EXTENDED STAY AMERICA INC, S-1/A, 1996-07-02

EXTENDED STAY AMERICA INC
S-1/A, 1996-07-02
HOTELS & MOTELS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1996

REGISTRATION NO. 333-100
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------

POST-EFFECTIVE
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

----------------

EXTENDED STAY AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 7011 36-3996573
(STATE OR OTHER (PRIMARY STANDARD (I.R.S.
JURISDICTION OF INDUSTRIAL CLASSIFICATION EMPLOYERIDENTIFICATION
INCORPORATION OR CODE NUMBER) NUMBER)
ORGANIZATION)

500 E. BROWARD BOULEVARD
FT. LAUDERDALE, FLORIDA 33394
TELEPHONE (954) 713-1600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

----------------

GEORGE D. JOHNSON, JR.
CHIEF EXECUTIVE OFFICER
EXTENDED STAY AMERICA, INC.
500 E. BROWARD BOULEVARD
FT. LAUDERDALE, FLORIDA 33394
TELEPHONE (954) 713-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

JOHN T. MCCARTHY, ESQ.
BELL, BOYD & LLOYD
THREE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60602
TELEPHONE: (312) 372-1121

----------------

AMENDING THE PROSPECTUS AND FILING CERTAIN EXHIBITS.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED JULY 2, 1996

PROSPECTUS

15,003,030 SHARES

LOGO

COMMON STOCK

-----------

This Prospectus covers 15,003,030 shares (the "Shares") of common stock, par
value $.01 (the "Common Stock"), of Extended Stay America, Inc. (the "Company")
which may be offered and sold from time to time for the account of the persons
who are identified herein under the heading "Selling Shareholders" and any
other person who obtains the right to sell the Shares hereunder (the "Selling
Shareholders"). See "Selling Shareholders" and "Plan of Distribution." THE
COMPANY WILL RECEIVE NO PART OF THE PROCEEDS OF ANY SALES OF THE SHARES.

The distribution of the Shares by the Selling Shareholders may be effected
from time to time in one or more transactions on the Nasdaq National Market
(which may involve block transactions), in special offerings, in negotiated
transactions, or otherwise, and at market prices pevailing at the time of sale,
at prices related to such prevailing market prices, or at negotiated prices.
The Selling Shareholders may engage one or more brokers to act as principal or
agent in making sales, who may receive discounts or commissions from the
Selling Shareholders in amounts to be negotiated. The Selling Shareholders and
any such brokers may be deemed "underwriters" under the Securities Act of 1933,
as amended (the "Securities Act"), of the Shares sold.

The Common Stock is traded on the Nasdaq National Market under the symbol
"STAY". On June 26, 1996, the closing sale price of the Common Stock, as
reported in The Wall Street Journal, was $28.875 per share. See "Price Range of
Common Stock."

-----------

SEE "RISK FACTORS" AT PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

-----------

The date of this Prospectus is , 1996.
<PAGE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Recent Developments....................................................... 11
Price Range of Common Stock............................................... 13
Dividend Policy........................................................... 13
Selected Financial Data................................................... 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 16
Business.................................................................. 20
Management................................................................ 27
Certain Transactions...................................................... 35
Principal Shareholders.................................................... 36
Financing................................................................. 37
Description of Capital Stock.............................................. 39
Shares Eligible for Future Sale........................................... 41
Selling Shareholders...................................................... 42
Plan of Distribution...................................................... 43
Experts................................................................... 44
Index to Financial Statements............................................. F-1
</TABLE>

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, registration statements, proxy
statements, and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices: 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New York, New
York 10048. Copies of such materials can be obtained at prescribed rates from
the Public Reference Section of the Commission, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549.

The Company has filed with the Commission a Registration Statement on Form S-
1 (the "Registration Statement") under the Securities Act with respect to the
Common Stock offered hereby. As used herein, the term "Registration Statement"
means the initial Registration Statement and any and all amendments thereto.
This Prospectus omits certain information contained in said Registration
Statement as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto. Statements herein concerning the contents of any contract or other
document are not necessarily complete and in each instance reference is made to
such contract or other document filed with the Commission as an exhibit to the
Registration Statement, or otherwise, each such statement being qualified by
and subject to such reference in all respects.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless the context suggests otherwise, references in this
Prospectus to the "Company" mean Extended Stay America, Inc. and its
subsidiaries and references to the year ended December 31, 1995 mean the period
from January 9, 1995, the Company's date of inception, through December 31,
1995. On May 9, 1996, the Board of Directors of the Company declared a dividend
of one additional share of Common Stock for each share issued as of the close
of business on July 5, 1996, to be distributed on July 19, 1996, thereby
effecting a 2-for-1 stock split (the "Stock Dividend"). Except as otherwise
noted, none of the information contained in this Prospectus reflects the Stock
Dividend.

THE COMPANY

Extended Stay America, Inc. was organized in January 1995 to develop, own,
and manage extended stay lodging facilities which are designed to appeal to
value-conscious guests. The Company's facilities are designed to offer quality
accommodations for guests at substantially lower rates than most other extended
stay lodging providers and hotels in the economy segment of the traditional
lodging industry. They feature fully furnished rooms which are generally rented
on a weekly basis to guests such as business travelers (particularly those with
limited expense accounts), professionals on temporary work assignment, persons
between domestic situations, and persons relocating or purchasing a home, with
most guests staying for multiple weeks. The Company's facilities provide a
variety of features that are attractive to the extended stay guest such as a
fully-equipped kitchenette, weekly housekeeping with twice-weekly towel
service, color television with cable or satellite hook-up, coin laundromat, and
telephone service with voice mail messaging. To help maintain affordability of
room rates, labor intensive services such as daily cleaning, room service, and
restaurants are not provided.

The extended stay category is one of the most rapidly evolving sectors of the
U.S. lodging industry. From 1992 to 1995, the number of dedicated extended stay
rooms increased at a compounded annual growth rate of approximately 3.3%,
compared with compounded annual room growth of approximately 1.4% for the
overall lodging industry over the same period. However, the vast majority of
these rooms have been developed in the high-price end of the category. The
economy extended stay sector of the lodging industry appears to present a
number of attractive characteristics compared to traditional hotels, including
higher occupancy rates and operating margins. Based on published occupancy
rates for other participants in the extended stay market, the Company believes
that demand in the economy extended stay market is greater, relative to supply,
than in the lodging industry generally. The Company is not aware of any
operator who serves the economy extended stay market niche on a national level.

The Company's goal is to become a national provider of economy extended stay
lodging. The Company intends to achieve this goal by rapidly developing
properties in selected markets, providing high value accommodations for its
guests, actively managing its properties to increase revenues and reduce
operating costs, and increasing awareness of the economy extended stay concept.
Through June 26, 1996, the Company had developed and opened three facilities,
acquired six others, and had agreements to acquire five additional facilities.
As of such date, the Company had 34 facilities under construction, 25 of which
the Company expects to have opened by the end of 1996. The Company plans to
begin construction of approximately 33 additional facilities during the
remainder of 1996 and to continue an active development program thereafter. The
Company's plans call for the average facility to have approximately 125
extended stay rooms and to take approximately 7-9 months to construct.

3
<PAGE>

The Company was founded by George D. Johnson, Jr. and H. Wayne Huizenga, who
are the two largest shareholders of the Company. Mr. Johnson, who is the
President and Chief Executive Officer of the Company, was formerly the
President of the Consumer Products Division of Blockbuster Entertainment Group,
a division of Viacom, Inc. Mr. Huizenga, who is the Chairman of the Board of
Directors of the Company, is the Chairman and Chief Executive Officer of
Republic Industries, Inc. and was formerly Vice-Chairman of Viacom, Inc. and
Chairman and Chief Executive Officer of Blockbuster Entertainment Corporation.
The Company's management team has extensive experience in the acquisition and
development of real estate and the operation of properties on a national scale.

The Company was initially capitalized with approximately $60 million in
equity from a group of private investors, a number of whom constitute part of
the Company's management team. On December 19, 1995, the Company completed an
initial public offering of 5,060,000 shares of Common Stock at a price of
$13.00 per share (the "IPO") and a concurrent offering to the Company's then
existing shareholders of 2,067,825 additional shares of Common Stock at a price
of $12.09 per share, being the initial public offering price per share less the
underwriting discounts and commissions (the "Concurrent Offering", and,
collectively with the IPO, the "December 1995 Offerings"). The net proceeds to
the Company from the December 1995 Offerings were approximately $85 million
after deduction of the underwriting discounts and commissions and other
offering expenses. On June 5, 1996, the Company completed an additional
offering of 9,775,000 shares of Common Stock at a price to the public of $31.00
per share (the "June 1996 Offering", and collectively with the December 1995
Offerings, the "Prior Offerings"). The net proceeds to the Company from the
June 1996 Offering were approximately $290 million after deduction of the
underwriting discounts and commissions and other offering expenses. See "Recent
Developments." In addition, pursuant to its mortgage facilities, the Company
may be able to borrow up to $400 million to finance its properties.

The Company was formed in 1995 as a Delaware corporation and its executive
offices are located at 500 E. Broward Boulevard, Ft. Lauderdale, Florida 33394
and its telephone number is (954) 713-1600.

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

Certain statements in this Prospectus Summary and under the captions "Risk
Factors," "Recent Developments," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," and elsewhere in
this Prospectus constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance, or achievements of the Company
to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the Company's limited operating history
and uncertainty as to the Company's future profitability; the ability to meet
construction and development schedules and budgets; the ability to develop and
implement operational and financial systems to manage rapidly growing
operations; the uncertainty as to the consumer demand for economy extended stay
lodging; increasing competition in the extended stay lodging market; the
ability to integrate and successfully operate acquired properties and the risks
associated with such properties; the ability to obtain financing on acceptable
terms to finance the Company's growth strategy; and the ability of the Company
to operate within the limitations imposed by financing arrangements; and other
factors referenced in this Prospectus. See "Risk Factors."

4
<PAGE>

SUMMARY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
------------------------- --------------------------
ACTUAL PRO FORMA(1) ACTUAL PRO FORMA(2)
<S> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Revenue................ $ 877,885 $14,164,414 $ 1,170,829 $ 3,904,359
Operating expenses..... 2,887,091 10,118,595 2,846,928 4,118,518
Depreciation and
amortization.......... 146,726 2,193,514 203,343 586,780
Income (loss) from
operations............ (2,155,932) 1,852,305 (1,879,442) (800,939)
Interest income........ 848,510 804,510 1,450,132 1,425,132
Income taxes........... 0 1,036,000 0 243,000
Net income (loss)...... $(1,307,422) $ 1,620,815 $ (429,310) $ 381,193
=========== =========== ============ ============
Net income (loss) per
share(3)................ $ (0.10) $ 0.11 $ (0.02) $ 0.02
Weighted average number
of shares of common
stock and equivalents
outstanding(3).......... 12,652,110 15,260,204 22,467,393 24,785,595
<CAPTION>
AS OF MARCH 31, 1996
--------------------------
ACTUAL PRO FORMA(4)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $104,010,918 $391,358,418
Total assets.................................... 166,369,727 494,692,227
Long-term debt(5)............................... 0 0
Shareholders' equity............................ 164,533,055 492,544,810
</TABLE>
- --------------------

(1) Giving pro forma effect to the acquisition of the Norcross, Georgia lodging
facility in January 1996, the Norcross, Georgia and Riverdale, Georgia
lodging facilities in February 1996, and the Lawrenceville, Georgia lodging
facility in June 1996 (the "Gwinnett Facility") (collectively, the
"Acquired Facilities"), the acquisition of the Marietta, Georgia lodging
facility in August 1995 (the "Marietta Facility"), and the proposed
acquisitions of the lodging facility in Lakewood, Colorado (the "KHEC
Facility") from Kipling Hospitality Enterprise Corporation ("KHEC") and the
four lodging facilities in Las Vegas, Nevada (the "M&M Facilities") as if
they all had occurred at the beginning of the period and to the Company
operating as a publicly held entity as of such date. See the pro forma
financial statements and notes thereto and notes 5 and 14 to the Company's
consolidated financial statements, all of which are contained elsewhere
herein.

(2) Giving pro forma effect to the acquisitions of the Acquired Facilities and
the proposed acquisitions of the KHEC Facility and the M&M Facilities as if
they had occurred at the beginning of the period. See the pro forma
financial statements and notes thereto and notes 5 and 14 to the Company's
consolidated financial statements, all of which are contained elsewhere
herein.

(3) See notes 2, 5, and 14 to the Company's consolidated financial statements
contained elsewhere herein.

(4) Giving pro forma effect to the acquisition of the Gwinnett Facility and the
proposed acquisitions of the KHEC Facility and the M&M Facilities and the
June 1996 Offering as if they occurred on March 31, 1996. See the pro forma
financial statements and notes thereto contained elsewhere herein.
(5) Does not give effect to future borrowings.

5
<PAGE>

RISK FACTORS

Prospective purchasers of the shares of Common Stock offered hereby should
consider carefully the specific factors set forth below as well as the other
information contained in this Prospectus in evaluating an investment in the
Common Stock.

LIMITED OPERATING HISTORY AND COSTS ASSOCIATED WITH EXPANSION

The Company first began operating economy extended stay facilities in August
1995 and has a limited operating history upon which investors may evaluate the
Company's performance. The Company has incurred losses to date and there can be
no assurance that the Company will be profitable in the future. Given the
substantial development and financing expenses relating to the Company's
expansion, it expects to have net losses for the foreseeable future.

DEVELOPMENT RISKS

The Company intends to grow primarily by developing additional Company-owned
lodging facilities. Development involves substantial risks, including the risk
that development costs will exceed budgeted or contracted amounts, the risk of
delays in completion of construction, the risk of failing to obtain all
necessary zoning and construction permits, the risk that financing might not be
available on favorable terms, the risk that developed properties will not
achieve desired revenue or profitability levels once opened, the risk of
competition for suitable development sites from competitors which have greater
financial resources than the Company, the risks of incurring substantial costs
in the event a development project must be abandoned prior to completion,
changes in governmental rules, regulations, and interpretations (including
interpretations of the requirements of the Americans with Disabilities Act),
and general economic and business conditions. Although the Company intends to
manage development to reduce such risks, there can be no assurance that present
or future developments will perform in accordance with the Company's
expectations. As of June 26, 1996, the Company operated nine facilities, had
agreements to acquire five additional facilities, and had 34 facilities under
construction, 25 of which the Company expects to have opened by the end of
1996. The Company plans to begin construction of approximately 33 additional
facilities during the remainder of 1996 and to continue an active development
program thereafter. There can be no assurance, however, that the Company will
complete the development and construction of the facilities or will acquire
each of the planned properties and complete development of a Company-owned
facility thereon, or that any such developments will be completed in a timely
manner or within budget.

RISKS ASSOCIATED WITH RAPID GROWTH

The Company's rapid development plans will require the implementation of
enhanced operational and financial systems and will require additional
management, operational, and financial resources. For example, the Company will
be required to recruit and train property managers and other personnel for each
new lodging facility as well as additional accounting personnel. In addition,
the Company needs to complete the development of a systemwide integrated
computer network. There can be no assurance that the Company will be able to
manage its expanding operations effectively. The failure to implement such
systems and add such resources on a cost-effective basis could have a material
adverse effect on the Company's results of operations and financial condition.

RISKS ASSOCIATED WITH THE LODGING INDUSTRY

The economy extended stay segment of the lodging industry, in which the
Company operates, may be adversely affected by changes in national or local
economic conditions and other local market conditions, such as an oversupply of
hotel space or a reduction in demand for hotel space in a geographic area,
changes in travel patterns, extreme weather conditions, changes in governmental
regulations which influence or

6
<PAGE>

determine wages, prices, or construction costs, changes in interest rates, the
availability of financing for operating or capital needs, and changes in real
estate tax rates and other operating expenses. The Company's principal assets
will consist of real property, and real estate values are sensitive to changes
in local market and economic conditions and to fluctuations in the economy as a
whole. In addition, due in part to the strong correlation between the lodging
industry's performance and economic conditions, the lodging industry is subject
to cyclical changes in revenues and profits. These risks may be exacerbated by
the relatively illiquid nature of real estate holdings. The ability of the
Company to vary its portfolio in response to changes in economic and other
conditions will be limited. There can be no assurance that downturns or
prolonged adverse conditions in real estate or capital markets or in national
or local economies, and the inability of the Company to dispose of an
investment when it finds disposition to be advantageous or necessary, will not
have a material adverse impact on the Company.

COMPETITION IN THE LODGING INDUSTRY

There is no single competitor or small number of competitors of the Company
that is or are dominant in the economy extended stay market. However, some of
the Company's indirect competitors have substantially larger networks of
locations and greater financial resources than the Company. A number of major
lodging companies recently have announced their intent to aggressively develop
extended stay lodging properties which may compete with the Company's
properties. Competition in the U.S. lodging industry is based generally on
convenience of location, price, range of services and guest amenities offered,
and quality of customer service. The Company considers the location of its
lodging facilities, the reasonableness of its room rates, and the services and
guest amenities provided by it to be among the most important factors in its
business. Demographic or other changes in one or more of the Company's markets
could impact the convenience or desirability of the sites of certain lodging
facilities, which would adversely affect their operations. Further, there can
be no assurance that new or existing competitors will not significantly lower
rates or offer greater convenience, services, or amenities or significantly
expand or improve facilities in a market in which the Company's facilities
compete, thereby adversely affecting the Company's operations. See "Business--
Competition."

RISKS ASSOCIATED WITH ACQUISITIONS

RISKS OF BORROWING

The Company expects to incur substantial borrowings in connection with its
expansion. Pursuant to its mortgage facilities, the Company may be able to
borrow up to $400 million to finance its properties, depending on certain
conditions. This compares to total equity of $492.5 million as of March 31,
1996, including estimated net proceeds from the June 1996 Offering of
approximately $290 million and the issuance of shares of Common Stock in
connection with the acquisition of the Gwinnett Facility and the proposed
acquisitions of the KHEC Facility and the M&M Facilities. These borrowings will
be secured by mortgages on the Company's properties and various accounts and
other assets. The Company may incur additional debt from time to time. See "--
Need for Additional Capital." Leverage increases the risks to the Company of
any variations in its results, construction cost overruns, or any other factors
affecting its cash flow or liquidity. In addition, the Company's interest costs
could increase as the result of general increases in interest rates because

7
<PAGE>

a portion of the Company's borrowings under these facilities will bear interest
at floating rates, the rates on individual term loans under these facilities
will depend on the level of prevailing yields on U.S. Treasury securities at
the times loans are made, and additional borrowings may bear interest at
floating rates. See "Financing."

NEED FOR ADDITIONAL CAPITAL

The extent to which the Company will be able to borrow under its mortgage
facilities will be dependent on the Company meeting certain conditions and
maintaining certain reserves. In addition, these mortgage facilities may
restrict the ability of the Company to incur additional debt in the future.
Although the Company is unable to quantify its needs for additional financing,
the Company expects that it will need to procure additional financing over
time, the amount of which will depend on a number of factors including the
number of properties the Company constructs or acquires and the cash flow
generated by its properties. There can be no assurance regarding the
availability or terms of additional financing the Company may be able to
procure over time. Any future debt financings or issuances of preferred stock
by the Company will be senior to the rights of the holders of Common Stock, and
any future issuances of Common Stock will result in the dilution of the then
existing shareholders' proportionate equity interests in the Company.

RESTRICTIONS ON OPERATIONS IN MORTGAGE FACILITIES

The Company's financing arrangements contain a number of provisions that
impose restrictions on the Company which could, under certain circumstances,
limit the Company's operating and financial flexibility and adversely affect
its results of operations. These provisions include restrictions on the ability
of the Company to incur additional indebtedness, prepay indebtedness, declare
dividends, enter into certain financing arrangements, acquire or dispose of
certain assets, or make certain investments. In addition, the Company's ability
to utilize these mortgage facilities is subject to it meeting certain
conditions. See "Financing."

NEW MANAGEMENT

Since its formation in January 1995, the Company has recruited a management
team, most of whom have had no prior experience in the lodging industry. The
Company's success depends upon the ability of these individuals to develop
expertise in managing such business. See "Management--Directors and Officers."

IMPACT OF ENVIRONMENTAL REGULATIONS

The Company's operating costs may be affected by the obligation to pay for
the cost of complying with existing environmental laws, ordinances, and
regulations. In addition, in the event any future legislation is adopted, the
Company may, from time to time, be required to make significant capital and
operating expenditures in response to such legislation. The Company attempts to
minimize its exposure to potential environmental liability through its site-
selection procedures. The Company typically secures an option to purchase land
subject to certain contingencies. Prior to exercising such option and
purchasing the property, the Company conducts a Phase I environmental
assessment (which generally involves a physical inspection and database search,
but not soil or groundwater analyses). Under various federal, state, and local
environmental laws, ordinances, and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or remediation
of hazardous or toxic substances on, under, or in such property. Such laws
often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. In
addition, the presence of contamination from hazardous or toxic substances, or
the failure to properly remediate such contaminated property, may adversely
affect the owner's ability to borrow using such real property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances also may be liable for the costs of removal or remediation of such
substances at the disposal or treatment facility, whether or not such facility
is or ever was owned or operated by such person. Certain environmental laws and
common-law principles could be used to impose liability for releases of
hazardous materials, including asbestos-containing materials

8
<PAGE>

("ACMs"), into the environment, and third parties may seek recovery from
owners or operators of real properties for personal injury associated with
exposure to released ACMs or other hazardous materials. Environmental laws
also may impose restrictions on the manner in which property may be used or
transferred or in which businesses may be operated, and these restrictions may
require expenditures. In connection with the ownership of its properties, the
Company may be potentially liable for any such costs. The cost of defending
against claims of liability or remediating contaminated property and the cost
of complying with environmental laws could materially adversely affect the
Company's results of operations and financial condition.

LOSSES IN EXCESS OF INSURANCE COVERAGE

The Company intends to maintain comprehensive insurance on each of its
properties, including liability, fire, and extended coverage, in the types and
amounts customarily obtained by an owner and operator in the Company's
industry. Nevertheless, there are certain types of losses, generally of a
catastrophic nature, such as hurricanes, earthquakes, and floods, that may be
uninsurable or not economically insurable. The Company uses its discretion in
determining amounts, coverage limits, and deductibility provisions of
insurance, with a view to obtaining appropriate insurance on the Company's
properties at a reasonable cost and on suitable terms. This may result in
insurance coverage that in the event of a loss would not be sufficient to pay
the full current market value or current replacement value of the Company's
lost investment and the insurance proceeds received by the Company might not
be adequate to restore its economic position with respect to such property.

RELIANCE ON KEY PERSONNEL

The Company's success depends to a significant extent upon the efforts and
abilities of its senior management and key employees, particularly Mr. George
D. Johnson, Jr., President and Chief Executive Officer, and Mr. Robert A.
Brannon, Senior Vice President and Chief Financial Officer. The loss of the
services of any of these individuals could have a material adverse effect upon
the Company. See "Management--Directors and Officers." The Company does not
have employment or consulting agreements with any of its officers other than
Mr. Harold E. Wright nor does it carry key man life insurance on any of its
officers.

CONTROL OF THE COMPANY BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS

As of June 26, 1996, George D. Johnson, Jr., H. Wayne Huizenga, and Stewart
H. Johnson beneficially owned approximately 33.1% of the outstanding shares of
Common Stock of the Company and these individuals together with other
executive officers and directors of the Company as a group owned approximately
39.9% of the outstanding shares of Common Stock. By reason of such holdings,
such shareholders acting as a group will be able to effectively control the
affairs and policies of the Company and will be able to elect a sufficient
number of directors to control the Company's Board of Directors and to approve
or disapprove any matter submitted to a vote of the shareholders, including
certain fundamental corporate transactions (such as certain mergers and sales
of assets) requiring shareholder approval. See "Principal Shareholders." In
addition, the Company's debt agreements contain, and future financing
arrangements may contain, provisions regarding the composition of the
Company's Board of Directors. See "Financing."

ANTITAKEOVER EFFECT OF CHARTER, BYLAWS, STATUTORY PROVISIONS, AND FINANCING
ARRANGEMENTS

The ownership positions of Messrs. George D. Johnson, Jr., H. Wayne
Huizenga, and Stewart H. Johnson and the other executive officers and
directors of the Company as a group, together with the anti-takeover effects
of Section 203 of the Delaware General Corporation Law which, in general,
imposes restrictions upon acquirors of 15% or more of the Common Stock, and of
certain provisions in the Company's Certificate of Incorporation and Bylaws,
may have the effect of delaying, deferring, or preventing a change of control
of the Company, even if such event would be beneficial to shareholders. For
example, the Certificate of

9
<PAGE>

Incorporation requires that all shareholder action must be effected at a duly-
called annual or special meeting of shareholders, and the Bylaws require that
shareholders follow an advance notification procedure for certain shareholder
nominations of candidates for the Board of Directors and for certain other
business to be conducted at any meeting of shareholders. In addition, the
Company's Certificate of Incorporation authorizes "blank check" preferred
stock, so that the Company's Board of Directors may, without shareholder
approval, issue preferred shares through a shareholders rights plan or
otherwise which could inhibit a change of control. In the event that the
current members of the Company's Board of Directors cease to constitute a
majority of the Board or Mr. George D. Johnson, Jr. or Mr. Huizenga cease to be
a member of the Board, amounts outstanding under its financing arrangements
would become immediately due. See "Principal Shareholders," "Financing," and
"Description of Capital Stock."

SHARES ELIGIBLE FOR FUTURE SALE

At June 26, 1996, the Company had 32,628,092 shares of Common Stock
outstanding, 17,625,062 of which were freely tradeable (other than by an
"affiliate" of the Company as such term is defined in the Securities Act of
1933, as amended (the "Securities Act")) without restriction or registration
under the Securities Act. The remaining 15,003,030 shares of Common Stock will
become eligible for sale in the public market at various times, subject to
compliance with an exemption from the registration requirements of the
Securities Act, such as Rule 144 or Rule 144A, or registration under the
Securities Act. The Company has registered under the Securities Act all of
those 15,003,030 shares of Common Stock so that such shareholders may make
resales in the public market of their Common Stock. The holders of
approximately 13.3 million shares of Common Stock (including all shares
beneficially owned by the Company's directors and executive officers) have
agreed that they will not sell any shares of Common Stock until August 28, 1996
without the consent of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), subject to certain exceptions, including pursuant to a foreclosure by
a lender on a loan for which shares of Common Stock have been pledged as
collateral. The Company also intends to register under the Securities Act all
shares reserved for issuance under the 1995 Plan, the 1996 Plan, and the
Directors' Plan (each as defined below and collectively the "Option Plans").
Shares so registered could be sold in the public market. No predictions can be
made as to the effect, if any, that market sales of such shares or the
availability of such shares for sale will have on the market price for shares
of Common Stock prevailing from time to time. Sales of substantial amounts of
shares of Common Stock in the public market could adversely affect the market
price of the Common Stock and could impair the Company's future ability to
raise capital through an offering of equity securities. See "Shares Eligible
for Future Sale."

ABSENCE OF DIVIDENDS

The Company intends to retain its earnings to finance its growth and for
general corporate purposes and therefore does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's debt agreements
contain, and future financing agreements may contain, limitations on the
payment of cash dividends or other distributions of assets. See "Dividend
Policy."

10
<PAGE>

RECENT DEVELOPMENTS

On January 26, 1996, the Company acquired substantially all of the assets of
Apartment/Inn, L.P., a Georgia limited partnership ("Apartment/Inn").
Apartment/Inn owned and operated a 196-room economy extended stay lodging
facility in Norcross, Georgia which is similar in concept to the Company's
lodging facilities. In consideration for such acquisition, the Company issued
an aggregate of 293,629 shares of Common Stock, 163,629 of which may be
reoffered and resold pursuant to this Prospectus. See the inside back cover
page of this Prospectus. For historical and pro forma financial information
concerning this acquisition, see "Index to Financial Statements--Apartment/Inn,
L.P." and "--Pro Forma Financial Statements of Extended Stay America, Inc. and
Subsidiaries."

On February 23, 1996, the Company acquired substantially all of the assets of
Hometown Inn I, LTD and Hometown Inn II, LTD (collectively "Hometown Inn").
Hometown Inn owned and operated a 130-room economy extended stay lodging
facility in Norcross, Georgia and a 144-room economy extended stay lodging
facility in Riverdale, Georgia, both of which are similar in concept to the
Company's lodging facilities. In consideration for such acquisition, the
Company issued 428,608 shares of Common Stock and paid an additional $75,000 in
cash. Of such shares, 198,608 shares of Common Stock may be reoffered and
resold pursuant to this Prospectus. See the inside back cover page of this
Prospectus. The acquisition was accounted for using the purchase method of
accounting. For historical and pro forma financial information concerning this
acquisition, see "Index to Financial Statements--Hometown Inn I, LTD and
Hometown Inn II, LTD" and "--Pro Forma Financial Statements of Extended Stay
America, Inc. and Subsidiaries."

On May 10, 1996, the Company acquired substantially all of the assets of
American Apartmen-Tels Investors II, L.P. ("AATI"), which owned and operated a
59-room extended stay lodging facility in Lenexa, Kansas, for a purchase price
of approximately $3.3 million in cash. This purchase includes adjacent land on
which the Company intends to build a new 60-room economy extended stay lodging
facility.

On May 1, 1996, the Company entered into an agreement to acquire the KHEC
Facility, a 145-room traditional lodging facility located in Lakewood,
Colorado, which the Company intends to remodel and convert to the economy
extended stay format. The purchase price will be approximately $3.0 million,
which the Company expects to pay by delivering shares of Common Stock.
Consummation of the proposed acquisition of the KHEC Facility is subject to a
number of conditions. The Company expects to account for this acquisition using
the purchase method of accounting. For historical and pro forma financial
information concerning this proposed acquisition, see "Index to Financial
Statements--Kipling Hospitality Enterprise Corporation" and "--Pro Forma
Financial Statements of Extended Stay America, Inc. and Subsidiaries."

On May 9, 1996, the Board of Directors of the Company declared the Stock
Dividend of one additional share of Common Stock for each share issued as of
the close of business on July 5, 1996. Except as otherwise noted, none of the
information contained in this Prospectus reflects the Stock Dividend.

On June 5, 1996, the Company completed the June 1996 Offering, consisting of
9,775,000 shares of Common Stock at a price to the public of $31.00 per share.
The net proceeds to the Company from the June 1996 Offering were approximately
$290 million after the deduction of underwriting discounts and commissions and
other offering expenses.

On June 25, 1996, the Company acquired substantially all of the assets of
Apartment Inn Partners/Gwinnett, L.P., a Georgia limited partnership
("Gwinnett"). Gwinnett owned and operated a 126-room economy extended stay
lodging facility in Lawrenceville, Georgia which is similar in concept to the
Company's lodging facilities. The facility was operated as The Apartment Inn
and rights for the use of that name and certain other rights were controlled by
Apartment/Inn. In consideration for such acquisition, the Company issued
172,100 shares of Common Stock and paid an additional $23,000 in cash. The
acquisition was accounted for using the purchase method of accounting. For
historical and pro forma financial information concerning this acquisition, see
"Index to Financial Statements--Apartment Inn Partners/Gwinnett, L.P." and "--
Pro Forma Financial Statements of Extended Stay America, Inc. and
Subsidiaries."

11
<PAGE>

On June 26, 1996, the Company entered into agreements to acquire
substantially all of the assets of Melrose Suites, Inc., St. Louis Manor, Inc.,
Boulder Manor, Inc., and Nicolle Manor (co-owned by Michael J. Mona, Jr. and
Dean O'Bannon), which own extended stay lodging facilities in Las Vegas, Nevada
(collectively, the "M & M Facilities"), that have 177 rooms, 125 rooms, 211
rooms, and 125 rooms, respectively. Each of the facilities is managed by M & M
Development, with which the Company expects to enter into a two-year consulting
agreement with a fee of $120,000 per year. In consideration for these
facilities, in addition to assuming liability under certain leases for personal
property, the Company will issue promissory notes totalling $34.0 million,
which the Company expects to pay by delivering approximately 1,138,000 shares
of Common Stock. All of such shares may be reoffered and resold pursuant to
this Prospectus. These acquisitions will be accounted for using the purchase
method of accounting. For historical and pro forma financial information
concerning these acquisitions, see "Index to Financial Statements--M & M
Facilities" and "--Pro Forma Financial Statements of Extended Stay America,
Inc. and Subsidiaries."

12
<PAGE>

PRICE RANGE OF COMMON STOCK

The Common Stock began trading in the Nasdaq National Market on December 14,
1995. The following table sets forth, for the periods indicated, the high and
low sales prices of the Common Stock as quoted on the Nasdaq National Market.
On June 26, 1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $29.875 per share. At March 31, 1996, there were
approximately 150 record holders and approximately 3,500 beneficial holders of
Common Stock.

<TABLE>
<CAPTION>
PRICE RANGE
OF COMMON STOCK
---------------
HIGH LOW
<S> <C> <C>
Year Ended December 31, 1995:
Fourth Quarter (from December 14, 1995)................. $28 $20 1/4
Year Ended December 31, 1996:
First Quarter........................................... 31 1/4 20
Second Quarter.......................................... 35 22
</TABLE>

DIVIDEND POLICY

The Company has not paid dividends on its Common Stock, and the Board of
Directors intends to continue a policy of retaining earnings to finance its
growth and for general corporate purposes and, therefore, does not anticipate
paying any such dividends in the foreseeable future. In addition, the Company's
debt agreements contain, and future financing agreements may contain, a minimum
net worth covenant and limitations on payment of any cash dividends or other
distributions of assets, which covenant, limitations, and requirements could
restrict the Company's ability to pay dividends. See "Financing."

13
<PAGE>

SELECTED FINANCIAL DATA

The selected financial data set forth below has been derived from the
historical and pro forma financial statements of the Company and from the
historical financial statements of Welcome Inn America 89-1, L.P. ("Welcome").
The selected financial data for Welcome is included because Welcome may be
deemed to be a predecessor of the Company. The historical financial statements
of the Company for the year ended December 31, 1995 have been audited by
Coopers & Lybrand L.L.P., independent accountants, whose report thereon appears
elsewhere herein. The historical financial statements of Welcome for the years
ended December 31, 1992, 1993, and 1994, and for the period from January 1,
1995 through August 18, 1995, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report for the years ended December 31, 1993 and
1994 and for the period from January 1, 1995 through August 18, 1995 thereon
appears elsewhere herein. The selected financial data set forth below for the
year ended December 31, 1991 has been derived from Welcome's unaudited internal
financial statements and reflects all adjustments which management considers
necessary for a fair and consistent presentation of the results of operations
for that period. Operating statement data for the three months ended March 31,
1995 and 1996 and balance sheet data as of March 31, 1996 are derived from
unaudited financial statements of the Company included herein. The unaudited
financial statements include all adjustments, consisting only of normal
recurring adjustments, which the Company considers necessary for the fair
presentation of its financial position and the results of its operations for
these periods. The pro forma data is unaudited but, in the opinion of
management, all necessary pro forma adjustments have been made. The unaudited
pro forma consolidated operating statement data is not necessarily indicative
of what the actual results of operations of the Company would have been
assuming the pro forma transactions had been completed as of the beginning of
the period, nor does it purport to represent the results of operations for any
future periods. The unaudited pro forma consolidated balance sheet data is not
necessarily indicative of what the actual financial position would have been
assuming the pro forma transactions had been completed as of March 31, 1996,
nor does it purport to represent the future financial position of the Company.
These selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
the historical and pro forma financial statements and related notes thereto of
the Company and the historical financial statements and related notes thereto
of Welcome, Apartment/Inn, Hometown Inn, KHEC, Gwinnett, and the M & M
Facilities contained elsewhere herein.

THE COMPANY

<TABLE>
<CAPTION>
FOR THE THREE
YEAR ENDED MONTHS ENDED FOR THE THREE MONTHS
DECEMBER 31, 1995 MARCH 31, 1995 ENDED MARCH 31, 1996
------------------------- -------------- --------------------------
ACTUAL PRO FORMA(1) ACTUAL ACTUAL PRO FORMA(2)
<S> <C> <C> <C> <C> <C>
OPERATING STATEMENT
DATA:
Revenue............... $ 877,885 $14,164,414 $ $ 1,170,829 $ 3,904,359
Operating expenses.... 2,887,091 10,118,595 248,601 2,846,928 4,118,518
Depreciation and
amortization......... 146,726 2,193,514 203,343 586,780
Income (loss) from
operations........... (2,155,932) 1,852,305 (248,601) (1,879,442) (800,939)
Interest income....... 848,510 804,510 1,450,132 1,425,132
Income taxes.......... 0 1,036,000 0 243,000
Net income (loss)..... $ (1,307,422) $ 1,620,815 $ (248,601) $ (429,310) $ 381,193
============ =========== ========== ============ ============
Net income (loss) per
share(3)............. $ (0.10) $ 0.11 $ (0.02) $ (0.02) $ 0.02
============ =========== ========== ============ ============
Weighted average
number of shares of
common stock and
equivalents
outstanding(3)....... 12,652,110 15,260,204 11,489,017 22,467,393 24,785,595
============ =========== ========== ============ ============
<CAPTION>
AS OF
DECEMBER 31,
1995 AS OF MARCH 31, 1996
------------ --------------------------
ACTUAL ACTUAL PRO FORMA(4)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.......... $123,357,510 $104,010,918 $391,358,418
Total assets.......... 149,618,649 166,369,727 494,692,227
Long-term debt(5)..... 0 0 0
Shareholders' equity.. 147,222,245 164,533,055 492,544,810
</TABLE>

14
<PAGE>

WELCOME INN AMERICA 89-1, L.P.

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, 1995 THROUGH
------------------------------------------ AUGUST 18,
1991(6) 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
OPERATING STATEMENT
DATA:
Revenue............... $ 686,970 $ 866,314 $999,371 $1,079,287 $712,837
Operating expenses.... 503,508 502,611 557,002 561,746 367,217
Depreciation and
amortization......... 153,066 159,874 138,987 141,362 95,546
--------- --------- -------- ---------- --------
Income from
operations........... 30,396 203,829 303,382 376,179 250,074
Interest expense...... 470,698 398,650 382,306 360,639 272,152
--------- --------- -------- ---------- --------
Net income (loss)..... $(440,302) $(194,821) $(78,924) $ 15,540 $(22,078)
========= ========= ======== ========== ========
</TABLE>
- ---------------------

(1) Giving pro forma effect to the acquisitions of the Acquired Facilities and
the Marietta Facility and the proposed acquisitions of the KHEC Facility
and the M&M Facilities as if they all had occurred at the beginning of the
period and to the Company operating as a publicly held entity as of such
date. See the pro forma financial statements and notes thereto and notes 5
and 14 to the Company's consolidated financial statements, all of which are
contained elsewhere herein.

(3) See notes 2, 5, and 14 to the Company's consolidated financial statements
contained elsewhere herein.

(5) Does not give effect to future borrowings.

(6) The Marietta Facility commenced operations in February 1991.

15
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company was organized in January 1995 to develop, own, and manage
extended stay lodging facilities. The Company began construction of its first
lodging facility in Spartanburg, South Carolina on February 1, 1995. This
facility was completed and commenced operations in August 1995. The Company's
activities during the quarter ended March 31, 1995 consisted of corporate
organization, site selection, and site development. The Company did not have
operating facilities or other revenue sources during the quarter ended March
31, 1995. On May 1, 1995, the Company contracted to manage an extended stay
facility in Marietta, Georgia which was subsequently acquired by the Company on
August 18, 1995. On August 18, 1995 the Company also issued 11,718,000 shares
(adjusted to reflect a 210-for-1 stock split in October 1995) of Common Stock
in exchange for net proceeds of approximately $55.8 million. In October 1995,
the Company executed a mortgage facility providing for up to $200 million in
mortgage loans, which may be used to finance on a long-term basis newly
constructed facilities. The Company completed the December 1995 Offerings in
December 1995 from which it received net proceeds of approximately $85.3
million. In May 1996, the Company executed an additional mortgage facility
providing for up to $300 million in mortgage loans and also reduced the
existing mortgage facility to $100 million. In June 1996, the Company completed
the June 1996 Offering from which it received net proceeds of approximately
$289.8 million.

As of March 31, 1996 the Company had 5 operating facilities, 17 facilities
under construction, and options to purchase 64 sites for development in 23
states. The Company expects to complete the construction of the facilities
currently under construction and to commence construction on the majority of
these sites under option during 1996. There can be no assurances, however, that
the Company will complete the acquisition of the sites under option or, if
acquired, commence construction during 1996 and the Company's ability to do so
may be materially impacted by various factors including zoning, permitting, and
environmental due diligence issues and weather-induced construction delays.

Although the Company expects that the construction and development of new
extended stay lodging facilities will be its primary means of expansion, the
Company has also made, and may continue making, acquisitions of existing
extended stay facilities or other properties that are suitable for conversion
to the extended stay concept. During the quarter ended March 31, 1996, the
Company acquired three operating facilities (two in Norcross, Georgia and one
in Riverdale, Georgia). On January 26, 1996, the Company acquired substantially
all of the assets of Apartment/Inn, which owned and operated a 196-room economy
extended stay lodging facility in Norcross, Georgia. In consideration for the
acquisition, the Company issued an aggregate of 293,629 shares of Common Stock.
On February 23, 1996, the Company acquired substantially all of the assets of
Hometown Inn which owned and operated a 130-room economy extended stay lodging
facility in Norcross, Georgia and a 144-room economy extended stay lodging
facility in Riverdale, Georgia. In consideration for the acquisition, the
Company issued an aggregate of 428,608 shares of Common Stock and paid an
additional $75,000 in cash. These acquisitions were accounted for using the
purchase method of accounting.

On May 10, 1996, the Company acquired substantially all of the assets of
AATI, which owned and operated a 59-room extended stay lodging facility in
Lenexa, Kansas, for a purchase price of approximately $3.3 million in cash.
This purchase includes adjacent land on which the Company intends to build a
new 60-room economy extended stay lodging facility. On June 25, 1996, the
Company acquired substantially all of the assets of Gwinnett, which owned a
126-room extended stay lodging facility in Lawrenceville, Georgia. In
consideration for this acquisition, the Company issued 172,100 shares of Common
Stock and paid an additional $23,000 in cash. This acquisition was accounted
for using the purchase method of accounting.

On May 1, 1996, the Company entered into an agreement to acquire from KHEC a
145-room traditional lodging facility located in Lakewood, Colorado, which the
Company intends to remodel and convert to the economy extended stay format. The
purchase price will be approximately $3.0 million, which the Company expects to
pay by delivering shares of Common Stock. Consummation of the proposed
acquisition of the

16
<PAGE>

KHEC Facility is subject to a number of conditions. The Company will account
for this acquisition using the purchase method of accounting. On June 26, 1996,
the Company entered into agreements to acquire substantially all of the assets
of the M & M Facilities with a total of 636 rooms located in Las Vegas, Nevada.
In addition to assuming liability for certain leases of personal property, the
Company expects to issue, as consideration for these acquisitions, promissory
notes totalling $34 million, which the Company expects to pay by delivering
approximately 1,138,000 shares of Common Stock. Consummation of the proposed
acquisition of the M & M Facilities is subject to a number of conditions. These
acquisitions will be accounted for using the purchase method of accounting.

RESULTS OF OPERATIONS

PROPERTY OPERATIONS

Property operations for the year ended December 31, 1995 included the
Spartanburg, South Carolina property from the date of opening on August 1, 1995
and the Marietta, Georgia facility from the date of acquisition on August 18,
1995. These properties realized average occupancy of 83% and average weekly
room rates of $198 for their periods of operation by the Company during 1995.
The Company did not have operating facilities during the quarter ended March
31, 1995. The Company began the quarter endedMarch 31, 1996 with two operating
facilities and acquired three additional operating facilities during that
quarter. During the period owned by the Company, these properties realized
average occupancy of 90% and average weekly room rates of $198 during the
quarter ended March 31, 1996. There can be no assurance that the foregoing
occupancy and room rates can be maintained or are representative of rates to be
expected for new facilities. Occupancy rates are determined by dividing the
guest rooms occupied on a daily basis by the total number of guest rooms.
Average weekly room rates are determined by dividing room revenue by the number
of rooms occupied on a daily basis for the applicable period and multiplying by
seven. The average weekly room rates vary from standard room rates due
primarily to (i) stays of less than one week, which are charged at a higher
nightly rate, (ii) higher weekly rates for a limited number of rooms which are
larger than the standard rooms, and (iii) additional charges for more than one
person per room.

The Company recognized total room revenues of $817,133, along with other
revenues, consisting of telephone and vending revenues which vary based on
occupancy, of $42,977 during 1995. Total room revenues for the quarter ended
March 31, 1996 were $1,137,841 and other revenues were $32,988. Property
operating expenses, consisting of all expenses directly allocable to the
operation of the properties but excluding any allocation of corporate operating
expenses and depreciation, were $332,523 or 37.9% of total revenues for 1995
and $442,540 or 37.8% of total revenues for the quarter ended March 31, 1996.

Depreciation of the cost of the facilities was provided using the straight-
line method over the estimated useful lives of the properties. The provision
for the period ended December 31, 1995 was $126,772 and the provision for the
quarter ended March 31, 1996 was $193,113. These provisions reflect a pro-rata
allocation of the annual depreciation charge for the period for which the
properties were in operation.

CORPORATE OPERATIONS

The Company realized management fees of $17,775 in 1995 from its management
of the Marietta facility prior to its acquisition of that facility. The Company
has not managed properties for a fee since that property was acquired.

Corporate operating and property management expenses include all expenses not
directly related to the development or operation of facilities. Expenses of
$2,042,039 for the year ended December 31, 1995, $1,580,655 for the quarter
ended March 31, 1996, and $195,823 for the quarter ended March 31, 1995 consist
primarily of personnel expenses, professional and consulting fees, and related
travel expenses. The increase in corporate operating and property management
expenses for the quarter ended March 31, 1996 as compared with the quarter
ended March 31, 1995 reflects an increase in personnel and related expenses in
connection

17
<PAGE>

with the Company's increased level of operating properties and site
development. The total amount of these expenses will increase in the future
with the development of additional facilities.

Site selection costs of $512,529 for the year ended December 31, 1995,
$823,733 for the quarter ended March 31, 1996 and $52,778 for the quarter ended
March 31, 1995 consist of real estate and construction personnel costs which
are not directly related to a site that will be developed by the Company, along
with expenditures made to third parties for services and costs related to the
investigation of such sites. The increase in these costs for the quarter ended
March 31, 1996 as compared with the quarter ended March 31, 1995 reflects the
increased level of sites under development. These costs will continue in the
future and could increase depending on the rate of expansion because the
Company's development personnel must evaluate numerous potential sites in an
effort to identify sites meeting the Company's standards.

Depreciation and amortization in the amount of $19,954 for the year ended
December 31, 1995, and $10,230 for the quarter ended March 31, 1996 were
provided using the straight-line method over the estimated useful lives of the
assets for assets not directly related to the operation of the facilities,
including primarily organization costs and office furniture and equipment.
These assets were acquired subsequent to March 31, 1995 and therefore no
provision for depreciation and amortization was made for the quarter ended
March 31, 1995.

The Company realized $848,510 of interest income during the year ended
December 31, 1995 and $1,450,132 during the quarter ended March 31, 1996 which
was primarily attributable to the short-term investment of funds received from
the initial capitalization of the Company in the third quarter of 1995 and the
consummation of the December 1995 Offerings on December 19, 1995. There were no
funds held for investment by the Company during the quarter ended March 31,
1995.

LIQUIDITY AND CAPITAL RESOURCES

From the inception of the Company in January 1995 through August 18, 1995,
the Company's operations were financed primarily by loans from the Company's
two largest shareholders in an aggregate amount of approximately $6.1 million.
These loans accrued interest at an annual rate of 8.75% with such interest
being capitalized as a cost of development of the Spartanburg, South Carolina
facility. The loans were repaid in full in August 1995 from the proceeds of
$55.8 million received upon the issuance of 11,718,000 shares (adjusted to
reflect a 210-for-1 stock split in October 1995) of Common Stock. In December
1995, the Company completed the December 1995 Offerings from which the Company
received net proceeds of approximately $85 million upon the issuance of
7,127,825 shares of Common Stock. The Company completed the June 1996 Offering
in June 1996, from which it received net proceeds of approximately $289.8
million upon the issuance of 9,775,000 shares of Common Stock.

The Company had cash balances of $123.4 million as of December 31, 1995 and
$104.0 million as of March 31, 1996. Substantially all of the cash balances as
of December 31, 1995 and March 31, 1996 were invested in an overnight sweep
account with a commercial bank which invests in short-term, interest bearing
reverse repurchase agreements for U.S. government securities. The market value
of the securities held pursuant to the agreements approximates the carrying
amount. In consideration for the three existing facilities acquired by the
Company in the quarter ended March 31, 1996, the Company issued Common Stock
valued at approximately $17.9 million and paid cash, including the payment of
related expenses, of approximately $356,000. In addition, approximately $15.4
million was used to acquire land and develop and furnish the 17 sites under
construction during the quarter. This compares to approximately $281,000 used
to develop one property during the first quarter of 1995. A total of
approximately $2.7 million, less refunds of site deposits of $240,000, was used
for site deposits and preacquisition costs in the three months ended March 31,
1996, compared to approximately $120,000 used for such costs in the comparable
prior year period.

The Company expects to finance the construction and development of its
lodging facilities principally with its cash balances and with loans under
mortgage facilities. The Company has two mortgage facilities which provide for
up to a total of $400 million in loans, subject to certain conditions and
limitations, for facilities after completion of construction. See "Financing."

18
<PAGE>

The Company in the future may seek to increase the amount of its credit
facilities, negotiate additional credit facilities, or issue corporate debt
instruments. Any debt incurred or issued by the Company may be secured or
unsecured, with a fixed or variable interest rate, and may be subject to such
terms as the Board of Directors of the Company deems prudent. The Company
expects that it will need to procure additional financing over time, although
there can be no assurance that such financing will be available when needed.

SEASONALITY AND INFLATION

Based upon the operating history of the Company's facilities, management
believes that extended stay lodging facilities are not as seasonal in nature as
the overall lodging industry. Management does expect, however, that occupancy
and revenues may be lower than average during the months of December and
January due to the holiday season. Because many of the Company's expenses do
not fluctuate with occupancy, such declines in occupancy may cause fluctuations
or decreases in the Company's quarterly earnings.

The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the revenue or operating results of the
Company from its inception on January 9, 1995. There can be no assurance,
however, that inflation will not affect future operating or construction costs.
See "Risk Factors--Development Risks."

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board ("FASB") has issued Statement No.
121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". This statement requires the Company to
identify properties for which it has committed to an exit plan or which may be
otherwise impaired. The fixed assets for such properties must be written down
to fair market value. The Company anticipates that the adoption of SFAS 121,
required for fiscal years beginning after December 15, 1995, will not result in
a reduction of net fixed assets or an increase in expenses in the fiscal year
1996 statement of operations.

The FASB has also issued Statement No. 123 ("SFAS 123") "Accounting for
Stock-Based Compensation", effective for fiscal years beginning after December
15, 1995. Under SFAS 123, companies are encouraged but not required to
recognize compensation expense for grants of stock, stock options, and other
equity instruments to employees based on fair value accounting rules. Companies
that choose not to record compensation expense under the new rules will be
required to disclose pro forma net income and earnings per share under the new
method. The Company has not yet determined the financial statement impact of
SFAS 123 and has elected not to recognize the impact of this pronouncement in
its fiscal 1995 statement of operations, but will disclose as required in the
fiscal 1996 financial statements on a pro forma comparative basis the effect of
SFAS 123 on net income and earnings per share.

19
<PAGE>

BUSINESS

OVERVIEW

The Company was founded by George D. Johnson, Jr. and H. Wayne Huizenga, who
are the two largest shareholders of the Company. Mr. Johnson, who is the
President and Chief Executive Officer of the Company, was formerly the
President of the Consumer Products Division of Blockbuster Entertainment Group,
a division of Viacom, Inc. Mr. Huizenga, who is the Chairman of the Board of
Directors of the Company, is the Chairman and Chief Executive Officer of
Republic Industries, Inc. and was formerly Vice-Chairman of Viacom, Inc. and
Chairman and Chief Executive Officer of Blockbuster Entertainment Corporation
("Blockbuster"). The Company's management team has extensive experience in the
acquisition and development of real estate and the operation of properties on a
national scale.

GROWTH AND DEVELOPMENT STRATEGY

The Company's goal is to become a national provider of economy extended stay
facilities. The Company plans to rapidly develop new economy extended stay
lodging facilities. Although the Company expects that the construction and
development of new extended stay lodging facilities will be its primary means
of expansion, the Company has also made, and may continue making, acquisitions
of existing extended stay lodging facilities or other properties that are
suitable for conversion to the extended stay concept.

20
<PAGE>

Through June 26, 1996, the Company has developed and opened three economy
extended stay facilities and acquired six other facilities since the Company
began operations in 1995. As of such date, the Company had 34 facilities under
construction, 25 of which the Company expects to have opened by the end of
1996. The Company plans to begin construction of approximately 33 additional
facilities during 1996 and to continue an active development program
thereafter. The Company's strategy is to identify regions of the country that
contain the demographic factors necessary to support one or more economy
extended stay lodging facilities and to focus its development in those regions
in order to obtain the maximum benefit from operational efficiencies. The
Company expects target sites will generally have a large and/or growing
population in the surrounding area with a large employment base. Such sites
also are generally expected to have good visibility from a major traffic artery
and be in close proximity to convenience stores, restaurants, and shopping
centers.

For the economy extended stay facilities developed and opened by the Company
in Spartanburg, South Carolina, Columbia, South Carolina, and Downers Grove,
Illinois, the average development cost was approximately $5.1 million with an
average of 133 rooms. The cost to develop a facility varies significantly by
geographic location. For the 34 facilities that were under construction as of
June 26, 1996, the estimated average cost is approximately $4.7 million with an
average of approximately 122 rooms. The cost of these facilities is expected to
vary from a low of approximately $3.7 million to a high of $6.0 million with
the number of rooms ranging from a low of 96 to a high of 150.

Sites for development are selected by the Company's real estate
professionals, subject to review and approval by senior management. The Company
currently maintains offices in Spartanburg, South Carolina; Park Ridge,
Illinois; Bellevue, Washington; Morristown, New Jersey; El Segundo, California;
San Rafael, California; and Phoenix, Arizona for these real estate
professionals and the construction supervisors for the region. The Company
expects to open regional offices in other geographic areas in the future as the
Company increases the number of regions in which it is focusing its
development. The Company utilizes independent general contractors for the
construction of its lodging facilities and is using a number of such
contractors depending upon geographic area, costs of construction, and
financial and physical capacities of the contractors. The Company's
construction personnel will oversee the progress of construction on a regular
basis during the development cycle.

Certain members of the Company's management team have extensive experience in
the rapid development of standardized commercial properties nationwide. In
connection with past development activities, in particular the nationwide roll-
out of Blockbuster video stores, these individuals were responsible for site
selection, construction management, and subsequent operation of hundreds of
locations.

OPERATING STRATEGY

The Company's business strategy is to develop the economy extended stay
concept by providing an affordable and attractive lodging alternative for
value-conscious travelers looking for extended stay accommodations. The
Company's goal is to provide its guests with the level of amenities needed to
optimize room and occupancy rates while maintaining high operating margins at
its facilities. The Company attempts to achieve this goal through the
following:

Appeal to Value Conscious Guests. The Company's facilities are designed
to offer quality accommodations for guests at substantially lower rates
than most other extended stay lodging providers and hotels in the economy
segment of the traditional lodging industry. As of June 26, 1996, the
Company's facilities offered extended stay accommodations for $169 to $269
per week. Room rates at the Company's facilities may vary significantly
depending upon market factors affecting such locations. These rates
contrast with average weekly rates of approximately $545 for traditional
extended stay hotels and approximately $330 for hotels in the economy
segment of the lodging industry.

Lodging Facility Features. The Company's facilities contain a variety of
non-labor intensive features that are attractive to the extended stay guest
such as a fully-equipped kitchenette, weekly housekeeping

21
<PAGE>

with twice-weekly towel service, color television with cable or satellite
hook-up, coin laundromat, and telephone service with voice mail messaging.

Standardized Concept. The Company has developed standardized plans and
specifications for its facilities which should lower construction and
purchasing costs and establish uniform quality and operational standards.
The Company also expects to benefit from the experience of various members
of the Company's management team in developing numerous commercial
properties to a uniform set of design standards and in operating systems on
a cost-effective basis.

Operating Efficiencies. The Company believes that the design and price
level of its facilities attract guest stays of several weeks, which should
result in a more stable revenue stream and which, coupled with low-labor
amenities, could in turn lead to reduced administrative and operational
costs and higher operating margins. In addition, members of the Company's
management team have extensive experience in the utilization of
sophisticated control and information systems which should enable the
Company to manage, on a Company-wide basis, individual facility specific
factors such as pricing, payroll, and occupancy levels.

Each Company facility employs a property manager who is responsible for the
operations of the particular property. The property manager shares duties with
and oversees a staff typically consisting of an assistant manager, a desk
clerk, a maintenance person, and a housekeeping/laundry staff of approximately
8-10 persons (most of whom are part-time employees). The office at each
facility is generally open daily from 7:00 a.m. to 11:00 p.m., although an
employee normally is on duty twenty-four hours a day to respond to guests'
needs.

The majority of daily operational decisions are made by the property manager.
Each property manager is under the supervision of a regional manager who will
be responsible for five to ten facilities, depending on geographic location.
The regional manager oversees the performance of the property managers in such
areas as guest service, property maintenance, and payroll and cost control. The
corporate office utilizes state-of-the-art information systems to support its
regional managers. Each facility is measured against a detailed revenue and
expense budget, as well as against the performance of the Company's other
facilities. The Company is developing centralized pricing, purchasing,
marketing, and operational procedures in order to achieve operating
efficiencies.

The Company's current operating subsidiaries are ESA Development, Inc. ("ESA
Development") and ESA Properties, Inc. ("ESA Properties"), which acquire and
develop properties, and ESA Management, Inc. ("ESA Management"), which provides
construction and management services for all of the lodging facilities owned by
the Company and its subsidiaries. The Company expects that each lodging
facility will be owned by a separate single-purpose subsidiary formed for such
purpose. See "Financing."

LODGING FACILITIES

As of June 26, 1996, the Company had nine economy extended stay lodging
facilities in operation and 34 facilities under construction in a total of 15
states. The following table sets forth certain information regarding the
Company's lodging facilities that are in operation.

<TABLE>
<CAPTION>
DATE OPENED NUMBER
LOCATION OR ACQUIRED OF ROOMS
<S> <C> <C>
Spartanburg, South Carolina........................ August 1995 123
Marietta, Georgia.................................. August 1995 119
Norcross, Georgia.................................. January 1996 196
Norcross, Georgia.................................. February 1996 130
Riverdale, Georgia................................. February 1996 144
Columbia, South Carolina........................... April 1996 120
Downers Grove, Illinois............................ May 1996 154
Lenexa, Kansas..................................... May 1996 59
Lawrenceville, Georgia............................. June 1996 126
</TABLE>

22
<PAGE>

The following table sets forth certain information regarding the Company's
lodging facilities that are under construction.

<TABLE>
<CAPTION>
PLANNED
ESTIMATED NUMBER
LOCATION OPENING DATE OF ROOMS
<S> <C> <C>
Chattanooga, Tennessee....................... Second Quarter 1996 120
Greensboro, North Carolina................... Third Quarter 1996 129
Chesapeake, Virginia......................... Third Quarter 1996 132
Sharonville, Ohio............................ Third Quarter 1996 130
Winston-Salem, North Carolina................ Third Quarter 1996 111
Charleston, South Carolina................... Third Quarter 1996 126
Virginia Beach, Virginia..................... Third Quarter 1996 120
Maryland Heights, Missouri................... Third Quarter 1996 150
Lexington, Kentucky.......................... Third Quarter 1996 126
Little Rock, Arkansas........................ Third Quarter 1996 120
Brentwood, Tennessee......................... Fourth Quarter 1996 120
Springdale, Ohio............................. Fourth Quarter 1996 126
Rolling Meadows, Illinois.................... Fourth Quarter 1996 125
Novi, Michigan............................... Fourth Quarter 1996 124
Louisville, Kentucky......................... Fourth Quarter 1996 120
Itasca, Illinois............................. Fourth Quarter 1996 125
Memphis, Tennessee........................... Fourth Quarter 1996 126
Greece, New York............................. Fourth Quarter 1996 125
Burr Ridge, Illinois......................... Fourth Quarter 1996 119
Newport News, Virginia....................... Fourth Quarter 1996 120
Auburn Hills, Michigan....................... Fourth Quarter 1996 133
Columbus, Georgia............................ Fourth Quarter 1996 108
Dewitt, New York............................. Fourth Quarter 1996 121
Tukwila, Washington.......................... Fourth Quarter 1996 96
Merrillville, Indiana........................ Fourth Quarter 1996 105
Lakewood, Colorado........................... First Quarter 1997 120
Greenville, South Carolina................... First Quarter 1997 109
Kansas City, Missouri........................ First Quarter 1997 109
Hazelwood, Missouri.......................... First Quarter 1997 122
Ann Arbor, Michigan.......................... First Quarter 1997 112
Nashville, Tennessee......................... First Quarter 1997 125
Albany, New York............................. First Quarter 1997 134
Henrietta, New York.......................... First Quarter 1997 127
Naperville, Illinois......................... First Quarter 1997 125
</TABLE>

The design plans for the Company's economy extended stay lodging facilities
call for a newly-constructed apartment style complex with two to three story
buildings containing an average of approximately 125 guest rooms with
laundromat and office areas. The Company utilizes both interior and exterior
corridor building designs, depending primarily on local zoning and weather
factors. Rooms generally offer approximately 250 to 300 square feet of fully
furnished living space, including a kitchenette and a dining/working area. The
kitchenette is fully-equipped with a refrigerator, stovetop, microwave, and
sink.

INDUSTRY OVERVIEW

TRADITIONAL LODGING INDUSTRY

The U.S. lodging industry is estimated to have generated approximately $51
billion in annual room revenues in 1995 and had approximately 3.3 million rooms
at the end of 1995. Over 60% of the industry's rooms are owned, managed, or
franchised by the 10 largest lodging chains.

Industry statistics, which the Company believes to be reliable, indicate that
the U.S. lodging industry's performance is strongly correlated to economic
activity. Room supply and demand historically have been

23
<PAGE>

sensitive to shifts in economic growth, which has resulted in cyclical changes
in average daily room and occupancy rates. Overbuilding in the lodging industry
in the mid and late 1980s, when approximately 500,000 rooms were added,
resulted in an oversupply of rooms. The Company believes this oversupply and
the general downturn in the economy led to depressed industry performance and a
lack of capital available to the industry in the late 1980s and early 1990s.

The Company believes that the lodging industry has benefited from a gradually
improving supply and demand balance, evidenced by increased average daily room
and occupancy rates. Room supply growth in the lodging industry has slowed in
recent years as the industry absorbs the oversupply of rooms that resulted from
an average annual room supply growth of approximately 3.5% for 1988 through
1991. According to industry reports, which the Company believes are reliable,
this growth slowed to an average of 1.4% for 1992 through 1995. The 3.1%
average annual increase in demand (measured by occupied rooms) for 1992 through
1995 as compared to increases in supply during the same period reflects an
improved supply and demand balance in the industry. The Company believes these
factors were primarily responsible for the increase in industry occupancy rates
from 61.7% for 1991 to 66.1% for 1995 and the increase in average daily room
rates from $58.11 for 1991 to $65.62 for 1995.

The lodging industry generally can be segmented by the level of service
provided and the pricing of the rooms. Segmentation by level of service is
divided into the following categories: full service hotels, which offer food
and beverage services, meeting rooms, room service, and similar guest services;
limited service hotels, which generally offer only rooms with amenities such as
swimming pools, continental breakfast, or similar limited services; and all-
suites, which generally have limited public spaces but provide guests with two
rooms or distinct partitioned areas and which may or may not offer food and
beverage service to guests. Segmentation by price level may generally be
divided into the following categories with the respective average daily room
rates for 1995: budget ($36), economy ($47), mid-price ($61), upscale ($80),
and luxury ($118).

The all-suites segment of the lodging industry is a relatively new segment,
having developed largely over the past 10 years, and is principally oriented
toward business travelers in the mid-price to upscale price levels. All-suite
hotels were developed partially in response to the increasing number of
corporate relocations, transfers, and temporary assignments and the need of
business travelers for more than just a room. To address those needs, all-suite
hotels began to offer suites with additional space and, in some cases, an
efficiency kitchen, and guests staying for extended periods of time were
offered discounts to daily rates when they paid on a weekly or monthly basis.
Because of the perceived positive price/value relationship, all-suite hotels
have generally outperformed the lodging industry as a whole over the last five
years.

EXTENDED STAY MARKET

The Company believes that the extended stay market, in which the Company
participates, is a continuation of the all-suites phenomenon, and that the same
price/value relationship which has enabled the all-suites segment to achieve
higher than industry average occupancy rates and operating margins will also
carry through to the extended stay market. Demand for extended stay lodging has
been stimulated by the economic and social changes resulting from the increased
volume of corporate reorganizations and trends toward down-sizing and out-
sourcing of various functions, the break-up and geographic dispersion of the
traditional family, and technological improvements which have allowed
businesses to relocate outside of large metropolitan areas. These changes have
created new accommodation needs for, among others, corporate executives and
trainees, consultants, sales representatives, construction workers, and people
in between jobs or houses. The extended stay category is one of the most
rapidly evolving sectors of the U.S. lodging industry. From 1992 to 1995, the
number of dedicated extended stay rooms has increased at a compounded annual
growth rate of approximately 3.3%, compared with compounded annual room growth
of approximately 1.4% for the overall lodging industry over the same period.
However, the vast majority of these rooms have been developed in the high-price
end of the category.

ECONOMY EXTENDED STAY CONCEPT

Economy extended stay lodging competes on the basis of price compared to the
extended stay market generally, thereby providing an economic inducement to
guests who are already attracted to the extended

24
<PAGE>

stay concept. In addition, economy extended stay lodging provides a new and
affordable lodging alternative for guests who are value conscious, have lower
incomes, or are on limited expense accounts. Based on published occupancy rates
for other participants in the extended stay market, the Company believes that
there is a strong demand for economy extended stay accommodations and that
there is little organized competition for that business on a national or
regional basis. Of the approximately 3.3 million total available rooms in the
U.S. lodging industry at the end of 1995, there were approximately 38,000, or
1.2%, dedicated extended stay rooms at approximately 325 separate properties.
More than two-thirds of these extended stay properties were controlled by only
two other competitors, both of which are priced toward the upscale segment of
the extended stay market.

COMPETITION

The lodging industry is highly competitive. Competitive factors within the
lodging industry include room rates, quality of accommodations, service levels,
convenience of location, reputation, reservation systems, name recognition, and
supply and availability of alternative lodging in local markets, including
short-term lease apartments. The Company's facilities compete with a number of
competitors, including budget and economy segment hotels and other companies
focusing on the extended stay market. All of the Company's existing facilities
are located in developed areas that include competing lodging facilities. In
addition, each of the Company's proposed facilities is likely to be located in
an area that includes competing facilities. The number of competitive lodging
facilities in a particular area could have a material adverse effect on the
levels of occupancy and average weekly room rates of the Company's existing and
future facilities.

The Company anticipates that competition within the economy extended stay
lodging market will increase as participants in other segments of the lodging
industry and others focus on this relatively new market. A number of major
lodging companies recently have announced their intent to aggressively develop
extended stay lodging properties which may compete with the Company's
properties. Numerous other extended stay lodging facilities exist, most of
which are oriented toward the upscale segment. The Company may compete for
development sites with established entities which have greater financial
resources than the Company and better relationships with lenders and sellers.
These entities may generally be able to accept more risk than the Company can
prudently manage. Further, there can be no assurance that new or existing
competitors will not significantly reduce their rates or offer greater
convenience, services, or amenities or significantly expand, improve, or
develop facilities in a market in which the Company competes, thereby adversely
affecting the Company's operations.

ENVIRONMENTAL MATTERS

Under various federal, state, and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation
of certain hazardous or toxic substances on such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of hazardous or toxic substances. Furthermore, a
person that arranges for the disposal or transports for disposal or treatment a
hazardous substance at a property owned by another may be liable for the costs
of removal or remediation of hazardous substances released into the environment
at that property. The costs of remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell
such real estate or to borrow using such real estate as collateral. In
connection with the ownership and operation of its properties, the Company may
be potentially liable for any such costs.

The Company has obtained recent Phase I environmental site assessments
("Phase I Surveys") on its existing properties and intends to obtain Phase I
Surveys prior to the purchase of any future properties. The Phase I Surveys are
intended to identify potential environmental contamination and regulatory
compliance concerns. Phase I Surveys generally include historical reviews of
the properties, reviews of certain public records, preliminary investigations
of the sites and surrounding properties and the preparation and issuance of
written reports. Phase I Surveys generally do not include invasive procedures,
such as soil sampling or ground water analysis.

25
<PAGE>

The Phase I Surveys have not revealed any environmental liability or
compliance concern that the Company believes would have a material adverse
effect on the Company's business, assets, results of operations, or liquidity,
nor is the Company aware of any such liability or concern. Nevertheless, it is
possible that Phase I Surveys will not reveal all environmental liabilities or
compliance concerns or that there will be material environmental liabilities or
compliance concerns of which the Company will not be aware. Moreover, no
assurances can be given that (i) future laws, ordinances, or regulations will
not impose any material environmental liability, or (ii) the current
environmental condition of the Company's existing and future properties will
not be affected by the condition of the neighboring properties (such as the
presence of leaking underground storage tanks) or by third parties unrelated to
the Company.

GOVERNMENTAL REGULATION

A number of states regulate the licensing of hotels by requiring
registration, disclosure statements, and compliance with specific standards of
conduct. The Company believes that each of its facilities has the necessary
permits and approvals to operate its respective business and the Company
intends to continue to obtain such permits and approvals for its new
facilities. In addition, the Company is subject to laws governing its
relationship with employees, including minimum wage requirements, overtime,
working conditions, and work permit requirements. An increase in the minimum
wage rate, employee benefit costs, or other costs associated with employees
could adversely affect the Company. Both at the federal and state level from
time to time, there are proposals under consideration to increase the minimum
wage.

Under the Americans With Disabilities Act ("ADA"), all public accommodations
are required to meet certain federal requirements related to access and use by
disabled persons. Although the Company has attempted to satisfy ADA
requirements in the designs for its facilities, no assurance can be given that
a material ADA claim will not be asserted against the Company, which could
result in a judicial order requiring compliance, and the expenditure of
substantial sums to achieve compliance, an imposition of fines, or an award of
damages to private litigants. These and other initiatives could adversely
affect the Company as well as the lodging industry in general.

INSURANCE

The Company currently has the types and amounts of insurance coverage that it
considers appropriate for a company in its business. While management believes
that its insurance coverage is adequate, if the Company were held liable for
amounts exceeding the limits of its insurance coverage or for claims outside of
the scope of its insurance coverage, the Company's business, results of
operations, and financial condition could be materially and adversely affected.

EMPLOYEES

As of March 31, 1996, the Company and its subsidiaries employed approximately
180 persons. The Company expects that it will significantly increase the number
of its employees as it expands its business. The Company's employees are not
subject to any collective bargaining agreements and management believes that
its relationship with its employees is good.

PROPERTIES

In addition to its lodging facilities described above (see "--Lodging
Facilities"), the Company also maintains a corporate headquarters and seven
regional offices. The Company's principal executive offices are located in Ft.
Lauderdale, Florida and the Company's regional offices are located in
Spartanburg, South Carolina; Park Ridge, Illinois; Bellevue, Washington;
Morristown, New Jersey; El Segundo, California; San Rafael, California; and
Phoenix, Arizona. The Company generally rents its office space on a short-term
basis, although it has recently entered into a new five-year lease for its
corporate headquarters in Ft. Lauderdale, Florida. These offices are sufficient
to meet the Company's present needs and it does not anticipate any difficulty
in securing additional office space, as needed, on terms acceptable to the
Company.

LEGAL PROCEEDINGS

The Company is not a party to any litigation or claims, other than routine
matters incidental to the operation of the business of the Company. To date, no
claims have had a material adverse effect on the Company nor does the Company
expect that the outcome of any pending claims will have such an effect.

26
<PAGE>

MANAGEMENT

DIRECTORS AND OFFICERS

The directors and executive officers of the Company and its subsidiaries,
their ages at March 31, 1996, and their positions with the Company or such
subsidiaries are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
<C> <C> <S>
H. Wayne Huizenga(1)...... 58 Chairman of the Board of Directors
George D. Johnson, Jr.(1). 53 President, Chief Executive Officer, and
Director
Robert A. Brannon......... 45 Senior Vice President, Chief Financial
Officer,
Secretary, and Treasurer
Richard A. Fadel, Jr...... 38 Vice President--Operations of ESA Management,
Inc.
Michael R. Beck........... 34 Vice President--Real Estate of ESA
Properties, Inc.
Corry W. Oakes............ 29 Vice President--Construction of ESA
Management, Inc.
Gregory R. Moxley......... 41 Vice President--Finance and Controller
Michael M. Wilson......... 56 Vice President--Marketing of ESA Management,
Inc.
Shawn R. Ruben............ 29 Vice President--Development of ESA
Management, Inc.
Robert W. Levis........... 32 Vice President--Corporate Development of ESA
Management, Inc.
Harold E. Wright.......... 53 President of ESA Development, Inc.
Donald F. Flynn(2)(3)..... 56 Director
Stewart H. Johnson(3)..... 52 Director
John J. Melk(2)........... 59 Director
Peer Pedersen(3).......... 71 Director
</TABLE>
- ---------------------
(1) Member of Executive Committee of the Board of Directors
(2) Member of the Compensation Committee of the Board of Directors
(3) Member of the Audit Committee of the Board of Directors

All directors are elected to serve until the next annual meeting of
shareholders and until their successors are elected and qualified. Officers
serve at the pleasure of the Board.

H. Wayne Huizenga became a director of the Company in August 1995 and serves
as Chairman of its Board of Directors. Mr. Huizenga also currently serves as
Chairman of the Board of Directors and Chief Executive Officer of Republic
Industries, Inc., ("Republic"), a diversified company with operations in solid
waste collection, disposal, and recycling, electronic security services, and
out-of-home advertising, and served until 1995 as Vice-Chairman of Viacom, Inc.
("Viacom"), a diversified media and entertainment company, a position he
assumed upon its merger with Blockbuster in 1994. Mr. Huizenga became a
director of Blockbuster in February 1987 and was elected as Chairman of the
Board and Chief Executive Officer from April 1987 through September 1994. He is
a co-founder of Waste Management, Inc. (now WMX Technologies, Inc. ("WMX")), a
waste disposal and collection company, where he served in various capacities,
including President, Chief Operating Officer, and director until May 1984. From
May 1984 to present, Mr. Huizenga has been an investor in several businesses
and is the sole shareholder and Chairman of the Board of Huizenga Holdings,
Inc., a holding and management company with various business interests. In
connection with these business interests, Mr. Huizenga has been actively
involved in strategic planning for, and executive management of, these
businesses. He also has a majority ownership interest in the Florida Marlins, a
Major League Baseball franchise, and owns the Florida Panthers, a National
Hockey League franchise, the Miami Dolphins, a National Football League
franchise, and Joe Robbie Stadium in South Florida.

27
<PAGE>

George D. Johnson, Jr. has been President, Chief Executive Officer, and a
director of the Company since January 1995. He is responsible for all aspects
of development, operation, marketing, and personnel of the Company. Mr. Johnson
is the former President of the Consumer Products Division of Blockbuster
Entertainment Group, a division of Viacom. In this position he was responsible
for all U. S. video and music stores. Mr. Johnson has over 30 years of
experience developing and managing various businesses. He was formerly the
managing general partner of WJB Video, the largest Blockbuster franchisee which
developed over 200 video stores prior to a merger with Blockbuster in 1993 and
is the managing general partner of American Storage Limited Partnership, a
chain of 23 self-storage facilities located in the Carolinas and Georgia. He
currently serves on the board of directors of Viacom, Republic, and Duke Power
Company and has been the Chairman of the Board of Directors of Johnson
Development Associates, Inc. since its founding in 1986. Johnson Development
Associates, Inc. is a real estate management, leasing, and development company
controlling approximately two million square feet of commercial, retail, and
industrial property located in the Carolinas and Georgia which are owned by
various partnerships controlled by Mr. Johnson and his brother, Stewart H.
Johnson. Mr. Johnson practiced law in Spartanburg, South Carolina from 1967
until 1986 and served three terms in the South Carolina House of
Representatives.

Robert A. Brannon has been Chief Financial Officer of the Company since
February 1995 and Senior Vice President, Secretary, and Treasurer since August
1995. He is responsible for overseeing accounting procedures and controls,
along with financial reporting and cash management. Prior thereto, he served as
Vice President--Finance for the Domestic Home Video division of the Blockbuster
Entertainment Group, where he was responsible for financial management and
control of over 2,000 video stores. Prior to joining Blockbuster in 1993, Mr.
Brannon was Chief Financial Officer for WJB Video and for American Storage
Limited Partnership. In those capacities, Mr. Brannon was responsible for the
financial aspects of the development of over 200 video stores and 23 self-
storage facilities. Prior to his participation in these businesses, Mr. Brannon
served as a Certified Public Accountant in various management and staff
positions with local and national accounting firms.

Richard A. Fadel, Jr. has been Vice President--Operations of ESA Management
since June 1996. Mr. Fadel is responsible for staffing and managing the
operations of the Company's extended stay facilities. Mr. Fadel served as Zone
Vice President of Operations for the Blockbuster Entertainment Group from
August 1993 through June 1996, where he was responsible for the operations of
over 500 stores. Prior to joining Blockbuster, Mr. Fadel was employed by WJB
Video, where he served as Director of Operations from April 1992 through August
1993 and as Regional Manager of Operations from December 1990 through April
1992. Prior to joining WJB Video, Mr. Fadel held retail management positions
with The Limited, Inc. and Peebles Department Stores, Inc. from 1981 through
1990.

Michael R. Beck has been Vice President--Real Estate of the Company from
September 1995 to January 1996 and Vice President--Real Estate of ESA
Properties since January 1996. Mr. Beck is responsible for identifying and
negotiating the purchase of suitable locations for the Company's expansion.
Prior to joining the Company, Mr. Beck served in various capacities including
Vice President--Development at Blockbuster Entertainment Group from July 1993
to May 1995, where he was responsible for new store development including real
estate construction and distribution for Blockbuster Video and Blockbuster
Music. From May 1989 to July 1993, Mr. Beck served in various capacities at WJB
Video, including the position of Director of Strategic Planning where he was
responsible for real estate acquisition and construction, marketing, and video
tape purchasing.

Corry W. Oakes has been Vice President--Construction of the Company from
January 1995 to January 1996 and Vice President--Construction of ESA Management
since January 1996. Mr. Oakes is responsible for managing initial construction
of all properties as well as ongoing renovations and repairs. Prior thereto, he
served as a National Director of Construction for the Blockbuster Entertainment
Group. In that capacity, he was responsible for the development of over 400
video and music stores during 1994 alone. Prior to joining Blockbuster in 1993,
Mr. Oakes served as Construction Manager for WJB Video. Mr. Oakes also served
as property manager with Westover Development Company, a real estate
development firm.

28
<PAGE>

Gregory R. Moxley became Controller of the Company in October 1995 and Vice
President--Finance in January 1996, where he is responsible for the accounting,
budgeting, and financial reporting functions. From 1990 until joining the
Company, Mr. Moxley held various positions, including Director of Financial
Reporting and Assistant Treasurer, with One Price Clothing Stores, Inc., a
national chain of women's apparel stores. Prior to that, Mr. Moxley served as a
Certified Public Accountant in various management and staff positions with
Ernst & Young from 1978 to 1990.

Michael M. Wilson has been Vice President--Marketing of ESA Management since
February 1996. Mr. Wilson is responsible for developing and implementing
marketing strategy and public relations. From September 1993 until he joined
the Company, he served as Director of Marketing--Special Projects for
Blockbuster, where he was responsible for marketing and developing proprietary
technology. Before joining Blockbuster in 1993, Mr. Wilson was Director of
Marketing of WJB Video. Prior thereto, Mr. Wilson founded and served as
President of two private consumer products companies, Lasso Closure Corp. and
Torus Corporation, and served as Senior V.P. for Henderson Advertising in
Greenville, South Carolina.

Shawn R. Ruben has been Vice President--Development of ESA Management since
December 1995. Mr. Ruben is responsible for managing the due diligence process
on all of the Company's properties as well as land closings and loan approvals.
Prior thereto, he served as National Director of Real Estate for the
Blockbuster Entertainment Group, where he was responsible for new store
development, asset management, and all real estate legal matters. Before
joining Blockbuster in 1991, Mr. Ruben practiced law in Florida.

Robert W. Levis has been Vice President--Corporate Development of ESA
Management since April 1996. Mr. Levis is responsible for corporate strategy,
including acquisitions. From 1992 until he joined the Company, Mr. Levis was
Director, Corporate Development for Blockbuster where he was responsible for
corporate strategy for new lines of business, including mergers and
acquisitions. From 1995 until he joined the Company, Mr. Levis was also Vice
President, Corporate Development and Finance for Discovery Zone, Inc.
("Discovery Zone"), an owner and franchisor of family indoor entertainment and
fitness facilities, during the period it was managed by Blockbuster. On March
25, 1996, Discovery Zone announced that it had filed a voluntary petition under
Chapter 11 of the U.S. Bankruptcy Code. Prior thereto, Mr. Levis was a Manager,
Real Estate and Hospitality Consulting with KPMG Peat Marwick.

Harold E. Wright has been President of ESA Development, a wholly-owned
subsidiary of the Company, since June 1995. Mr. Wright is responsible for
selection and development of suitable locations in certain geographic areas.
See "--Management Compensation," and "--Employment and Stock Option
Agreements." Prior to joining ESA Development, Inc., Mr. Wright was President
of HVI, Inc., formerly Homestead Venture, Inc., a site selection and
development company of extended stay facilities in the Southwest. From 1989 to
1992, Mr. Wright was President of Homestead Properties, Inc., which developed
and operated three extended stay properties in North Carolina. Prior to that
time, Mr. Wright was involved in commercial and real estate development in
Georgia and Florida.

Donald F. Flynn became a director of the Company in August 1995. Mr. Flynn is
Chairman and Chief Executive Officer of Flynn Enterprises, Inc., a business
consulting and venture capital company, and from July 1992 until March 1996 was
Chairman of Discovery Zone. From July 1992 until May 1995, Mr. Flynn also
served as Chief Executive Officer of Discovery Zone. Mr. Flynn also currently
serves as a director of WMX, Waste Management International plc, Wheelabrator
Technologies, Inc., and Psychemedics, Inc. ("Psychemedics"). Mr. Flynn is a
former director of Blockbuster. From 1972 to 1990, Mr. Flynn served in various
positions with WMX, including Senior Vice President and Chief Financial
Officer.

Stewart H. Johnson became a director of the Company in August 1995. Mr.
Johnson is currently the Chairman of the Board of Directors, Chief Executive
Officer, and President of Morgan Corporation, a construction company
specializing in grading, site preparation, and sewer and utility installation.
Mr. Johnson has been directing the operations of Morgan Corporation since 1971.
Mr. Johnson also serves as Secretary for Johnson Development Associates, Inc.
Mr. Johnson is the brother of George D. Johnson, Jr.

29
<PAGE>

John J. Melk became a director of the Company in August 1995. He has been
Chairman and Chief Executive Officer of H/2/0 Plus, Inc. since 1988. H/2/0 Plus
develops and manufactures health and beauty products and distributes them
through a national chain of company-owned retail stores as well as through over
500 wholesale/department stores. Prior to 1984, Mr. Melk held various positions
with WMX and its subsidiaries, and served as President of Waste Management
International, Ltd. based in London, England. Mr. Melk currently serves as a
director of Psychemedics and Republic and is a former Vice-Chairman and
director of Blockbuster. Mr. Melk is also Chairman of M.W. Partners, which is a
major investor in residential and commercial real estate development, resort
hotels, marinas, and other private ventures.

Peer Pedersen became a director of the Company in August 1995. He is the
founder and has been Chairman of the law firm of Pedersen & Houpt, P.C., in
Chicago, Illinois for more than five years. He serves on the board of directors
of Aon Corporation, Boston Chicken, Inc., and WMX.

MANAGEMENT COMPENSATION

The Company was incorporated in January 1995 and did not conduct any
operations prior to that time. The Company's executive officers commenced their
service with the Company at various times during 1995 and none was employed by
the Company during all of 1995. Accordingly, the following table sets forth, on
an annualized basis with respect to the salary information, the information
regarding the compensation paid by the Company to its Chief Executive Officer
and each of the other four most highly compensated officers of the Company
(hereinafter, the "Named Executive Officers") for services rendered in all
capacities to the Company during 1995. The Company does not have a restricted
stock award program or a long-term incentive plan. Directors of the Company are
not paid any cash compensation for their services but are reimbursed for their
out-of-pocket expenses.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
George D. Johnson, Jr...... 200,000 -- -- 200,000 --
President and Chief
Executive Officer
Robert A. Brannon.......... 175,000 -- -- 301,875 --
Senior Vice President,
Chief Financial Officer,
Secretary, and Treasurer
Michael R. Beck............ 100,000 -- -- 21,000 --
Vice President--Real
Estate of ESA Properties,
Inc.
Corry W. Oakes............. 100,000 -- -- 21,000 22,837(1)
Vice President--
Construction of ESA
Management, Inc.
Harold E. Wright........... 175,000 -- -- -- 51,179(1)
President of ESA
Development, Inc.
</TABLE>
- ---------------------
(1) Represents the taxable portion of reimbursed relocation expenses.

30
<PAGE>

The following table sets forth individual grants of stock options made to the
Named Executive Officers during 1995.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
TOTAL PRICE APPRECIATION
OPTIONS GRANTED EXERCISE FOR OPTION TERM(2)
DATE OF OPTIONS TO EMPLOYEES IN OR BASE EXPIRATION ---------------------
NAME GRANT GRANTED FISCAL YEAR PRICE(1) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C> <C>
George D. Johnson, Jr... 11/17/95 200,000 17.7% $13.00 11/17/05 $1,635,126 $4,143,730
Robert A. Brannon....... 8/18/95 301,875 26.7 4.76 8/18/05 903,675 2,290,087
Michael R. Beck......... 8/18/95 21,000 1.9 4.76 8/18/05 62,864 159,310
Corry W. Oakes.......... 8/18/95 21,000 1.9 4.76 8/18/05 62,864 159,310
Harold E. Wright........ -- -- -- -- -- -- --
</TABLE>
- ---------------------
(1) Under the 1995 Plan, the exercise price must be the fair market value on
the date of grant. Except for specific situations, the options granted
become exercisable as to one-fourth of the grant on each of the first,
second, third, and fourth anniversary of the date of grant.
(2) These amounts represent certain assumed annual rates of appreciation
calculated from the exercise price, as required by the rules of the
Securities and Exchange Commission. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the future performance
of the Common Stock. There can be no assurance that the amounts reflected
in this table will be achieved.

The following table provides certain information concerning the value of
unexercised options to purchase Common Stock at December 31, 1995 for the Named
Executive Officers. No options to purchase Common Stock were exercised during
1995.

AGGREGATE 1995 OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT 12/31/95 AT 12/31/95(1)
------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) (#) ($) ($)
<S> <C> <C> <C> <C>
George D. Johnson, Jr....... -- 200,000 -- 2,900,000
Robert A. Brannon........... -- 301,875 -- 6,864,638
Michael R. Beck............. -- 21,000 -- 477,540
Corry W. Oakes.............. -- 21,000 -- 477,540
Harold E. Wright............ -- -- -- --
</TABLE>
- ---------------------
(1) This column indicates the aggregate amount, if any, by which the market
value of the Common Stock on December 31, 1995 exceeded the options'
exercise price based on the closing per share sale price of the Common
Stock on such date of $27.50 as quoted on the Nasdaq National Market as
reported by The Wall Street Journal.

EMPLOYMENT AND STOCK OPTION AGREEMENTS

In June 1995, Mr. Wright entered into an employment agreement, which was
terminated in March 1996, with ESA Development, a wholly-owned subsidiary of
the Company which was formed for the purpose of developing economy extended
stay facilities in the Midwest and certain other areas. In connection with the
termination of a business relationship before joining ESA Development, Mr.
Wright entered into a non-

31
<PAGE>

compete agreement that may restrict him from performing certain functions for
ESA Development in the states of Texas, New Mexico, Colorado, Arizona, Nevada,
Utah, California, Oklahoma, Louisiana, Florida and the greater metropolitan
areas of Las Vegas, Nevada; Portland, Oregon; Atlanta, Georgia; Charlotte,
North Carolina and Washington, D.C. until the end of 1996. As a result, neither
Mr. Wright nor ESA Development will operate in those areas and Mr. Wright will
focus his time and efforts locating and developing sites for ESA Development in
regions not restricted by his non-compete agreement.

Pursuant to his employment agreement, Mr. Wright was entitled to receive a
minimum annual base salary of $175,000. The agreement had an initial term of
two years and was to have been automatically renewed for one-year periods
thereafter unless notice of termination was given by either party. The
agreement provided that in the event Mr. Wright's employment with ESA
Development was terminated for any reason other than for cause, Mr. Wright was
entitled to receive an amount equal to his then base salary for the remainder
of the then current term. In addition, in the event ESA Development did not
grant to Mr. Wright, during each twelve month period from June 1 through May 31
of the term of the agreement, options to purchase shares of common stock of ESA
Development in an amount equal to 2 1/2 times his then base salary at the fair
market value per share on the date of grant, Mr. Wright could declare his
employment terminated other than for cause.

In June 1995, Mr. Wright also entered into a stock option agreement with ESA
Development which was also terminated in March 1996 and all options granted
thereunder terminated. Pursuant to the stock option agreement, ESA Development
granted to Mr. Wright non-qualified options to purchase a total of 1,437.5
shares of the common stock of ESA Development. The options were to vest ratably
on each of the next four anniversaries of the date of the option grant. With
respect to options underlying 437.5 shares, the exercise price per share was
$1,000 and the term of the options was ten years. With respect to options
underlying the remaining 1,000 shares, the exercise price per share was $1,000
plus interest accrued at 10% per year, compounded annually, from the date of
the option grant through the date of exercise of the option, and the term of
the options was five years.

In March 1996, Mr. Wright and ESA Development entered into a new employment
agreement for the period commencing on March 18, 1996 and ending on June 30,
1999. Pursuant to this employment agreement, Mr. Wright is to act as the
President of ESA Development and is entitled to receive a minimum annual base
salary of $175,000. ESA Development also agreed to pay Mr. Wright additional
compensation equal to $15,000 for each site upon which ESA Development or its
subsidiaries has commenced construction of an extended stay lodging facility
during the term of the agreement. This additional compensation shall apply only
to the first 40 sites for 1996, 1997, and 1998 and the first 20 sites for 1999
and may be paid by delivering shares of the Company's Common Stock with a fair
market value equal to the amount due. In addition, pursuant to this employment
agreement, the Company granted to Mr. Wright, under the 1996 Plan, ten-year
options to purchase 600,000 shares of the Company's Common Stock at an exercise
price per share of $21.00 (the fair market value on the date of grant), which
options vest as to one-fourth of the grant on September 19, 1996 and June 1 of
each of 1997, 1998, and 1999, respectively.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Until August 1995, Mr. George D. Johnson, Jr., the Company's Chief Executive
Officer, approved the terms of the compensation of the Company's executive
officers. In August 1995, the Company's Board of Directors formed a
Compensation Committee, which is currently composed of Messrs. Flynn and Melk,
which determines the compensation of the Company's executive officers.

STOCK OPTION PLANS

1995 PLAN

The Board of Directors of the Company adopted in August 1995, and the
shareholders of the Company have approved, the Amended and Restated 1995
Employee Stock Option Plan (the "1995 Plan") which will

32
<PAGE>

be administered by the Compensation Committee of the Board of Directors, which
consists solely of non-employee directors. The Compensation Committee has
authority to determine the persons to be granted options under the 1995 Plan,
the number of shares subject to each option, the time or times at which options
will be granted, the option price of the shares subject to each option (which
price shall not be less than the fair market value of the shares at the date of
grant), and the time or times when each option becomes exercisable and the
duration of the exercise period. Except for specific situations, such as a
change in control of the Company, options which have been granted become
exercisable as to one-fourth of the grant on each of the first, second, third,
and fourth anniversary of the date of grant.

Options may be granted under the 1995 Plan to key employees and consultants,
(other than members of the Compensation Committee) of the Company. Options may
be granted with respect to a total of not more than 1,677,060 shares of Common
Stock under the 1995 Plan, subject to antidilution and other adjustment
provisions. No options may be granted to a single optionee under the 1995 Plan
in excess of 50% of the total number of shares authorized for issuance under
the 1995 Plan. No options may be granted under the 1995 Plan after August 18,
2005. If an option expires or is terminated or canceled unexercised as to any
shares, such released shares may again be optioned (including a grant in
substitution for a canceled option). The Compensation Committee has granted,
under the 1995 Plan, ten-year options to purchase 150,000 shares and 200,000
shares of Common Stock to Messrs. Huizenga and George D. Johnson, Jr.,
respectively, at an exercise price per share equal to $13.00 and ten year
options to purchase Common Stock at an exercise price per share equal to $4.76
to the other Named Executive Officers, among others, for the following number
of shares: Mr. Brannon, 301,875; Mr. Beck, 21,000; and Mr. Oakes, 21,000. In
January 1996, the Compensation Committee granted additional ten-year options to
purchase 500,281 shares of Common Stock to employees at exercise prices per
share ranging from $26.75 to $29.625, including grants to Named Executive
Officers for the following number of shares: Mr. Brannon, 39,252; Mr. Beck,
28,037; Mr. Oakes, 28,037; and Mr. Wright, 39,252. As of March 31, 1996,
options to purchase an aggregate of 1,676,873 shares of Common Stock had been
granted under the 1995 Stock Option Plan.

1996 PLAN

The Board of Directors of the Company adopted in January 1996, and the
shareholders of the Company have approved, the Amended and Restated 1996
Employee Stock Option Plan (the "1996 Plan"). The 1996 Plan will be
administered by the Compensation Committee of the Board of Directors and the
terms of the 1996 Plan are substantially identical to those of the 1995 Plan.
Options may be granted with respect to a total of not more than 2,500,000
shares of Common Stock under the 1996 Plan, subject to antidilution and other
adjustment provisions. No options may be granted under the 1996 Plan after
January 24, 2006. As of March 31, 1996, options to purchase 679,385 shares of
Common Stock had been granted under the 1996 Plan, including ten-year options
to purchase 600,000 shares of Common Stock granted to Mr. Wright at an exercise
price per share equal to $21.00.

DIRECTORS' PLAN

The Board of Directors of the Company adopted in November 1995, and the
shareholders of the Company have approved, a 1995 Stock Option Plan for Non-
Employee Directors (the "Directors' Plan"). The Directors' Plan is administered
by the Board of Directors.

Options shall be granted under the Directors' Plan only to non-employee
directors of the Company. Options may be granted with respect to a total of not
more than 240,000 shares of Common Stock under the Directors' Plan, subject to
antidilution and other adjustment provisions. If an option expires or is
terminated or canceled unexercised as to any shares, such released shares may
again be optioned.

A one-time option covering 20,000 shares of Common Stock is automatically
granted to each non-employee director of the Company effective upon initial
election to the Board of Directors of the Company. During the four-year period
following the initial election of a non-employee director to the Board of

33
<PAGE>

Directors, an additional option covering 5,000 shares of Common Stock shall be
granted to such non-employee director on each anniversary of the initial grant;
provided that such non-employee director remains a director and that not more
than four such additional options shall be granted to any one non-employee
director. The option price for all options granted under the Directors' Plan
shall be the fair market value of a share of Common Stock on the date of grant.
Each option granted under the Directors' Plan is for a term of ten years,
subject to earlier termination if the optionee's service as a director
terminates. Each option granted under the Directors' Plan becomes exercisable
with respect to all of the shares subject to the option six months after the
date of its grant. Options to purchase 20,000 shares of Common Stock at an
exercise price per share of $13.00 were automatically granted under the
Directors' Plan on the closing of the IPO on December 19, 1995 to each of
Messrs. Flynn, Stewart H. Johnson, Melk, and Pedersen.

34
<PAGE>

CERTAIN TRANSACTIONS

In order to finance the construction of the Company's Spartanburg, South
Carolina facility and the Company's initial operations, George D. Johnson, Jr.,
the Company's President and Chief Executive Officer, and H. Wayne Huizenga, the
Chairman of the Board of Directors of the Company, loaned an aggregate of
approximately $6.1 million at various times between February 1995 and July
1995. Those loans accrued interest at an annual rate of 8.75% and were repaid
in full in August 1995 with the proceeds from the subscriptions of the
Company's shareholders described below.

In connection with the formation of the Company in January 1995, Mr. George
D. Johnson, Jr. purchased 1,677,060 shares (adjusted to reflect a 210-for-1
stock split in October 1995) of Common Stock for an aggregate purchase price of
$2,000. In August 1995, the Company entered into Subscription Agreements
pursuant to which certain investors, including H. Wayne Huizenga, George D.
Johnson, Jr., Donald F. Flynn, Stewart H. Johnson, John J. Melk, Peer Pedersen,
and Robert A. Brannon, contributed $55.8 million to the capital of the Company
in exchange for 11,718,000 shares (adjusted to reflect a 210-for-1 stock split
in October 1995) of Common Stock ($4.76 per share). Approximately one-half of
such amount was contributed in August 1995 and the balance in October 1995.

As consideration for the commitment to provide a mortgage loan facility (the
"DLJ Mortgage Facility"), the Company issued 750,540 shares of Common Stock,
with a then estimated fair market value of approximately $3.6 million, to
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), one of the
representatives of the underwriters of the Prior Offerings. In connection
therewith, DLJ Capital Corporation, an affiliate of DLJ, also purchased 500,430
shares of Common Stock for a purchase price of $2.4 million. See "Financing."

In the Concurrent Offering, the Company sold to its then existing
shareholders (other than DLJ and its affiliates), on a pro-rata basis, for $25
million, 2,067,825 shares of Common Stock for $12.09 per share, such price
being the IPO price per share less underwriting discounts and commissions.
These shareholders included the Company's directors and certain of its
officers. The amounts paid by the Company's directors and certain of its
officers in the Concurrent Offering were as follows: Mr. H. Wayne Huizenga,
$7,253,456; Mr. George D. Johnson, Jr., $3,048,747; Mr. Stewart H. Johnson,
$954,396; Mr. Robert A. Brannon, $381,765; Mr. Donald F. Flynn, $381,765; Mr.
John J. Melk, $1,145,285; and Mr. Peer Pedersen, $1,145,285. In addition, the
amounts paid by trusts for the benefit of various members of the immediate
family of George D. Johnson, Jr. was an aggregate of $5,726,429 and the amounts
paid by trusts for the benefit of various members of the immediate family of
Stewart H. Johnson was an aggregate of $381,754.

The Company has airplane leasing arrangements with companies owned by George
D. Johnson, Jr., Stewart Johnson, and certain of their family members. In
connection therewith, the Company incurred aggregate charges of approximately
$412,000 during the year ended December 31, 1995. The Company believes that the
terms of its use of the planes are at least as favorable to the Company as
those it could have obtained from an unaffiliated party. In April 1995, the
Company acquired a parcel of real estate in Spartanburg, South Carolina for
approximately $562,000 from a limited partnership controlled by George D.
Johnson, Jr. and Stewart H. Johnson. The Company believes that the terms of the
acquisition were as favorable to it as it could have obtained from an
unaffiliated party.

In 1996 the Company entered into (i) a 10-year lease for a suite at Joe
Robbie Stadium for a base rental of $115,000 per year, subject to certain
additional charges and periodic escalation, and (ii) a 3-year lease for a suite
at Homestead Motor Sports Complex for a base rental of $53,250 per year,
subject to certain additional charges. Mr. Huizenga owns Joe Robbie Stadium and
has an approximately 50% ownership interest in Homestead Motor Sports Complex.
The Company believes that the terms of these leases are comparable to those
charged to other persons.

35
<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth, as of June 26, 1996, certain information
regarding the beneficial ownership of the Company's Common Stock by each person
known by the Company to be the beneficial owner of 5% or more of the
outstanding Common Stock, by each of the Company's directors and Named
Executive Officers, and by all directors and executive officers of the Company
as a group.

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
------------------
NAME(1) NUMBER PERCENT
<S> <C> <C>
George D. Johnson, Jr.(2).............................. 5,552,881 16.9%
H. Wayne Huizenga...................................... 4,589,955 14.0
Stewart H. Johnson(3).................................. 724,729 2.2
Robert A. Brannon...................................... 241,577 *
Michael R. Beck........................................ 18,000 *
Corry W. Oakes......................................... 16,425 *
Harold E. Wright....................................... 2,904 *
Donald F. Flynn(4)..................................... 241,577 *
John J. Melk(5)........................................ 944,730 2.9
Peer Pedersen.......................................... 724,730 2.2
All directors and executive officers as a group
(15 persons)(2)(3)(4)(5).............................. 13,072,738 39.9%
</TABLE>
- ---------------------
* Represents less than 1% of the outstanding Common Stock.
(1) Unless otherwise indicated, the address of such person is c/o Extended Stay
America, Inc., 500 E. Broward Boulevard, Ft. Lauderdale, Florida 33394.
(2) Includes 3,623,650 shares of Common Stock held in various trusts for the
benefit of members of Mr. Johnson's immediate family, of which Mr.
Johnson's brother, Stewart H. Johnson, is a trustee and does not include
120,788 shares held in various trusts for the benefit of members of Stewart
H. Johnson's immediate family and with respect to which Mr. Johnson is
trustee, all of which shares Mr. Johnson may be deemed to beneficially own.
(3) Includes 120,788 shares Common Stock held in various trusts for the benefit
of members of Stewart H. Johnson's immediate family, of which George D.
Johnson, Jr. is trustee, but does not include 3,623,650 shares of Common
Stock held in various trusts for the benefit of members of George D.
Johnson, Jr.'s immediate family, of which Stewart H. Johnson is a trustee,
and 120,788 shares of Common Stock held in a trust of which Stewart H.
Johnson is a trustee, all of which shares Stewart H. Johnson may be deemed
to beneficially own.
(4) Represents 241,577 shares of Common Stock held in a trust, of which Mr.
Flynn is a trustee and beneficiary.
(5) Includes 724,730 shares of Common Stock beneficially owned by M Group
Investment IV, L.P., of which Mr. Melk is a general partner.

36
<PAGE>

FINANCING

EQUITY

The Company was initially capitalized with approximately $60 million of
equity from a group of private investors, a number of whom constitute part of
the Company's management team. On December 19, 1995, the Company completed the
December 1995 Offerings from which it received aggregate net proceeds of
approximately $85 million. The Company received aggregate net proceeds of
approximately $290 million from the June 1996 Offering.

MORTGAGE FACILITIES

DLJ MORTGAGE FACILITY

The Company has a mortgage facility with DLJ Mortgage Capital, Inc., an
affiliate of DLJ, providing for up to $100 million in mortgage financing (which
was reduced by the Company from $200 million in connection with the
establishment of the CSFB Mortgage Facility described below), subject to
certain conditions (the "DLJ Mortgage Facility"). Under the DLJ Mortgage
Facility, each extended stay lodging facility financed thereby will, upon
obtaining a certificate of occupancy, receive funding of 60% of the lesser of
the total development cost or the approved budget thereof. In addition, the
funding for each facility may be increased to not more than 75% of the lesser
of its cost or its appraised value within the first 15 months of operation,
with the amount of such additional funding depending upon the lodging facility
meeting certain debt service coverage ratios. Interest on each loan will be
payable monthly at a fixed rate equal to the rate of 10-year U.S. Treasury
securities on the date of funding plus 4.0%. Principal amortization based on a
25-year term will begin not later than 15 months after the initial funding and
will continue through various maturity dates from December 31, 2006 through
December 31, 2008. Prepayments of loans may be made without penalty within five
years of their respective maturity dates. Amounts borrowed under the DLJ
Mortgage Facility will be secured by, among other things, a first mortgage
encumbering each lodging facility and assignment of the revenues and profits
from the respective facility. Funding under the DLJ Mortgage Facility is
subject to, among other things, the funding by the Company of certain escrow
accounts and prior approval by the lender of the construction and operating
budgets.

The DLJ Mortgage Facility requires the Company to maintain consolidated
tangible net worth (as defined therein) of at least $40 million. In addition,
the DLJ Mortgage Facility contains certain affirmative and negative covenants,
including without limitation, limitations on any sale, mortgaging, granting of
options or other transfer of any legal or beneficial interest in any property
financed; making of dividends, share repurchases, or other restricted payments
by the Company other than dividends by the Company not exceeding 50% of the
excess of its net income for any period over its cumulative losses not
previously applied in computing the limitation; financing new properties
without first submitting such property for approval by the lender for financing
under the DLJ Mortgage Facility; affiliated party transactions; making certain
investments; and engaging in businesses other than the ownership, management,
and operation of extended stay lodging facilities.

All or any portion of the amounts outstanding under the DLJ Mortgage Facility
may at any time become immediately due and payable, at the option of the
lender, if an event of default occurs, including, among other things, (i) any
payment of principal or interest or any payment of any fee or other amount due
under the DLJ Mortgage Facility is not paid when the same becomes due and
payable; (ii) the Company fails to perform any obligation or observe any
agreement or covenant under the DLJ Mortgage Facility or related loan,
collateral, or other documentation (collectively, the "Loan Documents") and
such failure remains unremedied past the applicable grace period, if any; (iii)
any material representation made or deemed to be made by the Company in the
Loan Documents shall prove to have been incorrect in any material respect when
made or deemed made; (iv) a default occurs and is continuing with respect to
any indebtedness of the Company and (in the case of a default other than a
payment default) such default permits the acceleration of indebtedness or any
such indebtedness is declared due and payable prior to its stated maturity; (v)
certain events of bankruptcy, insolvency or reorganization occur with respect
to the Company or any of its

37
<PAGE>

subsidiaries; (vi) any material provision of collateral documentation relating
to a loan ceases to be valid and binding on the Company or fails to create a
valid perfected and first priority lien on any of the collateral covered
thereby; (vii) a material adverse change, or an event which is reasonably
likely to have a material adverse change, occurs in the Company, in the ability
of the parties to the Loan Documents to perform their respective obligations,
or the legality, validity, or enforceability of the Loan Documents or the
rights and remedies of the lender thereunder; or (viii) the current members of
the Company's Board of Directors cease to constitute a majority of the Board.

CSFB MORTGAGE FACILITY

The Company also has a mortgage facility (the "CSFB Mortgage Facility") from
CS First Boston Mortgage Capital Corporation (an affiliate of CS First Boston
Corporation, one of the representatives of the underwriters of the June 1996
Offering) which provides up to $300 million in mortgage financing, subject to
certain conditions and limitations, for completed facilities.

Under the CSFB Mortgage Facility, each extended stay lodging facility
financed thereby will, upon obtaining a certificate of occupancy, receive
funding of 65% of the lesser of the total development cost, the approved
budget, or the appraised value, subject to limitations based on projected debt
service coverage ratios. The Company may choose either a fixed rate loan or a
floating rate loan at the time the loan is to be funded, subject, however, to a
requirement that a minimum of $50 million of loans must be made under the
chosen rate program before the other rate program can be selected. Interest on
each loan will be payable monthly at either (i) a fixed rate equal to the rate
of 7-year U.S. Treasury securities on the date of funding plus from 3.55% to
3.85%, depending upon the aggregate amount of fixed rate loans, or (ii) a
floating rate equal to the 30-day LIBOR rate plus 3%. Principal amortization
will generally be based on a 15-year term for fixed rate loans and based on a
20-year term with an assumed 9.9% interest rate for floating rate loans. Fixed
rate loans will mature on the earlier of 7 years and 3 months from the date
that the first such loan is funded or May 2004. All floating rate loans will
mature three years from the execution of a credit facility agreement.
Prepayments of fixed rate loans may be made after five years, subject to
certain penalties. Prepayments of floating rate loans may be made after one
year without penalty. Amounts borrowed under the CSFB Mortgage Facility will be
secured by, among other things, a first mortgage encumbering each lodging
facility so financed and an assignment of the revenues and profits from such
facilities.

Funding under the CSFB Mortgage Facility is subject to, among other things,
market capitalization of the Company of at least $300 million, maintenance of
certain debt service coverage ratios, maintenance of the ratio of debt to total
book capitalization of not more than 70%, maintenance of unrestricted and
unpledged cash of not less than $20 million, the funding by the Company of
certain escrow accounts, and prior approval by the lender of the construction
and operating budgets. The CSFB Mortgage Facility also contains certain
affirmative and negative covenants similar to those contained in the DLJ
Mortgage Facility. The Company may, however, finance new properties through
other lenders without first submitting such property for approval by the lender
for financing under the CSFB Mortgage Facility. However, in the event that the
Company finances more than $175 million of secured facility debt (other than
construction financing and certain other financings) with another lender prior
to May 1999, without having financed at least $100 million of such debt under
the CSFB Mortgage Facility, the lender may terminate its obligation to fund
additional facilities under the CSFB Mortgage Facility.

All or any portion of the amounts outstanding under the CSFB Mortgage
Facility will become due and payable, at the option of the lender, if an event
of default occurs, including, among other things, (i) a declared default or
acceleration under other indebtedness of the Company; (ii) certain events of
bankruptcy with respect to the Company or any of its subsidiaries; (iii) the
Company's tangible net worth ceases to exceed $50 million; (iv) a dividend
payout by the Company in excess of 50% of the excess of its net income for any
period over its cumulative losses not previously applied in computing the
limitation; (v) the current members of the Company's Board of Directors cease
to constitute a majority of the Board; or (vi) Mr. Huizenga or Mr. George D.
Johnson, Jr. cease to be Board members to the extent that they are living and
have not been declared judicially incompetent.

38
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 200 million shares of
Common Stock, $.01 par value per share, and 10 million shares of preferred
stock, $.01 par value per share (the "Preferred Stock"). As of June 26, 1996,
32,628,092 shares of Common Stock were issued and outstanding and none of the
Preferred Stock was outstanding. The following description is a summary and is
qualified in its entirety by reference to the provisions of the Company's
Restated Certificate of Incorporation, as amended (the "Certificate"), and its
Bylaws (the "Bylaws"), copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders. Holders of a
majority of the shares of Common Stock represented at a meeting can elect all
of the directors. Holders of Common Stock are not permitted to act by written
consent. Shareholders must follow an advance notification procedure for certain
shareholder nominations of candidates for the Board of Directors and for
certain other business to be conducted at any meeting of shareholders. Subject
to preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may
be declared by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." In the event of a liquidation, dissolution, or winding
up of the Company, holders of the Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities and the liquidation
preference of any then outstanding Preferred Stock. Holders of Common Stock
have no preemptive rights and have no right to convert their Common Stock into
any other securities. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are
fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors has the authority, without further action by the
shareholders, to issue up to 10 million shares of Preferred Stock in one or
more series and to fix the voting powers, designations, preferences, and
relative, participating, optional, or other special rights, and qualifications,
limitations, and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, and the
number of shares constituting any series. Because the Board of Directors has
the power to establish the preferences and rights of the shares of any such
series of Preferred Stock, it may afford holders of any Preferred Stock
preferences, powers, and rights (including voting rights), senior to the rights
of holders of Common Stock, which could adversely affect the rights of holders
of Common Stock and could have the effect of delaying, deferring, or preventing
a change in control of the Company. The Company has no present plan to issue
any shares of Preferred Stock.

DELAWARE GENERAL CORPORATION LAW

The Company was incorporated in 1995 as a Delaware corporation and will be
subject to Section 203 of the Delaware General Corporation Law ("Section 203").
Pursuant to Section 203, with certain exceptions, a Delaware corporation may
not engage in any of a broad range of business combinations, such as mergers,
consolidations, and sales of assets, with an "interested shareholder" for a
period of three years from the date that such person became an interested
shareholder unless (i) the transaction that results in the person's becoming an
interested shareholder, or the business combination, is approved by the board
of directors of the corporation before the person becomes an interested
shareholder, (ii) upon consummation of the transaction which results in the
shareholder becoming an interested shareholder, the interested shareholder owns
85% or more of the voting stock of the corporation outstanding at the time the
transaction commenced (other than certain excluded shares), or (iii) on or
after the date the person becomes an interested shareholder, the business
combination is approved by the corporation's board of directors and by holders
of at least two-thirds of the corporation's outstanding voting stock, excluding
shares owned by the interested shareholder, at a

39
<PAGE>

meeting of shareholders. Under Section 203, an "interested shareholder" is
defined as any person, other than the corporation and any direct or indirect
majority-owned subsidiaries of the corporation, that is (i) the owner of 15% or
more of the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation and the owner of 15% or more of the outstanding
voting stock of the corporation at any time within the three-year period
immediately prior to the date on which it is sought to be determined whether
such person is an interested shareholder. The Company has approved Messrs.
George D. Johnson, Jr., Stewart H. Johnson, and H. Wayne Huizenga as
"interested shareholders."

Under certain circumstances, Section 203 makes it more difficult for a person
who would be an "interested shareholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage persons interested in acquiring the Company to
negotiate in advance with the Company's Board of Directors because the
shareholder approval requirement would be avoided if a majority of the
Company's directors then in office approve either the business combination or
the transaction which results in the person becoming an interested shareholder.
Such provisions also may have the effect of preventing changes in management of
the Company. It is possible that such provisions could make it more difficult
to accomplish transactions that shareholders may otherwise deem to be in their
best interests.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank (Chicago).

40
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

As of June 26, 1996, the Company had 32,628,092 shares of Common Stock
outstanding, 17,625,062 of which were freely tradable (other than by an
"affiliate" of the Company as such term is defined in the Securities Act)
without restriction or registration under the Securities Act. The remaining
15,003,030 outstanding shares of Common Stock originally subscribed for and
purchased by the initial shareholders of the Company (the "Initial
Shareholders") were issued and sold by the Company in private transactions
("Restricted Shares") and may not be sold unless registered under the
Securities Act (which registration is described below) or sold in accordance
with an exemption therefrom, such as Rule 144 or Rule 144A thereunder. In
connection with the June 1996 Offering, the holders of approximately 13.3
million shares of Common Stock (including all shares beneficially owned by the
Company's directors and executive officers) agreed that they would not sell any
shares of Common Stock prior to August 28, 1996, without the consent of DLJ,
subject to certain exceptions, including pursuant to a foreclosure by a lender
on a loan for which shares of Common Stock have been pledged as collateral.

In general, under Rule 144 as currently in effect, a holder of Restricted
Shares who beneficially owns shares that were not acquired from the Company or
an affiliate of the Company within the previous two years would be entitled to
sell in the public market within any three-month period a number of shares that
does not exceed the greater of (i) one percent of the then outstanding shares
of Common Stock or (ii) the average weekly trading volume of the Common Stock
on the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. The Initial Shareholders will be able to sell shares of
Common Stock acquired pursuant to the Subscription Agreements in accordance
with such provision on and after August 18, 1997. Sales pursuant to Rule 144
are also subject to certain other requirements relating to manner of sale,
notice, and the availability of current public information about the Company. A
person who is deemed not to have been an affiliate of the Company at any time
during the three months immediately preceding a sale and who beneficially owns
shares that were not acquired from the Company or an affiliate of the Company
within the past three years is entitled to sell such shares under Rule 144(k)
without regard to the foregoing limitations. Rule 144A under the Securities Act
permits the immediate sale by the holders of Restricted Shares issued prior to
completion of the IPO of all or a portion of their shares to certain "qualified
institutional buyers" as defined in Rule 144A.

The Company has registered under the Securities Act all of the 15,003,030
shares of Common Stock owned by the Initial Shareholders so that such Initial
Shareholders may make resales in the public market of their Common Stock upon
expiration of their lock-up agreements described above. The Company also
intends to register under the Securities Act all shares reserved for issuance
under the 1995 Plan, the 1996 Plan, and the Directors' Plan. All shares
purchased in the future under such plans will be available for resale in the
public market without restriction, except that affiliates must comply with the
provisions of Rule 144 other than the holding period requirement. Shares
registered pursuant to any of these registration statements could be sold in
the public market. In addition, the Company has also issued additional shares
of Common Stock pursuant to this Prospectus in connection with various
acquisitions of businesses, some of which shares may be resold in the public
market pursuant to this Prospectus or otherwise. See "Recent Developments."

41
<PAGE>

SELLING SHAREHOLDERS

The following table sets forth certain information regarding the ownership of
the Company's Common Stock as of June 26, 1996 by each of the Selling
Shareholders.

<TABLE>
<CAPTION>
PRIOR TO OFFERING AFTER OFFERING
----------------- SHARES -----------------
NUMBER OFFERED NUMBER
NAME OF SHARES PERCENT HEREBY OF SHARES PERCENT
- ---- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Robert A. Brannon................ 241,577 * 210,000 31,577 *
Dan C. Breeden, Jr............... 60,394 * 52,500 7,894 *
Clayton R. Buntrock.............. 241,577 * 210,000 31,577 *
A. Foster Chapman................ 60,394 * 52,500 7,894 *
John W. Croghan.................. 241,577 * 210,000 31,577 *
Donaldson, Lufkin & Jenrette
Securities Corporation.......... 750,540 2.3 750,540 -- --
DLJ Capital Corporation.......... 199,790 * 199,790 -- --
DLJ First ESC L.L.C.............. 269,127 * 269,127 -- --
Jeffrey A. Klein................. 31,513 * 31,513 -- --
ESA Investment, Inc.............. 120,788 * 105,000 15,788 *
Brian J. Flynn Non-Exempt June,
1992 Trust...................... 241,577 * 210,000 31,577 *
Donald F. Flynn 1993 Trust....... 241,577 * 210,000 31,577 *
Kevin F. Flynn Non-Exempt June,
1992 Trust...................... 241,577 * 210,000 31,577 *
Harris W. Hudson................. 241,577 * 210,000 31,577 *
H. Wayne Huizenga................ 4,589,955 14.1 3,990,000 599,955 1.8
H. Wayne Huizenga, Jr............ 120,788 * 105,000 15,788 *
Marti Huizenga................... 120,788 * 105,000 15,788 *
Pamela Huizenga-Van Hart......... 60,394 * 52,500 7,894 *
Ray Goldsby Huizenga............. 60,394 * 52,500 7,894 *
Peter H. Huizenga Testamentary
Trust........................... 120,788 * 105,000 15,788 *
The Peter H. Huizenga, Jr. Trust
u/a/d 9/24/77................... 30,197 * 26,250 3,947 *
The Betsy Huizenga Trust u/a/d
3/11/92......................... 30,197 * 26,250 3,947 *
The Greta Huizenga Trust u/a/d
4/19/92......................... 30,197 * 26,250 3,947 *
The Timothy Dean Huizenga Trust
u/a/d 9/24/77................... 30,197 * 26,250 3,947 *
George D. Johnson, Jr............ 1,929,231 5.9 1,677,060 252,171 *
G.D. Johnson, III ESA Trust u/a/d
8/17/95......................... 1,811,825 5.6 1,575,000 236,825 *
S.P. Johnson ESA Trust u/a/d
8/17/95......................... 1,811,825 5.6 1,575,000 236,825 *
Stewart H. Johnson............... 603,941 1.9 525,000 78,941 *
Stewart H. Johnson, Jr. Trust.... 30,197 * 26,250 3,947 *
David G. Johnson Trust........... 30,197 * 26,250 3,947 *
Jamie C. Johnson Trust........... 30,197 * 26,250 3,947 *
Susan B. Johnson Trust........... 30,197 * 26,250 3,947 *
E.W. Johnson II Trust u/a/d
8/16/95......................... 120,788 * 105,000 15,788 *
M Group Investments IV L.P....... 724,730 2.2 630,000 94,730 *
James McCutchen, Jr.............. 119,588 * 105,000 14,588 *
R. Scott Morrison, Jr............ 126,153 * 63,000 63,153 *
Welcome Inn America 89-1, L.P.... 357,000 1.1 357,000 -- --
Peer Pedersen.................... 944,730 2.9 630,000 314,730 *
Richard C. Rochon................ 120,788 * 105,000 15,788 *
E. Craig Wall, Jr................ 120,788 * 105,000 15,788 *
</TABLE>
- ---------------------
*Represents less than 1% of the outstanding Common Stock.

The names of the Selling Shareholders are set forth above. This Prospectus
may also be used by transferees, assignees, distributees, and pledgees of any
of the Selling Shareholders. Mr. H. Wayne Huizenga is the Chairman of the Board
of the Company. George D. Johnson, Jr. is the President and Chief Executive

42
<PAGE>

Officer and a director of the Company. The G.D. Johnson, III ESA Trust u/a/d
August 17, 1995 and the S.P. Johnson ESA u/a/d August 17, 1995 are trusts for
the benefit of members of George D. Johnson, Jr.'s immediate family and of
which Stewart H. Johnson and A. Foster Chapman are the trustees. Stewart H.
Johnson is a director of the Company and the Stewart H. Johnson, Jr. Trust, the
David G. Johnson Trust, the Jamie C. Johnson Trust, and the Susan B. Johnson
Trust are trusts for the benefit of members of Stewart H. Johnson's immediate
family and of which George D. Johnson is the trustee. Mr. Robert A. Brannon is
the Senior Vice President, Chief Financial Officer, Secretary, and Treasurer of
the Company. Mr. Donald F. Flynn is a director of the Company and a trustee and
the beneficiary of the Donald F. Flynn 1993 Trust. Mr. John J. Melk is a
director of the Company and the general partner of M Group Investments IV L.P.
Mr. Peer Pedersen is a director of the Company.

Other than as described below, the Selling Shareholders received all of their
respective Shares offered hereby in connection with their initial subscriptions
in August 1995 of an aggregate of $55.8 million or upon the transfer of such
Shares from a subscriber. George D. Johnson, Jr. received all of the Shares
shown above as being offered hereby by him in connection with the Company's
initial incorporation. Welcome Inn America 89-1, L.P. received all of the
Shares shown above as being offered hereby by it in connection with the sale of
its extended-stay lodging facility to the Company in August 1995. R. Scott
Morrison, Jr. is the general partner of Welcome Inn America 89-1, L.P. The
Shares shown above as being offered hereby by Donaldson, Lufkin & Jenrette
Securities Corporation, DLJ Capital Corporation, DLJ First ESC L.L.C., and
Jeffrey A. Klein were all issued in connection with the commitment to provide
the DLJ Mortgage Facility. See "Financing--Mortgage Facilities."

All of the Selling Shareholders have agreed that they will not sell any
shares of Common Stock, including the Shares, held by them prior to June 11,
1996 without the consent of DLJ, subject to certain exceptions, including
pursuant to a foreclosure by a lender on a loan for which shares of Common
Stock have been pledged as collateral. The Shares shown above as being offered
hereby by George D. Johnson, Jr., the G.D. Johnson, III ESA Trust u/a/d August
17, 1995, the S.P. Johnson ESA Trust u/a/d August 17, 1995, Robert A. Brannon,
and Welcome Inn America 89-1, L.P. have all been pledged as collateral for
loans made to them by NationsBank of Florida, N.A. ("NationsBank Florida").
NationsBank Florida may offer pursuant to this Prospectus the Shares shown
above which it acquires upon default of any of such loans. The Shares shown
above as being offered hereby by Stewart H. Johnson, the Stewart H. Johnson,
Jr. Trust, the David G. Johnson Trust, the Jamie C. Johnson Trust, and the
Susan B. Johnson Trust have all been pledged as collateral for loans made to
them by NationsBank, N.A. (Carolinas) ("NationsBank Carolinas"). NationsBank
Carolinas may offer pursuant to this Prospectus the Shares shown above which it
acquires upon default of any of such loans.

PLAN OF DISTRIBUTION

An aggregate of up to 15,003,030 Selling Shareholders' Shares may be offered
pursuant to this Prospectus. The distribution of such Shares by the Selling
Shareholders may be effected from time to time in one or more transactions on
the Nasdaq National Market (which may involve block transactions), in special
offerings, in negotiated transactions, or otherwise, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, or at negotiated prices. The Selling Shareholders may engage one or
more brokers to act as principal or agent in making sales, who may receive
discounts or commissions from the Selling Shareholders in amounts to be
negotiated. The Selling Shareholders and any such brokers may be deemed
"underwriters" under the Securities Act of the Shares sold.

The Company will pay all expenses of filing the Registration Statement and
preparing and reproducing this Prospectus. The Selling Shareholders will pay
any selling expenses, including brokerage commissions, incurred in connection
with their sale of any Shares covered by this Prospectus.

43
<PAGE>

EXPERTS

The consolidated balance sheet of Extended Stay America, Inc. and
subsidiaries as of December 31, 1995 and the related consolidated statements of
operations, shareholders' equity and cash flows for the period from January 9,
1995 (inception) through December 31, 1995, the statements of operations,
partners' deficit, and cash flows of Welcome Inn America 89-1, L.P. for each of
the two years in the period ended December 31, 1994 and the period from January
1, 1995 through August 18, 1995, the balance sheets of Apartment/Inn, L.P. as
of December 31, 1994 and 1995 and the related statements of operations and
partners' deficit and cash flows for each of the two years in the period ended
December 31, 1995, the combined balance sheets of Hometown Inn I, LTD and
Hometown Inn II, LTD as of December 31, 1994 and 1995 and the related combined
statements of operations and partners' capital and cash flows for each of the
three years in the period ended December 31, 1995, the balance sheet of Kipling
Hospitality Enterprise Corporation as of December 31, 1995 and the related
statements of operation and retained earnings and cash flows for the year then
ended, the balance sheet of Apartment Inn Partners/Gwinnett, L.P. as of
December 31, 1995 and the related statements of operations and partners'
capital and cash flows for the year then ended, and the combined balance sheets
of the M&M Facilities as of December 31, 1994 and 1995 and the related combined
statements of operations and equity (deficit) and cash flows for each of the
three years in the period ended December 31, 1995, included in this Prospectus,
have been included herein in reliance on the reports of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.

44
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
PRO FORMA FINANCIAL STATEMENTS OF EXTENDED STAY AMERICA, INC. AND
SUBSIDIARIES
Pro Forma Consolidated Statement of Operations for the period from
January 9, 1995 (inception) through December 31, 1995 (unaudited) and
the three months ended March 31, 1996 (unaudited)....................... F-2
Pro Forma Consolidated Balance Sheet as of March 31, 1996 (unaudited).... F-4
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
Report of Independent Accountants........................................ F-5
Consolidated Balance Sheets as of December 31, 1995 and March 31, 1996
(unaudited)............................................................. F-6
Consolidated Statements of Operations for the period from January 9, 1995
(inception) through December 31, 1995, for the period from January 9,
1995 (inception) through March 31, 1995 (unaudited) and for the three
months ended March 31, 1996 (unaudited) ................................ F-7
Consolidated Statements of Shareholders' Equity for the period from
January 9, 1995 (inception) through December 31, 1995 and for the three
months ended March 31, 1996 (unaudited) ................................ F-8
Consolidated Statements of Cash Flows for the period from January 9, 1995
(inception) through December 31, 1995, for the period from January 9,
1995 (inception) through March 31, 1995 (unaudited) and for the three
months ended March 31, 1996 (unaudited)................................. F-9
Notes to Consolidated Financial Statements............................... F-10
WELCOME INN AMERICA 89-1, L.P.
Report of Independent Accountants........................................ F-18
Statements of Operations for the years ended December 31, 1993 and 1994
and for the period from January 1, 1995 through August 18, 1995......... F-19
Statements of Partners' Deficit for the years ended December 31, 1993 and
1994 and for the period from January 1, 1995 through August 18, 1995.... F-20
Statements of Cash Flows for the years ended December 31, 1993 and 1994
and for the period from January 1, 1995 through August 18, 1995......... F-21
Notes to Financial Statements............................................ F-22
APARTMENT/INN, L.P.
Report of Independent Accountants........................................ F-23
Balance Sheets as of December 31, 1994 and 1995.......................... F-24
Statements of Operations and Partners' Deficit for the two years ended
December 31, 1994 and 1995.............................................. F-25
Statements of Cash Flows for the two years ended December 31, 1994 and
1995.................................................................... F-26
Notes to Financial Statements............................................ F-27
HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD
Report of Independent Accountants........................................ F-29
Combined Balance Sheets as of December 31, 1994 and 1995................. F-30
Combined Statement of Operations and Partners' Capital for the three
years ended December 31, 1993, 1994, and 1995........................... F-31
Combined Statement of Cash Flows for the three years ended December 31,
1993, 1994, and 1995.................................................... F-32
Notes to Combined Financial Statements................................... F-33
KIPLING HOSPITALITY ENTERPRISE CORPORATION
Report of Independent Accountants........................................ F-35
Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited).... F-36
Statements of Operations and Retained Earnings for the year ended
December 31, 1995 and the three months ended March 31, 1995 and 1996
(unaudited)............................................................. F-37
Statements of Cash Flows for the year ended December 31, 1995 and for the
three months ended March 31, 1995 and 1996 (unaudited).................. F-38
Notes to Financial Statements............................................ F-39
APARTMENT INN PARTNERS/GWINNETT, L.P.
Report of Independent Accountants........................................ F-42
Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited).... F-43
Statements of Operations and Partners' Capital for the year ended
December 31, 1995 and for the three months ended March 31, 1995 and 1996
(unaudited)............................................................. F-44
Statements of Cash Flows for the year ended December 31, 1995 and for the
three months ended March 31, 1995 and 1996 (unaudited).................. F-45
Notes to Financial Statements............................................ F-46
M & M FACILITIES
Report of Independent Accountants........................................ F-48
Combined Balance Sheets as of December 31, 1994 and 1995 and March 31,
1996 (unaudited)........................................................ F-49
Combined Statements of Operations and Equity (Deficit) for the years
ended December 31, 1993, 1994 and 1995 and for the three months ended
March 31, 1995 and 1996 (unaudited)..................................... F-50
Combined Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995 and for the three months ended March 31, 1995 and 1996
(unaudited)............................................................. F-51
Notes to Combined Financial Statements................................... F-52
</TABLE>

F-1
<PAGE>

EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES

These unaudited pro forma consolidated statements of operations are presented
as if the acquisitions of the Acquired Facilities and the proposed acquisitions
of the KHEC Facility and the M & M Facilities and the related issuances of
shares of common stock had occurred at the beginning of the relevant period.
For the year ended December 31, 1995, the statement also reflects the
acquisition of the Marietta Facility and estimated incremental expenses to
operate as a publicly held company as if it were publicly held on the date of
inception. Such pro forma information is based in part upon the consolidated
statements of operations of Extended Stay America, Inc. and subsidiaries and
the statements of operations of Welcome, Apartment/Inn, Hometown Inn, KHEC,
Gwinnett, and the M & M Facilities. They should be read in conjunction with the
financial statements listed in the index on page F-1 of this Prospectus. In
management's opinion, all adjustments necessary to reflect the effects of these
transactions have been made. The acquisition of the lodging facility from AATI
has not been included in these unaudited statements of operations because the
purchase price and the unaudited results of operations for the periods, when
measured in relation to the Company, did not meet certain materiality standards
and can be excluded as permitted by the rules and regulations of the Securities
and Exchange Commission.

These unaudited pro forma consolidated statements of operations are not
necessarily indicative of what the actual results of operations of the Company
would have been assuming such transactions had been completed as of the
beginning of the period, nor do they purport to represent the results of
operations for any future periods. Results of operations and the related
earnings or loss per share for future periods will be affected by a number of
factors, including but not limited to, the number of facilities opened and the
operating results therefrom, interest costs incurred on indebtedness (including
the amortization of the fees paid in cash and common stock to DLJ), corporate
operating and property management expenses, site selection costs and the number
of future shares issued.

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 9, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1995 (UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
COMPLETED COMPLETED PROPOSED
ACTUAL ACQUISITIONS ADJUSTMENTS ACQUISITIONS ACQUISITIONS ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ 817,133 $5,957,989 $ (135,614)(1) $6,639,508 $6,940,992 $ (152,131)(1) $13,428,369
Management fees........ 17,775 (17,775)(2)
Other revenue.......... 42,977 277,596 (6,398)(1) 314,175 431,323 (9,453)(1) 736,045
----------- ---------- ---------- ---------- ---------- ---------- -----------
Total revenue........ 877,885 6,235,585 (159,787) 6,953,683 7,372,315 (161,584) 14,164,414
----------- ---------- ---------- ---------- ---------- ---------- -----------
Costs and expenses:
Property operating
expenses.............. 332,523 2,655,610 (61,941)(1) 2,908,417 3,045,884 (66,759)(1) 5,887,542
(17,775)(2)
Corporate operating
and property
management expenses... 2,042,039 391,114 800,000 (3) 3,233,153 543,464 (58,093)(2) 3,718,524
Site selection costs... 512,529 512,529 512,529
Depreciation and
amortization.......... 146,726 623,721 263,067 (4) 1,033,514 737,220 422,780 (4) 2,193,514
----------- ---------- ---------- ---------- ---------- ---------- -----------
Total costs and
expenses............ 3,033,817 3,670,445 983,351 7,687,613 4,326,568 297,928 12,312,109
----------- ---------- ---------- ---------- ---------- ---------- -----------
Income (loss) from
operations.......... (2,155,932) 2,565,140 (1,143,138) (733,930) 3,045,747 (459,512) 1,852,305
Interest income
(expense).............. 848,510 (1,104,633) 1,104,633 (5) 848,510 (1,733,591) 1,689,591 (5) 804,510
----------- ---------- ---------- ---------- ---------- ---------- -----------
Income (loss) before
income taxes.......... (1,307,422) 1,460,507 (38,505) $ 114,580 $1,312,156 $1,230,079 $ 2,656,815
Provision for income
taxes................. (45,000)(6) (45,000) (991,000)(6) (1,036,000)
----------- ---------- ---------- ---------- ---------- ---------- -----------
Net income (loss)...... $(1,307,422) $1,460,507 $ (83,505) $ 69,580 $1,312,156 $ 239,079 $ 1,620,815
=========== ========== ========== ========== ========== ========== ===========
Net income (loss) per
common share(7)....... $ (0.10) $ 0.01 $ 0.11
=========== ========== ===========
Weighted average
number of common and
equivalent shares
outstanding during
the period(7)......... 12,652,110 13,849,898 15,260,204
=========== ========== ===========
</TABLE>

F-2
<PAGE>

EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
COMPLETED COMPLETED PROPOSED
ACTUAL ACQUISITIONS ADJUSTMENTS ACQUISITIONS ACQUISITIONS ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ 1,137,841 $778,821 $ $ 1,916,662 $1,827,570 $ $ 3,744,232
Other revenue.......... 32,988 30,016 63,004 97,123 160,127
----------- -------- ------- ----------- ---------- --------- -----------
Total revenue........ 1,170,829 808,837 1,979,666 1,924,693 3,904,359
Costs and expenses:
Property operating
expenses.............. 442,540 288,123 730,663 790,051 1,520,714
Corporate operating
and property
management expenses... 1,580,655 58,937 1,639,592 145,739 (11,260)(2) 1,774,071
Site selection costs... 823,733 823,733 823,733
Depreciation and
amortization.......... 203,343 73,199 20,238 (4) 296,780 186,215 103,785 (4) 586,780
----------- -------- ------- ----------- ---------- --------- -----------
Total costs and
expenses............ 3,050,271 420,259 20,238 3,490,768 1,122,005 92,525 4,705,298
Income (loss) from
operations.......... (1,879,442) 388,578 (20,238) (1,511,102) 802,688 (92,525) (800,939)
Interest income
(expense).............. 1,450,132 (64,151) 64,151 (5) 1,450,132 (424,570) 399,570 (5) 1,425,132
----------- -------- ------- ----------- ---------- --------- -----------
Income (loss) before
income taxes........... (429,310) 324,427 43,913 (60,970) 378,118 307,045 624,193
Provision for income
taxes.................. (243,000)(6) (243,000)
----------- -------- ------- ----------- ---------- --------- -----------
Net income (loss)....... $ (429,310) $324,427 $43,913 $ (60,970) $ 378,118 $ 64,045 $ 381,193
=========== ======== ======= =========== ========== ========= ===========
Net loss per common
share(7)............... $ (0.02) $ (0.00) $ 0.02
=========== =========== ===========
Weighted average number
of common and
equivalent shares
outstanding during the
period(7).............. 22,467,393 23,025,192 24,785,595
=========== =========== ===========
</TABLE>
- ---------------------

(1) To eliminate the estimated revenues and expenses for the Acquired
Facilities, the Marietta Facility, the KHEC Facility, and the M & M
Facilities for the period January 1, 1995 through January 8, 1995 in order
to present a period comparable to the historical period for the Company.

(2) To eliminate in consolidation management fees charged to the Marietta
Facility prior to being acquired by the Company and franchise fees incurred
by KHEC.

(3) Reflects estimated increases in: (i) salaries and benefits--$238,000; (ii)
state capital-based taxes--$150,000; (iii) audit and tax fees--$75,000;
(iv) legal expenses--$37,000; (v) directors' and officers' insurance--
$150,000; (vi) additional expenses--$150,000, as if the Company had been a
public company on the date of inception.

(4) To adjust depreciation and amortization expense to reflect the expense
based on the purchase price paid and to be paid by the Company for the
Acquired Facilities, the Marietta Facility, the KHEC Facility, and the M &
M Facilities for any period prior to acquisition.

(5) To eliminate non-continuing interest expense paid by the Acquired
Facilities, the Marietta Facility, the KHEC Facility, and the M & M
Facilities prior to acquisition, net of interest income earned by the
Company on the amount of cash used in the acquisitions.

(6) To provide for estimated income tax expense.

(7) See notes 2, 5 and 14 to the Company's consolidated financial statements.

F-3
<PAGE>

EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES

PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)

This unaudited pro forma consolidated balance sheet is presented as if the
June 1996 Offering had been completed and the acquisition of the Gwinnett
Facility and the proposed acquisitions of the KHEC Facility and the M&M
Facilities had occurred on March 31, 1996. Such pro forma information is based
upon the consolidated balance sheet of the Company and the balance sheets of
Gwinnett, KHEC, and the M&M Facilities as of March 31, 1996. It should be read
in conjunction with the financial statements listed in the index on page F-1 of
this Prospectus. In management's opinion, all adjustments necessary to reflect
the effects of these transactions have been made.

This unaudited pro forma consolidated balance sheet is not necessarily
indicative of what the actual financial position would have been assuming such
transactions had been completed as of March 31, 1996, nor does it purport to
represent the future financial position of the Company.

<TABLE>
<CAPTION>
ACQUISITIONS
SUBSEQUENT
TO MARCH 31,
1996 AND
PROPOSED
ACTUAL ACQUISITIONS ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $104,010,918 $ 628,882 $ (3,098,882)(1) $391,358,418
289,817,500 (2)
Refundable deposits... 621,654 621,654
Supply inventories.... 291,266 88,050 281,950 (1) 661,266
Prepaid expenses...... 366,142 2,198 (2,198)(1) 366,142
Other current assets.. 56,768 180,808 (180,808)(1) 56,768
------------ ----------- ------------ ------------
Total current
assets............. 105,346,748 899,938 286,817,562 393,064,248
------------ ----------- ------------ ------------
Property and equipment,
net.................... 51,658,313 20,257,229 20,347,771 (1) 92,263,313
Site deposits and
preacquisition costs... 3,913,811 3,913,811
Deferred loan costs..... 5,294,114 8,327 (8,327)(1) 5,294,114
Other assets............ 156,741 102,532 (102,532)(1) 156,741
------------ ----------- ------------ ------------
$166,369,727 $21,268,026 $307,054,474 $494,692,227
============ =========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 925,504 $ 136,042 $ (136,042)(1) $ 925,504
Accrued salaries and
related expenses..... 67,855 22,177 (22,177)(1) 67,855
Due to related
parties.............. 71,845 211,334 (211,334)(1) 71,845
Other accrued
expenses............. 440,612 311,636 (891)(1) 751,357
Deferred revenue...... 330,856 19,087 (19,087)(1) 330,856
Current maturities of
long-term debt....... 6,335,578 (6,335,578)(1)
------------ ----------- ------------ ------------
Total current
liabilities........ 1,836,672 7,035,854 (6,725,109) 2,147,417
------------ ----------- ------------ ------------
Long-term debt.......... 13,564,248 (13,564,248)(1)
Shareholders' Equity:
Preferred stock, $.01
par value, 10,000,000
shares authorized, no
shares issued or
outstanding..........
Common stock, $.01 par
value, 200,000,000
shares authorized,
22,853,092 and
34,039,192 shares
issued and
outstanding for
Actual and Pro Forma,
respectively......... 228,531 226,733 (212,622)(1) 340,392
97,750 (2)
Additional paid in
capital.............. 166,041,256 30,270 38,149,874 (1) 493,941,150
289,719,750 (2)
Due from affiliated
companies and prepaid
services............. (521,395) 521,395 (1)
Accumulated
(deficit)/retained
earnings............. (1,736,732) 932,316 (932,316)(1) (1,736,732)
------------ ----------- ------------ ------------
Total shareholders'
equity............. 164,533,055 667,924 327,343,831 492,544,810
------------ ----------- ------------ ------------
$166,369,727 $21,268,026 $307,054,474 $494,692,227
============ =========== ============ ============
</TABLE>
- ---------------------

(1) To reflect the purchase adjustments relating to the acquisition of the
Gwinnett Facility for 172,100 shares of Common Stock and the proposed
acquisitions of the KHEC Facility and the M&M Facilities assuming the
acquisitions are completed through the issuance of approximately 101,000
and 1,138,000 shares, respectively, of Common Stock and to reflect the use
of $2,000,000 of the Company's cash representing the estimated costs to
remodel and to convert the KHEC property to an extended stay lodging
facility and the use of $470,000 of the Company's cash to retire debt of
the M&M Facilities assumed by the Company.
(2) To reflect the estimated net proceeds of the June 1996 Offering.

F-4
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida

We have audited the accompanying consolidated balance sheet of Extended Stay
America, Inc. and subsidiaries (the "Company") as of December 31, 1995 and the
related consolidated statements of operations, shareholders' equity and cash
flows for the period from January 9, 1995 (inception) through December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Extended Stay
America, Inc. and subsidiaries as of December 31, 1995 and the consolidated
results of their operations and their cash flows for the period from January 9,
1995 (inception) through December 31, 1995 in conformity with generally
accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Spartanburg, South Carolina
January 26, 1996

F-5
<PAGE>

EXTENDED STAY AMERICA, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
ASSETS ------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents (including securities
purchased under agreements to resell of
$122,904,142 at December 31, 1995).............. $123,357,510 $104,010,918
Refundable deposits.............................. 344,064 621,654
Supply inventories............................... 92,817 291,266
Prepaid expenses................................. 318,541 366,142
Other current assets............................. 20,758 56,768
------------ ------------
Total current assets........................... 124,133,690 105,346,748
------------ ------------
Property and equipment, net........................ 18,205,537 51,658,313
Site deposits and preacquisition costs............. 1,931,215 3,913,811
Deferred loan costs................................ 5,293,119 5,294,114
Other assets....................................... 55,088 156,741
------------ ------------
$149,618,649 $166,369,727
============ ============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable................................. $ 670,708 $ 925,504
Accrued salaries and related expenses............ 271,230 67,855
Due to related parties........................... 133,149 71,845
Other accrued expenses........................... 691,117 440,612
Deferred revenue................................. 330,856
Note payable..................................... 630,200
------------ ------------
Total current liabilities...................... 2,396,404 1,836,672
------------ ------------
Commitments
Shareholders' Equity:
Preferred stock, $.01 par value, 10,000,000
shares authorized, no shares issued and
outstanding.....................................
Common stock, $.01 par value, 200,000,000 shares
authorized, 22,130,855 and 22,853,092 shares
issued and outstanding, respectively............ 221,309 228,531
Additional paid in capital....................... 148,308,358 166,041,256
Accumulated deficit.............................. (1,307,422) (1,736,732)
------------ ------------
Total shareholders' equity..................... 147,222,245 164,533,055
------------ ------------
$149,618,649 $166,369,727
============ ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-6
<PAGE>

EXTENDED STAY AMERICA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FROM PERIOD FROM
JANUARY 9, JANUARY 9,
1995 1995 FOR THE
(INCEPTION) (INCEPTION) THREE MONTHS
THROUGH THROUGH ENDED
DECEMBER MARCH 31, MARCH 31,
31, 1995 1995 1996
----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue:
Room revenue........................... $ 817,133 $ $1,137,841
Management fees........................ 17,775
Other revenue.......................... 42,977 32,988
----------- ----------
Total revenue........................ 877,885 1,170,829
----------- ----------
Costs and expenses:
Property operating expenses............ 332,523 442,540
Corporate operating and property
management expenses (including
$386,000 to related parties for the
period ending December 31, 1995)...... 2,042,039 195,823 1,580,655
Site selection costs................... 512,529 52,778 823,733
Depreciation and amortization.......... 146,726 203,343
----------- ---------- ----------
Total costs and expenses............. 3,033,817 248,601 3,050,271
----------- ---------- ----------
Loss from operations................. (2,155,932) (248,601) (1,879,442)
Interest income.......................... 848,510 1,450,132
----------- ---------- ----------
Net loss............................. $(1,307,422) $ (248,601) $ (429,310)
=========== ========== ==========
Net loss per common share............ $ (0.10) $ (0.02) $ (0.02)
=========== ========== ==========
Weighted average number of common and
equivalent shares outstanding during
the period.......................... 12,652,110 11,489,017 22,467,393
=========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-7
<PAGE>

EXTENDED STAY AMERICA, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 9, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
SHARES STOCK CAPITAL DEFICIT
<S> <C> <C> <C> <C>
Issuance of common stock, net of
issuance costs of $5,709,337... 22,130,855 $221,309 $148,308,358
Net loss........................ $(1,307,422)
---------- -------- ------------ -----------
Balances, December 31, 1995..... 22,130,855 221,309 148,308,358 (1,307,422)
Issuance of common stock
(unaudited).................... 722,237 7,222 17,845,642
Additional payouts of initial
public offering costs
(unaudited).................... (112,744)
Net loss (unaudited)............ (429,310)
---------- -------- ------------ -----------
Balances, March 31, 1996
(unaudited).................... 22,853,092 $228,531 $166,041,256 $(1,736,732)
========== ======== ============ ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-8
<PAGE>

EXTENDED STAY AMERICA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM FOR THE
JANUARY 9, 1995 PERIOD FROM
(INCEPTION) JANUARY 9, 1995
THROUGH (INCEPTION) FOR THE THREE
DECEMBER 31, THROUGH MARCH 31, MONTHS ENDED
1995 1995 MARCH 31, 1996
--------------- ----------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss..................... $ (1,307,422) $(248,601) $ (429,310)
Adjustments to reconcile net
loss to net cash (used in)
provided by operating
activities:
Depreciation and
amortization.............. 146,726 203,343
Write-off of site deposits
and preacquisition costs.. 288,655 187,418
Change in:
Refundable deposits....... (45,516) (3,371) (117,590)
Supply inventories........ (92,817) (24,930)
Prepaid expenses.......... (318,541) (5,345) (51,154)
Other current assets...... (26,284) (36,010)
Accounts payable.......... 65,504 205,361
Accrued expenses.......... 355,397 89,537 224,915
Due to related parties.... 133,149 54,857 (133,149)
Deferred revenue.......... 330,856
------------ --------- ------------
Net cash (used in)
provided by operating
activities.............. (801,149) (112,923) 359,750
------------ --------- ------------
Cash flows from investing
activities:
Acquisition of extended stay
properties.................. (2,342,346) (355,579)
Additions to property and
equipment................... (13,230,022) (281,301) (15,356,090)
Payments for site deposits
and preacquisition costs.... (2,579,667) (120,086) (2,738,578)
Refunds of deposits on
property sites.............. 191,666 240,000
Payments for other assets.... (65,436) (60,746)
------------ --------- ------------
Net cash used in
investing activities.... (18,025,805) (401,387) (18,270,993)
------------ --------- ------------
Cash flows from financing
activities:
Proceeds from issuance of
common stock................ 143,882,880
Additions to deferred loan
costs....................... (1,698,416) (21,698)
Additions to prepaid
registration costs.......... (52,035)
Proceeds from related party
loans....................... 6,135,462 521,031
Payments on related party
loans....................... (6,135,462)
Payment of note payable...... (630,200)
Payments of initial public
offering costs.............. (731,416)
------------ --------- ------------
Net cash provided by
(used in) financing
activities.............. 142,184,464 521,031 (1,435,349)
------------ --------- ------------
Increase (decrease) in
cash.................... 123,357,510 6,721 (19,346,592)
Cash and cash equivalents at
beginning of period.......... 123,357,510
------------ --------- ------------
Cash and cash equivalents at
end of period................ $123,357,510 $ 6,721 $104,010,918
============ ========= ============
Noncash investing and
financing transactions:
Issuance of common stock for
acquisition of extended stay
properties.................. $ 1,700,000 $ 17,852,864
============ ============
Capitalized or deferred items
included in accounts payable
and accrued liabilities..... $ 1,212,154 $ 454,178 $ 654,639
============ ========= ============
Note payable for purchase of
property site............... $ 630,200
============
Issuance of common stock for
deferred loan costs......... $ 3,574,000
============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-9
<PAGE>

EXTENDED STAY AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--ORGANIZATION

Extended Stay America, Inc. (the "Company") was incorporated on January 9,
1995 as a Delaware corporation to develop, own, and operate extended stay
lodging facilities designed to appeal to value-conscious guests. Operations of
the Company's first extended stay facility commenced on August 1, 1995. The
Company acquired a second extended stay facility on August 18, 1995 (Note 5).
The Company's current operating subsidiaries are ESA Development, Inc. and ESA
Properties, Inc., which acquire and develop properties, and ESA Management,
Inc., which provides management services for all of the lodging facilities
owned by the Company and its subsidiaries. The Company expects that each
lodging facility will be owned by a separate single-purpose subsidiary formed
for such purpose.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation.

Pervasiveness of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Concentration of Credit Risk. The Company maintained deposits totaling
$123,357,510 at December 31, 1995, with one bank. Deposits in excess of
$100,000 are not insured by the Federal Deposit Insurance Corporation.

Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand
and on deposit, and highly liquid instruments with maturities of three months
or less when purchased. The carrying amount of cash and cash equivalents is the
estimated fair value at December 31, 1995.

The Company invests excess funds in an overnight sweep account with
NationsBank which invests in short-term, interest-bearing reverse repurchase
agreements. On December 31, 1995, the Company had invested $122,904,142 in U.S.
Government securities under agreements to resell. Due to the short-term nature
of these investments, the Company did not take possession of the securities,
which were instead held by the bank. The market value of the securities held
pursuant to the agreements approximates the carrying amount.

Supply Inventories. Supply inventories consist principally of linen, cleaning
and other room supplies and are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.

Property and Equipment. Property and equipment is stated at cost. The Company
capitalizes interest, salaries and related costs for site selection, design and
construction supervision.

Depreciation is computed by the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are charged to operations
as incurred; major renewals and improvements are capitalized. The gain or loss
on the disposition of property and equipment is recorded in the year of
disposition.

The lives on the assets are as follows:

<TABLE>
<S> <C>
Buildings and improvements...................................... 40 years
Furniture, fixtures and equipment............................... 3-7 years
</TABLE>

For the period from January 9, 1995 through December 31, 1995 the Company
incurred interest of $98,217 all of which was capitalized and included in the
cost of buildings and improvements.

F-10
<PAGE>

EXTENDED STAY AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Preacquisition Costs. The Company incurs costs related to the acquisition of
property sites. These costs are capitalized when it is probable that a site
will be acquired. These costs are reclassified to property and equipment upon
acquisition. In the event the acquisition is not consummated, the costs are
charged to site selection costs. All other site selection costs are expensed as
incurred.

Deferred Loan Costs. The Company has incurred costs in obtaining financing.
These costs have been deferred and will be amortized over the life of the
respective loans using the effective yield method.

Preopening Costs. The Company capitalizes compensation and other training-
related costs incurred prior to the opening of a property. Included in other
current assets at December 31, 1995 are costs of $7,736, net of accumulated
amortization of $5,526, which are being amortized over a period of twelve
months.

Organization Costs. Organization costs at December 31, 1995 of $41,388 are
included in other assets, net of accumulated amortization of $10,348, and are
being amortized over sixty months using the straight-line method.

Income Taxes. Income taxes for the Company are determined in accordance with
SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the
use of a liability method in which deferred income taxes are provided for
temporary differences between the financial reporting and income tax basis of
assets and liabilities using the income tax rates, under existing legislation,
expected to be in effect at the date such temporary differences are expected to
reverse.

Revenue Recognition. Room revenue and other income are recognized when
earned. Management fees of $17,775 were recognized as earned and represent fees
charged to Welcome Inn America 89-1, L.P. for the management of its extended
stay property for the period May 1, 1995 through August 18, 1995 prior to the
acquisition of such property by the Company (Note 5).

Business Segment. The Company operates principally in one business segment
which is to develop, own, and operate extended stay lodging facilities.

Net Loss Per Common Share. The net loss per common share amount in the
statement of operations for the three months ended March 31, 1996 has been
computed in accordance with Accounting Principles Board Opinion (APB) No. 15.
The net loss per common share amount for the year ended December 31, 1995 and
for the three months ended March 31, 1995 has been computed in accordance with
a Staff Accounting Bulletin (SAB) of the Securities and Exchange Commission.
According to the SAB, equity securities, including stock, warrants, options and
other potentially dilutive securities, issued within a twelve-month period
prior to an initial public offering of common stock must be treated as common
stock equivalents when computing earnings per share for all periods presented
if the issue price of the common stock or the exercise price of the warrants,
options or other potentially dilutive securities is substantially less than the
proposed initial public offering price, including loss years where the impact
of the incremental shares is anti-dilutive. As permitted by the SAB, the
treasury stock method has been used in determining the weighted average number
of shares of common stock outstanding during the periods presented.

On October 19, 1995, the Board of Directors of the Company declared a 210-
for-1 stock split effected in the form of a dividend. Accordingly, all shares
and per share amounts have been adjusted retroactively to reflect this event.

Unaudited Interim Financial Statements. The unaudited interim financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission and generally accepted accounting principles
applicable to interim financial statements and include all adjustments which
are, in the

F-11
<PAGE>

EXTENDED STAY AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
opinion of management, necessary for a fair presentation of the results for the
interim periods presented. All such adjustments are, in the opinion of
management, of a normal recurring nature. Results for the three months ended
March 31, 1995 and 1996 are not necessarily indicative of results to be
expected for a full year. All data at March 31, 1995 and 1996 and for each of
the three-month periods then ended are unaudited.

NOTE 3--PROPERTY AND EQUIPMENT

Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER
31, 1995
<S> <C>
Land and improvements, including land under current
development................................................ $ 9,074,172
Buildings and improvements.................................. 5,350,107
Furniture, fixtures and equipment........................... 1,197,481
Construction in progress.................................... 2,714,629
-----------
18,336,389
Less accumulated depreciation............................... 130,852
-----------
Total property and equipment............................ $18,205,537
===========
</TABLE>

The Company had commitments to construct additional extended stay properties
totaling approximately $23,000,000 at December 31, 1995.

NOTE 4--OPTIONS TO PURCHASE PROPERTY SITES

As of December 31, 1995, the Company had options to purchase parcels of real
estate at 32 locations in 14 states. The Company has paid $710,000 in
connection with these options. If for any reason the Company does not acquire
these parcels, the amounts paid in connection with the options are generally
refundable. These amounts are included in site deposits and preacquisition
costs.

NOTE 5--ACQUISITION OF EXTENDED STAY PROPERTIES

On August 18, 1995 the Company acquired an existing extended stay property
from Welcome Inn America 89-1, L.P. for $4,042,346 which was paid for by the
issuance of 357,000 shares of common stock valued at $1,700,000 and payment of
$2,342,346 in cash.

On January 26, 1996, the Company acquired an existing extended stay property
from Apartment/Inn, L.P. for approximately $8,324,000 which was paid for by the
issuance of 293,629 shares of common stock plus the payment of related expenses
of approximately $106,000 in cash.

On February 23, 1996, the Company acquired two existing extended stay
properties from Hometown Inn I, LTD and Hometown Inn II, LTD for approximately
$9,603,000 which was paid for by the issuance of 428,608 shares of common stock
and $75,000 in cash plus the payment of related expenses of $175,000 in cash.
(Unaudited)

These acquisitions were accounted for using the purchase method of accounting
and, accordingly, the results of operations of the properties are included in
the Consolidated Statement of Operations from the dates of acquisition.

F-12
<PAGE>

EXTENDED STAY AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following unaudited pro forma condensed statements of operations of the
Company have been updated to include all acquisitions occurring through March
31, 1996, as discussed above, and the issuance of shares to acquire and to fund
the cash portion of the purchase prices as if the acquisitions had occurred on
January 9, 1995 (the date of inception of the Company). Accordingly, the
unaudited pro forma statement of operations for the period January 9, 1995
through December 31, 1995 differs from the statement included in the Company's
1995 annual report to shareholders. This statement also reflects estimated
incremental expenses to operate as a publicly held company as if the Company
were publicly held on the date of inception. This pro forma condensed statement
of operations is not necessarily indicative of what actual results of
operations of the Company would have been assuming such transactions had been
completed as of January 9, 1995, nor does it purport to represent the results
of operations for future periods.

<TABLE>
<CAPTION>
PRO FORMA FOR THE PERIOD FROM PRO FORMA FOR THE PERIOD FROM PRO FORMA FOR THE
JANUARY 9, 1995 JANUARY 9, 1995 THREE MONTHS
(INCEPTION) THROUGH (INCEPTION) THROUGH ENDED
DECEMBER 31, 1995 MARCH 31, 1995 MARCH 31, 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue:
Room revenue.......... $ 5,434,720 $1,128,223 $1,595,909
Other revenue......... 253,351 57,791 48,954
----------- ---------- ----------
Total revenue....... 5,688,071 1,186,014 1,644,863
----------- ---------- ----------
Costs and expenses:
Property operating
expenses............. 2,332,561 522,856 595,344
Corporate operating
and property
management expenses.. 3,144,491 473,658 1,619,616
Site selection costs.. 512,529 52,778 823,733
Depreciation and
amortization......... 881,514 213,486 258,780
----------- ---------- ----------
Total costs and
expenses........... 6,871,095 1,262,778 3,297,473
----------- ---------- ----------
Loss from
operations......... (1,183,024) (76,763) (1,652,610)
Interest income....... 848,510 1,450,132
----------- ---------- ----------
Net loss............ $ (334,514) $ (76,763) $ (202,478)
=========== ========== ==========
Net loss per common
share and
equivalent......... $ (0.02) $ (0.01) $ (0.01)
=========== ========== ==========
Weighted average
number of common
and equivalent
shares outstanding
during the period.. 13,589,464 12,493,366 22,853,092
=========== ========== ==========
</TABLE>

NOTE 6--NOTE PAYABLE

In conjunction with the acquisition of a property site, the Company issued a
note payable to the seller in the amount of $630,200. The note bore interest at
a rate of three percent per year and was paid on January 2, 1996. The note was
collateralized by a deed of trust on the property.

NOTE 7--PREFERRED STOCK

Shares of preferred stock may be issued from time to time, in one or more
series, as authorized by the Board of Directors. Prior to issuance of shares of
each series, the Board will designate for each such series, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption, as are permitted by law. No shares of preferred stock are
outstanding and the Company has no present plans to issue any shares of
preferred stock.

F-13
<PAGE>

EXTENDED STAY AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 8--STOCK OPTION PLANS

The Company has adopted the 1995 Employee Stock Option Plan to attract and
retain employees and consultants. Under the plan, options may be granted with
respect to a total of not more than 1,677,060 shares of common stock, subject
to antidilution and other adjustment provisions. No options may be granted
under the plan after August 18, 2005. The options vest over a four-year period.

During the period January 9, 1995 through December 31, 1995, the compensation
committee granted, under the plan, 1,132,501 ten-year options to purchase
common stock at exercise prices per share ranging from $4.76 to $13.00. The
option price is equal to the fair market value of the stock on the date of
grant, as determined by the Board of Directors. No options to purchase common
stock under the plan are currently exercisable.

During the period January 1, 1996 through March 31, 1996, the compensation
committee granted under the 1995 plan 544,372 additional options to purchase
common stock at exercise prices per share ranging from $21.00 to $30.25.
(Unaudited)

Pursuant to an agreement with an officer of ESA Development, Inc. ("ESA
Development"), such officer was granted options in June 1995 to purchase a
total of 1,437.5 shares of ESA Development common stock. In March 1996, the
agreement and options were terminated. (Unaudited)

The Company has adopted the 1995 Stock Option Plan for Non-Employee
Directors. Under the plan, options may be granted with respect to a total of
not more than 240,000 shares of common stock of the Company subject to the
antidilution and other adjustment provisions. Each option shall be for a term
of ten years and shall become exercisable six months after the date of its
grant. Options to purchase an aggregate of 80,000 shares of the Company's
common stock were granted to non-employee directors of the Company effective
upon the Company's initial public offering of its common stock on December 13,
1995 at an exercise price per share of $13.00 (the initial public offering
price). Pursuant to the plan, subsequent non-employee directors of the Company
will be granted a one-time option to purchase 20,000 shares of the Company's
common stock upon their initial election to the Board of Directors of the
Company at a price equal to the fair market value of the stock on the date of
grant. During the four-year period following the initial election of a non-
employee director to the Board of Directors, an additional option covering
5,000 shares of common stock of the Company shall be granted to such non-
employee director on each anniversary of such non-employee director's initial
option grant, provided that not more than four such additional options shall be
granted to any one non-employee director. No options may be granted under the
plan after November 17, 2005. As of December 31, 1995, no options to purchase
common stock under the plan were exercisable.

Effective January 24, 1996, the Company has adopted (subject to shareholder
approval) the 1996 Employee Stock Option Plan to attract and retain employees
and consultants. Under the plan, options may be granted with respect to a total
of not more than 2,500,000 shares of common stock, subject to antidilution and
other adjustment provisions. No options may be granted under the plan after
January 24, 2006. The options vest over a four-year period.

During the period January 1, 1996 through March 31, 1996, the compensation
committee granted under the 1996 plan 679,385 options to purchase common stock
at exercise prices per share ranging from $21.00 to $25.88 under this plan.
(Unaudited)

NOTE 9--MORTGAGE FACILITY

On October 31, 1995, the Company executed a mortgage facility (the "Mortgage
Facility") for up to $200 million to be used to finance, on a long-term basis,
newly constructed extended stay lodging facilities.

F-14
<PAGE>

EXTENDED STAY AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Mortgage Facility provides that after the first $100 million of borrowings,
the availability of the next $60 million is contingent upon (1) the Company's
operating facilities meeting certain debt coverage ratios, and (2) the
successful completion of an initial public offering of the Company's common
stock which was completed on December 19, 1995. An additional $40 million will
become available at the option of the Company, subject to the Company having at
least 10 facilities which meet certain debt coverage ratios. Draws under the
Mortgage Facility will be made on an individual property basis in amounts
ranging from 50% to 75% of construction costs, depending on the operating
results of the individual property. The Mortgage Facility provides for the
following fees to be paid by the Company: (1) a commitment fee, $1,600,000 of
which was paid pursuant to the execution of the Mortgage Facility $400,000 of
which will be paid if the availability under the Mortgage Facility is
increased; (2) a drawdown fee of 1% of the funds loaned under the Mortgage
Facility; and (3) a fee paid by the issuance of 750,540 shares of common stock
of the Company at the time the Mortgage Facility was executed. These fees,
which include the estimated fair market value of the common stock issued to the
lender, will be amortized over the life of the Mortgage Facility using the
effective yield method, thus increasing the effective interest rate above the
stated interest rate discussed below. Additionally, the lender was provided the
right, which it has exercised, to purchase 500,430 shares of common stock at a
price of $4.76 per share upon the execution of the Mortgage Facility. The
Mortgage Facility also provides for additional fees in the event of termination
or nonusage of amounts in excess of $100 million of up to 2.0% of the portion
of the facility so terminated or unused. All amounts borrowed under the
Mortgage Facility will be fully guaranteed by the Company and will be
collateralized by, among other things, first mortgages on the properties
financed and assignment of leases, rents and security deposits related to each
property. The amounts drawn under the Mortgage Facility will bear interest at a
base rate equal to the ten-year U.S. Treasury securities rate plus 4.0% at the
times the loans are made. Advances under the Mortgage Facility will be provided
on an interest only basis for a pre-stabilization period and will be amortized
based on a 25-year schedule thereafter with a final maturity on the December 31
following the tenth anniversary of the date that the loan begins to amortize.

Prepayment of mortgage loans may be made subject to specified penalties
provided certain conditions are met. Such prepayments may be made without
penalty within five years of their respective final maturity dates. The
Mortgage Facility provides that the Company must maintain a tangible net worth
of not less than $40,000,000 and amounts due under the Mortgage Facility may at
any time become immediately due and payable if the current members of the Board
of Directors cease to constitute a majority of the board. The Company must
place $22,500,000 in an escrow account in the name of the lender prior to
obtaining the first loan and an additional $22,500,000 once the loan amount
exceeds $33,750,000. Funds deposited in the escrow account will be classified
as noncurrent and will be used to acquire and construct extended stay lodging
facilities. The loan also requires the Company to fund certain other escrow
accounts. The Company's dividends cannot exceed 50% of the excess of its net
income for any period over its cumulative losses not previously applied in
computing the limitation.

The Company believes that there is no material difference in the carrying
amount (including the terms and conditions outlined above) and estimated fair
value of the Company's Mortgage Facility.

NOTE 10--RELATED PARTY TRANSACTIONS

During the period ended December 31, 1995, the Company borrowed under an
informal revolving loan agreement from shareholders and their affiliates, which
was paid on August 18, 1995. The maximum amount outstanding during the period
was approximately $4,476,000. Interest payments of approximately $92,000 were
made on the loans from shareholders and their affiliates, all of which were
capitalized and included in the cost of buildings and improvements.

F-15
<PAGE>

EXTENDED STAY AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company leases office space on a month-to-month basis from a company on
whose board the Chief Executive Officer of the Company serves. The Company
recognized rent expense of $18,000 through December 31, 1995 related to this
lease. In addition, the Company leases office space on a month-to-month basis
from a company owned by the Chairman of the Board of the Company. The Company
recognized rent expense of $15,000 through December 31, 1995 related to this
lease.

During 1995, the Company incurred charges of approximately $412,000 from a
company controlled by a shareholder for the use of airplanes, including
$133,000 in amounts due to related parties at December 31, 1995. Approximately
$70,000 of such charges were incurred in connection with the Company's initial
public offering and approximately $342,000 is included in corporate operating
and property management expenses. Approximately $126,000 in charges were
incurred from a law firm, one of the partners of which is a director of the
Company. Substantially all of such charges were incurred in connection with the
Company's organization, initial public offering and obtaining the Mortgage
Facility.

The Company acquired a property site for approximately $562,000 in cash from
a partnership in which certain shareholders are partners during 1995.

NOTE 11--INCOME TAXES

The Company adopted SFAS 109 upon inception. Under the provisions of SFAS
109, there was no income tax expense on the net loss for the period ended
December 31, 1995. Accordingly, there is no current nor deferred federal or
state income tax expense in the initial period.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 are presented below:

<TABLE>
<S> <C>
Deferred tax assets:
Start up expenses capitalized for tax......................... $242,000
Net operating loss carryforward............................... 155,000
Other......................................................... 78,000
--------
Total gross deferred tax asset.............................. 475,000
Less valuation allowance........................................ (453,000)
--------
Net deferred tax asset...................................... 22,000
--------
Deferred tax liability:
Fixed assets, due to differences in depreciation.............. (22,000)
--------
Net deferred tax liability.................................. $ -0-
========
</TABLE>

A valuation allowance of $453,000 was established in the Company's initial
period. The Company believes the reversal of existing taxable temporary
differences will be sufficient to recognize the remaining deferred tax assets.
At December 31, 1995, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $450,000, which are available to
offset future federal taxable income, if any, through 2010.

No income taxes were paid during the period January 9, 1995 through December
31, 1995.

NOTE 12--INITIAL PUBLIC OFFERING

On December 19, 1995, the Company closed an initial public offering of
5,060,000 shares of its common stock at a public offering price of $13.00 per
share and a concurrent offering to existing shareholders of

F-16
<PAGE>

2,067,825 shares of common stock at an offering price of $12.09 per share,
being the initial public offering price per share less the underwriting
discounts and commissions. The proceeds to the Company of such offerings were
approximately $85,275,000, net of estimated offering expenses.

NOTE 13--EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

The FASB has also issued Statement No. 123 ("SFAS 123") "Accounting for
Stock-Based Compensation", effective for fiscal years beginning after December
15, 1995. Under SFAS 123, companies are encouraged but not required to
recognize compensation expense for grants of stock, stock options, and other
equity instruments to employees based on fair value accounting rules. Companies
that choose not to record compensation expense under the new rules will be
required to disclose pro forma net income and earnings per share under the new
method. The Company has not yet determined the financial statement impact of
SFAS 123 and has elected not to recognize the impact of this pronouncement in
its fiscal 1995 statement of operations, but will disclose as required in the
fiscal 1996 financial statements on a comparative basis the effect of SFAS 123
on net income and earnings per share.

NOTE 14--SUBSEQUENT EVENTS (UNAUDITED)

On May 1, 1996, the Company entered into an agreement to acquire a
traditional lodging facility, which the Company intends to remodel, for a
purchase price of approximately $3.0 million. The Company expects to pay the
purchase price by delivering shares of Common Stock. Consummation of the
proposed acquisition is subject to a number of conditions.

On May 9, 1996, the Board of Directors of the Company declared a dividend of
one additional share of Common Stock for each share issued as of the close of
business on July 5, 1996, to be distributed on July 19, 1996, thereby effecting
a 2-for-1 stock split. The accompanying financial statements have not been
retroactively restated. Net loss per common share for the periods presented on
the statements of operations would be one-half of the amounts currently
reflected.

On May 10, 1996, the Company acquired a 59-room extended stay lodging
facility and adjacent land for a purchase price of approximately $3.3 million
in cash. This acquisition was accounted for using the purchase method of
accounting.

On May 17, 1996, the Company entered into a credit facility agreement which
provides up to $300 million in mortgage financing, subject to certain
conditions and limitations, for completed facilities.

On May 24, 1996, the Company reduced the size of an existing mortgage
facility from $200 million to $100 million.

On June 25, 1996, the Company acquired for 172,100 shares of Common Stock and
approximately $23,000 in cash, an extended stay lodging facility. This
acquisition was accounted for using the purchase method of accounting.

On June 26, 1996, the Company entered into agreements to acquire four
extended stay lodging facilities. In addition to assuming liability for certain
leases of personal property, the Company expects to issue 1,138,000 shares of
Common Stock as consideration for these acquisitions. Consummation of these
acquisitions is subject to a number of conditions.

The Company entered into (i) a 10-year lease for a suite at Joe Robbie
Stadium for a base rental of $115,000 per year, subject to certain additional
charges and periodic escalation, and (ii) a three-year lease for a suite at
Homestead Motor Sports Complex for a base rental of $53,250 per year, subject
to certain additional charges. The Chairman of the Company's Board of Directors
owns Joe Robbie Stadium and has an approximately 50% interest in Homestead
Motor Sports Complex.

F-17
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida

We have audited the accompanying statements of operations, partners' deficit
and cash flows of Welcome Inn America 89-1, L.P. for each of the two years
ended December 31, 1994 and the period from January 1, 1995 through August 18,
1995. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of Welcome Inn America 89-1, L.P. operations
and its cash flows for each of the two years in the period ended December 31,
1994 and the period from January 1, 1995 through August 18, 1995 in conformity
with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Spartanburg, South Carolina
October 16, 1995

F-18
<PAGE>

WELCOME INN AMERICA 89-1, L.P.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED PERIOD FROM
DECEMBER 31, JANUARY 1, 1995
-------------------- THROUGH
1993 1994 AUGUST 18, 1995
<S> <C> <C> <C>
Revenue:
Room revenue............................. $927,593 $1,009,872 $670,954
Other, net............................... 71,778 69,415 41,883
-------- ---------- --------
Total revenue.......................... 999,371 1,079,287 712,837
-------- ---------- --------
Costs and expenses:
Property operating expenses.............. 452,951 495,182 322,337
Property management fees to partners..... 104,051 66,564 44,880
Depreciation and amortization............ 138,987 141,362 95,546
-------- ---------- --------
Total costs and expenses............... 695,989 703,108 462,763
-------- ---------- --------
Income from operations................. 303,382 376,179 250,074
Interest expense:
Bank..................................... 185,518 211,607 184,226
Partners................................. 196,788 149,032 87,926
-------- ---------- --------
Total interest expense................. 382,306 360,639 272,152
-------- ---------- --------
Net income (loss)...................... $(78,924) $ 15,540 $(22,078)
======== ========== ========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-19
<PAGE>

WELCOME INN AMERICA 89-1, L.P.

STATEMENTS OF PARTNERS' DEFICIT
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 1994
AND THE PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 18, 1995

<TABLE>
<S> <C>
Balance, January 1, 1993............................................ $(611,817)
Net loss............................................................ (78,924)
---------
Balance, December 31, 1993.......................................... (690,741)
Net income.......................................................... 15,540
---------
Balance, December 31, 1994.......................................... (675,201)
Net loss............................................................ (22,078)
---------
Balance, August 18, 1995............................................ $(697,279)
=========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-20
<PAGE>

WELCOME INN AMERICA 89-1, L.P.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED DECEMBER PERIOD FROM
31, JANUARY 1, 1995
---------------------- THROUGH
1993 1994 AUGUST 18, 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $ (78,924) $ 15,540 $(22,078)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation......................... 126,110 127,456 86,760
Amortization......................... 12,877 13,906 8,786
Change in:
Accounts receivable................. 106 (7,115) 117
Other current assets................ (496) (2,851) 5,672
Accounts payable.................... 3,737 (3,801) 43,481
Accrued expenses.................... 8,361 (1,483) (17,350)
Accrued interest.................... (68,493) (112,629) 79,628
Accrued salaries.................... (1,625) 496 (10,338)
--------- ----------- --------
Net cash provided by operating
activities............................ 1,653 29,519 174,678
--------- ----------- --------
Cash flows from investing activities:
Expenditures for buildings and
improvements......................... (30,547) (660)
Purchases of furniture, fixtures and
equipment............................ (5,052) (31,921)
--------- ----------- --------
Net cash used in investing activities.. (35,599) (660) (31,921)
--------- ----------- --------
Cash flows from financing activities:
Proceeds from long-term debt.......... 2,500,000
Proceeds from notes payable to
partners............................. 260,000
Principal payments on long-term debt.. (209,333) (1,874,667) (96,000)
Principal payments on notes payable to
partners............................. (693,781)
Additions to deferred loan costs...... (18,000)
--------- ----------- --------
Net cash provided by (used in)
financing activities.................. 32,667 (68,448) (96,000)
--------- ----------- --------
Net increase (decrease) in cash........ (1,279) (39,589) 46,757
Cash at beginning of periods........... 123,676 122,397 82,808
--------- ----------- --------
Cash at end of periods................. $ 122,397 $ 82,808 $129,565
========= =========== ========
Supplemental cash flow disclosure,
interest paid......................... $ 450,799 $ 473,268 $192,524
========= =========== ========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-21
<PAGE>

WELCOME INN AMERICA 89-1, L.P.

NOTES TO FINANCIAL STATEMENTS

NOTE 1--ORGANIZATION

Welcome Inn America 89-1, L.P. (the "Partnership") is a Georgia limited
partnership that operates an extended stay facility (formerly known as the
"Welcome Inn") in Marietta, Georgia.

On August 18, 1995, the Partnership's extended stay facility was acquired by
Extended Stay America, Inc. (the "Company"). In order to present comparable
results of operations and cash flows of the Partnership, the accompanying
financial statements represent the historical results of operations and cash
flows of the Partnership through August 18, 1995, immediately prior to the
acquisition by the Company. Accordingly, any gain or loss on the sale of assets
to the Company has not been recognized in the accompanying financial
statements.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Property and Equipment. Property and equipment is stated at cost.

The lives on the assets are as follows:

<TABLE>
<S> <C>
Buildings and improvements....................................... 40 years
Furniture, fixtures and equipment................................ 7 years
</TABLE>

Deferred Loan Costs. The Partnership has incurred costs in obtaining
financing. These costs have been deferred and are being amortized over the life
of the respective loans using the effective yield method.

Income Taxes. Any income taxes related to income earned by the Partnership
are paid by the partners.

Revenue Recognition. Room revenue and other income are recognized when
earned.

NOTE 3--LONG-TERM DEBT

Interest expense related to long-term debt consisting of mortgages held by
various banks and partners. Certain notes have variable rates of interest tied
to various commonly used indices.

The following is a summary of long-term debt on which interest expense was
incurred:

<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Note payable to a bank paid in August 1995............ $2,416,000
Note payable to a bank paid in 1994................... $1,790,667
Note payable to a partner, bearing interest at twelve
percent per year...................................... 1,716,191 1,022,410
---------- ----------
$3,506,858 $3,438,410
========== ==========
</TABLE>

NOTE 4--RELATED PARTY TRANSACTIONS

Management fees and interest charged by partners are as follows:

<TABLE>
<CAPTION>
MANAGEMENT INTEREST
FEES EXPENSE
<S> <C> <C>
1993.................................................... $104,051 $196,788
1994.................................................... 66,564 149,032
Period from January 1, 1995 to August 18, 1995.......... 44,880 87,926
</TABLE>

Management fees in 1993 included a one time bonus payment to a partner of
approximately $42,000.

F-22
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida

We have audited the accompanying balance sheets of Apartment/Inn, L.P. as of
December 31, 1994 and 1995, and the related statements of operations and
partners' deficit and cash flows for each of the two years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Apartment/Inn, L.P. at
December 31, 1994 and 1995 and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Spartanburg, South Carolina
January 26, 1996

F-23
<PAGE>

APARTMENT/INN, L.P.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 379,272 $ 73,407
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$10,933 in 1994 and $14,627 in 1995................ 19,268 25,448
Related parties..................................... 16,568 68,826
Refundable property taxes............................. 20,062
Other current assets.................................. 3,937 3,142
---------- ----------
Total current assets.............................. 419,045 190,885
---------- ----------
Property and equipment, net............................. 2,855,407 2,718,312
Other assets............................................ 13,845 9,502
---------- ----------
$3,288,297 $2,918,699
========== ==========
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT
<S> <C> <C>
Current liabilities:
Accounts payable...................................... $ 27,982 $ 18,292
Accrued salaries...................................... 4,023 5,216
Accrued interest...................................... 26,800 26,800
Other accrued expenses................................ 28,552 17,272
Current maturities of long-term debt.................. 224,773 163,475
---------- ----------
Total current liabilities......................... 312,130 231,055
---------- ----------
Long-term debt.......................................... 3,230,201 3,022,197
---------- ----------
Total liabilities..................................... 3,542,331 3,253,252
---------- ----------
Partners' deficit....................................... (254,034) (334,553)
---------- ----------
$3,288,297 $2,918,699
========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-24
<PAGE>

APARTMENT/INN, L.P.

STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIT

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
1994 1995
<S> <C> <C>
Revenue:
Room revenue......................................... $1,696,763 $1,820,680
Other, net........................................... 77,735 76,909
---------- ----------
Total revenue...................................... 1,774,498 1,897,589
---------- ----------
Costs and expenses:
Property operating expenses.......................... 745,434 755,176
Property management fees to partners................. 106,059 113,215
Depreciation and amortization........................ 202,568 173,936
---------- ----------
Total costs and expenses........................... 1,054,061 1,042,327
---------- ----------
Income from operations............................... 720,437 855,262
Interest expense....................................... 418,758 394,413
---------- ----------
Net income........................................... 301,679 460,849
Partners' deficit, beginning of year................... (467,793) (254,034)
Distributions........................................ (87,920) (541,368)
---------- ----------
Partners' deficit, end of year......................... $ (254,034) $ (334,553)
========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-25
<PAGE>

APARTMENT/INN, L.P.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
------------------
1994 1995
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $301,679 $460,849
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................. 163,775 169,593
Amortization............................................. 38,793 4,343
Change in:
Accounts receivable..................................... (4,433) (58,438)
Refundable property taxes............................... (20,062)
Other current assets.................................... 10,755 795
Accounts payable........................................ 11,621 (9,690)
Accrued expenses........................................ 11,109 (11,280)
Accrued salaries........................................ 55 1,193
-------- --------
Net cash provided by operating activities.............. 533,354 537,303
-------- --------
Cash flows from investing activities:
Purchase of property and equipment........................ (29,333) (32,498)
-------- --------
Net cash used in investing activities.................. (29,333) (32,498)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt...................... (130,778) (269,302)
Payments of deferred loan costs........................... (5,234)
Distributions to partners................................. (87,920) (541,368)
-------- --------
Net cash used in financing activities.................. (223,932) (810,670)
-------- --------
Net increase (decrease) in cash............................ 280,089 (305,865)
-------- --------
Cash at beginning of periods............................... 99,183 379,272
-------- --------
Cash at end of periods..................................... $379,272 $ 73,407
======== ========
Supplemental cash flow disclosure, interest paid........... $418,758 $394,413
======== ========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-26
<PAGE>

APARTMENT/INN, L.P.

NOTES TO FINANCIAL STATEMENTS

NOTE 1--ORGANIZATION

Apartment/Inn, L.P. (the "Partnership") is a Georgia limited partnership that
operates an extended stay facility (known as the "Apartment Inn") in Norcross,
Georgia. On January 26, 1996, the Partnership's extended stay facility was
acquired by Extended Stay America, Inc.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Property and Equipment. Property and equipment is stated at cost.

The lives on the assets are as follows:

<TABLE>
<S> <C>
Buildings and improvements....................................... 40 years
Furniture, fixtures and equipment................................ 7 years
</TABLE>

Income Taxes. Any income taxes related to income earned by the Partnership
are paid by the partners.

Revenue Recognition. Room revenue and other income are recognized when
earned.

NOTE 3--PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:

<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Land............................................... $ 635,639 $ 635,639
Building and improvements.......................... 2,492,855 2,509,540
Furniture and fixtures............................. 671,287 687,100
---------- ----------
3,799,781 3,832,279
Less accumulated depreciation...................... 944,374 1,113,967
---------- ----------
$2,855,407 $2,718,312
========== ==========
</TABLE>

F-27
<PAGE>

APARTMENT/INN, L.P.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 4--LONG-TERM DEBT

<TABLE>
<CAPTION>
Long-term debt consists of the following as of December
31: 1994 1995
<S> <C> <C>
Mortgage loan, principal and interest payable $44,529
monthly with a final balloon payment due June 1997,
interest at 12%....................................... $3,322,879 $3,137,376
Mortgage loan, principal and interest payable $6,000
monthly through August 1996, interest at 18%.......... 111,462 45,145
Other.................................................. 20,633 3,151
---------- ----------
3,454,974 3,185,672
Less current maturities................................ (224,773) (163,475)
---------- ----------
Long term debt, net of current maturities.............. $3,230,201 $3,022,197
========== ==========
</TABLE>

The mortgage loans are collateralized by substantially all of the
Partnership's property and equipment. Aggregate maturities of long term debt
are as follows: 1996--$163,475; 1997--$3,022,197.

The Partnership believes that there is no material difference in the carrying
amount and estimated fair value of the Partnership's long-term debt, since all
of it matures on or prior to June 1997.

NOTE 5--RELATED PARTY TRANSACTIONS

Management fees charged by and room revenue charged to a company controlled
by a partner are as follows:

<TABLE>
<CAPTION>
MANAGEMENT ROOM
FEES REVENUE
<S> <C> <C>
1994................................................... $106,059 $ --
1995................................................... 113,215 45,607
</TABLE>

F-28
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida

We have audited the accompanying combined balance sheets of Hometown Inn I,
LTD and Hometown Inn II, LTD (the "Partnerships") as of December 31, 1994 and
1995, and the related combined statements of operations and partners' capital
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Hometown Inn I, LTD
and Hometown Inn II, LTD at December 31, 1994 and 1995 and the combined results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Spartanburg, South Carolina
February 23, 1996

F-29
<PAGE>

HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
ASSETS 1994 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 177,079 $ 362,357
Accounts receivable, net of allowance for doubtful
accounts of $3,813 in 1994 and $7,686 in 1995.......... 3,751 32,260
Supply inventories...................................... 26,660 26,660
Advance to affiliate.................................... 91,938
Other current assets.................................... 2,913
---------- ----------
Total current assets.................................. 207,490 516,128
Property and equipment, net............................... 4,966,202 4,964,094
Other assets.............................................. 7,000 17,733
---------- ----------
$5,180,692 $5,497,955
========== ==========
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C>
Current liabilities:
Accounts payable........................................ $ 15,801 $ 29,912
Accrued expenses........................................ 75,304 60,274
Deposits................................................ 19,660 161,970
Advances from affiliates................................ 159,120 204,120
Current maturities of long-term debt.................... 117,903 185,949
---------- ----------
Total current liabilities............................. 387,788 642,225
Long-term debt............................................ 1,483,324 1,529,874
---------- ----------
Total liabilities..................................... 1,871,112 2,172,099
Partners' capital......................................... 3,309,580 3,325,856
---------- ----------
$5,180,692 $5,497,955
========== ==========
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

F-30
<PAGE>

HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD

COMBINED STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
<S> <C> <C> <C>
Revenue:
Room revenue............................. $1,802,707 $2,123,589 $2,234,569
Other, net............................... 84,679 99,719 96,617
---------- ---------- ----------
Total revenue.......................... 1,887,386 2,223,308 2,331,186
---------- ---------- ----------
Costs and expenses:
Property operating expenses.............. 1,074,103 1,143,716 989,337
Property management fees to related
party................................... 105,600 105,600 144,357
Depreciation and amortization............ 229,142 232,632 244,603
---------- ---------- ----------
Total costs and expenses............... 1,408,845 1,481,948 1,378,297
---------- ---------- ----------
Income from operations..................... 478,541 741,360 952,889
Interest expense........................... 131,848 137,532 170,232
---------- ---------- ----------
Net income............................. 346,693 603,828 782,657
Partners' capital, beginning of year....... 3,538,770 3,455,553 3,309,580
Distributions............................ (429,910) (749,801) (766,381)
---------- ---------- ----------
Partners' capital, end of year............. $3,455,553 $3,309,580 $3,325,856
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

F-31
<PAGE>

HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
-------------------------------
1993 1994 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 346,693 $ 603,828 $ 782,657
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.............................. 229,142 232,632 243,056
Amortization.............................. 1,547
Change in:
Accounts receivable..................... 9,271 37,488 (28,509)
Other assets............................ (1,377) 1,377 (2,913)
Accounts payable........................ 944 (26,506) 14,111
Deposits................................ 3,927 8,833 142,310
Accrued expenses........................ (10,763) 11,346 (15,030)
--------- --------- ---------
Net cash provided by operating activities... 577,837 868,998 1,137,229
--------- --------- ---------
Cash flows from investing activities,
purchases of property and equipment.......... (34,818) (41,384) (240,948)
--------- --------- ---------
Cash flows from financing activities:
Payments of deferred loan costs............. (12,280)
Advances to affiliates...................... (91,938)
Advances from affiliates.................... 73,650 85,470 45,000
Principal payments on long-term debt........ (97,549) (130,956) (130,404)
Proceeds from issuance of long-term debt.... 245,000
Distributions to partners................... (429,910) (749,801) (766,381)
--------- --------- ---------
Net cash used in financing activities. (453,809) (795,287) (711,003)
--------- --------- ---------
Net increase in cash.......................... 89,210 32,327 185,278
Cash at beginning of periods.................. 55,542 144,752 177,079
--------- --------- ---------
Cash at end of periods........................ $ 144,752 $ 177,079 $ 362,357
========= ========= =========
Supplemental cash flow disclosure, interest
paid......................................... $ 125,141 $ 136,809 $ 170,227
========= ========= =========
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

F-32
<PAGE>

HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation. The combined financial statements include the assets,
liabilities, capital and results of operations of two limited partnerships,
Hometown Inn I, LTD and Hometown Inn II, LTD. Where referred to herein, the
"Partnerships" include the two entities listed above. All significant
intercompany accounts and transactions have been eliminated.

Description of Business. The Partnerships operate two extended stay
facilities in Norcross, Georgia and Riverdale, Georgia. On February 23, 1996,
the Partnerships' extended stay facilities were acquired by Extended Stay
America, Inc.

Pervasiveness of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Concentration of Credit Risk. The Partnerships maintained deposits totalling
$362,357 at December 31, 1995 with one bank. Deposits in excess of $100,000 are
not insured by the Federal Deposit Insurance Corporation.

Cash and cash equivalents. Cash and cash equivalents consist of cash on hand
and on deposit, and highly liquid instruments with maturities of three months
or less when purchased. The carrying amount of cash and cash equivalents is the
estimated fair value at December 31, 1995.

Supply Inventory. Supply inventories consist primarily of linen, cleaning and
other room supplies and are stated at the lower of cost or market.

Property and Equipment. Property and equipment is stated at cost.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets. Maintenance and repairs are charged to operations as
incurred; major renewals and improvements are capitalized. The gain or loss on
the disposition of property and equipment is recorded in the year of
disposition.

The estimated useful lives on the assets are as follows:

<TABLE>
<S> <C>
Buildings and improvements...................................... 40 years
Furniture, fixtures and equipment............................... 5-7 years
</TABLE>

Deferred Loan Costs. The Partnerships have incurred costs in obtaining
financing. These costs have been deferred and are being amortized over the life
of the respective loan using the effective yield method. Deferred loan costs
are included in other assets.

Income Taxes. Any income taxes related to income earned by the Partnerships
are paid by the partners.

Revenue Recognition. Room revenue and other income are recognized when
earned. Prepayments and deposits are recorded as unearned revenue.

2. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following at December 31:

<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Land............................................ $ 646,007 $ 646,007
Building and improvements....................... 4,893,161 4,893,161
Furniture and fixtures.......................... 785,355 1,006,213
----------- -----------
6,324,523 6,545,381
Less accumulated depreciation................... (1,358,321) (1,581,287)
----------- -----------
$ 4,966,202 $ 4,964,094
=========== ===========
</TABLE>

F-33
<PAGE>

HOMETOWN INN I, LTD AND HOMETOWN INN II, LTD

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

3. LONG-TERM DEBT:

<TABLE>
<CAPTION>
1994 1995
Long-term debt consists of the following as of December
31:
<S> <C> <C>
Mortgage loan, principal and interest payable monthly at
approximately $23,000 through January 1997, interest at
prime plus 1%........................................... $1,601,227 $1,483,325
Mortgage loan principal and interest payable monthly at
approximately $5,300 through August 2000, interest at
11%..................................................... 232,498
---------- ----------
1,601,227 1,715,823
Less current maturities.................................. 117,903 185,949
---------- ----------
Long-term debt, net of current maturities................ $1,483,324 $1,529,874
========== ==========
</TABLE>

The mortgage loans are collateralized by substantially all of the
Partnerships' property and equipment. Aggregate maturities of long term debt
are as follows: 1996--$185,949; 1997--$1,382,719; 1998--$50,217; 1999--$56,028;
2000--$40,910.

The Partnerships believe that there is no material difference in the carrying
amount and estimated fair value of the long-term debt.

4. RELATED PARTY TRANSACTIONS:

Management fees are charged by a related entity controlled by the partners
and advances are made to and taken by the related entity from the Partnerships
as follows:

<TABLE>
<CAPTION>
MANAGEMENT ADVANCES TO ADVANCES FROM
FEES RELATED ENTITY RELATED ENTITY
<S> <C> <C> <C>
1993............................. $105,600 $ $ 73,650
1994............................. 105,600 159,120
1995............................. 144,357 91,938 204,120
</TABLE>

F-34
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida

We have audited the accompanying balance sheet of Kipling Hospitality
Enterprise Corporation as of December 31, 1995 and the related statements of
operations and retained earnings and cash flows for the year then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kipling Hospitality Enterprise
Corporation at December 31, 1995 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Spartanburg, South Carolina
May 4, 1996

F-35
<PAGE>

KIPLING HOSPITALITY ENTERPRISE CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
ASSETS ------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 37,728 $ 40,136
Accounts receivable................................. 24,058 21,255
Supply inventories.................................. 40,338 40,338
Prepaid and other current assets.................... 32,425 5,314
---------- ----------
Total current assets.............................. 134,549 107,043
---------- ----------
Property and equipment, net........................... 1,468,171 1,454,178
Deferred loan costs, net.............................. 9,797 8,327
---------- ----------
$1,612,517 $1,569,548
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable.................................... $ 40,758 $ 15,730
Accrued salaries and related expenses............... 16,152 15,537
Accrued property taxes.............................. 31,350 39,475
Accrued expenses.................................... 14,136 7,406
Deferred revenue.................................... 7,062 9,499
Note payable to related party....................... 33,486 33,486
Note payable to former shareholder.................. 80,000 80,000
Current maturities of long-term debt................ 63,437 64,454
---------- ----------
Total current liabilities......................... 286,381 265,587
---------- ----------
Long-term debt........................................ 1,116,934 1,105,358
---------- ----------
Total liabilities................................. 1,403,315 1,370,945
---------- ----------
Shareholder's Equity:
Common stock, $2 par value, 100,000 shares
authorized, 87,000 shares issued and outstanding... 174,000 174,000
Additional paid in capital.......................... 30,270 30,270
Due from affiliated companies and prepaid services.. (515,053) (521,395)
Retained earnings................................... 519,985 515,728
---------- ----------
209,202 198,603
---------- ----------
$1,612,517 $1,569,548
========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-36
<PAGE>

KIPLING HOSPITALITY ENTERPRISE CORPORATION

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
FOR THE FOR THE
FOR THE THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1995 1995 1996
------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue:
Room revenue.......................... $1,255,118 $273,374 $231,426
Telephone income...................... 47,426 11,740 7,595
Other, net............................ 22,075 5,592 5,702
---------- -------- --------
Total revenue....................... 1,324,619 290,706 244,723
---------- -------- --------
Costs and expenses:
Property operating expenses........... 736,994 165,893 167,465
Management salaries................... 53,269 11,013 6,787
Franchise expense..................... 58,093 12,348 11,260
Depreciation and amortization......... 89,018 16,634 18,132
---------- -------- --------
Total costs and expenses............ 937,374 205,888 203,644
---------- -------- --------
Income from operations.................. 387,245 84,818 41,079
Other income (expense):
Loss on sale of property and
equipment............................ (20,774)
Interest income....................... 20,287 66 76
Interest expense...................... (139,298) (34,788) (31,912)
---------- -------- --------
Net income.......................... 247,460 50,096 9,243
Retained earnings, beginning of period.. 374,996 374,996 519,985
Dividends............................. (102,471) (13,500)
---------- -------- --------
Retained earnings, end of period........ $ 519,985 $425,092 $515,728
========== ======== ========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-37
<PAGE>

KIPLING HOSPITALITY ENTERPRISE CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1995 1995 1996
------------ ------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income................ $247,460 $ 50,096 $ 9,243
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation............ 74,140 15,164 16,662
Amortization............ 14,878 1,470 1,470
Loss on sale of property
and equipment.......... 20,744
Change in:
Accounts receivable..... 6,398 4,021 2,804
Prepaid and other
current assets......... (31,709) 1 27,111
Accounts payable........ 8,996 (15,584) (25,028)
Accrued expenses........ (1,259) 28,159 3,217
-------- -------- --------
Net cash provided by
operating activities. 339,648 83,327 35,479
-------- -------- --------
Cash flows from investing
activities:
Purchases of property and
equipment................ (72,240) (41,216) (2,670)
Proceeds from sale of
property and equipment... 13,779
-------- -------- --------
Net cash used in
investing activities. (58,461) (41,216) (2,670)
-------- -------- --------
Cash flows from financing
activities:
Advances to affiliated
companies................ (46,434) (6,342)
Advances from affiliated
companies................ 4,988
Principal payments on
long-term debt........... (124,345) (9,693) (10,559)
Proceeds from issuance of
long-term debt........... 10,065
Dividends................. (102,471) (13,500)
-------- -------- --------
Net cash used in
financing activities. (263,185) (4,705) (30,401)
-------- -------- --------
Net increase in cash........ 18,002 37,406 2,408
Cash at beginning of period. 19,726 19,726 37,728
-------- -------- --------
Cash at end of period....... $ 37,728 $ 57,132 $ 40,136
======== ======== ========
Noncash financing
transaction, prepaid
services to former
shareholder................ $ 80,000
========
Supplemental cash flow
disclosure, interest paid.. $149,804 $ 34,995 $ 37,612
======== ======== ========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-38
<PAGE>

KIPLING HOSPITALITY ENTERPRISE CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Description of Business. Kipling Hospitality Enterprise Corporation (the
"Company") operates a franchise hospitality property in Lakewood, Colorado. In
1996, the Company entered into an agreement to sell its hospitality property
and equipment to Extended Stay America, Inc.

Pervasiveness of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Supply Inventory. Supply inventories consist primarily of linen, cleaning and
other room supplies and are stated at the lower of cost or market.

Property and Equipment. Property and equipment is stated at cost.

Depreciation is computed using straight-line and accelerated methods over the
estimated useful lives of the assets. Maintenance and repairs are charged to
operations as incurred; major renewals and improvements are capitalized. The
gain or loss on the disposition of property and equipment is recorded in the
year of disposition.

The lives on the assets are as follows:

<TABLE>
<S> <C>
Building and improvements........................................ 40 years
Furniture, fixtures and equipment................................ 7 years
</TABLE>

Franchise Fee. Franchise fee is stated at cost and is amortized on a
straight-line basis over the period of the franchise agreement.

Income Taxes. The Company's shareholder elected that the Company be subject
to S Corporation regulations under the Internal Revenue Code. As such, the
shareholder is liable for federal and state income taxes.

Deferred Loan Costs. The Company has incurred costs in obtaining financing.
The costs have been deferred and are being amortized on a straight-line basis
over the life of the respective loans.

Revenue Recognition. Room revenue and other income are recognized when
earned.

Unaudited Interim Financial Statements. The unaudited interim financial
statements have been prepared pursuant to generally accepted accounting
principles applicable to interim financial statements and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. All such
adjustments are, in the opinion of management, of a normal recurring nature.
Results for the three months ended March 31, 1995 and 1996 are not necessarily
indicative of results to be expected for a full year. All data at March 31,
1995 and 1996 and for each of the three-month periods then ended are unaudited.

F-39
<PAGE>

KIPLING HOSPITALITY ENTERPRISE CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

2. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following at December 31, 1995:

<TABLE>
<S> <C>
Land.......................................................... $ 539,000
Building and improvements..................................... 990,132
Furniture and fixtures........................................ 214,997
Transportation equipment...................................... 38,708
----------
1,782,837
Less accumulated depreciation................................. 314,666
----------
$1,468,171
==========
</TABLE>

3. LONG-TERM DEBT:

Long-term debt consists of the following as of December 31, 1995:

<TABLE>
<S> <C>
Mortgage loan, principal and interest payable at approximately
$13,450 monthly through September 1997, interest at the
bank's base rate (base rate was 9.75% at December 31, 1995)
plus 2%...................................................... $1,172,664
Other......................................................... 7,707
----------
1,180,371
Less current maturities....................................... 63,437
----------
Long-term debt, net of current maturities..................... $1,116,934
==========
</TABLE>

The mortgage loan is collateralized by substantially all of the Company's
property and equipment. Aggregate maturities of long-term debt are as follows:
1996--$63,437; 1997--$1,116,934.

The Company believes that there is no material difference in the carrying
amount and estimated fair value of the long-term debt.

4. NOTE PAYABLE TO FORMER SHAREHOLDER:

The Company entered into a note payable agreement on September 15, 1995 to
pay a former shareholder $100,000 to perform consulting, accounting, and
bookkeeping services over a five year period. The note bears interest at 7% and
is payable in five annual installments commencing on September 15, 1995.

5. RELATED PARTY TRANSACTIONS:

Certain members of the Company's management provide management services to
companies owned by the shareholder. The Company allocated approximately $45,000
of expenses to the affiliated companies in 1995 for providing these services.
Due from affiliated companies and prepaid services at December 31, 1995
consists of:

<TABLE>
<S> <C>
Advances to affiliated companies................................ $326,000
Prepaid services to former shareholder (Note 4)................. 80,000
Receivable for allocated management services.................... 109,053
--------
$515,053
========
</TABLE>

F-40
<PAGE>

KIPLING HOSPITALITY ENTERPRISE CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)

6. LITIGATION

From time to time, the Company has been involved in various legal
proceedings. Management believes that all such litigation is routine in nature
and incidental to the conduct of its business, and that none of such
litigation, if determined adversely to the Company, would have a material
adverse effect on the financial condition.

F-41
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida

We have audited the accompanying balance sheet of Apartment Inn
Partners/Gwinnett, L.P. as of December 31, 1995 and the related statements of
operations and partners' capital and cash flows for the year then ended. These
financial statements are the responsibility of the partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Apartment Inn
Partners/Gwinnett, L.P. at December 31, 1995 and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Spartanburg, South Carolina

June 25, 1996

F-42
<PAGE>

APARTMENT INN PARTNERS/GWINNETT, L.P.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
ASSETS ------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents. $ 238,871 $ 308,635
Accounts receivable....... 14,560 28,556
Supply inventories........ 32,950 32,950
Prepaid expenses.......... 2,198
---------- ----------
Total current assets.... 286,381 372,339
---------- ----------
Property and equipment, net. 2,651,717 2,631,082
Other assets................ 10,575 10,575
---------- ----------
$2,948,673 $3,013,996
========== ==========
<CAPTION>
LIABILITIES AND PARTNERS'
CAPITAL
<S> <C> <C>
Current liabilities:
Accounts payable.......... $ 5,666 $ 17,927
Accrued salaries and
related expenses......... 3,933 6,640
Other accrued expenses.... 24,601 28,496
Deferred revenue.......... 7,872 9,588
Current maturities of
long-term debt--related
party.................... 194,451 199,352
---------- ----------
Total current
liabilities............ 236,523 262,003
---------- ----------
Long-term debt--related
party...................... 2,387,119 2,335,405
---------- ----------
Total liabilities....... 2,623,642 2,597,408
---------- ----------
Partners' capital........... 325,031 416,588
---------- ----------
$2,948,673 $3,013,996
========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-43
<PAGE>

APARTMENT INN PARTNERS/GWINNETT, L.P.

STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL

<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1995 1995 1996
------------ ------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue:
Room revenue.............. $1,231,786 $296,835 $320,753
Other revenue............. 62,187 18,465 14,050
---------- -------- --------
Total revenue........... 1,293,973 315,300 334,803
---------- -------- --------
Costs and expenses:
Property operating
expenses................. 588,760 143,286 135,319
Management fees expense... 88,662 9,439 19,976
Depreciation and
amortization............. 109,636 25,971 23,800
---------- -------- --------
Total costs and
expenses............... 787,058 178,696 179,095
---------- -------- --------
Income from operations...... 506,915 136,604 155,708
Other expense:
Interest expense--related
party.................... 267,836 68,589 64,151
---------- -------- --------
Net income.............. 239,079 68,015 91,557
Partners' capital, beginning
of period.................. 85,952 85,952 325,031
---------- -------- --------
Partners' capital, end of
period..................... $ 325,031 $153,967 $416,588
========== ======== ========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-44
<PAGE>

APARTMENT INN PARTNERS/GWINNETT, L.P.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1995 1995 1996
------------ ------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income................ $239,079 $ 68,015 $ 91,557
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization........... 109,636 25,971 23,800
Change in:
Accounts receivable.... (2,391) (11,560) (13,996)
Prepaid and other
current assets........ 1,216 (569) (2,198)
Accounts payable....... (1,724) 9,975 12,261
Accrued expenses....... (5,844) 12,175 8,318
-------- -------- --------
Net cash provided by
operating activities. 339,972 104,007 119,742
-------- -------- --------
Cash flows from investing
activities:
Purchases of property and
equipment................ (8,577) (2,451) (3,165)
-------- -------- --------
Net cash used in
investing activities. (8,577) (2,451) (3,165)
-------- -------- --------
Cash flows from financing
activities:
Principal payments on
long-term debt--related
party.................... (176,019) (42,535) (46,813)
-------- -------- --------
Net cash used in
financing activities. (176,019) (42,535) (46,813)
-------- -------- --------
Net increase in cash........ 155,376 59,021 69,764
Cash at beginning of period. 83,495 83,495 238,871
-------- -------- --------
Cash at end of period....... $238,871 $142,516 $308,635
======== ======== ========
Supplemental cash flow
disclosure, interest paid.. $267,836 $ 68,589 $ 64,151
======== ======== ========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-45
<PAGE>

APARTMENT INN PARTNERS/GWINNETT, L.P.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Description of Business. Apartment Inn Partners/Gwinnett, L.P. (the
"Partnership") is a Georgia limited partnership that operates an extended stay
facility (known as the "Apartment Inn") in Lawrenceville, Georgia. On June 25,
1996, the Partnership's extended stay facility was acquired by Extended Stay
America, Inc.

Pervasiveness of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Supply Inventories. Supply inventories consist primarily of linen, cleaning
and other room supplies and are stated at the lower of cost or market.

Property and Equipment. Property and equipment is stated at cost.

The lives on the assets are as follows:

<TABLE>
<S> <C>
Building and improvements........................................ 39 years
Furniture, fixtures and equipment................................ 7 years
</TABLE>

Income Taxes. Any income taxes relating to income earned by the Partnership
are paid by the partners.

Revenue Recognition. Room revenue and other income are recognized when
earned.

Unaudited Interim Financial Statements. The unaudited interim financial
statements have been prepared pursuant to generally accepted accounting
principles applicable to interim financial statements and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. All such
adjustments are, in the opinion of management, of a normal recurring nature.
Results for the three months ended March 31, 1995 and 1996 are not necessarily
indicative of results to be expected for a full year. All data at March 31,
1996 and for each of the three-month periods ended March 31, 1995 and 1996 are
unaudited.

F-46
<PAGE>

APARTMENT INN PARTNERS/GWINNETT, L.P.

NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)

2. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following at December 31, 1995:

<TABLE>
<S> <C>
Land.......................................................... $ 451,800
Building and improvements..................................... 2,144,300
Furniture, fixtures and equipment............................. 192,627
----------
2,788,727
Less accumulated depreciation................................. 137,010
----------
$2,651,717
==========
</TABLE>

3. LONG-TERM DEBT:

Long-term debt consists of the following as of December 31, 1995:

<TABLE>
<S> <C>
Note payable, principal and interest payable to the general
partner of the Partnership at $36,988 monthly through
September 2004, interest at 10%.............................. $2,581,570
Less current maturities....................................... 194,451
----------
Long-term debt, net of current maturities..................... $2,387,119
==========
</TABLE>

The note payable is collateralized by substantially all of the Partnership's
property and equipment. Aggregate maturities of long-term debt are as follows:
1996--$194,451; 1997--$214,812; 1998--$237,305; 1999--$262,154; 2000--$289,606;
thereafter $1,383,242.

The Partnership believes that there is no material difference in the carrying
amount and estimated fair value of the long-term debt.

4. LITIGATION:

From time to time, the Partnership has been involved in various legal
proceedings. Management believes that all such litigation is routine in nature
and incidental to the conduct of its business, and that none of such
litigation, if determined adversely to the Partnership, would have a material
adverse effect on its financial condition.

F-47
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida

We have audited the accompanying combined balance sheets of Boulder Manor,
Inc., Melrose Suites, Inc., Nicolle Manor and St. Louis Manor, Inc. (the "M & M
Facilities") as of December 31, 1994 and 1995, and the related combined
statements of operations and equity and cash flows for each of the three years
in the period ended December 31, 1995. These financial statements are the
responsibility of the M & M Facilities' management. Our responsibility is to
express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the M & M Facilities
at December 31, 1994 and 1995 and the combined results of their operations and
their cash flows for each of the three years in the period ended December 31,
1995 in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Spartanburg, South Carolina

June 27, 1996

F-48
<PAGE>

M & M FACILITIES

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31,
DECEMBER 31, 1996
------------------------ -----------
ASSETS 1994 1995
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 277,626 $ 307,376 $ 280,111
Accounts receivable................... 53,191 63,729
Supply inventories.................... 14,762 14,762
Other current assets.................. 9,592 15,112 61,954
----------- ----------- -----------
Total current assets................ 287,218 390,441 420,556
----------- ----------- -----------
Property and equipment, net............. 9,721,327 16,195,066 16,171,969
Other assets............................ 153,437 85,462 91,957
----------- ----------- -----------
$10,161,982 $16,670,969 $16,684,482
=========== =========== ===========
<CAPTION>
LIABILITIES AND EQUITY (DEFICIT)
<S> <C> <C> <C>
Current liabilities:
Accounts payable...................... $ 107,733 $ 119,915 $ 102,385
Accrued expenses...................... 12,276 47,627 79,760
Deposits.............................. 46,500 60,812 14,858
Accrued interest expense.............. 87,346 122,698 141,641
Accounts payable to affiliated
company.............................. 108,546 97,848
Current maturities of long-term debt
and notes payable to shareholders.... 464,967 1,014,720 6,071,772
----------- ----------- -----------
Total current liabilities........... 718,822 1,474,318 6,508,264
Long-term debt.......................... 4,318,218 10,139,340 8,301,363
Notes payable to shareholders........... 5,736,898 5,263,995 1,822,122
----------- ----------- -----------
Total liabilities................... 10,773,938 16,877,653 16,631,749
Equity (deficit)........................ (214,235) 377,284 628,318
Advances to shareholders................ (397,721) (583,968) (575,585)
----------- ----------- -----------
$10,161,982 $16,670,969 $16,684,482
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

F-49
<PAGE>

M & M FACILITIES

COMBINED STATEMENTS OF OPERATIONS AND EQUITY (DEFICIT)

<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------- ----------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Revenue:
Room revenue.......... $3,410,258 $ 3,712,548 $5,685,874 $1,336,776 $1,596,144
Other, net............ 204,638 280,626 361,822 75,998 83,826
---------- ----------- ---------- ---------- ----------
Total revenue....... 3,614,896 3,993,174 6,047,696 1,412,774 1,679,970
---------- ----------- ---------- ---------- ----------
Costs and expenses:
Property operating
expenses............. 1,341,583 1,389,265 2,288,116 505,235 622,586
Property management
fees to related
party................ 314,327 323,429 432,102 106,942 127,692
Depreciation and
amortization......... 585,918 448,277 648,202 170,102 168,083
---------- ----------- ---------- ---------- ----------
Total costs and
expenses........... 2,241,828 2,160,971 3,368,420 782,279 918,361
---------- ----------- ---------- ---------- ----------
Income from operations.. 1,373,068 1,832,203 2,679,276 630,495 761,609
Other income............ 168,503
Interest expense........ 1,027,305 1,016,868 1,614,580 413,769 392,734
---------- ----------- ---------- ---------- ----------
Net income.......... 345,763 983,838 1,064,696 216,726 368,875
Equity (deficit),
beginning of period.... 574,410 416,751 (214,235) (214,235) 377,284
Distributions......... (503,422) (1,614,824) (473,177) (130,168) (117,841)
---------- ----------- ---------- ---------- ----------
Equity (deficit), end of
period................. $ 416,751 $ (214,235) $ 377,284 $ (127,677) $ 628,318
========== =========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

F-50
<PAGE>

M & M FACILITIES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------- ---------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............ $ 345,763 $ 983,838 $1,064,696 $ 216,726 $ 368,875
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation........ 306,920 310,933 577,679 152,742 150,453
Amortization........ 278,998 137,344 70,523 17,360 17,630
Change in:
Supply
inventories...... (14,762) (15,000)
Accounts
receivable....... (53,191) (32,448) (10,538)
Other current
assets........... (13,273) 3,904 (5,520) (45,347) (46,842)
Accounts payable.. 12,663 (12,339) 12,182 (21,109) (17,530)
Deposits.......... 14,312 (22,584) (45,954)
Accrued interest.. (2,476) 3,823 35,352 150,585 18,943
Accounts payable
to affiliated
company.......... 108,546 61,567 (10,698)
Accrued expenses.. 2,848 240 35,351 41,323 32,133
---------- ----------- ---------- ---------- ---------
Net cash provided by
operating activities. 931,443 1,427,743 1,845,168 503,815 456,472
---------- ----------- ---------- ---------- ---------
Cash flows from
investing activities,
Purchases of property
and equipment.......... (46,502) (109,354) (7,051,417) (6,906,546) (127,356)
---------- ----------- ---------- ---------- ---------
Cash flows from
financing activities:
Payments of deferred
loan costs........... (78,497) (86,269) (2,549) (748) (24,125)
Collections from
(advances to)
shareholders......... 41,269 (15,419) (186,247) (64,880) 8,383
Principal payments on
long-term debt....... (18,487) (20,797) (165,539) (41,385) (43,563)
Principal payments on
notes payable to
shareholders......... (354,243) (400,452) (778,869) (193,552) (179,235)
Proceeds from issuance
of long-term debt.... 59,931 840,409 6,189,034 6,189,034
Proceeds from notes
payable to
shareholders......... 653,346 653,346
Distributions......... (503,422) (1,614,824) (473,177) (130,168) (117,841)
---------- ----------- ---------- ---------- ---------
Net cash (used
in) provided by
financing
activities..... (853,449) (1,297,352) 5,235,999 6,411,647 (356,381)
---------- ----------- ---------- ---------- ---------
Net increase (decrease)
in cash................ 31,492 21,037 29,750 8,916 (27,265)
Cash at beginning of
periods................ 225,097 256,589 277,626 277,626 307,376
---------- ----------- ---------- ---------- ---------
Cash at end of periods.. $ 256,589 $ 277,626 $ 307,376 $ 286,542 $ 280,111
========== =========== ========== ========== =========
Supplemental cash flow
disclosure, interest
paid................... $1,020,889 $ 1,005,894 $1,538,714 $ 253,178 $ 366,135
========== =========== ========== ========== =========
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

F-51
<PAGE>

M & M FACILITIES

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation. The combined financial statements include the assets,
liabilities, equity and results of operations of three S-Corporations, (Boulder
Manor, Inc., Melrose Suites, Inc. and St. Louis Manor, Inc.), and of a
partnership, (Nicolle Manor) which are under common ownership and control.
Where referred to herein, the "M & M Facilities" include the four entities
listed above. All significant intercompany accounts and transactions have been
eliminated.

Description of Business. The M & M Facilities operate four extended stay
facilities in Las Vegas, Nevada. On June 26, 1996, an agreement was reached to
sell the property and equipment of the M & M Facilities to Extended Stay
America, Inc.

Pervasiveness of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Concentration of Credit Risk. The M & M Facilities maintained deposits
totalling $127,496 at December 31, 1995 with one bank. Deposits in excess of
$100,000 are not insured by the Federal Deposit Insurance Corporation.

Supply Inventory. Supply inventories consist primarily of linen, cleaning and
other room supplies and are stated at the lower of cost or market.

The estimated useful lives on the assets are as follows:

<TABLE>
<S> <C>
Buildings and improvements...................................... 40 years
Furniture, fixtures and equipment............................... 5-7 years
</TABLE>

Deferred Loan Costs. The M & M Facilities have incurred costs in obtaining
financing. These costs have been deferred and are being amortized over the life
of the respective loan using the effective yield method. Deferred loan costs
are included in other assets.

Income Taxes. Any income taxes related to income earned by the M & M
Facilities are paid by the shareholders and partners.

Revenue Recognition. Room revenue and other income are recognized when
earned. Prepayments and deposits are recorded as unearned revenue.

F-52
<PAGE>

M & M FACILITIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

operations for the interim periods presented. All such adjustments are, in the
opinion of management, of a normal recurring nature. Results for the three
months ended March 31, 1995 and 1996 are not necessarily indicative of results
to be expected for a full year. All data at March 31, 1995 and 1996 and for
each of the three-month periods then ended are unaudited.

2. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following at December 31:

<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Land............................................. $ 1,775,107 $ 2,525,107
Buildings and improvements....................... 8,493,697 13,689,568
Furniture and fixtures........................... 795,334 1,900,881
----------- -----------
11,064,138 18,115,556
Less accumulated depreciation.................... 1,342,811 1,920,490
----------- -----------
$ 9,721,327 $16,195,066
=========== ===========
</TABLE>

3. LONG-TERM DEBT AND NOTES PAYABLE TO SHAREHOLDERS:

<TABLE>
<CAPTION>
1994 1995
Long-term debt and notes payable to shareholders
consist of the following as of December 31:
<S> <C> <C>
Mortgage loan, principal and interest payable monthly
at approximately $34,550 through June 1, 2019,
interest at 9.75%..................................... $4,179,775 $4,136,257
Mortgage loan principal and interest payable monthly at
approximately $47,230 through July 1, 2002 with a
final payment of approximately $5,240,000 in July
2002, interest at 8.134% in 1995 and thereafter at the
bank's current index rate (based on cost of funds of
Federal Home Loan Bank of San Francisco) plus 3.25%... 5,869,141
Note payable to shareholders, principal and interest
payable at approximately $52,260 through December
1996, with a final payment of $3,019,487 on January 1,
1997, interest at 10%................................. 3,875,260 3,609,222
Note payable to shareholders, principal and interest
payable at approximately $32,700 through December
1996, with a final payment of $1,940,348 on January 1,
1997, interest at 10%................................. 2,301,051 2,127,676
Other related party note payable....................... 313,890
Other.................................................. 163,997 361,869
----------- -----------
10,520,083 16,418,055
Less current maturities................................ 464,967 1,014,720
----------- -----------
Long-term debt, net of current maturities.............. $10,055,116 $15,403,335
=========== ===========
</TABLE>

The notes payable to shareholders are collateralized by real property at two
of the entended stay facilities. The shareholders have related loans with a
financial institution collateralized by these properties. These loans with the
financial institutions total approximately $8,675,000 at December 31, 1995.

The mortgage loans are collateralized by substantially all of the M & M
Facilities property and equipment. Aggregate maturities of long term debt are
as follows: 1996--$1,014,720; 1997--$5,477,558; 1998--$217,487; 1999--$241,077;
2000--$212,019; thereafter--$9,255,194.

The M & M Facilities believe that there is no material difference in the
carrying amount and estimated fair value of the long-term debt.

F-53
<PAGE>

M & M FACILITIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

4. RELATED PARTY TRANSACTIONS:

Management fees charged by a related entity controlled by the
shareholders/partners and interest charged on notes payable to
shareholders/partners are as follows:

<TABLE>
<CAPTION>
MANAGEMENT INTEREST
FEES EXPENSE
<S> <C> <C>
1993.................................................. $314,327 $668,754
1994.................................................. 323,429 630,263
1995.................................................. 432,102 598,482
</TABLE>

The M & M Facilities purchased substantially all the property and equipment
from an affiliated company which constructed the extended stay facilities.

5. LITIGATION:

From time to time, the M & M Facilities have been involved in various legal
proceedings. Management believes that all such litigation is routine in nature
and incidental to the conduct of its business, and that none of such
litigation, if determined adversely to the M & M Facilities, would have a
material adverse effect on their financial condition.

F-54
<PAGE>

In August 1995, pursuant to a Contribution Agreement dated August 18, 1995
between the Company and Welcome Inn America 89-1, L.P. the Company issued
357,000 shares of Common Stock in exchange for certain assets and real
property. The above-referenced shares were issued without registration under
the Securities Act, in reliance upon the exemption in Section 4(2) of the
Securities Act.

Pursuant to a commitment agreement dated August 31, 1995, the Company issued
shares of Common Stock to DLJ and one of its affiliates as described under
"Financing." The above-referenced shares were issued without registration under
the Securities Act, in reliance upon the exemption in Section 4(2) of the
Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ----
<C> <S> <C>
2.1 Contribution Agreement, dated August 18, 1995, between
the Company and Welcome Inn America 89-1, L.P. (incorpo-
rated by reference to the corresponding exhibit to the
Company's Registration Statement on Form S-1, Registra-
tion No. 33-98452 (the "IPO S-1"))
2.2 Agreement to Purchase Hotel and related agreements dated
January 24, 1996 between the Company and John W. Baker
and Apartment/Inn, L.P. (incorporated by reference to the
corresponding exhibit to the Company's Registration
Statement on Form S-1, Registration No. 333-102)
2.3 Agreement to Purchase Hotel and related agreements dated
February 23, 1996 among ESA 0992, Inc., ESA 0993, Inc.,
Hometown Inn I, LTD, and Hometown Inn II, LTD (incorpo-
rated by reference to the corresponding exhibit to the
Company's Registration Statement on Form S-1, Registra-
tion No. 333-102)
2.4 Agreement to Purchase Hotel dated May 1, 1996 and related
agreements among ESA Properties, Inc., Kipling Hospital-
ity Enterprise Corporation, and J. Craig McBride. (incor-
porated by reference to the corresponding exhibit to the
Company's Report on Form 10-Q for the quarter ended March
31, 1996 (the "1996 10-Q1"))
2.5 Agreement to Purchase Hotel dated as of June 24, 1996 and
related agreements among the Company, ESA 0996, Inc.,
Apartment Inn Partners/Gwinnett, L.P., and Rosa
Dziewienski Pajonk (incorporated by reference to the cor-
responding exhibit to the Company's Registration State-
ment on Form S-1, Registration No. 333-102)
2.6 Agreements to Purchase Hotels dated as of June 25, 1996
and related agreements between the Company and ESA Prop-
erties, Inc. and Boulder Manor, Inc., Melrose Suites,
Inc., St. Louis Manor, Inc., and Michael J. Mona, Jr. and
Dean O'Bannon (incorporated by reference to the corre-
sponding exhibit to the Company's Registration Statement
on Form S-1, Registration No. 333-102).
3.1 Restated Certificate of Incorporation of the Company (in-
corporated by reference to the corresponding exhibit to
the IPO S-1)
3.2 Amended and Restated Bylaws of the Company (incorporated
by reference to the corresponding exhibit to the IPO S-1)
4.1 Specimen certificate representing shares of Common Stock
(incorporated by reference to the corresponding exhibit
to the IPO S-1)
5.1* Opinion of Bell, Boyd & Lloyd as to the legality of the
Common Stock
10.1 Form of Subscription Agreement and related Demand Note
and Stockholders Agreement between the Company and ap-
proximately 30 investors entered into in August 1995 (in-
corporated by reference to the corresponding exhibit to
the IPO S-1)
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE+
------- ---------------------- -----
<C> <S> <C>
10.2(a) Commitment for Mortgage Facility between the Company and
DLJ Mortgage Capital, Inc. ("DLJMC") (incorporated by
reference to the corresponding exhibit to the IPO S-1)
10.2(b) Mortgage Facility, dated October 31, 1995, between the
Company and DLJMC (incorporated by reference to the cor-
responding exhibit to the IPO S-1)
10.3 Amended and Restated 1995 Employee Stock Option Plan of
the Company (incorporated by reference to the corre-
sponding exhibit to the 1996 10-Q1)
10.4 Employment Agreement, dated as of June 1, 1995, between
ESA Development, Inc. and Harold E. Wright (incorporated
by reference to the corresponding exhibit to the IPO S-
1)
10.5 Stock Option Agreement, dated as of June 1, 1995, be-
tween ESA Development, Inc. and Harold E. Wright (incor-
porated by reference to the corresponding exhibit to the
IPO S-1)
10.6 1995 Stock Option Plan for Non-Employee Directors of the
Company (incorporated by reference to the corresponding
exhibit to the 1996 10-Q1)
10.7 Contract to Buy and Sell Real Property, dated April 20,
1995, between the Company and North Town Associates,
L.P. (incorporated by reference to the corresponding ex-
hibit to the IPO S-1)
10.8 Aircraft Dry Lease, dated June 12, 1995, between Wyoming
Associates, Inc. and the Company (incorporated by refer-
ence to the corresponding exhibit to the IPO S-1)
10.9 Aircraft Dry Lease, dated June 12, 1995, between Wyoming
Associates, Inc. and the Company (incorporated by refer-
ence to the corresponding exhibit to the IPO
S-1)
10.10 Amended and Restated 1996 Employee Stock Option Plan of
the Company (incorporated by reference to the corre-
sponding exhibit to the 1996 10-Q1)
10.11 Employment Agreement, dated as of March 18, 1996, be-
tween ESA Development, and Harold E. Wright (incorpo-
rated by reference to the corresponding exhibit to the
1996 10-Q1)
10.12 Aircraft Dry Lease, dated April 5, 1996, between Morgan
Corp. and the Company (incorporated by reference to the
corresponding exhibit to the Company's Registration
Statement on Form S-1, Registration No. 333-03373)
10.13 Homestead Motorsports Complex Executive Suite License
Agreement, dated February 14, 1996, among The Homestead
Motorsports Joint Venture, Miami Motorsports Joint Ven-
ture, and the Company (incorporated by reference to the
corresponding exhibit to the 1996 10-Q1)
10.14 Joe Robbie Stadium Executive Suite License Agreement,
dated March 18, 1996, between Robbie Stadium Corporation
and the Company (incorporated by reference to the corre-
sponding exhibit to the 1996 10-Q1)
10.15(a) Commitment letter for mortgage facility between the Com-
pany and CS First Boston Mortgage Capital Corporation
("CSFBMC") (incorporated by reference to the correspond-
ing exhibit to the 1996 10-Q1)
10.15(b) Credit facility Agreement, dated May 24, 1996, between
the Company and CSFBMC (incorporated by reference to the
corresponding exhibit to the Company's Registration
Statement on Form S-1, Registration No. 333-03373)
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE+
------- ---------------------- -----
<C> <S> <C>
11.1 Revised Statement re: Computation of Per Share Loss (in-
corporated by reference to the corresponding exhibit to
the Company's Registration Statement on Form S-1, Regis-
tration No. 333-102)
21.1 Revised list of subsidiaries of the Company (incorpo-
rated by reference to the corresponding exhibit to the
Company's Registration Statement on Form S-1, Registra-
tion No. 333-102)
23.1 Consent of Coopers & Lybrand LLP (included in Part II of
this registration statement)
23.2* Consent of Bell, Boyd & Lloyd (included in Exhibit 5.1)
24.1* Powers of Attorney (included on the signature page of
this registration statement)
27.1 Financial Data Schedule (for EDGAR filings only) (incor-
porated by reference to the corresponding exhibit to the
Company's Registration Statement on Form S-1, Registra-
tion No. 333-03373)
</TABLE>
- ---------------------
*Previously filed.

(b) FINANCIAL STATEMENT SCHEDULES

All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not required under the related instructions, are not applicable, or
the information has been provided in the consolidated financial statements or
the notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement.

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

II-4
<PAGE>

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Company pursuant to the provisions described under Item 14 above or otherwise,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer, or controlling person of
the Company in the successful defense of any action, suit, or proceeding) is
asserted against the Company by such director, officer, or controlling person
in connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

II-5
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF FT. LAUDERDALE, STATE OF FLORIDA, ON
JULY 2, 1996.

Extended Stay America, Inc.

/s/ Robert A. Brannon
By:__________________________________
Robert A. Brannon
Senior Vice President and Chief
Financial Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JULY 2, 1996.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
PRINCIPAL EXECUTIVE OFFICER:

George D. Johnson, Jr.* President and Chief Executive Officer

PRINCIPAL FINANCIAL OFFICER:

/s/ Robert A. Brannon Senior Vice President, Chief Financial
___________________________________________ Officer, Secretary, and Treasurer
Robert A. Brannon

PRINCIPAL ACCOUNTING OFFICER:

Gregory R. Moxley* Vice President and Controller

A MAJORITY OF THE DIRECTORS:

H. Wayne Huizenga* Director

George D. Johnson, Jr.* Director

Stewart H. Johnson* Director

John J. Melk* Director

Peer Pedersen* Director
Director
___________________________________________
Donald F. Flynn

</TABLE>

/s/ Robert A. Brannon
*By: ________________________________
Robert A. Brannon
Attorney-in-fact

II-6
<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form S-1 of our
report dated January 26, 1996, on our audit of the consolidated financial
statements of Extended Stay America, Inc., our report dated January 26, 1996 on
our audits of the financial statements of Apartment/Inn, L.P., our report dated
February 23, 1996 on our audits of the combined financial statements of
Hometown Inn I, LTD and Hometown Inn II, LTD, our report dated October 16, 1995
on our audits of the financial statements of Welcome Inn America 89-1, L.P.,
our report dated May 4, 1996 on our audit of the financial statements of
Kipling Hospitality Enterprise Corporation, our report dated June 25, 1996 on
our audit of the financial statements of Apartment Inn Partners/Gwinnett, L.P.,
and our report dated June 27, 1996 on our audits of the combined financial
statements of Boulder Manor, Inc., Melrose Suites, Inc., Nicolle Manor and St.
Louis Manor, Inc. (the "M & M Facilities"). We also consent to the references
to our firm under the captions "Experts" and "Selected Financial Data."

Coopers & Lybrand L.L.P.

Spartanburg, South Carolina

July 2, 1996

II-7