FIRST NINE MONTHS 2008 COMPARED TO 2007

During the first nine months of 2008 the Company recorded net income of $4,388,000, or $1.19 per share, compared to net income of $383,000, or $0.10 per share, during the first nine months of 2007. In the 2008 third quarter, the Company recorded pre-tax income of $3,279,000 related to the settlement of a dispute with the owner of Trump International Sonesta Beach Resort (see Note
9). In addition, the increase in income during the first nine months of 2008 resulted from increased earnings at Royal Sonesta Hotel Boston, and from increased income from the Company's management activities. Royal Sonesta Hotel Boston increased revenues by 10% compared to 2007, benefiting from continued strong demand in the Boston hotel market. Management income increased due to higher fees earned from the Company's managed operations in Egypt and Florida, and additional income from hotels to which the Company has licensed the use of its name. A detailed analysis of the revenues and income by location follows.

REVENUES

The Company records costs incurred on behalf of owners of managed properties,
and expenses reimbursed from managed and affiliated properties on a "gross"
basis. The revenues included and discussed in this Management's Discussion and
Analysis exclude the "other revenues and expenses from managed and affiliated
properties".


                                                                 TOTAL REVENUES
                                                                 (in thousands)
                                                       NO. OF
                                                       ROOMS          2008          2007
Royal Sonesta Hotel Boston                                400       $  23,434     $  21,249
Royal Sonesta Hotel New Orleans                           500          24,911        23,392
Management and service fees and other revenues                          6,273         4,459
Total revenues, excluding revenues from managed
and affiliated properties                                           $  54,618     $  49,100

Total revenues for the first nine months of 2008 were $54,618,000 compared to $49,100,000 in the same period in 2007, an increase of approximately $5,518,000.

Royal Sonesta Hotel Boston recorded revenues of $23,434,000 during the nine-month period ended September 30, 2008 compared to $21,249,000 in the same period in 2007, representing an increase of $2,185,000, or 10%. The increase was primarily due to a $1,602,000 increase in room revenues, resulting from an 11% increase in room revenue per available room ("REVPAR"). Both occupancy levels and average room rates increased in the 2008 period compared to 2007. Increased business from both the group and convention as well as the transient market segments contributed to the robust increase. Revenues from other sources increased by $408,000 in the 2008 period compared to 2007, which was primarily due to increased banqueting revenues resulting from the increase in group and convention business. Demand in general in the Boston hotel market, and for Royal Sonesta Hotel Boston, was very strong during the first nine months of 2008. Due to the worsened economic conditions, we have started seeing a reversal of this trend at Royal Sonesta Hotel Boston so far in the fourth quarter of 2008.

Revenues at Royal Sonesta Hotel New Orleans during the first nine months of 2008 were $24,911,000 compared to $23,392,000 during the first nine months of 2007, representing an increase of $1,519,000, or 6%. In general, the hotel business in New Orleans continued to improve in 2008 from the downturn in business following Hurricane Katrina in 2005. However, the third quarter revenues were impacted by Hurricane Gustav. During the first nine months of 2008, room revenues increased by $1,249,000 compared to 2007, due to an 8% increase in REVPAR. This increase was entirely due to an increase in average room rates achieved. Revenues from other sources increased by $408,000. Revenues from the Hotel's laundry, which also services third party hotels, decreased by $138,000 in the nine-month period in 2008 compared to 2007, due to the loss of revenues from Chateau Sonesta Hotel New Orleans, which hotel was operated by the Company under a management agreement until October 2007.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)

Revenues from management activities increased from $4,459,000 during the first nine months of 2007 to $6,273,000 during the first nine months of 2008, representing an increase of $1,814,000. Of this increase, $1,024,000 was due to improved fee income from the Company's collection of hotels and Nile river cruise ships in Egypt. Business in Egypt continues to improve, and management income in 2008 also included fee income from Sonesta Pharaoh Beach Resort Hurghada, which hotel was added under management effective January 1, 2008. The remaining increase was primarily due to improved fee income from Sonesta Bayfront Hotel Coconut Grove, and increased income from hotels to which the Company licenses the use of its name in St. Maarten and South America.

OPERATING INCOME

                                                                     OPERATING INCOME (LOSS)
                                                                         (in thousands)
                                                                        2008                2007
Royal Sonesta Hotel Boston                                       $     4,207       $       3,160
Royal Sonesta Hotel New Orleans                                          517                 814
Operating income from hotels after management and service fees         4,724               3,974
Management activities and other                                         (782 )            (2,266 )
Subtotal                                                               3,942               1,708
Income from Management Agreement settlement, net                       3,279                  --
Operating income                                                 $     7,221       $       1,708

Operating income for the nine-month period ended September 30, 2008 was $7,221,000, compared to operating income of $1,708,000 in the same period in 2007, an increase of approximately $5,513,000. Of this increase, $3,279,000 resulted from the settlement of a termination payment due to the Company, following the termination of the management agreement for Trump International Sonesta Beach Resort effective April 1, 2008 (see Note 9).

Royal Sonesta Hotel Boston increased operating income during the first nine months of 2008 by $1,047,000 to $4,207,000. Revenues during this period increased by $2,185,000, and expenses increased by $1,138,000, or 6%. This increase was almost entirely due to an increase in costs and operating expenses of $907,000. The Hotel operated at a higher occupancy level compared to 2007, which increased payroll expense. In addition, laundry cost and reservation and commission expenses increased. The Hotel's food and beverage cost of sales were higher in 2008 compared to 2007 as a result of increases in the purchase prices of food and beverages.

Operating income from Royal Sonesta Hotel New Orleans decreased from $814,000 during the first nine months of 2007 to $517,000 during the same period in 2008. Increases in revenues of $1,519,000 were more than offset by increased expenses of $1,816,000. Of the increase in expenses, $1,355,000 was due to an increase in rent expense based on the lease under which the Company operates the Hotel. Rent is equal to 75% of net cash flow achieved. Due to the higher profit levels, rent expense increased. In addition, the Hotel postponed a number of capital investments originally planned to be completed in 2008. This decision decreased the amount of the 2008 estimated capital expenditures, which are a deduction in arriving at cash flow for rent purposes. This also contributed to the higher rent expense. Excluding the increase in rent expense, expenses increased by a modest 2% compared to 2007. This was in part due to a decrease in real estate taxes in 2008 compared to last year.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)

The Company's loss from management activities, which is computed after giving effect to management fees from owned and leased hotels, decreased from $2,266,000 during the nine-month period ending September 30, 2007 to $782,000 during the nine-month period ending September 30, 2008. Increases in management fee income of $1,814,000 were partially offset by a slight increase in corporate expenses of $330,000. The increase in expenses was primarily due to a $443,000 increase in depreciation and amortization expense related to accelerated depreciation of an investment the Company made in Trump International Sonesta Beach Resort Sunny Isles. The Company invested $2,268,000 in the Hotel in 2003, which was being amortized over the initial ten-year term of the management agreement. The Company exercised an early termination option (see Note 9) which ended the management agreement for this property on April 1, 2008. As a result, the Company accelerated depreciation of the remaining investment, which resulted in an additional depreciation charge of $567,000 in the 2008 first quarter. Excluding the increase in depreciation expense, overall corporate costs decreased by $113,000.

OTHER INCOME (DEDUCTIONS)

Interest income decreased by $345,000 to $925,000 in the nine-month period ending September 30, 2008 compared to the previous year. This decrease was the result of lower income earned on the Company's short term cash investments, due to the lower rates of return. In addition, the 2008 period included lower interest earned on a loan to the owner of Sonesta Bayfront Hotel Coconut Grove, which resulted from the lower principal balance of this loan as well as a lower interest rate, which fluctuates with the prime rate. The decrease in interest income was partially offset by interest earned on a new loan made to the owner of Sonesta Beach Resort and Sonesta Club Sharm El Sheikh, and from income received related to the settlement of a dispute with the owner of a hotel in Sunny Isles, Florida, which the Company managed until April 1, 2008 (see Note 9).

The gain on sale of assets in the 2008 period resulted from the sale of a co-op unit the Company owned in New York City to the Company's Chief Executive Officer and Vice Chairman. The sale price was $700,000. The Company's Board of Directors approved this transaction. In addition, the Company realized a gain on the sale of art. The gain on sale of $214,000 during the 2007 period was almost entirely from the sale of art.

THIRD QUARTER 2008 COMPARED TO 2007

During the third quarter of 2008 the Company recorded net income of $2,792,000, or $0.76 per share, compared to net income of $442,000, or $0.12 per share, in the third quarter of 2007. In the 2008 third quarter, the Company recorded pre-tax income of $3,279,000 related to the settlement of a dispute with the owner of Trump International Sonesta Beach Resort (see Note 9). Royal Sonesta Hotel Boston reported increased income in the 2008 third quarter, benefiting from continued strong demand in the Boston hotel market. Royal Sonesta New Orleans, on the other hand, had a disappointing 2008 third quarter, which was due to Hurricane Gustav, which affected the hotel's business in September 2008. A detailed analysis of revenues and income by location follows.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)


REVENUES

The Company records costs incurred on behalf of owners of managed properties,
and expenses reimbursed from managed and affiliated properties on a "gross"
basis. The revenues included and discussed in this Management's Discussion and
Analysis exclude the "other revenues and expense from managed and affiliated
properties".

                                                                 TOTAL REVENUES
                                                                 (in thousands)
                                                       NO. OF
                                                       ROOMS          2008           2007
Royal Sonesta Hotel Boston (Cambridge)                    400       $   9,105     $   8,255
Royal Sonesta Hotel New Orleans                           500           5,803         6,063
Management and service fees and other revenues                          1,490         1,281
Total revenues, excluding revenues from managed
and affiliated properties                                           $  16,398     $  15,599

Total revenues for the quarter ended September 30, 2008 were $16,398,000 compared to $15,599,000 in the quarter ended September 30, 2007, an increase of approximately $799,000.

Revenues during the 2008 third quarter at Royal Sonesta Hotel Boston were $9,105,000, compared to $8,255,000 during the 2007 third quarter, representing an $850,000, or 10% increase. Demand continued to be strong during the third quarter, in which the Hotel increased room revenues by $606,000 due to an 11% increase in room revenues per available room ("REVPAR"). Occupancy during the third quarter in 2008 were substantially higher than during the 2007 third quarter, and average room rates achieved increased modestly. The increase in business came primarily from the transient market segment. Revenues from other sources, primarily food and beverage, increased by $244,000, or 10%, due to the increase in occupancy levels. The Company does not expect this trend to continue in the fourth quarter of 2008, due to the worsened economic conditions.

Royal Sonesta Hotel New Orleans did not have a good 2008 third quarter, which is traditionally the slowest quarter of the year in New Orleans. Revenues decreased by $260,000 to $5,803,000 in the 2008 third quarter. Revenues during July and August of 2008 still showed an increase compared to last year, but September 2008 revenues were seriously affected by Hurricane Gustav, which, even though it did not do any physical damage to the Hotel, caused numerous cancellations. As a result, the September 2008 revenues were less than the previous year's by approximately $500,000.

Revenues from management activities increased by $209,000 to $1,490,000 in the 2008 third quarter compared to last year. Fee income from the Company's managed operations in Egypt increased by $284,000 in the 2008 third quarter. Business continued to improve in 2008 in Egypt, and the Company also reported income from Sonesta Pharaoh Beach Resort Hurghada, which hotel was added on January 1, 2008. Decreases in fee income from Trump International Sonesta Beach Resort, which hotel's management agreement was terminated effective April 1, 2008 (see Note 9), was partially offset by increased fees from Sonesta Bayfront Hotel Coconut Grove and increased income from hotels in South America, to which the Company has licensed the use of its name.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)

OPERATING INCOME

                                                                     OPERATING INCOME (LOSS)
                                                                          (in thousands)
                                                                         2008               2007
Royal Sonesta Hotel Boston                                       $      2,349       $      1,860
Royal Sonesta Hotel New Orleans                                          (570 )              (58 )
Operating income from hotels after management and service fees          1,779              1,802
Management activities and other                                          (647 )             (993 )
Subtotal                                                                1,132                809
Income from Management Agreement settlement, net                        3,279                 --
Operating income                                                 $      4,411       $        809

Operating income during the quarter ended September 30, 2008 was $4,411,000, compared to operating income of $809,000 in the quarter ended September 30, 2007, representing an increase of approximately $3,602,000. Of the increase of $3,602,000, $3,279,000 was income that resulted from the settlement of a dispute with the owner of Trump International Sonesta Beach Resort, which management contract was terminated effective April 1, 2008 (see Note 9).

Royal Sonesta Hotel Boston increased operating income by $489,000, from $1,860,000 in the 2007 third quarter to $2,349,000 in the 2008 third quarter. Revenues increased by $850,000. This revenue increase was partially offset by increased expenses of $361,000. The expense increase resulted primarily from a $219,000 increase in costs and operating expenses, which equals a 6% increase. Occupancies during the 2008 third quarter were seven percentage points higher than during the 2007 first quarter, which accounts for the increase in operating expenses.

Operating loss at Royal Sonesta Hotel New Orleans during the third quarter, traditionally the slowest quarter of the year, increased from $58,000 during 2007 to $570,000 in 2008. Revenues decreased by $260,000 due to the effect of Hurricane Gustav on the Hotel's business in September 2008. Expenses increased by $252,000, which was entirely due to an increase in rent expense. Under the lease under which the Company operates the Hotel, rent is computed as a percentage of cash flow, which is after deducting capital expenditures. During the 2008 third quarter, the Company decided to postpone a number of capital projects, which increased the profit for rent purposes and subsequently the rent due to the landlord.

Operating losses from management activities, which are computed after giving effect to management and marketing fees from owned and leased hotels, were $647,000 in the 2008 third quarter compared to $993,000 in the 2007 third quarter, representing a decrease of $346,000. Revenues from management activities increased by $209,000, and expenses related to these activities decreased by $137,000. The decrease in expenses was due to a reduction in the Company's corporate administrative and general expense.

OTHER INCOME (DEDUCTIONS)

Interest income decreased from $486,000 in the 2007 third quarter to $312,000 in the 2008 third quarter. This was primarily due to a decrease in short-term investment income on the Company's cash balances as a result of lower rates of return achieved. In addition, interest income on a loan to the owner of Sonesta Bayfront Hotel Coconut Grove decreased during the 2008 third quarter due to the lower principal balance and lower interest rate, which fluctuates with the prime rate. These decreases were partially offset by income received related to a settlement involving Trump International Sonesta Beach Resort Sunny Isles (see Note 9).

Gains on the sale of assets during the third quarter of 2008 and 2007 were primarily from the sale of art by the Company.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)

FEDERAL, FOREIGN AND STATE INCOME TAXES

During the first nine months of 2008 the Company recorded a tax expense of $2,108,000 on pretax income of $6,496,000. The expense is lower than the statutory rate because the Company expects to benefit from credits for foreign taxes paid in previous years which have been carrying forward. These credits more than offset the state income taxes due on the Company's income from Royal Sonesta New Orleans and Royal Sonesta Hotel Boston. The tax expense in 2007 was higher than the statutory rate because of state taxes incurred on the Company's income from Royal Sonesta Hotel New Orleans, and because of foreign taxes incurred, primarily on the Company's income from Egypt.

Effective for years beginning January 1, 2009, the state of Massachusetts has enacted changes in its tax laws, including conforming to federal entity classification rules, and adopting a unitary method of taxation. The Company is in the process of analyzing the effects of these changes on its overall financial position. These tax law changes are not expected to have a material effect on the Company's deferred tax position.

LIQUIDITY AND CAPITAL RESOURCES

The Company had cash and cash equivalents of approximately $29.6 million at September 30, 2008. These assets are primarily held in money market mutual funds. As of September 30, 2008, the majority of these funds were held in money market mutual funds which participate in the U.S. Treasury Department Temporary Guarantee Program for Money Market Funds

The Company agreed in January 2008 to convert approximately $1.6 million of receivables for fees and expenses from two hotels it manages in Sharm El Sheikh, Egypt into a five-year loan. This was part of a transaction which also included the extension until 2024 of the management agreement for Sonesta Club Sharm El Sheikh, which otherwise would have expired at the end of 2009. In return, the Company agreed to pay $500,000, which payment was made by reducing outstanding receivables from Sharm Club (see also Note 10).

Under the terms of the partnership agreement for a development project in which the Company is a 50% limited partner, the Company received monthly payments of $125,000 since August 2006. These payments reduced the carrying value of the Company's investment. The partnership's general partner suspended these payments as of February 2008, in order to conserve cash for development expenditures. Previously, the partnership deferred payments of a monthly development fee to the general partner (see also Note 3).

The Company contributed $1,280,000 to its Pension Plan in 2008.

In September 2008, the Company entered into a management agreement for a 249 room condominium hotel in Sunny Isles Florida. Sonesta Solé Miami is expected to open during the first quarter of 2009. As part of the agreement, the Company is committed to loan the owner of the hotel an amount of $4.2 million for furniture, fixtures and equipment, pre-opening expenses, working capital and certain other amounts necessary to open the hotel.

The Company collected approximately $5 million related to the settlement of a dispute with the owner of Trump International Sonesta Beach Resort, which the Company stopped managing on April 1, 2008 (see Note 9). Also in October 2008, the owner of Sonesta Bayfront Hotel Coconut Grove repaid the Company's loan to the hotel in the amount of $2,627,000.

In October 2008, the Company's Board of Directors approved a dividend of $.10 per share, as well as a special dividend of $.15 per share on the Company's stock. These dividends, totaling $925,000, will be paid January 2, 2009 to holders of record on December 19, 2008.

Company management believes its cash resources will be adequate to meet its cash requirements for 2008 and beyond.