the effective date of SFAS 123R. The new effective date is the beginning of the fiscal year that begins after June 15, 2005. We plan to adopt SFAS 123R effective January 1, 2006, using the modified-prospective transition method. Consequently, we will recognize compensation expense related to outstanding unvested stock-based performance awards commencing January 1, 2006 over the remaining requisite service period. We are currently assessing the financial statement impact of implementing SFAS 123R. The actual impact in 2006 of implementing SFAS 123R will be directly affected by any additional stock-based performance awards granted.

In March 2005, the FASB issued Interpretation No. 47 (“FIN 47”), “Accounting for Conditional Asset Retirement Obligations,” that requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability can be reasonably estimated. FIN 47 clarifies that the term Conditional Asset Retirement Obligation refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement

are conditional on a future event that may or may not be within the control of the entity. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. We are currently evaluating the impact, if any, of this interpretation on our financial statements.

Seasonality

The lodging 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.


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*

As of September 30, 2005, we had no variable rate debt for the reported period.


Item 4.	*Controls and Procedures*

(a) Evaluation of disclosure controls and procedures.

As required by Rule 13a-15 under the Exchange Act, we carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2005. In designing and evaluating our disclosure controls and procedures, we and our management recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based upon the required evaluation, our principal executive officer and principal financial officer believe that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods and in the manner specified in the SEC’s rules and forms.

(b) Changes in internal controls.

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

PART II — OTHER INFORMATION


Item 1.	*Legal Proceedings*

Incorporated by reference to the description of legal proceedings in Note 9, “Commitments and Contingencies,” in the condensed notes to the consolidated financial statements set forth in Part I, Item 1, “Financial Statements.”


Item 2.	*Unregistered Sales of Equity Securities and Use of Proceeds*

Issuer Purchases of Equity Securities

(a)

(b)

(c)

(d)

Total Number of

Maximum Number (or

Shares (or Units)

Approximate Dollar Value) of

Total Number of

Average Price

Purchased as Part of

Shares (or Units) that May

Shares (or Units)

Paid per Share

Publicly Announced

Yet Be Purchased Under the

Period

Purchased(1)

(or Unit)(2)

Plans or Programs

Plans or Programs(3)

July 1-31, 2005

5,200

0.02

—

10.9 million

August 1-31, 2005

3,500

0.02

—

10.9 million

September 1-30, 2005

—

10.9 million

Total

8,700

0.02

—

10.9 million


(1)	All of the shares relate to the repurchase of unvested restricted paired shares of resigning employees.

(2)	The price paid for the resigning employees’ shares was the par value of the paired shares.

(3)	Our Board of Directors previously approved a $20 million share repurchase program to allow us to repurchase paired common shares and/or preferred stock in the open market or in privately negotiated transactions. We did not repurchase any equity securities under the program during the three months ended September 30, 2005. As of September 30, 2005, we had repurchased approximately $9.1 million (or approximately 1.9 million paired shares) and could repurchase up to approximately $10.9 million more of our equity securities under our share repurchase program.


Item 6.	*Exhibits*

Please see the list of exhibits found on the page following the signatures in this Joint Quarterly Report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this Joint Quarterly Report to be signed on their behalf by the undersigned, thereunto duly authorized.


	La Quinta Corporation


	By:	/s/ Steven A. Schumm



	Steven A. Schumm
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

Dated: October 28, 2005


	By:	/s/ Mark W. Osterberg



	Mark W. Osterberg
	Vice President and Chief Accounting Officer
	(Principal Accounting Officer)

Dated: October 28, 2005


	La Quinta Properties, Inc.


	By:	/s/ Steven A. Schumm



	Steven A. Schumm
	Executive Vice President and Chief
	Financial Officer
	(Principal Financial Officer)

Dated: October 28, 2005


	By:	/s/ Mark W. Osterberg



	Mark W. Osterberg
	Vice President and Chief Accounting Officer
	(Principal Accounting Officer)

Dated: October 28, 2005

EXHIBIT INDEX


Exhibit
No.			Description

	31	.1	Certification of the Chairman and Chief Executive Officer of La Quinta Corporation and La Quinta Properties, Inc. pursuant to section 302 of the Sarbanes-Oxley Act of 2002 and Securities Exchange Act Rule 13a-14(a) or 15d-14(a).
	31	.2	Certification of the Executive Vice President and Chief Financial Officer of La Quinta Corporation and La Quinta Properties, Inc. pursuant to section 302 of the Sarbanes-Oxley Act of 2002 and Securities Exchange Act Rule 13a-14(a) or 15d-14(a).
	32	.1	Certification of the Chairman and Chief Executive Officer and the Executive Vice President and Chief Financial Officer of La Quinta Corporation and La Quinta Properties, Inc. pursuant to section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350.

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