AMERICAN GENERAL HOSPITALITY CORP, 424B1, 1996-07-26

AMERICAN GENERAL HOSPITALITY CORP
424B1, 1996-07-26
REAL ESTATE INVESTMENT TRUSTS

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Pursuant to Rule 424(b)(1)
Registration No. 333-4568

PROSPECTUS 7,500,000 Shares
AMERICAN GENERAL HOSPITALITY CORPORATION
[Logo of Common Stock
American General
Hospitality Corporation]
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American General Hospitality Corporation (the "Company") has been formed to
own hotel properties and to continue and expand the hotel acquisition,
development, and repositioning operations of American General Hospitality,
Inc. and certain of its affiliates (collectively "AGHI"). The Company's
operations will focus on the ownership of full-service hotels in major
metropolitan markets. Upon completion of this offering (the "Offering"), the
Company, which intends to operate as a self-administered real estate
investment trust ("REIT"), will own, through an operating partnership (the
"Operating Partnership"), thirteen hotels containing an aggregate of 3,012
guest rooms in nine states (the "Initial Hotels"). The Initial Hotels will be
leased by the Company to AGH Leasing, L.P. (the "Lessee"), which is owned in
part by certain executive officers of the Company. See "AGHI and the Lessee."

All the shares of Common Stock, $0.01 par value per share (the "Common
Stock"), offered hereby are being offered by the Company. The Company intends
to make regular quarterly distributions to its stockholders, commencing with a
pro rata distribution with respect to the quarter ending September 30, 1996.

The Common Stock has been approved for listing on the New York Stock
Exchange, subject to official notice of issuance, under the symbol "AGT."
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price is $17.75 per share. See "Underwriting" for
a discussion of the factors considered in determining the initial public
offering price. The Company's Charter will limit the number of shares of
Common Stock that may be owned by any single person or affiliated group. See
"Description of Capital Stock--Restrictions on Transfer."

SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK, INCLUDING:
. Risks associated with distributing 99.4% of estimated Cash Available for
Distribution (as hereinafter defined), including the risk that actual
Cash Available for Distribution will be insufficient to permit the
Company to maintain its proposed initial distribution rate;
. Conflicts of interest between the Company and certain of its executive
officers who own interests in certain of the Initial Hotels that will be
acquired by the Company and who also own interests in the Lessee and
AGHI;
. Dependence on rent payments from the Lessee under the Participating
Leases (as hereinafter defined) for substantially all the Company's
income;
. Risks associated with the Company's lack of control over the operations
of the Initial Hotels due to tax restrictions that prevent REITs from
operating hotels;
. Risks associated with the lack of appraisals of the Initial Hotels,
including the possibility that the purchase prices paid by the Company
for the Initial Hotels may exceed the market value of such hotels;
. Risks affecting the hotel industry generally, and the Company's hotels
specifically, including competition, increases in operating costs,
dependence on business travelers and tourism, seasonality, the potential
loss of franchise licenses and the need for future capital expenditures
in excess of budgeted amounts, all of which could adversely affect the
Lessee's ability to make required rent payments;
. Receipt by the Primary Contributors (as hereinafter defined) and certain
of the Company's executive officers of material benefits from the
Formation Transactions (as hereinafter defined);
. Risks affecting the real estate market generally, including economic and
other conditions, relative illiquidity of real estate, increases in
taxes and potential liabilities, including liabilities for unknown or
future environmental problems; and
. Risks associated with the fact that certain of the Initial Hotels have
experienced net operating losses in recent years.
----------

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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ----------------------------------------------------
<S> <C> <C> <C>
Per Share $17.75 $1.11 $16.64
- ----------------------------------------------------
Total(3) $133,125,000 $8,325,000 $124,800,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities arising under the Securities Act of
1933, as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses estimated at $5,000,000, which are payable by
the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 1,125,000 additional shares of Common Stock, on the same terms set
forth above, solely to cover over-allotments, if any. See "Underwriting."
If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$153,093,750, $9,573,750, and $143,520,000, respectively.
----------

The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as, and if accepted by them, and
subject to certain conditions. It is expected that certificates for the Common
Stock offered hereby will be available for delivery on or about July 31, 1996
at the offices of Smith Barney Inc., 333 West 34th Street, New York, New York
10001.

----------
Smith Barney Inc.
Prudential Securities Incorporated
Legg Mason Wood Walker
Incorporated
The Robinson-Humphrey Company, Inc.

July 25, 1996.
<PAGE>

TABLE OF CONTENTS

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PAGE
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<S> <C>
PROSPECTUS SUMMARY........................................................ 1
The Company.............................................................. 1
Risk Factors............................................................. 3
AGHI and the Lessee...................................................... 4
The Initial Hotels....................................................... 5
Growth Strategies........................................................ 7
Formation Transactions................................................... 11
Benefits to the Officers and the Primary Contributors.................... 14
Tax Status............................................................... 15
The Offering............................................................. 15
Distribution Policy...................................................... 16
Summary Financial Information............................................ 17
RISK FACTORS.............................................................. 20
Risk of High Distribution Payout Percentage.............................. 20
Conflicts of Interest.................................................... 20
Dependence on Lessee and Payments Under the Participating Leases......... 21
Lack of Control Over Operations of the Initial Hotels.................... 21
Lack of Appraisals for Initial Hotels; No Assurance as to Value.......... 22
Hotel Industry Risks..................................................... 22
Benefits to Primary Contributors and Officers............................ 23
Contingent Liabilities of Selling Partnerships........................... 23
Risks of Leverage; No Limits on Indebtedness............................. 24
Lack of Operating History or Revenues; History of Losses................. 24
Contingent Obligation to Construct Additional Hotel Rooms................ 24
Immediate and Substantial Dilution....................................... 25
Possible Adverse Effects of Shares Available for Future Sale Upon Market
Price of Common Stock................................................... 25
Competition for Management Time.......................................... 25
Real Estate Investment Risks............................................. 25
Tax Risks................................................................ 28
ERISA.................................................................... 29
Risks of Operating Hotels Under Franchise Agreements; Approval for Brand
Conversions............................................................. 30
Potential Anti-Takeover Effect of Certain Provisions of Maryland Law and
of the Company's Charter and Bylaws..................................... 30
No Prior Market for Common Stock......................................... 32
Reliance on Board of Directors and Management............................ 32
Ability of Board to Change Policies...................................... 32
</TABLE>
<TABLE>
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PAGE
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Adverse Effect of Increase in Market Interest Rates on Price of Common
Stock.................................................................. 32
THE COMPANY.............................................................. 33
General................................................................. 33
Growth Strategies....................................................... 35
Acquisitions............................................................ 35
Development............................................................. 36
Internal Growth......................................................... 37
Financing Strategy...................................................... 39
The Operating Partnership............................................... 40
USE OF PROCEEDS.......................................................... 41
DISTRIBUTION POLICY...................................................... 42
CAPITALIZATION........................................................... 45
DILUTION................................................................. 46
SELECTED FINANCIAL INFORMATION........................................... 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 53
Overview................................................................ 53
Results of Operations of AGH Predecessor Hotels......................... 54
Results of Operations of AGH Acquisition Hotels......................... 56
Results of Operations of the Initial Hotels............................. 58
Liquidity and Capital Resources......................................... 58
Franchise Conversions and Other Capital Improvements.................... 61
Inflation............................................................... 62
Seasonality............................................................. 62
THE HOTEL INDUSTRY....................................................... 63
THE INITIAL HOTELS....................................................... 64
Descriptions of Initial Hotels.......................................... 66
AGH Predecessor Hotels.................................................. 66
AGH Acquisition Hotels.................................................. 68
Ten Percent Hotels...................................................... 72
The Participating Leases................................................ 72
The Management Agreements............................................... 79
Mortgage Indebtedness Remaining Following the Offering.................. 80
Line of Credit.......................................................... 81
Ground Leases........................................................... 82
Franchise Conversions and Other Capital Improvements.................... 82
Franchise Agreements.................................................... 82
Employees............................................................... 85
Environmental Matters................................................... 85
</TABLE>

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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Options to Purchase and Rights of First Refusal......................... 85
Competition............................................................. 86
Insurance............................................................... 86
Legal Proceedings....................................................... 86
FORMATION TRANSACTIONS................................................... 87
Benefits to the Officers and the Primary Contributors................... 88
Valuation of Interests.................................................. 89
Transfer of Initial Hotels.............................................. 89
MANAGEMENT............................................................... 90
Directors and Executive Officers........................................ 90
Board of Directors and Committees....................................... 91
Executive Compensation.................................................. 92
Employment Agreements................................................... 92
Compensation of Directors............................................... 92
Stock Incentive Plans................................................... 93
Limitation of Liability and Indemnification............................. 96
Indemnification Agreements.............................................. 97
CERTAIN RELATIONSHIPS AND TRANSACTIONS................................... 97
Relationships Among Officers and Directors.............................. 97
Acquisition of Interests in Certain of the Initial Hotels............... 97
Shared Services and Office Space Agreement.............................. 98
Options to Purchase and Rights of First Refusal......................... 98
Employment Agreements and Stock Incentive Plans......................... 98
Purchase of Personal Property........................................... 99
The Participating Leases................................................ 99
The Management Agreements............................................... 99
The Beverage Corporations............................................... 99
AGHI AND THE LESSEE...................................................... 99
PRINCIPAL STOCKHOLDERS................................................... 102
DESCRIPTION OF CAPITAL STOCK............................................. 103
General................................................................. 103
Common Stock............................................................ 103
Power to Issue Additional Shares of Common Stock........................ 103
Restrictions on Transfer................................................ 103
Transfer Agent and Registrar............................................ 106
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S CHARTER AND
BYLAWS.................................................................. 107
Number of Directors; Classification of the Board of Directors........... 107
Removal; Filling Vacancies.............................................. 107
</TABLE>
<TABLE>
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PAGE
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Limitation of Liability and Indemnification.............................. 107
Business Combinations.................................................... 108
Control Share Acquisitions............................................... 109
Amendment to the Charter................................................. 109
Dissolution of the Company............................................... 110
Advance Notice of Director Nominations and New Business.................. 110
Meetings of Stockholders................................................. 110
Operations............................................................... 110
Anti-Takeover Effect of Certain Provisions of Maryland Law and of the
Charter and Bylaws...................................................... 110
POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES................ 111
Investment Policies...................................................... 111
Financing................................................................ 111
Conflict of Interest Policies............................................ 112
Policies with Respect to Other Activities................................ 113
Working Capital Reserves................................................. 114
SHARES AVAILABLE FOR FUTURE SALE.......................................... 114
PARTNERSHIP AGREEMENT..................................................... 115
Management............................................................... 115
Transferability of Interests............................................. 115
Capital Contribution..................................................... 115
Exchange Rights.......................................................... 116
Registration Rights...................................................... 116
Operations............................................................... 116
Distributions and Allocations............................................ 117
Term..................................................................... 117
Tax Matters.............................................................. 117
FEDERAL INCOME TAX CONSIDERATIONS......................................... 118
Requirements for Qualification as a REIT................................. 118
Failure to Qualify as a REIT............................................. 125
Taxation of the Company.................................................. 126
Taxation of Stockholders................................................. 127
Statement of Stock Ownership............................................. 130
Tax Aspects of the Operating Partnership................................. 130
Income Taxation of the Operating Partnership and Its Partners............ 132
Other Tax Considerations................................................. 133
UNDERWRITING.............................................................. 137
EXPERTS................................................................... 138
LEGAL MATTERS............................................................. 138
ADDITIONAL INFORMATION.................................................... 139
GLOSSARY.................................................................. 140
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>

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<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information in this Prospectus assumes (i) the
completion of the transactions described in "Formation Transactions," and (ii)
the Underwriters' over-allotment option is not exercised. Unless the context
requires otherwise, the term "Company," as used herein, includes American
General Hospitality Corporation and its two wholly owned subsidiaries, AGH GP,
Inc. ("AGH GP") and AGH LP, Inc. ("AGH LP"), and American General Hospitality
Operating Partnership, L.P., a Delaware limited partnership (the "Operating
Partnership"). The term "Operating Partnership," unless the context requires
otherwise, includes subsidiaries of the Operating Partnership. See "Glossary"
for the definitions of certain terms used in this Prospectus. Investors should
carefully consider the information set forth under the heading "Risk Factors."

THE COMPANY

The Company, which intends to operate as a self-administered real estate
investment trust ("REIT"), has been formed to own hotel properties and to
continue and expand the hotel acquisition, development, and repositioning
operations of American General Hospitality, Inc. and certain of its affiliates
(collectively, "AGHI"). Upon completion of the Offering and the Formation
Transactions, the Company will own thirteen hotels containing an aggregate of
3,012 guest rooms, located in nine states (the "Initial Hotels"). AGHI, which
will manage the Initial Hotels, was founded in 1981 by Steven D. Jorns, the
Company's Chairman of the Board, Chief Executive Officer and President. As of
March 31, 1996, AGHI operated and managed 74 hotels in 24 states containing an
aggregate of more than 13,865 guest rooms. According to Hotel & Motel
Management, a leading hotel trade publication, AGHI was the nation's fourth
largest independent hotel management company in 1995, based upon number of
hotels under management. The Company's operations will focus on the ownership
of full-service hotels in major metropolitan markets, including hotels that are
in close proximity to the airports that serve such markets, and, to a lesser
extent, prominent hotels in major tourist areas. The Company expects to
capitalize on AGHI's expertise to achieve revenue growth at the Company's
hotels. Pursuant to the terms of the Management Agreements (as defined below),
and for so long as AGHI is managing hotels owned by the Company, AGHI has
agreed not to own or develop any additional hotel properties. The Company will
not have any economic interest in AGHI's hotel management operations.

The Initial Hotels include eleven full-service hotels and two limited-service
hotels and are diversified by franchise affiliation. For the twelve months
ended March 31, 1996, the Initial Hotels had a weighted average occupancy of
73.0% and a weighted average daily room rate ("ADR") of $70.97. Ten of the
Initial Hotels operate under franchise licenses with nationally recognized
hotel companies, which include one Hilton(R), one Courtyard by Marriott(R), six
Holiday Inns(R), one Hampton Inn(R) and one Days Inn(R).

The Company will seek to achieve revenue growth principally through the
acquisition and subsequent product and brand repositioning of hotels.
Consistent with this strategy, the Company has scheduled approximately $24.6
million (an average of approximately $13,400 per guest room) to be spent on
renovations and refurbishments within one year after the completion of the
Offering at seven Initial Hotels to convert the hotels to leading franchise
brands and reposition such hotels for future revenue growth. Upon completion of
the franchise conversions, the Initial Hotels will consist of one Wyndham
Hotel(R), two DoubleTree Hotels(R), two Crowne Plazas(R), one Hilton(R), one
Courtyard by Marriott, one Holiday Inn Select SM (the premium Holiday Inn
brand), two Holiday Inns, two Hampton Inns and one independent luxury hotel.
There can be no assurance that such brand conversions and hotel repositionings
will occur as planned.

In order to qualify as a REIT, the Company may not operate hotels. As a
result, the current principals of AGHI (including Mr. Jorns and Bruce G. Wiles,
the Company's Executive Vice President) and Kenneth E. Barr, the Company's
Executive Vice President and Chief Financial Officer, have formed AGH Leasing,
L.P. (the

1
<PAGE>

"Lessee"), which will lease the Initial Hotels from the Company pursuant to
separate participating leases (the "Participating Leases"). Messrs. Jorns,
Wiles and Barr own collectively an approximate 23.0% interest in the Lessee.
The Participating Leases are designed to allow the Company to achieve
substantial participation in any future growth of revenues generated at the
Initial Hotels. The Lessee, in turn, will enter into separate management
agreements (the "Management Agreements") with AGHI to operate the Initial
Hotels. See "AGHI and the Lessee."

The Initial Hotels have achieved significant growth in occupancy, ADR and
total revenue per available room ("REVPAR") as set forth in the following
chart:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------- ----------------
1993(1) 1994(1) 1995(1) 1995(1) 1996(1)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Occupancy.............................. 71.6% 71.7% 72.9% 70.6% 70.7%
ADR.................................... $57.65 $62.28 $69.19 $65.97 $73.33
REVPAR................................. $41.26 $44.67 $50.46 $46.56 $51.81
</TABLE>
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(1) For comparison purposes, the total weighted average occupancy, ADR and
REVPAR for all U.S. hotels for each of the years ended December 31, 1993,
1994 and 1995 and for each of the three months ended March 31, 1995 and
1996 were as follows: occupancy: 63.0%, 64.7%, 65.5%, 60.3% and 61.1%,
respectively; ADR: $61.93, $64.24, $67.34, $67.83 and $72.01, respectively;
and REVPAR: $39.01, $41.56, $44.11, $40.93 and $44.02, respectively. The
occupancy, ADR and REVPAR data for all U.S. hotels was provided by Smith
Travel Research, Inc. ("Smith Travel Research"). Smith Travel Research has
not provided any form of consultation, advice or counsel regarding any
aspect of, and is in no way associated with, the Offering.

The Company believes that the growth in occupancy, ADR and REVPAR at the
eight Initial Hotels currently managed and operated by AGHI reflects the
successful repositioning, renovation and marketing strategies of AGHI, as well
as AGHI's superior management and operational capabilities. See "The Initial
Hotels." The Company also attributes the success of the Initial Hotels to the
slowing in recent years of new hotel construction nationally and improving
economic conditions, both of which followed an extended period of unprofitable
industry performance in the late 1980's and early 1990's. The Company believes
these improved lodging market fundamentals have created a favorable environment
for internal growth at the Initial Hotels and for acquisitions. See "The Hotel
Industry."

Management believes that the full-service hotel segment, in particular, has
potential for improved performance as the economy continues to improve, and as
business and leisure travel activity increases. The Company has targeted the
full-service segment of the hotel industry due, in part, to its belief that the
approximate three- to five-year lead time from conception to completion of a
full-service hotel in the markets in which the Company intends to focus
represents a significant barrier to entry that will limit near-term competition
resulting from a new supply of guest rooms. Management also believes that the
full-service segment of the market will continue to offer numerous
opportunities to acquire hotels at attractive multiples of cash flow, and at
discounts to replacement value, including underperforming hotels that may
benefit from new management. The Company believes that a substantial number of
hotels meeting its investment criteria are available at attractive prices in
the markets where AGHI currently operates hotels and in markets that the
Company believes have attractive economic characteristics. The Company believes
its acquisition capabilities will be enhanced by the fact that its initial
capital structure provides significant financial flexibility. Upon completion
of the Offering, the Company will have approximately $27.8 million of
outstanding indebtedness (including approximately $8.5 million borrowed under
the Line of Credit (as defined below) in connection with the closing of the
Offering). The Company intends to limit consolidated indebtedness (measured at
the time the debt is incurred) to no more than 45.0% of the Company's
investment in hotels. See "Policies and Objectives with Respect to Certain
Activities--Financing." The Company has obtained a commitment for a $100
million revolving line of credit (the "Line of

2
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Credit"), the borrowings from which will be utilized primarily for the
acquisition and renovation of additional hotels, the renovation of certain
Initial Hotels and to pay certain costs in connection with the closing of the
Offering. See "Use of Proceeds." Upon closing of the Offering, the Company
expects to have approximately $51.5 million of borrowing capacity under the
Line of Credit after borrowing approximately $8.5 million under the Line of
Credit in connection with the closing of the Offering. The Company expects that
the borrowing capacity under the Line of Credit will increase to approximately
$100 million, assuming all additional borrowings are used to fund capital
improvements to the Initial Hotels or the acquisition of additional hotels. See
"The Initial Hotels--Line of Credit."

The Company's executive offices are located at 3860 West Northwest Highway,
Suite 300, Dallas, Texas 75220, and its telephone number is (214) 904-2000.

RISK FACTORS

AN INVESTMENT IN THE SHARES OF COMMON STOCK INVOLVES VARIOUS RISKS, AND
INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS,"
INCLUDING THE FOLLOWING:

. Risks associated with distributing 99.4% of estimated Cash Available for
Distribution, including the risk that actual Cash Available for
Distribution will be insufficient to permit the Company to maintain its
proposed initial distribution rate of $1.63 per share of Common Stock, or
to sustain such distribution rate in the future;

. Conflicts of interest between the Company and certain of its executive
officers who own interests in certain of the Initial Hotels to be
acquired by the Company and who also own interests in the Lessee and
AGHI, all of which could lead to decisions that do not reflect solely the
interests of the Company's stockholders, including (i) the lack of arm's-
length negotiations relating to the purchase of, or the assignment of
contract rights relating to, interests in seven Initial Hotels, including
the risk that the purchase prices may exceed the market values of such
hotels, (ii) the lack of arm's-length negotiations relating to the
Participating Leases and the Management Agreements, (iii) the possible
failure by the Company to enforce the terms and conditions of the
Participating Leases against the Lessee, even when such enforcement would
be in the best interests of the Company, and (iv) the possible adverse
tax consequences to certain executive officers of the Company upon the
subsequent sale by the Company of certain of the Initial Hotels;

. Dependence upon rent payments from the Lessee for substantially all of
the Company's income, including risks related to the ability of the
Lessee to make rent payments that are sufficient to permit the Company to
make initial estimated distributions to its stockholders, the failure or
delay in making rent payments, the failure of the Lessee and AGHI to
effectively operate and manage the Initial Hotels and to meet the
obligations under the franchise agreements, and the limited operating
history of the Lessee as a newly organized entity;

. Risks associated with the Company's lack of control over the operations
of the Initial Hotels due to tax restrictions that prevent REITs from
operating hotels;

. Risks associated with the lack of appraisals of the Initial Hotels,
including the possibility that the purchase prices paid by the Company
for the Initial Hotels may exceed the market value of such hotels;

. Risks affecting the hotel industry generally, and the Company's hotels
specifically, including competition for guests, increases in operating
costs due to inflation and other factors, dependence on business and
commercial travelers and tourism, increases in energy costs and other
travel expenses, seasonality and the need for future capital expenditures
and for replacement of furniture, fixtures and equipment ("FF&E") in
excess of budgeted amounts, all of which could have a material adverse
effect on Cash Available for Distribution (as defined in "Summary
Financial Information");

. Receipt by the Primary Contributors (as defined in "Benefits to the
Officers and the Primary Contributors") and certain of the Company's
executive officers of material benefits from the transactions described
under "Formation Transactions," including, but not limited to, (i)
receipt by the Primary Contributors and the

3
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Company's executive officers of an aggregate of approximately 560,178
units of limited partnership interest ("OP Units") in the Operating
Partnership (valued at approximately $9.9 million, based on the initial
public offering price of $17.75 per share (the "Offering Price")), (ii)
the repayment of $3.75 million of indebtedness guaranteed by AGHI, (iii)
the grant to the Company's officers and directors of options to acquire an
aggregate of 400,000 shares of Common Stock at the Offering Price, (iv)
the grant to the Company's executive officers of stock awards for an
aggregate of 50,000 shares of restricted Common Stock that vest over a
four-year period commencing on the date of grant, (v) the reimbursement to
AGHI of approximately $900,000 in direct out-of-pocket expenses incurred
in connection with the acquisition of the Initial Hotels, (vi) benefits to
the Lessee and AGHI under the Participating Leases and Management
Agreements, and (vii) benefits to Mr. Jorns from the ownership of the
Beverage Corporations (as defined in "Formation Transactions");

. Risks affecting the real estate industry generally, including economic
and other conditions that may adversely affect real estate investments,
including the Initial Hotels, and the Lessee's ability to make rent
payments from the operations of the Initial Hotels, relative illiquidity
of real estate, increases in taxes caused by increased assessed values or
property tax rates, and potential liabilities, including liabilities for
unknown or future environmental problems, all of which could have a
material adverse effect on Cash Available for Distribution;

. Risks associated with the fact that certain of the Initial Hotels
experienced net losses in recent years; accordingly, there can be no
assurance that the Company will not experience net losses in the future;

. The risk that the planned renovations at certain of the Initial Hotels
may adversely impact hotel revenues and rent payments due under the
Participating Leases, which, in turn, would have a material adverse
impact on Cash Available for Distribution;

. Tax risks, including taxation of the Company as a corporation if it fails
to qualify as a REIT and taxation of the Operating Partnership as a
corporation if it were deemed not to be a partnership, and the Company's
liability for federal and state taxes on its income in either such event,
which could have a material adverse effect on Cash Available for
Distribution;

. Risks normally associated with debt financing, including the fact that
there is no limitation on the amount of indebtedness that may be incurred
by the Company, except as imposed under the Line of Credit and may be
imposed by future lenders to the Company;

. The risk that sufficient sources of financing will not be available to
fund capital expenditure requirements, including planned renovations and
the Company's obligation under the ground lease for the Fred Harvey
Albuquerque Airport Hotel to construct, at the Company's expense, 100
additional guest rooms if the occupancy at such hotel is 85.0% or greater
for 24 consecutive months;

. Potential loss of franchise licenses relating to the franchised Initial
Hotels, and varying capital requirements of franchisors that may affect
the Company's return on its investment in the Initial Hotels; and

. The restriction on ownership of shares of Common Stock intended to insure
compliance with certain requirements related to continued qualification
of the Company as a REIT, and certain other provisions in the Company's
Charter and Bylaws, all of which may have the effect of inhibiting a
change in control of the Company even when such a change of control could
be beneficial to the Company's stockholders.

AGHI AND THE LESSEE

American General Hospitality, Inc.

AGHI, based in Dallas, Texas, was founded in 1981 by Mr. Jorns, the Company's
Chairman of the Board, Chief Executive Officer and President. AGHI has
experienced significant growth over the last five years as its management
portfolio increased from 39 hotels with more than 5,200 guest rooms under
management at December 31, 1990, to 74 hotels with more than 13,865 guest rooms
under management at March 31, 1996. For the twelve months ended March 31, 1996,
the hotels managed by AGHI generated revenues in excess of $275 million.
According to Hotel & Motel Management, a leading hotel trade publication, AGHI
was the nation's

4
<PAGE>

fourth largest independent hotel management company in 1995 based upon the
number of hotels under management. As of March 31, 1996, AGHI had approximately
6,000 employees. AGHI has been involved in the repositioning of approximately
70 different hotels operated under various national franchise brands. Pursuant
to the terms of the Management Agreements, and for so long as AGHI is managing
hotels for the benefit of the Company, AGHI has agreed to limit its business
activities to managing and operating Company-owned hotels and hotels owned by
third parties. The Company will not have any economic interest in AGHI's hotel
management operations. The Lessee will contract with AGHI to manage the Initial
Hotels under an incentive compensation structure. See "The Initial Hotels--The
Management Agreements." Messrs. Jorns and Wiles, two executive officers of the
Company, own collectively approximately 21.0% of AGHI. The remaining interests
in AGHI are owned by James E. Sowell, Lewis W. Shaw II and Kenneth W. Shaw,
three of the Primary Contributors. See "AGHI and the Lessee."

AGH Leasing, L.P.

The Company will lease each Initial Hotel to the Lessee pursuant to a
separate Participating Lease and, while not legally obligated to do so, expects
to lease additional hotels that may be acquired or developed by the Company to
the Lessee. Messrs. Jorns, Wiles and Barr, all executive officers of the
Company, own collectively approximately 23.0% of the Lessee. See "AGHI and the
Lessee." The remaining interests in the Lessee are owned by Messrs. Sowell,
Shaw and Shaw. Each Participating Lease will have a term of twelve years,
subject to earlier termination upon the occurrence of certain events. Under the
Participating Leases, the Lessee will be obligated to make fixed weekly base
rent payments ("Base Rent") to the Company and monthly participating rent
payments based on a percentage of revenues ("Participating Rent") to the
Company. The Company has structured the terms of the Participating Leases, the
Management Agreements and the related agreements in an effort to seek to align
the interests of AGHI and the Lessee with the interests of the Company's
stockholders. See "AGHI and the Lessee," "The Initial Hotels--The Participating
Leases" and "--The Management Agreements."

THE INITIAL HOTELS

The thirteen Initial Hotels are diversified by five different national hotel
affiliations, including Hilton, Courtyard by Marriott, Holiday Inn, Hampton Inn
and Days Inn and include eleven full-service hotels, including one hotel with a
conference center, and two limited-service hotels. In addition, the Company
plans to reposition, within one year after the completion of the Offering,
seven of the Initial Hotels (four Holiday Inns, one Days Inn and two
independent hotels) through an upgrade and conversion into hotels that operate
under the Wyndham Hotel, DoubleTree Hotel, Crowne Plaza, Holiday Inn Select and
Hampton Inn brands. The Company believes that following such upgrading and
conversion, these hotels will experience increases in occupancy and room rates
as a result of the new franchisors' national brand recognition, reservation
systems and group sales organization. There can be no assurance that such brand
conversions and repositionings will occur as planned or that, if such brand
conversions and repositionings occur, the affected hotels will experience
occupancy and rate increases. The Company believes that the diversity of its
initial portfolio moderates the potential effects on the Company of regional
economic conditions or local market competition affecting specific hotel
franchises, hotel markets, or price segments within the industry. The hotels
are located primarily in major metropolitan areas at or in close proximity to
commercial airports, interstate highways or local commercial demand generators,
such as regional shopping centers, convention centers or tourist attractions.

The table on the following page sets forth certain information with respect
to the Initial Hotels. The Lessee is obligated to pay to the Company annually
the greater of Base Rent or Participating Rent at each of the Initial Hotels.

5
<PAGE>

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED MARCH 31, 1996
--------------------------------------------------------------
PRO
RENOVATIONS FORMA
AND CAPITAL TOTAL PRO PRO FORMA
NUMBER YEAR IMPROVEMENT REVENUE PRO FORMA LESSEE
OF BUILT/ EXPENDITURES, OF THE FORMA PARTICI- NET
GUEST RENO- 1/1/93- INITIAL BASE PATING INCOME
INITIAL HOTELS LOCATION ROOMS VATED(1) 3/31/96(2) HOTELS RENT(3) RENT(3) (LOSS)(4) OCCUPANCY ADR REVPAR(5)
- ---------------- --------------- ------ --------- ------------- ------- ------- -------- --------- --------- ------- ---------
(DOLLARS IN THOUSANDS, EXCEPT FOR ADR AND REVPAR)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AGH PREDECESSOR HOTELS(6)
Holiday Inn
Dallas DFW
Airport West(7)
............... Bedford, TX 243 1974/1995 $ 4,582 $ 4,881 $ 827 $ 1,440 $ 3 64.9% $ 66.05 $ 42.84
Courtyard by
Marriott-
Meadowlands(7).. Secaucus, NJ 165 1989/1994 1,500 4,525 946 1,593 (108) 77.7 83.42 64.82
Hampton Inn
Richmond
Airport(7)..... Richmond, VA 124 1987/1995 443 1,962 530 866 42 69.9 58.64 40.96
Hotel Maison de
Ville(7)....... New Orleans, LA 23 1788/1994 849 1,881 274 423 18 64.7 234.85 151.84
AGH ACQUISITION HOTELS(8)
Hilton Hotel-
Toledo(7) ..... Toledo, OH 213 1987/1994 1,069 6,094 832 1,336 159 71.7 61.31 43.96
Holiday Inn
Dallas DFW
Airport
South(7)....... Irving, TX 409 1974/1995 2,776 12,070 2,410 4,080 (102) 77.2 73.54 56.79
Holiday Inn New
Orleans
International
Airport(7)(9)(10).. Kenner, LA 304 1973/1994 3,236 8,333 2,099 3,424 (10) 79.5 74.17 58.99
Days Inn Ocean
City(7)(10)(11).. Ocean City, MD 162 1989/1994 529 2,365 719 1,221 (157) 48.2 78.75 37.96
Holiday Inn
Select-
Madison(10)(12).. Madison, WI 227 1987/1995 473 7,845 1,597 2,758 54 78.8 78.91 62.20
Holiday Inn Park
Center
Plaza(10)(12).. San Jose, CA 231 1975/1990 304 7,658 1,091 2,069 94 76.1 80.17 61.03
Fred Harvey
Albuquerque
Airport
Hotel(10)(13).. Albuquerque, NM 266 1972/1994 664 6,190 1,202 1,933 (147) 83.3 53.43 44.53
Le Baron Airport
Hotel(10)(14).. San Jose, CA 327 1973/1995 993 9,199 1,323 2,625 283 69.8 67.69 47.24
Holiday Inn
Mission
Valley(10)(14).. San Diego, CA 318 1970/1995 926 6,662 1,542 2,134 434 68.0 64.80 44.09
----- ------- ------- ------- ------- ----
Totals/Weighted Averages
Initial Hotels................ 3,012 $18,344 $79,665 $15,392 $25,902 $563 73.0% $ 70.97 $ 51.77
AGH Predecessor Hotels........ 555 7,374 13,250 2,577 4,322 (45) 69.8 76.73 53.59
AGH Acquisition Hotels........ 2,457 10,969 66,415 12,815 21,581 608 73.6 69.75 51.37
</TABLE>
- -------
(1) Year renovated reflects the calendar year in which management deems that a
significant renovation was completed at that hotel.
(2) Represents total capital expenditures at each hotel from January 1, 1993
through March 31, 1996.
(3) Represents Base Rent and Participating Rent calculated on a pro forma basis
by applying the rent provisions of the Participating Leases to the pro
forma revenues of the Initial Hotels as if January 1, 1995 were the
beginning of the lease year. Under the terms of the Participating Leases,
the Lessee is obligated to pay the greater of Base Rent or Participating
Rent. The departmental revenue thresholds in certain of the Participating
Lease formulas adjust in the future commencing January 1, 1997. See "The
Initial Hotels--The Participating Leases."
(4) After pro forma management fees of approximately $2.1 million payable to
AGHI. Such management fees are subordinate to Participating Lease payments
to the Company. See "Selected Financial Information," "AGHI and the Lessee"
and "The Initial Hotels--The Management Agreements."
(5) REVPAR is determined by dividing total room revenue by total available
rooms for the applicable period.
(6) The AGH Predecessor Hotels consist of the following four Initial Hotels:
the Holiday Inn Dallas DFW Airport West, the Courtyard by Marriott-
Meadowlands, the Hotel Maison de Ville, and the Hampton Inn Richmond
Airport.
(7) This hotel is currently operated and managed by AGHI.
(8) The AGH Acquisition Hotels consist of the following nine Initial Hotels
(four of which are currently managed by AGHI): the Holiday Inn Dallas DFW
Airport South, Hilton Hotel-Toledo, Holiday Inn New Orleans International
Airport, Holiday Inn Park Center Plaza, Holiday Inn Select-Madison, Holiday
Inn Mission Valley, Le Baron Airport Hotel, Days Inn Ocean City, and Fred
Harvey Albuquerque Airport Hotel.
(9) The Company plans to reposition this hotel and convert it to a hotel that
operates under the Holiday Inn Select brand.
(10) There can be no assurance that the brand conversion and repositioning of
this hotel will occur as planned.
(11) The Company plans to reposition this hotel and convert it to a hotel that
operates under the Hampton Inn brand.
(12) The Company plans to reposition this hotel and convert it to a hotel that
operates under the Crowne Plaza brand.
(13) This hotel is currently affiliated with Best Western(R). The Company has
plans to reposition this hotel and convert it to a hotel that operates
under the Wyndham Hotel brand.
(14) The Company plans to reposition this hotel and convert it to a hotel that
operates under the DoubleTree Hotel brand.

6
<PAGE>

GROWTH STRATEGIES

The Company will seek to maximize current returns to stockholders through
increases in Cash Available for Distribution and to increase long-term total
returns to stockholders through appreciation in value of the Common Stock. The
Company plans to achieve these objectives through participation in any
increased revenues from the Initial Hotels, pursuant to the Participating Rent
payments under the Participating Leases and by the acquisition and selective
development of additional hotels.

ACQUISITIONS

The Company intends to acquire additional hotels that meet one or more of the
investment criteria outlined below. The Company intends to capitalize on AGHI's
extensive resources and industry contacts available through its hotel
management business, sizable existing management portfolio, and significant
industry and national presence to access acquisition opportunities not readily
available to the market in general. The Company currently has options to
acquire AGHI's interest in two Courtyards by Marriott currently under
development containing an aggregate of 318 guest rooms. See "The Company--
Development." The Company believes that its executive officers' experience in
the hotel industry will enable the Company to acquire, upgrade and convert
hotels in order to capture the growth potential from such acquisitions. The
Company initially will employ five professionals devoted exclusively to hotel
acquisitions.

The Company will seek to acquire additional hotels that meet one or more of
the following investment criteria:

. full-service hotels located in major metropolitan markets, including
hotels that are in close proximity to the airports that serve such
markets, as well as selective prominent hotels in major tourist areas;

. hotels that are underperforming and are candidates for implementation of
market repositioning, franchise conversion and turnaround strategies that
employ the extensive management and marketing experience of AGHI;

. hotels where the Company believes that necessary renovation or
redevelopment can be completed expeditiously and will result in an
immediate improvement in the hotel's revenues and an attractive return on
its renovation or redevelopment investment;

. hotels with sound operating fundamentals that are performing below their
potential because they are owned or controlled by financially distressed
owners or involuntary owners that may have acquired hotels through
foreclosure, including owners that lack the financial resources or the
commitment to make capital improvements appropriate for such hotels;

. hotels in attractive locations that the Company believes would benefit
significantly by changing franchises to a recognized brand affiliation
that is capable of increasing penetration in a particular market;

. nationally franchised hotels in locations with a relatively high demand
for rooms, relatively low supply of competing hotels and high barriers to
entry; and

. portfolios of hotels that exhibit some or all of the other criteria
discussed above, where purchasing several hotels in one transaction
enables the Company to obtain a favorable price, or to purchase
attractive hotels that otherwise would not be available to the Company.

7
<PAGE>

to perform in accordance with expectations and that estimates of the cost of
improvements necessary to reposition hotels will prove inaccurate, as well as
general investment risks associated with any new real estate investment. In
addition, future trends in the hotel industry may make future acquisitions
economically impractical. Moreover, there can be no assurance that the Company
will be able to acquire hotels that meet its investment criteria or that any
such hotel's operations can be successfully improved. See "Risk Factors--Real
Estate Investment Risks--General Risks" and "--Acquisition and Development
Risks."

DEVELOPMENT

The Company's executive officers average approximately 17 years of experience
in the development and renovation of hotel properties. Under the direction of
the Company's executive officers, AGHI has developed six hotel properties, with
an aggregate development cost of approximately $60 million, and has completed
redevelopment or repositioning projects at approximately 70 hotel properties,
including both full- and limited-service hotels. The Company anticipates that
most of the additional hotels developed in the future will be in the full-
service commercial sector, including such major brands as Hilton, Marriott's
family of brands, Wyndham Hotel, DoubleTree Hotel, Crowne Plaza, Holiday Inn,
Sheraton and Embassy Suites. Other than in connection with the limited
expansion of existing hotels, the Company may not engage in development
activities without the consent of the lenders under the Line of Credit.

The Company's development activities will be limited by the terms of the Line
of Credit, its ability to access financing as well as future trends in the
hotel industry. Like acquisitions, new project development is also subject to
numerous risks, including risks of construction delays or cost overruns that
may increase project costs. Accordingly, there can be no assurance that the
Company will be able to develop hotels that meet its investment criteria or
that any hotels can be successfully developed. See "Risk Factors--Real Estate
Investment Risks--Acquisition and Development Risks."

INTERNAL GROWTH

The Company believes that, based on the historical operating results of the
Initial Hotels, the strength of the Company's and AGHI's existing management
teams and the structure of the Participating Leases, the Initial Hotels should
provide the Company with the opportunity for significant revenue growth. The
Company believes that it has structured its business relationships with AGHI
and the Lessee to provide incentives to operate and maintain the Initial Hotels
in a manner that will increase revenue and the Company's Cash Available for
Distribution. See "The Initial Hotels--The Participating Leases" and "--The
Management Agreements."

AGHI has extensive experience in managing hotels through all stages of the
lodging industry cycle, including industry downturns. During the late 1980's
and early 1990's, AGHI managed over 140 different hotels for institutional
owners, a substantial number of whom acquired the hotels through foreclosure,
thus enhancing AGHI's extensive turnaround and repositioning experience as well
as its management depth and operating systems. The Company believes there is
significant potential to increase revenues at the Initial Hotels (especially
those not currently managed by AGHI) and increase Participating Lease payments
by employing the following strategies:

. product repositioning through renovation and refurbishment of the hotels;

. brand repositioning through conversion to leading national franchise
affiliations;

. operational repositioning through property-level management and
marketing; and

. use of Participating Leases designed to capture increased revenues
attributable to improved marketing and yield management techniques that
AGHI will employ at the Initial Hotels not previously operated and
managed by AGHI and any additional hotels acquired by the Company after
the completion of the Offering.

8
<PAGE>

Product Repositioning. The Company believes that a regular program of capital
improvements, including replacement and refurbishment of FF&E at the Initial
Hotels, as well as the renovation and redevelopment of certain of the Initial
Hotels, will maintain the competitiveness of the Initial Hotels and increase
revenues. From January 1, 1993 through March 31, 1996, approximately $15.0
million (an average of approximately $9,000 per guest room) was spent on
renovations and capital improvements at the eight Initial Hotels currently
operated and managed by AGHI. The Company expects to employ a repositioning and
conversion strategy in connection with its hotel acquisitions. Consistent with
this strategy, the Company has scheduled approximately $24.6 million (an
average of approximately $13,400 per guest room) to be spent on renovations and
refurbishments within one year after the completion of the Offering at seven of
the Initial Hotels anticipated to undergo brand conversions within one year
after the closing of the Offering (see "Brand Repositioning" below).

As an example of this strategy, AGHI, after its acquisition in May 1992 of an
interest in the Holiday Inn Dallas DFW Airport South and its retention as
manager, commenced an extensive $2.5 million renovation of the hotel, which
included upgrades of all guest rooms and corridors, common areas, meeting
space, and restaurants and the lounge and renovation of the exterior of the
building. At the time of purchase, the hotel had lost its Holiday Inn franchise
due to product deficiencies and was experiencing declining occupancy arising
from poor marketing and insufficient capital improvements. Since the completion
of the initial renovations in 1992, an additional $2.5 million has been spent
to upgrade the hotel. In 1992, occupancy, ADR and REVPAR at the Holiday Inn
Dallas DFW Airport South were 49.1%, $54.18 and $26.61, respectively. By the
twelve months ended March 31, 1996, occupancy at the hotel had increased 57.2%
to 77.2%, ADR at the hotel had increased 35.7% to $73.54 and REVPAR at the
hotel had increased 113.4% to $56.79. There can be no assurance that the
Company will be able to achieve similar results with respect to the Initial
Hotels or hotels acquired in the future.

Brand Repositioning. The Company believes an opportunity exists in certain
major U.S. markets to acquire underperforming hotels that currently operate as
independent hotels or under franchise affiliations that have limited brand
recognition and convert them to stronger, more nationally recognized brand
affiliations, such as Courtyard by Marriott, DoubleTree Hotel, Crowne Plaza,
Holiday Inn, Holiday Inn Select, and Wyndham Hotel brands, in order to improve
the operating performance at these hotels. Seven of the Initial Hotels are
anticipated to undergo brand conversions within one year after the closing of
the Offering. It is expected that the Holiday Inn Park Center Plaza will be
converted from a traditional Holiday Inn to a Crowne Plaza, the Holiday Inn
Select-Madison will be converted to a Crowne Plaza, the Days Inn Ocean City
will be converted to a Hampton Inn, the Le Baron Airport Hotel will be
converted to a DoubleTree Hotel, the Holiday Inn New Orleans International
Airport will be converted from a traditional Holiday Inn to a Holiday Inn
Select, the Holiday Inn Mission Valley will be converted to a DoubleTree Hotel,
and the Fred Harvey Albuquerque Airport Hotel will be converted to a Wyndham
Hotel. These brand conversions are subject to, among other things, final
franchisor and lender approval, and there can be no assurance that such brand
conversions and repositionings will occur as planned. See "Risk Factors--Risks
of Operating Hotels Under Franchise Agreements; Approval for Brand
Conversions."

9
<PAGE>

making approximately $530,000 in renovations of guest rooms and public space
and exterior improvements to the hotel. Since the initial renovation was
completed in May 1994, AGHI has invested an additional $845,400 to further
improve the restaurant, lounge, exterior entrances, guest rooms and meeting
facilities. In 1993, occupancy, ADR and REVPAR at the Courtyard by Marriott-
Meadowlands were 74.8%, $65.63 and $49.09, respectively. By the twelve months
ended March 31, 1996, occupancy at the hotel had increased 3.9% to 77.7%, ADR
at the hotel had increased 27.1% to $83.42 and REVPAR at the hotel had
increased 32.0% to $64.82. There can be no assurance that the Company will be
able to achieve similar results with respect to the Initial Hotels or hotels
acquired in the future.

The Company's ability to utilize its repositioning strategies will depend on
its ability to access financing. The Company plans to use funds available under
the Line of Credit to implement its planned conversion and repositioning
strategy at certain of the Initial Hotels. Substantial renovations of hotels
often disrupt the operations of those hotels due to hotel guest rooms and
common areas being out of service for extended periods. See "Risk Factors--
Hotel Industry Risks--Risks of Necessary Operating Costs and Capital
Expenditures; Required Hotel Renovations."

Operational Repositioning. The Company expects to achieve internal growth
through the application of AGHI's operating strategies, which stress
responsiveness and adaptability to changing market conditions to maximize
revenue growth. The Company's objectives include increasing REVPAR through
increases in occupancy and ADR through AGHI's continuing use of (i) interactive
yield management techniques, (ii) highly developed operating systems and
controls, (iii) targeted sales and marketing plans, (iv) proactive financial
management, (v) extensive training programs, and (vi) an incentive-based
compensation structure.

Participating Leases Structure. The Participating Leases are designed to
allow the Company to participate in any increased revenues from the hotels in
which it invests. The Company also believes that by employing AGHI as the
manager of the five Initial Hotels that AGHI does not currently manage, AGHI,
through improved marketing and yield management techniques, will increase the
revenues of these hotels, thereby increasing the rent payable to the Company by
the Lessee under the Participating Leases. The Company and the Lessee relied on
this estimated increase in revenue in establishing the rent payable to the
Company under the Participating Leases relating to these hotels. While the rent
provisions of the Participating Leases are revenue-based, such provisions have
been developed with consideration of the fixed and variable nature of hotel
operating expenses and changes in operating margins typically associated with
increases in revenues. See "The Initial Hotels--The Participating Leases."

In an effort to align the interests of AGHI and the Lessee with the interests
of the Company's stockholders, the Participating Leases, the Management
Agreements and certain related agreements provide for the following:

. the partners of the Lessee have agreed upon consummation of the Offering
to (i) initially capitalize the Lessee with $500,000 in cash and (ii)
pledge 275,000 OP Units having a value of approximately $4.9 million,
based on the Offering Price, to the Company to secure the Lessee's
obligations under the Participating Leases (the "Lessee Pledge");

. until the Lessee's net worth equals the greater of (i) $6.0 million and
(ii) 17.5% of actual rent payments from hotels leased to the Lessee
during the preceding calendar year (the "Lessee Distribution
Restriction"), the Lessee will not pay any distributions to its partners
(except for the purpose of permitting its partners to pay taxes on the
income attributable to them from the operations of the Lessee and except
for distributions relating to interest or dividends received by the
Lessee from cash or securities held by it);

. management fees paid to AGHI by the Lessee will include an incentive fee
of up to 2.0% of gross revenues based upon reaching certain gross revenue
targets at the Initial Hotels;

. management fees payable by the Lessee to AGHI will be subordinated to the
Lessee's rent obligations to the Company under the Participating Leases;

10
<PAGE>

. defaults by the Lessee under each Participating Lease will result in a
cross-default of all other Participating Leases to which the Lessee is a
party allowing the Company to terminate each other lease;

. Messrs. Jorns and Wiles, who are stockholders of AGHI and are also
executive officers of the Company, will agree to use 50.0% of the
dividends (net of tax liability) received by them from AGHI that are
attributable to AGHI's earnings from the management of hotels owned by
the Company (as determined in good faith by such officers) to purchase
additional interests in the Company; and

. the Board of Directors of the Company will establish a Leasing Committee,
consisting entirely of Independent Directors (as defined in "Management--
Board of Directors and Committees"), that will review not less frequently
than annually the Lessee's compliance with the terms of the Participating
Leases and will review and approve the terms of each new Participating
Lease between the Company and the Lessee.

FORMATION TRANSACTIONS

Set forth below is a description of the principal transactions in connection
with the formation of the Company and the acquisition of the Initial Hotels
(the "Formation Transactions"):

. The Company will sell 7,500,000 shares of Common Stock in the Offering.
All of the net proceeds to the Company from the Offering will be
contributed to AGH GP and AGH LP, which, in turn, will contribute such
proceeds, together with certain assets acquired from AGHI's Employee
Retirement and Savings Plan (the "Plan") (as described below), to the
Operating Partnership in exchange for an approximate 80.2% interest in
the Operating Partnership. AGH GP, a wholly owned subsidiary of the
Company, is the sole general partner of the Operating Partnership and
will own a 1.0% interest in the Operating Partnership. AGH LP, also a
wholly owned subsidiary of the Company, will initially own an approximate
79.2% limited partnership interest in the Operating Partnership;

. The Company will acquire directly or indirectly a 100.0% interest in each
of the Initial Hotels for an aggregate of 1,896,996 OP Units, 137,008
shares of Common Stock, approximately $91.0 million in cash, and the
assumption of approximately $52.9 million in mortgage indebtedness (of
which amount approximately $33.5 million will be repaid from the net
proceeds of the Offering), as follows:

. The Operating Partnership will acquire from the Primary Contributors
interests in six of the Initial Hotels (Holiday Inn Dallas DFW Airport
West, Holiday Inn Dallas DFW Airport South, Hotel Maison de Ville,
Hampton Inn Richmond Airport, Courtyard by Marriott-Meadowlands and
Hilton Hotel-Toledo) and the Primary Contributors' contract right to
acquire the Holiday Inn Park Center Plaza in exchange for 560,178 OP
Units (valued at approximately $9.9 million, based on the Offering
Price);

. The Company will acquire from the Plan interests in five of the
Initial Hotels (Hampton Inn Richmond Airport, Holiday Inn Dallas DFW
Airport West, Hotel Maison de Ville, Courtyard by Marriott-Meadowlands
and Hilton Hotel-Toledo) in exchange for 137,008 shares of Common
Stock (valued at approximately $2.4 million, based on the Offering
Price), and the Company will, in turn, contribute such interests to
the Operating Partnership in exchange for 137,008 OP Units. The
Company's executive officers collectively own less than a 5.0%
beneficial interest in the Plan; and

. The Operating Partnership will acquire, directly or as assignee of the
Primary Contributors' contract rights, interests in eight of the
Initial Hotels from parties that are unaffiliated with the Primary
Contributors in exchange for an aggregate of 1,336,818 OP Units
(valued at approximately $23.7 million, based on the Offering Price)
and approximately $91.0 million in cash.

. The Operating Partnership will reimburse AGHI for approximately $900,000
for direct out-of-pocket expenses incurred in connection with the
acquisition of the Initial Hotels, including legal, environmental and
engineering expenses;

11
<PAGE>

. The Operating Partnership will lease each Initial Hotel to the Lessee for
a term of twelve years pursuant to a Participating Lease, which will
require Base Rent to be paid on a weekly basis and Participating Rent to
be paid on a monthly basis;

. The Operating Partnership will receive from the Primary Contributors
options to acquire their interests in the two Option Hotels (see "The
Initial Hotels--Options to Purchase and Rights of First Refusal");

. In order for the Company to qualify as a REIT, the Operating Partnership
will sell certain personal property relating to certain of the Initial
Hotels to the Lessee in exchange for one or more five-year amortizing
recourse promissory notes in the aggregate principal amount of $315,000
that will be secured by such personal property (collectively, the "FF&E
Note");

. The Lessee will contract with AGHI to operate the Initial Hotels under
separate Management Agreements providing for the subordination of the
payment of the management fees to the Lessee's obligation to pay rent to
the Operating Partnership under the Participating Leases;

. The Operating Partnership will establish the Line of Credit, which will
be used primarily for the acquisition and renovation of additional hotels
and the renovation of certain Initial Hotels, and will borrow
approximately $8.5 million therefrom in connection with the closing of
the Offering; and

. In order to facilitate compliance with state and local liquor laws and
regulations, the Lessee will sublease (the "Beverage Subleases") those
areas of the Initial Hotels where alcoholic beverages are served to
special purpose corporations, eleven of which are wholly owned by Mr.
Jorns (collectively, the "Beverage Corporations"). The Beverage
Corporations will pay to the Lessee rent payments equal to 30% of gross
revenues from the sale of food and beverages generated from such areas;
however, pursuant to the Participating Leases, such subleases will not
reduce the Participating Rent payments to the Company, which it is
entitled to receive from such food and beverage sales.

12
<PAGE>

Following the consummation of the Formation Transactions, the structure and
relationship of the Company, the Operating Partnership, the Lessee and AGHI
will be as follows:

[LOGO OF AMERICAN GENERAL HOSPITALITY, INC.]

- --------
(1) Upon completion of the Formation Transactions, each of Messrs. Jorns, Wiles
and Barr will own 1.2%, 0.4%, and 0.2%, respectively, of the outstanding
interests (shares of Common Stock and OP Units) in the Company. See
"Principal Stockholders."
(2) Messrs. Jorns, Wiles and Barr own, directly or indirectly, 15.43%, 4.89%
and 2.5%, respectively, of the Lessee.
(3) Messrs. Jorns and Wiles own 15.83% and 5.0%, respectively, of AGHI.

13
<PAGE>

BENEFITS TO THE OFFICERS AND THE PRIMARY CONTRIBUTORS

The Primary Contributors are Steven D. Jorns, Bruce G. Wiles, and Kenneth E.
Barr, each of whom is an executive officer of the Company, and James E. Sowell,
Lewis W. Shaw II and Kenneth W. Shaw, each of whom is an affiliate of the
Lessee and AGHI and, where applicable, the term "Primary Contributors" includes
their respective controlled affiliates and associates (including spouses).

As a result of the Formation Transactions, officers of the Company and the
Primary Contributors will receive the following benefits:

. Mr. Jorns will receive 89,441 OP Units, Mr. Wiles will receive 26,846 OP
Units, Mr. Barr will receive 10,000 OP Units, Mr. Sowell will receive
256,120 OP Units, Mr. Lewis W. Shaw II will receive 89,441 OP Units, and
Mr. Kenneth W. Shaw will receive 88,330 OP Units, as consideration for
their interests in six of the Initial Hotels and the assignment of the
contract right to acquire one additional Initial Hotel. The OP Units to
be received by Messrs. Jorns, Wiles, Barr, Sowell, Shaw and Shaw (which
are exchangeable for cash, or at the Company's option for Common Stock,
at any time after one year following the completion of the Offering) will
have a value of approximately $1.6 million, $476,516 million, $177,500,
$4.5 million, $1.6 million and $1.6 million, based on the Offering Price,
respectively, and will be more liquid than their interests in the Initial
Hotels once a public trading market for the Common Stock commences. As of
March 31, 1996, the aggregate book value of the interests and rights to
be contributed by such persons was approximately $4.4 million;

. Messrs. Jorns, Wiles, Barr and Russ C. Valentine, an executive officer of
the Company, will be granted options to acquire 225,000, 75,000, 40,000
and 20,000 shares of Common Stock, respectively, at the Offering Price,
which will become exercisable in four equal annual installments
commencing on the date of grant;

. Messrs. Jorns, Wiles, Barr and Valentine will receive stock awards of
30,000, 10,000, 6,000 and 4,000 shares of restricted Common Stock,
respectively, which will vest over a four-year period commencing on the
date of grant;

. The Operating Partnership will repay approximately $3.75 million of
indebtedness guaranteed by AGHI;

. Certain tax consequences to the Primary Contributors resulting from the
conveyance of their interests in the Initial Hotels to the Operating
Partnership will be deferred;

. Through its operation of the Initial Hotels pursuant to the Participating
Leases, the Lessee, which is owned by Messrs. Jorns, Wiles, Barr, Sowell,
Shaw and Shaw, will be entitled to all of the cash flow from the Initial
Hotels after the payment of operating expenses, management fees and rent
under the Participating Leases (which cash flow, after establishing a
reserve for tax distributions to its partners, the Lessee will use
annually, until its net worth equals the greater of (i) $6.0 million and
(ii) 17.5% of actual rent payments from hotels leased to the Lessee
during the preceding calendar year, to purchase interests in the
Company). Pursuant to the Management Agreements, AGHI, which is owned by
Messrs. Jorns, Wiles, Sowell, Shaw and Shaw, will receive management fees
from the Lessee, which are subordinate to the rent payments due to the
Company under the Participating Leases, in an amount initially equal to a
base fee of 1.5% of gross revenues plus an incentive fee of up to 2.0% of
gross revenues that will be earned incrementally upon reaching certain
gross revenue targets. See "The Initial Hotels--The Participating Leases"
and "--The Management Agreements;" and

. Through its operation of the areas of eleven of the Initial Hotels that
serve alcoholic beverages, the Beverage Corporations, which are wholly
owned by Mr. Jorns, will be entitled to all cash flow from food

14
<PAGE>

and beverage sales generated from such areas after the payment of rent to
the Lessee equal to 30% of gross revenues from such sales; such
arrangement will not, however, reduce Participating Rent payments to the
Company, which it is entitled to receive from such food and beverage
sales.

TAX STATUS

The Company intends to make an election to be taxed as a REIT under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its initial taxable year ending December 31, 1996. If the
Company qualifies for taxation as a REIT, the Company (subject to certain
exceptions) will not be subject to federal income taxation, at the corporate
level, on its taxable income that is distributed to the stockholders of the
Company. A REIT is subject to a number of organizational and operational
requirements, including a requirement that it currently distribute at least
95.0% of its annual taxable income. Failure to qualify as a REIT would render
the Company subject to tax (including any applicable minimum tax) on its
taxable income at regular corporate rates, and distributions to the
stockholders in any such year would not be deductible by the Company. Although
the Company does not intend to request a ruling from the Internal Revenue
Service (the "IRS") as to its REIT status, the Company will receive, at the
closing of the Offering, the opinion of its legal counsel that the Company
qualifies for taxation as a REIT, which opinion is based on certain assumptions
and representations and is not binding on the IRS or any court. Even if the
Company qualifies for taxation as a REIT, the Company may be subject to certain
federal, state and local taxes on its income and property. In connection with
the Company's election to be taxed as a REIT, the Company's Charter imposes
restrictions on the transfer of shares of Common Stock. The Company intends to
adopt the calendar year as its taxable year. See "Risk Factors--Tax Risks" and
"--Potential Anti-Takeover Effect of Certain Provisions of Maryland Law and of
the Company's Charter and Bylaws--Ownership Limitation," "Description of
Capital Stock--Restrictions on Transfer," and "Federal Income Tax
Considerations--Taxation of the Company."

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by
the Company............ 7,500,000 shares
Common Stock to be
outstanding after the 9,584,004 shares(1)
Offering...............
Use of Proceeds......... To acquire the Initial Hotels, to repay certain
mortgage and other existing indebtedness in connection
with the acquisition of the Initial Hotels, and to pay
certain expenses in connection with the Offering and
the Formation Transactions. See "Use of Proceeds."
NYSE symbol............. AGT
</TABLE>
- --------
(1) Includes 1,896,996 shares of Common Stock to be issuable one year after the
completion of the Offering upon the exchange of OP Units issued in the
Formation Transactions (other than to AGH GP and AGH LP), 137,008 shares of
Common Stock issued to the Plan in connection with the Formation
Transactions and 50,000 shares of restricted Common Stock that will vest
over a four-year period granted to the Company's executive officers as
stock awards. Excludes 850,000 reserved but unissued shares of Common Stock
under the American General Hospitality Corporation 1996 Incentive Plan (the
"1996 Plan") and 100,000 reserved but unissued shares of Common Stock under
the American General Hospitality Corporation Non-Employee Directors'
Incentive Plan (the "Directors' Plan"). See "Management--Stock Incentive
Plans," "Formation Transactions" and "Partnership Agreement--Exchange
Rights."

15
<PAGE>

DISTRIBUTION POLICY

Subsequent to the Offering, the Company intends to make regular quarterly
distributions to its stockholders. The Company's first distribution, for the
period from the closing of the Offering to September 30, 1996, is expected to
be $.2746 per share of Common Stock, representing a pro rata distribution of
the anticipated regular quarterly distribution of $0.4075 per share for a full
quarter, which, on an annualized basis, represents an initial annual
distribution rate of $1.63 per share or approximately 9.2% of the Offering
Price. The Company estimates that approximately 25% of the initial annual
distribution will represent a return of capital for federal income tax
purposes. Based on the Company's estimated revenues less expenses for the
twelve months ended March 31, 1996, the Company would have been required to
distribute approximately $8.9 million, or $1.15 per share, in order to maintain
its status as a REIT. This estimated initial distribution represents 99.4% of
estimated Cash Available for Distribution. The holders of OP Units will be
entitled to distributions per OP Unit which are equal to the distributions
payable on a per share basis with respect to the Common Stock. The Company does
not expect to adjust the estimated distribution rate if the Underwriters' over-
allotment option is exercised. See "Partnership Agreement."

The Company has established the expected initial annual distribution rate
based upon the Company's estimate of Cash Available for Distribution, which has
been derived from the Statements of Estimated Revenues Less Expenses of the
Company for the twelve months ended March 31, 1996. The Company believes that
the estimated revenues less expenses for the twelve months ended March 31, 1996
constitute a reasonable basis for setting the expected initial annual
distribution rate. The Board of Directors, in its sole discretion, will
determine the actual distribution rate based on the Company's actual results of
operations, Cash Available for Distribution, economic conditions, tax
considerations (including those related to REITs) and other factors. See
"Distribution Policy."

16
<PAGE>

SUMMARY FINANCIAL INFORMATION

The following tables set forth unaudited summary estimated and pro forma
consolidated financial data for the Company, summary historical combined
financial data for the Initial Hotels and pro forma financial data for the
Initial Hotels and Lessee and should be read in conjunction with the financial
statements and notes thereto that are contained elsewhere in this Prospectus.
The estimated revenues less expenses, pro forma and other data is presented as
if the Formation Transactions and the application of the net proceeds of the
Offering had occurred as of January 1, 1995 and therefore incorporate certain
assumptions that are included in the notes to the Statements of Estimated
Revenues Less Expenses and Pro Forma Statements of Operations included
elsewhere in the Prospectus. The pro forma balance sheet data is presented as
if the Formation Transactions and the application of the net proceeds of the
Offering had occurred on March 31, 1996.

AMERICAN GENERAL HOSPITALITY CORPORATION

SUMMARY ESTIMATED AND PRO FORMA CONSOLIDATED FINANCIAL DATA(1)
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996 MARCH 31, 1996
----------------- -------------- -----------------
<S> <C> <C> <C>
ESTIMATED REVENUES LESS EX-
PENSES DATA:
Participating Lease
revenue(2)............... $24,775,142 $25,902,292 $ 6,527,908
Interest income........... 31,500 31,500 7,875
----------- ----------- ------------
Total revenue........... 24,806,642 25,933,792 6,535,783
----------- ----------- ------------
Depreciation.............. 7,404,235 6,551,936 1,485,233
Amortization.............. 646,660 646,660 161,665
Real estate and personal
property taxes and
property insurance....... 2,165,073 2,165,073 541,268
General and
administrative(3)........ 1,130,000 1,130,000 282,500
Ground lease expense...... 881,217 902,196 193,156
Amortization of unearned
officers'
compensation(4).......... 88,750 88,750 22,188
Interest expense.......... 1,886,733 2,276,058 569,015
----------- ----------- ------------
Total expenses.......... 14,202,668 13,760,673 3,255,025
----------- ----------- ------------
Estimated Revenues Less
Expenses before minority
interest................. 10,603,974 12,173,119 3,280,758
Minority interest(5)...... 2,099,587 2,410,278 649,590
----------- ----------- ------------
Estimated revenues less
expenses applicable to
common stockholders...... $ 8,504,387 $ 9,762,841 $ 2,631,168
=========== =========== ============
Estimated revenues less
expenses per common
share.................... $1.11 $1.27 $0.34
=========== =========== ============
Weighted average number of
shares of Common Stock
outstanding.............. 7,687,008 7,687,008 7,687,008
=========== =========== ============
<CAPTION>
AT MARCH 31, 1996
-----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.............. $ 3,684
Investment in hotel
properties, net.......... 176,208,094
Total assets.............. 179,468,378
Debt...................... 28,172,239
Minority interest in
Operating Partnership.... 29,907,136
Stockholders' equity...... 121,139,003
<CAPTION>
TWELVE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996 MARCH 31, 1996
----------------- -------------- -----------------
<S> <C> <C> <C>
OTHER DATA:
Funds From Operations(6).. $14,442,583 $15,017,494 $ 3,822,325
Cash Available for
Distribution(7).......... 12,091,825 12,609,622 3,325,050
Net cash provided by
operating activities(8).. 18,743,619 19,460,465 4,949,844
Net cash used in investing
activities(9)............ (3,115,404) (3,186,617) (803,895)
Net cash provided by (used
in) financing
activities(10)........... (7,312,180) (7,290,617) 4,792,345
Weighted average number of
shares of Common Stock
and of OP Units
outstanding.............. 9,584,004 9,584,004 9,584,004
</TABLE>

See notes on following page.

17
<PAGE>

INITIAL HOTELS

SUMMARY HISTORICAL COMBINED FINANCIAL DATA (11)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Room revenue........... $27,963,802 $30,376,150 $36,829,877 $43,541,206 $53,756,926 $11,857,784 $14,186,415
Food and beverage
revenue............... 13,526,143 13,597,748 15,453,080 16,378,861 17,717,760 4,291,351 4,683,138
Other revenue.......... 2,434,535 2,528,364 4,680,010 3,392,275 4,147,900 971,975 1,163,152
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenue.......... 43,924,480 46,502,262 56,962,967 63,312,342 75,622,586 17,121,110 20,032,705
Hotel operating
expenses.............. 32,251,012 35,083,148 40,130,782 44,349,278 51,198,375 11,622,390 13,216,152
Depreciation and
amortization.......... 2,575,564 6,329,770 5,847,629 5,986,460 8,131,244 2,839,488 1,567,020
Interest expense....... 3,802,670 4,819,749 4,667,281 4,771,483 6,307,202 1,411,434 1,705,764
Other expenses......... 1,946,193 617,334 2,543,235 2,996,568 3,132,865 763,398 789,611
----------- ----------- ----------- ----------- ----------- ----------- -----------
Revenues over (under)
expenses(12).......... $ 3,349,041 $ (347,739) $ 3,774,040 $ 5,208,553 $ 6,852,900 $ 484,400 $ 2,745,158
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
OTHER DATA:
Net cash provided by
operating activities.. $9,368,516 $13,928,371 $14,882,312 $1,885,863 $2,093,782
Net cash used in
investing activities.. (7,154,227) (13,895,746) (14,717,583) (1,252,875) (1,156,627)
Net cash provided by
(used in) financing
activities............ (1,354,888) 829,741 1,810,771 (507,506) 48,096
</TABLE>

LESSEE
SUMMARY PRO FORMA FINANCIAL DATA (1)(13)
(UNAUDITED)

<TABLE>
<CAPTION>
YEAR ENDED TWELVE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996 MARCH 31, 1996
----------------- ------------------- ------------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Room revenue........... $55,330,171 $56,830,028 $14,201,906
Food and beverage
revenue............... 18,191,504 18,335,582 4,732,323
Other revenue.......... 4,363,432 4,499,821 1,163,152
----------- ----------- -----------
Total revenue.......... 77,885,107 79,665,431 20,097,381
Hotel operating
expenses.............. 52,582,000 53,060,887 13,149,844
Depreciation and
amortization.......... 63,000 63,000 15,750
Interest expense....... 31,500 31,500 7,875
Other expenses......... 58,084 44,773 17,981
Participating Lease
expenses(2)........... 24,775,142 25,902,292 6,527,908
----------- ----------- -----------
Revenues over
expenses.............. $ 375,381 $ 562,979 $ 378,023
=========== =========== ===========
</TABLE>
- --------
(1) The estimated and pro forma information do not purport to represent what
the Company's financial position or the Company's and Initial Hotels' and
Lessee's results of operations would actually have been if the
consummation of the Formation Transactions and the Offering had, in fact,
occurred on such dates, or to project the Company's financial position or
the Company's and Initial Hotels' and Lessee's results of operations at
any future date or for any future period.
(2) Represents lease payments from the Lessee to the Operating Partnership
pursuant to the Participating Leases calculated on a pro forma basis by
applying the rent provisions of the Participating Leases to the pro forma
revenues of the Initial Hotels. The departmental revenue thresholds in
certain of the Participating Lease formulas adjust in the future effective
January 1, 1997. See "The Initial Hotels--The Participating Leases."
(3) Represents salaries and wages, professional fees, directors' and officers'
insurance, allocated rent, supplies and other operating expenses to be
paid by the Company. These amounts are based on historical general and
administrative expenses as well as probable 1996 expenses.
(4) Represents amortization of unearned officers' compensation represented by
an aggregate of 50,000 shares of restricted Common Stock issuable to the
Company's executive officers, which shares vest 10% at the date of grant
(5,000 shares at $17.75 per share).
(5) Calculated as 19.8% of estimated revenues less expenses before minority
interest for all periods.
(6) Represents Funds From Operations of the Company. The items added back to
estimated revenues less expenses applicable to common stockholders have
been adjusted by the Company's ownership percentage in the Operating
Partnership of 80.2% for all periods presented. The following table
computes Funds From Operations under the newly adopted National
Association of Real Estate Investment Trusts ("NAREIT") definition. Funds
From Operations consists of net income applicable to common stockholders
(computed in accordance with generally accepted accounting principles)
excluding gains (losses) from debt restructuring and sales of property
(including furniture and equipment) plus real estate related depreciation
and amortization (excluding amortization of deferred financing costs) and
after adjustments for unconsolidated partnerships and joint ventures. The
Company considers Funds

18
<PAGE>

From Operations to be an appropriate measure of the performance of an
equity REIT. Funds From Operations should not be considered as an
alternative to net income or other measurements under generally accepted
accounting principles, as an indicator of operating performance or to cash
flows from operating, investing, or financing activities as a measure of
liquidity. Although Funds From Operations has been computed in accordance
with the newly adopted NAREIT definition, Funds From Operations as
presented may not be comparable to other similarly titled measures used by
other REITs. Funds From Operations does not reflect cash expenditures for
capital improvements or principal amortization of indebtedness on the
Initial Hotels.

<TABLE>
<CAPTION> PRO FORMA(1) PRO FORMA(1)
PRO FORMA(1) TWELVE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996 MARCH 31, 1996
----------------- -------------- --------------
<S> <C> <C> <C>
Estimated revenues less
expenses applicable to
common stockholders ... $ 8,504,387 $ 9,762,841 $2,631,168
Depreciation ........... 5,938,196 5,254,653 1,191,157
----------- ----------- ----------
Funds From Operations .. $14,442,583 $15,017,494 $3,822,325
=========== =========== ==========
Weighted average number
of shares of Common
Stock outstanding...... 7,687,008 7,687,008 7,687,008
=========== =========== ==========
</TABLE>
(7) Cash Available for Distribution represents Funds From Operations of the
Company plus the Company's ownership percentage in the Operating
Partnership of 80.2% multiplied by the sum of amortization of deferred
financing costs, franchise transfer costs and unearned officers'
compensation. This amount is then reduced by the Company's 80.2% share of
the sum of 4.0% of total revenue for each of the Initial Hotels that is
required to be set aside by the Operating Partnership for refurbishment
and replacement of FF&E, capital expenditures, and other non-routine
items as required by the Participating Leases and the estimated cash used
to pay interest expense related to the (i) $24.6 million cost of planned
renovations and refurbishments at the seven Initial Hotels the Company
plans to convert to leading franchise brands in order to reposition such
hotels for future growth and (ii) the $2.6 million of planned
improvements that the Company expects to make at five other Initial
Hotels. Estimated Cash Available for Distribution does not include the
effects of any revenue increases expected to result from capital
expenditures at the Initial Hotels.
(8) Represents estimated revenues less expenses plus minority interest,
depreciation, amortization, and amortization of unearned officers'
compensation. There are no pro forma adjustments for changes in working
capital items.
(9) Pro forma cash used in investing activities includes the Operating
Partnership's obligation to make available to the Lessee an amount equal
to 4.0% of total revenue for each of the Initial Hotels for the periodic
replacement or refurbishment of FF&E, capital expenditures, and other
non-routine items as required by the Participating Leases. The Company
intends to cause the Operating Partnership to spend amounts in excess of
such obligated amounts to comply with the reasonable requirements of any
Franchise License and otherwise to the extent that the Company deems such
expenditures to be in the best interest of the Company. See "The Initial
Hotels--The Participating Leases."
(10) Represents estimated initial distributions to be paid based on the
initial annual distribution rate of $1.63 per share and an aggregate of
9,584,004 shares of Common Stock and OP Units outstanding plus the debt
service on the DFW South Loan and the Secaucus Loans (as defined in "The
Initial Hotels--Mortgage Indebtedness Remaining Following the Offering")
partially offset by borrowings of approximately $8.8 million under the
Line of Credit. The actual amount that is expected to be borrowed under
the Line of Credit upon the closing of the Offering is $8.5 million as a
result of changes in the principal amounts of the indebtedness
encumbering the Initial Hotels that have occurred since March 31, 1996.
(11) The Initial Hotels' financial data is derived by adding selected
financial data of the AGH Predecessor Hotels and the AGH Acquisition
Hotels (as set forth in "Selected Financial Information"). Such financial
data excludes information of the AGH Predecessor Hotels for periods prior
to their acquisition by AGHI. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The AGH Predecessor
Hotels consist of the following four Initial Hotels: the Holiday Inn
Dallas DFW Airport West, Courtyard by Marriott-Meadowlands, Hotel Maison
de Ville, and the Hampton Inn Richmond Airport. The AGH Acquisition
Hotels consist of the following nine Initial Hotels: the Holiday Inn
Dallas DFW Airport South, Hilton Hotel-Toledo, Holiday Inn New Orleans
International Airport, Holiday Inn Park Center Plaza, Holiday Inn Select-
Madison, Holiday Inn Mission Valley, Le Baron Airport Hotel, Days Inn
Ocean City, and Fred Harvey Albuquerque Airport Hotel
(12) Income taxes for the AGH Acquisition Hotels have not been deducted in
calculating revenues over (under) expenses.
(13) Pro forma amounts as if the Operating Partnership recorded depreciation
and amortization and paid real and personal property taxes and property
insurance contemplated by the Participating Leases, and the Formation
Transactions and the Offering occurred on January 1, 1995.

19
<PAGE>

RISK FACTORS

Prospective investors should carefully consider the following information in
conjunction with the other information contained in this Prospectus before
purchasing Common Stock in the Offering. This Prospectus contains certain
forward-looking statements. The Company wishes to caution readers that the
following important factors, among others, in some cases have affected, and in
the future could affect, the Company's actual results and could cause the
Company's actual results for 1996 and beyond to differ materially from those
expressed in any forward-looking statements made herein.

RISK OF HIGH DISTRIBUTION PAYOUT PERCENTAGE

The Company's estimated initial annual distribution rate to stockholders is
99.4% of the Company's estimated Cash Available for Distribution for the
twelve months ended March 31, 1996. See "Distribution Policy." Should actual
Cash Available for Distribution be less than estimated Cash Available for
Distribution, the Company may not be able to achieve and maintain its proposed
initial distribution rate. Any such failure to make expected distributions
could result in a decrease in the market price of the Common Stock.

CONFLICTS OF INTEREST

General

Because of Messrs. Jorns', Wiles' and Barr's ownership in and positions with
the Company, AGHI and the Lessee, there are inherent conflicts of interest in
the Formation Transactions and in the ongoing lease, acquisition, disposition,
operation and management of the Initial Hotels. Accordingly, the interests of
the Company's stockholders may not have been, and in the future may not be,
reflected fully in all decisions made or actions taken or to be taken by
certain officers and directors of the Company. See "The Company," "Formation
Transactions," "Management," "Certain Relationships and Transactions," and
"Policies and Objectives with Respect to Certain Activities--Conflict of
Interest Policies."

No Arm's-Length Bargaining

In particular, the terms of the Participating Leases, the Management
Agreements, the Option Agreements (as defined in "The Initial Hotels--Options
to Purchase and Rights of First Refusal") relating to the Option Hotels (as
defined in "The Company--Development"), the agreements pursuant to which the
Company will acquire interests or contract rights relating to interests in
seven of the Initial Hotels from the Primary Contributors, the agreements
relating to the Lessee's purchase of certain personal property relating to the
Initial Hotels (including the terms of the FF&E Note) and the agreements
relating to the Beverage Subleases were not negotiated on an arm's-length
basis. In the event revenues from the Initial Hotels increase significantly
over prior periods, and operating expenses with respect thereto are less than
historical or projected operating expenses, the Lessee could
disproportionately benefit. In the event incremental increases in expenses at
the Initial Hotels exceed incremental increases in revenues, conflicts of
interest may arise between the Lessee and the Company. See "Certain
Relationships and Transactions--The Participating Leases" and "Policies and
Objectives with Respect to Certain Activities--Conflict of Interest Policies."
The Company will not own any interest in the Lessee. Because Messrs. Jorns,
Wiles and Barr are partners in the Lessee, and each of them is an executive
officer of the Company (Mr. Jorns is also a director of the Company), there is
a conflict of interest with respect to the enforcement and termination of the
Participating Leases. Because of these conflicts, Messrs. Jorns', Wiles' and
Barr's decisions relating to the Company's enforcement of its rights under the
Participating Leases may not solely reflect the interests of the Company's
stockholders. See "AGHI and the Lessee."

Conflicts Relating to Sale of Hotels Subject to Participating Leases

The Company generally will be obligated under the Participating Leases to
pay a lease termination fee to the Lessee if the Company elects to sell an
Initial Hotel and does not replace it with another hotel on terms that would
create a leasehold interest in such hotel with a fair market value equal to
the Lessee's remaining leasehold interest under the Participating Lease to be
terminated. Where applicable, the termination fee is equal to the fair market
value of the Lessee's leasehold interest in the remaining term of the
Participating Lease to be terminated.

20
<PAGE>

The payment of a termination fee to the Lessee, which is owned in part by
Messrs. Jorns, Wiles and Barr, may result in decisions regarding the sale of
an Initial Hotel that do not reflect solely the interests of the Company's
stockholders. See "The Initial Hotels--The Participating Leases."

Conflicts Relating to Sale of Initial Hotels Previously Owned by Executive
Officers

Certain executive officers of the Company or their affiliates may have
unrealized gain in their interests in certain of the Initial Hotels
transferred to the Company. The sale of such hotels by the Company may cause
adverse tax consequences to such officers or affiliates. Therefore, the
interests of the Company, such officers and affiliates could be different in
connection with the disposition of such hotels. However, decisions with
respect to the disposition of those Initial Hotels will be made by a majority
of the Board of Directors, which majority must include a majority of the
Independent Directors.

Conflicts Relating to Continued Management of Hotels

After completion of the Offering, AGHI, in which Messrs. Jorns and Wiles own
collectively a 21.0% interest, will continue to engage in the management of
hotels for third parties. In addition, there will be no restriction in either
the Participating Leases or the Management Agreements which would limit the
Lessee's or AGHI's ability to lease or manage hotels which may compete with
the Company's hotels. Accordingly, the Lessee's and AGHI's decisions relating
to the operation of any of the Initial Hotels that are in competition with
other hotels leased or managed by either of them may not fully reflect the
interests of the Company's stockholders.

Conflicts Relating to Continued Ownership of Other Hotel Properties

After completion of the Offering, AGHI will continue to own and operate
three hotel properties (including two hotels currently under development). One
of these hotels, a Ramada Limited(R) which is located in Madison, Wisconsin,
was not included as an Initial Hotel because it is being offered for sale for
its land value due to its location in a prime retail area. The other two
hotels, the Option Hotels, are Courtyards by Marriott currently under
development (which were not included as part of the Initial Hotels because
construction has not been completed). In connection with the Formation
Transactions, the Company will acquire two-year options and a right of first
refusal to acquire, subject to the receipt of any necessary third-party
consents, the interests of AGHI in either or both of the Option Hotels upon
their opening. See "The Initial Hotels--Options to Purchase and Rights of
First Refusal."

DEPENDENCE ON LESSEE AND PAYMENTS UNDER THE PARTICIPATING LEASES

The Company's ability to make distributions to its stockholders will depend
solely upon the ability of the Lessee to make rent payments under the
Participating Leases (which will be dependent primarily on AGHI's ability to
generate sufficient revenues from the Initial Hotels in excess of operating
expenses). Any failure or delay by the Lessee in making rent payments would
adversely affect the Company's ability to make anticipated distributions to
its stockholders. Such failure or delay by the Lessee may be caused by
reductions in revenue from the Initial Hotels or in the net operating income
of the Lessee or otherwise. In addition, the Lessee is a newly organized
limited purpose entity, and, except for approximately $500,000 in initial
working capital, has limited assets. Although failure on the part of the
Lessee to materially comply with the terms of a Participating Lease (including
failure to pay rent when due) would give the Company the right to terminate
such lease, repossess the applicable property and enforce the payment
obligations under the lease and the Lessee Pledge, the Company would then be
required to find another lessee to lease such property. There can be no
assurance that the Company would be able to find another lessee or that, if
another lessee were found, the Company would be able to enter into a new lease
on favorable terms.

LACK OF CONTROL OVER OPERATIONS OF THE INITIAL HOTELS

The Company also will be dependent on the ability of the Lessee and AGHI to
operate and manage the Initial Hotels. To maintain its status as a REIT, the
Company will not be able to operate the Initial Hotels or any subsequently
acquired hotels. As a result, the Company will be unable to directly implement
strategic business

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decisions with respect to the operation and marketing of its hotels, such as
decisions with respect to the setting of room rates, repositioning of a
franchise, food and beverage operations and certain similar matters.

LACK OF APPRAISALS FOR THE INITIAL HOTELS; NO ASSURANCE AS TO VALUE

In establishing the purchase prices of the Initial Hotels, no independent
appraisals were obtained. In addition, there were no arm's-length negotiations
with respect to the Company's acquisition of interests or contract rights
relating to seven of the Initial Hotels from the Primary Contributors and
certain of their affiliates. Accordingly, there can be no assurance that the
price paid by the Company for the Initial Hotels, including interests and
contract rights acquired from the Primary Contributors and certain of their
affiliates, does not exceed the value of the hotels and other assets acquired
by the Company.

The valuation of the Company has been determined based upon a capitalization
of the Company's estimated Cash Available for Distribution (as described in
"Summary Financial Data") and the other factors discussed under "Underwriting"
rather than an asset-by-asset valuation based on historical cost or current
market value. This methodology has been used because the Company's management
believes it appropriate to value the Company as an ongoing business rather
than with the view to values that could be obtained from a liquidation of the
Company or of individual assets owned by the Company. There can be no
assurance that revenues generated by the Company's hotels will not decline and
that future Cash Available for Distribution will be sufficient to make
expected distributions to the Company's stockholders. If expected
distributions are not made, the market price of the shares of Common Stock
likely would be adversely affected.

HOTEL INDUSTRY RISKS

Operating Risks

The Initial Hotels will be subject to all operating risks common to the
hotel industry. These risks include, among other things, (i) competition for
guests from other hotels, some of which may have greater marketing and
financial resources than the Company, the Lessee and AGHI; (ii) increases in
operating costs due to inflation and other factors, which increases may not
have been offset in recent years, and may not be offset in the future by
increased room rates; (iii) dependence on business and commercial travelers
and tourism, which business may fluctuate and be seasonal; (iv) increases in
energy costs and other expenses of travel, which may deter travelers; and (v)
adverse effects of general and local economic conditions. These factors could
adversely affect the Lessee's ability to generate revenues and to make rent
payments and therefore the Company's ability to make expected distributions to
its stockholders.

Risks of Necessary Operating Costs and Capital Expenditures; Required Hotel
Renovations

Hotels in general, including the Initial Hotels, require ongoing renovations
and other capital improvements, including periodic replacement or
refurbishment of FF&E. Under the terms of the Participating Leases, the
Company is obligated to establish a reserve to pay the cost of certain capital
expenditures at the Initial Hotels and pay for periodic replacement or
refurbishment of FF&E. The Company will control the use of funds in this
reserve. However, if capital expenditures exceed the Company's expectations,
there can be no assurance that sufficient sources of financing will be
available to fund such expenditures. The additional cost of such expenditures
could have an adverse effect on Cash Available for Distribution. In addition,
the Company may acquire hotels in the future that require significant
renovation. Renovation of hotels involves certain risks, including the
possibility of environmental problems, construction cost overruns and delays,
uncertainties as to market demand or deterioration in market demand after
commencement of renovation and the emergence of unanticipated competition from
other hotels.

The Company plans to undertake substantial renovations at certain of the
Initial Hotels during the one-year period following the closing of the
Offering. Such substantial renovations will likely disrupt the operations of
those hotels due to hotel guest rooms and common areas being taken out of
service for extended periods. Moreover, those renovations may result in lower
occupancy, ADR and hotel revenues at those hotels during the renovation
periods than the historical levels shown in this Prospectus.

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Competition for Investment Opportunities

The Company may be competing for investment opportunities with entities that
have substantially greater financial resources than the Company. These
entities generally may be able to accept more risk than the Company can
prudently manage, including risks with respect to the creditworthiness of a
hotel operator or the geographic proximity of its investments. Competition
generally may reduce the number of suitable investment opportunities offered
to the Company and increase the bargaining power of property owners seeking to
sell.

Seasonality of Hotel Industry

The hotel industry is seasonal in nature. Generally, hotel revenue for
business hotels is greater in the second and third quarters of a calendar
year, although this may not be true for hotels in major tourist destinations.
Revenue for hotels in tourist areas generally is substantially greater during
the tourist season than other times of the year. Seasonal variations in
revenue at the Initial Hotels may cause quarterly fluctuations in the
Company's lease revenue. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Seasonality."

Investment in Single Industry

The Company's current strategy is to acquire interests only in hotels. As a
result, the Company will be subject to risks inherent in investments in a
single industry. The effects on Cash Available for Distribution resulting from
a downturn in the hotel industry may be more pronounced than if the Company
had diversified its investments.

BENEFITS TO PRIMARY CONTRIBUTORS AND OFFICERS

The Primary Contributors and the Company's officers will receive material
benefits from the Formation Transactions, including, but not limited to, (i)
receipt by the Primary Contributors of an aggregate of approximately 560,178
OP Units (valued at approximately $9.9 million based on the Offering Price),
(ii) receipt by Messrs. Jorns, Wiles, Barr and Valentine of stock awards of
30,000, 10,000, 6,000 and 4,000 shares of restricted Common Stock,
respectively, which will vest over a four-year period commencing on the date
of grant and which have a value of $532,500, $177,500, $106,500 and $71,000,
respectively, based on the Offering Price, (iii) repayment of an aggregate of
approximately $3.75 million of indebtedness guaranteed by AGHI, (iv) receipt
by Messrs. Jorns, Wiles, Barr and Valentine of options to acquire 225,000,
75,000, 40,000 and 20,000 shares of Common Stock, respectively, at the
Offering Price, which become exercisable in four equal annual installments,
commencing on the date of grant, (v) deferral of certain tax consequences to
officers of the Company from the conveyance of their interests in the Initial
Hotels to the Operating Partnership, and (vi) reimbursement by the Company of
AGHI for approximately $900,000 in direct out-of-pocket expenses incurred in
connection with the acquisition of the Initial Hotels. In addition, the
Lessee, which is owned by Messrs. Jorns, Wiles, Barr, Sowell, Shaw and Shaw,
will be entitled to all cash flow from the Initial Hotels after payment of
rent under the Participating Leases and other operating expenses. AGHI, the
principals of which include Messrs. Jorns, Wiles, Sowell, Shaw and Shaw, will
be entitled to receive from the Lessee management fees equal to a base fee of
1.5% of the gross revenues at the Initial Hotels plus incentive management
fees of up to 2.0% of gross revenues that will be earned incrementally upon
reaching certain gross revenue targets. The Beverage Corporations, eleven of
which are wholly owned by Mr. Jorns, will be entitled to all cash flow from
food and beverage sales generated from those areas of the Initial Hotels where
alcoholic beverages are served after the payment of rent to the Lessee equal
to 30% of gross revenues from such sales; such arrangement will not, however,
reduce Participating Rent payments to the Company, which it is entitled to
receive from such food and beverage sales. See "Formation Transactions."

CONTINGENT LIABILITIES OF SELLING PARTNERSHIPS

Because the Company is acquiring all the partnership interests in the
entities that own eight of the Initial Hotels, the Company may become liable
for certain liabilities, including contingent liabilities of such selling
entities. There is, therefore, a risk that unforeseen liabilities could exist
for which the Company could be liable and which could adversely affect Cash
Available for Distribution.

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RISKS OF LEVERAGE; NO LIMITS ON INDEBTEDNESS

Upon completion of the Offering and the concurrent completion of the
Formation Transactions, the Company will have outstanding indebtedness of
approximately $27.8 million, including approximately $19.3 million encumbering
two of the Initial Hotels and approximately $8.5 million borrowed under the
Line of Credit in connection with the closing of the Offering. Neither the
Company's Bylaws nor its Charter will limit the amount of indebtedness the
Company may incur. The Company intends to limit consolidated indebtedness
(measured at the time the debt is incurred) to no more than 45.0% of the
Company's investment in hotels. See "Policies and Objectives with Respect to
Certain Activities--Financing." The Company has received a commitment for the
Line of Credit to fund the acquisition and renovation of additional hotels,
the renovation of certain Initial Hotels, to pay certain costs in connection
with the closing of the Offering and for working capital. The Line of Credit
will be limited to the maximum principal amount of $100 million and, among
other limitations, to 40.0% of the value or cost of the hotels which secure
such line. The Line of Credit initially will be secured by a first mortgage
lien on eleven of the Initial Hotels. Other hotels acquired in the future may
be added as security for the Line of Credit. The Line of Credit will require
lender approval of certain Company actions, including new hotel development,
franchise conversions relating to the hotels which secure the Line of Credit,
and approval of lessees for such hotels. Subject to the limitations described
above and other limitations contained in the Line of Credit, the Company may
borrow additional amounts from the same or other lenders in the future, or may
issue corporate debt securities in public or private offerings. Certain of
such additional borrowings may be secured by hotels owned by the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," and "Policies and Objectives
with Respect to Certain Activities--Financing" and "The Initial Hotels--Line
of Credit."

There can be no assurances that the Company will be able to meet its debt
service obligations and, to the extent that it cannot, the Company risks the
loss of some or all of its assets, including the Initial Hotels, to
foreclosure. Economic conditions could result in higher interest rates, which
could increase debt service requirements on variable rate debt, such as the
Line of Credit, and could reduce the amount of Cash Available for
Distribution. Adverse economic conditions could cause the terms on which
borrowings become available to be unfavorable. In such circumstances, if the
Company is in need of capital to repay indebtedness in accordance with its
terms or otherwise, it could be required to liquidate one or more investments
in hotel properties that at times may result in a financial loss to the
Company.

LACK OF OPERATING HISTORY OR REVENUES; HISTORY OF LOSSES

The Company has been recently organized and has no operating history. There
can be no assurance that the Company will be able to generate sufficient Cash
Available for Distribution to make anticipated distributions to its
stockholders. The Company also will be subject to the risks generally
associated with the formation of any new business. Certain of the Initial
Hotels experienced net losses in recent years. Accordingly, there can be no
assurance that the Company will not experience net losses in the future.

CONTINGENT OBLIGATION TO CONSTRUCT ADDITIONAL HOTEL ROOMS

Pursuant to the terms of the ground lease relating to the Fred Harvey
Albuquerque Airport Hotel, the Company will be required, at its expense, to
build 100 additional guest rooms if the occupancy rate at the hotel is 85.0%
or greater for 24 consecutive months. The Company could be required to build
the additional rooms even if the Company does not deem such capital
expenditure to be in its economic interest and even if financing is not
available or is available only on unattractive terms, in order to complete
such construction. In addition, construction of the additional guest rooms
would require the consent of the lenders under the Line of Credit. Failure to
construct the additional rooms could result in a default under such ground
lease. For the twelve months ended March 31, 1996, the occupancy rate at the
hotel was 83.3%.

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IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of shares of Common Stock in the Offering will experience
immediate dilution of $2.37 per share in the net tangible book value per share
of Common Stock from the Offering Price. See "Dilution."

POSSIBLE ADVERSE EFFECTS OF SHARES AVAILABLE FOR FUTURE SALE UPON MARKET PRICE
OF COMMON STOCK

Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect the prevailing market price for the
Common Stock. The Operating Partnership, in connection with the Formation
Transactions, will issue to persons other than the Company an aggregate of
1,896,996 OP Units, and the Company will issue 137,008 shares of restricted
Common Stock. These OP Units may be exchanged for cash based on their fair
market value or, at the Company's option, for shares of Common Stock on a one-
for-one basis. In certain circumstances, the Company may not be able to
exercise its option to satisfy such partners' exchange rights with Common
Stock because of tax or securities law limitations. An exercise of exchange
rights in such circumstances could adversely affect the Operating
Partnership's liquidity because it would then be required to satisfy such
rights with cash. The Exchange Agreement (as defined in "Partnership
Agreement--Exchange Rights") prohibits the exchange of OP Units for a period
of one year following the closing of the Offering. In addition, the officers
and directors of the Company, the Primary Contributors and the Plan have
agreed, subject to certain limited exceptions, not to offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock (or any securities
convertible into or exercisable for shares of Common Stock) for a one-year
period after the date of this Prospectus (the "Lock-up Period") without the
prior written consent of the Company and Smith Barney Inc. See "Underwriting."
The Registration Rights Agreement (as defined in "Partnership Agreement--
Registration Rights") requires the Company to register all restricted shares
of Common Stock under the Act, including shares issuable upon the exchange of
OP Units. As a result, at the conclusion of the one-year restriction period
and the Lock-up Period, all shares of Common Stock issued in connection with
the Formation Transactions or acquired upon exchange of OP Units may be sold
in the public market. In addition, 850,000 shares of Common Stock (exclusive
of stock awards to be issued under the 1996 Plan as described below) will be
reserved for issuance pursuant to the 1996 Plan and 100,000 shares also will
be reserved for issuance to non-employee directors pursuant to the Directors'
Plan. Stock awards equal to an aggregate of 50,000 shares of restricted Common
Stock that will vest over a four-year period and options to purchase 400,000
shares of Common Stock at the Offering Price will be granted to the Company's
executive officers under the 1996 Plan and the Company's directors under the
Directors' Plan in connection with the Formation Transactions. See
"Management--Stock Incentive Plans."

COMPETITION FOR MANAGEMENT TIME

Messrs. Jorns, Wiles, Barr and Valentine will be employed as executive
officers of the Company and will continue to be employed and compensated by
AGHI and will necessarily be subject to competing demands on their time. See
"--Conflicts of Interest" and "Management--Employment Agreements."

REAL ESTATE INVESTMENT RISKS

General Risks

The Company's investments will be subject to varying degrees of risk
generally incident to the ownership of real property. The underlying value of
the Company's hotel investments and the Company's income and ability to make
distributions to its stockholders is dependent upon the ability of the Lessee
and AGHI to operate the Initial Hotels in a manner sufficient to maintain or
increase revenues and to generate sufficient revenue in excess of operating
expenses to make rent payments under the Participating Leases. Income from the
Initial Hotels may be adversely affected by changes in national economic
conditions, changes in local market conditions due to changes in general or
local economic conditions and neighborhood characteristics, changes in
interest rates and in the availability, cost and terms of mortgage funds, the
impact of present or future environmental legislation and compliance with
environmental laws, the ongoing need for capital improvements, particularly in

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older structures, changes in real estate tax rates and other operating
expenses, adverse changes in governmental rules and fiscal policies, civil
unrest, acts of God, including earthquakes and other natural disasters (which
may result in uninsured losses), acts of war, adverse changes in zoning laws,
and other factors which are beyond the control of the Company.

Dependence on Particular Regions

The Initial Hotels are located throughout the United States, but 21.6% and
18.5% of the total number of the hotel guest rooms of the Initial Hotels
(representing 21.3% and 18.1% of the Company's estimated Participating Rent
revenues for the twelve months ended March 31, 1996) are located at the
Dallas/Fort Worth Airport and in the San Jose area, respectively. The
Company's cash flow, ability to make proposed distributions to its
stockholders and the value of the Common Stock will be affected by, to a large
degree, economic conditions and the demand for hotel rooms in the Dallas/Fort
Worth and San Jose markets in which these four Initial Hotels are located.

Value and Illiquidity of Real Estate

Real estate investments are relatively illiquid. The ability of the Company
to vary its portfolio in response to changes in economic and other conditions
will be limited. Because management believes it is appropriate to value the
Company as an ongoing business rather than through liquidation values of the
Company or the Initial Hotels, the valuation of the Company has been
determined primarily based upon a capitalization of the Company's estimated
Cash Available for Distribution and other factors discussed under
"Underwriting," rather than on the basis of each property's cost or appraised
value. See "Underwriting." If the Company must sell an investment, there can
be no assurance that the Company will be able to dispose of it in the time
period it desires or that the sale price of any investment will recoup or
exceed the amount of the Company's investment.

Property Taxes and Casualty Insurance

Each Initial Hotel is subject to real and personal property taxes. Under the
Participating Leases, the Company is required to pay real and personal
property taxes. The real and personal property taxes on hotel properties in
which the Company invests may increase or decrease as property tax rates
change and as the properties are assessed or reassessed by taxing authorities.
Each Initial Hotel will be covered by casualty insurance, which, pursuant to
the Participating Leases, must be paid by the Company, the rates for which may
increase or decrease depending on claims experience. The increase in property
taxes or casualty insurance premiums could adversely affect the Company's
ability to make expected distributions to its stockholders.

Consents of Lessors Required for Sale and Renovation of Certain Initial
Hotels

The Fred Harvey Albuquerque Airport Hotel, the Courtyard by Marriott-
Meadowlands, the Le Baron Airport Hotel and the Hilton Hotel-Toledo are each
subject to ground leases, and the Hotel Maison de Ville is subject to a space
lease for its restaurant facilities and certain of its guest rooms, each with
third-party lessors. Any proposed sale of such hotels by the Company or any
proposed assignment of the Company's leasehold interest in the ground leases
and the space lease, as well as the subletting to the Lessee and the proposed
renovation of the Fred Harvey Albuquerque Airport Hotel and the Le Baron
Airport Hotel, may require the consent of the respective third-party lessors.
There can be no assurance that the Company will be able to obtain such
requisite consents. As a result, the Company may not be able to sell, assign,
transfer or convey its interest in these Initial Hotels in the future or
commence the proposed renovations at the Le Baron Airport Hotel and the Fred
Harvey Albuquerque Airport Hotel absent the consent of such third-party
lessors, even if such transactions or renovations may be in the best interests
of the stockholders of the Company.

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Environmental Matters

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, as well as the cost of future legislation. 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 hazardous or toxic substances,
or the failure to remediate such property properly, may adversely affect the
owner's ability to borrow by using such real property as collateral. Persons
who arrange for the disposal or treatment of hazardous or toxic substances may
also 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 ("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 a
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 the Initial Hotels, the Company or the Lessee 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. Phase I environmental site assessments
("ESAs") have been conducted at all of the Initial Hotels by a qualified
independent environmental engineer. The purpose of Phase I ESAs is to identify
potential sources of contamination for which the Initial Hotels may be
responsible and to assess the status of environmental regulatory compliance.
The ESAs have not revealed any environmental liability or compliance concerns
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 material environmental liability or concerns.
Nevertheless, it is possible that these ESAs did not reveal all environmental
liabilities or compliance concerns or that material environmental liabilities
or compliance concerns exist of which the Company is currently unaware.

Compliance with Americans with Disabilities Act

Under the Americans with Disabilities Act of 1990, as amended (the "ADA"),
all public accommodations are required to meet certain federal requirements
related to access and use by disabled persons. A determination that the
Company is not in compliance with the ADA could result in imposition of fines
or an award of damages to private litigants. If the Company were required to
make modifications to its hotels to comply with the ADA, the Company's ability
to make expected distributions to its stockholders could be adversely
affected.

Uninsured and Underinsured Losses

Each Participating Lease requires comprehensive insurance to be maintained
on each of the Initial Hotels, including liability, fire and extended
coverage. Management believes such specified coverage is of the type and
amount customarily obtained for or by an owner of hotels. Leases for
subsequently acquired hotels will contain similar provisions. However, there
are certain types of losses, generally of a catastrophic nature, such as those
caused by earthquakes and floods, that may be uninsurable or not economically
insurable. The Company's Board of Directors and management will use their
discretion in determining amounts, coverage limits and deductibility
provisions of insurance, with a view to maintaining appropriate insurance
coverage on the Company's investments at a reasonable cost and on suitable
terms. This may result in insurance coverage that, in the event of a
substantial loss, would not be sufficient to pay the full current market value
or current replacement cost of the Company's lost investment. Inflation,
changes in building codes and ordinances, environmental considerations and
other factors also might make it infeasible to use insurance proceeds to
replace the property after such property has been damaged or destroyed. Under
such circumstances, the insurance proceeds received by the Company might not
be adequate to restore its economic position with respect to such property.

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Acquisition and Development Risks

The Company intends to pursue acquisitions of additional hotels and, under
appropriate circumstances, may pursue development opportunities. Acquisitions
entail risks that investments will fail to perform in accordance with
expectations and that estimates of the cost of improvements necessary to
market and acquire hotels will prove inaccurate, as well as general investment
risks associated with any new real estate investment. New project development
is subject to numerous risks, including risks of construction delays or cost
overruns that may increase project costs, new project commencement risks such
as receipt of zoning, occupancy and other required governmental approvals and
permits and the incurrence of development costs in connection with projects
that are not pursued to completion. In addition, the Line of Credit will
provide that the lenders thereunder must consent to any development activities
by the Company other than development in connection with the limited expansion
of existing hotels. The fact that the Company must distribute 95.0% of REIT
taxable income in order to maintain its qualification as a REIT may limit the
Company's ability to rely upon lease income from the Initial Hotels or
subsequently acquired hotels to finance acquisitions or new developments. As a
result, if debt or equity financing were not available on acceptable terms,
further acquisitions or development activities might be curtailed or Cash
Available for Distribution might be adversely affected.

TAX RISKS

Failure to Qualify as a REIT

The Company intends to operate so as to qualify as a REIT for federal income
tax purposes commencing with its taxable year ending December 31, 1996.

A REIT generally is not taxed at the corporate level on income it currently
distributes to its stockholders, as long as it distributes at least 95.0% of
its REIT taxable income. Although the Company believes that it will be
organized and will operate in such a manner so as to qualify as a REIT, no
assurance can be given that the Company will be organized or will be able to
operate in a manner so as to qualify as a REIT or remain so qualified.
Qualification as a REIT involves the application of highly technical and
complex Code provisions for which there are only limited judicial or
administrative interpretations. The determination of various factual matters
and circumstances not entirely within the Company's control may affect its
ability to qualify and to continue to qualify as a REIT. The complexity of
these provisions and of the applicable income tax regulations that have been
promulgated under the Code is greater in the case of a REIT that holds its
assets through a partnership, such as the Company. Moreover, no assurance can
be given that legislation, new regulations, administrative interpretations or
court decisions will not change the tax laws with respect to qualification as
a REIT or the federal income tax consequences of such qualification. The
Company will rely on the opinion of Battle Fowler LLP, counsel to the Company
("Counsel"), to the effect that, based on various assumptions relating to the
organization and operation of the Company and representations made by the
Company as to certain factual matters, the Company's proposed method of
operation will enable it to meet the requirements for qualification and
taxation as a REIT. Such legal opinion will not be binding on the IRS. See
"Federal Income Tax Considerations."

If the Company fails to qualify as a REIT in any taxable year, the Company
will not be allowed a deduction for distributions to its stockholders in
computing its taxable income and will be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
the applicable corporate rate. In addition, unless it were entitled to relief
under certain statutory provisions, the Company would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This disqualification would reduce the funds of the
Company available for investment or distribution to stockholders because of
the additional tax liability of the Company for the year or years involved.

If the Company were to fail to qualify as a REIT, it no longer would be
subject to the distribution requirements of the Code and, to the extent that
distributions to stockholders would have been made in anticipation of the
Company's qualifying as a REIT, the Company might be required to borrow funds
or to liquidate certain of its assets to pay the applicable corporate income
tax. Although the Company currently intends

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to operate in a manner designed to qualify as a REIT, it is possible that
future economic, market, legal, tax or other considerations may cause the
Company's Board of Directors to decide to revoke the REIT election. See
"Federal Income Tax Considerations."

Adverse Effects of REIT Minimum Distribution Requirements

To obtain the favorable tax treatment accorded to REITs under the Code, the
Company generally will be required each year to distribute to its stockholders
at least 95% of its REIT taxable income. The Company will be subject to income
tax on any undistributed REIT taxable income and net capital gain, and to a
4.0% nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than the
sum of (i) 85.0% of its ordinary income for the calendar year, (ii) 95.0% of
its capital gain net income for such year, and (iii) 100.0% of its
undistributed income from prior years.

The Company intends to make distributions to its stockholders to comply with
the distribution provisions of the Code and to avoid federal income taxes and
the nondeductible 4.0% excise tax. The Company's income will consist primarily
of the Company's share of the income of the Operating Partnership, and the
Company's cash flow will consist primarily of its share of distributions from
the Operating Partnership. Differences in timing between the receipt of income
and the payment of expenses in arriving at taxable income (of the Company or
the Operating Partnership) and the effect of nondeductible capital
expenditures, the creation of reserves or required debt amortization payments
could require the Company to borrow funds through the Operating Partnership on
a short-term or long-term basis to meet the distribution requirements that are
necessary to continue to qualify as a REIT. In such circumstances, the Company
might need to borrow funds to avoid adverse tax consequences even if
management believes that the then prevailing market conditions generally are
not favorable for such borrowings or that such borrowings are not advisable in
the absence of such tax considerations.

Distributions by the Operating Partnership will be determined by its sole
general partner, a wholly owned subsidiary of the Company, through the
Company's Board of Directors and will be dependent on a number of factors,
including the amount of Cash Available for Distribution, the Operating
Partnership's financial condition, any decision by the Board of Directors to
reinvest funds rather than to distribute such funds, the Operating
Partnership's capital expenditure requirements, the annual distribution
requirements under the REIT provisions of the Code and such other factors as
the Board of Directors deems relevant. There is no assurance that the Company
will be able to continue to satisfy the annual distribution requirement so as
to qualify as a REIT. See "Federal Income Tax Considerations--Requirements for
Qualification as a REIT--Annual Distribution Requirements."

Consequences of Failure to Qualify as Partnerships

The Operating Partnership will receive an opinion of Counsel stating that,
assuming that the Operating Partnership and each Subsidiary Partnership (as
defined in "The Company--The Operating Partnership") is being operated in
accordance with its respective organizational documents, the Operating
Partnership and each of the Subsidiary Partnerships will be treated as a
partnership, and not as a corporation, for federal income tax purposes. Such
opinion is not binding on the IRS. If the IRS were to challenge successfully
the status of the Operating Partnership or any Subsidiary Partnership as a
partnership for federal income tax purposes, the Operating Partnership or the
affected Subsidiary Partnership would be taxable as a corporation. In such
event, the Company would cease to qualify as a REIT for federal income tax
purposes. The imposition of a corporate tax on the Operating Partnership or
any of the Subsidiary Partnerships, with a concomitant loss of REIT status of
the Company, would reduce substantially the amount of Cash Available for
Distribution. See "Federal Income Tax Considerations--Tax Aspects of the
Operating Partnership."

ERISA

Depending upon the particular circumstances of the plan, an investment in
Common Stock may be an appropriate investment for an ERISA Plan, a Qualified
Plan or an IRA. In deciding whether to purchase Common

29
<PAGE>

Stock, a fiduciary of an ERISA Plan, in consultation with its advisors, should
carefully consider its fiduciary responsibilities under ERISA, the prohibited
transaction rules of ERISA and the Code, and the effect of the "plan asset"
regulations issued by the U.S. Department of Labor.

RISKS OF OPERATING HOTELS UNDER FRANCHISE AGREEMENTS; APPROVAL FOR BRAND
CONVERSIONS

Ten of the Initial Hotels are subject to franchise agreements. In addition,
hotels in which the Company invests subsequently may be operated pursuant to
franchise agreements. The continuation of such franchise agreements is subject
to specified operating standards and other terms and conditions. Franchisors
typically inspect licensed properties periodically to confirm adherence to
operating standards. Action or inaction on the part of any of the Company, the
Lessee or AGHI could result in a breach of such standards or other terms and
conditions of the Franchise Licenses and could result in the loss or
cancellation of a franchise license. It is possible that a franchisor could
condition the continuation of a franchise license on the completion of capital
improvements which the Board of Directors determines are too expensive or
otherwise unwarranted in light of general economic conditions or the operating
results or prospects of the affected hotel. In that event, the Board of
Directors may elect to allow the franchise license to lapse. In any case, if a
franchise is terminated, the Company and the Lessee may seek to obtain a
suitable replacement franchise or to operate the Initial Hotel independent of
a franchise license. The loss of a franchise license could have a material
adverse effect upon the operations or the underlying value of the hotel
covered by the franchise because of the loss of associated name recognition,
marketing support and centralized reservation systems provided by the
franchisor.

The Company intends to convert seven of the Initial Hotels that operate
under franchise brands into hotels that operate under different franchise
brands. While the Company has obtained preliminary franchisor approval for
such conversions, completion of such conversions is dependent upon, among
other things, entering into definitive franchise agreements with the new
franchisors. Failure to effect such conversions could have a material adverse
effect on the Company's results of operations.

POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S CHARTER AND BYLAWS

Certain provisions of Maryland law and of the Company's Charter and Bylaws
may have the effect of discouraging a third party from making an acquisition
proposal for the Company and could delay, defer or prevent a transaction or a
change in control of the Company under circumstances that could give the
holders of Common Stock the opportunity to realize a premium over the then
prevailing market prices of the Common Stock. Such provisions include the
following:

Ownership Limitation

In order for the Company to maintain its qualification as a REIT under the
Code, not more than 50.0% in value of the outstanding shares of stock of the
Company may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) at any time during the last
half of the Company's taxable year (other than the first year for which the
election to be treated as a REIT has been made). Furthermore, if any
stockholder or group of stockholders of the Lessee owns, actually or
constructively, 10.0% or more in value of the stock of the Company, the Lessee
could become a Related Party Tenant (as defined in "Federal Income Tax
Consequences--Requirements for Qualification as a REIT--Income Tests") of the
Company, which would result in loss of REIT status for the Company. For the
purpose of preserving the Company's REIT qualification, the Company's Charter
prohibits direct or indirect ownership (taking into account applicable
ownership provisions of the Code) of more than 9.8% of any class of the
Company's outstanding stock by any person (the "Ownership Limitation"),
subject to an exception that permits mutual funds and certain other entities
to own as much as 15.0% of any class of the Company's stock in appropriate
circumstances (the "Look-Through Ownership Limitation"). Generally, the stock
owned by affiliated owners will be aggregated for purposes of the Ownership
Limitation. The Ownership Limitation could have the effect of delaying,
deferring or preventing a transaction or a change in control of the Company in
which holders of some, or a majority, of the Common

30
<PAGE>

Stock might receive a premium for their Common Stock over the then prevailing
market price or which such holders might believe to be otherwise in their best
interests. See "Description of Capital Stock--Restrictions on Transfer" and
"Federal Income Tax Considerations--Requirements for Qualification as a REIT."

Staggered Board

The Board of Directors will be divided into three classes of directors. The
initial terms of the first, second and third classes will expire in 1997, 1998
and 1999, respectively. Directors of each class will be chosen for three-year
terms upon the expiration of the current class terms, and, beginning in 1997
and each year thereafter, one class of directors will be elected by the
stockholders. A director may be removed, with or without cause, by the
affirmative vote of 75.0% of the votes entitled to be cast for the election of
directors, which super-majority vote may have the effect of delaying,
deferring or preventing a change of control of the Company. The staggered
terms of directors may reduce the possibility of a tender offer or an attempt
to change control of the Company even though a tender offer or change in
control might be in the best interests of the stockholders. See "Certain
Provisions of Maryland Law and of the Company's Charter and Bylaws--Number of
Directors; Classification of the Board of Directors."

Maryland Business Combination Law

Under the Maryland General Corporation Law, as may be amended from time to
time (the "MGCL"), certain "business combinations" (including certain
issuances of equity securities) between a Maryland corporation such as the
Company and any person who owns 10.0% or more of the voting power of the
corporation's shares (an "Interested Shareholder") or an affiliate thereof are
prohibited for five years after the most recent date on which the Interested
Shareholder became an Interested Shareholder. Thereafter, any such business
combination must be approved by two super-majority votes unless, among other
conditions, the holders of shares of Common Stock receive a minimum price (as
defined in the MGCL) for their stock and the consideration is received in cash
or in the same form as previously paid by the Interested Shareholder for its
shares. See "Certain Provisions of Maryland Law and of the Company's Charter
and Bylaws--Business Combinations."

Maryland Control Share Acquisition Statute

In addition to certain provisions of the Charter, the Maryland control share
acquisition statutes may have the effect of discouraging a third party from
making an acquisition proposal for the Company. The MGCL provides that
"control shares" of a Maryland corporation acquired in a "control share
acquisition" have no voting rights except to the extent approved by a vote of
two-thirds of the votes eligible under the statute to be cast on the matter.
"Control shares" are voting shares of stock, which, if aggregated with all
other such shares of stock previously acquired by the acquiror or in respect
of which the acquiror is able to exercise or direct the exercise of voting
power (except solely by virtue of a revocable proxy), would entitle the
acquiror to exercise voting power in electing directors within one of the
following ranges of voting power: (i) one-fifth or more but less than one-
third, (ii) one-third or more but less than a majority, or (iii) a majority of
all voting power. Control shares do not include shares that the acquiring
person is then entitled to vote as a result of having previously obtained
shareholder approval. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions.

If voting rights are not approved at a meeting of stockholders then, subject
to certain conditions and limitations, the issuer may redeem any or all of the
control shares (except those for which voting rights have previously been
approved) for fair value. If voting rights for control shares are approved at
a stockholders' meeting and the acquiror becomes entitled to vote a majority
of the shares of stock entitled to vote, all other stockholders may exercise
appraisal rights. The fair value of the shares as determined for purposes of
such appraisal rights may not be less than the highest price per share paid by
the acquiror in the control share acquisition.

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<PAGE>

The Company's Bylaws contain a provision exempting from the control share
acquisition statute any and all acquisitions by any persons of shares of stock
of the Company. There can be no assurance that such provision will not be
amended or eliminated at any point in the future. If the foregoing exemption
in the Company's Bylaws is rescinded, the control share acquisition statute
could have the effect of delaying, deferring, preventing or otherwise
discouraging offers to acquire the Company and of increasing the difficulty of
consummating any such offer.

NO PRIOR MARKET FOR COMMON STOCK

Prior to the Offering, there has been no public market for the Common Stock.
The Common Stock has been approved for listing on the New York Stock Exchange,
Inc. ("NYSE"), subject to official notice of issuance. See "Underwriting." The
Offering Price may not be indicative of the market price for the Common Stock
after the Offering, and there can be no assurance that an active public market
for the Common Stock will develop or continue after the Offering. See
"Underwriting" for a discussion of factors considered in establishing the
initial public offering price. There also can be no assurances that, upon
listing, the Company will continue to meet the criteria for continued listing
of the Common Stock on the NYSE.

RELIANCE ON BOARD OF DIRECTORS AND MANAGEMENT

Stockholders will have no right or power to take part in the management of
the Company except through the exercise of voting rights on certain specified
matters. The Board of Directors will be responsible for directing the
management of the business and affairs of the Company. The Company will rely
upon the services and expertise of its management for strategic business
direction.

ABILITY OF BOARD TO CHANGE POLICIES

The major policies of the Company, including its policies with respect to
acquisitions, financing, growth, operations, debt capitalization and
distributions, will be determined by its Board of Directors. The Board of
Directors may amend or revise these and other policies from time to time
without a vote of the stockholders of the Company. See "Policies and
Objectives with Respect to Certain Activities."

ADVERSE EFFECT OF INCREASE IN MARKET INTEREST RATES ON PRICE OF COMMON STOCK

One of the factors that may influence the price of the Common Stock in
public trading markets will be the annual yield from distributions by the
Company on the Common Stock as compared to yields on certain financial
instruments. Thus, an increase in market interest rates will result in higher
yields on certain financial instruments, which could adversely affect the
market price of the Common Stock.

32
<PAGE>

THE COMPANY

GENERAL

The Company, which intends to operate as a REIT, has been formed to own
hotel properties and to continue and expand the hotel acquisition, development
and repositioning operations of AGHI. Upon completion of the Offering and the
Formation Transactions, the Company will own thirteen hotels containing an
aggregate of 3,012 guest rooms, located in nine states. AGHI, which will
manage the Initial Hotels, was founded in 1981 by Mr. Jorns, the Company's
Chairman of the Board, Chief Executive Officer and President. As of March 31,
1996, AGHI operated and managed 74 hotels in 24 states containing an aggregate
of more than 13,865 guest rooms. According to Hotel & Motel Management, a
leading hotel trade publication, AGHI was the nation's fourth largest
independent hotel management company in 1995, based upon number of hotels
under management. The Company's operations will focus on the ownership of
full-service hotels in major metropolitan markets, including hotels that are
in close proximity to the airports that serve such markets, and, to a lesser
extent, prominent hotels in major tourist areas. The Company expects to
capitalize on AGHI's expertise to achieve revenue growth at the Company's
hotels. Pursuant to the terms of the Management Agreements, and for so long as
AGHI is managing hotels owned by the Company, AGHI has agreed not to own or
develop any additional hotel properties. The Company will not have any
economic interest in AGHI's hotel management operations.

The Initial Hotels include eleven full-service hotels and two limited-
service hotels, and are diversified by franchise affiliation. For the twelve
months ended March 31, 1996, the Initial Hotels had a weighted average
occupancy of 73.0% and an ADR of $70.97. Ten of the Initial Hotels operate
under franchise licenses with nationally recognized hotel companies, which
include one Hilton, one Courtyard by Marriott, six Holiday Inns, one Hampton
Inn and one Days Inn. Six of the Initial Hotels are located in close proximity
to major airports, including two Holiday Inns in Dallas/Fort Worth, a Holiday
Inn in New Orleans, a Hampton Inn in Richmond, and independent hotels in San
Jose and Albuquerque. One Initial Hotel, a Days Inn, is located in the major
tourist area of Ocean City, Maryland. The remaining six Initial Hotels are
located in major metropolitan markets, including a Hilton in Toledo, Ohio, a
Courtyard by Marriott in Secaucus, New Jersey (immediately adjacent to New
York City), a Holiday Inn in San Diego, California, a Holiday Inn in San Jose,
California, a Holiday Inn Select in Madison, Wisconsin, and a prestigious
independent hotel affiliated with the Small Luxury Hotels located in the
French Quarter section of New Orleans, Louisiana. Certain of the Initial
Hotels, including the Holiday Inn Select in Madison, Wisconsin, and the
Holiday Inn Dallas DFW Airport South in Irving, Texas, have garnered
prestigious awards, including Holiday Inn's Torchbearer (awarded to those
hotels that are deemed to be leaders in the community, based on their
involvement in community and civic affairs), Modernization (awarded to those
hotels that complete the most effective total renovation projects), Quality
Excellence (awarded to those hotels that, based upon a quality indexing
system, noticeably exceed guest expectations), and Hotel of the Year (as
determined by a panel of three members of Holiday Inn Worldwide senior
management) awards.

The Company will seek to achieve revenue growth principally through the
acquisition and subsequent product and brand repositioning of hotels.
Consistent with this strategy, the Company has scheduled approximately $24.6
million (an average of approximately $13,400 per guest room) to be spent on
renovations and refurbishments within one year after the completion of the
Offering at seven of the Initial Hotels to convert the hotels to leading
franchise brands and reposition such hotels for future revenue growth. Upon
completion of the franchise conversions, the Initial Hotels will consist of
one Wyndham Hotel, two DoubleTree Hotels, two Crowne Plazas, one Hilton, one
Courtyard by Marriott, one Holiday Inn Select (the premium Holiday Inn brand),
two Holiday Inns, two Hampton Inns and one luxury independent hotel. There can
be no assurance that such brand conversions and hotel repositionings will
occur as planned.

The Company intends to capitalize on the comprehensive hotel acquisition,
development, and operations experience of the Company's senior management
team, including Mr. Jorns, the founder of AGHI, the Company's Chairman of the
Board, Chief Executive Officer and President, Mr. Wiles, the Company's
Executive Vice President, Mr. Barr, the Company's Executive Vice President and
Chief Financial Officer, and

33
<PAGE>

Mr. Valentine, the Company's Senior Vice President--Acquisitions. These four
executive officers have an average of over 25 years of experience in the real
estate and lodging industries and the finance and accounting fields. The
Company believes that AGHI's extensive hotel operations and the significant
industry relationships of the Company's senior management team will provide
the Company with a competitive advantage in identifying opportunities for
strategic acquisitions of hotel properties before they are widely marketed for
sale.

In order to qualify as a REIT, the Company may not operate hotels. As a
result, the current principals of AGHI (including Messrs. Jorns and Wiles) and
Mr. Barr have formed the Lessee, which will lease the Initial Hotels from the
Company pursuant to separate Participating Leases. The Participating Leases
are designed to allow the Company to achieve substantial participation in any
future growth of revenues generated at the Initial Hotels. Messrs. Jorns,
Wiles and Barr own collectively an approximate 23.0% interest in the Lessee.
The Lessee, in turn, will enter into separate Management Agreements with AGHI
to operate the Initial Hotels. The terms of the Participating Leases, the
Management Agreements and related agreements have been structured to align the
interests of the Lessee and AGHI with the interests of the Company's
stockholders. See "The Initial Hotels--The Participating Leases" and "--The
Management Agreements."

The Company attributes the success of the Initial Hotels to the slowing in
recent years of new hotel construction nationally and improving economic
conditions, both of which followed an extended period of unprofitable industry
performance in the late 1980's and early 1990's. According to Smith Travel
Research, for 1994 and 1995, occupancy rates for the U.S. lodging industry
were 64.7% and 65.5% respectively, reflecting a 2.9% increase in guest room
demand from 1994 to 1995 and a 1.7% increase in guest room supply during the
same period. The Company believes these improved lodging market fundamentals
have created a favorable environment for internal growth at the Initial Hotels
and for acquisitions. The following table compares occupancy, ADR, and REVPAR
at the Initial Hotels with comparable data for all midscale and lower upscale
U.S. hotels as well as all U.S. hotels for the periods indicated.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- --------------
1993 1994 1995 1995 1996
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Occupancy
Initial Hotels(1).................. 71.6% 71.7% 72.9% 70.6% 70.7%
AGH Predecessor Hotels(2).......... 74.3 71.1 72.1 73.3 64.2
AGH Acquisition Hotels(3).......... 71.0 71.9 73.1 70.0 72.1
All Midscale Hotels(4)............. 63.0 64.7 64.6 59.5 59.6
All Lower Upscale Hotels(4)........ 67.3 69.9 70.2 67.8 68.3
All U.S. Hotels(4)................. 63.0 64.7 65.5 60.3 61.1
ADR(5)
Initial Hotels(1).................. $ 57.65 $ 62.28 $ 69.19 $65.97 $73.33
AGH Predecessor Hotels(2).......... 57.09 62.10 73.26 67.01 81.10
AGH Acquisition Hotels(3).......... 57.78 62.32 68.30 65.73 71.77
All Midscale Hotels(4)............. 54.55 56.23 58.97 57.37 60.68
All Lower Upscale Hotels(4)........ 71.98 74.72 78.81 78.74 83.67
All U.S. Hotels(4)................. 61.93 64.24 67.34 67.83 72.01
REVPAR(6)
Initial Hotels(1).................. $ 41.26 $ 44.67 $ 50.46 $46.56 $51.81
AGH Predecessor Hotels(2).......... 42.42 44.14 52.84 49.10 52.09
AGH Acquisition Hotels(3).......... 41.01 44.79 49.93 45.99 51.75
All Midscale Hotels(4)............. 34.36 36.04 38.08 34.13 36.19
All Lower Upscale Hotels(4)........ 48.44 52.21 55.36 53.39 57.18
All U.S. Hotels(4)................. 39.01 41.56 44.11 40.93 44.02
</TABLE>
- --------
(1) The occupancy, ADR and REVPAR calculations for the Initial Hotels are
derived from room revenue that is included in the audited financial data
relating to each of the Initial Hotels for each of the periods indicated
except for the following hotels for which information is audited only from
the date of acquisition of such hotel by AGHI (such date is set forth in
parentheses): the Hotel Maison de Ville (August 1994), the Holiday Inn
Dallas DFW Airport West (June 1995), the Hampton Inn Richmond Airport
(December 1994) and the

34
<PAGE>

Courtyard by Marriott-Meadowlands (December 1993). The occupancy, ADR and
REVPAR information for the periods prior to the date of acquisition of the
hotels have been provided to management by the prior owners of such hotels.
(2) The AGH Predecessor Hotels consist of the following four Initial Hotels:
the Holiday Inn Dallas DFW Airport West, the Courtyard by Marriott-
Meadowlands, the Hotel Maison de Ville, and the Hampton Inn Richmond
Airport.
(3) The AGH Acquisition Hotels consist of the following nine Initial Hotels
(four of which are currently managed by AGHI): the Holiday Inn Dallas DFW
Airport South, Hilton Hotel-Toledo, Holiday Inn New Orleans International
Airport, Holiday Inn Park Center Plaza, Holiday Inn Select-Madison,
Holiday Inn Mission Valley, Le Baron Airport Hotel, Days Inn Ocean City,
and Fred Harvey Albuquerque Airport Hotel.
(4) Source: Smith Travel Research. Smith Travel Research has not provided any
form of consultation, advice or counsel regarding any aspect of, and is in
no way associated with, the Offering. The "Midscale" category includes 22
hotel chains designated by Smith Travel Research as "Midscale" hotels. The
"Lower Upscale" category includes 17 hotel chains designated by Smith
Travel Research as "Lower Upscale" hotels. Eight of the franchise brands
of the Initial Hotels are currently within the "Midscale" category. The
Company expects that upon completion of its subsequent product and brand
repositioning program, six of the franchise brands of the Initial Hotels
will be within the "Lower Upscale" category.
(5) Determined by dividing total room revenue by total rooms sold.
(6) Determined by dividing total room revenue by total available rooms.

Management believes that the full-service hotel segment, in particular, has
potential for improved performance as the economy continues to improve and as
business and leisure travel activity increases. The Company has targeted the
full-service segment of the hotel industry due, in part, to its belief that
the approximate three- to five-year lead time from conception to completion of
a full-service hotel in the markets in which the Company intends to focus
represents a significant barrier to entry that will limit competition
resulting from a new supply of guest rooms. Management also believes that the
full-service segment of the market will continue to offer numerous
opportunities to acquire hotels at attractive multiples of cash flow, and at
discounts to replacement value, including underperforming hotels that may
benefit from new management. The Company believes that a substantial number of
hotels meeting its investment criteria are available at attractive prices in
the markets where AGHI currently operates hotels and in markets which the
Company believes have attractive economic characteristics. The Company
believes its acquisition capabilities will be enhanced by the fact that its
initial capital structure provides significant financial flexibility. Upon
completion of the Offering, the Company will have approximately $27.8 million
of outstanding indebtedness (including approximately $8.5 million borrowed
under the Line of Credit in connection with the closing of the Offering). The
Company intends to limit consolidated indebtedness (measured at the time the
debt is incurred) to no more than 45.0% of the Company's investment in hotels.
See "Policies and Objectives with Respect to Certain Activities--Financing."
The Company has obtained a commitment for the $100 million Line of Credit. See
"The Initial Hotels--Line of Credit."

GROWTH STRATEGIES

ACQUISITIONS

35
<PAGE>

executive officers' experience in the hotel industry will enable the Company
to acquire, upgrade and convert hotels in order to capture the growth
potential from such acquisitions. The Company initially will employ five
professionals devoted exclusively to hotel acquisitions.

The Company will seek to acquire additional hotels that meet one or more of
the following investment criteria:

. nationally franchised hotels in locations with a relatively high demand
for rooms, relatively low supply of competing hotels and high barriers to
entry; and

The Company's ability to make acquisitions will depend on its ability to
access debt and equity financing. Initially, the Company expects to fund its
acquisitions by utilizing funds available under its Line of Credit. Funds
available to the Company under the Line of Credit will be limited to the
maximum principal amount of $100 million and, among other limitations, to
40.0% of the value or cost of the hotels that secure such line. Although as a
public company the Company expects to have available alternative sources of
financing, no commitments relating to such financing exist. Acquisitions
entail risks that acquired hotels will fail to perform in accordance with
expectations and that estimates of the cost of improvements necessary to
reposition hotels will prove inaccurate, as well as general investment risks
associated with any new real estate investment. In addition, future trends in
the hotel industry may make future acquisitions economically impractical.
Moreover, there can be no assurance that the Company will be able to acquire
hotels that meet its investment criteria or that any such hotels' operations
can be successfully improved. See "Risk Factors--Real Estate Investment
Risks--General Risks" and "--Acquisition and Development Risks."

DEVELOPMENT

The Company's executive officers average approximately 17 years of
experience in the development and renovation of real estate. Under the
direction of the Company's executive officers, AGHI has developed six hotel
properties, with an aggregate development cost of approximately $60.0 million,
and has completed redevelopment or repositioning projects at approximately 70
hotel properties, including both full- and limited-service hotels. Presently,
AGHI has two hotels under development, including a 167-room Courtyard by
Marriott in Boise, Idaho that is scheduled for completion in the fourth
quarter of 1996, and a 151-room Courtyard by Marriott in Durham, North
Carolina that is scheduled for completion in the first quarter of 1997. The
Company has an option and a right of first refusal to purchase AGHI's interest
in these option hotels (the "Option Hotels")

36
<PAGE>

for a two-year period following the opening of each such hotel. See "The
Initial Hotels--Options to Purchase and Rights of First Refusal." The Company
anticipates that most of the additional hotels developed in the future will be
in the full-service commercial sector, including such major brands as Hilton,
Marriott's family of brands, Wyndham Hotel, DoubleTree Hotel, Crowne Plaza,
Holiday Inn, Sheraton(R) and Embassy Suites(R). Other than in connection with
the limited expansion of existing hotels, the Company may not engage in
development activities without the consent of the lenders under the Line of
Credit.

The Company's development activities will be limited by the terms of the
Line of Credit and its ability to access financing as well as future trends in
the hotel industry. Like acquisitions, new project development is also subject
to numerous risks, including risks of construction delays or cost overruns
that may increase project costs. Accordingly, there can be no assurance that
the Company will be able to develop hotels that meet its investment criteria
or that any hotels can be successfully developed. See "Risk Factors--Real
Estate Investment Risks--Acquisition and Development Risks."

INTERNAL GROWTH

The Company believes that, based on the historical operating results of the
Initial Hotels, the strength of the Company's and AGHI's existing management
teams and the structure of the Participating Leases, the Initial Hotels should
provide the Company with the opportunity for significant revenue growth. The
Company believes that it has structured its business relationships with AGHI
and the Lessee to provide incentives to operate and maintain the Initial
Hotels in a manner that will increase revenue and the Company's Cash Available
for Distribution. See "The Initial Hotels--The Participating Leases" and "--
The Management Agreements."

AGHI has extensive experience in managing hotels through all stages of the
lodging industry cycle, including industry downturns. During the late 1980's
and early 1990's, AGHI managed over 140 different hotels for institutional
owners, a substantial number of whom acquired the hotels through foreclosure,
thus enhancing AGHI's extensive turnaround and repositioning experience as
well as its management depth and operating systems. The Company believes there
is significant potential to increase revenues at the Initial Hotels
(especially those not currently managed by AGHI), and increase Participating
Lease payments by employing the following strategies:

. product repositioning through renovation and refurbishment of the hotels;

. brand repositioning through conversion to leading national franchise
affiliations;

. operational repositioning through property-level management and
marketing; and

Product Repositioning. The Company believes that a regular program of
capital improvements, including replacement and refurbishment of FF&E at the
Initial Hotels, as well as the renovation and redevelopment of certain of the
Initial Hotels, will maintain the competitiveness of the Initial Hotels and
increase revenues. From January 1, 1993 through March 31, 1996, approximately
$15.0 million (an average of approximately $9,000 per guest room) was spent on
renovations and capital improvements at the eight Initial Hotels currently
operated and managed by AGHI. The Company expects to employ a repositioning
and conversion strategy in connection with its hotel acquisitions. Consistent
with this strategy, the Company has scheduled approximately $24.6 million (an
average of approximately $13,400 per guest room) to be spent on renovations
and refurbishments within one year after the completion of the Offering at
seven of the Initial Hotels anticipated to undergo brand conversions within
one year after the closing of the Offering (see "Brand Repositioning" below).

37
<PAGE>

additional $2.5 million has been spent to upgrade the hotel. In 1992,
occupancy, ADR and REVPAR at the Holiday Inn Dallas DFW Airport South were
49.1%, $54.18 and $26.61, respectively. By the twelve months ended March 31,
1996, occupancy at the hotel had increased 57.2% to 77.2%, ADR at the hotel
had increased 35.7% to $73.54 and REVPAR at the hotel had increased 113.4% to
$56.79. There can be no assurance that the Company will be able to achieve
similar results with respect to the Initial Hotels or hotels acquired in the
future.

The Participating Leases require the Company to establish reserves of 4.0%
of total revenue for each of the Initial Hotels (which, on a consolidated pro
forma basis for the twelve months ended March 31, 1996, represented
approximately 5.6% of room revenue), which will be utilized by the Lessee for
the replacement and refurbishment of FF&E and for other capital expenditures
designed to enhance the competitive position of the Initial Hotels. The
Company and the Lessee will agree on the use of funds in this reserve and the
Company will have the right to approve the Lessee's annual and long-term
capital expenditure budgets. While the Company expects its reserves to be
adequate to fund recurring capital needs (including periodic renovations), the
Company may use Cash Available for Distribution in excess of distributions
paid (subject to federal income tax restrictions on the Company's ability to
retain earnings) or funds drawn under the Line of Credit to fund additional
capital improvements as necessary, including major renovations at the
Company's hotels.

Brand Repositioning. The Company believes an opportunity exists in certain
major U.S. markets to acquire underperforming hotels that currently operate as
independent hotels or under franchise affiliations that have limited brand
recognition and convert them to stronger, more nationally recognized brand
affiliations, such as Courtyard by Marriott, Crowne Plaza, DoubleTree Hotel,
Holiday Inn, Holiday Inn Select, and Wyndham Hotel brands, in order to improve
the operating performance at these hotels. Seven of the Initial Hotels are
anticipated to undergo brand conversions within one year after the closing of
the Offering. It is expected that the Holiday Inn Park Center Plaza will be
converted from a traditional Holiday Inn to a Crowne Plaza, the Holiday Inn
Select-Madison will be converted to a Crowne Plaza, the Days Inn Ocean City
will be converted to a Hampton Inn, the Le Baron Airport Hotel will be
converted to a DoubleTree Hotel, the Holiday Inn New Orleans International
Airport will be converted from a traditional Holiday Inn to a Holiday Inn
Select, the Holiday Inn Mission Valley will be converted to a DoubleTree
Hotel, and the Fred Harvey Albuquerque Airport Hotel will be converted to a
Wyndham Hotel. These brand conversions are subject to, among other things,
final franchisor and lender approval, and there can be no assurance that such
brand conversions and repositioning will occur as planned. See "Risk Factors--
Risks of Operating Hotels Under Franchise Agreements; Approval for Brand
Conversions."

As an example, AGHI implemented its brand repositioning strategy in
connection with its acquisition of the Courtyard by Marriott-Meadowlands in
December 1993. At the time of its acquisition by AGHI, this hotel's operating
performance was declining due to prior management inefficiencies, deferred
maintenance and a lack of capital to effectively compete in its market. In
response to these conditions, AGHI developed a multi-phase strategy, including
repositioning the former Days Hotel to a Courtyard by Marriott and upgrading
the hotel by making approximately $530,000 in renovations of guest rooms and
public space and exterior improvements to the hotel. Since the initial
renovation was completed in May 1994, AGHI has invested an additional $845,400
to further improve the restaurant, lounge, exterior entrances, guest rooms and
meeting facilities. In 1993, occupancy, ADR and REVPAR at the Courtyard by
Marriott-Meadowlands were 74.8%, $65.63 and $49.09, respectively. By the
twelve months ended March 31, 1996, occupancy at the hotel had increased 3.9%
to 77.7%, ADR at the hotel had increased 27.1% to $83.42 and REVPAR at the
hotel had increased 32.0% to $64.82. There can be no assurance that the
Company will be able to achieve similar results with respect to the Initial
Hotels or hotels acquired in the future.

The Company's ability to utilize its repositioning strategies will depend on
its ability to access financing. The Company plans to use funds available
under the Line of Credit to implement its planned conversion and repositioning
strategy at certain of the Initial Hotels. Substantial renovations of hotels
often disrupt the operations of those hotels due to hotel guest rooms and
common areas being out of service for extended periods. See "Risk Factors--
Hotel Industry Risks--Risks of Necessary Operating Costs and Capital
Expenditures; Required Hotel Renovations."

38
<PAGE>

Operational Repositioning. The Company expects to achieve internal growth
through the application of AGHI's operating strategies, which stress
responsiveness and adaptability to changing market conditions to maximize
revenue growth. The Company's objectives include increasing REVPAR through
increases in occupancy and ADR through AGHI's continuing use of (i)
interactive yield management techniques, (ii) highly developed operating
systems and controls, (iii) targeted sales and marketing plans, (iv) proactive
financial management, (v) extensive training programs, and (vi) an incentive-
based compensation structure.

Participating Leases Structure. The Participating Leases are designed to
allow the Company to participate in any increased revenues from the hotels in
which it invests. The Company also believes that by employing AGHI as the
manager of the five Initial Hotels that AGHI does not currently manage, AGHI,
through improved marketing and yield management techniques, will increase the
revenues of these hotels, thereby increasing the rent payable to the Company
by the Lessee under the Participating Leases. The Company and the Lessee
relied on this estimated increase in revenue in establishing the rent payable
to the Company under the Participating Leases relating to these hotels. While
the rent provisions of the Participating Leases are revenue-based, such
provisions have been developed with consideration of the fixed and variable
nature of hotel operating expenses and changes in operating margins typically
associated with increases in revenues. See "The Initial Hotels--The
Participating Leases."

In an effort to align the interests of AGHI and the Lessee with the
interests of the Company's stockholders, the Participating Leases, the
Management Agreements and certain related agreements provide for the
following:

. until the Lessee's net worth equals the greater of (i) $6.0 million or
(ii) 17.5% of actual rent payments from hotels leased to the Lessee
during the preceding calendar year, the Lessee will not pay any
distributions to its partners (except for the purpose of permitting its
partners to pay taxes on the income attributable to them from the
operations of the Lessee and except for distributions relating to
interest or dividends received by the Lessee from cash or securities held
by it);

. management fees paid to AGHI by the Lessee will include an incentive fee
of up to 2.0% of gross revenues based upon reaching certain gross revenue
targets at the Initial Hotels;

. management fees payable by the Lessee to AGHI will be subordinated to
the Lessee's rent obligations to the Company under the Participating
Leases;

. Messrs. Jorns and Wiles, who are stockholders of AGHI and are also
executive officers of the Company, will agree to use 50% of the dividends
(net of tax liability) received by them from AGHI that are attributable
to AGHI's earnings from the management of hotels owned by the Company (as
determined in good faith by such officers) to purchase additional
interests in the Company; and

. the Board of Directors of the Company will establish a Leasing Committee,
consisting entirely of Independent Directors, that will review not less
frequently than annually the Lessee's compliance with the terms of the
Participating Leases and will review and approve the terms of each new
Participating Lease between the Company and the Lessee.

FINANCING STRATEGY

Upon completion of this Offering, the Company will have approximately $27.8
million of outstanding indebtedness, including approximately $19.3 million
encumbering two of the Initial Hotels and approximately $8.5 million borrowed
under the Line of Credit in connection with the closing of the Offering. While
its organizational documents contain no limitation on the amount of debt it
may incur, the Company, subject to the

39
<PAGE>

discretion of the Board of Directors, intends to limit consolidated
indebtedness (measured at the time the debt is incurred) to not more than
45.0% of the Company's investment in hotels (calculated in the manner set
forth under "Policies and Objectives with Respect to Certain Activities--
Financing"). The Company may from time to time re-evaluate its debt limitation
policy in light of then current economic conditions, relative costs of debt
and equity capital, market values of its hotels, acquisition and expansion
opportunities and other factors.

As a publicly owned hotel REIT, the Company believes that it will have
improved access to a wide variety of financing sources to fund acquisitions,
such as the ability to issue several types of public and private debt, equity
and hybrid securities, as well as the ability to utilize OP Units as
acquisition consideration. The Company has received a commitment for the Line
of Credit that will be limited to the maximum principal amount of $100 million
and, among other limitations, to 40.0% of the value or cost of the hotels
which secure such line. The Line of Credit initially will be secured by a
first mortgage lien on eleven of the Initial Hotels. Subject to the
limitations described above and other limitations contained in the Line of
Credit, the Company may borrow additional amounts from the same or other
lenders in the future or may issue corporate debt securities in public or
private offerings. Certain of such additional borrowings may be secured by
hotels owned by the Company. Upon the closing of the Offering, the Company
expects to have approximately $51.5 million of borrowing capacity available
under the Line of Credit after borrowing approximately $8.5 million under the
Line of Credit in connection with the closing of the Offering. The Company
expects that its borrowing capacity under the Line of Credit will increase to
$100 million, assuming all additional borrowings are used to fund capital
improvements to the Initial Hotels or the acquisition of additional hotels.
See "The Initial Hotels--Line of Credit."

THE OPERATING PARTNERSHIP

Upon completion of the Offering, the Company will acquire an approximately
80.2% interest in the Operating Partnership, a recently formed Delaware
limited partnership. The Company will hold its interest in the Operating
Partnership through two wholly owned subsidiaries, AGH GP and AGH LP. AGH GP
will be the sole general partner of the Operating Partnership and will own a
1.0% general partnership interest in the Operating Partnership. Through AGH
GP, the Company will control the Operating Partnership and its assets. AGH LP
will be one of the Operating Partnership's limited partners (the "Limited
Partners") and will own an approximately 79.2% limited partnership interest in
the Operating Partnership. Other initial limited partners will be the Primary
Contributors and other holders of interests in the Initial Hotels who have
elected to receive OP Units in exchange for all or a portion of their
interests in the Initial Hotels. In their capacity as such, the Limited
Partners will have no authority to transact business for, or participate in
the management, activities or decisions of, the Operating Partnership. The
Operating Partnership will own, directly or through one or more subsidiary
partnerships or limited liability companies (the "Subsidiary Partnerships"),
all of the Initial Hotels and will lease such hotels to the Lessee. The
Operating Partnership will own, directly or indirectly, a 99.9% interest in
each Subsidiary Partnership.

40
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the Offering, after payment of
estimated expenses incurred in connection with the Offering, are estimated to
be approximately $119.8 million. In connection with the Formation
Transactions, (i) the Company will contribute the net proceeds from the
Offering to the Operating Partnership and (ii) the Operating Partnership will
borrow approximately $8.5 million under the Line of Credit. The Operating
Partnership will use the net proceeds of the Offering and the initial
borrowing under the Line of Credit as follows:

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Acquisition of the Initial Hotels, including net
closing costs of $195................................. $ 91,044
Repayment of existing mortgage indebtedness, including
associated prepayment penalties....................... 34,275
Working capital, Line of Credit fees, franchise
transfer costs and other expenses..................... 2,961
--------
Total uses of proceeds(1)............................ $128,280
========
</TABLE>
- --------
(1) Includes approximately $900 that will be used to reimburse AGHI for direct
out-of-pocket expenses incurred in connection with the acquisition of the
Initial Hotels, including legal, environmental and engineering expenses.

If the Underwriters' over-allotment option is exercised in full, the Company
intends to use the additional net proceeds of approximately $18.6 million to
repay amounts borrowed under the Line of Credit and fund planned renovations
to certain Initial Hotels as described herein, for the acquisition of
additional hotels to be identified in the future and for working capital.

Mortgage indebtedness to be repaid with the net proceeds of the Offering is
as follows (dollars in thousands):

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
PREPAYMENT AS OF
HOTEL INTEREST RATE MATURITY DATE PENALTY JULY 15, 1995
----- ------------- -------------- ---------- ----------------
<S> <C> <C> <C> <C>
Holiday Inn Dallas DFW
Airport West........... 9.8% June 2000 $450 $ 8,557
Hotel Maison de Ville... 9.3 August 1999 1,538
Hampton Inn Richmond
Airport................ 9.8 December 1999 284 4,768
Holiday Inn Select-
Madison................ 8.5 September 1996 3,872
Hilton Hotel-Toledo..... 8.8 June 1997 7,500
Holiday Inn New Orleans
International Airport.. 8.6 June 1998 7,306
---- -------
Total................. $734 $33,541
==== =======
</TABLE>

Of the indebtedness to be repaid with the net proceeds of the Offering and
the initial borrowing under the Line of Credit, approximately $16.1 million
was incurred within the twelve months prior to the date of this Prospectus of
which amount (i) approximately $8.6 million was utilized for the acquisition
and refurbishment of the Holiday Inn Dallas DFW Airport West and (ii)
approximately $7.5 million was utilized in connection with the acquisition of
the Hilton Hotel-Toledo.

Currently, the Company does not have any agreement or understanding to
purchase any specific hotel other than the Initial Hotels, although
discussions with various prospective sellers of hotels have been initiated.
The Company will receive options to acquire AGHI's interests in two Courtyards
by Marriott currently under development. See "The Initial Hotels--Options to
Purchase and Rights of First Refusal."

Pending the uses described above, the net proceeds will be invested in
interest-bearing accounts and short-term, interest-bearing securities, which
are consistent with the Company's intention to qualify for taxation as a REIT.
Such investments may include, for example, government and government agency
securities, certificates of deposit, interest-bearing bank deposits and
mortgage loan participations.

41
<PAGE>

DISTRIBUTION POLICY

Subsequent to the Offering, the Company intends to make regular quarterly
distributions to its stockholders. The Company's first distribution, for the
period from the closing of the Offering to September 30, 1996, is expected to
be $.2746 per share of Common Stock, representing a pro rata distribution of
the anticipated regular quarterly distribution of $0.4075 per share for a full
quarter, which, on an annualized basis, will represent an initial annual
distribution rate of $1.63 per share, or approximately 9.2% of the Offering
Price. Based on the Company's estimated revenues less expenses for the twelve
months ended March 31, 1996, the estimated initial annual distribution per
share represents 99.4% of estimated Cash Available for Distribution. Holders
of OP Units will receive equal distributions on a per unit basis. The Company
does not expect to adjust the estimated distribution rate if the Underwriters'
over-allotment option is exercised. See "Partnership Agreement."

The Company has established the expected initial annual distribution rate
based upon the Company's estimate of Cash Available for Distribution, which
has been derived from the statement of estimated revenues less expenses of the
Company for the twelve months ended March 31, 1996. The Company believes the
estimated revenues less expenses for the twelve months ended March 31, 1996
constitutes a reasonable basis for setting the expected annual initial
distribution rate. The Board of Directors, in its sole discretion, will
determine the actual distribution rate based on the Company's actual results
of operations, Cash Available for Distribution, economic conditions, tax
considerations (including those related to REITs) and other factors.

The following table sets forth certain financial information for the twelve
months ended March 31, 1996, which has been used to establish the expected
initial annual distribution per share.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
MARCH 31, 1996
----------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C>
Estimated revenues less expenses(1).................... $ 9,763
Add back non-cash items:
Pro forma depreciation(1) ............................. 5,255
-------
Pro forma Funds From Operations(2)..................... 15,018
Adjustments:
Pro forma amortization(1).............................. 519
Pro forma amortization of unearned officers'
compensation(1)....................................... 71
Estimated cash used to pay interest expenses related to
certain capital expenditures(3)....................... (442)
Estimated cash used in investing activities(4)......... (2,556)
-------
Estimated Cash Available for Distribution(1)(5)........ $12,610
=======
Aggregate expected initial annual distribution on
Common Stock(6)....................................... $12,530
Expected initial annual distribution per share of
Common Stock.......................................... $ 1.63
Expected payout ratio based on estimated Cash Available
for Distribution(7)................................... 99.4%
</TABLE>
- --------
(1) Amounts are adjusted to reflect the Company's ownership percentage in the
Operating Partnership of 80.2%.
(2) Funds From Operations, as defined by NAREIT, represents net income
applicable to common stockholders (computed in accordance with generally
accepted accounting principles), excluding gains (losses) from debt
restructuring and sales of property (including furniture and equipment),
plus real estate related depreciation and amortization (excluding
amortization of deferred financing costs), and after adjustments for
unconsolidated partnerships and joint ventures. Funds From Operations does
not represent cash generated from operating activities in accordance with
generally accepted accounting principles, is not necessarily indicative of
cash flow available to fund cash needs and should not be considered as an
alternative to net income as an indication of performance or to cash flow
as a measure of liquidity. Although Funds From Operations has been
computed in accordance with the newly adopted NAREIT definition, Funds
From Operations as presented may not be comparable to other similarly
titled measures used by other REITs. Funds From Operations does not
reflect cash expenditures for capital improvements or principal
amortization of indebtedness on the Initial Hotels.

42
<PAGE>

(3) Represents the estimated interest expense (adjusted to reflect the
Company's ownership percentage in the Operating Partnership of 80.2%) that
will be incurred during the twelve months following the closing of the
Offering in order to fund (i) the $24.6 million cost of planned
renovations and refurbishments at the seven Initial Hotels the Company
plans to convert to leading franchise brands in order to reposition such
hotels for future growth and (ii) the $2.6 million of planned improvements
that the Company expects to make at five other Initial Hotels. Estimated
interest expense is computed based upon management's estimate of the
timing of the expenditures relating to the scheduled renovations and
refurbishments multiplied by an assumed interest rate applicable to
borrowings under the Company's Line of Credit (7.28% as of July 23, 1996).
Estimated Cash Available for Distribution does not include the effects of
any revenue increases expected to result from capital expenditures at the
Initial Hotels.
(4) Represents the Company's obligation under the Participating Leases
(adjusted to reflect the Company's ownership percentage in the Operating
Partnership of 80.2%) to reserve and pay for capital improvements
(including the replacement or refurbishment of FF&E) on a pro forma basis
for the twelve months ended March 31, 1996. Such reserves were equal to
4.0% of total revenue for each of the Initial Hotels (which, on a
consolidated pro forma basis, represented approximately 5.6% of room
revenue). See "The Initial Hotels--The Participating Leases." Based on
management's experience, and considering the amounts expended on
renovations and capital improvements at the Initial Hotels since 1993, the
Company believes the amounts reserved under the Participating Leases will
be sufficient to fund reasonably foreseeable capital improvements and
replacements and refurbishments of FF&E. However, the Company may find it
necessary or desirable to spend amounts in excess of the obligated amounts
and may make additional borrowings or use undistributed Cash Available for
Distribution to fund such expenditures. See "Risk Factors--Hotel Industry
Risks--Risks of Necessary Operating Costs and Capital Expenditures;
Required Hotel Renovations" and "The Initial Hotels."
(5) Estimated Cash Available for Distribution has been reduced by
approximately $18,000, which represents the pro forma interest expense
attributable to aggregate indebtedness of $488,690 that will be incurred
by the Company in order to pay principal amortization on the DFW South
Loan and the Secaucus Loans (as defined in "The Initial Hotels--Mortgage
Indebtedness Remaining Following the Offering").
(6) Based on 7,687,008 shares of Common Stock outstanding upon completion of
the Formation Transactions multiplied by the expected initial annual
distribution rate of $1.63 per share. Excludes an aggregate of 1,896,996
shares issuable after one year following the closing of the Offering upon
the exchange of the OP Units issued in the Formation Transactions.
(7) Represents the anticipated initial aggregate annual distribution divided
by estimated Cash Available for Distribution. The expected payout ratio
based upon pro forma estimated Funds From Operations is approximately
83.4%.

The Company anticipates maintaining its expected initial annual distribution
rate unless actual results of operations, economic conditions or other factors
differ from the estimated revenues less expenses for the twelve months ended
March 31, 1996. The Company's actual Cash Available for Distribution will be
affected by a number of factors, including changes in occupancy or ADR at the
Initial Hotels.

The Company anticipates that Cash Available for Distribution will exceed
earnings and profits due to non-cash expenses, primarily depreciation and
amortization, to be incurred by the Company. Distributions by the Company to
the extent of its current or accumulated earnings and profits for federal
income tax purposes, other than capital gain distributions, will be taxable to
stockholders as ordinary dividend income. Any distributions designated by the
Company as capital gain dividends generally will give rise to capital gain tax
treatment for stockholders. Distributions in excess of the Company's current
or accumulated earnings and profits generally will be treated as a non-taxable
reduction of a stockholder's basis in the Common Stock to the extent thereof,
and thereafter as capital gain. Distributions treated as a non-taxable
reduction in basis will have the effect of deferring taxation until the sale
of a stockholder's Common Stock or future distributions in excess of the
stockholder's basis in the Common Stock. Based upon the total estimated Cash
Available for Distribution set forth in the table above, the Company believes
that approximately 25% of the Company's expected initial annual distribution
would represent a return of capital for federal income tax purposes. If actual
Cash Available

43
<PAGE>

for Distribution or taxable income varies from these amounts, the percentage
of distributions that represents a return of capital may be materially
different.

In order to maintain its qualification as a REIT, the Company must make
annual distributions to its stockholders of at least 95% of its net taxable
income (excluding net capital gains). Based on the Company's estimated
revenues less expenses for the twelve months ended March 31, 1996, the Company
would have been required to distribute approximately $8.9 million, or $1.15
per share, in order to maintain its status as a REIT. Under certain
circumstances, the Company may be required to make distributions in excess of
Cash Available for Distribution in order to meet such distribution
requirements. In such event, the Company would seek to borrow the amount of
the deficiency or sell assets to obtain the cash necessary to make
distributions to retain its qualification as a REIT for federal income tax
purposes.

The Board of Directors, in its sole discretion, will determine the actual
distribution rate based on a number of factors, including the amount of Cash
Available for Distribution, the Company's financial condition, capital
expenditure requirements for the Company's hotels, the annual distribution
requirements under the REIT provisions of the Code and such other factors as
the Board of Directors deems relevant. For a discussion of the tax treatment
of distributions to holders of Common Stock, see "Federal Income Tax
Considerations."

44
<PAGE>

CAPITALIZATION

The following table sets forth the historical capitalization of the AGH
Predecessor Hotels and the pro forma capitalization of the Company as of March
31, 1996, assuming completion of the Offering and Formation Transactions and
the use of the proceeds from the Offering as described in "Use of Proceeds."

<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
AGH
PREDECESSOR
HOTELS COMPANY
HISTORICAL PRO FORMA
----------- ------------
<S> <C> <C>
Long-term debt, net of current portion............. $19,583,931 $ 27,683,549(1)
Minority interest in Operating Partnership......... 29,907,136
Stockholders' equity:
Common Stock, $0.01 par value per share,
100,000,000 shares authorized, 7,687,008 shares
issued and outstanding, as adjusted(2).......... 76,870
Additional paid-in capital....................... 121,949,633
Unearned officers' compensation.................. (887,500)
Retained earnings................................ 4,198,306
----------- ------------
Total stockholders' equity....................... 4,198,306 121,139,003
----------- ------------
Total Capitalization........................... $23,782,237 $178,729,688
=========== ============
</TABLE>
- --------
(1) Reflects the Company's long-term debt collateralized by the Holiday Inn
Dallas DFW Airport South and the Courtyard by Marriott-Meadowlands, net of
the current portion of such debt of $488,690 and $8.8 million of
borrowings under the Line of Credit. The debt encumbering the Holiday Inn
Dallas DFW Airport South is not prepayable prior to February 1, 1998. The
ground lease encumbering the Courtyard by Marriott-Meadowlands contains
provisions that prohibit the Company from including such hotel as part of
the collateral securing the Line of Credit. See "The Initial Hotels--
Mortgage Indebtedness Remaining Following the Offering."
(2) Includes 7,500,000 shares sold in the Offering, 137,008 shares of Common
Stock issued to the Plan in connection with the Formation Transactions and
50,000 shares of restricted Common Stock granted to the Company's
executive officers as stock awards. Excludes 1,896,996 shares issuable one
year after the closing of the Offering upon the exchange of OP Units
issued in connection with the Formation Transactions, 850,000 reserved but
unissued shares of Common Stock under the 1996 Plan and 100,000 reserved
but unissued shares of Common Stock under the Directors' Plan. See
"Management--Stock Incentive Plans," "Formation Transactions" and
"Partnership Agreement--Exchange Rights."

45
<PAGE>

DILUTION

The initial price per share to the public of Common Stock offered hereby
exceeds the net tangible book value per share. Therefore, the holders of OP
Units issued in the Formation Transactions will realize an immediate increase
in the net tangible book value of their OP Units while purchasers of Common
Stock in the Offering will realize an immediate and substantial dilution of
the net tangible book value of their shares. Net pro forma tangible book value
per share is determined by subtracting total liabilities from total tangible
assets and dividing the remainder by the number of shares of Common Stock and
OP Units that will be outstanding after the Offering. The following table
illustrates the dilution per share to purchasers of Common Stock sold in the
Offering, based on the Offering Price.

<TABLE>
<S> <C> <C>
Historical net tangible book value (1)......................... $20.99
Historical AGH Acquisition Hotels net tangible book value (2)..
Increase in net tangible book value attributable to the acqui-
sition of AGH Acquisition Hotels (3).......................... 3.79
Decrease in net tangible book value attributable to expenses
incurred in the Offering and payments for deferred expense
assets........................................................ (5.51)
Decrease in net tangible book value attributable to the alloca-
tion of the minority interest associated with the Offering and
the Formation Transactions.................................... (3.89)
------
Pro forma net tangible book value after the Formation
Transactions (4).............................................. 15.38
Dilution per share purchased in the Offering................... 2.37
------
Offering Price (5)............................................. $17.75
======
</TABLE>
- --------
(1) Historical net tangible book value prior to the Offering is determined by
subtracting total liabilities assumed from total tangible assets purchased
of the AGH Predecessor Hotels ($2.9 million) divided by the total shares
of Common Stock (137,008) issued in the exchange for the net assets of the
AGH Predecessor Hotels in the Formation Transactions. This calculation
does not include the 1,896,996 OP Units which will also be issued in the
exchange for the net assets of the AGH Predecessor Hotels in the Formation
Transactions.
(2) OP Units were issued in connection with the acquisition of the AGH
Acquisition Hotels. No Common Stock was exchanged in connection with such
acquisitions.
(3) Net tangible book value of the AGH Acquisition Hotels attributable to the
allocation of minority interest.
(4) Based on the total pro forma net tangible book value of the Company
($118.2 million) divided by the total shares of Common Stock outstanding
after the Formation Transactions (7,687,008).
(5) Before deducting underwriting discount and estimated expenses of the
Offering.

The following table sets forth the number of shares of Common Stock to be
sold by the Company in the Offering, the total contributions to be paid to the
Company by purchasers of the shares sold in the Offering, the number of shares
of Common Stock and OP Units to be issued in the Formation Transactions, the
stock awards granted to the Company's executive officers and the tangible book
value per share and per OP Unit based on total contributions (determined as if
the consummation of the Formation Transactions occurred on December 31, 1995).

<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
ISSUED BY THE COMPANY AND TANGIBLE BOOK
OP UNITS ISSUED BY THE TOTAL CONTRIBUTIONS VALUE
OPERATING PARTNERSHIP TO THE COMPANY PER SHARE/OP UNIT
---------------------------------------------------- -----------------
NUMBER PERCENT AMOUNT PERCENT
-------------- ------------------------- -------
<S> <C> <C> <C> <C> <C>
Shares of Common Stock
sold by the Company in
the Offering........... 7,500,000 78.3% $133,125,000 107.4% $17.75(1)
Shares of Common Stock
(137,008) and OP Units
(1,896,996) issued in
the Formation
Transactions........... 2,034,004 21.2 4,198,306 3.4 $ 2.06(2)
Stock awards............ 50,000 .5
Other................... (13,320,312)(3) (10.8)
-------------- ---------- ------------ -----
Total................... 9,584,004 100.0% $124,002,994 100.0%
============== ========== ============ =====
</TABLE>
- --------
(1) Based on the Offering Price before deducting expenses of the Offering.
(2) Based on the book value of assets to be contributed to the Operating
Partnership in the Formation Transactions.
(3) Represents the expenses of the Offering, net of the effects of the
Formation Transactions.

46
<PAGE>

SELECTED FINANCIAL INFORMATION

The following tables set forth (1) selected estimated and pro forma
consolidated financial data for the Company as of and for the year ended
December 31, 1995, the twelve months ended March 31, 1996 and the three months
ended March 31, 1996, (2) selected historical combined financial data for the
Initial Hotels for each of the years in the five-year period ended December
31, 1995 and the three months ended March 31, 1995 and 1996 and pro forma
financial data for the Initial Hotels and Lessee for the year ended December
31, 1995, the twelve months ended March 31, 1996 and the three months ended
March 31, 1996, (3) selected historical combined financial data for the AGH
Predecessor Hotels for each of the years in the three-year period ended
December 31, 1995, and the three months ended March 31, 1995 and 1996 and (4)
selected historical combined financial data for the AGH Acquisition Hotels for
each of the years in the five-year period ended December 31, 1995 and the
three months ended March 31, 1995 and 1996. The selected historical combined
financial data of the AGH Predecessor Hotels for the periods presented
(excluding the historical financial data for the three months ended March 31,
1995 and 1996) and the selected historical combined financial data of the AGH
Acquisition Hotels for each of the years in the three-year period ended
December 31, 1995 have been derived from the historical combined financial
statements and notes thereto of the AGH Predecessor Hotels and the AGH
Acquisition Hotels audited by Coopers & Lybrand L.L.P., independent
accountants, whose reports with respect thereto are included elsewhere in this
Prospectus. The selected historical combined financial data of the AGH
Predecessor Hotels for the three months ended March 31, 1995 and 1996 and the
AGH Acquisition Hotels for each of the years in the two-year period ended
December 31, 1992 and the three months ended March 31, 1995 and 1996 have been
derived from unaudited combined internal statements of operations of the AGH
Predecessor Hotels and the AGH Acquisition Hotels. In the opinion of
management, the unaudited combined financial data include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial information set forth therein.

The statements of estimated revenues less expenses, pro forma and other data
are presented as if the Formation Transactions and the application of the net
proceeds of the Offering had occurred as of January 1, 1995 and therefore
incorporate certain assumptions that are included in the Notes to the
Statements of Estimated Revenues Less Expenses and Pro Forma Statements of
Operations included elsewhere in this Prospectus. The pro forma operating data
for the Initial Hotels and Lessee is presented to reflect the pro forma
operations of the Lessee for the period presented, whose operations are the
source of the Lessee's Participating Lease payments to the Company. The pro
forma balance sheet data is presented as if the Formation Transactions and the
application of the net proceeds of the Offering had occurred on March 31,
1996.

The estimated and pro forma information do not purport to represent what the
Company's financial position or the Company's or the Initial Hotels' and
Lessee's results of operations would have been if the Formation Transactions
and the Offering had, in fact, occurred on such dates, or to project the
Company's, or the Initial Hotels' and Lessee's financial position or results
of operations at any future date or for any future period.

The historical financial information includes the operations of the AGH
Predecessor Hotels for the periods owned by affiliates of AGHI. The Courtyard
by Marriott-Meadowlands was acquired in December 1993; the Hotel Maison de
Ville was acquired in August 1994; the Hampton Inn Richmond Airport was
acquired in December 1994; and the Holiday Inn Dallas DFW Airport West was
acquired in June 1995. Complete historical financial information for each of
the AGH Predecessor Hotels prior to their respective acquisition dates is
unavailable. The historical financial information for the AGH Acquisition
Hotels does not include information related to the Days Inn Ocean City for
each of the years in the two-year period ended December 31, 1992 and the
Holiday Inn Mission Valley for the year ended December 31, 1991. Historical
financial information for these AGH Acquisition Hotels for these periods is
unavailable. Therefore, historical financial information for the AGH
Predecessor Hotels and the Initial Hotels and Lessee does not include
information for the above hotels prior to the dates previously described.

The following selected financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and all of the financial statements and notes thereto included
elsewhere in this Prospectus.

47
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

SELECTED ESTIMATED AND PRO FORMA CONSOLIDATED FINANCIAL DATA(1)
(UNAUDITED)

<TABLE>
<CAPTION>
TWELVE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996 MARCH 31, 1996
----------------- -------------- --------------
<S> <C> <C> <C>
ESTIMATED REVENUES LESS
EXPENSES DATA:
Participating Lease
revenue(2).................. $ 24,775,142 $25,902,292 $6,527,908
Interest income.............. 31,500 31,500 7,875
------------ ----------- ----------
Total revenue.............. 24,806,642 25,933,792 6,535,783
Depreciation................. 7,404,235 6,551,936 1,485,233
Amortization................. 646,660 646,660 161,665
Real estate and personal
property taxes and property
insurance................... 2,165,073 2,165,073 541,268
General and
administrative(3)........... 1,130,000 1,130,000 282,500
Ground lease expense......... 881,217 902,196 193,156
Amortization of unearned
officers' compensation(4)... 88,750 88,750 22,188
Interest expense............. 1,886,733 2,276,058 569,015
------------ ----------- ----------
Total expenses............. 14,202,668 13,760,673 3,255,025
------------ ----------- ----------
Estimated revenues less
expenses before minority
interest.................... 10,603,974 12,173,119 3,280,758
Minority interest(5)......... 2,099,587 2,410,278 649,590
------------ ----------- ----------
Estimated revenues less
expenses applicable to
common shareholders......... $ 8,504,387 $ 9,762,841 $2,631,168
============ =========== ==========
Estimated revenues less
expenses per common share... $ 1.11 $ 1.27 $ 0.34
============ =========== ==========
Weighted average number of
shares of Common Stock
outstanding................. 7,687,008 7,687,008 7,687,008
============ =========== ==========
</TABLE>

<TABLE>
<CAPTION>
AT MARCH 31, 1996
-----------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,684
Investment in hotel properties, net......................... 176,208,094
Total assets................................................ 179,468,378
Debt........................................................ 28,172,239
Minority interest in Operating Partnership.................. 29,907,136
Stockholders' equity........................................ 121,139,003
</TABLE>

<TABLE>
<CAPTION>
TWELVE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996 MARCH 31, 1996
----------------- -------------- --------------
<S> <C> <C> <C>
OTHER DATA:
Funds From Operations(6)..... $14,442,583 $15,017,494 $ 3,822,325
Cash Available for
Distribution(7)............. 12,091,825 12,609,622 3,325,050
Net cash provided by
operating activities(8)..... 18,743,619 19,460,465 4,949,844
Net cash used in investing
activities(9)............... (3,115,404) (3,186,617) (803,895)
Net cash provided by (used
in) financing
activities(10).............. (7,312,180) (7,290,617) 4,792,345
Weighted average number of
shares of Common Stock and
OP Units outstanding........ 9,584,004 9,584,004 9,584,004
</TABLE>

See notes on page 51.

48
<PAGE>

INITIAL HOTELS

SELECTED HISTORICAL COMBINED FINANCIAL DATA(11)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Room revenue........... $27,963,802 $30,376,150 $36,829,877 $43,541,206 $53,756,926 $11,857,784 $14,186,415
Food and beverage
revenue............... 13,526,143 13,597,748 15,453,080 16,378,861 17,717,760 4,291,351 4,683,138
Other revenue.......... 2,434,535 2,528,364 4,680,010 3,392,275 4,147,900 971,975 1,163,152
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenue.......... 43,924,480 46,502,262 56,962,967 63,312,342 75,622,586 17,121,110 20,032,705
Hotel operating
expenses.............. 32,251,012 35,083,148 40,130,782 44,349,278 51,198,375 11,622,390 13,216,152
Depreciation and
amortization.......... 2,575,564 6,329,770 5,847,629 5,986,460 8,131,244 2,839,488 1,567,020
Interest expense....... 3,802,670 4,819,749 4,667,281 4,771,483 6,307,202 1,411,434 1,705,764
Other expenses......... 1,946,193 617,334 2,543,235 2,996,568 3,132,865 763,398 789,611
----------- ----------- ----------- ----------- ----------- ----------- -----------
Revenues over (under)
expenses(12).......... $ 3,349,041 $ (347,739) $ 3,774,040 $ 5,208,553 $ 6,852,900 $ 484,400 $ 2,745,158
=========== =========== =========== =========== =========== =========== ===========
OTHER DATA:
Net cash provided by
operating activities.. 9,368,516 13,928,371 14,882,312 1,885,863 2,093,782
Net cash used in
investing activities.. (7,154,227) (13,895,746) (14,717,583) (1,252,875) (1,156,627)
Net cash provided by
(used in) financing
activities............ (1,354,888) 829,741 1,810,771 (507,506) 48,096
</TABLE>

LESSEE

SELECTED PRO FORMA FINANCIAL DATA (1)(13)
(UNAUDITED)

See notes on page 51.

49
<PAGE>

INITIAL HOTELS

SELECTED HISTORICAL OPERATING DATA

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
AGH PREDECESSOR
HOTELS(14)
Occupancy............. 77.5% 74.6% 74.3% 71.1% 72.1% 73.3% 64.2%
ADR................... $54.93 $64.84 $57.09 $62.10 $73.26 $67.01 $81.10
REVPAR................ $63.61 $44.96 $42.42 $44.14 $52.84 $49.10 $52.09
AGH ACQUISITION
HOTELS(15)
Occupancy............. 70.7% 68.6% 71.0% 71.9% 73.1% 70.0% 72.1%
ADR................... $54.93 $64.84 $57.78 $62.32 $68.30 $65.73 $71.77
REVPAR................ $38.86 $44.50 $41.01 $44.79 $49.93 $45.99 $51.75
INITIAL HOTELS
Occupancy............. 71.3% 69.1% 71.6% 71.7% 72.9% 70.6% 70.7%
ADR................... $57.19 $64.44 $57.65 $62.28 $69.19 $65.97 $73.33
REVPAR................ $40.75 $44.53 $41.26 $44.67 $50.46 $46.56 $51.81
</TABLE>

AGH PREDECESSOR HOTELS

SELECTED HISTORICAL COMBINED FINANCIAL DATA(16)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- ------------------------
1993 1994 1995 1995 1996
-------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Room revenue........... $ 17,941 $3,431,654 $ 9,020,479 $1,625,360 $2,624,614
Food and beverage reve-
nue................... 6,158 552,697 1,293,238 215,333 509,331
Other revenue.......... 1,448 223,211 568,415 102,367 173,450
-------- ---------- ----------- ---------- ----------
Total revenue.......... 25,547 4,207,562 10,882,132 1,943,060 3,307,395
Hotel operating ex-
penses................ 8,741 3,173,721 7,565,824 1,314,194 2,253,656
Depreciation and amor-
tization.............. 46,982 364,513 2,480,054 1,041,418 304,936
Interest expense....... 430,535 1,572,244 255,552 457,146
Other expenses......... 831 525,287 754,193 123,827 163,058
-------- ---------- ----------- ---------- ----------
Net income (loss)...... $(31,007) $ (286,494) $(1,490,183) $ (791,931) $ 128,599
======== ========== =========== ========== ==========
</TABLE>

AGH ACQUISITION HOTELS

SELECTED HISTORICAL COMBINED FINANCIAL DATA(15)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------ -----------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Room revenue........... $27,963,802 $30,376,150 $36,811,936 $40,109,552 $44,736,447 $10,232,424 $11,561,801
Food and beverage
revenue............... 13,526,143 13,597,748 15,446,922 15,826,164 16,424,522 4,076,018 4,173,807
Other revenue.......... 2,434,535 2,528,364 4,678,562 3,169,064 3,579,485 869,608 989,702
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenue.......... 43,924,480 46,502,262 56,937,420 59,104,780 64,740,454 15,178,050 16,725,310
Hotel operating
expenses.............. 32,251,012 35,083,148 40,122,041 41,175,557 43,632,551 10,308,196 10,962,496
Depreciation and
amortization.......... 2,575,564 6,329,770 5,800,647 5,621,947 5,651,190 1,798,070 1,262,084
Interest expense....... 3,802,670 4,819,749 4,667,281 4,340,948 4,734,958 1,155,882 1,248,618
Other expenses......... 1,946,193 617,334 2,542,404 2,471,281 2,378,672 639,571 635,553
----------- ----------- ----------- ----------- ----------- ----------- -----------
Revenues over (under)
expenses.............. $ 3,349,041 $ (347,739) $ 3,805,047 $ 5,495,047 $ 8,343,083 $ 1,276,331 $ 2,616,559
=========== =========== =========== =========== =========== =========== ===========
</TABLE>

See notes on following page.

50
<PAGE>

SELECTED FINANCIAL INFORMATION FOOTNOTES

(1) The estimated and pro forma information do not purport to represent what
the Company's financial position or the Company's or the Initial Hotels'
and Lessee's results of operations would actually have been if the
consummation of the Formation Transactions and the Offering had, in fact,
occurred on such dates, or to project the Company's financial position or
the Company's and Initial Hotels' and Lessee's results of operations at
any future date or for any future period.

(2) Represents lease payments from the Lessee to the Operating Partnership
pursuant to the Participating Leases calculated on a pro forma basis by
applying the rent provisions of the Participating Leases to the
historical revenues of the Initial Hotels. The departmental revenue
thresholds in certain of the Participating Lease formulas adjust in the
future beginning January 1, 1997. See "The Initial Hotels--The
Participating Leases."

(3) Represents salaries and wages, professional fees, directors' and
officers' insurance, allocated rent, supplies and other and other
operating expenses to be paid by the Company. These amounts are based on
historical general and administrative expenses as well as probable 1996
expenses.

(4) Represents amortization of unearned officers' compensation, represented
by an aggregate of 50,000 shares of restricted Common Stock issuable to
executive officers, which shares vest 10.0% at the date of grant (5,000
shares at $17.75 per share).

(5) Calculated as 19.8% of estimated revenues less expenses before minority
interest for all periods.

(6) Represents Funds From Operations of the Company. The items added back to
estimated revenues less expenses applicable to common stockholders have
been adjusted by the Company's ownership percentage in the Operating
Partnership of 80.2% for all periods presented. The following table
computes Funds From Operations under the newly adopted NAREIT definition.
Funds From Operations consists of net income applicable to common
stockholders (computed in accordance with generally accepted accounting
principles) excluding gains (losses) from debt restructuring and sales of
property (including furniture and equipment) plus real estate related
depreciation and amortization (excluding amortization of deferred
financing costs) and after adjustments for unconsolidated partnerships
and joint ventures. The Company considers Funds From Operations to be an
appropriate measure of the performance of an equity REIT. Funds From
Operations should not be considered as an alternative to net income or
other measurements under generally accepted accounting principles, as an
indicator of operating performance or to cash flows from operating,
investing, or financing activities as a measure of liquidity. Although
Funds From Operations has been calculated in accordance with the newly
adopted NAREIT definition, Funds From Operations as presented may not be
comparable to other similarly titled measures used by other REITs. Funds
From Operations does not reflect cash expenditures for capital
improvements or principal amortization of indebtedness on the Initial
Hotels.

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
TWELVE THREE
PRO FORMA MONTHS MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1995(1) MARCH 31, 1996(1) MARCH 31, 1996(1)
-------------------- ----------------- -----------------
<S> <C> <C> <C>
Estimated revenues less
expenses applicable to
common stockholders ... $ 8,504,387 $ 9,762,841 $2,631,168
Depreciation............ 5,938,196 5,254,653 1,191,157
----------- ----------- ----------
Funds From Operations... $14,442,583 $15,017,494 $3,822,325
=========== =========== ==========
Weighted average number
of shares of Common
Stock outstanding...... 7,687,008 7,687,008 7,687,008
=========== =========== ==========
</TABLE>

51
<PAGE>

(7) Cash Available for Distribution represents Funds From Operations of the
Company plus the Company's ownership percentage in the Operating
Partnership of 80.2% multiplied by the sum of amortization of deferred
financing costs, franchise transfer costs and unearned officers'
compensation. This amount is then reduced by the Company's 80.2% share of
the sum of 4.0% of total revenue for each of the Initial Hotels that is
required to be set aside by the Operating Partnership for refurbishment
and replacement of FF&E, capital expenditures, and other non-routine
items as required by the Participating Leases and the estimated cash used
to pay interest expense related to (i) the $24.6 million cost of planned
renovations and refurbishments at the seven Initial Hotels the Company
plans to convert to leading franchise brands in order to reposition such
hotels for future revenue growth and (ii) the $2.6 million of planned
improvements that the Company expects to make at five other Initial
Hotels. Estimated Cash Available for Distribution does not include the
effects of any revenue increases expected to result from capital
expenditures of the Initial Hotels.

(8) Represents estimated revenues less expenses plus minority interest,
depreciation, amortization, and amortization of unearned officers'
compensation. There are no pro forma adjustments for changes in working
capital items.

(9) Pro forma cash used in investing activities includes the Operating
Partnership's obligation to make available to the Lessee an amount equal
to 4.0% of total revenue for each of the Initial Hotels for the periodic
replacement or refurbishment of FF&E, capital expenditures, and other
non-routine items as required by the Participating Leases. The Company
intends to cause the Operating Partnership to spend amounts in excess of
such obligated amounts to comply with the reasonable requirements of any
Franchise License and otherwise to the extent that the Company deems such
expenditures to be in the best interest of the Company. See "The Initial
Hotels--The Participating Leases."

(10) Represents estimated initial distributions to be paid based on the
initial annual distribution rate of $1.63 per share and an aggregate of
9,584,004 shares of Common Stock and OP Units outstanding plus the debt
service on the DFW South Loan and the Secaucus Loans (as defined in "The
Initial Hotels--Mortgage Indebtedness Remaining Following the Offering")
partially offset by borrowings of approximately $8.8 million under the
Line of Credit. The actual amount that is expected to be borrowed under
the Line of Credit upon the closing of the Offering is $8.5 million as a
result of changes in the principal amounts of the indebtedness
encumbering the Initial Hotels that have occurred since March 31, 1996.

(11) The Initial Hotels' financial data is derived by adding selected
financial data of the AGH Predecessor Hotels and the AGH Acquisition
Hotels. Such financial data exclude information regarding the AGH
Predecessor Hotels for periods prior to their acquisition by AGHI. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."

(12) Income taxes for the AGH Acquisition Hotels have not been deducted in
calculating revenue over (under) expenses.

(13) Pro forma amounts as if the Operating Partnership recorded depreciation
and amortization and paid real and personal property taxes and property
insurance contemplated by the Participating Leases, and the Formation
Transactions and the Offering occurred on January 1, 1995.

(14) Includes information from each AGH Predecessor Hotel for all periods
presented except that no information was available for the Holiday Inn
Dallas DFW Airport West, the Hampton Inn Richmond Airport, and the Hotel
Maison de Ville for the periods ended December 31, 1991 and 1992.
Information with respect to the periods before their respective dates of
acquisitions by affiliates of AGHI is based on information furnished to
management by the prior owners of the hotels.

(15) Includes information from each AGH Acquisition Hotel for all periods
presented except that no information was available for the Days Inn Ocean
City for the periods ended December 31, 1991 and 1992 and for the Holiday
Inn Mission Valley for the period ended December 31 1991. Information
with respect to the AGH Acquisition Hotels was obtained from the owners
of the AGH Acquisition Hotels and includes information for all periods.

(16) Information is for the periods owned by AGHI.

52
<PAGE>

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

OVERVIEW

Upon consummation of the Offering and the Formation Transactions, the
Company will own an approximate 80.2% interest in the Initial Hotels through
its interest in the Operating Partnership. In order for the Company to qualify
as a REIT, neither the Company nor the Operating Partnership can operate
hotels; therefore, the Operating Partnership will lease the Initial Hotels to
the Lessee. The principal source of revenue for the Operating Partnership and
the Company will be lease payments paid by the Lessee under the Participating
Leases. Participating Rent will be based upon the Initial Hotels' gross
revenues. The Lessee's ability to make payments to the Company under the
Participating Leases will be dependent on the Lessee's and AGHI's ability to
generate cash flow from the operations of the Initial Hotels.

The accompanying discussion and analysis of financial condition and results
of operations is based on the combined historical financial statements of the
AGH Predecessor Hotels and the AGH Acquisition Hotels that are included
elsewhere in this Prospectus. The AGH Predecessor Hotels' financial statements
include the results of operations of the following hotels since their dates of
acquisition by AGHI: Courtyard by Marriott-Meadowlands (December 1993), Hotel
Maison de Ville (August 1994), Hampton Inn Richmond Airport (December 1994)
and Holiday Inn Dallas DFW Airport West (June 1995). The AGH Acquisition
Hotels' financial statements include the results of operations of the
following hotels for all periods presented: Holiday Inn Dallas DFW Airport
South, Hilton Hotel-Toledo, Holiday Inn New Orleans International Airport,
Holiday Inn Park Center Plaza, Holiday Inn Select-Madison, Holiday Inn Mission
Valley, Le Baron Airport Hotel, Days Inn Ocean City and Fred Harvey
Albuquerque Airport Hotel. The four AGH Predecessor Hotels were combined into
one set of financial statements since they will be acquired by the Company and
are presently controlled by shareholders of AGHI. The nine AGH Acquisition
Hotels were combined into one set of financial statements since they will be
acquired by the Company primarily from parties unaffiliated with AGHI. The
Holiday Inn Dallas DFW Airport South Hotel is included in the AGH Acquisition
Hotels since AGHI owns only a minority non-controlling interest in such hotel.
The Hilton Hotel-Toledo is included in the AGH Acquisition Hotels since AGHI
purchased the hotel subsequent to March 31, 1996.

Estimated Revenues Less Expenses of the Company

On an estimated basis for the twelve months ended March 31, 1996, the
Company would have had $25,902,292 in revenue from the Participating Leases,
calculated by applying the rent provisions of the Participating Leases to the
estimated revenues of the Initial Hotels, and $31,500 in interest income from
the FF&E Note issued by the Lessee. Pro forma expenses would have been
$16,170,951. Depreciation expense would have been $6,551,936, which represents
depreciation of the AGH Predecessor Hotels' historical carryover cost basis
plus depreciation of the AGH Acquisition Hotels' new cost basis. General and
administrative expenses would have been $1,130,000 representing salaries and
wages of $561,000, professional fees of $125,000, directors' and officers'
insurance expense of $90,000 and other expenses of $354,000. Interest expense
would have been $2,276,058 on the indebtedness totalling approximately $19.3
million related to the Holiday Inn Dallas DFW Airport South and the Courtyard
by Marriott-Meadowlands and the initial borrowing under the Line of Credit of
approximately $8.8 million. The DFW South Loan and the Secaucus Loans mature
between December 2000 and February 2001 and bear interest at fixed rates
ranging from 7.50% to 8.75%. The borrowing under the Line of Credit bears
interest at 1.85% in excess of the 30-day LIBOR rate (7.28% as of July 23,
1996).

53
<PAGE>

RESULTS OF OPERATIONS OF AGH PREDECESSOR HOTELS

The following table sets forth certain combined historical financial
information for the AGH Predecessor Hotels as a percentage of combined AGH
Predecessor Hotels' revenues for the periods indicated.

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------- ---------------------
1994 1995 1995 1996
------ ------ --------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DA-
TA:
Room revenue.............. 81.6% 82.9% 83.6% 79.4%
Food and beverage reve-
nue...................... 13.1% 11.9% 11.1% 15.4%
Other revenue............. 5.3% 5.2% 5.3% 5.2%
------ ------ --------- ---------
Total revenue........... 100.0% 100.0% 100.0% 100.0%
Hotel operating expenses.. 75.4% 69.6% 67.6% 68.1%
Depreciation and amortiza-
tion..................... 8.7% 22.8% 53.6% 9.2%
Interest expense.......... 10.2% 14.4% 13.2% 13.8%
Other corporate expenses.. 12.5% 6.9% 6.4% 5.0%
------ ------ --------- ---------
Net loss................ (6.8%) (13.7%) (40.8%) 3.9%
====== ====== ========= =========
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------- ---------------------
1994 1995 1995 1996
------ ------ --------- ---------
<S> <C> <C> <C> <C>
KEY FACTORS:
Occupancy................. 71.1% 72.1% 73.3% 64.2%
ADR....................... $62.10 $73.26 $ 67.01 $ 81.10
REVPAR.................... $44.14 $52.84 $ 49.10 $ 52.09
</TABLE>

As previously described, the year-to-year comparisons of the results of
operations of the AGH Predecessor Hotels are significantly impacted by the
hotel acquisitions. Net losses incurred for each of the three years ended
December 31, 1993, 1994 and 1995 were ($31,007), ($286,494) and ($1,490,183),
respectively. The AGH Predecessor Hotels generated net cash from operating
activities of $147,616, $217,282 and $790,304 for each of the three years
ended December 31, 1993, 1994 and 1995, respectively.

Comparison of the three months ended March 31, 1996 to the three months ended
March 31, 1995

Room revenue increased to $2,624,614 from $1,625,360, an increase of
$999,254 or 61.5%, principally resulting from: (i) an increase of $950,688 in
revenue due to the acquisition of the Holiday Inn Dallas DFW Airport West in
June 1995, (ii) an increase in the Courtyard by Marriott-Meadowlands' room
revenues of $74,391 due to an increase in ADR to $88.32 from $80.79, and (iii)
a decrease in the Hotel Maison de Ville's room revenues of $25,694 because of
a decrease in occupancy of 7.4%, which was partially offset by ADR improvement
of 3.4% or $8.14 to $249.86.

Food and beverage revenue increased to $509,331 from $215,333, an increase
of $293,998 or 136.5%. The increase is due primarily to the acquisition of the
Holiday Inn Dallas DFW Airport West, which produced food and beverage revenues
in the first quarter of 1996 of $284,825. Increased occupancy at the Courtyard
by Marriott-Meadowlands accounted for the remainder of the increase in food
and beverage revenues.

Other revenue, which includes telephone revenues, interest income and
miscellaneous income, increased to $173,450 from $102,367, an increase of
$71,083 or 69.4%. Of the increase, $67,188 was due to the acquisition of the
Holiday Inn Dallas DFW Airport West discussed above.

Hotel operating expenses increased to $2,253,656 from $1,314,194, an
increase of $939,462 or 71.5%. The increase was due, in part, to the
acquisition of the Holiday Inn Dallas DFW Airport West, which had expenses of
$955,182 in 1996. Hotel operating expenses as a percentage of total revenue
increased from 67.6% in 1995 to 68.1% in 1996. The increase is primarily
attributable to the acquisition of the Holiday Inn Dallas DFW Airport West,
which incurred operating expenses as a percentage of total revenue for 1996 of
73.3%. This percentage is higher than the other hotels due to certain
transitional expenses incurred by the hotel.

54
<PAGE>

Depreciation and amortization decreased to $304,936 from $1,041,418, a
decrease of $736,482 or 70.7%. The decrease is related to the accelerated
depreciation on FF&E that was replaced during the recent renovations at two of
the AGH Predecessor Hotels.

Interest and other expenses increased to $620,204 from $379,379, an increase
of $240,825 or 63.5%. The acquisition of the Holiday Inn Dallas DFW Airport
West in June 1995 and the interest expense related to the mortgage
indebtedness incurred in connection with the acquisition accounted for nearly
all of the increase.

Comparison of year ended December 31, 1995 to year ended December 31, 1994

Room revenue increased to $9,020,479 from $3,431,654, an increase of
$5,588,825 or 162.9%, principally resulting from: (i) an increase of
approximately $2,056,000 in revenue due to the acquisition of the Holiday Inn
Dallas DFW West in June 1995; approximately $1,850,000 in revenue from the
Hampton Inn Richmond Airport since its acquisition in late December 1994; and
approximately $955,000 in revenues from the Hotel Maison de Ville since its
acquisition in August 1994; (ii) an increase in the Courtyard by Marriott-
Meadowlands' ADR to $81.77 from $73.37; and (iii) an improvement in the
Courtyard by Marriott-Meadowlands' occupancy percentage to 77.8% from 70.1%.
The increases in both ADR and occupancy were due primarily to the
repositioning strategy implemented when the Courtyard by Marriott-Meadowlands
was converted from a Days Hotel in 1994.

Food and beverage revenue increased to $1,293,238 from $552,697, an increase
of $740,541, or 134.0% due primarily to activity at two of the three
acquisitions described above. Other revenue increased to $568,415 from
$223,211, or 154.7%, due to the activity at the three acquisitions described
above.

Hotel operating expenses increased to $7,565,824 from $3,173,721, an
increase of $4,392,103 or 138.4%. The acquisition of the Hotel Maison de Ville
(acquired August 1994), the Hampton Inn Richmond Airport (acquired December
1994) and the Holiday Inn Dallas DFW Airport West (acquired June 1995)
accounted for $968,511, $1,066,733 and $1,932,980 of the expense increase,
respectively. The remainder of the increase is related to the conversion of
the Courtyard by Marriott-Meadowlands from a Days Hotel. The hotel experienced
an increase in revenues of approximately $750,000 following the franchise
repositioning and consequently had an increase in operating expenses. Hotel
operating expenses as a percentage of total revenue decreased from 75.4% in
1994 to 69.5% in 1995. The decrease is primarily attributable to the inclusion
of only the Courtyard by Marriott-Meadowlands and the Hotel Maison de Ville in
the 1994 operating results, which at the time were being transitioned to the
AGH Predecessor Hotels' management. Consequently, hotel operating expenses as
a percentage of total revenue were higher for these hotels in 1994 than in
1995.

Depreciation and amortization increased to $2,480,054 from $364,513, an
increase of $2,115,541 due in part to the following: (i) depreciation on the
assets of the three acquisitions described above, (ii) depreciation on
approximately $1,300,000 and approximately $2,200,000 of FF&E renovations and
additions during 1994 and 1995, respectively, and (iii) accelerated
depreciation on the FF&E replaced during the renovations.

Interest and other expenses increased to $2,326,437 from $955,822, an
increase of $1,370,615. The acquisitions in 1995 and 1994 increased debt by
approximately $8,300,000 and approximately $6,100,000, respectively. Related
interest expense increased by $1,141,709 due to the additional indebtedness
outstanding.

Comparison of year ended December 31, 1994 to year ended December 31, 1993

Room revenue increased to $3,431,654 from $17,941, an increase of
$3,413,713, principally resulting from (i) an increase of approximately
$3,072,000 in revenue from the Courtyard by Marriott-Meadowlands following its
acquisition on December 30, 1993 and (ii) approximately $342,000 in revenue
attributable to the acquisition of the Hotel Maison de Ville in August 1994.
The only room revenue reported for 1993 for the AGH Predecessor Hotels was
$17,941 from the acquisition of the Courtyard by Marriott-Meadowlands on
December 30, 1993.

Food and beverage revenue increased to $552,697 from $6,158, a change of
$546,539, due primarily to the late 1993 acquisition of the Courtyard by
Marriott-Meadowlands compared to a full year's food and beverage revenue in
1994 and the acquisition of the Hotel Maison de Ville in August 1994. Other
revenue increased to $223,211 from $1,448, an increase of $221,763, due
primarily to the acquisitions described above.

55
<PAGE>

Hotel operating expenses increased to $3,173,721 from $8,741, an increase of
$3,164,980. The expenses from 1993 include only two days of operations for the
Courtyard by Marriott-Meadowlands. Hotel operating expenses as a percentage of
total revenue were 75.4% in 1994.

Depreciation and amortization, interest and other expenses increased to
$1,320,335 from $47,813, representing an increase of $1,272,522, attributable
to depreciation of assets acquired in the hotel acquisitions described above.

RESULTS OF OPERATIONS OF AGH ACQUISITION HOTELS

The following table sets forth certain combined historical financial
information for the AGH Acquisition Hotels as a percentage of combined AGH
Acquisition Hotels' revenues for the periods indicated.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- --------------------
1993 1994 1995 1995 1996
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Room revenue................ 64.7% 67.9% 69.1% 67.4% 69.1%
Food and beverage revenue... 27.1% 26.8% 25.4% 26.9% 25.0%
Other revenue............... 8.2% 5.3% 5.5% 5.7% 5.9%
------- ------- ------- --------- ---------
Total revenue............. 100.0% 100.0% 100.0% 100.0% 100.0%
Hotel operating expenses.... 70.5% 69.7% 67.4% 67.9% 65.5%
Depreciation and amortiza-
tion....................... 10.2% 9.5% 8.7% 11.8% 7.5%
Interest expense............ 8.2% 7.3% 7.3% 7.6% 7.5%
Other expenses.............. 4.4% 4.2% 3.7% 4.3% 3.9%
------- ------- ------- --------- ---------
Revenues over expenses...... 6.7% 9.3% 12.9% 8.4% 15.6%
======= ======= ======= ========= =========
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- --------------------
1993 1994 1995 1995 1996
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
KEY FACTORS
Occupancy .................. 71.0% 71.9% 73.1% 70.0% 72.1%
ADR......................... $ 57.78 $ 62.32 $ 68.30 $65.73 $71.77
REVPAR...................... $ 41.01 $ 44.79 $ 49.93 $45.99 $51.75
</TABLE>

No assurance can be given that the trends reflected in this data will
continue or that occupancy, ADR and REVPAR will not decrease due to changes in
national or local economic or hospitality industry conditions.

Comparison of the three months ended March 31, 1996 to the three months ended
March 31, 1995

Room revenue improved to $11,561,801 from $10,232,424, an increase of
$1,329,377 or 13.0%. The change was attributable to the overall occupancy
growth to 72.1% from 70.0% and the overall improvement of ADR to $71.77 from
$65.73. Additionally, the two Initial Hotels located in San Jose, California,
experienced REVPAR growth of 37.2% and 58.4%, respectively, primarily due to
improved hotel industry fundamentals in San Jose.

Food and beverage revenue increased to $4,173,807 from $4,076,018, an
increase of $97,789 or 2.4%, primarily because of the overall occupancy
percentage growth of 2.7%. Other revenue, which includes telephone revenue,
increased to $989,702 from $869,608, an increase of $120,094 or 13.8%, also
due to the overall increase in occupancy.

Hotel operating expenses increased to $10,962,496 from $10,308,196, an
increase of $654,300 or 6.3%. The majority of the increase, $408,465, related
to the Holiday Inn Park Center Plaza and the Le Baron Airport Hotel due to
higher labor and variable costs at such hotels related to the rise in
occupancy in the first quarter of 1996. Hotel operating expenses as a
percentage of total revenue decreased from 67.9% in 1995 to 65.5% in 1996. The

56
<PAGE>

decrease is primarily attributable to the overall increase in ADR at the AGH
Acquisition Hotels. Revenue increases resulting from rate improvements
generally do not result in increases in certain variable costs; consequently,
operating expenses are lower when expressed as a percentage of revenue.

Depreciation and amortization decreased to $1,222,556 from $1,729,152, a
decrease of $506,596 primarily due to accelerated depreciation in 1995 for
FF&E replaced during the renovations at the Holiday Inn Dallas DFW Airport
South.

Interest and other expenses increased to $1,511,214 from $1,397,421, an
increase of $113,793 or 8.1% primarily attributable to the refinancing of the
Holiday Inn Dallas DFW Airport South. As part of the refinancing, the owners
of the Holiday Inn Dallas DFW Airport South received distributions of
approximately $7,740,000.

Comparison of year ended December 31, 1995 to year ended December 31, 1994

Room revenue increased to $44,736,447 from $40,109,552, an increase of
$4,626,895 or 11.5%, principally as a result of a 9.6% increase in overall ADR
to $68.30 from $62.32 and an improvement in overall occupancy to 73.1% from
71.9%. The increases in ADR and occupancy are primarily attributable to the
completion of renovations at the Initial Hotels in 1994 and 1995.
Additionally, the two Initial Hotels located in San Jose, California,
experienced REVPAR growth of 23.5% and 20.3%, respectively, primarily due to
improved hotel industry fundamentals in San Jose.

Food and beverage revenue improved to $16,424,522 from $15,826,164, an
increase of $598,358 or 3.8%, and other revenue increased to $3,579,485 from
$3,169,064, an increase of $410,421 or 13.0% principally as a result of the
increase in overall occupancy.

Hotel operating expenses increased to $43,632,551 from $41,175,557, an
increase of $2,456,994 or 6.0%; however, as a percentage of total revenue,
expenses decreased to 67.4% from 69.7%. Advertising costs and utilities
decreased as a percentage of total revenues and maintenance expense decreased
as a percentage of total revenues due to the completion of renovations at the
hotels.

Interest and other expenses increased to $5,632,372 from $5,161,116, an
increase of $471,256 or 9.1%, primarily attributable to increased variable
interest rates of certain debt during 1995.

Comparison of year ended December 31, 1994 to year ended December 31, 1993

Room revenue increased to $40,109,552 from $36,811,936, an increase of
$3,297,616 or 9.0%, principally as a result of a 2.7% overall improvement in
ADR to $62.32 from $57.78 and a .09% increase in overall occupancy. The
increases in ADR and occupancy were primarily due to improving market
conditions in Irving, Texas, Toledo, Ohio, Albuquerque, New Mexico, and San
Jose, California.

Food and beverage revenue increased to $15,826,164 from $15,446,922, an
increase of $379,242 or 2.5%. Other revenue decreased to $3,169,064 from
$4,678,562, a decline of $1,509,498 or 32.3%. In 1993, other revenue included
$1,814,609 of proceeds from a settlement payment relating to a default on the
lease of the Holiday Inn New Orleans International Airport Hotel in 1992.
Excluding this item, other revenue increased $305,111 or 6.5% attributable to
the overall increased occupancy percentage.

Hotel operating expenses rose to $41,175,557 from $40,122,041, an increase
of $1,053,516 or 2.6%. The increase was consistent with the increase in
overall occupancy.

Interest and other expenses decreased to $5,161,116 from $5,576,836, a
decrease of $415,720 or 7.5%, primarily attributable to a decrease in interest
expense due to a lower weighted average balance of indebtedness in 1994. In
1994, the AGH Acquisition Hotels made net principal repayments on indebtedness
of $2,459,985.

57
<PAGE>

RESULTS OF OPERATIONS OF THE INITIAL HOTELS

The following table sets forth certain combined historical financial
information for the Initial Hotels as a percentage of the Initial Hotels'
total revenue for the periods indicated. The changes in room revenue, food and
beverage revenue, hotel operating expenses, and revenues over expenses for the
Initial Hotels resulted primarily from changes at the AGH Predecessor Hotels
and the AGH Acquisition Hotels, as previously discussed.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- --------------------
1993 1994 1995 1995 1996
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA
Room revenue............ 64.7% 68.8% 71.1% 69.3% 70.8%
Food and beverage reve-
nue.................... 27.1 25.9 23.4 25.1 23.4
Other revenue........... 8.2 5.3 5.5 5.6 5.8
------- ------- ------- --------- ---------
Total revenue........ 100.0% 100.0% 100.0% 100.0% 100.0%
Hotel operating ex-
penses................. 70.5 70.0 67.7 67.9 66.0
Depreciation............ 10.3 9.5 10.8 16.6 7.8
Interest expense........ 8.2 7.5 8.3 8.2 8.5
Other expenses.......... 4.4 4.8 4.1 4.5 4.0
------- ------- ------- --------- ---------
Revenues over expenses.. 6.6% 8.2% 9.1% 2.8% 13.7%
======= ======= ======= ========= =========
KEY FACTORS
Occupancy............... 71.6% 71.7% 72.9% 70.6% 70.7%
ADR..................... $57.65 $62.28 $69.19 $65.97 $73.33
REVPAR.................. $41.26 $44.67 $50.46 $46.56 $51.81
</TABLE>

Comparison of the three months ended March 31, 1996 to the three months ended
March 31, 1995

Room revenue increased to $14,186,415 from $11,857,784, an increase of
$2,328,631 or 19.6%. Food and beverage revenues rose to $4,683,138 from
$4,291,351, an increase of $391,787 or 9.1%. Hotel operating expenses
increased to $13,216,152 from $11,622,390, an increase of $1,593,762 or 13.7%.
Accordingly, revenues over expenses increased to $2,754,158 from $484,400, an
increase of $2,269,758.

Comparison of year ended December 31, 1995 to year ended December 31, 1994

Room revenue increased to $53,756,926 from $43,541,206, an increase of
$10,215,720 or 23.5%. Food and beverage revenue increased to $17,717,760 from
$16,378,861, an increase of $1,338,899 or 8.2%. Hotel operating expenses
increased to $51,198,374 from $44,349,278, an increase of $6,849,096 or 15.4%.
As a result, revenues over expenses increased by $1,644,347 or 31.6%.

Comparison of year ended December 31, 1994 to year ended December 31, 1993

Room revenue increased to $43,541,206 from $36,829,877, an increase of
$6,711,329 or 18.2%. Food and beverage revenue increased to $16,378,861 from
$15,453,080, an increase of $925,781 or 6.0%. Hotel operating expenses
increased to $44,349,278 from $40,130,781, an increase of $4,218,497 or 10.5%.
As a result, revenues over expenses increased by $1,434,513 or 38.0%.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal source of cash to meet its cash requirements,
including distributions to stockholders, will be its share of the Operating
Partnership's cash flow from the Participating Leases. The Lessee's
obligations under the Participating Leases are initially secured by the pledge
of 275,000 OP Units. The Lessee's ability to make rent payments under the
Participating Leases and the Company's liquidity, including its ability to
make distributions to stockholders, will be dependent on the ability of the
Lessee and AGHI to generate sufficient cash flow from the Initial Hotels.

Upon consummation of the Offering and application of the net proceeds, the
Company will have approximately $27.8 million of outstanding indebtedness,
including approximately $19.3 million encumbering two of the Initial Hotels
and approximately $8.5 million borrowed under the Line of Credit in connection
with

58
<PAGE>

the closing of the Offering. In addition, the Company intends to acquire
additional hotels and may incur additional indebtedness to make such
acquisitions or to meet distribution requirements imposed on it under the Code
to the extent that working capital and cash flow from the Company's
investments are insufficient to make such distributions. The Company intends
to limit consolidated indebtedness (measured at the time the debt is incurred)
to no more than 45.0% of the Company's investment in hotels.

The Company has obtained a commitment for the $100 million Line of Credit,
which the Company will use to fund the acquisition of additional hotels, make
renovations and capital improvements to hotels and for working capital
requirements. The Line of Credit will be collateralized by, among other
things, first mortgage liens on all of the Initial Hotels (other than the
Holiday Inn Dallas DFW Airport South and Courtyard by Marriott-Meadowlands)
and, in certain circumstances, a mortgage lien on any subsequently acquired
hotels. While the Line of Credit permits borrowings up to $100 million, the
Company's aggregate advances under the Line of Credit are limited to the
lesser of (i) 40% of the aggregate appraised value of the Initial Hotels and
any other hotels securing the Line of Credit after giving effect to the
Company's use of proceeds from any indebtedness towards hotel acquisitions and
certain renovations and capital improvements, (ii) 40% of the aggregate
purchase price of the Initial Hotels and any other hotels securing the Line of
Credit after giving effect to the Company's use of proceeds from any such
indebtedness for hotel acquisitions and certain renovations and capital
improvements, and (iii) the combined trailing twelve months EBITDA (generally
defined as net income of the Company before interest expense, taxes,
depreciation and amortization to the extent each reduces net income) generated
by the Initial Hotels and any other hotels securing the Line of Credit,
multiplied by 5.0. Upon the closing of the Offering, the Company expects to
have approximately $51.5 million of borrowing capacity available under the
Line of Credit after borrowing approximately $8.5 million under the Line of
Credit in connection with the closing of the Offering. The Company expects
that its borrowing capacity under the Line of Credit will increase to
approximately $100 million, assuming all additional borrowings are used to
fund capital improvements to the Initial Hotels or the acquisition of
additional hotels. Outside of the Line of Credit, the Company and its
subsidiaries may not incur any additional debt or recourse obligations. The
Line of Credit will have an initial term of three years. Borrowings under the
Line of Credit will bear interest at 30-day, 60-day or 90-day LIBOR (the
"London Interbank Offered Rate"), at the option of the Company, plus 1.85% per
annum, payable monthly in arrears. Economic conditions could result in higher
interest rates, which could increase debt service requirements on borrowings
under the Line of Credit and which could reduce the amount of Cash Available
for Distribution. In addition, the Line of Credit provides that the lenders
must consent to any development activities by the Company other than
development in connection with the limited expansion of existing hotels. Also,
the Line of Credit lenders must approve the lessee and the franchise brand of
any hotel securing the Line of Credit in the future. See "The Initial Hotels--
Line of Credit."

The Company will invest in additional hotel properties only as suitable
opportunities arise, and the Company will not undertake investments unless
adequate sources of financing are available. It is expected that future
investments in hotel properties will be financed, in whole or in part, with
the balance of the proceeds from the Offering, if any, proceeds from
additional issuances of Common Stock, borrowings under the Line of Credit or
from the issuance of other debt or equity securities.

Approximately $18.3 million was spent on capital improvements at the Initial
Hotels during the period January 1, 1993 to March 31, 1996, as described in
the following table. The majority of the improvements are considered by the
Company to be revenue producing, as routine maintenance items are recorded as
hotel operating expenses.

<TABLE>
<CAPTION>
HOTEL DESCRIPTION COST
----- ----------- ----
<S> <C> <C>
AGH PREDECESSOR HOTELS
Holiday Inn Dallas DFW Extensive upgrades to guest rooms, public $ 4,582,000
Airport West........... areas, food and beverage outlets, and
meeting room facilities.
Courtyard by Marriott- Expenditures to convert the hotel from a 1,500,000
Meadowlands............ Days Hotel; additional guest room upgrades;
reconstruction of the restaurant and lounge
areas.
</TABLE>

Continued on next page.

59
<PAGE>

<TABLE>
<CAPTION>
HOTEL DESCRIPTION COST
----- ----------- ----
<S> <C> <C>
Hampton Inn Richmond Guest room soft goods and carpet upgrades; $ 443,000
Airport................ public area carpeting; and a new front
office system.
Hotel Maison de Ville... Extensive renovation to the cottages and 849,000
guest rooms, including refurbishment of
antique furniture; improvements to the
lobby area and garden court areas.
AGH ACQUISITION HOTELS
Hilton Hotel-Toledo..... Cosmetic upgrades for guest rooms; carpet 1,069,000
for corridors; renovation of meeting
facilities, lobby and the restaurant.
Holiday Inn Dallas DFW
Airport South.......... Holidome cosmetic upgrades; guest room and 2,776,000
corridor carpets; significant renovations
to meeting rooms, conference and banquet
facilities; guest room and guest bathroom
improvements.
Holiday Inn New Orleans
International Airport.. Renovation of the building exterior, public 3,236,000
areas, meeting rooms, restaurant, and the
Holidome area.
Days Inn Ocean City..... Total guest room cosmetic upgrades and 529,000
public area renovations.
Holiday Inn Select- Improvements to convert to the Holiday Inn 473,000
Madison................ Select brand, including upgraded amenities
and cosmetic packages for the rooms.
Holiday Inn Park Center 304,000
Plaza.................. Renovations to the lobby and meeting areas.
Fred Harvey Albuquerque
Airport Hotel.......... Renovation of the restaurant, lobby, front 664,000
desk, gift shop and meeting rooms;
installation of a fire sprinkler system.
Le Baron Airport Hotel.. Renovations to two floors of guest rooms 993,000
and bathrooms; ballroom carpet; and
miscellaneous equipment.
Holiday Inn Mission Improvements to the public areas including 926,000
Valley................. the lobby, front desk, restaurant, lounge
and meeting rooms; upgrade of 100 guest
rooms.
-----------
Total...................................... $18,344,000
===========
</TABLE>

The Participating Leases require the Company to establish annual minimum
reserves equal to 4.0% of total revenue for each of the Initial Hotels (which,
for the twelve months ended March 31, 1996, represented approximately 5.6% of
room revenue), which reserves will be utilized by the Lessee for the
replacement and refurbishment of FF&E, and other capital expenditures to
enhance the competitive position of the Initial Hotels. The Company and the
Lessee will agree on the use of funds in this reserve, and the Company will
have the right

60
<PAGE>

to approve the Lessee's long-term capital expenditure budgets. Based on the
experience of AGHI in operating the AGHI Predecessor Hotels, the Company
believes that such amount will be sufficient to fund required expenditures for
the term of the Participating Leases. The Company anticipates entering into a
similar arrangement with respect to future hotel properties in which it
invests. While the Company expects its reserve to be adequate to fund
recurring capital needs (including periodic renovations), the Company may use
Cash Available for Distribution in excess of distributions paid (subject to
federal income tax restrictions on the Company's ability to retain earnings)
or funds drawn under the Line of Credit or other borrowings to fund additional
capital improvements, as necessary, including major renovations at the
Company's hotels.

Net cash provided by operating activities for the year ended December 31,
1995 was $790,304, an increase from $217,282 for the year ended December 31,
1994. The increase is primarily due to an increase in operating income of
approximately $1.0 million which was partially offset by a net decrease in
cash from changes in working capital items.

Net cash used in investing activities for the year ended December 31, 1995
was $10,364,977, an increase from $8,992,154 for the year ended December 31,
1994. The increase was mainly due to renovations and hotel acquisitions as
described above.

Net cash used in financing activities for the year ended December 31, 1995
was $9,817,215, an increase from $8,646,822 for the year ended December 31,
1994. The increase was mainly due to borrowings associated with the previously
described acquisitions, which increase was partially offset by lower capital
contributions received in 1995.

FRANCHISE CONVERSIONS AND OTHER CAPITAL IMPROVEMENTS

The Company expects to spend up to approximately $24.6 million on additional
capital improvements during the twelve months following the completion of the
Offering in connection with the planned renovation and conversion of the
Holiday Inn Select-Madison, the Holiday Inn Park Center Plaza, the Fred Harvey
Albuquerque Airport Hotel, the Le Baron Airport Hotel, the Days Inn Ocean
City, the Holiday Inn Mission Valley, and the Holiday Inn New Orleans
International Airport to new franchise brands. In certain circumstances, such
renovations and improvements are being completed in connection with franchisor
requirements. The following table describes such renovations and improvements.

<TABLE>
<CAPTION>
DESCRIPTION OF
HOTEL RENOVATION/IMPROVEMENT ANTICIPATED COST
----- --------------------------------- ----------------
<S> <C> <C>
Holiday Inn Select- Upgrade guest rooms and public $1,714,000
Madison.................. areas in connection with
conversion to Crowne Plaza brand.
Holiday Inn Park Center Upgrade guest rooms and public 4,667,000
Plaza.................... areas and convert the ninth floor
to "club" level in connection
with conversion to Crowne Plaza
brand.
Fred Harvey Albuquerque Upgrade guest rooms and public 5,017,000
Airport Hotel............ areas and convert meeting space
to additional guest rooms in
connection with conversion to
Wyndham Hotel brand.
Le Baron Airport Hotel.... Upgrade public areas and guest 6,500,000
rooms and convert ninth floor to
concierge floor in connection
with conversion to
DoubleTree Hotel brand.
</TABLE>

Continued on next page.

61
<PAGE>

<TABLE>
<CAPTION>
DESCRIPTION OF
HOTEL RENOVATION/IMPROVEMENT ANTICIPATED COST
----- --------------------------------- ----------------
<S> <C> <C>
Days Inn Ocean City....... Upgrade guest rooms and public 1,905,000
areas in connection with
conversion to Hampton Inn brand.
Holiday Inn Mission Upgrade guest rooms and public 2,505,000
Valley................... areas in connection with
conversion to DoubleTree Hotel
brand.
Holiday Inn New Orleans Upgrade guest rooms and public 2,295,000
International Airport.... areas in connection with
conversion to Holiday Inn Select
brand.
-----------
Total............................ $24,603,000
===========
</TABLE>

In addition, the Company expects to spend up to $2.6 million on additional
capital improvements during the twelve months following the completion of the
Offering in connection with certain renovations and improvements that are
anticipated to be made at certain of the Initial Hotels that will not undergo
a conversion of franchise brands. Such improvements include upgrading the
exterior, guest rooms and Holidome public area at the Holiday Inn Dallas DFW
Airport South, upgrading the guest rooms and public areas at the Hilton Hotel-
Toledo and upgrading the public areas and the restaurant at the Holiday Inn
Dallas DFW Airport West.

There can be no assurance that the Company will be able to complete the
scheduled capital improvements within the twelve months following the
completion of the Offering or that the anticipated costs for the capital
improvements will not exceed the amounts budgeted for that purpose. The
Company intends to use borrowings under the Line of Credit and the FF&E
reserve established under the Participating Leases to fund these expenditures.
See "The Initial Hotels--The Participating Leases."

INFLATION

Operators of hotels, in general, possess the ability to adjust room rates
quickly. Competitive pressures may, however, limit the Lessee's ability to
raise room rates in the face of inflation. Since 1987, industry-wide annual
increases in ADR have failed to keep pace with inflation.

SEASONALITY

The hotel industry is seasonal in nature. Generally, hotel revenue is
greater in the second and third quarters of a calendar year, although this may
not be true for hotels in major tourist destinations. Revenue for hotels in
tourist areas generally is substantially greater during the tourist season
than other times of the year. Seasonal variations in revenue at the Initial
Hotels may cause quarterly fluctuations in the Company's lease revenue.

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<PAGE>

THE HOTEL INDUSTRY

According to Smith Travel Research, the United States lodging industry is
currently experiencing a significant recovery from an extended period of
unprofitable performance in the late 1980's and early 1990's. The Company
believes that this broad industry recovery will contribute to growth in
occupancy, room rates and revenue at the Initial Hotels (and hotels
subsequently acquired by the Company) which, in turn, will result in increases
in the Company's Cash Available for Distribution.

According to Smith Travel Research, the hotel industry experienced an
extended period of unprofitable performance from 1986 to 1991. The industry
downturn resulted from a dramatic increase in the supply of hotel rooms that
significantly outpaced growth in demand. The growth in supply, which resulted
from the development of new hotels, was supported by the availability of
financing from banks, savings and loans, insurance companies, high yield bonds
and various tax incentives. According to Smith Travel Research, and as
demonstrated in the chart below, total room supply in the United States
increased by 32.0%, or approximately 750,000 rooms, from 1980 to 1991. Of this
increase, approximately 567,000 rooms were added between 1985 and 1991. In all
but two of these years (1988 and 1989), increases in supply substantially
exceeded growth in demand. In some years, demand remained flat or even
declined. As a result of the extended supply/demand imbalance, overall hotel
occupancy rates dropped steadily from 70.6% in 1980 to a 20-year low of 60.9%
in 1991. The graph set forth below illustrates the relationship between supply,
demand and occupancy. Increases in demand in excess of increases in supply
necessarily result in higher occupancy.
LOGO
[PERCENTAGE CHANGE IN UNITED STATES HOTEL ROOM SUPPLY VS. DEMAND (1980-1995)]

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<PAGE>

The hotel industry began its recovery in 1992. New hotel construction
declined considerably as lenders who previously supported development focused
on restructurings and foreclosures of existing hotel loans. With minimal new
capital available for hotel construction, the growth in room supply declined
from a high of 4.2% in 1988 to 1.7% in 1995, and has averaged approximately
1.8% since 1992. By contrast, room demand has increased with the improving
economy, and average occupancy and room rates have moved steadily upward.
According to Smith Travel Research, overall hotel occupancy increased from
60.9% in 1991 to 65.5% in 1995. Average room rate growth increased from 1.4%
in 1992 to 4.8% in 1995.

While the hotel industry's recovery has been broad-based, the Company
believes that the greatest continuing growth in occupancy and room rates will
occur in the full-service segment of the industry due to the relative lack of
current new construction of full-service hotels and the lead time required for
new full-service hotels to be developed and opened. Accordingly, the Company
intends to focus its acquisition and selected development activities primarily
on full-service hotels. The Company also believes the hotel industry's
difficulties in the 1980's and changes in tax and banking laws have produced a
more responsible relationship between hotel developers and financing sources.
As a result, the Company believes that future additions to full-service hotel
supply will be more demand-driven, minimizing the overbuilding in key markets
that characterized supply growth in the late 1980's, and increasing the
prospect for continued growth of revenues in the hotel industry for the
foreseeable future.

THE INITIAL HOTELS

The thirteen Initial Hotels are diversified by five different national hotel
affiliations, including Hilton, Courtyard by Marriott, Holiday Inn, Hampton
Inn and Days Inn and include eleven full-service hotels, including one hotel
with a conference center, and two limited-service hotels. In addition, the
Company plans to reposition, within one year after the completion of the
Offering, seven of the Initial Hotels (four Holiday Inns, one Days Inn and two
independent hotels), through an upgrade and conversion into hotels that
operate under the Wyndham Hotel, DoubleTree Hotel, Crowne Plaza, Holiday Inn
Select and Hampton Inn brands. The Company believes that following such
upgrading and conversion, these hotels will experience increases in occupancy
and room rates as a result of the new franchisors' national brand recognition,
reservation systems and group sales organization. There can be no assurance,
however, that such brand conversions and repositionings will occur as planned
or that, if such brand conversions and repositionings occur, the affected
hotels will experience occupancy and rate increases. The Company believes that
the diversity of its initial portfolio moderates the potential effects on the
Company of regional economic conditions or local market competition affecting
specific hotel franchises, hotel markets, or price segments within the
industry. The hotels are located primarily in major metropolitan areas at or
in close proximity to commercial airports, interstate highways and local
commercial demand generators such as regional shopping centers, convention
centers, and tourist attractions.

The following table sets forth certain information with respect to the
Initial Hotels. The chart summarizes the historical performance of the Initial
Hotels for each of the three years ended December 31, 1995 and for the three
months ended March 31, 1995 and 1996. This information is provided for all
Initial Hotels, including those not owned or managed by AGHI or its affiliates
prior to the Offering, for the full three-year period. The operating
performance of the Holiday Inn Dallas DFW Airport West and the Hampton Inn
Richmond Airport was impacted during 1995 by extensive and ongoing renovations
at those hotels.

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<TABLE>
<CAPTION>
RENOVATION AND THREE MONTHS ENDED
CAPITAL YEAR ENDED DECEMBER 31, MARCH 31,
YEAR NUMBER OF IMPROVEMENT ----------------------------------------- ------------------------
INITIAL OPENED/ GUEST EXPENDITURES % % %
HOTEL/LOCATION(1) RENOVATED(2) ROOMS 1/1/93-3/31/96 1993 1994 CHANGE 1995 CHANGE 1995 1996 CHANGE
- ----------------- ------------ --------- -------------- ------- ------- ------ ------- ------ ------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AGH PREDECESSOR HOTELS(3)
Holiday Inn
Dallas DFW
Airport West(4)
Bedford,
Texas......... 1974/1995 243 $ 4,582
Occupancy...... 74.2% 70.0% (5.7%) 69.4% (0.8%) 80.1% 62.1% (22.5%)
ADR............ $ 46.37 $ 48.85 5.3% $ 60.08 23.0% $ 48.32 $ 69.58 44.0%
REVPAR......... $ 34.41 $ 34.19 (0.6%) $ 41.70 22.0% $ 38.72 $ 43.23 11.6%
Courtyard by
Marriott-
Meadowlands(4)
Secaucus, New
Jersey......... 1989/1994 165 1,500
Occupancy...... 74.8% 70.1% (6.3%) 77.8% 10.9% 68.2% 68.0% (0.3%)
ADR............ $ 65.63 $ 73.37 11.8% $ 81.77 11.4% $ 80.79 $ 88.32 9.3%
REVPAR......... $ 49.09 $ 51.44 4.8% $ 63.58 23.6% $ 55.08 $ 60.04 9.0%
Hampton Inn
Richmond
Airport(4)
Richmond,
Virginia....... 1987/1995 124 443
Occupancy...... 75.9% 76.3% 0.6% 70.8% (7.2%) 66.6% 62.7% (5.9%)
ADR............ $ 46.71 $ 50.84 8.8% $ 57.69 13.5% $ 55.07 $ 59.13 7.4%
REVPAR......... $ 35.45 $ 38.81 9.5% $ 40.86 5.3% $ 36.69 $ 37.08 1.1%
Hotel Maison de
Ville(4)
New Orleans,
Louisiana...... 1788/1994 23 849
Occupancy...... 64.1% 61.7% (3.8%) 66.5% 7.8% 75.1% 67.7% (9.8%)
ADR............ $188.18 $201.80 7.2% $232.97 15.4% $241.72 $249.86 3.4%
REVPAR......... $120.65 $124.50 3.2% $154.91 24.4% $181.43 $169.16 (6.8%)
AGH ACQUISITION HOTELS(5)
Hilton Hotel-
Toledo(4)
Toledo, Ohio... 1987/1994 213 1,069
Occupancy...... 66.7% 72.5% 8.8% 72.8% 0.3% 69.2% 65.0% (6.1%)
ADR............ $ 52.29 $ 54.59 4.4% $ 59.98 9.9% $ 57.66 $ 63.42 10.0%
REVPAR......... $ 34.87 $ 39.59 13.6% $ 43.65 10.2% $ 39.93 $ 41.23 3.3%
Holiday Inn
Dallas DFW
Airport
South(4)
Irving, Texas.. 1974/1995 409 2,776
Occupancy...... 76.0% 76.7% 0.9% 76.9% 0.3% 75.9% 77.3% 1.8%
ADR............ $ 51.82 $ 63.19 22.0% $ 71.26 12.8% $ 70.76 $ 79.89 12.9%
REVPAR......... $ 39.39 $ 48.44 23.0% $ 54.78 13.1% $ 53.70 $ 61.74 15.0%
Holiday Inn New
Orleans
International
Airport(4)(6)(7)
Kenner,
Louisiana...... 1973/1994 304 3,236
Occupancy...... 80.8% 79.2% (1.9%) 81.2% 2.5% 85.1% 78.2% (8.0%)
ADR............ $ 60.61 $ 61.49 1.5% $ 72.83 18.5% $ 73.70 $ 79.23 7.5%
REVPAR......... $ 48.94 $ 48.71 (0.5%) $ 59.16 21.5% $ 62.69 $ 61.99 (1.1%)
Days Inn Ocean
City(4)(7)(8)
Ocean City,
Maryland....... 1989/1994 162 529
Occupancy...... 45.9% 45.8% (0.3%) 49.3% 7.6% 31.2% 26.6% (14.6%)
ADR............ $ 64.72 $ 70.91 9.6% $ 76.10 7.3% $ 36.99 $ 49.22 33.0%
REVPAR......... $ 29.71 $ 32.47 9.3% $ 37.50 15.5% $ 11.53 $ 13.10 13.6%
Holiday Inn
Select-
Madison(7)(9)
Madison, Wisconsin.. 1987/1995 227 473
Occupancy...... 79.6% 78.7% (1.2%) 79.3% 0.8% 77.8% 75.7% (2.7%)
ADR............ $ 74.47 $ 78.25 5.1% $ 78.46 0.3% $ 77.42 $ 79.25 2.4%
REVPAR......... $ 59.31 $ 61.60 3.9% $ 62.26 1.1% $ 60.20 $ 59.97 (0.4%)
Holiday Inn Park
Center
Plaza(7)(9)
San Jose,
California..... 1975/1990 231 304
Occupancy...... 58.4% 62.2% 6.4% 72.1% 16.0% 65.0% 81.1% 24.8%
ADR............ $ 72.47 $ 73.41 1.3% $ 78.16 6.5% $ 77.61 $ 85.32 9.9%
REVPAR......... $ 42.35 $ 45.66 7.8% $ 56.38 23.5% $ 50.46 $ 69.22 37.2%
Fred Harvey
Albuquerque
Airport
Hotel(7)(10)
Albuquerque,
New Mexico..... 1972/1994 266 664
Occupancy...... 85.2% 83.5% (2.0%) 83.7% 0.2% 80.7% 79.3% (1.7%)
ADR............ $ 48.11 $ 53.23 10.6% $ 53.24 0.0% $ 51.89 $ 52.65 1.5%
REVPAR......... $ 40.98 $ 44.44 8.4% $ 44.55 0.2% $ 41.85 $ 41.75 (0.2%)
Le Baron Airport
Hotel(7)(11)
San Jose,
California..... 1973/1995 327 993
Occupancy...... 64.3% 66.2% 3.0% 65.2% (1.4%) 61.2% 79.5% 30.0%
ADR............ $ 47.85 $ 52.77 10.3% $ 64.40 22.0% $ 59.03 $ 71.93 21.9%
REVPAR......... $ 30.76 $ 34.93 13.5% $ 42.01 20.3% $ 36.12 $ 57.21 58.4%
Holiday Inn
Mission
Valley(7)(11)
San Diego,
California..... 1970/1995 318 926
Occupancy...... 68.6% 69.8% 1.7% 68.5% (1.9%) 66.3% 64.5% (2.7%)
ADR............ $ 61.09 $ 62.94 3.0% $ 65.17 3.5% $ 63.31 $ 61.72 (2.5%)
REVPAR......... $ 41.94 $ 43.94 4.8% $ 44.63 1.6% $ 41.98 $ 39.81 (5.2%)
----- -------
Totals ......... 3,012 $18,344
===== =======
Weighted
Averages:
Initial Hotels
Occupancy...... 71.6% 71.7% 0.2% 72.9% 1.7% 70.6% 70.7% 0.1%
ADR............ $ 57.65 $ 62.28 8.0% $ 69.19 11.1% $ 65.97 $ 73.33 11.2%
REVPAR......... $ 41.26 $ 44.67 8.3% $ 50.46 13.0% $ 46.56 $ 51.81 11.3%
AGH Predecessor
Hotels(3)
Occupancy...... 74.3% 71.1% (4.3%) 72.1% 1.4% 73.3% 64.2% (12.4%)
ADR............ $ 57.09 $ 62.10 8.8% $ 73.26 18.0% $ 67.01 $ 81.10 21.0%
REVPAR......... $ 42.42 $ 44.14 4.0% $ 52.84 19.7% $ 49.10 $ 52.09 6.1%
AGH Acquisition
Hotels(5)
Occupancy...... 71.0% 71.9% 1.3% 73.1% 1.7% 70.0% 72.1% 3.0%
ADR............ $ 57.78 $ 62.32 7.9% $ 68.30 9.6% $ 65.73 $ 71.77 9.2%
REVPAR......... $ 41.01 $ 44.79 9.2% $ 49.93 11.5% $ 45.99 $ 51.75 12.5%

</TABLE>
See notes on following page.

65
<PAGE>

- --------
(1) The occupancy, ADR and REVPAR calculations for the Initial Hotels are
derived from room revenue included in the audited financial data relating
to each of the Initial Hotels for each of the periods indicated except for
the following hotels, for which information is audited only from the date
of acquisition of such hotel by AGHI (such date is set forth in
parentheses): Hotel Maison de Ville (August 1994), Holiday Inn Dallas DFW
Airport West (June 1995), Hampton Inn Richmond Airport (December 1994) and
Courtyard by Marriott-Meadowlands (December 1993). The occupancy, ADR and
REVPAR calculations for the periods prior to the date of acquisition of
the hotels have been provided to management by the prior owners of such
hotels.
(2) Year renovated reflects the calendar year in which management deems that a
significant renovation was completed at the hotel.
(3) The AGH Predecessor Hotels consist of the following four Initial Hotels:
the Holiday Inn Dallas DFW Airport West, the Courtyard by Marriott-
Meadowlands, the Hotel Maison de Ville, and the Hampton Inn Richmond
Airport.
(4) This hotel is currently operated and managed by AGHI. The following sets
forth the date AGHI began managing each such hotel: the Holiday Inn New
Orleans International Airport (February 1995), the Courtyard by Marriott-
Meadowlands (February 1993), the Hilton Hotel-Toledo (February 1993), the
Holiday Inn Dallas DFW Airport South (December 1991), the Holiday Inn
Dallas DFW Airport West (June 1995), the Hampton Inn Richmond Airport
(November 1993), the Hotel Maison de Ville (August 1992) and the Days Inn
Ocean City (February 1993).
(5) The AGH Acquisition Hotels consist of the following nine Initial Hotels
(four of which are currently managed by AGHI): the Holiday Inn Dallas DFW
Airport South, Hilton Hotel-Toledo, Holiday Inn New Orleans International
Airport, Holiday Inn Park Center Plaza, Holiday Inn Select-Madison,
Holiday Inn Mission Valley, Le Baron Airport Hotel, Days Inn Ocean City,
and Fred Harvey Albuquerque Airport Hotel.
(6) The Company plans to reposition this hotel to operate as a Holiday Inn
Select.
(7) There can be no assurance that the brand conversion and repositioning of
this hotel will occur as planned.
(8) The Company plans to reposition this hotel to operate as a Hampton Inn.
(9) The Company plans to reposition this hotel to operate as a Crowne Plaza.
(10) This hotel also has an affiliation with Best Western. The Company plans
to reposition this hotel to operate as a Wyndham Hotel.
(11) The Company plans to reposition this hotel to operate as a DoubleTree
Hotel.

DESCRIPTIONS OF INITIAL HOTELS

Eleven of the Initial Hotels are full-service hotels with an aggregate of
2,726 guest rooms, which target both business and leisure travelers, including
meetings and groups, who prefer a full range of facilities, services and
amenities. After completion of the Company's planned repositionings, the
Company's full-service Initial Hotels will include one Courtyard by Marriott,
one Hilton, two Holiday Inns, one Wyndham Hotel, two DoubleTree Hotels, two
Crowne Plazas, one Holiday Inn Select and one independent hotel. Full-service
hotels generally offer a full range of meeting and conference facilities and
banquet space. Facilities typically include restaurants and lounge areas, gift
shops and recreational facilities, including swimming pools. Full-service
hotels generally provide a significant array of guest services, including room
service, valet services and laundry. As a result, full-service hotels often
generate significant revenue from sources other than guest room revenue.

Two of the Initial Hotels are limited-service hotels with an aggregate of
286 guest rooms, which target both business and leisure travelers. After
completion of the Company's planned repositionings, the Company's limited-
service hotels will consist of two Hampton Inns. Limited-service hotels have
limited or no meeting space. Hotels operating in this market segment generally
seek to minimize operational costs by offering only those basic services
required by travelers; thus, guest room revenues account for substantially all
of the revenues generated by these hotels. Because they cater to both business
and leisure travelers and therefore maintain relatively consistent occupancy
on weekdays and weekends, limited-service hotels often achieve occupancy rates
higher than full-service hotels.

Set forth below is a description of the Company's Initial Hotels.

AGH PREDECESSOR HOTELS

Holiday Inn Dallas DFW Airport West--Bedford, Texas

The Holiday Inn Dallas DFW Airport West is located in Bedford, a suburban
community west of the Dallas/Fort Worth International Airport. Originally
constructed in 1972 with an addition in 1987, the hotel

66
<PAGE>

contains 243 guest rooms and features approximately 5,190 square feet of
meeting facilities, a restaurant and a theme lounge.

Upon AGHI's acquisition of the hotel in June 1995, AGHI immediately
implemented a significant capital improvement program that included
renovations to the exterior of the building, guest rooms, meeting facilities,
food and beverage outlets and the remaining public space. AGHI also changed
the hotel's guest mix by replacing the lower-rated contract demand business
(principally airline flight crews) with higher rate corporate business.

In 1994, occupancy, ADR and REVPAR at the Holiday Inn Dallas DFW Airport
West were 70.0%, $48.85 and $34.19, respectively. By the twelve months ended
March 31, 1996, occupancy at the hotel had decreased 7.3% to 64.9%, due to the
change in focus from the contract demand business to the higher-rated
corporate business in order to increase ADR and REVPAR. Also, by the twelve
months ended March 31, 1996, ADR at the hotel had increased 35.2% to $66.05
and REVPAR at the hotel increased 25.3% to $42.84. Within the twelve months
following the acquisition of the hotel, the Company plans to make
approximately $240,000 in additional improvements and renovations to the
hotel. The Company is acquiring the hotel, which has been managed by AGHI
since June 1995, from a partnership owned by affiliates of AGHI and certain
investors not affiliated with AGHI.

Courtyard by Marriott-Meadowlands--Secaucus, New Jersey

The Courtyard by Marriott-Meadowlands is located within the Harmon Meadow
mixed-use development across the Hudson River from New York City. The hotel
opened in April 1989 and is situated between two nationally-recognized
restaurants. It contains 165 guest rooms and its features include meeting
facilities, a restaurant, lounge and fitness facilities.

AGHI acquired the Courtyard by Marriott-Meadowlands in December 1993. At the
time of its acquisition by AGHI, this hotel faced declining operating
performance due to prior management inefficiencies, deferred maintenance and a
lack of capital to effectively compete in its market. In response to these
conditions, AGHI developed a multi-phase strategy, including repositioning the
former Days Hotel to a Courtyard by Marriott and upgrading the hotel by making
approximately $530,000 in renovations to guest rooms and public space and
exterior improvements to the hotel. Since May 1994, AGHI has invested an
additional $845,400 to further improve the restaurant, lounge, exterior
entrances, guest rooms and meeting facilities.

In 1993, occupancy, ADR and REVPAR at the Courtyard by Marriott-Meadowlands
were 74.8%, $65.63 and $49.09, respectively. By the twelve months ended March
31, 1996, occupancy at the hotel had increased 3.9% to 77.7%, ADR at the hotel
had increased 27.1% to $83.42 and REVPAR at the hotel had increased 32.0% to
$64.82. The Company is acquiring the hotel, which has been managed by AGHI
since February 1993, from a partnership owned by affiliates of AGHI. See "The
Initial Hotels--Ground Leases."

Hampton Inn Richmond Airport--Richmond, Virginia

The Hampton Inn Richmond Airport is located in an established industrial and
commercial area adjacent to Richmond International Airport. Constructed in
1988, the hotel contains 124 rooms and features hospitality suites, a swimming
pool and complimentary breakfast service. AGHI acquired the hotel in December
1994, after which it implemented a $376,000 capital improvement program which
included the renovation of guest rooms and public areas.

In 1994, occupancy, ADR and REVPAR at the Hampton Inn Richmond Airport were
76.3%, $50.84 and $38.81, respectively. By the twelve months ended March 31,
1996, occupancy at the hotel had decreased 8.5% to 69.9% due to renovations at
the hotel and the change in focus from lower-rated discount business to
higher-rated corporate group business in order to increase ADR and REVPAR.
Also by the twelve months ended March 31, 1996, ADR at the hotel had increased
15.3% to $58.64, and REVPAR at the hotel increased 5.5% to $40.96. Within the
twelve months following the acquisition of the hotel, the Company plans to
make approximately $50,000 in additional improvements to the hotel. The
Company is acquiring the hotel, which has been managed by AGHI since November
1993, from a partnership owned by affiliates of AGHI.

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<PAGE>

Hotel Maison de Ville--New Orleans, Louisiana

The Hotel Maison de Ville is situated in a landmark location in the heart of
the French Quarter in New Orleans at the intersection of Bourbon and Rue
Toulouse streets and has had such notable live-ins as John James Audubon and
Tennessee Williams. Originally built in 1788, the 23-room hotel consists of
seven cottages, two suites and fourteen guest rooms. The hotel's features
include an award-winning bistro and outdoor pool. The hotel was acquired by
affiliates of AGHI in August 1994.

After the hotel was acquired, AGHI instituted renovations totaling $650,000
designed to restore the hotel's authentic style. In 1993, occupancy, ADR and
REVPAR at the Hotel Maison de Ville were 64.1%, $188.18 and $120.65,
respectively. By the twelve months ended March 31, 1996, occupancy at the
hotel had increased 0.8% to 64.7%, ADR at the hotel had increased 24.8% to
$234.85 and REVPAR at the hotel had increased 25.9% to $151.84. The restaurant
facilities, three guest rooms and an accounting office at the hotel are
subject to a space lease with a third party lessor; such lease expires in 2014
and requires annual minimum rent of $42,000 (increasing to an annual minimum
rent of $51,000 in the final year of the lease). Within the twelve months
following the acquisition of the hotel, the Company plans to make
approximately $50,000 in additional improvements to the hotel. The Company is
acquiring the hotel, which has been managed by AGHI since August 1992, from a
partnership owned by affiliates of AGHI and certain investors not affiliated
with AGHI.

AGH ACQUISITION HOTELS

Hilton Hotel-Toledo--Toledo, Ohio

The Hilton Hotel-Toledo is located on the campus of the Medical College of
Ohio in Toledo, Ohio. The hotel was developed in 1987, and consistent
upgrading of the property has allowed the hotel to maintain a facility that,
the Company believes, is among the finest in Northwest Ohio. The 213-room
hotel is connected to the Medical College of Ohio at Toledo's Eleanor N. Dana
Conference Center, which has approximately 13,000 square feet of conference
space, and its Morse Health & Fitness Center, both of which may be used by the
hotel's guests. The Morse Health & Fitness Center has over 33,000 square feet
of state-of-the-art fitness equipment, basketball and racquet ball courts and
an indoor running track, and is staffed by fitness professionals. AGHI is the
exclusive supplier of food and beverage services for the Eleanor N. Dana
Conference Center. See "The Initial Hotels--Ground Leases." The Company plans
to invest approximately $340,000 in capital improvements at the hotel during
the twelve months following the closing of the Offering.

In 1993, occupancy, ADR and REVPAR at the Hilton Hotel-Toledo were 66.7%,
$52.29 and $34.87, respectively. By the twelve months ended March 31, 1996,
occupancy at the hotel had increased 7.5% to 71.7%, ADR at the hotel had
increased 17.2% to $61.31 and REVPAR at the hotel had increased 26.1% to
$43.96. Within the twelve months following the acquisition of the hotel, the
Company plans to make approximately $340,000 in additional improvements and
renovations to the hotel. The Company is acquiring the hotel, which has been
managed by AGHI since February 1993, from a partnership owned by affiliates of
AGHI and certain investors not affiliated with AGHI.

Holiday Inn Dallas DFW Airport South--Irving, Texas

The Holiday Inn Dallas DFW Airport South is located near the south entrance
of the Dallas/Fort Worth International Airport in Irving, Texas. The main
building was constructed in 1974 with a guest-room tower added in 1983. The
Holidome(R) facility, a vacation hotel with additional facilities primarily
for children and youth, contains 409 rooms and features an approximately
13,000 square foot conference center, a fitness facility, a theme lounge,
multiple food outlets, indoor and outdoor pools and a "Kids Corner." The
Company believes that the hotel is currently the largest Holiday Inn in the
southwestern United States.

AGHI, after its retention as manager of the Holiday Inn Dallas DFW Airport
South in December 1991 and its acquisition of an interest in the hotel in May
1992, commenced an extensive $2.5 million renovation of the hotel, which
included upgrades of all guest rooms and corridors, common areas, meeting
space, restaurants and the lounge and renovation of the exterior of the
building. At the time of purchase, the hotel had lost its Holiday Inn
franchise due to product deficiencies and was experiencing declining occupancy
arising from poor marketing

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<PAGE>

and insufficient capital improvements. Since AGHI's completion of the initial
renovations in 1992, an additional $2.5 million has been spent to upgrade the
hotel. In addition, within the twelve months following the acquisition of the
hotel, the Company has budgeted approximately $1.9 million in additional
improvements and renovations to the hotel.

In 1992, occupancy, ADR and REVPAR at the Holiday Inn Dallas DFW Airport
South were 49.1%, $54.18 and $26.61, respectively. By the twelve months ended
March 31, 1996, occupancy at the hotel had increased 57.2% to 77.2%, ADR at
the hotel had increased 35.7% to $73.54 and REVPAR at the hotel had increased
113.4% to $56.79. The Company is acquiring the hotel, which has been managed
by AGHI since December 1991, from a partnership owned by affiliates of AGHI
and certain investors not affiliated with AGHI.

The Holiday Inn Dallas DFW Airport South constitutes more than 10% of the
aggregate historical cost basis of the Initial Hotels. The aggregate tax bases
of depreciable real and personal property of the hotel for federal income tax
purposes were approximately $3.3 million and $1.0 million, respectively, as of
December 31, 1995. Depreciation is computed for federal income tax purposes
using the straight-line method over a 39-year life for the real property and
declining balance methods over lives which range from five to seven years for
the personal property.

The 1994 realty tax rate for the Holiday Inn Dallas DFW Airport South was
$46.08 per $1,000 of assessed value. The total annual tax at this rate for the
twelve months ended March 31, 1996 was approximately $315,000.

Holiday Inn New Orleans International Airport--Kenner, Louisiana

The Holiday Inn New Orleans International Airport is located in suburban
Kenner, approximately one-half mile from the entrance to the New Orleans
International Airport. The Holidome facility is the closest Holiday Inn to the
New Orleans International Airport. The hotel contains 304 rooms and features
approximately 5,000 square feet of meeting and banquet space, as well as
fitness facilities, a restaurant, a lounge, and a business center. The hotel
underwent a $1.6 million capital improvement program during 1993 and 1994
which included the renovation of the exterior of the building, food and
beverage facilities, guest rooms, meeting rooms and public space.

AGHI began its operation of the hotel in February 1995. In 1994, occupancy,
ADR and REVPAR at the Holiday Inn New Orleans International Airport were
79.2%, $61.49 and $48.71, respectively. By the twelve months ended March 31,
1996, occupancy at the hotel had increased 0.4% to 79.5%, ADR at the hotel had
increased 20.6% to $74.17 and REVPAR at the hotel had increased 21.1% to
$58.99. Within the twelve months following its acquisition of the hotel, the
Company plans approximately $2.3 million in capital expenditures and
renovations in order to reposition the hotel under the Holiday Inn Select
brand. There can be no assurance that such brand conversion will occur. The
Company is acquiring the hotel, which has been managed by AGHI since February
1995, from a limited liability company not affiliated with AGHI.

The Holiday Inn New Orleans International Airport constitutes more than 10%
of the aggregate historical cost basis of the Initial Hotels. The aggregate
tax bases of depreciable real and personal property of the hotel for federal
income tax purposes were approximately $7.4 million and $200,000,
respectively, as of December 31, 1995. Depreciation is computed for federal
income tax purposes using the straight-line method over a 39-year life for the
real property and declining balance methods over lives which range from five
to seven years for the personal property.

The 1995 realty tax rate for the Holiday Inn New Orleans International
Airport was $97.66 per $1,000 of assessed value. The total annual tax at this
rate for the twelve months ended March 31, 1996 was approximately $133,000.

Days Inn Ocean City--Ocean City, Maryland

The Days Inn Ocean City is located on the area's primary commercial
boulevard, one block north of the Ocean City Convention Center and two blocks
west of the Atlantic Ocean beaches, and serves both the leisure

69
<PAGE>

and conventions markets. The seven-story hotel was built in 1989. It contains
162 rooms and features approximately 3,600 square feet of meeting space and an
indoor pool. A $529,000 capital-improvement program was completed at the hotel
in 1995 which included renovation of the guest rooms, meeting facilities and
public space. The Company intends to invest approximately $1.9 million to
convert and upgrade the hotel to operate under the Hampton Inn brand within
the twelve months following the acquisition of the hotel. There can be no
assurance that such brand conversion will occur.

In 1993, occupancy, ADR and REVPAR at the Days Inn Ocean City were 45.9%,
$64.72 and $29.71, respectively. By the twelve months ended March 31, 1996,
occupancy at the hotel had increased 5.0% to 48.2%, ADR at the hotel had
increased 21.7% to $78.75 and REVPAR at the hotel had increased 27.8% to
$37.96. The Company is acquiring the hotel, which has been managed by AGHI
since February 1993, from a partnership not affiliated with AGHI.

Holiday Inn Select--Madison, Wisconsin

The Holiday Inn Select-Madison is located adjacent to a large regional
shopping center in Madison, Wisconsin. The hotel has been consistently
upgraded since its opening in 1987 and management believes it is in excellent
physical condition. The hotel contains 227 rooms, including 36 suites, in a
mid-rise building designed around a central atrium containing an enclosed
pool, popular restaurant, lobby bar, and lounge. In 1995, the hotel was
designated as a premium-quality "Select" hotel by Holiday Inn Worldwide and
was chosen as the top property out of Holiday Inn's domestic hotels in terms
of product quality and guest satisfaction for which it received the "Hotel of
the Year" award. The hotel has also received several Holiday Inn Torchbearer
and Quality Excellence awards.

Within the twelve months following the acquisition of the hotel, the Company
intends to convert the Holiday Inn Select-Madison to a Crowne Plaza hotel and
has budgeted approximately $1.7 million for capital expenditures and
renovations in order to reposition the hotel within its market. The Company
anticipates that the franchise change, combined with product and service
enhancements and adoption of Crowne Plaza operating standards, will enable
AGHI to further improve the hotel's revenues through higher guest-room rates
commensurate with the improved quality. There can be no assurance that such
brand conversion and improved operating results will occur. The Company is
acquiring the hotel, which is currently not managed by AGHI, from a
partnership not affiliated with AGHI.

The Holiday Inn Select-Madison constitutes more than 10% of the aggregate
historical cost basis of the Initial Hotels. The aggregate tax bases of
depreciable real and personal property of the Holiday Inn Select-Madison for
federal income tax purposes were approximately $5.2 million and $0.4 million,
respectively, as of December 31, 1995. Depreciation is computed for federal
income tax purposes using the straight-line method over a 19-year life for the
real property and declining balance methods over lives which range from three
to ten years for the personal property.

The 1995 realty tax rate for the Holiday Inn Select-Madison was $32.98 per
$1,000 of assessed value. The total annual tax at this rate for the twelve
months ended March 31, 1996 was approximately $255,000.

Holiday Inn Park Center Plaza--San Jose, California

The Holiday Inn Park Center Plaza is located adjacent to the McEnery
Convention Center in downtown San Jose and is within two blocks of the new
world headquarters of Adobe Software and within two miles of San Jose Arena
and San Jose State University. The high-rise hotel and three-level garage were
built in 1975 and underwent an extensive renovation in 1990, including the
public space, guest rooms, food and beverage outlets, and meeting facilities.
The hotel contains 231 rooms and features a fitness facility, outdoor pool,
restaurant and lounge, and over 8,000 square feet of meeting space.

Within the twelve months following the acquisition, the Company intends to
complete an extensive $4.7 million dollar renovation program to convert the
facility from a traditional Holiday Inn into a Crowne Plaza

70
<PAGE>

hotel. The Company anticipates that the renovation and franchise change will
enable the hotel to increase its ADR, which, according to Smith Travel
Research, currently trails the competition in the downtown market by almost
$25.00. There can be no assurance that such brand conversion and improved
operating results will occur. The Company is acquiring the hotel, which is
currently not managed by AGHI, from a partnership not affiliated with AGHI.

Fred Harvey Albuquerque Airport Hotel--Albuquerque, New Mexico

The Fred Harvey Albuquerque Airport Hotel is located at the entrance to the
Albuquerque International Airport and is within three miles of the University
of New Mexico and the Albuquerque Convention Center. The 14-story high-rise
hotel opened in 1972 and is currently affiliated with Best Western. It
contains 266 rooms and features two restaurants, a lounge, fitness facilities,
an outdoor pool, tennis courts and approximately 8,000 square feet of meeting
space.

The Company intends to complete an extensive $5.0 million dollar renovation
program of the hotel during the twelve months after its acquisition, including
the conversion of the second floor, which is currently used for meeting rooms
and administrative offices, to guest rooms, thereby increasing the number of
guest rooms available to 278. The Company also intends to convert and upgrade
the hotel to operate under the Wyndham Hotel brand within one year of the
completion of the Offering. There can be no assurance that such brand
conversion will occur. The Company is acquiring the hotel, which is currently
not managed by AGHI, from a partnership not affiliated with AGHI. See "The
Initial Hotels--Ground Leases."

Le Baron Airport Hotel--San Jose, California

The Le Baron Airport Hotel is located approximately one mile from the San
Jose International Airport and two miles from downtown San Jose. The hotel was
developed in 1974 and has 327 guest rooms in a nine-story tower. The hotel
contains approximately 21,000 square feet of meeting and banquet space, two
restaurants, a cocktail lounge, an outdoor pool and a fitness center.

The Company has budgeted $6.5 million to complete an extensive renovation
program to upgrade the entire hotel and reposition the facility as a
DoubleTree Hotel within the twelve months following the acquisition of the
hotel. The renovations will include the conversion of currently underutilized
space to an additional 33 guest rooms. The Company believes that the
renovation, the increase in the number of guest rooms, the conversion to the
DoubleTree Hotel brand, and the expected improvements in operational
efficiencies will produce substantial increases in revenue. There can be no
assurance that such brand conversion and improved operating results will
occur. The Company is acquiring the hotel, which is currently not managed by
AGHI, from a partnership not affiliated with AGHI. See "The Initial Hotels--
Ground Leases."

The Le Baron Airport Hotel constitutes more than 10% of the aggregate
historical cost basis of the Initial Hotels. The aggregate tax bases of
depreciable real and personal property of the hotel for federal income tax
purposes were approximately $7.3 million and $3.0 million, respectively, as of
December 31, 1995. Depreciation is computed for federal income tax purposes
using the straight-line method over a 31.5 year life for the real property and
declining balance methods over lives which range from five to seven years for
the personal property.

The 1995 realty tax rate for the Le Baron Airport Hotel was $10.62 per
$1,000 of assessed value. The total annual tax at this rate for the twelve
months ended March 31, 1996 was approximately $126,400.

Holiday Inn Mission Valley--San Diego, California

The Holiday Inn Mission Valley is located approximately one mile from Old
Town, approximately three miles from Jack Murphy Stadium and the San Diego
Zoo, approximately four miles from Sea World, and within

71
<PAGE>

driving distance of the San Diego central business district and the San Diego
International Airport. The hotel was built in 1975 and was expanded in 1986.
The hotel contains 318 guest rooms and features over 6,000 square feet of
meeting space, a heated outdoor pool and spa, restaurant, lounge and fitness
facilities.

Within the twelve months following its acquisition, the Company plans $2.5
million in capital expenditures and renovations in order to reposition the
hotel under the DoubleTree Hotel brand. There can be no assurance that such
brand conversion will occur. The Company is acquiring the hotel, which is
currently not managed by AGHI, from certain investors not affiliated with
AGHI.

The Holiday Inn Mission Valley constitutes more than 10.0% of the aggregate
historical cost basis of the Initial Hotels. The aggregate tax bases of
depreciable real and personal property of the hotel for federal income tax
purposes were approximately $9.2 million and $3.7 million, respectively, as of
December 31, 1995. Depreciation is computed for federal income tax purposes
using the straight-line method over a 39-year life for the real property and
declining balance methods over lives which range from five to seven years for
the personal property.

The 1995 realty tax rate for the Holiday Inn Mission Valley was $22.26 per
$1,000 of assessed value. The total annual tax at this rate for the twelve
months ended March 31, 1996 was approximately $111,800.

TEN PERCENT HOTELS

The following table compares occupancy, ADR, and REVPAR at each of the five
Initial Hotels that constitutes more than 10% of the aggregate historical cost
basis of the Initial Hotels:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
OCCUPANCY
Holiday Inn Dallas DFW
Airport South.......... 63.4% 49.1% 76.0% 76.7% 76.9% 75.9% 77.3%
Holiday Inn New Orleans
International Airport.. 78.6 81.8 80.8 79.2 81.2 85.1 78.2
Holiday Inn Select-
Madison................ 73.9 76.8 79.6 78.7 79.3 77.8 75.7
Le Baron Airport Hotel.. 76.0 68.4 64.3 66.2 65.2 61.2 79.5
Holiday Inn Mission
Valley................. * 58.0 68.6 69.8 68.5 66.3 64.5
ADR
Holiday Inn Dallas DFW
Airport South.......... $48.53 $54.18 $51.82 $63.19 $71.26 $70.76 $79.89
Holiday Inn New Orleans
International Airport.. 57.07 57.48 60.61 61.49 72.83 73.70 79.23
Holiday Inn Select-
Madison................ 70.27 72.41 74.47 78.25 78.46 77.42 79.25
Le Baron Airport Hotel.. 53.83 49.97 47.85 52.77 64.40 59.03 71.93
Holiday Inn Mission
Valley................. * 60.69 61.09 62.94 65.17 63.31 61.72
REVPAR
Holiday Inn Dallas DFW
Airport South.......... $30.78 $26.61 $39.39 $48.44 $54.78 $53.70 $61.74
Holiday Inn New Orleans
International Airport.. 44.87 47.03 48.94 48.71 59.16 62.69 61.99
Holiday Inn Select-
Madison................ 51.96 55.62 59.31 61.60 62.26 60.20 59.97
Le Baron Airport Hotel.. 40.88 34.17 30.76 34.93 42.01 36.12 57.21
Holiday Inn Mission
Valley................. * 35.19 41.94 43.94 44.63 41.98 39.81
</TABLE>
- --------
*Applicable occupancy, ADR and REVPAR data is not available.

THE PARTICIPATING LEASES

In order for the Company to qualify as a REIT, neither the Company nor the
Operating Partnership may operate hotels or related properties. The Operating
Partnership will lease each Initial Hotel to the Lessee for a term of twelve
years pursuant to separate Participating Leases that provide for rent equal to
the greater of Base Rent or Participating Rent. In addition, the Company and
the Lessee will enter into a Lease Master Agreement

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<PAGE>

(the "Lease Master Agreement"), which will set forth the terms of the Lessee
Pledge and certain other matters. Each Participating Lease with the Lessee
contains terms substantially similar to those described below. The following
summary is qualified in its entirety by the Participating Leases and the Lease
Master Agreement, the forms of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.

Participating Lease Terms. Each Participating Lease will have a term of
twelve years, subject to earlier termination upon the occurrence of certain
contingencies described in the Participating Lease (including, particularly,
the provisions described herein under "Damage to Initial Hotels,"
"Condemnation of Initial Hotels," and "Termination of Participating Leases on
Disposition of the Initial Hotels").

Base Rent; Participating Rent; Additional Charges. Each Participating Lease
requires the Lessee to pay (i) fixed weekly Base Rent, (ii) on a monthly
basis, the excess of Participating Rent over Base Rent, with Participating
Rent based on certain percentages of room revenue, food and beverage revenue
and telephone and other revenue at each Initial Hotel, and (iii) certain other
amounts, including interest accrued on any late payments or charges
("Additional Charges"). Commencing in January 1997, Base Rent and
Participating Rent departmental thresholds (departmental revenue on which the
rent percentage is based) will be increased annually by a percentage equal to
the percentage increase in the CPI (as defined in "Glossary") (CPI percentage
increase plus 0.75% in the case of the Participating Rent departmental revenue
thresholds) compared to the prior year. At six of the Initial Hotels, the
franchise agreements for the hotels require increases in the franchise royalty
rates in future years and the Participating Leases for those Initial Hotels
provide that the room revenue threshold will be increased to a higher level
effective in the year of the franchise royalty rate increase. At seven of the
Initial Hotels, the Company plans to undertake substantial renovations during
the twelve months following the closing of the Offering in connection with
upgrading and converting those Initial Hotels to new franchise brands. At six
of these hotels, the renovations are expected to significantly negatively
affect the operating margins at these Initial Hotels during the renovation
period. As a result, as set forth in the table below, the Participating Rent
formulas in the Participating Leases for these Initial Hotels contain
Participating Rent thresholds that adjust effective January 1, 1997 and, in
one case, adjusts again effective January 1, 1998, to take into account the
impact of such renovations and will increase by the percentage increase in CPI
plus 0.75% thereafter. In addition, Base Rent relating to these six hotels
will adjust effective January 1, 1997 and will increase by the percentage
increase in CPI thereafter. See the footnotes to the chart on the following
page. Following completion of the planned renovations, the Participating Rent
thresholds for those Participating Leases will increase thereafter based upon
increases in the CPI in the same manner as in the other Participating Leases.
Base Rent is payable weekly in arrears. Participating Rent is payable monthly
in arrears in an estimated amount equal to one-third of the Participating Rent
estimated to be payable during such quarter and will be calculated based on
the year-to-date departmental receipts as of the end of the preceding calendar
quarter, and a prorated amount of each of the applicable departmental revenue
thresholds determined based on the calendar quarter, or portion thereof, of
the fiscal year for which the calculation is being made, and crediting against
such amount the total Participating Rent previously paid for such fiscal year
and the cumulative Base Rent paid for such fiscal year as of the end of the
preceding calendar quarter. Participating Rent payments during each calendar
quarter will be adjusted at the end of each quarter to reflect actual results.
A final adjustment of the Participating Rent for each fiscal year will be
made, based on audited statements of revenue for each Hotel.

The table below sets forth (i) the annual Base Rent, (ii) Participating Rent
formulas and (iii) the pro forma rent that would have been paid for each
Initial Hotel pursuant to the terms of the Participating Leases based on the
historical revenues for the twelve months ended March 31, 1996, as if the
Company had owned the Initial Hotels and the Participating Leases were in
effect during such twelve-month period and April 1, 1995 was the beginning of
the lease year. For each Initial Hotel, pro forma Participating Rent is
greater than Base Rent.

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<PAGE>

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
MARCH 31, 1996
----------------------------------
(DOLLARS IN THOUSANDS)
PRO FORMA
LEASE PARTICIPATING RENT
EXPIRATION ------------------------
DATE BASE RENT PARTICIPATING PRO FORMA TELEPHONE
(MONTH/ (DOLLARS IN RENT FORMULA TOTAL AND
INITIAL HOTELS YEAR) THOUSANDS) (DOLLARS IN THOUSANDS) REVENUE ROOM F&B OTHER
- -------------- ---------- ----------- --------------------------------- --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AGH PREDECESSOR HOTELS
Holiday Inn Dallas DFW
Airport West
--Bedford, Texas....... 6/08 $ 827 Rooms: 25.0% of first $2,650; $ 4,881 $ 1,332 $ 47 $ 61
60.0% of next $825; 70.0%
thereafter; F&B: 5.0% of first
$905; 10.0% thereafter; Telephone
and Other: 22.5%
Courtyard by Marriott-
Meadowlands(1)
--Secaucus, New 6/08 946 Rooms: 20.0% of first $2,150; 4,525 1,519 0 74
Jersey................. 60.0% of next $1,315; 70.0%
thereafter; Telephone and Other:
25.0%
Hampton Inn Richmond --
Airport 6/08 530 Rooms: 30.0% of first $1,155; 1,962 832 0 34
--Richmond, Virginia... 70.0% thereafter; Telephone and
Other: 30.0%
Hotel Maison de Ville(2)
--New Orleans, 6/08 274 Rooms: 15.0% of first $890; 60.0% 1,881 379 32 12
Louisiana.............. of next $210; 70.0% thereafter;
F&B: 5.0% of first $430; 10.0%
thereafter; Telephone and Other:
15.0%
AGH ACQUISITION HOTELS
Hilton Hotel-Toledo
Toledo, Ohio........... 6/08 832 Rooms: 15.0% of first $2,400; 6,094 1,014 258 64
60.0% of next $650; 70.0%
thereafter; F&B: 7.5% of first
$1,800; 22.5% thereafter;
Telephone and Other: 20.0%
Holiday Inn Dallas DFW
Airport South(3)
--Irving, Texas........ 6/08 2,410 Rooms: 25.0% of first $4,650; 12,070 3,550 466 64
60.0% of next $2,950; 70.0%
thereafter; F&B: 10.0% of first
$2,280; 30.0% thereafter;
Telephone and Other: 12.5%
Holiday Inn New Orleans
International Airport
--Kenner, Louisiana.... 6/08 2,099 Rooms: 25.0% of first $3,050; 8,333 3,163 143 118
65.0% of next $2,350; 75.0%
thereafter; F&B: 7.5% of first
$930; 20.0% thereafter; Telephone
and Other: 25.0%
Days Inn Ocean City(4)
--Ocean City, 6/08 719 Rooms: 30.0% of first $1,025; 2,365 1,183 0 38
Maryland............... 70.0% thereafter; Telephone and
Other: 30.0%
Holiday Inn Select-
Madison(5)(6) 6/08 1,597 Rooms: 25.0% of first $2,250; 7,845 2,390 283 85
--Madison, Wisconsin... 60.0% of next $1,950; 70.0%
thereafter; F&B: 10.0% of first
$1,900; 20.0% thereafter;
Telephone and Other: 25.0%
Holiday Inn Park Center
Plaza(7)(8) 6/08 1,091 Rooms: 20.0% of first $3,600; 7,658 1,785 131 153
--San Jose, 65.0% of next $1,050; 75.0%
California............. thereafter; F&B: 5.0% of first
$1,350; 10.0% thereafter;
Telephone and Other: 30.0%
Fred Harvey Albuquerque
Airport Hotel(9)
--Albuquerque, New 6/08 1,202 Rooms: 25.0% of first $2,560; 6,190 1,760 99 74
Mexico................. 60.0% of next $1,060; 70.0%
thereafter; F&B: 5.0% of first
$1,190; 10.0% thereafter;
Telephone and Other: 25.0%
Le Baron Airport
Hotel(10)(11)--San 6/08 1,323 Rooms: 20.0% of first $3,100; 9,199 2,210 184 231
Jose, California....... 60.0% of next $1,975; 70.0%
thereafter; F&B: 5.0% of first
$2,320; 10.0% thereafter;
Telephone and Other: 30.0%
Holiday Inn Mission
Valley(12)(13) 6/08 1,542 Rooms: 25.0% of first $3,570; 6,662 1,963 73 98
--San Diego, 65.0% of next $900; 75.0%
California............. thereafter; F&B: 5.0% of first
$845; 10.0% thereafter; Telephone
and Other: 25.0%
------- ------- ------- ------ ------
Totals.................. $15,392 $79,665 $23,080 $1,716 $1,106
======= ======= ======= ====== ======
AGH Predecessor Hotels.. $ 2,577 $13,249 $ 4,062 $ 79 $ 181
AGH Acquisition Hotels.. 12,815 66,416 19,018 1,637 925
</TABLE>

See notes on following page.

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<PAGE>

- --------
(dollars in thousands)
(1) If food and beverage revenue exceeds $1,000, Participating Rent will
include 5.0% of total food and beverage revenue.
(2) Room revenue departmental Participating Rent thresholds will increase by
4.0% effective January 1, 1997.
(3) Room revenue departmental Participating Rent thresholds will increase by
2.0% effective January 1, 1997 and by an additional 2.0% effective January
1, 1998.
(4) Effective January 1, 1997, the Participating Rent formula adjusts to the
following: Rooms: 30.0% of first $1,400; 70.0% thereafter; Telephone and
Other: 30.0%. Base Rent will reset effective January 1, 1997 to $800 and
increase annually by the percentage increase in CPI thereafter.
(5) Room revenue departmental Participating Rent thresholds will increase by
3.0% effective January 1, 2000.
(6) Effective January 1, 1997, the Participating Rent formula adjusts to the
following: Rooms: 25.0% of first $2,500; 60.0% of next $2,400; 70.0%
thereafter; F&B: 10.0% of first $2,000; 20.0% thereafter; Telephone and
Other: 30%. Base Rent will reset effective January 1, 1997 to $1,750 and
increase annually by the percentage increase in CPI thereafter.
(7) Effective January 1, 1997, the Participating Rent formula adjusts to the
following: Rooms: 20.0% of first $3,875; 65.0% of next $1,300; 75.0%
thereafter; F&B: 5.0% of first $1,625; 10.0% thereafter; Telephone and
Other: 30.0%. Base Rent will reset effective January 1, 1997 to $1,400 and
increase annually by the percentage increase in CPI thereafter.
(8) Room revenue departmental Participating Rent thresholds will increase by
2.0% effective January 1, 1999 and by an additional 2.0% effective January
1, 2000.
(9) Effective January 1, 1997, the Participating Rent formula adjusts to the
following: Rooms: 25.0% of first $3,350; 60.0% of next $1,400; 70.0%
thereafter; F&B: 5.0% of first $1,350; 10.0% thereafter; Telephone and
Other: 25.0%. Base Rent will reset effective January 1, 1997 to $1,450 and
increase annually by the percentage increase in CPI thereafter.
(10) Effective January 1, 1997, the Participating Rent formula adjusts to the
following: Rooms: 20.0% of first $3,350; 60.0% of next $2,800; 70.0%
thereafter; F&B: 5.0% of first $1,850; 15.0% thereafter; Telephone and
Other: 30.0%. Effective January 1, 1998, the Participating Rent formula
adjusts to the following: Rooms: 20.0% of first $3,950; 60.0% of next
$3,100; 70.0% thereafter; F&B: 5.0% of first $1,950; 15.0% thereafter;
Telephone and Other: 30.0%. Base Rent will reset effective January 1,
1997 to $2,100 and increase annually by the percentage increase in CPI
thereafter.
(11) Room revenue departmental Participating Rent thresholds will increase by
4.0% effective January 1, 1999.
(12) Effective January 1, 1997, the Participating Rent formula adjusts to the
following: Rooms: 25.0% of first $3,825; 65.0% of next $950; 75.0%
thereafter; F&B: 5.0% of first $1,000; 10.0% thereafter; Telephone and
Other: 25.0%. Base Rent will reset effective January 1, 1997 to $1,800
and increase annually by the percentage increase in CPI thereafter.
(13) Room revenue departmental Participating Rent thresholds will increase by
3.0% effective January 1, 1999.

Other than real estate and personal property taxes and assessments, rent
payable under the ground leases, casualty insurance, including loss of income
insurance, capital impositions and capital replacements and refurbishments
(determined in accordance with generally accepted accounting principles),
which are obligations of the Company, the Participating Leases require the
Lessee to pay rent, liability insurance (see "Insurance and Property Taxes and
Assessments"), all costs and expenses and all utility and other charges
incurred in the operation of the Initial Hotels. The Participating Leases also
provide for rent reductions and abatements in the event of damage or
destruction or a partial taking of any Initial Hotel as described under
"Damage to Initial Hotels" and "Condemnation of Initial Hotels."

Lessee Capitalization; Lessee Pledge. The partners of the Lessee have agreed
upon consummation of the Offering to (i) initially capitalize the Lessee with
$500,000 in cash and (ii) pursuant to the Lessee Pledge, pledge 275,000 OP
Units having a value of approximately $4.9 million based on the Offering Price
to the Operating Partnership to secure the Lessee's obligations under the
Participating Leases. OP Units subject to the Lessee Pledge may be released
therefrom without duplication, (a) on a one-for-one basis as the Lessee
acquires OP Units or shares of Common Stock or (b) upon the contribution to
the Lessee of cash or an increase in undistributed

75
<PAGE>

earnings in an amount equal to the then current market value of the OP Units
to be released from the Lessee Pledge.

Distribution Restrictions. Pursuant to the Lessee Distribution Restriction,
the Lessee will not pay any distributions to its partners (except for the
purpose of permitting its partners to pay taxes on the income attributable to
them from the Lessee while it is a limited partnership and except for
distributions relating to interest or dividends received by the Lessee from
cash or securities held by it) or make any other distributions to affiliates
of the Lessee, other than limited amounts relating to Lessee overhead or
pursuant to the Management Agreements, until the Lessee's net worth equals the
greater of (i) $6.0 million or (ii) 17.5% of actual rent payments from hotels
leased to the Lessee during the preceding calendar year (annualized for 1996).
During the period of the Lessee Distribution Restriction, the Lessee will be
required, subject to compliance with applicable securities laws, to purchase
annually Common Stock on the open market or, if any such purchase would
violate the ownership limitations in the Company's Charter, at the option of
the Operating Partnership, OP Units, in an amount equal to the Lessee's cash
flow attributable to the Participating Leases for the preceding fiscal year
(after establishing a reserve for partner tax distributions). For purposes of
calculating the Lessee Distribution Restriction, annual rent payments will be
determined on a calendar year basis and will be annualized for any partial
calendar year. Such amount will establish, in part, the threshold for the
Lessee Distribution Restriction for the following calendar year. If the
Lessee's net worth exceeds the Lessee Distribution Restriction, the Lessee may
make distributions to its partners, provided that, after such distribution,
the Lessee's net worth equals or exceeds the Lessee Distribution Restriction
and provided that at such time there exists no Event of Default (as defined in
the Participating Leases) under the Participating Leases. All interests
acquired by the Lessee may not be sold or transferred for a period of two
years after their acquisition (other than to partners in the Lessee) unless,
following such transfer, the Lessee Distribution Restriction is satisfied.

Subordination of Management Fees. The Lessee will engage AGHI to operate the
Initial Hotels pursuant to the Management Agreements. See "--The Management
Agreements." The Participating Leases provide that effective upon written
notice by the Company of any monetary Event of Default under the Participating
Leases or a default under the FF&E Note, and during the continuance thereof,
no management fees will be made to AGHI with respect to any Initial Hotel. Any
deferred management fee will accrue without interest until any such default
has been cured. In addition, each Management Agreement which the Lessee enters
into must provide that AGHI will repay to the Company any payments made to it
by the Lessee while any such default has occurred and is continuing.

Maintenance and Improvements. The Participating Leases obligate the Company
to establish annually a reserve for capital improvements at each Initial Hotel
(including the periodic replacement or refurbishment of FF&E). The aggregate
amount of such reserves will equal 4.0% of total revenue for each Initial
Hotel (which, on a consolidated pro forma basis for the twelve months ended
March 31, 1996, represented approximately 5.6% of room revenue). Any
unexpended amounts will remain the property of the Company upon termination of
the Participating Leases. Otherwise, the Lessee will be required, at its
expense, to maintain the Initial Hotels in good order and repair, except for
ordinary wear and tear, and to make non-structural, foreseen and unforeseen,
and ordinary and extraordinary, repairs (other than capital repairs) which may
be necessary and appropriate to keep the Initial Hotels in good order and
repair.

The Lessee will not be obligated to bear the cost of any capital
improvements or capital repairs to the Initial Hotels. With the consent of the
Company, however, the Lessee, at its expense, may make capital additions,
modifications or improvements to the Initial Hotels, provided that such action
does not significantly alter their character or purposes and maintains or
enhances the value of the Initial Hotels. All such alterations, replacements
and improvements shall be subject to all the terms and provisions of the
Participating Leases and will become the property of the Company upon
termination of the Participating Leases. The Company will own substantially
all personal property (other than inventory) not affixed to, or deemed a part
of, the real estate or improvements at the Initial Hotels, except to the
extent that ownership of such personal property would cause any portion of the
rents under the Participating Leases not to qualify as "rents from real
property" for REIT income test purposes. See "Federal Income Tax
Considerations--Requirements for Qualification as a REIT--Income Tests" and
"Certain Relationships and Transactions--Sale of Personal Property."

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Insurance and Property Taxes and Assessments. The Company is responsible for
paying for (i) real estate and personal property taxes and assessments at the
Initial Hotels (except to the extent that personal property associated with
the Initial Hotels is owned by the Lessee), (ii) casualty insurance on the
Initial Hotels and (iii) business interruption insurance covering the Base
Rent and Participating Rent. The aggregate real estate and personal property
tax obligations for the Initial Hotels during the twelve months ended March
31, 1996 were approximately $2.2 million. The Lessee is required to pay or
reimburse the Company for all liability insurance on the Initial Hotels, with
extended coverage, including comprehensive general public liability, workers'
compensation and other insurance appropriate and customary for properties
similar to the Initial Hotels and naming the Company as an additional named
insured.

Events of Default. Events of Default under the Participating Leases and the
Lease Master Agreement include, among others, the following:

(i) the failure by the Lessee to pay Base or Participating Rent when due
and the continuation of such failure for a period of ten days after receipt
by the Lessee of notice from the Company;

(ii) the failure by the Lessee to observe or perform any other term of a
Participating Lease or the Lease Master Agreement and the continuation of
such failure for a period of 30 days after receipt by the Lessee of notice
from the Company thereof, unless the Lessee is diligently proceeding to
cure, in which case the cure period will be extended to 180 days;

(iii) if the Lessee shall generally not be paying its debts as they
become due or file a petition for relief or reorganization or arrangement
or any other petition in bankruptcy, for liquidation or to take advantage
of any bankruptcy or insolvency law of any jurisdiction, make a general
assignment for the benefit of its creditors, consent to the appointment of
a custodian, receiver, trustee or other similar officer with respect to it
or any substantial part of its assets, be adjudicated insolvent or take
corporate action for the purpose of any of the foregoing;

(iv) if the Lessee is liquidated or dissolved or commences proceedings to
effect the same, or ceases to do business or sells all or substantially all
of its assets;

(v) if the Lessee voluntarily discontinues operations of an Initial Hotel
for more than three days, except as a result of damage, destruction,
condemnation or force majeure; or

(vi) if an event of default beyond applicable cure periods occurs under
the Franchise License with respect to any Initial Hotel as a result of any
action or failure to act by the Lessee or its agents (including AGHI).

In addition, a default of the type described above will result in a cross-
default of all other Participating Leases to which the Lessee is a party.

Indemnification. Under each of the Participating Leases, the Lessee will
indemnify, and will be obligated to hold harmless, the Company from and
against all liabilities, costs and expenses (including reasonable attorneys'
fees and expenses) incurred by, imposed upon or asserted against the Company
on account of, among other things, (i) any accident or injury to persons or
property on or about the Initial Hotels, including claims under liquor
liability, "dram shop" or similar laws; (ii) any misuse by the Lessee or any
of its agents of the leased property; (iii) any environmental liability
(except to the extent such liability results from a pre-existing condition)
(see "Environmental Matters" below); (iv) taxes and assessments in respect of
the Initial Hotels (other than real estate and personal property taxes and
assessments (other than on property owned by the Lessee) and income taxes of
the Company on income attributable to the Initial Hotels and capital
impositions); (v) any breach of the Participating Leases by the Lessee; or
(vi) any breach of any subleases related to the Initial Hotels, provided,
however, that such indemnification will not be construed to require the Lessee
to indemnify the Company against the Company's own negligent acts or omissions
or willful misconduct.

Assignment and Subleasing. The Lessee will not be permitted to sublet all or
any part of the Initial Hotels or assign its interest under any of the
Participating Leases, other than to an affiliate of the Lessee, without the
prior written consent of the Company. The Company has generally agreed to
consent to any sublease of any portion of any Initial Hotel that sells
alcoholic beverages to the Beverage Corporations or of a retail portion of

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any Initial Hotel (provided such sublease will not cause any portion of the
Rents to fail to qualify as "rents from real property" for REIT income
qualification test purposes). See "Sublease" below. No assignment or
subletting will release the Lessee from any of its obligations under the
Participating Leases.

Damage to Initial Hotels. In the event of damage to or destruction of any
Initial Hotel covered by insurance which then renders the hotel unsuitable for
its intended use and occupancy, the Company may elect not to repair, rebuild
or restore the hotel, in which event the Participating Lease shall terminate,
and the Company generally shall be entitled to retain any proceeds of
insurance related to such damage or destruction. In the event the Company
terminates a Participating Lease under such circumstances, the Company, at its
option, must either (i) pay the Lessee the fair market value of the Lessee's
leasehold interest in the remaining term of the lease (which amount will be
determined by discounting to present value, for each year of the remainder of
the lease term, cash flow attributable to such lease after deducting the cost
component of the applicable management fees, at an annual discount rate of 12%
(for the purposes of such calculation, the annual cash flow for each remaining
year of the lease term shall be equal to the cash flow attributable to such
lease for the twelve months ended on the lease termination date)) or (ii)
offer to lease to the Lessee a substitute hotel on terms that would create a
leasehold interest in such hotel with a fair market value equal to or
exceeding the fair market value of the Lessee's remaining leasehold interest
under the Participating Lease to be terminated.

In the event that damage to or destruction of an Initial Hotel which is
covered by insurance does not render such hotel unsuitable for its intended
use and occupancy as a hotel, the Company or, at the Company's option, the
Lessee, generally will be obligated to repair or restore such hotel. In the
event of material damage to or destruction of any Initial Hotel which is not
covered by insurance, the Company may either repair, rebuild or restore the
hotel (at the Company's expense) to substantially the same condition as
existed immediately prior to such damage or terminate the Participating Lease
without penalty. In the event of non-material damage to an Initial Hotel, the
Company is required to repair, rebuild or restore the hotel at its expense.
During any period required for repair or restoration of any damaged or
destroyed Initial Hotel, rent will be equitably abated.

Condemnation of Initial Hotels. In the event of a total condemnation of an
Initial Hotel, the relevant Participating Lease will terminate with respect to
such hotel as of the date of taking, and the Company and the Lessee will be
entitled to their shares of any condemnation award in accordance with the
provisions of the Participating Lease. In the event of a partial taking which
does not render the hotel unsuitable for the Lessee's use, the Lessee shall
restore the untaken portion of the hotel to a complete architectural unit, and
the Company shall contribute to the cost of such restoration that part of the
condemnation award required for such restoration.

Termination of Participating Leases upon Disposition of the Initial
Hotels. In the event the Company enters into an agreement to sell or otherwise
transfer an Initial Hotel, the Company will have the right to terminate the
Participating Lease with respect to such hotel upon 30 days' prior written
notice upon either (i) paying the Lessee the fair market value of the Lessee's
leasehold interest in the remaining term of the Participating Lease to be
terminated (which amount will be determined by discounting to present value,
for each year of the remainder of the lease term, cash flow attributable to
such lease after deducting the cost component of the applicable management
fees, at an annual discount rate of 12% (for the purposes of such calculation,
the annual cash flow for each remaining year of the lease term shall be equal
to the cash flow attributable to such lease for the twelve months ended on the
lease termination date)) or (ii) offering to lease to the Lessee a substitute
hotel on terms that would create a leasehold interest in such hotel with a
fair market value equal to or exceeding the fair market value of the Lessee's
remaining leasehold interest under the Participating Lease to be terminated.

Termination of Participating Leases upon Change in Tax Laws. In the event
that changes in federal income tax laws allow the Company or a subsidiary or
affiliate to directly operate hotels, the Company will have the right to
terminate all, but not less than all, Participating Leases with the Lessee, in
which event the Company will pay the Lessee the fair market value of the
remaining term of the Participating Leases.

Franchise Licenses. The Company has agreed that the Lessee will be the
licensee under each of the Franchise Licenses on the Initial Hotels. Holiday
Inn, Promus (on behalf of Hampton Inn), Marriott, and Hilton have agreed that
upon the occurrence of certain events of default by the Lessee under a
Franchise License, such franchisors will temporarily transfer the Franchise
License for the hotel to an operator designated by the

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Company and acceptable to such franchisor to allow the new operator time to
apply for a new Franchise License. The Company intends to seek similar
temporary operational rights with respect to new Franchise Licenses that are
expected to be entered into with Wyndham, DoubleTree Hotel and Crowne Plaza.
There can be no assurance the Company will receive such temporary operational
rights in any new Franchise Licenses with such franchisors. See "Franchise
Agreements."

Sublease. In order to facilitate compliance with state and local liquor laws
and regulations, in connection with the acquisition of the Initial Hotels, the
Lessee has agreed to sublease those areas of the Initial Hotels that comprise
the restaurant and other areas where alcoholic beverages are served to the
Beverage Corporations. In accordance with the terms of the Beverage Subleases,
each Beverage Corporation is obligated to pay to the Lessee rent payments
equal to 30% of each such corporation's annual gross revenues generated from
the sale of food and beverages generated from such areas; however, pursuant to
the Participating Leases, such subleases will not reduce the Participating
Rent payments to the Company, which it is entitled to receive from such food
and beverage sales.

Other Lease Covenants. The Lessee has agreed that during the term of the
Participating Leases it will maintain a ratio of total debt to Consolidated
Net Worth (as determined in the Participating Leases) of less than or equal to
50.0%, exclusive of capitalized leases and the FF&E Note. In the event the
Lessee is required to pledge any of its assets to the Company's lenders in
connection with a Company hotel financing, and such assets are subsequently
sold in a foreclosure proceeding, the Lessee will be entitled to be reimbursed
by the Company for the fair market value of such assets.

Inventory. The initial standard inventory of goods and supplies required in
the operation of the hotels will be purchased at the Lessee's expense and
owned by the Lessee. Any inventory used by the Lessee in the operation of each
Initial Hotel shall, upon termination of its Participating Lease, be purchased
by the Company or its designee for its fair market value.

Approval of Managers by Company. The Company will have the right to approve
(which approval will not be unreasonably withheld) the engagement by the
Lessee of any operator of an Initial Hotel other than AGHI or an affiliate of
AGHI. The Company has the right to approve the payment of management fees to
AGHI under the Management Agreements in excess of 3.5% of the gross revenues
at a particular hotel.

THE MANAGEMENT AGREEMENTS

The Lessee will engage AGHI to operate the Initial Hotels pursuant to the
Management Agreements. The following is a summary of the Management Agreements
and certain related agreements:

Management Agreement Terms. The Management Agreements will have initial
twelve-year terms. In the event of the extension or renewal of the term of the
applicable Participating Lease, the Management Agreement will be similarly
extended or renewed.

Management Fees. Each Management Agreement with AGHI requires the Lessee to
pay AGHI a monthly base fee equal to 1.5% of gross revenues, plus an incentive
fee of up to 2.0% of gross revenues. AGHI will be entitled to receive an
incentive fee equal to 0.025% of annual gross revenues for each 0.1% increase
in annual gross revenues over the gross revenues for the preceding twelve-
month period up to the maximum incentive fee. Such incentive fee shall be
payable quarterly and shall be adjusted at the end of each calendar year to
reflect actual results. Every four years the basis upon which the incentive
fee is calculated shall be renegotiated between the Lessee and AGHI. The
payment of the management fees to AGHI by the Lessee is subordinate to the
Lessee's obligations to the Company under the Participating Leases. The
management fees payable during 1996 and 1997, respectively, will be earned
only to the extent that the Lessee's income during each such year from hotels
leased from the Company exceeds the sum of rent payable under the
Participating Leases plus, Lessee overhead expense plus $50,000. Each
Management Agreement requires AGHI to repay to the Lessee within 60 days after
the end of each such year any management fees previously paid but not earned
by AGHI under the Management Agreements. In addition, the Lessee has agreed to
reimburse AGHI at cost for all expenses incurred in supervising capital
improvements to be performed at the hotels out of the capital expenditure
reserve funded by the Company under the Participating Leases. AGHI will be
reimbursed, at the rate of $1,500 per month for

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each full-service hotel and $1,000 per month for each limited-service hotel,
for accounting and financial services performed by AGHI that will be funded by
the Lessee under the Participating Leases. See "The Initial Hotels--The
Participating Leases--Subordination of Management Fees."

Termination of Participating Lease. In the event of a termination of a
Participating Lease for an Initial Hotel, the Management Agreement for such
hotel also will terminate.

Obligation to Purchase Common Stock. Messrs. Jorns and Wiles, who are
stockholders of AGHI and are also executive officers of the Company, will
agree to use 50.0% of the dividends (net of the tax liability attributed to
such dividends) received by them from AGHI that are attributable to AGHI's
earnings from the management of hotels owned by the Company (as determined in
good faith by such officers) to purchase, subject to compliance with
applicable securities laws, annually in the open market, during each of the
twelve years following the closing of the Offering, additional shares of
Common Stock, or, if any such purchase would violate the ownership limitations
in the Company's Charter, at the option of the Operating Partnership, OP
Units.

Certain Transfer Restrictions. The stockholders of AGHI have agreed, for so
long as more than 50.0% of the initial Management Agreements remain in place,
to grant to the Lessee or its designee a right of first refusal to acquire,
under certain circumstances, any stock of AGHI that is proposed to be sold in
a Change of Control Transaction (as defined below). The Lessee has agreed to
assign this right to the Company or its designee. This right will be
subordinate to a right of first refusal in favor of AGHI and the existing
stockholders of AGHI set forth in AGHI's existing stockholders' agreement. For
this purpose, a Change in Control Transaction shall mean a sale of stock in
AGHI that will result in the ability of a person (other than a current
stockholder of AGHI) and his or its controlled Affiliates to elect at least a
majority of the Board of Directors of AGHI. A Change in Control Transaction
does not include (i) an underwritten public offering of common stock of AGHI,
(ii) the transfer of stock to a spouse of an AGHI stockholder, (iii) the
transfer of stock to a trust for the benefit of the spouse and/or children of
an AGHI stockholder, or (iv) the transfer of stock to any corporation or other
entity which a stockholder controls at least 50.0% of the voting interests.
The stockholders of AGHI have also agreed to grant to the Lessee or its
designee, for so long as more than 50.0% of the initial Management Agreements
remain in place, a right of first offer to acquire such stockholders'
interests in AGHI prior to any proposed merger or business combination
transaction involving AGHI that would result in the stockholders of AGHI or
their affiliates holding less than 25.0% of the interests in the surviving
entity. The Lessee has agreed to assign this right to the Company or its
designee.

MORTGAGE INDEBTEDNESS REMAINING FOLLOWING THE OFFERING

A portion of the proceeds of the Offering and the approximately $8.5 million
of initial borrowings under the Line of Credit will be utilized to repay all
mortgage indebtedness which encumbers the Initial Hotels other than the
indebtedness encumbering Holiday Inn Dallas DFW Airport South and the
Courtyard by Marriott-Meadowlands. See "Use of Proceeds."

Following the closing of the Offering, the Holiday Inn Dallas DFW South will
continue to be subject to nonrecourse mortgage indebtedness in the outstanding
principal amount as of March 31, 1996 of $14.2 million (the "DFW South Loan").
The DFW South Loan was entered into on January 30, 1996, bears interest at the
rate of 8.75% per annum and is payable in equal monthly installments of
principal and interest of approximately $125,930 each. The DFW South Loan
matures on January 1, 2011 at which time a balloon payment in the amount of
approximately $6,120,000 will be due and payable. The loan may not be prepaid
in whole or in part until after February 1, 1998 and after such date may only
be prepaid in whole with payment of a yield maintenance premium generally
equal to the discounted present value of all interest payments due between the
prepayment date and maturity of the loan.

Following the closing of the Offering, Courtyard by Marriott-Meadowlands
will continue to be subject to a nonrecourse mortgage indebtedness that
secures two notes in the outstanding principal amounts as of March 31, 1996 of
approximately $4.6 million and $508,500 respectively (the "Secaucus Loans").
The $4.6 million portion of the Secaucus Loans, which was entered into on
December 30, 1993, bears interest at a rate of 7.5% per annum and is payable
in equal monthly installments of principal and interest of approximately
$39,300 each. This portion of the Secaucus Loans matures on January 1, 2001 at
which time a balloon payment in the amount of approximately $3,985,000 will be
due and payable.

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The $508,500 portion of the Secaucus Loans was entered into on January 11,
1996, bears interest at a rate of 7.89% per annum and is payable in equal
monthly installments of principal and interest of approximately $14,750 that
will fully amortize the loan as of January 1, 2001. In connection with the
transfer of the Courtyard by Marriott-Meadowlands hotel to a subsidiary of the
Operating Partnership, the Company has agreed to guarantee to the holder of
the Secaucus Loans payment of rent under the ground lease relating to the
hotel ($150,000 per annum), real estate taxes ($158,000 for the twelve months
ended March 31, 1996) and capital reserves required by the Secaucus Loans (4%
of the gross revenues), and guaranty that, after a default under the Secaucus
Loans, Base Rent from the Participating Lease will be applied to the Secaucus
Loans, in each case until such loans are satisfied or such hotel is
transferred (by foreclosure or otherwise) to the holder of such loans.

In addition, in connection with the closing of the Offering the Company will
borrow approximately $8.5 million under its Line of Credit. Such borrowing
will bear interest at the rate of 1.85% in excess of 30-day LIBOR and will
mature three years after closing of the Offering (subject to a one year
extension under certain circumstances). See "Line of Credit" below.

LINE OF CREDIT

Neither the Company's Bylaws nor its Charter will limit the amount of
indebtedness the Company may incur. To ensure that the Company has sufficient
liquidity to conduct its operations, including funding the acquisition of
additional hotels, making renovations and capital improvements to hotels and
for working capital requirements, the Company has obtained a commitment for
the $100 million Line of Credit. The Line of Credit will be secured by, among
other things, first mortgage liens on all of the Initial Hotels, other than
Holiday Inn Dallas DFW Airport South and Courtyard by Marriott-Meadowlands,
and, in certain circumstances (subject to lender approval under the Line of
Credit), a mortgage lien on any subsequently acquired hotel. While the Company
has maximum borrowing capacity of up to $100 million under the Line of Credit,
the Company's aggregate advances under the Line of Credit are limited to the
lesser of (i) 40% of the aggregate appraised value of the Initial Hotels and
any other hotel securing the Line of Credit after giving effect to the
Company's use of proceeds from any indebtedness towards hotel acquisitions and
certain renovations and capital improvements, (ii) 40% of the aggregate
purchase price of the Initial Hotels and any other hotel acquisitions securing
the Line of Credit after giving effect to the Company's use of proceeds from
any indebtedness towards hotel acquisitions and certain renovations and
capital improvements, and (iii) the combined trailing twelve months EBITDA
(generally defined as net income of the Company before interest expense,
taxes, depreciation and amortization to the extent each reduces net income)
generated by the Initial Hotels and any other hotels securing the Line of
Credit, multiplied by 5.0. In addition, the Line of Credit provides that the
lenders must consent to any development activities by the Company other than
development in connection with the limited expansion of existing hotels. Also,
the Line of Credit lenders must approve the lessee and the franchise brand of
any hotel securing the Line of Credit in the future.

Upon the closing of the Offering, the Company expects to have approximately
$51.5 million of borrowing capacity available under the Line of Credit after
borrowing approximately $8.5 million under the Line of Credit in connection
with the closing of the Offering. The Company expects that the borrowing
capacity under the Line of Credit will increase to approximately $100 million,
assuming all additional borrowings are used to fund capital improvements to
the Initial Hotels or the acquisition of additional hotels. Outside of the
Line of Credit, the Company and its subsidiaries may not incur any additional
debt or recourse obligations, other than the debt for Holiday Inn Dallas DFW
Airport South and Courtyard by Marriott-Meadowlands. The Line of Credit will
have an initial term of three years that is subject to extension under certain
circumstances for an additional one-year term. Borrowings under the Line of
Credit will bear interest at 30-day, 60-day or 90-day LIBOR, at the option of
the Company, plus 1.85% per annum, payable monthly in arrears. Economic
conditions could result in higher interest rates, which could increase debt
service requirements on borrowings under the Line of Credit and which could
reduce the amount of Cash Available for Distribution. See "Risk Factors--Risks
of Leverage; No Limits on Indebtedness." The Company will pay commitment and
other fees of approximately $1.5 million in connection with obtaining the Line
of Credit.

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GROUND LEASES

Four of the Initial Hotels are subject to ground leases with third parties
with respect to the land underlying each such hotel. The ground leases are
triple net leases which require the tenant to pay all expenses of owning and
operating the hotel, including real estate taxes and structural maintenance
and repair.

The Courtyard by Marriott-Meadowlands is subject to a ground lease with
respect to approximately 0.37 acres. The ground lease terminates in March
2036, with two ten-year options to renew. The lease requires a fixed rent
payment equal to $150,000 per year, subject to a 25.0% increase every five
years thereafter beginning in 2001 and a percentage rent payment equal to 3.0%
of gross room revenues.

The Fred Harvey Albuquerque Airport Hotel is subject to a ground lease with
respect to approximately 10 acres. The ground lease terminates in December
2013, with two five-year options to renew. The lease requires a fixed rent
payment equal to $19,180 per year subject to annual consumer price index
adjustment and a percentage rent payment equal to 5.0% of gross room revenues,
3.0% of gross receipts from the sale of alcoholic beverages, 2.0% of gross
receipts from the sale of food and non-alcoholic beverages and 1.0% of gross
receipts from the sale of other merchandise or services. The lease also
provides the landlord with the right, subject to certain conditions, to
require the Company, at its expense, to construct 100 additional hotel rooms
if the occupancy rate at the hotel is 85.0% or more for 24 consecutive months
and to approve any significant renovations scheduled at the hotel. The
occupancy rate at the Fred Harvey Albuquerque Airport Hotel for the twelve
months ended March 31, 1996 was 83.3%. See "Risk Factors--Contingent
Obligation to Construct Additional Hotel Rooms."

The Hilton Hotel-Toledo is subject to a ground lease with respect to
approximately 8.8 acres. The ground lease terminates in June 2026, with four
successive renewal options, each for a ten-year term. The lease requires
annual rent payments equal to $25,000, increasing to $50,000 or $75,000 if
annual gross room revenues exceed $3.5 million or $4.5 million, respectively.

The Le Baron Airport Hotel is subject to a ground sublease with respect to
approximately 5.3 acres, which in turn is subject to a ground lease covering a
larger tract of land. The sublease terminates in 2022, with one 30-year option
to renew. The sublease requires the greater of a fixed minimum annual rent of
$75,945 (increasing to an annual minimum rent of $100,000 if the option is
exercised) or, in the aggregate, 4.0% of gross room revenues, 2.0% of gross
food receipts, and 3.0% of gross bar and miscellaneous operations receipts.
The sublease also provides the sublessor with the right to approve any
significant renovations scheduled at the hotel.

FRANCHISE CONVERSIONS AND OTHER CAPITAL IMPROVEMENTS

The Company expects to spend up to $24.6 million on additional capital
improvements during the twelve months following the completion of the
Offering, in connection with the planned renovation and conversion of the
Holiday Inn Select-Madison, the Holiday Inn Park Center Plaza, the Fred Harvey
Albuquerque Airport Hotel, the Le Baron Airport Hotel, the Days Inn Ocean
City, the Holiday Inn Mission Valley and the Holiday Inn New Orleans
International Airport to new franchise brands. In certain circumstances, such
renovations and improvements are being completed in connection with franchisor
requirements. A description of the renovations and improvements that are
anticipated to occur at each such hotel and their anticipated costs are set
forth under "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Franchise Conversions and Other Capital Improvements."

In addition, the Company expects to spend up to $2.6 million on additional
capital improvements during the twelve months following the completion of the
Offering in connection with certain renovations and improvements that are
anticipated to be made at certain of the Initial Hotels that will not undergo
a conversion of franchise brands. Such improvements include upgrading the
exterior, guest rooms and Holidome public areas at the Holiday Inn Dallas DFW
Airport South, upgrading the guest rooms and public areas at the Hilton Hotel-
Toledo and upgrading the public areas and the restaurant at the Holiday Inn
Dallas DFW Airport West.

FRANCHISE AGREEMENTS

Ten of the Initial Hotels are operated under Franchise Licenses with
nationally recognized hotel companies. The Company anticipates that most of
the additional hotels in which it invests will be operated under Franchise

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Licenses. The Company believes that the public's perception of quality
associated with a franchisor is an important feature in the operation of a
hotel. Franchisors provide a variety of benefits for franchisees, which
include national advertising, publicity, and other marketing programs designed
to increase brand awareness, training of personnel, continuous review of
quality standards, and centralized reservation systems.

The Franchise Licenses generally specify certain management, operating,
recordkeeping, accounting, reporting, and marketing standards and procedures
with which the Lessee must comply. The Franchise Licenses obligate the Lessee
to comply with each franchisor's standards and requirements with respect to
training of operational personnel, safety, maintaining specified insurance,
the types of services and products ancillary to guest room services that may
be provided by the Lessee, display of signage, and the type, quality, and age
of FF&E included in guest rooms, lobbies, and other common areas.

The Franchise Licenses will provide for termination at each franchisor's
option upon the occurrence of certain events, including the Lessee's failure
to pay royalties and fees or perform its other covenants under the respective
license agreement, bankruptcy, abandonment of the franchise, commission of a
felony, assignment of the license without the consent of the franchisor, or
failure to comply with applicable law in the operation of the relevant Initial
Hotel. Certain of the Franchise Licenses require that the Company guarantee
the payment of franchise fees, liquidated damages and termination fees on
behalf of the Lessee. The Lessee will not be entitled to terminate the
Franchise Licenses unless it receives the prior written consent of the
Company. The Franchise
Licenses will not renew automatically upon expiration. The Lessee will be
responsible for making all payments under the Franchise Licenses to the
franchisors. Under the franchise agreements, the Lessee will pay franchise
royalty fees from 2.0% to 5.0% of room revenue.

HILTON(R), HILTON INN(R), AND THE STYLIZED H(R) ARE REGISTERED TRADEMARKS OF
HILTON HOTELS CORPORATION ("HILTON HOTELS"). NEITHER HILTON INNS, INC. NOR
HILTON HOTELS NOR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS OR
EMPLOYEES (COLLECTIVELY, THE "HILTON ENTITIES") SHALL IN ANY WAY BE DEEMED AN
ISSUER OR UNDERWRITER OF THE SHARES OF COMMON STOCK OFFERED HEREBY NOR HAS ANY
OF THE HILTON ENTITIES ENDORSED OR APPROVED THE OFFERING. THE HILTON ENTITIES
HAVE NOT ASSUMED, AND SHALL NOT HAVE, ANY LIABILITY OR RESPONSIBILITY FOR ANY
FINANCIAL STATEMENTS OR OTHER FINANCIAL INFORMATION CONTAINED HEREIN OR ANY
PROSPECTUS OR ANY WRITTEN OR ORAL COMMUNICATIONS REGARDING THE SUBJECT MATTER
HEREOF. A GRANT OF A HILTON FRANCHISE LICENSE FOR CERTAIN OF THE INITIAL
HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR
IMPLIED APPROVAL OR ENDORSEMENT BY ANY OF THE HILTON ENTITIES (OR ANY OF THEIR
AFFILIATES, SUBSIDIARIES, OR DIVISIONS) OF THE COMPANY, THE OPERATING
PARTNERSHIP, THE LESSEE, OR THE COMMON STOCK OFFERED HEREBY.

COURTYARD BY MARRIOTT(R) IS A REGISTERED TRADEMARK OF MARRIOTT
INTERNATIONAL, INC., WHICH HAS NOT ENDORSED OR APPROVED THE OFFERING OR ANY OF
THE FINANCIAL RESULTS OF THE INITIAL HOTELS SET FORTH IN THIS PROSPECTUS. A
GRANT OF A COURTYARD BY MARRIOTT FRANCHISE LICENSE FOR CERTAIN OF THE INITIAL
HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR
IMPLIED APPROVAL OR ENDORSEMENT BY MARRIOTT INTERNATIONAL, INC. (OR ANY OF ITS
AFFILIATES, SUBSIDIARIES, OR DIVISIONS) OF THE COMPANY, THE OPERATING
PARTNERSHIP, THE LESSEE, OR THE COMMON STOCK OFFERED HEREBY.

HOLIDAY INN(R) AND CROWNE PLAZA(R) ARE REGISTERED TRADEMARKS OF AND HOLIDAY
INN SELECT SM IS A REGISTERED SERVICE MARK OF, HOLIDAY INNS FRANCHISING, INC.
("HOLIDAY INNS"). HOLIDAY INNS HAS NOT ENDORSED OR APPROVED THE OFFERING OR
ANY OF THE FINANCIAL RESULTS OF THE INITIAL HOTELS SET FORTH IN THIS
PROSPECTUS NOR DOES HOLIDAY INNS HAVE ANY INTEREST IN THE COMPANY, THE LESSEE,
OR THE COMMON STOCK OFFERED HEREBY, EXCEPT AS A FRANCHISOR. A GRANT OF A
HOLIDAY INN, HOLIDAY INN SELECT, OR CROWNE PLAZA FRANCHISE LICENSE FOR CERTAIN
OF THE INITIAL HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN
EXPRESS OR IMPLIED

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<PAGE>

APPROVAL OR ENDORSEMENT BY HOLIDAY INNS (OR ANY OF ITS AFFILIATES,
SUBSIDIARIES, OR DIVISIONS) OF THE COMPANY, THE OPERATING PARTNERSHIP, THE
LESSEE, OR THE COMMON STOCK OFFERED HEREBY.

HAMPTON INN(R) IS A REGISTERED TRADEMARK OF PROMUS HOTELS, INC. NEITHER
PROMUS HOTELS, INC., ITS PARENT, SUBSIDIARIES, DIVISIONS NOR AFFILIATES HAVE
ENDORSED OR APPROVED THE OFFERING. A GRANT OF A HAMPTON INN LICENSE FOR THE
HOTEL IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR
IMPLIED APPROVAL OR ENDORSEMENT BY PROMUS HOTELS, INC. (OR ANY OF ITS
AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF AMERICAN GENERAL HOSPITALITY
CORPORATION, AMERICAN GENERAL HOSPITALITY OPERATING PARTNERSHIP, L.P., OR THE
COMMON STOCK OFFERED HEREBY.

WYNDHAM GARDEN(R) IS A REGISTERED TRADEMARK AND WYNDHAM(TM) AND THE WYNDHAM
W(TM) LOGO ARE TRADEMARKS OF WYNDHAM IP CORPORATION, A SUBSIDIARY OF WYNDHAM
HOTEL CORPORATION ("WYNDHAM"). NEITHER WYNDHAM NOR ANY OF ITS OFFICERS,
DIRECTORS, AGENTS AND EMPLOYEES SHALL IN ANY WAY BE DEEMED AN ISSUER OR
UNDERWRITER OF THE SHARES OF COMMON STOCK OFFERED HEREBY. A GRANT OF A WYNDHAM
FRANCHISE LICENSE FOR CERTAIN OF THE INITIAL HOTELS IS NOT INTENDED AS, AND
SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY
WYNDHAM (OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY,
THE OPERATING PARTNERSHIP OR THE COMMON STOCK OFFERED HEREBY. WYNDHAM AND ITS
OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES HAVE NOT ASSUMED AND SHALL NOT HAVE
ANY LIABILITY OR RESPONSIBILITY ARISING OUT OF OR RELATED TO THE OFFER OR SALE
OF THE COMMON STOCK OFFERED HEREBY, INCLUDING, WITHOUT LIMITATION, ANY
LIABILITY OR RESPONSIBILITY FOR ANY FINANCIAL STATEMENTS, PROJECTIONS OR OTHER
FINANCIAL INFORMATION CONTAINED IN THIS PROSPECTUS OR ANY WRITTEN OR ORAL
COMMUNICATIONS REGARDING THE SUBJECT MATTER HEREOF.

DAYS INN(R), RAMADA(R) AND RAMADA LIMITED(R) ARE REGISTERED TRADEMARKS OF
HFS INCORPORATED, WHICH HAS NOT ENDORSED OR APPROVED THE OFFERING OR ANY OF
THE FINANCIAL RESULTS OF THE INITIAL HOTELS SET FORTH IN THIS PROSPECTUS. A
GRANT OF A DAYS INN OR A RAMADA FRANCHISE LICENSE FOR CERTAIN OF THE INITIAL
HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR
IMPLIED APPROVAL OR ENDORSEMENT BY HFS INCORPORATED (OR ANY OF ITS AFFILIATES,
SUBSIDIARIES, OR DIVISIONS) OF THE COMPANY, THE OPERATING PARTNERSHIP, THE
LESSEE, OR THE COMMON STOCK OFFERED HEREBY.

DOUBLETREE HOTEL(R) IS A REGISTERED TRADEMARK OF DOUBLETREE WHICH HAS NOT
ENDORSED OR APPROVED THE OFFERING OR ANY OF THE FINANCIAL RESULTS OF THE
INITIAL HOTELS SET FORTH IN THIS PROSPECTUS. A GRANT OF A (FRANCHISE/LICENSE)
FOR CERTAIN OF THE INITIAL HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE
INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY DOUBLETREE
(OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY, THE
OPERATING PARTNERSHIP OR THE COMMON STOCK OFFERED HEREBY.

SMALL LUXURY HOTELS(R) IS A REGISTERED TRADEMARK OF SMALL LUXURY HOTELS OF
THE WORLD LIMITED, WHICH HAS NOT ENDORSED OR APPROVED THE OFFERING OR ANY OF
THE FINANCIAL RESULTS OF THE INITIAL HOTELS SET FORTH IN THIS PROSPECTUS. A
GRANT OF A SMALL LUXURY HOTELS AFFILIATION LICENSE FOR CERTAIN OF THE INITIAL
HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR
IMPLIED APPROVAL OR ENDORSEMENT BY SMALL LUXURY HOTELS OF THE WORLD LIMITED
(OR ANY OF ITS AFFILIATES, SUBSIDIARIES, OR DIVISIONS) OF THE COMPANY, THE
OPERATING PARTNERSHIP, THE LESSEE, OR THE COMMON STOCK OFFERED HEREBY.

All other trademarks appearing in this Prospectus are the property of their
respective holders.

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<PAGE>

EMPLOYEES

The Company will be self-administered and will employ Messrs. Jorns, Wiles,
Barr, Valentine and five additional individuals as well as appropriate support
personnel to manage its 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 who arranges for (or transports for) the disposal or treatment of a
hazardous or toxic substance at a property owned by another may be liable for
the costs of removal or remediation of such substance 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 promptly 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 the Initial
Hotels, the Company, the Operating Partnership, or the Lessee, as the case may
be, may be potentially liable for such costs.

Phase I ESAs have been performed on all of the Initial Hotels by a qualified
independent environmental engineer. The purpose of the Phase I ESAs is to
identify potential sources of contamination for which the Initial Hotels may
be responsible and to assess the status of environmental regulatory
compliance. The Phase I ESAs include historical reviews of the Initial Hotels,
reviews of certain public records, preliminary investigations of the sites and
surrounding properties, screening for the presence of ACMs, polychlorinated
biphenyls ("PCBs"), underground storage tanks, and the preparation and
issuance of a written report. The Phase I ESAs do not include invasive
procedures, such as soil sampling or ground water analysis.

The ESAs have not revealed any environmental liability or compliance
concerns that the Company believes would have a material adverse effect on the
Company's business, assets, results of operation, or liquidity, nor is the
Company aware of any material environmental liability or concerns.
Nevertheless, it is possible that the Phase I ESAs did not reveal all
environmental liabilities or compliance concerns or that material
environmental liabilities or compliance concerns exist of which the Company is
currently unaware. 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 Initial Hotels will not be
affected by the condition of the properties in the vicinity of the Initial
Hotels (such as the presence of leaking underground storage tanks) or by third
parties unrelated to the Operating Partnership or the Company.

In reliance upon the Phase I ESAs, the Company believes the Initial Hotels
are in compliance in all material respects with all federal, state and local
ordinances and regulations regarding hazardous or toxic substances and other
environmental matters. Neither the Company nor, to the knowledge of the
Company, any of the current owners of the Initial Hotels has been notified by
any governmental authority of any material noncompliance, liability or claim
relating to hazardous or toxic substances or other environmental substances in
connection with any of its hotels.

OPTIONS TO PURCHASE AND RIGHTS OF FIRST REFUSAL

Pursuant to the option agreements relating to the Option Hotels (the "Option
Agreements"), the Company will have the option and right of first refusal to
acquire AGHI's (i) 50.0% partnership interest in the Boise, Idaho Option Hotel
and (ii) 16.7% partnership interest in the Durham, North Carolina Option
Hotel. The Option Agreements provide that for a period of two years after the
opening of each such hotel, the Company will have the right to purchase AGHI's
interests in each such hotel at a price equal to AGHI's percentage interest in
such hotel times 110.0% of the cost of developing such hotel (including
mortgage debt) for the first year; during the second year of such options, the
purchase price will be increased by any percentage increase in the CPI. The
purchase price will be payable (i) by taking title to AGHI's interest in such
hotel subject to a pro rata portion of the applicable owning partnership's
debt and (ii) by paying the balance of such purchase price in cash or OP
Units, at the option of AGHI. AGHI may sell its interests in the Option Hotels
free and clear of these options

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prior to the expiration of the two-year option, period provided that it gives
notice to the Company and extends to the Company a right of first refusal to
acquire such interests on the same terms as that of the proposed sale. The
exercise of the option or right of first refusal may require approval of the
partners in the partnerships which own the Option Hotels that are not
affiliated with AGHI, including the approvals of such partners of a
Participating Lease relating to such Option Hotels. AGHI will not seek such
approval until after the Company has exercised its option or rights of first
refusal, and there can be no assurance that such approval will be granted.

COMPETITION

The hotel industry is highly competitive. Each of the Initial Hotels is
located in a developed area that includes other hotel properties. The number
of competitive hotel properties in a particular area could have a material
adverse effect on occupancy, ADR and REVPAR of the Initial Hotels or at hotel
properties acquired in the future.

The Company may be competing for investment opportunities with entities that
have substantially greater financial resources than the Company. These
entities may generally be able to accept more risk than the Company can
prudently manage, including risks with respect to the creditworthiness of a
hotel operator or the geographic proximity of its investments. Competition may
generally reduce the number of suitable investment opportunities offered to
the Company and increase the bargaining power of property owners seeking to
sell. Further, the Company believes competition from entities organized for
purposes substantially similar to the Company's objectives could increase
significantly if the Company is successful. There will be no restriction in
the Participating Leases or the Management Agreements on the Lessee's or
AGHI's ability to lease or manage hotels which may compete with the Company's
hotels. Although not currently anticipated, AGHI and the Lessee may manage or
lease (but may not acquire or develop) hotels that compete with the Company's
hotels.

INSURANCE

The Company will carry comprehensive liability, fire, extended coverage and
business interruption insurance with respect to the Initial Hotels, with
policy specifications, insured limits and deductibles customarily carried for
similar hotels. The Company will carry similar insurance with respect to any
other hotels developed or acquired in the future. There are, however, certain
types of losses (such as losses arising from wars, certain losses arising from
hurricanes, and losses arising from other acts of nature) that are not
generally insured because they are either uninsurable or not economically
insurable. Should an uninsured loss or a loss in excess of insured limits
occur, the Company could lose its capital invested in the affected hotel, as
well as the anticipated future revenues from such hotel, and would continue to
be obligated on any mortgage indebtedness or other obligations related to the
hotel. Any such loss could adversely affect the business of the Company.
Management of the Company believes the Initial Hotels are adequately insured
in accordance with industry practices.

LEGAL PROCEEDINGS

Neither the Company nor the Operating Partnership is currently involved in
any material litigation nor, to the Company's knowledge, is any material
litigation currently threatened against the Company or the Operating
Partnership. AGHI and the Lessee have advised the Company that they currently
are not involved in any material litigation, other than routine litigation
arising in the ordinary course of business, substantially all of which is
expected to be covered by liability insurance. Certain of the current owners
of the Initial Hotels have represented to the Operating Partnership that there
is no material litigation threatened against or affecting the Initial Hotels.

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FORMATION TRANSACTIONS

Set forth below is a description of the principal transactions in connection
with the formation of the Company and the acquisition of the Initial Hotels:

. The Company will sell 7,500,000 shares of Common Stock in the Offering.
All of the net proceeds to the Company from the Offering will be
contributed to AGH GP and AGH LP, which, in turn, will contribute such
proceeds, together with certain other assets acquired from the Plan (as
described below), to the Operating Partnership in exchange for an
approximate 80.2% interest in the Operating Partnership. AGH GP, a wholly
owned subsidiary of the Company, is the sole general partner of the
Operating Partnership and will own a 1.0% interest in the Operating
Partnership. AGH LP, also a wholly owned subsidiary of the Company, will
initially own an approximate 79.2% limited partnership interest in the
Operating Partnership;

. The Company will acquire directly or indirectly a 100.0% interest in each
of the Initial Hotels for an aggregate of 1,896,996 OP Units, 137,008
shares of Common Stock, approximately $91.0 million in cash, and the
assumption of approximately $52.9 million in mortgage indebtedness (of
which amount, approximately $33.5 million will be repaid from the net
proceeds of the Offering), as follows:

. The Operating Partnership will acquire from the Primary Contributors
interests in six of the Initial Hotels (Holiday Inn Dallas DFW
Airport West, Holiday Inn Dallas DFW Airport South, Hotel Maison de
Ville, Hampton Inn Richmond Airport, Courtyard by Marriott-
Meadowlands and Hilton Hotel-Toledo) and the Primary Contributors'
contract right to acquire the Holiday Inn Park Center Plaza in
exchange for 560,178 OP Units (valued at approximately $9.9 million,
based on the Offering Price);

. The Company will acquire from the Plan interests in five of the
Initial Hotels (Hampton Inn Richmond Airport, Holiday Inn Dallas DFW
Airport West, Hotel Maison de Ville, Courtyard by Marriott-
Meadowlands and Hilton Hotel-Toledo) in exchange for 137,008 shares
of Common Stock (valued at approximately $2.4 million, based on the
Offering Price), and the Company will, in turn, contribute such
interests to the Operating Partnership in exchange for 137,008 OP
Units. The Company's executive officers collectively own less than a
5.0% beneficial interest in the Plan; and

. The Operating Partnership will acquire, directly or as assignee of
the Primary Contributors' contract rights, interests in eight of the
Initial Hotels from parties that are unaffiliated with the Primary
Contributors in exchange for an aggregate 1,336,818 OP Units (valued
at approximately $23.7 million, based on the Offering Price) and
approximately $91.0 million in cash.

. The Operating Partnership will reimburse AGHI for approximately $900,000
in direct out-of-pocket expenses incurred in connection with the
acquisition of the Initial Hotels, including legal, environmental and
engineering expenses;

. In order for the Company to qualify as a REIT, the Operating Partnership
will sell certain personal property relating to certain of the Initial
Hotels to the Lessee in exchange for the FF&E Note in the aggregate
principal amount of $315,000 that will be secured by such personal
property;

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. In order to facilitate compliance with state and local liquor laws and
regulations, the Lessee will sublease, pursuant to the Beverage
Subleases, those areas of the Initial Hotels where alcoholic beverages
are served to the Beverage Corporations.

BENEFITS TO THE OFFICERS AND THE PRIMARY CONTRIBUTORS

As a result of the Formation Transactions, officers of the Company and the
Primary Contributors will receive the following benefits:

. Mr. Jorns will receive 89,441 OP Units, Mr. Wiles will receive 26,846 OP
Units, Mr. Barr will receive 10,000 OP Units, Mr. Sowell will receive
256,120 OP Units, Mr. Lewis W. Shaw II will receive 89,441 OP Units, and
Mr. Kenneth W. Shaw will receive 88,330 OP Units, as consideration for
their interests in six of the Initial Hotels and the assignment of the
contract right in respect of one additional Initial Hotel. The OP Units
to be received by Messrs. Jorns, Wiles, Barr, Sowell, Shaw and Shaw
(which are exchangeable for cash, or at the Company's option for Common
Stock, at any time after one year following the completion of the
Offering) will have a value of approximately $1.6 million, $476,516
million, $177,500, $4.5 million, $1.6 million and $1.6 million, based on
the Offering Price, respectively, and will be more liquid than their
interests in the Initial Hotels once a public trading market for the
Common Stock commences. As of March 31, 1996, the aggregate book value of
the interests and rights to be contributed by such persons was
approximately $4.4 million;

. Messrs. Jorns, Wiles, Barr and Valentine will be granted options to
acquire 225,000, 75,000, 40,000 and 20,000 shares of Common Stock,
respectively, at the Offering Price, which become exercisable in four
equal annual installments commencing on the date of grant;

. The Operating Partnership will repay approximately $3.75 million of
indebtedness guaranteed by AGHI;

. Certain tax consequences to the Primary Contributors resulting from the
conveyance of their interests in the Initial Hotels to the Operating
Partnership, will be deferred;

. Through its operation of the Initial Hotels pursuant to the Participating
Leases, the Lessee, which is owned by Messrs. Jorns, Wiles, Barr, Sowell,
Shaw and Shaw, will be entitled to all of the cash flow from the Initial
Hotels after the payment of operating expenses, management fees and rent
under the Participating Leases (which cash flow, after establishing a
reserve for tax distributions to its partners, the Lessee will use
annually, until its net worth equals the greater of (i) $6.0 million or
(ii) 17.5% of actual rent payments from hotels leased to the Lessee
during the preceding calendar year, to purchase interests in the
Company). Pursuant to the Management Agreements, AGHI, which is owned by
Messrs. Jorns, Wiles, Sowell, Shaw and Shaw, will receive management fees
from the Lessee in an amount initially equal to a base fee of 1.5% of
gross revenues plus an incentive fee of up to 2.0% of gross revenues that
will be earned incrementally upon reaching certain gross revenue targets.
The management fees payable to AGHI will be subordinate to the rent
payments due to the Company under the Participating Leases. All unpaid
fees will be deferred without interest until such time that all rent is
paid by the Lessee to the Company; and

. Through its operations of the areas of eleven of the Initial Hotels that
serve alcoholic beverages, the Beverage Corporations, which are wholly
owned by Mr. Jorns, will be entitled to all cash flow from

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food and beverage sales generated from such areas after the payment of
rent to the Lessee equal to 30% of gross revenues from such sales; such
arrangement will not, however, reduce Participating Rent payments to the
Company, which it is entitled to receive from such food and beverage
sales.

VALUATION OF INTERESTS

The valuation of the Company has been determined primarily based upon a
capitalization of the Company's estimated Cash Available for Distribution and
other factors discussed in "Underwriting," rather than on the basis of each
hotel's cost or appraised value.

The purchase prices for the interests to be acquired by the Company from
parties unaffiliated with the Primary Contributors were determined pursuant to
arm's-length negotiations. The allocation of consideration among the Primary
Contributors was determined through negotiation and through the Company's
determination of the percentage of estimated adjusted cash flow that is
required to pay the Company's stockholders a specified initial annual
distribution rate, which rate is based upon prevailing market conditions. The
allocation of consideration among the Primary Contributors, in certain
instances, also was affected by performance-oriented structures contained in
the applicable contributing partnership agreements and reallocations of
benefits to be derived among certain of the contributing partners unrelated to
capitalization rates or market values of the Initial Hotels.

TRANSFER OF INITIAL HOTELS

The Company's interest in the Initial Hotels will be acquired pursuant to
various agreements, the forms of which will be filed as exhibits to the
Registration Statement, of which this Prospectus forms a part. These
acquisitions are subject to all of the terms and conditions of such
agreements. The Company will assume all obligations relating to the Initial
Hotels that may arise after the transfer.

The agreements effecting the transfer of the assets or direct or indirect
interest of the partners and other holders of equity in the entities selling
the Initial Hotels will contain representations and warranties from each such
person concerning title to the interests being transferred and the absence of
liens or other encumbrances thereon. Certain of the Primary Contributors
(collectively, the "Indemnitors") have agreed to make additional
representations with respect to the Company and the Initial Hotels concerning
the operation of such Initial Hotels, environmental matters and other
representations and warranties customarily found in similar documents and also
have agreed to indemnify the Company against breaches of such representations
and warranties. These representations and warranties will survive the closing
of the Offering for a period of one year.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Upon the date of this Prospectus, the Board of Directors will consist of
five members, four of whom will be Independent Directors (as defined in
"Policies and Objectives with Respect to Certain Activities--Conflict of
Interest Policies--Charter and Bylaw Provisions"). The Board of Directors will
be divided into three classes serving staggered three-year terms. Initially,
the Company will have four executive officers and five other officers and
support personnel and appropriate support staff. Certain information regarding
the directors, proposed directors and executive officers of the Company is set
forth below.

<TABLE>
<CAPTION>
CLASS/TERM
NAME POSITION AGE EXPIRATION
---- -------- --- --------------
<S> <C> <C> <C>
Steven D. Jorns......... Chairman of the Board, Chief Executive
Officer, and President 47 Class I/1997
Bruce G. Wiles.......... Executive Vice President 44 --
Kenneth E. Barr......... Executive Vice President, Chief Financial
Officer, Secretary and Treasurer 47 --
Russ C. Valentine....... Senior Vice President--Acquisitions 51 --
H. Cabot Lodge III...... Independent Director 40 Class II/1998
James R. Worms.......... Independent Director 51 Class II/1998
James McCurry........... Independent Director 47 Class III/1999
Kent R. Hance........... Independent Director 54 Class III/1999
</TABLE>

Steven D. Jorns is the founder of and has served since its formation in 1981
as Chairman of the Board, Chief Executive Officer and President of AGHI. Prior
to forming AGHI, Mr. Jorns spent seven years with an affiliate of General
Growth Companies overseeing that company's hotel portfolio. Prior to that, Mr.
Jorns was associated with Hospitality Motor Inns, a division of Standard Oil
of Ohio, and held marketing positions with Holiday Inns, Inc. Mr. Jorns is a
graduate of Oklahoma State University with a degree in Hotel and Restaurant
Administration. He has been honored by that University as one of its
distinguished alumni. He has served on the Hotel and Restaurant Advisory
Boards for two universities and was selected by Lodging Hospitality Magazine
as a "Rising Star" of the Industry in 1992.

Bruce G. Wiles has served since 1989 as an Executive Vice President of AGHI,
where he is responsible for AGHI's acquisition and development activities. Mr.
Wiles has more than fourteen years of experience in the hospitality industry.
Prior to joining AGHI in 1989, Mr. Wiles was a Senior Vice President for
Integra, a Dallas-based, New York Stock Exchange hotel management and
restaurant company. At Integra, his duties included evaluating hotel
acquisitions and overseeing real estate development, as well as the
acquisition and negotiation of all real estate based financing. Prior to
joining Integra in 1986, Mr. Wiles was a founder and President of Bruce G.
Wiles and Associates, Ltd., a real estate development and brokerage concern,
which specialized in hospitality and development transactions. Mr. Wiles
previously served as President of R.W. Pulley and Associates, Ltd., a large
Honolulu-based real estate syndicator and developer of condominiums and
commercial space. Mr. Wiles was also previously associated with KPMG Peat
Marwick and Grant Thornton, serving the real estate development and lending
industries. Mr. Wiles graduated Summa Cum Laude from Georgetown University and
became a Certified Public Accountant in 1973.

Kenneth E. Barr has served since 1994 as a Senior Vice President of AGHI,
where he directs the Accounting and Finance Department. At AGHI, Mr. Barr is
responsible for financial management and controllership functions, including
financial reporting, internal audits, treasury activities, and training
functions. Prior to joining AGHI, Mr. Barr held a senior financial position
with Richfield Hotel Management, Inc., a national hotel management company.
Prior to joining Richfield Hotel Management, Inc. in 1991, Mr. Barr served as
a partner in charge of the audit practice of Laventhol & Horwath in Dallas and
was also a member of that firm's National Audit Advisory Board. Mr. Barr holds
a Bachelor of Business Administration from the University of Oklahoma. He is a
Certified Public Accountant in Texas, Oklahoma and Puerto Rico.

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Russ C. Valentine has served since 1990 as a Senior Vice President--
Acquisitions of AGHI. Prior to joining AGHI, Mr. Valentine was a Principal
with Laventhol & Horwath, in charge of the firm's Dallas and Southwest Real
Estate and Hospitality Consulting Practice. Prior to joining Laventhol &
Horwath in January 1983, Mr. Valentine was a Senior Vice President--
Acquisitions for Prime Financial Partnership, L.P., a real estate and
development company listed on the American Stock Exchange. Mr. Valentine's
responsibilities with Prime Financial included acquisition, negotiation and
financing of hotel and other real estate investments. Mr. Valentine received
his Master of Business Administration degree from the School of Hotel,
Restaurant and Institutional Management at Michigan State University. He also
earned a Master of Arts degree from Wayne State University and a Bachelor of
Arts degree from Louisiana State University.

H. Cabot Lodge III is a co-founder and has served since October 1995 as
Chairman of the Board of Superconducting Core Technologies, Inc., a wireless
telecommunications equipment manufacturer. Prior to September 1995, when he
joined Superconducting Core Technologies, Inc. on a full-time basis, he was a
Managing Director and Executive Vice President of W.P. Carey & Co., a New York
real estate investment bank that specializes in long term net-leases with
corporations and manages in excess of $1.5 billion in assets, nine real estate
public limited partnerships and three real estate investment trusts. Mr. Lodge
is also a principal of Carmel Lodge, LLC, a New York based merchant bank. Mr.
Lodge earned a Bachelor of Arts degree from Harvard College and a Masters of
Business Administration degree from the Harvard Business School. He is a
member of the Board of Directors of TelAmerica Media, Inc., Carey
Institutional Properties, and Corporate Property Associates 12.

James R. Worms has served since August 1995 as a Managing Director of
William E. Simon & Sons L.L.C., a private investment firm and merchant bank
and President of William E. Simon & Sons Realty, through which the firm
conducts its real estate activities. Prior to joining William E. Simon & Sons,
Mr. Worms was employed since March 1987 by Salomon Brothers Inc, an
international investment banking firm, most recently as a managing director.
Mr. Worms received a Bachelor of Arts degree from the University of
California, Los Angeles, a Masters of Business Administration from the
University of California at Los Angeles' Anderson School of Business, and a
Juris Doctor degree from the Hastings College of Law.

James McCurry has served since September 1994 as Chairman of the Board of
NeoStar Retail Group, Inc., a specialty retailer of consumer software whose
shares are quoted on the Nasdaq National Market System. Mr. McCurry is a
former partner of Bain & Company, an international management consulting firm.
Mr. McCurry received a Masters of Business Administration with High
Distinction from Harvard Business School and a Bachelor of Arts with High
Honors from the University of Florida. He is a member of the Board of
Directors of Pacific Sunwear of California, Inc.

Kent R. Hance has been since 1994 a law partner in the firm Hance,
Scarborough, Woodward & Weisbart, L.L.P., Dallas, Texas, and from 1991 to 1994
he was a law partner in the firm of Hance and Gamble. From 1985 to 1987, Mr.
Hance was a law partner with Boyd, Viegal and Hance. Mr. Hance served as a
member of the Texas Railroad Commission from 1987 until 1991 and as its
Chairman from 1989 until 1991. From 1979 to 1985, he served as a member of the
United States Congress. Mr. Hance served as a State Senator in the State of
Texas from 1975 to 1979 and was a professor of business law at Texas Tech
University from 1969 to 1973. Mr. Hance earned a Bachelor of Business
Administration degree from Texas Tech University and a Juris Doctor degree
from the University of Texas Law School.

BOARD OF DIRECTORS AND COMMITTEES

The Company will be managed by a five-member Board of Directors, a majority
of whom will be Independent Directors. The four Independent Directors will
become directors of the Company as of the effective date of this Prospectus.
The Board of Directors will initially have an Audit Committee, a Compensation
Committee and a Leasing Committee.

Audit Committee. Promptly following the completion of the Offering, the
Board of Directors will establish an Audit Committee that will consist
entirely of Independent Directors. The Audit Committee will make

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recommendations concerning the engagement of independent public accountants,
review with the independent public accountants the plans and results of the
audit engagement, approve professional services provided by the independent
public accountants, review the independence of the independent public
accountants, consider the range of audit and non-audit fees, and review the
adequacy of the Company's internal accounting controls.

Compensation Committee. The Board of Directors will establish a Compensation
Committee to determine compensation of the Company's executive officers and
administer the 1996 Plan. The members of the Compensation Committee will
consist entirely of Independent Directors.

Leasing Committee. The Board of Directors will establish a Leasing Committee
that will review not less frequently than annually the Lessee's compliance
with the terms of the Participating Leases and will review and approve the
terms of any new leases between the Company and the Lessee. The Leasing
Committee will consist entirely of Independent Directors.

The Company may from time to time form other committees as circumstances
warrant. Such committees will have authority and responsibility as delegated
by the Board of Directors.

EXECUTIVE COMPENSATION

The Company was incorporated as a Maryland corporation on April 12, 1996.
Accordingly, the Company did not pay any cash compensation to its executive
officers for the year ended December 31, 1995.

EMPLOYMENT AGREEMENTS

The Company will enter into an employment agreement with Mr. Jorns, pursuant
to which Mr. Jorns will serve as Chairman of the Board, Chief Executive
Officer and President of the Company for a term of five years at an initial
annual base compensation of $100,000, subject to any increases in base
compensation approved by the Compensation Committee. In addition, the Company
will enter into employment agreements with Messrs. Wiles, Barr and Valentine,
pursuant to which Mr. Wiles will serve as Executive Vice President, Mr. Barr
will serve as Executive Vice President and Chief Financial Officer and Mr.
Valentine will serve as Senior Vice President--Acquisitions, each for a term
of five years, at an annual base compensation of $90,000, $80,000 and $60,000,
respectively, subject to any increases in base compensation approved by the
Compensation Committee. In addition to base salary, each such Executive
Officer is entitled under his employment agreement to receive annual
performance-based compensation as determined by the Compensation Committee.
Upon termination of an officer's employment agreement other than for cause, or
by such officer for "good reason" (as such term is defined in each officer's
employment agreement), each of such officers will be entitled to receive
severance benefits in an amount equal to the greater of (i) the aggregate of
all compensation due such officer during the balance of the term of the
employment agreement or (ii) 1.99 times the "base amount" as determined in the
Code. In addition, such employment agreements provide for the grant of the
options and the stock awards described under "--Stock Incentive Plans--The
1996 Plan" below.

COMPENSATION OF DIRECTORS

Each director who is not an employee of the Company will be paid an annual
fee of $17,000. In addition, each such director will be paid $750 for
attendance at each meeting of the Company's Board of Directors and $500 for
attendance at each meeting of a committee of the Company's Board of which such
director is a member. The annual retainer fee will be paid to such directors
50.0% in cash and 50.0% in shares of Common Stock. Meeting fees will be paid
in cash. Directors who are employees of the Company will not receive any fees
for their service on the Board of Directors or a committee thereof. In
addition, the Company will reimburse directors for their out-of-pocket
expenses incurred in connection with their service on the Board of Directors.

Upon the effectiveness of the Registration Statement, each non-employee
director will be granted nonqualified options to purchase 10,000 shares of
Common Stock at the Offering Price that will vest in three annual installments
commencing on the date of grant. Any non-employee director who ceases to be a
director

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will forfeit the right to receive any options not previously vested. See "--
Stock Incentive Plans--The Directors' Plan."

STOCK INCENTIVE PLANS

The Board of Directors will adopt, and the Company's stockholders will
approve, the 1996 Plan and the Directors' Plan for the purposes of (i)
attracting and retaining employees, directors, and other service providers
with ability and initiative, (ii) providing incentives to those deemed
important to the success of the Company and related entities, and (iii)
aligning the interests of these individuals with the interests of the Company
and its stockholders through opportunities for increased stock ownership.

The 1996 Plan

Administration. The 1996 Plan will be administered by the Compensation
Committee. The Compensation Committee may delegate certain of its authority to
administer the 1996 Plan. The Compensation Committee may not, however,
delegate its authority with respect to grants and awards to individuals
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). As used in this summary, the term "Administrator" means the
Compensation Committee or its delegate, as appropriate.

Eligibility. Each employee of the Company or of an affiliate of the Company
or any other person whose efforts contribute to the Company's performance,
(other than employees of the Lessee and AGHI who are not also employees of the
Company), including an employee who is a member of the Board, but excluding
non-employee directors of the Company, is eligible to participate in the 1996
Plan. The Administrator will select the individuals who will participate in
the 1996 Plan ("Participants") but no person may participate in the 1996 Plan
while he is a member of the Compensation Committee. The Administrator may,
from time to time, grant stock options, stock awards, incentive awards, or
performance shares to Participants.

Options. Options granted under the 1996 Plan may be incentive stock options
("ISOs") or nonqualified stock options. An option entitles a Participant to
purchase shares of Common Stock from the Company at the option price. The
option price may be paid in cash, with shares of Common Stock, or with a
combination of cash and Common Stock. The option price will be fixed by the
Administrator at the time the option is granted, but the price cannot be less
than 100.0% for existing employees (85.0% in connection with the hiring of new
employees) of the shares' fair market value on the date of grant. The exercise
price of an ISO may not be less than 100.0% of the shares' fair market value
on the date of grant, 110.0% of the fair market value in the case of an ISO
granted to a ten percent stockholder of the Company or of certain affiliates
of the Company. Options may be exercised at such times and subject to such
conditions as may be prescribed by the Administrator but the maximum term of
an option is ten years in the case of an ISO or five years in the case of an
ISO granted to a ten percent stockholder.

ISOs may only be granted to employees of the Company or an affiliate;
however, no employee may be granted ISOs (under the 1996 Plan or any other
plan of the Company or an affiliate) that are first exercisable in a calendar
year for Common Stock having an aggregate fair market value (determined as of
the date the option is granted) exceeding $100,000. In addition, no
Participant may be granted options in any calendar year for more than 250,000
shares of Common Stock.

Stock Awards. Participants also may be awarded shares of Common Stock
pursuant to a stock award. A Participant's rights in a stock award may be
nontransferable or forfeitable or both unless certain conditions prescribed by
the Administrator are satisfied. These conditions may include, for example, a
requirement that the Participant continue employment with the Company for a
specified period or that the Company or the Participant achieve stated,
performance-related objectives. The objectives may be stated with reference to
the fair market value of the Common Stock or the Company's, a subsidiary's, or
an operating unit's return on equity, earnings per share, total earnings,
earnings growth, return on capital, Funds From Operations or return on assets.
A stock award that is not immediately vested and nonforfeitable will be
restricted, in whole or in part, for a period of at

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least three years; provided, however, that the period shall be at least one
year in the case of a stock award that is subject to objectives based on one
or more of the foregoing performance criteria. The maximum number of shares of
Common Stock that may be issued in respect of stock awards granted under the
1996 Plan cannot exceed 50,000 shares of Common Stock.

Incentive Awards. Incentive awards also may be granted under the 1996 Plan.
An incentive award is an opportunity to earn a bonus, payable in cash, upon
attainment of stated performance objectives. The objectives may be stated with
reference to the fair market value of the Common Stock or on the Company's, a
subsidiary's, or an operating unit's return on equity, earnings per share,
total earnings, earnings growth, return on capital, Funds From Operations or
return on assets. The period in which performance will be measured will be at
least one year. No Participant may receive an incentive award payment in any
calendar year that exceeds the lesser of (i) 100.0% of the Participant's base
salary (prior to any salary reduction or deferral election) as of the date of
grant of the incentive award or (ii) $250,000.

Performance Share Awards. The 1996 Plan also provides for the award of
performance shares. A performance share award entitles the Participant to
receive a payment equal to the fair market value of a specified number of
shares of Common Stock if certain standards are met. The Administrator will
prescribe the requirements that must be satisfied before a performance share
award is earned. These conditions may include, for example, a requirement that
the Participant continue employment with the Company for a specified period or
that the Company or the Participant achieve stated, performance-related
objectives. The objectives may be stated with reference to the fair market
value of the Common Stock or on the Company's, a subsidiary's, or an operating
unit's return on equity, earnings per share, total earnings, earnings growth,
return on capital, Funds From Operations or return on assets. To the extent
that performance shares are earned, the obligation may be settled in cash, in
Common Stock, or by a combination of the two. No Participant may be granted
performance shares for more than 12,500 shares of Common Stock in any calendar
year.

Share Authorization. All awards made under the 1996 Plan will be evidenced
by written agreements between the Company and the Participant. A maximum of
900,000 shares of Common Stock may be issued under the 1996 Plan. The share
limitation and the terms of outstanding awards shall be adjusted, as the
Compensation Committee deems appropriate, in the event of a stock dividend,
stock split, combination, reclassification, recapitalization or other similar
event.

Termination and Amendment. No option or stock award may be granted and no
performance shares may be awarded under the 1996 Plan more than ten years
after the earlier of (i) the date that the 1996 Plan is adopted by the Board
or (ii) the date that it is approved by the Company's stockholders. The Board
may amend or terminate the 1996 Plan at any time, but, except as set forth in
the immediately preceding paragraph, an amendment will not become effective
without stockholder approval if the amendment materially (i) increases the
number of shares of Common Stock that may be issued under the 1996 Plan (other
than an adjustment as described above), (ii) changes the eligibility
requirements, or (iii) increases the benefits that may be provided under the
1996 Plan.

Initial Awards. The Board of Directors will approve prior to the Offering
the grant of ISOs and nonqualified options to Messrs. Jorns, Wiles, Barr and
Valentine to purchase up to 225,000, 75,000, 40,000 and 20,000 shares of
Common Stock, respectively. The options granted to Messrs. Jorns, Wiles, Barr
and Valentine will become exercisable in four equal annual installments,
commencing on the date of grant, subject to continued employment through the
applicable vesting date. Both the ISOs and the nonqualified options will be
exercisable for ten years from the date of grant at the fair market value of
the Common Stock on the date of grant. The options will be ISOs to the extent
permitted under the ISO "$100,000 limitation" described above. In addition,
Messrs. Jorns, Wiles, Barr and Valentine will be granted restricted stock
awards with respect to 30,000, 10,000, 6,000 and 4,000 shares of Common Stock,
respectively. The awards vest, subject to continued employment, through the
applicable vesting date, pursuant to a schedule beginning on the date of grant
as follows: 10.0% on the date of grant, 20.0% on each of the first and second
anniversaries and 25.0% on each of the third and fourth

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anniversaries of the date of grant. Prior to vesting, such officers will be
entitled to vote and receive dividends with respect to such restricted shares
of Common Stock.

Transferability. Under the 1996 Plan, Participants may be permitted to
transfer non-qualified stock options to certain family members or trusts for
the benefit of family members, provided the Participant does not receive any
consideration for the transfer. In addition, nonqualified options, incentive
awards and awards of Performance Shares may be transferable to the extent
permitted under Rule 16b-3 promulgated under the Exchange Act.

Certain Federal Income Tax Consequences Relating to Options. In general, a
Participant will not recognize taxable income upon the grant or exercise of an
ISO. However, upon the exercise of an ISO, the excess of the fair market value
of the shares received on the date of exercise over the exercise price of the
shares will be treated as an adjustment to alternative minimum taxable income.
When a Participant disposes of shares acquired by exercise of an ISO, the
Participant's gain (the difference between the sale proceeds and the price
paid by the Participant for the shares) upon the disposition will be taxed as
capital gain, provided the Participant (i) does not dispose of the shares
within two years after the date of grant nor within one year after the date of
exercise, and (ii) exercises the option while an employee of the Company or of
an affiliate of the Company or within three months after termination of
employment for reasons other than death or disability. If the first condition
is not met, the Participant generally will realize ordinary income in the year
of the disqualifying disposition. If the second condition is not met, the
Participant generally will recognize ordinary income upon exercise of the
option.

In general, a Participant who receives a nonqualified stock option will
recognize no income at the time of the grant of the option. Upon exercise of a
nonqualified stock option, a Participant will recognize ordinary income in an
amount equal to the excess of the fair market value of the shares on the date
of exercise over the exercise price of the option. Special timing rules may
apply to a Participant who is subject to Section 16(a) of the Exchange Act.

The employer (either the Company or its affiliate) will be entitled to claim
a federal income tax deduction on account of the exercise of a nonqualified
option. The amount of the deduction will be equal to the ordinary income
recognized by the Participant. The employer will not be entitled to a federal
income tax deduction on account of the grant of any option or the exercise of
an ISO. The employer may claim a federal income tax deduction on account of
certain disqualifying dispositions of Common Stock acquired upon the exercise
of an ISO.

Section 162(m) of the Code places a limitation of $1,000,000 on the amount
of compensation payable to each of the named executive officers that the
Company may deduct for federal income tax purposes. The limit does not apply
to certain performance-based compensation paid under a plan that meets the
requirements of the Code and regulations promulgated thereunder. While the
1996 Plan generally complies with the requirements for performance-based
compensation, options granted at less than 100% of fair market value and stock
awards granted under the 1996 Plan will not satisfy those requirements.

The Directors' Plan

Share Authorization. A maximum of 100,000 shares of Common Stock may be
issued under the Directors' Plan. The share limitation and terms of
outstanding awards shall be adjusted, as the Compensation Committee deems
appropriate, in the event of a stock dividend, stock split, combination,
reclassification, recapitalization or other similar event.

Eligibility. The Directors' Plan provides for the grant of options to
purchase Common Stock and the award of shares of Common Stock to each eligible
director of the Company. No director who is an employee of the Company is
eligible to participate in the Directors' Plan.

Options. The Directors' Plan provides that each eligible director who is a
member of the Board of Directors as of the date that the registration
statement relating to the Offering is declared effective by the SEC will be

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awarded nonqualified options to purchase 10,000 shares of Common Stock on that
date (each such director, a "Founding Director"). Each eligible director who
is not a Founding Director (a "Non-Founding Director") will receive
nonqualified options to purchase 10,000 shares of Common Stock on the date of
the meeting of the Company's stockholders at which the Non-Founding Director
is first elected to the Board of Directors. The options granted to Founding
Directors upon effectiveness of the registration statement relating to the
Offering will have an exercise price equal to the initial public offering
price and will vest in three annual installments (with respect to 3,333, 3,333
and 3,334 shares, respectively) beginning on the date of grant, subject to the
Director's continuous service through such vesting date. The exercise price of
options under future grants will be 100% of the fair market value of the
Common Stock on the date of grant and will vest in the same manner. The
exercise price may be paid in cash, cash equivalents acceptable to the
Compensation Committee, Common Stock or a combination thereof. Options granted
under the Directors' Plan are exercisable for ten years from the date of
grant. Upon termination of service as a director, options which have not
vested are forfeited and vested options may be exercised until they expire.

Certain Federal Income Tax Consequences Relating to Options. Generally, an
eligible director does not recognize any taxable income, and the Company is
not entitled to a deduction upon the grant of an option. Upon the exercise of
an option, the eligible director recognizes ordinary income equal to the
excess of the fair market value of the shares acquired over the option
exercise price, if any. Special rules may apply as a result of Section 16 of
the Exchange Act. The Company is generally entitled to a deduction equal to
the compensation taxable to the eligible director as ordinary income. Eligible
directors may be subject to backup withholding requirements for federal income
tax.

Share Awards. The Directors' Plan also provides for the annual award of
shares of Common Stock to each eligible director ("Director Share Awards").
The number of shares so awarded will be the number of whole share that has a
fair market value most nearly equal to $8,500 (i.e., 50.0% of the annual
retainer fee otherwise payable to the director). No more than 20,000 shares
will be awarded as Director Share Awards during the term of the Directors'
Plan. See "--Compensation of Directors." Such shares will vest immediately
upon grant and will be nonforfeitable. Director Share Awards will be made to
each Founding Director on the date that the registration statement relating to
the Offering is declared effective by the Commission and to each Non-Founding
Director on the date of the meeting of the Company's stockholders at which the
Non-Founding Director is first elected to the Board. Thereafter, Director
Share Awards will be made at the first meeting of the Board of Directors
following the annual meeting of the Company's stockholders.

Amendment and Termination. The Directors' Plan provides that the Board may
amend or terminate the Plan, but the terms of the Plan relating to the amount,
price and timing of awards under the Plan may not be amended more than once
every six months other than to comport with changes in the Code, or the rules
and regulations thereunder. An amendment will not become effective without
stockholder approval if the amendment materially (i) increases the number of
shares that may be issued under the Directors' Plan, (ii) changes the
eligibility requirements, or (iii) increases the benefits that may be provided
under the Directors' Plan. No options may be granted nor Director Shares
Awards made under the Directors' Plan after December 31, 2006.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter of the
Company contains such a provision which eliminates such liability to the
maximum extent permitted by the MGCL.

The Charter of the Company obligates it, to the maximum extent permitted by
Maryland law, to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to any person (or the estate of
any person) who is or was a party to, or is threatened to be made a party to,
any threatened, pending or completed action, suit or proceeding whether or not
by or in the right of the Company, and whether civil,

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criminal, administrative, investigative or otherwise, by reason of the fact
that such person is or was a director or officer of the Company, or is or was
serving at the request of the Company as a director, officer, trustee,
partner, member, agent or employee of another corporation, partnership,
limited liability company, association, joint venture, trust or other
enterprise. The Charter also permits the Company to indemnify and advance
expenses to any person who served a predecessor of the Company in any of the
capacities described above and to any employee or agent of the Company or a
predecessor of the Company.

The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service in those or other capacities unless it is established that (a) the act
or omission of the director or officer was material to the matter giving rise
to the proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services, or (c)
in the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation. In addition, the MGCL requires the Company, as a
condition to advancing expenses, to obtain (a) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the Company as authorized by the
Bylaws and (b) a written statement by or on his behalf to repay the amount
paid or reimbursed by the Company if it shall ultimately be determined that
the standard of conduct was not met.

INDEMNIFICATION AGREEMENTS

The Company will enter into indemnification agreements with each of its
executive officers and directors. The indemnification agreements will require,
among other matters, that the Company indemnify its executive officers and
directors to the fullest extent permitted by law and advance to the executive
officers and directors all related expenses, subject to reimbursement if it is
subsequently determined that indemnification is not permitted. Under the
agreements, the Company must also indemnify and advance all expenses incurred
by executive officers and directors seeking to enforce their rights under the
indemnification agreements and may cover executive officers and directors
under the Company's directors' and officers' liability insurance. Although the
form of indemnification agreement offers substantially the same scope of
coverage afforded by law, it provides greater assurance to directors and
executive officers that indemnification will be available, because, as a
contract, it cannot be modified unilaterally in the future by the Board of
Directors or the stockholders to eliminate the rights it provides.

CERTAIN RELATIONSHIPS AND TRANSACTIONS

RELATIONSHIPS AMONG OFFICERS AND DIRECTORS

Mr. Jorns is an executive officer, director and securityholder of each of
the Company, the Lessee, AGHI and the Beverage Corporations. Mr. Wiles is an
executive officer and stockholder of the Company and is an executive officer,
director and securityholder of each of the Lessee and AGHI. Mr. Barr is an
executive officer and stockholder of the Company, an executive officer and
securityholder of the Lessee and an executive officer of AGHI. Mr. Valentine
is an executive officer and stockholder of the Company and is an executive
officer of AGHI.

ACQUISITION OF INTERESTS IN CERTAIN OF THE INITIAL HOTELS

One or more of Messrs. Jorns, Wiles and Barr and their respective affiliates
own equity interests or contract rights relating to certain of the Initial
Hotels. Such persons and affiliates will receive an aggregate of 126,287

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OP Units in exchange for such interests in these Initial Hotels. Upon exercise
of their rights to exchange such OP Units (which rights are not exercisable
until one year after the closing of the Offering), such persons and entities
may receive cash in the amount of approximately $2.2 million based on the
Offering Price or, at the Company's option, an aggregate of 126,287 shares of
Common Stock. See "Partnership Agreement--Exchange Rights." In addition, the
Operating Partnership will reimburse AGHI for approximately $900,000 in direct
out-of-pocket expenses incurred in connection with the acquisition of the
Initial Hotels. Also, the Operating Partnership will repay approximately $3.75
million of indebtedness guaranteed by AGHI. For a discussion of the
consideration to be received by Messrs. Jorns, Wiles and Barr and their
affiliates in connection with the Operating Partnership's acquisition of the
Initial Hotels and the formation of the Company, see "Formation Transactions."

SHARED SERVICES AND OFFICE SPACE AGREEMENT

Effective upon completion of the Offering, the Company will enter into a
sublease and services agreement with AGHI pursuant to which AGHI will provide
the Company with office space and limited support personnel for the Company's
headquarters at 3860 West Northwest Highway, Dallas, Texas 75220 for an annual
fee of approximately $103,000.

OPTIONS TO PURCHASE AND RIGHTS OF FIRST REFUSAL

Pursuant to the Option Agreements, the Company will have the option and
right of first refusal to acquire AGHI's (i) 50.0% partnership interest in the
Boise, Idaho Option Hotel, and (ii) 16.7% partnership interest in the Durham,
North Carolina Option Hotel. The Option Agreements provide that for a period
of two years after the opening of each such hotel, the Company will have the
right to purchase AGHI's interests in each such hotel at a price equal to
AGHI's percentage interest in such hotel times 110% of the cost of developing
such hotel (including mortgage debt) for the first year; during the second
year of such option, the purchase price will be increased by any percentage
increase in the CPI. The purchase price will be payable (i) by taking title to
AGHI's interest in such hotels subject to a pro rata portion of the applicable
owning partnership's debt and (ii) by paying the balance of such purchase
price in cash or OP Units, at the option of AGHI. AGHI may sell its interests
in the Option Hotels free and clear of these options prior to the expiration
of the two-year option period, provided that it gives notice to the Company
and extends to the Company a right of first refusal to acquire such interests
on the same terms as that of the proposed sale. The exercise of the option or
right of first refusal may require approval of the partners in the
partnerships which own the Option Hotels that are not affiliated with AGHI,
including the approval by such partners of a Participating Lease relating to
such Option Hotels. AGHI will not seek such approval until after the Company
has exercised its option or right of first refusal, and there can be no
assurance that such approval will be granted.

EMPLOYMENT AGREEMENTS AND STOCK INCENTIVE PLANS

The Company will enter into an employment agreement with Mr. Jorns, pursuant
to which Mr. Jorns will serve as Chairman, Chief Executive Officer, and
President of the Company for a term of five years at an initial annual base
compensation of $100,000, subject to any increases in base compensation
approved by the Compensation Committee. In addition, the Company will enter
into employment agreements with Messrs. Wiles, Barr and Valentine, pursuant to
which Mr. Wiles will serve as Executive Vice President, Mr. Barr will serve as
Executive Vice President and Chief Financial Officer and Mr. Valentine will
serve as Senior Vice President--Acquisitions, each for a term of five years,
at an annual base compensation of $90,000, $80,000 and $60,000, respectively,
subject to any increases in base compensation approved by the Compensation
Committee. In addition to base salary, each such executive officer is entitled
under his employment agreement to receive annual performance-based
compensation as determined by the Compensation Committee. Upon termination of
such employment agreements other than for cause, or by such officer for "good
reason" (as such term is defined in each officer's employment agreement), each
of such officers will be entitled to receive severance benefits in an amount
equal to the greater of (i) the aggregate of all compensation due such officer
during the balance of the term of the employment agreement or (ii) 1.99 times
the "base amount" as determined in the Code. In addition,

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such employment agreements provide for the grant of options to Messrs. Jorns,
Wiles, Barr and Valentine to purchase up to 225,000, 75,000, 40,000 and 20,000
shares of Common Stock, respectively, which will become exercisable in four
equal annual installments, commencing on the date of the grant. The employment
agreements also provide for the grant of stock awards to Messrs. Jorns, Wiles,
Barr and Valentine with respect to 30,000, 10,000, 6,000 and 4,000 shares of
restricted Common Stock, respectively, which vest over a four-year period
commencing on the date of grant. See "Management--Stock Incentive Plans--The
1996 Plan."

PURCHASE OF PERSONAL PROPERTY

In order for the Company to qualify as a REIT, the Operating Partnership
will sell certain personal property relating to certain of the Initial Hotels
to the Lessee for $315,000, which amount will be paid by issuing the FF&E Note
to the Operating Partnership. The FF&E Note is recourse to the Lessee and
bears interest at the rate of 10.0% per annum and requires the payment of
quarterly installments of principal and interest of approximately $20,000 that
will fully amortize the FF&E Note over a five-year period.

THE PARTICIPATING LEASES

The Company and the Lessee will enter into the Participating Leases, each
with a term of twelve years, relating to the Initial Hotels. The Company
anticipates that a similar Participating Lease will be entered into with
respect to any additional hotel properties acquired by the Company in the
future. See "The Initial Hotels--The Participating Leases." Pursuant to the
terms of the Participating Leases, the Lessee is required to pay the greater
of Base Rent or Percentage Rent and certain other additional charges and is
entitled to all profits from the operation of the Initial Hotels after the
payment of operating and other expenses. See "Selected Financial Information--
The Lessee." In addition, the Company will enter into a Lease Master Agreement
which will set forth the terms of the Lessee Pledge and certain other matters.

THE MANAGEMENT AGREEMENTS

The Lessee and AGHI will enter into the Management Agreements, each with a
term of twelve years, relating to the management of the Initial Hotels. The
Company anticipates that a similar Management Agreement will be entered into
with respect to any hotel properties leased by the Company to the Lessee in
the future. Pursuant to the Management Agreements, AGHI is entitled to receive
a base fee of 1.5% of gross revenues, plus an incentive fee of up to 2.0% of
gross revenues based on the hotels achieving certain increases in revenue. The
payment of management fees to AGHI by the Lessee is subordinate to the
Lessee's obligations to the Company under the Participating Leases. See "The
Initial Hotels--The Management Agreements."

THE BEVERAGE CORPORATIONS

In order to facilitate compliance with state and local liquor laws and
regulations, in connection with the acquisition of the Initial Hotels, the
Lessee has agreed to sublease those areas of the Initial Hotels that comprise
the restaurant and other areas where alcoholic beverages are served to the
Beverage Corporations, eleven of which are wholly owned by Mr. Jorns. In
accordance with the terms of the Beverage Subleases, each Beverage Corporation
is obligated to pay to the Lessee rent payments equal to 30% of each such
corporation's annual gross revenues generated from the sale of food and
beverages generated from such areas; however, pursuant to the Participating
Leases, such subleases will not reduce the Participating Rent payments to the
Company, which it is entitled to receive from such food and beverage sales.

AGHI AND THE LESSEE

American General Hospitality, Inc.

AGHI, based in Dallas, Texas, was founded in 1981 by Mr. Jorns, the
Company's Chairman of the Board, Chief Executive Officer and President. AGHI
has experienced significant growth over the last five years as its management
portfolio increased from 39 hotels with more than 5,200 guest rooms under
management at December 31, 1990, to 74 hotels with more than 13,865 guest
rooms under management at March 31, 1996. For the twelve months ended March
31, 1996, the hotels managed by AGHI generated revenues in excess of $275

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million. According to Hotel & Motel Management, a leading hotel trade
publication, AGHI was the nation's fourth largest independent hotel management
company in 1995, based upon number of hotels under management. AGHI has a
national presence, with operating experience in 40 states, involving 212
different hotels. AGHI has developed six hotels from the ground up and is
currently developing two other hotels for which the Company has limited
purchase options. See "The Initial Hotels--Options to Purchase and Rights of
First Refusal." These hotels include four Hampton Inns, two Courtyards by
Marriott, one Holiday Inn, and one Embassy Suites. AGHI has in the past
acquired fifteen hotels, containing a total of 2,638 guest rooms, under
various franchises and affiliations, including Hilton, Courtyard by Marriott,
Embassy Suites, Holiday Inn, Hampton Inn, and Days Hotel as well as the
prestigious Small Luxury Hotels(R) affiliation. In addition, AGHI has been
involved in the repositioning and redevelopment of approximately 70 hotels
that operated under various national franchise brands. The operations of AGHI
are fully integrated with capabilities in all phases of acquisition,
development, and management of hotel properties. As of March 31, 1996, AGHI
had approximately 6,000 employees.

The Company believes that it will benefit significantly from the hotel
management experience of AGHI. AGHI will manage all of the Initial Hotels and
is expected to be retained by the Lessee as manager of any additional hotels
acquired by the Company and leased to the Lessee. Management expects that the
Company also will benefit from AGHI's significant historical operating
experience during various economic cycles.

AGHI has significant relationships with major hotel franchisors including
Hilton, Marriott, Wyndham Hotels, DoubleTree Hotels, Holiday Inn, Sheraton,
Promus Hotels(R), Radisson(R), the Choice Hotels family of brands and the HFS
Incorporated family of brands. The Company believes that these relationships
will enhance the Company's ability to evaluate hotel brand affiliations
without restrictive ties to any one franchisor's brands. Pursuant to the terms
of the Management Agreements, and for so long as AGHI is managing hotels for
the benefit of the Company, AGHI has agreed to limit its business activities
to managing and operating Company-owned hotels and hotels owned by third
parties. See "The Initial Hotels--The Management Agreements." Except for two
hotels currently under development, for which the Company has purchase options
on AGHI's interests in such hotels, and one hotel which is currently held for
sale, AGHI's activities will be limited to managing and operating Company-
owned hotels and hotels owned by third parties. See "The Initial Hotels--
Options to Purchase and Rights of First Refusal."

The Lessee will contract with AGHI to manage the Initial Hotels under an
incentive compensation structure (as described below). Messrs. Jorns and
Wiles, two executive officers of the Company, own collectively approximately
21.0% of AGHI. The remaining interests in AGHI are owned by Messrs. Sowell
(47.5%), Shaw and Shaw (collectively, 31.5%).

AGH Leasing, L.P.

The Company will lease each Initial Hotel to the Lessee pursuant to a
separate Participating Lease and, while not legally obligated to do so,
expects to lease additional hotels that may be acquired or developed by the
Company to the Lessee. Messrs. Jorns, Wiles and Barr, all executive officers
of the Company, own collectively approximately 23.0% of the Lessee. The
remaining interests in the Lessee are owned by Messrs. Sowell, Shaw and Shaw.
Each Participating Lease will have a term of twelve years, subject to earlier
termination upon the occurrence of certain events. Under the Participating
Leases, the Lessee will be obligated to make fixed monthly Base Rent payments
to the Company and quarterly Participating Rent payments to the Company. See
"The Initial Hotels--The Participating Leases--Lessee Capitalization; Lessee
Pledge."

The Lessee is also required to provide to the Company monthly financial and
operating information about each of the Initial Hotels, quarterly unaudited
and annual audited financial statements of the Lessee, and any other
information material to the Lessee's continuing ability to perform its
obligations under the Participating Leases. The Company will include this
information in its periodic reports filed with the Securities and Exchange
Commission (the "Commission") under the Exchange Act.

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Certain Terms of the Participating Leases, the Management Agreements and
Certain Related Agreements

In an effort to align the interests of AGHI and the Lessee with the
interests of the Company's stockholders, the Participating Leases, the
Management Agreements and certain related agreements provide for the
following:

. the partners of the Lessee have agreed upon consummation of the Offering
to (i) initially capitalize the Lessee with $500,000 in cash and (ii)
pursuant to the Lessee Pledge, pledge 275,000 OP Units having a value of
approximately $4.9 million, based on the Offering Price, to the Company
to secure the Lessee's obligations under the Participating Leases; OP
Units subject to the Lessee Pledge may be released therefrom without
duplication (a) on a one-for-one basis as the Lessee acquires OP Units or
shares of Common Stock or (b) upon the contribution to the Lessee of cash
or an increase in undistributed earnings in an amount equal to the then
current market value of the OP Units released from the Lessee Pledge;

. until the Lessee's net worth equals the Lessee Distribution Restriction
(the greater of (i) $6.0 million and (ii) 17.5% of actual rent payments
from hotels leased to the Lessee during the preceding calendar year
(annualized for 1996), the Lessee will not pay any distributions to its
partners (except for the purpose of permitting its partners to pay taxes
on the income attributable to them from the operations of the Lessee
while it is a limited partnership and except for distributions relating
to interest or dividends received by the Lessee from cash or securities
held by it) and will be required during this period, subject to
compliance with applicable securities laws, to use its cash flow
attributable to the Participating Leases (after establishing a reserve
for partner tax distributions) to purchase interests in the Company,
which interests may not be sold or transferred for a period of two years
after their acquisition (other than to partners in the Lessee if,
following such transfer, the Lessee Distribution Restriction is
satisfied);

. management fees paid to AGHI by the Lessee under the Management
Agreements will be performance based with a base fee equal to 1.5% of
gross revenues plus an incentive fee of up to 2.0% of gross revenues that
will be earned incrementally upon reaching certain gross revenue targets;

. base and incentive management fees payable by the Lessee to AGHI will be
subordinated to the Lessee's rent obligations to the Company under the
Participating Leases;

. monetary and certain other defaults by the Lessee under each
Participating Lease will result in a cross-default of all other
Participating Leases to which the Lessee is a party;

. Messrs. Jorns and Wiles, who are stockholders of AGHI and are also
executive officers of the Company, will agree to use 50% of the dividends
(net of the tax liability attributed to such dividends) received by them
from AGHI that are attributable to AGHI's earnings from the management of
hotels owned by the Company (as determined in good faith by such
officers) to purchase, subject to compliance with applicable securities
laws, additional interests in the Company during each of the twelve years
following the closing of the Offering;

. each Participating Lease provides that the failure on the part of the
Lessee to materially comply with the terms of a Participating Lease would
give the Company the right to terminate such lease, repossess the
applicable hotel and enforce the payment obligations under the lease;

. AGHI will establish bonus eligibility criteria for its officers and
employees that are keyed to the amount of incentive fees AGHI earns under
the Management Agreements; in addition, subject to applicable securities
laws limitations, 25.0% of such bonuses, if earned, will be paid by AGHI
to its senior executives in interests in the Company; and

. the Board of Directors will establish a Leasing Committee, consisting
entirely of Independent Directors, that will review not less frequently
than annually the Lessee's compliance with the terms of the Participating
Leases and will review and approve the terms of each new Participating
Lease between the Company and the Lessee.

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock immediately following completion of the
Formation Transactions by (i) each director of the Company, (ii) each
executive officer of the Company, (iii) by all directors and executive
officers of the Company as a group, and (iv) by persons who own more than 5.0%
of the shares of Common Stock. Except as otherwise described below, all shares
are owned directly and the indicated person has sole voting and investment
power. The number of shares of Common Stock includes the number of shares of
Common Stock that such person could receive if he or it exchanged his or its
OP Units for shares of Common Stock under certain circumstances.

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS(1)
------------------------ --------------------- ----------
<S> <C> <C>
Kenneth E. Barr(2) .......................................... 24,079 *
Corporate Property Associates 4, a California Limited
Partnership(3).............................................. 427,008 5.26%
Corporate Property Associates 8, L.P.(4)..................... 493,664 6.03%
Kent R. Hance(5)............................................. 3,333 *
Steven D. Jorns(6) .......................................... 166,608 2.12%
H. Cabot Lodge III(5) ....................................... 3,333 *
James McCurry(5) ............................................ 3,333 *
Russ C. Valentine(7) ........................................ 9,840 *
Bruce G. Wiles(8) ........................................... 54,198 *
James R. Worms(5) ........................................... 3,333 *
Executive officers and directors as a group (8 persons) ..... 268,057 3.37%
</TABLE>
- --------
* Represents less than 1.0% of the class.
(1) Assumes that all OP Units held by each named person are exchanged for
shares of Common Stock. The total number of shares outstanding used in
calculating the percentage assumes that none of the OP Units held by other
persons are exchanged for shares of Common Stock. Pursuant to the Exchange
Agreement, OP Units are not exchangeable for shares of Common Stock until
the first anniversary date of the closing of the Offering.
(2) Includes options to purchase 8,000 shares of Common Stock at the Offering
Price, which will become exercisable upon the date of grant and 6,000
shares of restricted Common Stock that constitute stock awards. Includes
79 shares of Common Stock held by the Plan and attributable to Mr. Barr.
Includes 10,000 OP Units to be issued to Mr. Barr in the Formation
Transactions.
(3) The business address of Corporate Property Associates 4, a California
Limited Partnership is c/o W.P. Carey & Co., Inc., 50 Rockefeller Plaza,
New York, New York 10029.
(4) The business address of Corporate Property Associates 8, L.P. is c/o W.P.
Carey & Co., Inc., 50 Rockefeller Plaza, New York, New York 10029.
(5) Includes options to purchase 3,333 shares of Common Stock at the Offering
Price, which will become exercisable upon the date of grant.
(6) Includes options to purchase 45,000 shares of Common Stock at the Offering
Price, which will become exercisable upon the date of grant and 30,000
shares of restricted Common Stock that constitute stock awards. Includes
70,337 OP Units to be issued to Mr. Jorns in the Formation Transactions,
19,104 OP Units to be issued to Mr. Jorns' wife in the Formation
Transactions and 2,167 shares of Common Stock held by the Plan and
attributable to Mr. Jorns.
(7) Includes options to purchase 4,000 shares of Common Stock at the Offering
Price, which will become exercisable upon the date of grant and 4,000
shares of restricted Common Stock that constitute stock awards. Includes
1,840 shares of Common Stock held by the Plan and attributable to Mr.
Valentine.
(8) Includes options to purchase 15,000 shares of Common Stock at the Offering
Price, which will become exercisable upon the date of grant and 10,000
shares of restricted Common Stock that constitute stock awards. Includes
2,352 shares of Common Stock held by the Plan and attributable to Mr.
Wiles. Includes 26,846 OP Units to be issued to Mr. Wiles in the Formation
Transactions.

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DESCRIPTION OF CAPITAL STOCK

The following summary description of (i) the stock of the Company and (ii)
certain provisions of Maryland law and of the Charter and Bylaws of the
Company is subject to and qualified in its entirety by reference to Maryland
law described herein, and to the Charter and Bylaws of the Company which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part.

GENERAL

Under its Charter, the Company has the authority to issue 100,000,000 shares
of Common Stock, $0.01 par value per share. Under Maryland law, stockholders
generally are not liable for a corporation's debts or obligations.

COMMON STOCK

All shares of Common Stock offered hereby will be duly authorized, fully
paid and nonassessable. Subject to the preferential rights of any other class
or series of stock, holders of shares of Common Stock are entitled to receive
dividends on such stock if, as and when authorized and declared by the Board
of Directors of the Company out of assets legally available therefor and to
share ratably in the assets of the Company legally available for distribution
to its stockholders in the event of its liquidation, dissolution or winding up
after payment of or adequate provision for all known debts and liabilities of
the Company.

Each outstanding share of Common Stock entitles the holder to one vote on
all matters submitted to a vote of stockholders, including the election of
directors and, except as provided with respect to any other class or series of
stock, the holders of such shares will possess the exclusive voting power.
There is no cumulative voting in the election of directors, which means that
the holders of a majority of the outstanding shares of Common Stock can elect
all of the directors then standing for election and the holders of the
remaining shares will not be able to elect any directors.

Holders of shares of Common Stock have no preference, conversion, exchange,
sinking fund, or redemption rights and have no preemptive rights to subscribe
for any securities of the Company. Shares of Common Stock will have equal
dividend, liquidation and other rights.

Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be
cast on the matter) is set forth in the corporation's charter. The Charter
provides that, with the exception of certain amendments to the Charter, the
affirmative vote of holders of shares entitled to cast a majority of all votes
entitled to be cast on such matters will be sufficient to approve the
aforementioned transactions.

POWER TO ISSUE ADDITIONAL SHARES OF COMMON STOCK

The Company believes that the power of the Board of Directors to issue
additional authorized but unissued shares of Common Stock will provide the
Company with increased flexibility in structuring possible future financings
and acquisitions and in meeting other needs which might arise. The additional
shares of Common Stock will be available for issuance without further action
by the Company's stockholders, unless such action is required by applicable
law or the rules of any stock exchange or automated quotation system on which
the Company's securities may be listed or traded.

RESTRICTIONS ON TRANSFER

For the Company to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares of stock.
Specifically, not more than 50.0% in value of the Company's

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outstanding shares of stock may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year, and the Company must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of twelve
months or during a proportionate part of a shorter taxable year. Those two
requirements do not apply until after the first taxable year for which the
Company makes an election to be taxed as a REIT. See "Federal Income Tax
Considerations--Requirements for Qualification as a REIT." In addition, the
Company must meet certain requirements regarding the nature of its gross
income in order to qualify as a REIT. One such requirement is that at least
75.0% of the Company's gross income for each calendar year must consist of
rents from real property and income from certain other real property
investments. The rents received by the Operating Partnership and the
Subsidiary Partnerships from the Lessee will not qualify as rents from real
property, which could result in loss of REIT status for the Company, if the
Company owns, actually or constructively, 10.0% or more of the ownership
interests in the Lessee, within the meaning of section 856(d)(2)(B) of the
Code. See "Federal Income Tax Considerations--Requirements for Qualification
as a REIT--Income Tests."

Because the Board of Directors believes it is essential for the Company to
continue to qualify as a REIT, the Charter, subject to certain exceptions
described below, will provide pursuant to the Ownership Limitation that no
person may own, or be deemed to own by virtue of the attribution provisions of
the Code, more than 9.8% of the outstanding shares of any class of Common
Stock (subject to the Look-Through Ownership Limitation applicable to certain
stockholders, as described below). Any transfer of Common Stock that would (i)
result in any person owning, directly or indirectly, Common Stock in excess of
the Ownership Limitation (or the Look-Through Ownership Limitation, if
applicable), (ii) result in Common Stock being owned by fewer than 100 persons
(determined without reference to any rules or attribution), (iii) result in
the Company being "closely held" within the meaning of section 856(h) of the
Code, or (iv) cause the Company to own, actually or constructively, 9.9% or
more of the ownership interests in a tenant of the Company's, the Operating
Partnership's or a Subsidiary Partnership's real property, within the meaning
of section 856(d)(2)(B) of the Code, will be void ab initio, and the intended
transferee will acquire no rights in such shares of Common Stock.

Certain types of entities, such as pension trusts qualifying under section
401(a) of the Code, mutual funds qualifying as regulated investment companies
under section 851 of the Code, and corporations, will be looked through for
purposes of the "closely held" test in section 856(h) of the Code. Subject to
certain limited exceptions, the Charter will allow such an entity under the
Look-Through Ownership Limitation to own up to 15.0% of the shares of any
class or series of the Company's stock, provided that such ownership does not
cause any beneficial owner of such entity to exceed the Ownership Limitation
or otherwise result in a violation of the tests described in clauses (ii),
(iii) and (iv) of the preceding paragraph.

Subject to certain exceptions described below, any purported transfer of
Common Stock that would (i) result in any person owning, directly or
indirectly, shares of Common Stock in excess of the Ownership Limitation (or
the Look-Through Ownership Limitation, if applicable), (ii) result in the
shares of Common Stock being owned by fewer than 100 persons (determined
without reference to any rules of attribution), (iii) result in the Company
being "closely held" within the meaning of section 856(h) of the Code, or (iv)
cause the Company to own, actually or constructively, 10.0% or more of the
ownership interests in a tenant of the Company's, the Operating Partnership's
or a Subsidiary Partnership's real property, within the meaning of section
856(d)(2)(B) of the Code, will be designated as "Shares-in-Trust" and will be
transferred automatically to a trust (a "Trust"), effective on the day before
the purported transfer of such shares of Common Stock. The record holder of
the shares of Common Stock that are designated as Shares-in-Trust (the
"Prohibited Owner") will be required to submit such number of shares of Common
Stock to the Company for registration in the name of the trustee of the Trust
(the "Trustee"). The Trustee will be designated by the Company but will not be
affiliated with the Company. The beneficiary of the Trust (the "Beneficiary")
will be one or more charitable organizations named by the Company.

Shares-in-Trust will remain issued and outstanding shares of Common Stock
and will be entitled to the same rights and privileges as all other shares of
the same class or series. The Trustee will receive all dividends and
distributions on the Shares-in-Trust and will hold such dividends or
distributions in trust for the benefit of the

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Beneficiary. The Trustee will vote all Shares-in-Trust. The Trustee will
designate a permitted transferee of the Shares-in-Trust, provided that the
permitted transferee (i) purchases such Shares-in-Trust for valuable
consideration and (ii) acquires such Shares-in-Trust without such acquisition
resulting in another transfer to another Trust.

The Prohibited Owner with respect to Shares-in-Trust will be required to
repay to the Trustee the amount of any dividends or distributions received by
the Prohibited Owner (i) that are attributable to any Shares-in-Trust and (ii)
the record date of which was on or after the date that such shares become
Shares-in-Trust. Any vote taken by a Prohibited Owner prior to the Company's
discovery that the Shares-in-Trust were held in trust will be rescinded as
void ab initio and recast by the Trustee, in its sole and absolute discretion;
provided, however, that if the Company has already taken irreversible
corporate action based on such vote, then the Trustee shall not have the
authority to rescind and recast such vote. The Prohibited Owner generally will
receive from the Trustee the lesser of (i) the price per share such Prohibited
Owner paid for the shares of Common Stock that were designated as Shares-in-
Trust (or, in the case of a gift or devise, the Market Price (as defined
below) per share on the date of such transfer) or (ii) the price per share
received by the Trustee from the sale of such Shares-in-Trust. Any amounts
received by the Trustee in excess of the amounts to be paid to the Prohibited
Owner will be distributed to the Beneficiary.

The Shares-in-Trust will be deemed to have been offered for sale to the
Company, or its designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that created such Shares-in-Trust (or, in
the case of a gift or devise, the Market Price per share on the date of such
transfer) or (ii) the Market Price per share on the date that the Company, or
its designee, accepts such offer. Subject to the Trustee's ability to
designate a permitted transferee, the Company will have the right to accept
such offer for a period of 90 days after the later of (i) the date of the
purported transfer which resulted in the creation of such Shares-in-Trust or
(ii) the date the Company determines in good faith that a transfer resulting
in such Shares-in-Trust occurred.

"Market Price" on any date shall mean the average of the Closing Price for
the five consecutive Trading Days ending on such date. The "Closing Price" on
any date shall mean the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if the shares of Common Stock are not listed or
admitted to trading on the NYSE, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the shares of Common Stock are
listed or admitted to trading or, if the shares of Common Stock are not listed
or admitted to trading on any national securities exchange, the last quoted
price, or if not so quoted, the average of the high bid and low asked prices
in the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotations system that may then
be in use or, if the shares of Common Stock are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by
a professional market maker making a market in the shares of Common Stock
selected by the Board of Directors. "Trading Day" shall mean a day on which
the principal national securities exchange on which the shares of Common Stock
are listed or admitted to trading is open for the transaction of business or,
if the shares of Common Stock are not listed or admitted to trading on any
national securities exchange, shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.

Any person who acquires or attempts to acquire Common Stock in violation of
the foregoing restrictions, or any person who owned shares of Common Stock
that were transferred to a Trust, will be required (i) to give immediately
written notice to the Company of such event and (ii) to provide to the Company
such other information as the Company may request in order to determine the
effect, if any, of such transfer on the Company's status as a REIT.

All persons who own, directly or indirectly, more than 5.0% (or such lower
percentages as required pursuant to regulations under the Code) of the
outstanding shares of Common Stock must, within 30 days after January 1

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of each year, provide to the Company a written statement or affidavit stating
(i) the name and address of such direct or indirect owner, (ii) the number of
shares of Common Stock owned directly or indirectly, and (iii) a description
of how such shares are held. In addition, each direct or indirect stockholder
shall provide to the Company such additional information as the Company may
request in order to determine the effect, if any, of such ownership the
Company's status as a REIT and to ensure compliance with the Ownership
Limitation.

The Ownership Limitation or the Look-Through Ownership Limitation, as
applicable, generally will not apply to the acquisition of shares of Common
Stock by an underwriter that participates in a public offering of such shares.
In addition, the Board of Directors, upon such conditions as the Board of
Directors may direct, may exempt a person from the Ownership Limitation or the
Look-Through Ownership Limitation, as applicable, under certain circumstances.

All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above.

The Ownership Limitation could have the effect of delaying, deferring or
preventing a takeover or other transaction in which holders of some, or a
majority, of shares of Common Stock might receive a premium from their shares
of Common Stock over the then prevailing market price or which such holders
might believe to be otherwise in their best interest.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company.

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CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S
CHARTER AND BYLAWS

The following summary of certain provisions of Maryland law and the
Company's Charter and Bylaws does not purport to be complete and is subject to
and qualified in its entirety by reference to Maryland law and the Company's
Charter and Bylaws, copies of which are exhibits to the Registration Statement
of which this Prospectus is a part. See "Additional Information."

NUMBER OF DIRECTORS; CLASSIFICATION OF THE BOARD OF DIRECTORS

The Charter and Bylaws will provide that the number of directors will
consist of not less than three nor more than fifteen persons, as determined by
the affirmative vote of a majority of the members of the entire Board of
Directors. At all times, a majority of the directors shall be Independent
Directors, except that upon the death, removal, incapacity or resignation of
an Independent Director, such requirement shall not be applicable for 60 days.
Upon the effective date of the Registration Statement of which this Prospectus
is a part, there will be five directors, four of whom will be Independent
Directors. The holders of Common Stock shall be entitled to vote on the
election or removal of directors, with each share entitled to one vote. Any
vacancy will be filled, at any regular meeting or at any special meeting
called for that purpose, by a majority of the remaining directors, except that
a vacancy resulting from an increase in the number of directors must be filled
by a majority of the entire Board of Directors.

Pursuant to the Charter, effective subsequent to the Closing, the Board of
Directors will be divided into three classes of directors. The initial terms
of the first, second and third classes will expire in 1997, 1998 and 1999,
respectively. As the term of each class expires, directors in that class will
be elected by the stockholders of the Company for a term of three years and
until their successors are duly elected and qualify. Classification of the
Board of Directors is intended to assure the continuity and stability of the
Company's business strategies and policies as determined by the Board of
Directors. Because holders of Common Stock will have no right to cumulative
voting in the election of directors, at each annual meeting of stockholders,
the holders of a majority of the shares of Common Stock will be able to elect
all of the successors of the class of directors whose terms expire at that
meeting.

The classified board provision could have the effect of making the
replacement of incumbent directors more time consuming and difficult, which
could delay, defer, discourage or prevent an attempt by a third party to
obtain control of the Company or other transaction, even though such an
attempt or other transaction might be beneficial to the Company and its
stockholders. At least two annual meetings of stockholders, instead of one,
will generally be required to effect a change in a majority of the Board of
Directors. Thus, the classified board provision could increase the likelihood
that incumbent directors will retain their positions. See "Risk Factors--
Potential Anti-Takeover Effect of Certain Provisions of Maryland Law and of
the Company's Charter and Bylaws."

REMOVAL; FILLING VACANCIES

The Bylaws provide that, unless the Board of Directors otherwise determines,
any vacancies will be filled by the affirmative vote of a majority of the
remaining directors, though less than a quorum. Any directors so elected shall
hold office until the next annual meeting of stockholders. The Charter
provides that directors may be removed, with or without cause, only by the
affirmative vote of the holders of at least 75.0% of votes entitled to be cast
in the election of the directors. This provision, when coupled with the
provision of the Bylaws authorizing the Board of Directors to fill vacant
directorships, could temporarily prevent any stockholder from enlarging the
Board of Directors and filling the new directorships with such shareholder's
own nominees.

LIMITATION OF LIABILITY AND INDEMNIFICATION

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from (a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty established by a final
judgment as being material to the cause of action. The Charter of the Company
contains such a provision which eliminates such liability to the maximum
extent permitted by Maryland law.

The Charter obligates the Company, to the maximum extent permitted by
Maryland law, to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to any person (or the estate of
any person) who is or was a party to, or is threatened to be made a party to,
and threatened, pending or completed action, suit or proceeding whether or not
by or in the right of the Company, and whether civil, criminal,
administrative, investigative or otherwise, by reason of the fact that such
person is or was a director or officer of the Company, or is or was serving at
the request of the Company as a director, officer, trustee, partner, member,
agent or employee of another corporation, partnership, limited liability
company, association, joint venture, trust or other enterprise. The Charter
also permits the Company to indemnify and advance expenses to any person who
served a predecessor of the Company in any of the capacities described above
and to any employee or agent of the Company or a predecessor of the Company.

The MGCL requires a Maryland corporation (unless its charter provides
otherwise, which the Company's Charter does not) to indemnify a director or
officer who has been successful, on the merits or otherwise, in the defense of
any proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a Maryland corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. In addition, the MGCL requires the Company,
as a condition to advancing expenses, to obtain (a) a written affirmation by
the director or officer of his good faith belief that he has met the standard
of conduct necessary for indemnification by the Company as authorized by the
Bylaws and (b) a written statement by or on his behalf to repay the amount
paid or reimbursed by the Company if it shall ultimately be determined that
the standard of conduct was not met. Indemnification under the provisions of
the MGCL is not deemed exclusive of any other rights, by indemnification or
otherwise, to which an officer or director may be entitled under the Company's
Charter or Bylaws, or under resolutions of stockholders or directors, contract
or otherwise. It is the position of the Commission that indemnification of
directors and officers for liabilities arising under the Securities Act is
against public policy and is unenforceable pursuant to Section 14 of the
Securities Act.

The Company also intends to purchase and maintain insurance on behalf of all
of its directors and executive officers against liability asserted against or
incurred by them in their official capacities with the Company, whether or not
the Company is required or has the power to indemnify them against the same
liability.

BUSINESS COMBINATIONS

Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10.0% or more of the voting
power of such corporation's shares or an affiliate of such corporation who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of 10.0% or more of the voting power of the then-outstanding
voting shares of such corporation (an "Interested Shareholder") or an
affiliate thereof are prohibited for five years after the most recent date on
which the Interested Shareholder became an Interested Shareholder. Thereafter,
any such business combination must be recommended by the board of directors of
such corporation and approved by the affirmative vote of at least (a) 80.0% of
the votes entitled to be cast by holders of outstanding voting shares of such

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corporation and (b) two-thirds of the votes entitled to be cast by holders of
voting shares of such corporation other than shares held by the Interested
Shareholder with whom (or with whose affiliate) the business combination is to
be effected, unless, among other conditions, the corporation's stockholders
receive a minimum price (as defined in the MGCL) for their shares and the
consideration is received in cash or in the same form as previously paid by
the Interested Shareholder for its shares. These provisions of the MGCL do not
apply, however, to business combinations that are approved or exempted by the
board of directors of the corporation prior to the time that the Interested
Shareholder becomes an Interested Shareholder.

CONTROL SHARE ACQUISITIONS

The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares owned by the acquiror, by officers or by directors
who are employees of the corporation. "Control Shares" are voting shares
which, if aggregated with all other such shares previously acquired by the
acquiror, or in respect of which the acquiror is able to exercise or direct
the exercise of voting power (except solely by virtue of a revocable proxy),
would entitle the acquiror to exercise voting power in electing directors
within one of the following ranges of voting power: (i) one-fifth or more but
less than one-third, (ii) one-third or more but less than a majority, or (iii)
a majority or more of all voting power. Control Shares do not include shares
the acquiring person is then entitled to vote as a result of having previously
obtained shareholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions.

A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.

If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the corporation may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
the absence of voting rights for the control shares, as of the date of the
last control share acquisition by the acquiror or of any meeting of
stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a stockholders
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The
fair value of the shares as determined for purposes of such appraisal rights
may not be less than the highest price per share paid by the acquiror in the
control share acquisition, and certain limitations and restrictions otherwise
applicable to the exercise of dissenters' rights do not apply in the context
of a control share acquisition.

The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange, if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws
of the corporation.

The Bylaws of the Company contain a provision exempting from the control
share acquisition statute any and all acquisitions by any person of the
Company's Common Stock. There can be no assurance that such provision will not
be amended or eliminated at any time in the future.

AMENDMENT TO THE CHARTER

The Charter of the Company may be amended by the affirmative vote of holders
of shares entitled to cast a majority of all votes entitled to be cast on such
an amendment; provided, however, (i) no term or provision of the Charter may
be added, amended or repealed in any respect that would, in the determination
of the Board of

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Directors, cause the Company not to qualify as a REIT under the Code, (ii)
certain provisions of the Charter, including provisions relating to the
classification of directors, the removal of directors, Independent Directors,
preemptive rights of holders of stock and the indemnification and limitation
of liability of officers and directors may not be amended or repealed and
(iii) provisions imposing cumulative voting in the election of directors may
not be added to the Charter, unless, in each such case, such action is
approved by the affirmative vote of the holders of not less than two-thirds of
all the votes entitled to be cast on the matter.

DISSOLUTION OF THE COMPANY

The dissolution of the Company must be approved by the affirmative vote of
the holders of not less than a majority of all of the votes entitled to be
cast on the matter.

ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS

The Bylaws of the Company provide that (a) with respect to an annual meeting
of stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made only
(i) pursuant to the Company's notice of the meeting, (ii) by the Board of
Directors or (iii) by a stockholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws and
(b) with respect to special meetings of stockholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of stockholders and nominations of persons for election to the Board of
Directors may be made only (i) pursuant to the Company's notice of the
meeting, (ii) by the Board of Directors or (iii) provided that the Board of
Directors has determined that directors shall be elected at such meeting, by a
stockholder who is entitled to vote at the meeting and has complied with the
advance notice provisions set forth in the Bylaws.

MEETINGS OF STOCKHOLDERS

The Company's Bylaws provide that annual meetings of stockholders shall be
held on a date and at the time set by the Board of Directors during the month
of May each year (commencing in May 1997). Special meetings of the
stockholders may be called by (i) the President of the Company, (ii) the Chief
Executive Officer or (iii) the Board of Directors. Under the MGCL and the
Bylaws of the Company, special meetings must be called by the Secretary of the
Company upon the written request of the holders of shares entitled to cast not
less than a majority of all votes entitled to be cast at the meeting.

OPERATIONS

The Company is generally prohibited by the Charter from holding any assets
or engaging in any activity that would cause the Company to fail to qualify as
a REIT.

ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE CHARTER
AND BYLAWS

The business combination provisions and, if the applicable provision in the
Bylaws is rescinded, the control share acquisition provisions of the MGCL, the
provisions of the Charter on classification of the Board of Directors and
removal of directors and the advance notice provisions of the Bylaws could
delay, defer or prevent a transaction or a change in control of the Company
that might involve a premium price for holders of Common Stock or otherwise be
in their best interest.

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POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES

The following is a discussion of the Company's policies with respect to
investment, financing, conflicts of interest and certain other activities. The
policies with respect to these activities have been determined by the Board of
Directors of the Company and may be amended or revised from time to time at
the discretion of the Board of Directors without a vote of the stockholders of
the Company, except that (i) changes in certain policies with respect to
conflicts of interest must be consistent with legal requirements and (ii)
certain policies with respect to competition are imposed pursuant to contracts
that cannot be amended without the consent of all parties thereto.

INVESTMENT POLICIES

Investments in Real Estate or Interests in Real Estate

In addition to the Initial Hotels, the Company intends to acquire equity
interests in hotels and related properties throughout the United States and,
on a limited basis, elsewhere in North America. Additional acquisitions could
be made directly or by the Operating Partnership or other entities controlled
by the Company, if any exist. The Company's investment objective is to
maximize current returns to stockholders through increases in Cash Available
for Distribution and to increase long-term returns to stockholders through
appreciation in the value of the Common Stock. The Company intends to achieve
these objectives by participating in increased profits from the Initial Hotels
pursuant to the Participating Leases and by the selective acquisition and
development of hotel properties.

Although the Company presently anticipates that additional investments in
hotel properties will be made through the Operating Partnership, additional
investments may be made directly by the Company or other entities controlled
by the Company, if any exist. Such investments may be financed, in whole or in
part, with excess cash flow, borrowings or subsequent issuances of shares of
Common Stock or other securities issued by the Company or by entities
controlled by the Company.

Investments in Other Entities

The Company also may participate with other entities in property ownership,
through joint ventures or other types of co-ownership. Equity investments may
be subject to existing mortgage financing and other indebtedness that may have
priority over the equity interests in the Company.

Investments in Real Estate Mortgages and Securities of Other Issuers

While the Company will emphasize equity hotel investments, it may, in its
discretion, invest in mortgage and other real estate interests, including
securities of REITs and other issuers. Subject to compliance with applicable
REIT asset test requirements (see "Federal Income Tax Considerations--
Requirements for Qualification as a REIT--Asset Tests"), the Company will have
no limit on the amount or percentage of assets represented by one investment
or investment type. The Company does not presently intend to invest in
securities of REITs or other issuers. The Company also does not presently
intend to trade or underwrite securities or to make investments for the
purpose of exercising control over other issuers. The Company may invest in
participating or convertible mortgages if it concludes that by doing so it may
benefit from the cash flow or any appreciation in the value of the subject
property. Such mortgages are similar to equity participations, because they
permit the lender to either participate in increasing revenues from the
property or convert some or all of the mortgage to equity.

FINANCING

The Company intends to make additional investments in hotel properties and
may incur indebtedness to make such investments or to meet the distribution
requirements imposed by the REIT provisions of the Code, to the extent that
cash flow from the Company's investments and working capital is insufficient
to fund such investments or distributions.

To ensure that the Company has sufficient liquidity to conduct its
operations, including making investments in additional hotel properties and
funding its anticipated distribution obligations and financing costs, the

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Company has obtained a commitment for the $100 million Line of Credit. The
Company may seek to increase the size of the Line of Credit or to arrange
other borrowing to fund investments in additional hotel properties or for
other purposes. The Line of Credit will be secured by first mortgage liens on
eleven of the Initial Hotels and, in certain circumstances, a mortgage lien on
subsequently acquired hotels. Upon completion of the Offering, the Company
will have approximately $19.3 million of outstanding fixed rate indebtedness
and approximately $8.5 million of outstanding variable rate indebtedness under
the Line of Credit. The Company intends to limit consolidated indebtedness
(measured at the time the debt is incurred) to no more than 45.0% of the
Company's investment in hotels (valued at cost on a consolidated basis, except
for those hotels identified in the Company's financial statements that have a
predecessor carryover cost basis that will be valued at fair market value as
of the closing of the Offering, and after giving effect to the Company's use
of proceeds from any indebtedness).

Borrowings may be incurred through the Operating Partnership or the Company.
Indebtedness incurred by the Company may be in the form of bank borrowings,
secured and unsecured, and publicly and privately placed debt instruments.
Indebtedness incurred by the Operating Partnership may be in the form of
purchase money obligations to the sellers of properties, publicly or privately
placed debt instruments, financing from banks, institutional investors or
other lenders, any of which indebtedness may be unsecured or may be secured by
mortgages or other interests in the property owned by the Operating
Partnership. Such indebtedness may be recourse to all or any part of the
property of the Company or the Operating Partnership, or may be limited to the
particular property to which the indebtedness relates. The proceeds from any
borrowings by the Company or the Operating Partnership may be used for the
payment of distributions or dividends, working capital, to refinance existing
indebtedness or to finance acquisitions, expansions, additions or renovations
of hotel properties. See "Federal Income Tax Considerations--Requirements for
Qualification as a REIT--Annual Distribution Requirements."

If the Board of Directors determines to raise additional equity capital, the
Board will have the authority, without stockholder approval, to issue
additional shares of Common Stock or Preferred Shares in any manner (and on
such terms and for such consideration) as it deems appropriate, including in
exchange for property. Existing stockholders have no preemptive right to
purchase shares issued in any such offering, and any such issuance might cause
a dilution of a stockholder's investment in the Company.

The Company may make investments other than as previously described,
although it does not currently intend to do so. See "Federal Income Tax
Considerations--Requirements for Qualification as a REIT--Asset Tests."

CONFLICT OF INTEREST POLICIES

The Company will adopt certain policies and enter into certain agreements
designed to minimize potential conflicts of interest. The Company's Board of
Directors is subject to certain provisions of Maryland law, which are designed
to eliminate or minimize certain potential conflicts of interest. However,
there can be no assurance that these policies will always be successful in
eliminating the influence of such conflicts, and if they are not successful,
decisions could be made that might fail to reflect fully the interests of all
stockholders.

Charter and Bylaw Provisions

The Company's Charter, with limited exceptions, requires that a majority of
the Company's Board of Directors be comprised of persons who are not officers
or employees of the Company, affiliates of officers or employees of the
Company or affiliates of any advisor to the Company under an advisory
agreement, any lessee or contract manager of any hotel of the Company, any of
its subsidiaries, or any partnership which is an affiliate of the Company
(each such person, an "Independent Director"). The Charter provides that such
provisions relating to Independent Directors may not be amended, altered,
changed or repealed without the affirmative vote of all of the Independent
Directors and the affirmative vote of the holders of not less than two-thirds
of the votes entitled to be cast on such a matter. In addition, the Company's
Bylaws will provide that any action pertaining to any transaction in which the
Company is purchasing, selling, leasing or mortgaging any real estate asset,

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making a joint venture investment or engaging in any other transaction in
which an advisor, director or officer of the Company, any affiliated lessee or
affiliated contract manager of any property of the Company or any affiliate of
the foregoing, has any direct or indirect interest other than as a result of
such person's status as a director, officer or stockholder of the Company,
must be approved by the affirmative vote of a majority of the Independent
Directors even if the Independent Directors constitute less than a quorum.

The Operating Partnership

A conflict of interest may arise between the Company, as a general and
limited partner of the Operating Partnership, and the other Limited Partners
of the Operating Partnership, which may include affiliates of AGHI and the
Lessee, due to the differing potential tax liability to the Company and the
other Limited Partners from the subsequent sale of certain Initial Hotels by
the Operating Partnership resulting from the differing tax bases of the
Company and such affiliates in such hotels. In an effort to address this and
other potential conflicts of interest, the Company's Bylaws will provide that
the Company's decision with respect to the subsequent sale of an Initial Hotel
purchased from a Primary Contributor or their affiliates must be made by the
Independent Directors. The Partnership Agreement of the Operating Partnership
gives AGH GP, as general partner of the Operating Partnership, full, complete
and exclusive discretion in managing and controlling the business of the
Operating Partnership and in making all decisions affecting the business and
assets of the Operating Partnership.

Options to Purchase and Rights of First Refusal

Pursuant to the Option Agreements, the Company will have an option and right
of first refusal to acquire the Option Hotels. The Independent Directors will
determine whether the Company should exercise its right to acquire either
Option Hotel under the Option Agreements. See "Certain Relationships and
Transactions--Options to Purchase and Rights of First Refusal."

Provisions of the MGCL

Pursuant to the MGCL (the jurisdiction under which the Company is
incorporated), each director of the Company is required to discharge his
duties in good faith, in a manner he reasonably believes to be in the best
interest of the Company and with the care that an ordinarily prudent person in
a like position would exercise under similar circumstances. In addition, under
the MGCL, a contract or other transaction between the Company and a director
or between the Company and any other corporation or other entity in which a
director of the Company is a director or has a material financial interest is
not void or voidable solely on the grounds of such interest, the presence of
the director at the meeting at which the contract or transaction is approved
or the director's vote in favor thereof if (a) the transaction or contract is
approved or ratified, after disclosure of the common directorship or interest,
by the affirmative vote of a majority of disinterested directors, even if the
disinterested directors constitute less than a quorum, or by a majority of the
votes cast by disinterested stockholders, or (b) the transaction or contract
is fair and reasonable to the Company.

POLICIES WITH RESPECT TO OTHER ACTIVITIES

The Company has the authority to offer shares of stock or other securities
and to repurchase or otherwise reacquire its shares or any other securities
and may engage in such activities in the future. As described under "Shares
Available for Future Sale," the Company may (but is not obligated to) issue
shares of Common Stock to holders of OP Units upon exercise of the Exchange
Rights (as defined below). The Company has not issued shares of Common Stock,
interests or any other securities to date, except in connection with the
formation of the Company. The Company has not engaged in trading, underwriting
or agency distribution or sale of securities of other issuers, nor has the
Company invested in the securities of other issuers other than the Operating
Partnership for the purpose of exercising control over such issuers. The
Company has not made any loans to third parties, although it expects to make
certain loans to the Lessee (see "Formation Transactions"), and it may in the
future make loans to third parties, including, without limitation, to joint
ventures in which it participates. The Company intends to make investments in
such a way that it will not be treated as an investment company under the
Investment Company Act of 1940, as amended.

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WORKING CAPITAL RESERVES

The Company will maintain working capital reserves in amounts that the Board
of Directors determines to be adequate to meet normal contingencies in
connection with the operation of the Company's business and investments.

SHARES AVAILABLE FOR FUTURE SALE

Upon the completion of the Offering and the Formation Transactions,
7,687,008 shares of Common Stock will be issued and outstanding, 1,896,996
shares of Common Stock will be reserved for potential issuance upon exchange
of 1,896,996 OP Units and an additional 1,000,000 shares of Common Stock will
be reserved for grants of options and stock awards to officers and directors
of the Company pursuant to the 1996 Plan and the Directors' Plan (the "Company
Options"). All of the Common Stock issued in the Offering will be freely
tradeable by persons, other than affiliates of the Company, without
restriction under the Securities Act, subject to certain limitations on
ownership to be set forth in the Charter. See "Description of Capital Stock--
Restrictions on Transfer." The 137,008 shares of Common Stock to be issued in
the Formation Transactions, the 1,896,996 shares of Common Stock available for
issuance upon exchange of OP Units issued in connection with the Formation
Transactions, and the 50,000 shares of restricted Common Stock granted to the
Company's executive officers as Stock Awards that will vest over a four-year
period and the Company Options (collectively, "Restricted Shares") will be
"restricted" securities under the meaning of Rule 144 under the Securities Act
and may be sold only pursuant to an effective registration statement under the
Securities Act or an applicable exemption, including an exemption under Rule
144 under the Securities Act.

In general, under Rule 144 as currently in effect, if two years have elapsed
since the later of the date of acquisition of Restricted Shares from the
Company or the date of acquisition of Restricted Shares from any "affiliate"
of the Company, as that term is defined under the Securities Act, the acquiror
or subsequent holder is entitled to sell within any three-month period a
number of shares of Common Stock that does not exceed the greater of 1.0% of
the then outstanding Common Stock or the average weekly trading volume of
Common Stock on all exchanges and reported through the automated quotation
system of a registered securities association during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission.
Sales under Rule 144 are also subject to certain restrictions on the manner of
sales, notice requirements and the availability of current public information
about the Company. If three years have elapsed since the date of acquisition
of Restricted Shares from the Company or from an "affiliate" of the Company,
and the acquiror or subsequent holder thereof is deemed not to have been an
affiliate of the Company at any time during the 90 days preceding a sale, such
person would be entitled to sell such Common Stock in the public market under
Rule 144(k) without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements.

Certain holders of Common Stock and OP Units issued in connection with the
Formation Transactions have agreed with the Underwriters not to sell, offer or
contract to sell, grant any option for the sale of, or otherwise dispose of or
transfer any Common Stock or OP Units or any securities convertible into or
exchangeable or exercisable for Common Stock or OP Units, for one year after
the date of this Prospectus, without the prior written consent of Smith Barney
Inc., as the representative of the Underwriters, and the Company. The Company
has agreed to file a registration statement with the Commission with respect
to sales of Common Stock received upon exchange of OP Units within 90 days
after the expiration of the one-year period following completion of this
Offering. The Company will be obligated to maintain the effectiveness of such
registration statement until a date to be agreed upon or until such time as
all of the shares registered pursuant to such registration statement (i) have
been disposed of pursuant to such registration statement, (ii) have been
otherwise distributed pursuant to Rule 144, or (iii) have been otherwise
transferred in a transaction resulting in the transferee receiving Common
Stock no longer deemed to be "restricted securities." The existence of such
agreements by the Company may adversely affect the terms upon which the
Company can obtain additional equity financing in the future.

Prior to the date of this Prospectus, there has been no public market for
the Common Stock. Trading of the Shares of Common Stock on the NYSE is
expected to commence following the completion of the Offering. No

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prediction can be made as to the effect, if any, that future market sales of
Restricted Shares or the availability of such Restricted Shares for sale will
have on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Restricted Shares in the public
market (or the perception that such sales could occur) might adversely affect
prevailing market prices for the Common Stock. See "Risk Factors--No Prior
Market for Common Stock."

PARTNERSHIP AGREEMENT

The following summary of the Partnership Agreement, and the descriptions of
certain provisions thereof set forth elsewhere in this Prospectus, is
qualified in its entirety by reference to the Partnership Agreement, which has
been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.

MANAGEMENT

The Operating Partnership has been organized as a Delaware limited
partnership pursuant to the terms of the partnership agreement that will
include AGH GP, as general partner, AGH LP, as an initial limited partner, and
certain of the Primary Contributions and other persons unaffiliated with the
Primary Contributors, as additional limited partners (the "Partnership
Agreement"). Pursuant to the Partnership Agreement, AGH GP, as the sole
general partner of the Operating Partnership (the "General Partner"), will
have full, exclusive and complete responsibility and discretion in the
management and control of the Operating Partnership, and the Limited Partners
in their capacity as such will have no authority to transact business for, or
participate in the management activities or decisions of, the Operating
Partnership. However, any amendment to the Partnership Agreement, other than
amendments that (i) add to the obligations of the General Partners, (ii)
reflect the admission or withdrawal of partners, (iii) set forth the rights or
preferences of additional partnership interests issued by the Operating
Partnership, (iv) reflect a change that does not adversely affect Limited
Partners, and (v) are necessary to satisfy legal requirements, requires the
consent of Limited Partners holding more than 50.0% of the OP Units held by
such Limited Partners. The consent of each adversely affected partner is
required for any amendment that would affect a Limited Partner's liability or
right to receive distributions or that would dissolve the Operating
Partnership prior to December 31, 2046 (other than as a result of certain
mergers or consolidations).

TRANSFERABILITY OF INTERESTS

Subject to limited exceptions, AGH GP and AGH LP may not voluntarily
withdraw from the Operating Partnership or transfer or assign their interests
in the Operating Partnership unless the transaction in which such withdrawal
or transfer occurs results in the Limited Partners' receiving property in an
amount equal to the amount they would have received had they exercised their
Exchange Rights immediately prior to such transaction, or unless the
successors to AGH GP and AGH LP contribute substantially all of their assets
to the Operating Partnership in return for an interest in the Operating
Partnership. With certain exceptions, the Limited Partners may transfer their
OP Units, in whole or in part, without the consent of the General Partner.

CAPITAL CONTRIBUTION

The Company, through AGH GP and AGH LP, will contribute to the Operating
Partnership the net proceeds of the Offering, in consideration of which AGH GP
will receive an approximate 1.0% general partnership interest and AGH LP will
receive an approximate 79.2% limited partnership interest in the Operating
Partnership. The Partnership Agreement provides that if the Operating
Partnership requires additional funds at any time or from time to time in
excess of funds available to the Operating Partnership from borrowing or
capital contributions, the Company may borrow such funds from a financial
institution or other lender and lend such funds to the Operating Partnership
on the same terms and conditions as are applicable to the Company's borrowing
of such funds. Under the Partnership Agreement, the Company generally is
obligated to contribute, through AGH GP and AGH LP, the proceeds of any stock
offering as additional capital to the Operating Partnership. Moreover,

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the Company is authorized, through AGH GP and AGH LP, to cause the Operating
Partnership to issue partnership interests for less than fair market value if
the Company has concluded in good faith that such issuance is in the best
interests of the Company and the Operating Partnership. If the Company so
contributes additional capital to the Operating Partnership, AGH GP and AGH LP
will receive additional OP Units, and their percentage interests in the
Operating Partnership will be increased on a proportionate basis based upon
the amount of such additional capital contributions and the value of the
Operating Partnership at the time of such contributions. Conversely, the
percentage interests of the Limited Partners, other than AGH LP, will be
decreased on a proportionate basis in the event of additional capital
contributions by the Company.

EXCHANGE RIGHTS

Pursuant to the Exchange Rights Agreement among the Company, the Operating
Partnership and the Limited Partners other than AGH LP (the "Exchange
Agreement"), such Limited Partners will receive rights (the "Exchange Rights")
that will enable them to cause the Operating Partnership to exchange each OP
Unit for cash equal to the value of a share of Common Stock (or, at the
Company's election, the Company may purchase each OP Unit offered for exchange
for one share of Common Stock). The Company may not satisfy a Limited
Partner's Exchange Right by delivery of Common Stock, if and to the extent
that the delivery of Common Stock upon exercise of such rights would (i) be
prohibited under the Charter, (ii) otherwise jeopardize the REIT status of the
Company, or (iii) cause the acquisition of shares of Common Stock by such
exchanging Limited Partner to be "integrated" with any other distribution of
shares of Common Stock for purposes of complying with the Securities Act. The
Exchange Rights may be exercised at any time after one year following the
closing of the Offering, provided that a Limited Partner may not exercise the
Exchange Rights for less than 1,000 OP Units or, if such Limited Partner holds
less than 1,000 OP Units, for all of the OP Units held by such Limited
Partner. Prior to the expiration of such one-year period, the Exchange Rights
may be exercised (but only for cash) by a lender to whom any OP Units may have
been pledged, provided that such pledge was permissible in light of the one-
year lock-up agreements described in "Shares Available for Future Sale." The
aggregate number of shares of Common Stock initially issuable upon exercise of
the Exchange Rights will be 1,896,996. The number of shares of Common Stock
issuable upon exercise of the Exchange Rights will be adjusted upon the
occurrence of share splits, mergers, consolidations or similar pro rata share
transactions, which otherwise would have the effect of diluting the ownership
interests of the Limited Partners or the stockholders of the Company. See
"Shares Available for Future Sale."

REGISTRATION RIGHTS

Pursuant to the Registration Rights Agreement among the Company and the
Limited Partners other than AGH LP (the "Registration Rights Agreement"), the
Limited Partners have, or will have, certain rights to require the
registration for resale of the shares of Common Stock held by them or received
by them upon exchange of their OP Units. Such rights include the right to
include such shares in a registration statement that the Company intends to
file during the 1997 calendar year. The Company is required to bear the costs
of such registration statements exclusive of underwriting discounts,
commissions and certain other costs attributable to, and to be borne by, the
selling stockholders.

OPERATIONS

The Partnership Agreement requires that the Operating Partnership be
operated in a manner that will enable the Company to satisfy the requirements
for being classified as a REIT, to avoid any federal income or excise tax
liability imposed under the Code and to ensure that the Operating Partnership
will not be classified as a "publicly traded partnership" for purposes of
section 7704 of the Code.

In addition to the administrative and operating costs and expenses incurred
by the Operating Partnership, the Operating Partnership will pay all
administrative costs and expenses of the Company, AGH GP and AGH LP (the
"Company Expenses"), and the Company Expenses will be treated as expenses of
the Operating Partnership. The Company Expenses generally will include (i) all
expenses relating to the formation of the

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Company and the Operating Partnership, (ii) all expenses relating to the
public offering and registration of securities by the Company, (iii) all
expenses associated with the preparation and filing of any periodic reports by
the Company under federal, state or local laws or regulations, (iv) all
expenses associated with compliance by the Company, AGH GP and AGH LP with
laws, rules and regulations promulgated by any regulatory body and (v) all
other operating or administrative costs of AGH GP incurred in the ordinary
course of its business on behalf of the Operating Partnership. The Company
Expenses, however, will not include any administrative and operating costs and
expenses incurred by the Company that are attributable to hotel properties or
partnership interests in a Subsidiary Partnership that are owned by the
Company directly rather than through the Operating Partnership. The Company
will not own any of the Initial Hotels directly.

DISTRIBUTIONS AND ALLOCATIONS

The Partnership Agreement provides that the Operating Partnership will
distribute cash from operations (including net sale or refinancing proceeds,
but excluding net proceeds from the sale of the Operating Partnership's
property in connection with the liquidation of the Operating Partnership) on a
quarterly (or, at the election of the General Partner, more frequent) basis,
in amounts determined by the General Partner in its sole discretion, to the
partners in accordance with their respective percentage interests in the
Operating Partnership. Upon liquidation of the Operating Partnership, after
payment of, or adequate provision for, debts and obligations of the Operating
Partnership, including any partner loans, any remaining assets of the
Operating Partnership will be distributed to all partners with positive
capital accounts in accordance with their respective positive capital account
balances.

Profit and loss of the Operating Partnership for each fiscal year of the
Operating Partnership generally will be allocated among the partners in
accordance with their respective interests in the Operating Partnership.
Taxable income and loss will be allocated in the same manner, subject to
compliance with the provisions of Code sections 704(b) and 704(c) and Treasury
Regulations promulgated thereunder.

TERM

The Operating Partnership will continue until December 31, 2046, or until
sooner dissolved upon (i) the withdrawal of the General Partner (unless a
majority of remaining partners elect to continue the business of the Operating
Partnership), (ii) the election by the General Partner to dissolve the
Operating Partnership (which election, prior to December 31, 2046, requires
the consent of a majority of the Limited Partners other than AGH LP), (iii)
the entry of a decree of judicial dissolution of the Operating Partnership,
(iv) the sale of all or substantially all the assets and properties of the
Operating Partnership, or (v) the bankruptcy or insolvency of AGH GP, unless
all of the remaining partners elect to continue the business of the Operating
Partnership.

TAX MATTERS

Pursuant to the Partnership Agreement, the General Partner will be the tax
matters partner of the Operating Partnership and, as such, will have authority
to handle tax audits and to make tax elections under the Code on behalf of the
Operating Partnership.

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FEDERAL INCOME TAX CONSIDERATIONS

The Company intends to operate in such a manner so as to meet the Code
requirements for qualification as a REIT for federal income tax purposes.
However, no assurance can be given that such requirements will be met or that
the Company will be so qualified at any time. Based on various assumptions
relating to the organization and operation of the Company and the Operating
Partnership and factual representations made by the Company and the Operating
Partnership as to certain factual matters, including matters related to the
organization and operation of the Company, the Operating Partnership and the
Subsidiary Partnerships, in the opinion of Counsel, Battle Fowler LLP, the
Company will qualify to be taxed as a REIT under the Code commencing with its
taxable year ending December 31, 1996 and the Operating Partnership and the
Subsidiary Partnerships will be treated as partnerships for federal income tax
purposes. Counsel will not review the Company's operating results and no
assurance can be given that the Company's actual operating results will meet
the REIT requirements on a continuing basis.

The opinions described herein represent Counsel's best legal judgment as to
the most likely outcome of an issue if the matter were litigated. Opinions of
counsel have no binding effect or official status of any kind, and in the
absence of a ruling from the IRS, there can be no assurance that the IRS will
not challenge the conclusion or propriety of any of Counsel's opinions. The
Company does not intend to apply for a ruling from the IRS that it qualifies
as a REIT.

The following summary includes a discussion of the material federal income
tax considerations associated with an investment in the Common Stock being
sold in the Offering. The summary should not be construed as tax advice. The
provisions governing treatment as a REIT are highly technical and complex, and
this summary is qualified in its entirety by the applicable Code provisions,
the rules and regulations promulgated thereunder and administrative and
judicial interpretations thereof. Moreover, this summary does not deal with
all tax aspects that might be relevant to a particular prospective stockholder
in light of his personal circumstances and it does not deal with particular
types of stockholders that are subject to special treatment under the Code,
such as tax-exempt organizations, insurance companies, financial institutions
or broker-dealers, and (with the exception of the general discussion below)
foreign corporations and persons who are not citizens or residents of the
United States.

EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND SALE OF COMMON STOCK, OF
THE COMPANY'S ELECTION TO BE TAXED AS A REIT AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.

REQUIREMENTS FOR QUALIFICATION AS A REIT

In General. Under the Code, a trust, corporation or unincorporated
association meeting certain requirements (see "--Structural Requirements") may
elect to be treated as a REIT for purposes of federal income taxation. If a
valid election is made, then, subject to certain conditions, the Company's
income which is distributed to its stockholders will be taxed to such
stockholders without being subject to tax at the Company level. This
substantially eliminates the "double taxation" (taxation at both the corporate
and stockholder levels) that typically results from the use of corporate
investment vehicles. However, the Company will be taxed at regular corporate
rates on any of its income that is not distributed to the stockholders. (See
"--Taxation of the Company.") Once made, the election to be taxed as a REIT
continues in effect until voluntarily revoked or automatically terminated by
the Company's failure to qualify as a REIT for a taxable year. If the
Company's election to be treated as a REIT is terminated automatically or is
voluntarily revoked, the Company will not be eligible to elect such status
until the fifth taxable year after the first taxable year for which the
Company's election was terminated. However, in the event such election is
terminated automatically, the four-year prohibition on a subsequent election
to be taxed as a REIT is not applicable if (i) the Company did not willfully
fail to file a timely return with respect to the termination taxable year,
(ii) the inclusion of any incorrect information in such return was not due to
fraud with intent to evade tax, and (iii) the Company establishes that its
failure to meet the requirements was due to reasonable cause and not to
willful neglect.

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The Company will make an election to be treated as a REIT commencing with
its taxable year ending December 31, 1996.

Structural Requirements. To be eligible to be taxed as a REIT, the Company
must satisfy certain structural and organizational requirements. Among the
requirements are the following: (i) the shares of Common Stock must be
transferable, (ii) the shares of Common Stock must be held by 100 or more
persons during at least 335 days of a taxable year of twelve months (or during
a proportionate part of a taxable year of less than twelve months) (the "100-
person requirement"), and (iii) no more than 50% of the value of the
outstanding shares of Common Stock may be owned, directly or indirectly, by
five or fewer individuals at any time during the last half of each taxable
year (the "five or fewer" requirement). The requirements of (ii) and (iii) are
not applicable to the first taxable year for which the Company makes an
election to be treated as a REIT. However, the Company anticipates that it
will issue a sufficient amount of Common Stock with sufficient diversity of
ownership to satisfy requirements (ii) and (iii). The Company expects, and
intends to take all necessary measures within its control to ensure, that the
beneficial ownership of the Company will at all times be held by 100 or more
persons. In addition, the Company's Charter contains certain restrictions on
the ownership and transfer of the Company's stock which are designed to help
ensure that the Company will be able to satisfy the "five or fewer"
requirement. If the Company were to fail to satisfy the "five or fewer"
requirement, the Company's status as a REIT would terminate, and the Company
would not be able to prevent such termination. See "--Failure to Qualify as a
REIT" and "Description of Capital Stock--Restrictions on Transfer."

If a REIT owns a corporate subsidiary that is a "qualified REIT subsidiary,"
that subsidiary is disregarded for federal income tax purposes, and all
assets, liabilities and items of income, deduction and credit of the
subsidiary are treated as assets, liabilities and such items of the REIT
itself. A "qualified REIT subsidiary" is a corporation all of the stock of
which has been owned by the REIT from the commencement of such corporation's
existence. After the completion of the Offering, the Company will have two
wholly owned subsidiary corporations, AGH GP and AGH LP. AGH GP and AGH LP
will be formed as "qualified REIT subsidiaries." The Company also may have
additional corporate subsidiaries in the future.

Income Tests. In order to qualify and to continue to qualify as a REIT, the
Company must satisfy three income tests for each taxable year. First, at least
75% of the Company's annual gross income (excluding annual gross income from
certain sales of property held primarily for sale) must be derived directly or
indirectly from investments relating to real property or mortgages on real
property or certain temporary investments. Second, at least 95% of the
Company's annual gross income (excluding gross income from certain sales of
property held primarily for sale in the ordinary course of business) must be
derived directly or indirectly from any of the sources qualifying for the 75%
test and from dividends, interest, and gain from the sale or disposition of
stock or securities. Third, subject to certain exceptions in the year in which
the Company is liquidated, (i) short-term gains from sales of stock or
securities, (ii) gains from sales of property (other than foreclosure
property) held primarily for sale to customers in the ordinary course of
business and (iii) gains from the sale or other taxable disposition of real
property (including interests in real property and mortgages on real property)
held for less than four years (other than from involuntary conversions and
foreclosure property) must represent in the aggregate less than 30% of the
Company's annual gross income. In applying these tests, because the Company is
a partner in the Operating Partnership, which is in turn a partner, either
directly or indirectly, in the Subsidiary Partnerships, the Company will be
treated as realizing its proportionate share of the income and loss of these
respective partnerships, as well as the character of such income or loss, and
other partnership items, as if the Company owned its proportionate share of
the assets owned by these partnerships directly.

Substantially all of the income received by the Company is expected to be
rental income from the Rents. In order to qualify as "rents from real
property" for purposes of satisfying the 75% and 95% gross income tests,
several conditions must be satisfied. First, the amount of rent must not be
based in whole or in part on the income or profits of any person, although
rents generally will qualify if they are based on a fixed percentage of
receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" if the Company or an owner of 10% or more of the
Company, directly or constructively, owns 10% or more of such tenant (a
"Related Party Tenant"). Third, if rent attributable to personal property
leased in connection with a lease of real property is greater than 15% of the
total rent received under the lease, the portion of rent attributable to such

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personal property will not qualify as "rents from real property." Finally, the
Company generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an "independent
contractor" from whom the Company derives no income. However, the "independent
contractor" requirement does not apply to the extent the services rendered by
the Company are customarily furnished or rendered in connection with the
rental of the real property (i.e., services which are not considered rendered
to the occupant of the property). Pursuant to the Participating Leases, the
Lessee will lease from the Operating Partnership the land, buildings,
improvements, furnishings, and equipment comprising the Initial Hotels for a
term of twelve years. The Participating Leases provide that the Lessee will be
obligated to pay to the Operating Partnership (i) the greater of Base Rent or
Participating Rent and (ii) Additional Charges. Participating Rent is
calculated by multiplying fixed percentages by various revenue categories for
each of the Initial Hotels. Generally, both Base Rent and the thresholds in
the Participating Rent formulas will be adjusted for inflation. Base Rent
accrues and is required to be paid monthly. Participating Rent is payable
quarterly, with a yearly adjustment based on actual results.

In order for Base Rent, Participating Rent, and Additional Charges to
constitute "rents from real property," the Participating Leases must be
respected as true leases for federal income tax purposes and not treated as
service contracts, joint ventures or some other type of arrangement. The
determination of whether the Participating Leases are true leases depends on
an analysis of all the surrounding facts and circumstances. In making such a
determination, courts have considered a variety of factors, including: (i) the
intent of the parties, (ii) the form of the agreement, (iii) the degree of
control over the property that is retained by the property owner (e.g.,
whether the lessee has substantial control over the operation of the property
or whether the lessee was required simply to use its best efforts to perform
its obligations under the agreement), and (iv) the extent to which the
property owner retains the risk of loss with respect to the property (e.g.,
whether the lessee bears the risk of increases in operating expenses or the
risk of damage to the property) or the potential for economic gain (e.g.,
appreciation) with respect to the property.

In addition, Code section 7701(e) provides that a contract that purports to
be a service contract (or a partnership agreement) is treated instead as a
lease of property if the contract is properly treated as such, taking into
account all relevant factors, including whether or not: (i) the service
recipient is in physical possession of the property, (ii) the service
recipient controls the property, (iii) the service recipient has a significant
economic or possessory interest in the property (e.g., the property's use is
likely to be dedicated to the service recipient for a substantial portion of
the useful life of the property, the recipient shares the risk that the
property will decline in value, the recipient shares in any appreciation in
the value of the property, the recipient shares in increases in the property's
operating costs, or the recipient bears the risk of damage to or loss of the
property), (iv) the service provider does not bear any risk of substantially
diminished receipts or substantially increased expenditures if there is
nonperformance under the contract, (v) the service provider does not use the
property concurrently to provide significant services to entities related to
the service recipient, and (vi) the total contract price does not
substantially exceed the rental value of the property for the contract period.
Since the determination of whether a service contract should be treated as a
lease is inherently factual, the presence or absence of any single factor may
not be dispositive in every case.

Battle Fowler LLP is of the opinion that the Participating Leases will be
treated as true leases for federal income tax purposes. Such opinion is based,
in part, on the following facts: (i) the Operating Partnership or a Subsidiary
Partnership, as applicable, and the Lessee intend for their relationship to be
that of a lessor and lessee and such relationship will be documented by lease
agreements, (ii) the Lessee will have the right to exclusive possession and
use and quiet enjoyment of the Initial Hotels during the term of the
Participating Leases, (iii) the Lessee will bear the cost of, and be
responsible for, day-to-day maintenance and repair of the Initial Hotels and
generally will control how the Initial Hotels are operated and maintained,
(iv) the Lessee will bear all of the costs and expenses of operating the
Initial Hotels (including the cost of any inventory used in their operation)
during the term of the Participating Leases (other than real estate and
personal property taxes, casualty insurance and capital improvements
(determined in accordance with generally accepted accounting principles)), (v)
the Lessee will benefit from any savings in the costs of operating the Initial
Hotels during the term of the

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Participating Leases, (vi) the Lessee will indemnify the Company against all
liabilities imposed upon or asserted against the Company during the term of
the Participating Leases by reason of, among other things, (A) accident,
injury to or death of persons, or loss of or damage to property occurring at
the Initial Hotels or (B) the Lessee's use, management, maintenance or repair
of the Initial Hotels, (vii) the Lessee is obligated to pay substantial fixed
rent for the period of use of the Initial Hotels, and (viii) the Lessee stands
to incur substantial losses (or reap substantial gains) depending on how
successfully it operates the Initial Hotels.

Investors should be aware that there are no controlling Treasury
Regulations, published rulings, or judicial decisions involving leases with
terms substantially the same as the Participating Leases that discuss whether
such leases constitute true leases for federal income tax purposes. Therefore,
the opinion of Battle Fowler LLP with respect to the relationship between the
Operating Partnership or a Subsidiary Partnership, as applicable, and the
Lessee is based upon all of the facts and circumstances and upon rulings and
judicial decisions involving situations that are considered to be analogous.
Opinions of counsel are not binding upon the IRS or any court, and there can
be no complete assurance that the IRS will not assert successfully a contrary
position. If the Participating Leases are recharacterized as service contracts
or partnership agreements, rather than true leases, part or all of the
payments that the Operating Partnership and the Subsidiary Partnerships
receive from the Lessee would not be considered rent or would not otherwise
satisfy the various requirements for qualification as "rents from real
property." In that case, the Company likely would not be able to satisfy
either the 75% or 95% gross income tests and, as a result, would lose its REIT
status.

As noted above, the Rents attributable to personal property leased in
connection with the lease of the real property comprising an Initial Hotel
must not be greater than 15% of the Rents received under the Participating
Lease. The Rents attributable to the personal property in an Initial Hotel is
the amount that bears the same ratio to total rent for the taxable year as the
average of the adjusted bases of the personal property in the Initial Hotel at
the beginning and at the end of the taxable year bears to the average of the
aggregate adjusted bases of both the real and personal property comprising the
Initial Hotel at the beginning and at the end of such taxable year (the
"Adjusted Basis Ratio"). With respect to each Initial Hotel (or interest
therein) that the Operating Partnership acquires in exchange for OP Units, the
initial adjusted bases of both the real and personal property comprising such
hotel generally will be the same as the adjusted bases of such property in the
hands of the previous owner. With respect to each Initial Hotel (or interest
therein) that the Operating Partnership acquires for cash, the aggregate
initial adjusted bases of the real and personal property generally will be
allocated among real and personal property based on relative fair market
values. The Company has obtained appraisals of the personal property for each
Initial Hotel that the Operating Partnership will acquire for cash. The
Participating Leases provide that the Adjusted Basis Ratio for each Initial
Hotel shall not exceed 15%. The Participating Leases further provide that the
Lessee will cooperate in good faith and use its best efforts to prevent the
Adjusted Basis Ratio for any Initial Hotel from exceeding 15%, which
cooperation includes the purchase by Lessee at fair market value of enough
personal property at such Initial Hotel so that the Adjusted Basis Ratio for
such Initial Hotel is less than 15%. In the event that the amount of personal
property relating to certain of the Initial Hotels will result in an Adjusted
Basis Ratio in excess of 15% and therefore would cause a portion of the Rents
received attributable to such Initial Hotels to not qualify as rents from real
property, the Operating Partnership will sell a portion of such personal
property relating to such Initial Hotels to the Lessee in exchange for the
FF&E Note. In addition, the Participating Leases provide that if future
renovations and refurbishments to an Initial Hotel would cause the Adjusted
Basis Ratio for such Initial Hotel to exceed 15%, the Operating Partnership
and/or a Subsidiary Partnership, if applicable, has the right to sell as much
personal property to the Lessee as necessary so that the Adjusted Basis Ratio
does not exceed 15% for such Initial Hotel. The interest income derived from
the FF&E Note will be qualifying income for the 95% gross income test but not
for the 75% gross income test. Finally, amounts in the Company's reserve for
capital expenditures may not be expended to acquire additional personal
property for an Initial Hotel to the extent that such acquisition would cause
the Adjusted Basis Ratio for that Initial Hotel to exceed 15%. The Company
does not expect the Adjusted Basis Ratio for any Initial Hotel to exceed 15%
and therefore expects that the portion of rents received attributable to
personal property will be received attributable to personal property will be
treated as rents from real property. However, there can be no assurance that
the IRS would not assert that the personal property acquired by the Operating
Partnership or a

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Subsidiary Partnership had a value in excess of the appraised value, or that a
court would not uphold such assertion. If such a challenge were successfully
asserted, a portion of the rents received under the Participating Leases would
not qualify as rents from real property. However, the Company does not expect
such an amount, if any, when combined with any other nonqualifying income for
the 95% or 75% gross income tests, to exceed 5% of the Company's annual gross
income, which would cause the Company to lose its status as a REIT.

As noted earlier, in order to be treated as "rents from real property," the
Participating Rent must not be based in whole or in part on the income or
profits of any person. The Participating Rent, however, will qualify as "rents
from real property" if it is based on percentages of receipts or sales and the
percentages (i) are fixed at the time the Participating Leases are entered
into, (ii) are not renegotiated during the term of the Participating Leases in
a manner that has the effect of basing Participating Rent on income or
profits, and (iii) conform with normal business practice. More generally, the
Participating Rent will not qualify as "rents from real property" if,
considering the Participating Leases and all the surrounding circumstances,
the arrangement does not conform with normal business practice, but is in
reality used as a means of basing the Participating Rent on income or profits.
Since the Participating Rent is based on fixed percentages of the gross
revenues from the Initial Hotels that are established in the Participating
Leases, and the Company has represented that the percentages (i) will not be
renegotiated during the terms of the Participating Leases in a manner that has
the effect of basing the Participating Rent on income or profits and (ii)
conform with normal business practice, the Participating Rent should not be
considered based in whole or in part on the income or profits of any person.
Furthermore, the Company has represented that, with respect to other hotel
properties that it acquires in the future, if any, it will not charge rent for
any property that is based in whole or in part on the income or profits of any
person (except by reason of being based on a fixed percentage of gross
revenues, as described above).

As noted above, rent received from a Related Party Tenant does not qualify
as "rents from real property." Thus, the Company must not own, actually or
constructively, 10% or more of the Lessee. Applicable constructive ownership
rules generally provide that, if 10% or more in value of the stock of the
Company is owned, directly or indirectly, by or for any person, the Company is
considered as owning the stock owned, directly or indirectly, by or for such
person. The Limited Partners of the Operating Partnership may acquire Common
Stock (at the Company's option) by exercising their Exchange Rights. In
addition, during the period of the Lessee Distribution Restriction, the Lessee
will be required, subject to compliance with applicable securities laws, to
purchase annually Common Stock on the open market or, if any such purchases
would violate the ownership limitation in the Company's Charter, at the option
of the Operating Partnership, OP Units from the Operating Partnership, in an
amount equal to the Lessee's cash flow attributable to the Participating
Leases for the preceding fiscal year (after establishing a reserve for partner
tax distributions). In addition, Messrs. Jorns and Wiles are required to use
50% of the dividends received by them from AGHI that are attributable to
AGHI's earnings from the management of hotels owned by the Company to purchase
annually in the open market shares of Common Stock. The Exchange Agreement
provides that the Company may not satisfy an exchanging Limited Partner's
Exchange Right by delivery of Common Stock, if and to the extent the delivery
of Common Stock upon the exercise of such rights would cause the Company to
own, actually or constructively, 10% or more of the ownership interest in a
tenant of the Company's, the Operating Partnership's or a Subsidiary
Partnership's real property, within the meaning of section 856(d)(2)(B) of the
Code. The Charter likewise will prohibit a shareholder of the Company from
owning Common Stock that would cause the Company to own, actually or
constructively, 10% or more of the ownership interests in a tenant of the
Company's, the Operating Partnership's or a Subsidiary Partnership's real
property, within the meaning of section 856(d)(2)(B) of the Code. Thus, the
Company should never own, actually or constructively, 10% of more of the
Lessee. However, because the Code's constructive ownership rules for purposes
of the Related Party Tenant rules are broad and it is not possible to monitor
continually direct and indirect transfers of Common Stock, no absolute
assurance can be given that such transfers or other events of which the
Company has no knowledge will not cause the Company to own constructively 10%
or more of the Lessee at some future date.

A fourth requirement noted above for qualification of the Rents as "rents
from real property" is that the Company cannot furnish or render noncustomary
services to the tenants of the Initial Hotels, or manage or

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operate the Initial Hotels, other than through an independent contractor who
is adequately compensated and from whom the Company itself does not derive or
receive any income. Provided that the Participating Leases are respected as
true leases, the Company should satisfy this requirement, because AGHI,
pursuant to the Management Agreements, will be performing services to such
tenants for the Lessee, which will lease the Initial Hotels from the Operating
Partnership. Neither the Company, the Operating Partnership nor any Subsidiary
Partnership will furnish or provide any services to a tenant, and none of such
entities will contract with any other person to provide any such services. The
Company has represented that if the Company decides to render noncustomary
services to tenants in the future, it will do so through an independent
contractor from which it will not receive any income.

If a portion of the Rents from a particular hotel property does not qualify
as "rents from real property" because the amount attributable to personal
property exceeds 15% of the total Rents for a taxable year, the portion of the
Rents that is attributable to personal property will not be qualifying income
for purposes of either the 75% or 95% gross income tests. A portion of the
Rent paid to the Company by the Lessee will be allocable to the Franchise
Licenses. Appraisals obtained by the Company indicate that the Franchise
Licenses represent less than 1.0% of the total value of the Company's assets.
Because the Company does not expect the total amount of Rents attributable to
personal property plus any other non-qualifying income it receives (including
any amounts attributable to the Franchise Licenses) to exceed 5% of its annual
gross income, the Company's REIT status should not be affected. If, however,
the Rents do not qualify as "rents from real property" because either (i) the
Participating Rent is considered based on income or profits of the Lessee,
(ii) the Company owns, actually or constructively, 10% or more of the Lessee,
or (iii) the Company furnishes noncustomary services to the tenants of the
Initial Hotels, or manages or operates the Initial Hotels, other than through
a qualifying independent contractor, none of the Rents would qualify as "rents
from real property." In that case, the Company likely would lose its REIT
status because it would be unable to satisfy either the 75% or 95% gross
income tests.

In addition to the Rents, the Lessee is required to pay to the Operating
Partnership Additional Charges. To the extent that Additional Charges
represent either (i) reimbursements of amounts that the Lessee is obligated to
pay to third parties or (ii) penalties for nonpayment or late payment of such
amounts, Additional Changes should qualify as "rents from real property." To
the extent, however, that Additional Charges represent interest that is
accrued on the late payment of the Rents or Additional Charges, Additional
Charges would not qualify as "rents from real property," but instead would be
treated as interest that qualifies for the 95% gross income test.

Based on the foregoing, the Rents and the Additional Charges should qualify
as "rents from real property" for purposes of the 75% and 95% gross income
tests, except to the extent that the Additional Charges represent interest
that is accrued on the late payment of the Rents or the Additional Charges
(which will be qualifying gross income for the 95% test but not the 75% test).

The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends
in whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales. Furthermore, interest from a loan that is based on the
residual cash proceeds from sale of the property securing the loan will be
treated as gain from the sale of the secured property.

It is possible that, from time to time, the Company, the Operating
Partnership or a Subsidiary Partnership will enter into hedging transactions
with respect to one or more of its assets or liabilities. Any such hedging
transactions could take a variety of forms. If the Company, the Operating
Partnership or a Subsidiary Partnership enters into an interest rate swap or
cap contract to hedge any variable rate indebtedness incurred to acquire or
carry real estate assets, any periodic income or gain from the disposition of
such contract should be qualifying income for purposes of the 95% gross income
test, but not for the 75% gross income test. Furthermore, any such contract
would be considered a "security" for purposes of applying the 30% gross income
test. To the extent that the Company, the Operating Partnership or a
Subsidiary Partnership hedges with other types of financial

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instruments or in other situations, it may not be entirely clear how the
income from those transactions will be treated for purposes of the various
income tests that apply to REITs under the Code. The Company intends to
structure any hedging transactions in a manner that does not jeopardize its
status as a REIT.

If the sum of the income realized by the Company (whether directly or
through its interest in the Operating Partnership or the Subsidiary
Partnerships) which does not satisfy the requirements of the 75% and the 95%
gross income tests (collectively, "Non-Qualifying Income"), exceeds 5% of the
Company's gross income for any taxable year, the Company's status as a REIT
would be jeopardized. The Company has represented that the amount of its Non-
Qualifying Income will not exceed 5% of the Company's annual gross income for
any taxable year.

If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may still qualify as a REIT for such year if
the Company's failure to meet such tests was due to reasonable cause and not
to willful neglect, the Company attaches a schedule of the sources of its
income to its return, and any incorrect information on the schedule was not
supplied fraudulently with the intent to evade tax. It is not possible to
specify the circumstances under which the Company may be entitled to the
benefit of these relief provisions. Even if these relief provisions apply, a
100% tax is imposed on the net income attributable to the greater of the
amount by which the Company failed the 75% test or the 95% test. Failure to
comply with the 30% gross income test is not excusable; therefore, if the
Company fails to meet the requirements of the 30% gross income test, its
status as a REIT automatically terminates regardless of the reason for such
failure.

Asset Tests. At the close of each quarter of its taxable year, the Company
also must satisfy two tests relating to the nature and diversification of its
assets. First, at least 75% of the value of the Company's total assets must be
represented by real estate assets (including its allocable share of real
estate assets held by the Operating Partnership and by any partnerships in
which the Operating Partnership or a qualified REIT subsidiary owns an
interest, stock or debt instruments held for not more than one year purchased
with the proceeds of an issuance of stock or long-term (at least five years)
debt of the Company), cash, cash items and government securities. Second, no
more than 25% of the Company's total assets may be represented by securities
other than those that can satisfy the 75% asset test described in the
preceding sentence. Of the investments included in the 25% asset class, the
value of any one issuer's securities (excluding shares in qualified REIT
subsidiaries such as AGH GP and AGH LP or another REIT and excluding
partnership interests such as those in the Operating Partnership and in any
Subsidiary Partnerships) owned by the Company may not exceed 5% of the value
of the Company's total assets, and the Company may not own more than 10% of
any one issuer's outstanding voting securities (excluding securities of a
qualified REIT subsidiary or another REIT and excluding partnership
interests). The Company has represented that, as of the date of the Offering,
(i) at least 75% of the value of its total assets will be represented by real
estate assets, cash and cash items (including receivables), and government
securities and (ii) it will not own any securities that do not satisfy the 75%
asset requirement. In addition, the Company has represented that it will not
acquire or dispose, or cause the Operating Partnership or a Subsidiary
Partnership to acquire or dispose, of assets in the future in a way that would
cause it to violate either asset requirement. The Company may form additional
qualified REIT subsidiaries in order to operate hotels in Texas. See "--Other
Tax Considerations--State and Local Taxes."

Annual Distribution Requirements. In order to qualify as a REIT, the Company
must distribute to the holders of shares of Common Stock an amount at least
equal to (A) the sum of 95% of (i) the Company's "real estate investment trust
taxable income" (computed without regard to the deduction for dividends paid
and excluding any net capital gain) plus (ii) the excess of the net income, if
any, from foreclosure property over the tax on such income, minus (B) the
excess of the sum of certain items of non-cash income (income attributable to
leveled stepped rents, original issue discount on purchase money debt, or a
like-kind exchange that is later determined to be taxable over 5% of the
amount determined under clause (i) above). Such distributions must be paid in
the taxable year to which they relate, or in the following taxable year if
declared before the Company timely files its tax return for such year and if
paid on or before the first regular distribution date after such declaration.
The amount distributed must not be preferential--i.e., each holder of shares
of Common Stock must

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receive the same distribution per share. A REIT may have more than one class
of stock, as long as distributions within each class are pro rata and non-
preferential. Such distributions are taxable to holders of Common Stock (other
than tax-exempt entities or nontaxable persons, as discussed below) in the
year in which paid, even though such distributions reduce the Company's
taxable income for the year in which declared. To the extent that the Company
does not distribute all of its net capital gain or distributes at least 95%,
but less than 100%, of its "real estate investment trust taxable income," it
will be subject to tax thereon at regular corporate tax rates. Finally, as
discussed below, the Company may be subject to an excise tax if it fails to
meet certain other distribution requirements.

The Company expects, and intends to take measures within its control, to
make quarterly distributions to the holders of shares of Common Stock in an
amount sufficient to satisfy the requirements of the annual distribution test.
In this regard, the Partnership Agreement authorizes AGH GP, as general
partner, to take such steps as are necessary to distribute to the partners of
the Operating Partnership an amount sufficient to permit the Company to meet
the annual distribution requirements. However, it is possible that the
Company, from time to time, may not have sufficient cash or other liquid
assets to meet the 95% distribution requirement, or to distribute such greater
amount as may be necessary to avoid income and excise taxation, due to timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company, or if the amount
of nondeductible expenses, such as principal amortization or capital
expenditures exceeds the amount of noncash deductions, such as depreciation.
In the event that such timing differences occur, the Company may find it
necessary to cause the Operating Partnership to arrange for borrowings or
liquidate some of its investments in order to meet the annual distribution
requirement, or attempt to declare a consent dividend, which is a hypothetical
distribution to holders of shares of Common Stock out of the earnings and
profits of the Company. The effect of such a consent dividend (which, in
conjunction with dividends actually paid, must not be preferential to those
holders who agree to such treatment) would be that such holders would be
treated for federal income tax purposes as if they had received such amount in
cash and they then had immediately contributed such amount back to the Company
as additional paid-in capital. This would result in taxable income to those
holders without the receipt of any actual cash distribution but would also
increase their tax basis in their shares of Common Stock by the amount of the
taxable income recognized.

If the Company fails to meet the 95% distribution test due to an adjustment
to the Company's income by reason of a judicial decision or by agreement with
the IRS, the Company may pay a "deficiency dividend" to holders of shares of
Common Stock in the taxable year of the adjustment, which dividend would
relate back to the year being adjusted. In such case, the Company also would
be required to pay interest plus a penalty to the IRS. However, a deficiency
dividend cannot be used to meet the 95% distribution test if the failure to
meet such test was due to the Company's failure to distribute sufficient
amounts to the holders of shares of Common Stock.

In addition, if the IRS successfully challenged the Company's deduction of
all or a portion of the salary and bonus it pays to officers who are also
holders of shares of Common Stock, such payments could be recharacterized as
dividend distributions to such employees in their capacity as stockholders. If
such distributions were viewed as preferential distributions, they would not
count toward the 95% distribution test.

FAILURE TO QUALIFY AS A REIT

The Company's treatment as a REIT for federal income tax purposes will be
terminated automatically if the Company fails to meet the requirements
described above and any available relief provisions do not apply. In such
event, the Company will be subject to tax (including any applicable minimum
tax) on its taxable income at regular corporate rates, and distributions to
holders of shares of Common Stock will not be deductible by the Company. All
distributions to holders of shares of Common Stock will be taxable as ordinary
income to the extent of current and accumulated earnings and profits of the
Company and distributions in excess thereof will be treated first as a tax
free return of capital (to the extent of a holder's tax basis in his shares of
Common Stock) and then as gain realized from the sale of shares of Common
Stock. Corporate stockholders will be eligible for the dividends received
deduction to the extent that distributions are made out of earnings and
profits. As noted

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above, the Company will not be eligible to elect REIT status again until the
beginning of the fifth taxable year after the year during which the Company's
qualification was terminated, unless the Company meets certain relief
requirements. Failure to qualify for even one year could result in the Company
incurring substantial indebtedness (to the extent borrowings are feasible) or
liquidating substantial investments in order to pay the resulting corporate
income taxes.

TAXATION OF THE COMPANY

In General. For any taxable year in which the Company qualifies as a REIT,
it will generally not be subject to federal income tax on that portion of its
REIT taxable income which is distributed to stockholders (except income or
gain with respect to foreclosure property, which will be taxed at the highest
corporate rate--currently 35%). If the Company were to fail to qualify as a
REIT, it would be taxed at rates applicable to corporations on all its income,
whether or not distributed to holders of shares of Common Stock. Even if it
qualifies as a REIT, the Company will be taxed on the portion of its REIT
taxable income which it does not distribute to the holders of shares of Common
Stock, such as taxable income retained as reserves.

100 Percent Tax. The Company will be subject to a 100% tax on (i) the
greater of the net income attributable to the amount by which it fails the 75%
income test or the 95% income test; and (ii) any net income derived from a
"prohibited transaction" (i.e., the sale of "dealer" property by the Company).
The imposition of any such tax on the Company would reduce the amount of cash
available for distribution to holders of shares of Common Stock.

A "dealer" is one who holds property primarily for sale to customers in the
ordinary course of its trade or business. All inventory required in the
operation of the Initial Hotels will be owned by the Lessee under the terms of
the Participating Leases. Accordingly, the Company believes no asset owned by
the Company, the Operating Partnership or a Subsidiary Partnership is held for
sale to customers and that a sale of any such asset will not be in the
ordinary course of business of the Company, the Operating Partnership or a
Subsidiary Partnership. Whether property is held "primarily for sale to
customers in the ordinary course of a trade or business" depends, however, on
the facts and circumstances in effect from time to time, including those
related to a particular property. Nevertheless, the Company will attempt to
comply with the terms of safe harbor provisions in the Code prescribing when
asset sales will not be characterized as prohibited transactions. Complete
assurance cannot be given, however, that the Company can comply with the safe
harbor provisions of the Code or avoid owning property that may be
characterized as property held primarily for sale to customers in the ordinary
course of a trade or business. Because a determination of "dealer status" is
necessarily dependent upon facts which will occur in the future, Counsel
cannot render an opinion on this issue.

Tax on Net Income from Foreclosure Property. The Company will be subject to
a tax at the highest rate applicable to corporations (currently 35%) on any
"net income from foreclosure property." "Foreclosure property" is property
acquired by the Company as a result of a foreclosure proceeding or by
otherwise reducing such property to ownership by agreement or process of law.
"Net income from foreclosure property" is the gross income derived during the
taxable year from foreclosure property, less applicable deductions, but only
to the extent such income does not qualify under the 75% income test and 95%
income test. As a result of the rules with respect to foreclosure property, if
the Lessee defaults on its obligations under a Participating Lease for an
Initial Hotel, the Company terminates the Participating Lease, and the Company
is unable to find a replacement lessee for such Initial Hotel within 90 days
of such foreclosure, gross income from hotel operations conducted by the
Company from such Initial Hotel would cease to qualify for the 75% and 95%
gross income tests and, thus, the Company would fail to qualify as a REIT.
However, although it is unclear under the Code, if the hotel operations were
conducted by an independent contractor, it may be possible for the Initial
Hotel to cease to be foreclosure property two years after such foreclosure,
(which period could be extended an additional four years).

Alternative Minimum Tax. The Company will be subject to the alternative
minimum tax on items of tax preference allocable to it. Code Section 59(d)
authorizes the Treasury to issue regulations allocating items of tax
preference between a REIT and its stockholders. Such regulations have not yet
been issued; however, the Company does not anticipate any significant items of
tax preference.

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Excise Tax. In addition to the tax on any undistributed income, the Company
would also be subject to a 4% excise tax on the amount if any by which (i) the
sum of (A) 85% of its REIT taxable income for a calendar year, (B) 95% of any
net capital gain for such year and (C) any undistributed amounts (for purpose
of avoiding this excise tax) from prior years, exceeds (ii) the amount
actually distributed by the Company to holders of shares of Common Stock
during the calendar year (or declared as a dividend during the calendar year,
if distributed during the following January) as ordinary income dividends. The
imposition of any excise tax on the Company would reduce the amount of cash
available for distribution to holders of shares of Common Stock. The Company
intends to take all necessary measures within its control to avoid imposition
of the excise tax.

Tax on Built-In Gain of Certain Assets. If a C corporation elects to be
taxed as a REIT, or if assets of a C corporation are transferred to a REIT in
a transaction in which the REIT has a carryover basis in the assets acquired,
such C corporation generally will be treated as if it sold all of its assets
to such REIT at their respective fair market values and liquidated immediately
thereafter, recognizing and paying tax on all gain. However, under such
circumstances under present law, the REIT is permitted to make an election
under which the C corporation will not recognize gain and instead the REIT
will be required to recognize gain and pay any tax thereon only if it disposes
of such assets during the subsequent 10-year period (the "10-Year Rule"). The
Company intends to make the appropriate election to obtain the above-described
tax consequences. Thus, if the Company acquires any asset from a C corporation
as a result of a merger or other nontaxable exchange, and the Company
recognizes gain on the disposition of such asset during the 10-year period
following acquisition of the asset, then such gain will be subject to tax at
the highest regular corporate rate to the extent the Built-In Gain (the excess
of (a) the fair market value of such asset as of the date of acquisition over
(b) the Company's adjusted basis in such asset as of such date) on the sale of
such asset exceeds any Built-In Loss arising from the disposition during the
same taxable year of any other assets acquired in the same transaction, where
Built-In Loss equals the excess of (x) the Company's adjusted basis in such
other assets as of the date of acquisition over (y) the fair market value of
such other assets as of such date.

It should be noted that President Clinton has proposed that the 10-Year Rule
be repealed, and the Treasury Department has stated that it would recommend to
Congress that such repeal be effective for C corporations electing REIT status
or for carryover basis transactions for taxable years beginning on or after
January 1, 1997.

TAXATION OF STOCKHOLDERS

TAXABLE U.S. STOCKHOLDERS

Dividend Income. Distributions from the Company (other than distributions
designated as capital gains dividends) will be taxable to holders of shares of
Common Stock which are not tax-exempt entities as ordinary income to the
extent of the current or accumulated earnings and profits of the Company.
Distributions from the Company which are designated (by notice to stockholders
within 30 days after the close of the Company's tax year or with its annual
report) as capital gains dividends by the Company will be taxed as long-term
capital gains to taxable holders of shares of Common Stock to the extent that
they do not exceed the Company's actual net capital gain for the taxable year.
Holders of shares of Common Stock that are corporations may be required to
treat up to 20% of any such capital gains dividends as ordinary income. Such
distributions, whether characterized as ordinary income or as capital gain,
are not eligible for the 70% dividends received deduction for corporations
(which President Clinton has proposed be decreased to 50%, effective for
dividends received or accrued after January 31, 1996).

Distributions from the Company to holders which are not designated as
capital gains dividends and which are in excess of the Company's current or
accumulated earnings and profits are treated as a return of capital to such
holders and reduce the tax basis of a holder's shares of Common Stock (but not
below zero). Any such distribution in excess of the tax basis is taxable to
any such holder that is not a tax-exempt entity as a gain realized from the
sale of the shares of Common Stock, taxable as described below.

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The declaration by the Company of a consent dividend would result in taxable
income to consenting holders of shares of Common Stock (other than tax-exempt
entities) without any corresponding cash distributions. See "--Requirements
for Qualification as a REIT--Annual Distribution Requirements."

Portfolio Income. Dividends paid to holders of shares of Common Stock will
be treated as portfolio income. Such income therefore will not be subject to
reduction by losses from passive activities (i.e., any interest in a rental
activity or in a trade or business in which the holder does not materially
participate, such as certain interests held as a limited partner) of any
holder who is subject to the passive activity loss rules. Such distributions
will, however, be considered investment income which may be offset by certain
investment expense deductions.

No Flow-Through of Losses. Holders of shares of Common Stock will not be
permitted to deduct any net operating losses or capital losses of the Company.

Sale of Shares. A holder of shares of Common Stock who sells shares will
recognize taxable gain or loss equal to the difference between (i) the amount
of cash and the fair market value of any property received on such sale or
other disposition and (ii) the holder's adjusted basis in such shares. Gain or
loss recognized by a holder of shares of Common Stock who is not a dealer in
securities and whose shares have been held for more than one year will
generally be taxable as long-term capital gain or loss.

Back-up Withholding. Distributions from the Company will ordinarily not be
subject to withholding of federal income taxes, except as discussed under
"Foreign Stockholders." Withholding of income tax at a rate of 31% may be
required, however, by reason of a failure of a holder of shares of Common
Stock to supply the Company or its agent with the holder's taxpayer
identification number. Such "backup" withholding also may apply to a holder of
shares of Common Stock who is otherwise exempt from backup withholding
(including a nonresident alien of the United States and, generally, a foreign
entity) if such holder fails to properly document his status as an exempt
recipient of distributions. Each holder will therefore be asked to provide and
certify his correct taxpayer identification number or to certify that he is an
exempt recipient.

TAX-EXEMPT STOCKHOLDERS

Non-taxability of Dividend Income. In general, a holder of shares of Common
Stock which is a tax-exempt entity will not be subject to tax on distributions
from the Company. The IRS has ruled that amounts distributed as dividends by a
qualified REIT do not constitute unrelated business taxable income ("UBTI")
when received by certain tax-exempt entities. Thus, distributions paid to a
holder of shares of Common Stock which is a tax-exempt entity and gain on the
sale of shares of Common Stock by a tax-exempt entity (other than those tax-
exempt entities described below) will not be treated as UBTI, even if the
Company incurs indebtedness in connection with the acquisition of real
property (through its percentage ownership of the Operating Partnership and
the Subsidiary Partnerships) provided that the tax-exempt entity has not
financed the acquisition of its shares of Common Stock of the Company.

For tax-exempt entities which are social clubs, voluntary employee
beneficiary associations, supplemental unemployment benefit trusts, and
qualified group legal services plans exempt from federal income taxation under
Code Sections 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income
from an investment in the Company will constitute UBTI unless the organization
is able to properly deduct amounts set aside or placed in reserve for certain
purposes so as to offset the UBTI generated by its investment in the Company.
Such prospective investors should consult their own tax advisors concerning
these "set aside" and reserve requirements.

In the case of a "qualified trust" (generally, a pension or profit-sharing
trust) holding shares in a REIT, the beneficiaries of such a trust are treated
as holding shares in the REIT in proportion to their actuarial interests in
the qualified trust, instead of treating the qualified trust as a single
individual (the "look through exception"). A qualified trust that holds more
than 10% of the shares of a REIT is required to treat a percentage of REIT
dividends as UBTI if the REIT incurs debt to acquire or improve real property.
This rule applies, however, only

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if (i) the qualification of the REIT depends upon the application of the "look
through" exception (described above) to the restriction on REIT shareholdings
by five or fewer individuals, including qualified trusts (see "Description of
Capital Stock--Restrictions on Transfer"), and (ii) the REIT is "predominantly
held" by qualified trusts, i.e., if either (x) a single qualified trust held
more than 25% by value of the interests in the REIT or (y) one or more
qualified trusts, each owning more than 10% by value, held in the aggregate
more than 50% of the interests in the REIT. The percentage of any dividend
paid (or treated as paid) to such a qualified trust that is treated as UBTI is
equal to the amount of modified gross income (gross income less directly
connected expenses) from the unrelated trade or business of the REIT (treating
the REIT as if it were a qualified trust), divided by the total modified gross
income of the REIT. A de minimis exception applies where the percentage is
less than 5%. Because the Company expects the shares of Common Stock to be
widely held, this new provision should not result in UBTI to any tax-exempt
entity.

FOREIGN STOCKHOLDERS

The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships, foreign estates
and foreign trusts (collectively, "Foreign Investors") are complex, and no
attempt will be made herein to provide more than a summary of such rules.
Prospective Foreign Investors should consult their own tax advisors to
determine the impact of federal, state and local income tax laws on an
investment in the shares of Common Stock, including any reporting
requirements, as well as the tax treatment of such an investment under their
home country laws.

Foreign Investors which are not engaged in the conduct of a business in the
United States and who purchase shares of Common Stock will generally not be
considered as engaged in the conduct of a trade or business in the United
States by reason of ownership of such shares. The taxation of distributions by
the Company to Foreign Investors will depend upon whether such distributions
are attributable to operating income or are attributable to sales or exchanges
by the Company of its United States Real Property Interests ("USRPIs"). USRPIs
are generally direct interests in real property located in the United States
and interests in domestic corporations in which the fair market value of its
USRPIs exceeds a certain percentage.

The Company anticipates that a substantial portion of the distributions to
holders of shares of Common Stock will be attributable to receipt of Rent by
the Company. To the extent that such distributions do not exceed the current
or accumulated earnings and profits of the Company, they will be treated as
dividends and will be subject to a withholding tax equal to 30% of the gross
amount of the dividend, which tax will be withheld and remitted to the IRS by
the Company. Such 30% rate may be reduced by United States income tax treaties
in effect with the country of residence of the Foreign Investor; however, a
Foreign Investor must furnish a completed IRS Form 1001 to the Company to
secure such a reduction. Distributions in excess of the Company's earnings and
profits will be treated as a nontaxable return of capital to a Foreign
Investor to the extent of the basis of his shares of Common Stock, and any
excess amount will be treated as an amount received in exchange for the sale
of his shares of Common Stock and treated under the rules described below for
the sale of Common Stock.

Distributions which are attributable to net capital gains realized from the
disposition of USRPIs (i.e., the Initial Hotels) by the Company will be taxed
as though the Foreign Investors were engaged in a trade or business in the
United States and the distributions were gains effectively connected with such
trade or business. Thus, a Foreign Investor would be entitled to offset its
gross income by allowable deductions and would pay tax on the resulting
taxable income at the graduated rates applicable to United States citizens or
residents. For both individuals and corporations, the Company must withhold a
tax equal to 35% of all dividends that could be designated by the Company as
capital gain dividends. To the extent that such withholding exceeds the actual
tax owed by the Foreign Investor, a Foreign Investor may claim a refund from
the IRS.

The Company or any nominee (e.g., a broker holding shares in street name)
may rely on a certificate of non-foreign status on Form W-8 or Form W-9 to
determine whether withholding is required on gains realized from the
disposition of USRPIs. A domestic person (a "nominee") who holds shares of
Common Stock on

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<PAGE>

behalf of a Foreign Investor will bear the burden of withholding, provided
that the Company has properly designated the appropriate portion of a
distribution as a capital gain dividend.

It is anticipated that the shares owned directly or indirectly by Foreign
Investors will be less than 50% in value of the shares of Common Stock and
therefore the Company will be a "domestically controlled REIT." Accordingly,
shares of Common Stock held by Foreign Investors in the United States will not
be considered USRPIs and gains on sales of such shares will not be taxed to
such Foreign Investors as long as the seller is not otherwise considered to be
engaged in a trade or business in the United States. (The same rule applies to
gains attributable to distributions in excess of the Foreign Investor's cost
for its shares, discussed above.) Similarly, a foreign corporation not
otherwise subject to United States tax which distributes shares of Common
Stock to its stockholders will not be taxed under this rule.

The IRS is authorized to impose annual reporting requirements on certain
United States and foreign persons directly holding USRPIs. The required
reports are in addition to any necessary income tax returns, and do not
displace existing reporting requirements imposed on Foreign Investors by the
Agricultural Foreign Investment Disclosure Act of 1978 and the International
Investment Survey Act of 1976. As of the date of this Prospectus, the IRS has
not exercised its authority to impose reporting under this provision.
Furthermore, because shares in a domestically controlled REIT do not
constitute a USRPI, such reporting requirements are not expected to apply to a
Foreign Investor in the Company. However, the Company is required to file an
information return with the IRS setting forth the name, address and taxpayer
identification number of the payee of distributions from the Company (whether
the payee is a nominee or is the actual beneficial owner).

STATEMENT OF STOCK OWNERSHIP

The Company is required to demand annual written statements from the record
holders of designated percentages of its shares of Common Stock disclosing the
actual owners of the shares of Common Stock. The Company must also maintain,
within the Internal Revenue District in which it is required to file its
federal income tax return, permanent records showing the information it has
received as to the actual ownership of such shares of Common Stock and a list
of those persons failing or refusing to comply with such demand.

TAX ASPECTS OF THE OPERATING PARTNERSHIP

The following discussion summarizes certain federal income tax
considerations applicable solely to the Company's investment in the Operating
Partnership and the Subsidiary Partnerships. The discussion does not cover
state or local tax laws or any federal tax laws other than income tax laws.

Classification as a Partnership. A substantial portion the Company's real
estate investments will be made through the Subsidiary Partnerships, certain
of which will hold interests in other partnerships. In general, partnerships
are "pass-through" entities which are not subject to federal income tax.
Instead, partners are allocated their proportionate shares of the items of
income, gain, loss, deduction and credit of a partnership, and are subject to
tax thereon, without regard to whether the partners receive cash distributions
from the partnership. The Company will be entitled to include in its REIT
taxable income its distributive share of the income of any partnership
(including the Operating Partnership) in which it has an interest and to
deduct its distributive share of the losses of any partnership (including the
Operating Partnership) in which it has an interest only if each such
partnership is classified for federal income tax purposes as a partnership
rather than as an association taxable as a corporation.

An organization formed as a partnership will be treated as a partnership for
federal income tax purposes rather than as a corporation only if it has no
more than two of the following four corporate characteristics: continuity of
life, centralization of management, limited liability and free transferability
of interests. However, a "publicly traded partnership" (i.e., a partnership in
which interests are traded on an established securities market or are readily
tradable on a secondary market or the substantial equivalent thereof) will be
treated as a corporation unless at least 90% of the gross income of such
partnership, for each taxable year the partnership is a publicly

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<PAGE>

traded partnership, consists of "qualifying income." "Qualifying income"
includes income from real property rents, gain from the sale or other
disposition of real property, interest and dividends.

The IRS has issued final regulations providing limited safe harbors from the
definition of a publicly traded partnership. Pursuant to one of those safe
harbors (the "Private Placement Exclusion"), interests in a partnership will
not be treated as readily tradable on a secondary market or the substantial
equivalent thereof if (i) all of the partnership interests are issued in a
transaction that is not required to be registered under the Securities Act and
(ii) the partnership does not have more than 100 partners at any time during
the taxable year (taking into account as a partner each person who indirectly
owns an interest in the partnership through a partnership, grantor trust, or S
corporation (a "flow-through entity"), but only if (a) substantially all the
value of the beneficial owner's interest in the flow-through entity is
attributable to the flow-through entity's interest (direct or indirect) in the
partnership, and (b) a principal purpose of the use of the tiered arrangement
is to permit the partnership to satisfy the 100-partner limitation).

All of the partnership interests in the Operating Partnership and the
Subsidiary Partnerships will be issued in transactions that are not required
to be registered under the Securities Act. In addition, upon the closing of
the Offering, in the aggregate, the Operating Partnership and the Subsidiary
Partnerships will not have more than 100 partners (even taking into account
indirect ownership of such partnerships through partnerships, grantor trusts,
and S corporations). Thus, the Operating Partnership and each Subsidiary
Partnership should satisfy the Private Placement Exclusion.

None of the Operating Partnership and the Subsidiary Partnerships has
requested and none intends to request, a ruling from the IRS that it will be
classified as a partnership for federal income tax purposes. Instead, at the
closing of the Offering, Battle Fowler LLP will deliver its opinion that,
based on the provisions of the partnership agreement of the Operating
Partnership and each Subsidiary Partnership, certain factual assumptions, and
certain representations described in the opinion, the Operating Partnership
and each Subsidiary Partnership will not possess more than two corporate
characteristics and thus will be treated for federal income tax purposes as a
partnership and not as an association taxable as a corporation or as a
publicly traded partnership. Unlike a tax ruling, an opinion of counsel is not
binding upon the IRS, and no assurance can be given that the IRS will not
challenge the status of the Operating Partnership and each Subsidiary
Partnership as a partnership for federal income tax purposes. If such
challenge were sustained by a court, the Operating Partnership and each
Subsidiary Partnership would be treated as a corporation for federal income
tax purposes, as described below. In addition, the opinion of Battle Fowler
LLP is based on existing law, which is to a great extent the result of
administrative and judicial interpretation. No assurance can be given that
administrative or judicial changes would not modify the conclusions expressed
in the opinion.

If for any reason any of the partnerships in which the Company has an
interest were taxable as a corporation rather than as a partnership for
federal income tax purposes, the Company would not be able to satisfy the
asset requirements for REIT status. See "--Requirements for Qualification as a
REIT--Asset Tests." In addition, any change in the partnership status of such
entities for tax purposes might be treated as a taxable event in which case
the Company might incur a tax liability without any related cash distribution.
See "--Income Taxation of the Operating Partnership and Its Partners--Basis in
Operating Partnership Interest." Further, items of income and deduction of
such partnerships would not pass through to its partners (including the
Company), and such partners would be treated as stockholders for tax purposes.
The partnerships in which the Company has an interest would be required to pay
income tax at corporate tax rates on their net income, and distributions to
their partners would constitute dividends that would not be deductible in
computing the relevant entities' taxable income.

Under a regulatory "anti-abuse" rule (the "Anti-Abuse Rule"), the IRS may
(i) recast a transaction involving the use of a partnership to reflect the
underlying economic arrangement under the partnership provisions of the Code
(the "Partnership Provisions"), or (ii) prevent the use of a partnership to
circumvent the intended purpose of a Code provision. The Anti-Abuse Rule
contains an example in which a corporation that elects to be treated as a REIT
contributes substantially all of the proceeds from a public offering to a
partnership

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<PAGE>

in exchange for a general partnership interest. The example concludes that the
use of the partnership is not inconsistent with the intent of the Partnership
Provisions and, thus, cannot be recast by the IRS. However, the Exchange
Rights do not conform in all respects to the redemption rights contained in
the foregoing example. Moreover, the Anti-Abuse Rule is extraordinarily broad
in scope and is applied based on an analysis of all of the facts and
circumstances. As a result, there can be no assurance that the IRS will not
attempt to apply the Anti-Abuse Rule to the Company. If the conditions of the
Anti-Abuse Rule are met, the IRS is authorized to take appropriate enforcement
action, including disregarding the Operating Partnership for federal income
tax purposes or treating one or more of the partners as nonpartners. Any such
action potentially could jeopardize the Company's status as a REIT.

INCOME TAXATION OF THE OPERATING PARTNERSHIP AND ITS PARTNERS

Operating Partnership Allocations. As noted above, the Company must include
in its REIT taxable income its distributive share of the income and losses of
any partnership in which it has any interest. Although the provisions of a
partnership agreement generally will determine the allocation of income and
losses among partners, such allocations will be disregarded for tax purposes
under Section 704(b) of the Code if they do not have "substantial economic
effect" or otherwise do not comply with the provisions of Section 704(b) of
the Code and Treasury Regulations.

If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners in respect of such item. The allocations of taxable income and loss
of partnerships in which the Company has an interest are intended to comply
with the requirements of Section 704(b) of the Code and Treasury Regulations.

Tax Allocations in Respect of Contributed Properties. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for federal
income tax purposes in a manner such that the contributing partner benefits
from, or is charged with, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of such
unrealized gain or unrealized loss generally is equal to the difference
between the fair market value of the contributed property and the adjusted tax
basis of such property at the time of contribution (the "Book-Tax
Difference").

The Treasury Department has issued final and temporary regulations under
Section 704(c) of the Code (the "Regulations") which give partnerships great
flexibility in ensuring that a partner contributing property to a partnership
receives the tax burdens and benefits of any precontribution gain or loss
attributable to the contributed property. The Regulations permit partnerships
to use any "reasonable method" of accounting for Book-Tax Differences. The
Regulations specifically describe three reasonable methods, including (i) the
"traditional method" under current law, (ii) the traditional method with the
use of "curative allocations" which would permit distortions caused by a Book-
Tax Difference to be rectified on an annual basis and (iii) the "remedial
allocation method" which is similar to the traditional method with "curative
allocations." The Partnership Agreement permits AGH GP, as general partner, to
select one of these methods to account for Book-Tax Differences in connection
with the contribution of the Initial Hotels and the limited partnership
interests in the Subsidiary Partnerships to the Operating Partnership in
exchange for OP Units.

Basis in Operating Partnership Interest. The Company's adjusted tax basis in
each of the partnerships in which it has an interest generally (i) will be
equal to the amount of cash and the basis of any other property contributed to
such partnership by the Company, (ii) will be increased by (a) its allocable
share of such partnership's income and (b) its allocable share of any
indebtedness of such partnership and (iii) will be reduced, but not below
zero, by the Company's allocable share of (a) such partnership's loss and (b)
the amount of cash and the fair market value of any property distributed to
the Company, and by constructive distributions resulting from a reduction in
the Company's share of indebtedness of such partnership.

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If the Company's allocable share of the loss (or portion thereof) of any
partnership in which it has an interest would reduce the adjusted tax basis of
the Company's partnership interest in such partnership below zero, the
recognition of such loss will be deferred until such time as the recognition
of such loss (or portion thereof) would not reduce the Company's adjusted tax
basis below zero. To the extent that distributions from a partnership to the
Company, or any decrease in the Company's share of the nonrecourse
indebtedness of a partnership (each such decrease being considered a
constructive cash distribution to the partners), would reduce the Company's
adjusted tax basis below zero, such distributions (including such constructive
distributions) would constitute taxable income to the Company. Such
distributions and constructive distributions normally would be characterized
as long-term capital gain if the Company's interest in such partnership has
been held for longer than the long-term capital gain holding period (currently
one year).

Depreciation Deductions Available to the Operating Partnership. Certain
assets owned by the Operating Partnership consist of property contributed to
it by its partners. In general, when property is contributed in a tax-free
transaction under Section 721 of the Code, the transferee-partnership is
treated in the same manner as the contributing partner for purposes of
computing depreciation. The effect of this rule is to continue the historic
basis, placed in service dates and depreciation methods with respect to
property contributed to a partnership. This general rule would apply for any
properties the Operating Partnership acquires by reason of the deemed
termination for tax purposes of any of the Subsidiary Partnerships or to the
extent that the Operating Partnership receives an adjustment under Section
743(b) of the Code by reason of the acquisition of any interests in a
Subsidiary Partnership that did not terminate for tax purposes.

As described above (see "--Income Taxation of the Operating Partnership and
Its Partners--Tax Allocations in Respect of Contributed Properties"), the
Treasury Department has recently issued Regulations which give partnerships
flexibility in ensuring that a partner contributing property to a partnership
receives the tax benefits and burdens of any precontribution gain or loss
attributable to the contributed property.

As described previously, AGH GP, as general partner, may select any
permissible method to account for Book-Tax Differences in connection with the
contribution of the Initial Hotels and the limited partnership interests in
the Subsidiary Partnerships to the Operating Partnership in exchange for OP
Units. The use of certain of these methods may result in the Company being
allocated lower depreciation deductions than if a different method were used.
The resulting higher taxable income and earnings and profits of the Company,
as determined for federal income tax purposes, should decrease the portion of
distributions by the Company which may be treated as a return of capital. See
"--Requirements for Qualification as a REIT--Annual Distribution
Requirements." The Company may adopt a different method to account for Book-
Tax Differences for property contributed to the Operating Partnership or a
Subsidiary Partnership after the Formation Transactions.

OTHER TAX CONSIDERATIONS

State and Local Taxes. The tax treatment of the Company and holders of
shares of Common Stock in states having taxing jurisdiction over them may
differ from the federal income tax treatment. Accordingly, only a very limited
discussion of state taxation of the Company, the shares of Common Stock or the
holders of shares of Common Stock is provided herein, and no representation is
made as to the tax status of the Company (other than with respect to the Texas
franchise tax, as discussed below), the shares of Common Stock or the holders
of shares of Common Stock in such states. However, holders of shares of Common
Stock should note that certain states impose a withholding obligation on
partnerships carrying on a trade or business in a state having partners who
are not resident in such state. The Partnership Agreement contains a provision
which permits the Operating Partnership to withhold a portion of a non-
resident partner's distribution (e.g., a distribution to the Company) and to
pay such withheld amount to the taxing state as agent for the non-resident
partner. Most (but not all) states follow the Code in their taxation of REITs.
In such states, the Company should generally not be liable for tax and should
be able to file a claim for refund and obtain any withheld amount from the
taxing state. However, due to the time value of money, the requirement of the
Operating Partnership to withhold on distributions to the Company will reduce
the yield on an investment in shares of Common Stock. Each holder of shares of
Common

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<PAGE>

Stock should consult his own tax advisor as to the status of the shares of
Common Stock under the respective state tax laws applicable to him.

In particular, Texas imposes a franchise tax upon corporations that do
business in Texas. The Company will be organized as a Maryland corporation and
anticipates that it will have an office in Texas. AGH LP will be organized as
a Nevada corporation and anticipates that it will not have any contacts with
Texas other than ownership of its limited partnership interest in the
Operating Partnership. The Operating Partnership will be registered in Texas
as a foreign limited partnership qualified to transact business in Texas.

The Texas franchise tax is imposed on a corporation doing business in Texas
with respect to the corporation's net "taxable capital" (generally, financial
accounting net worth, with certain adjustments) and its net "taxable earned
surplus" (generally, a corporation's federal taxable income, with certain
adjustments) apportioned to Texas. A corporation's taxable capital and taxable
earned surplus are apportioned to Texas based on a fraction, the numerator of
which is the corporation's gross receipts from business transacted in Texas,
and the denominator of which is the corporation's gross receipts from its
entire business, with the amount and timing of such gross receipts being
generally determined in accordance with generally accepted accounting
principles (in the case of "taxable capital") and the Code (in the case of
taxable earned surplus). For purposes of determining the source of gross
receipts, dividends and interest received by a corporation are generally
apportioned based upon the state of incorporation of a corporate payor or a
corporate debtor, respectively. A similar rule applies to receipts by a
corporation from a limited liability company. Thus, interest and dividends
received by a corporation from another corporation or distributions and
interest received by a corporation from a limited liability company will not
be treated as gross receipts from business transacted in Texas unless the
payor is incorporated or organized, respectively, in Texas. To calculate the
tax on net taxable capital, receipts reflecting the corporation's share of net
profits from a partnership are apportioned to Texas if the partnership's
principal place of business (the location of its day-to-day operations) is in
Texas; however, if the corporation's share of the gross receipts from the
partnership is treated as revenue of the corporation under generally accepted
accounting principles, then the receipts of the partnership are apportioned
based on normal apportionment rules as if the receipts were received directly
by the corporation. For purposes of the tax on net taxable earned surplus,
receipts are apportioned as though the corporation directly received the
receipts from the underlying activities of the partnership. The franchise tax
on "net taxable capital" ("taxable capital" apportioned to Texas) is imposed
at the rate of .25% of a corporation's net taxable capital. The franchise tax
rate on "net taxable earned surplus" ("taxable earned surplus" apportioned to
Texas) is 4.5%. The Texas franchise tax is generally equal to the greater of
the tax on "net taxable capital" and the tax on "net taxable earned surplus."
The Texas franchise tax is not applied on a consolidated group basis. In
addition, with respect to REITs organized as corporations, the Comptroller of
Public Accounts (the "Comptroller") has taken the position administratively
that the tax on net taxable earned surplus is determined based upon the income
of such corporation prior to reduction for the dividends-paid deduction
available to REITs. Any Texas franchise tax that the Company is required to
pay will reduce the Cash Available for Distribution by the Company to its
stockholders.

The Comptroller has issued a rule providing that a corporation is not
considered to be doing business in Texas for purposes of the Texas franchise
tax imposed on net taxable capital solely by virtue of its ownership of an
interest as a limited partner in a limited partnership that does business in
Texas. The same rule provides, however, that a corporation is considered to be
doing business in Texas if it owns an interest as a general partner in a
partnership that does business in Texas. A parallel rule for purposes of the
tax on net taxable earned surplus, by negative implication, incorporates the
taxable capital nexus standards, including the limited partner exception. The
Comptroller has verified these results in private determinations. The
Comptroller also has expressed informally its view that a corporation is not
considered to be doing business in Texas for Texas franchise tax purposes
merely because the corporation owns stock in another corporation that does
business in Texas.

In accordance with these pronouncements by the Comptroller, AGH GP will be
treated as doing business in Texas because it will be the general partner of
the Operating Partnership, and the Operating Partnership will be doing
business in Texas. Accordingly, AGH GP will be subject to the Texas franchise
tax. The Company will be treated as doing business in Texas because it will
have an office in Texas. Accordingly, the Company will be

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subject to the Texas franchise tax. However, the Company anticipates that its
only source of gross receipts for Texas franchise tax purposes will be
dividends from its two wholly owned qualified REIT subsidiaries, AGH GP and
AGH LP, which are both Nevada corporations. Since dividends are sourced to the
state of incorporation of a corporate payor for gross receipts apportionment
purposes (although dividends received from another member of a consolidated
group are not taken into account as a gross receipt or earned surplus for
purposes of computing the franchise tax on net taxable earned surplus), the
Company does not anticipate that any significant portion of its "taxable
capital" or "taxable earned surplus" will be apportioned to Texas. As a
result, the Company's Texas franchise tax liability is not expected to be
substantial. Further, based on the pronouncements by the Comptroller, AGH LP
will not be treated as doing business in Texas merely as a result of its
status as a limited partner of the Operating Partnership. As long as AGH LP is
not otherwise doing business in Texas, AGH LP should not be subject to the
Texas franchise tax. Finally, two limited liability companies that have been
formed to be general partners of the Subsidiary Partnerships likewise will be
subject to the Texas franchise tax under the foregoing rules because they are
treated like corporations for Texas franchise tax purposes and they have
taxable nexus with Texas by virtue of being general partners in two Subsidiary
Partnerships that own real property in Texas. However, since these limited
liability companies only own 1.0% general partnership interests, the Texas
franchise tax due from these entities will not be substantial. Two other
limited liability companies have been formed, one of which will own a hotel
located outside of Texas and the other of which will be the general partner in
a limited partnership owning a hotel located outside of Texas. Thus, while
these limited liability companies will be conducting activities that will
create taxable nexus with Texas, these companies will generate all of their
gross receipts from non-Texas sources and thus will not be required to pay a
material amount of Texas franchise tax.

There can be no assurance that the Comptroller will agree that AGH LP is not
or, in the future, will not be doing business in Texas for Texas franchise tax
purposes. First, the Comptroller could revoke the pronouncements described
above and contend that the activities of AGH LP will constitute the doing of
business in Texas. Second, the Comptroller could contend that (i) some
activity of AGH LP other than its ownership of a limited partnership interest
in the Operating Partnership will constitute the doing of business in Texas,
despite the avoidance of contacts with the State of Texas, or (ii) in light of
the overall structure of the Company, AGH LP and AGH GP, the pronouncements
otherwise are inapplicable. The Company intends to seek a private
determination from the Comptroller that verifies the foregoing Texas franchise
tax consequences of this structure.

The Operating Partnership and the Subsidiary Partnerships (other than the
Subsidiary Partnership organized as a limited liability company) will not be
subject to the Texas franchise tax under the laws in existence as of the date
of this Prospectus. There can be no assurance, however, that the Texas
legislature, which will not meet again in regular session until 1997, will not
in the future expand the scope of the Texas franchise tax to apply to limited
partnerships such as the Operating Partnership and the Subsidiary Partnerships
organized as limited partnerships under state law.

Coopers & Lybrand L.L.P., special tax consultant to the Company ("Special
Tax Consultant"), has reviewed the discussion in this section with respect to
Texas franchise tax matters and is of the opinion that it accurately
summarizes the Texas franchise tax matters expressly described herein. The
Special Tax Consultant expresses no opinion on any other federal or state tax
considerations affecting the Company or a holder of Common Stock, including,
but not limited to, other Texas franchise tax matters not specifically
discussed above.

Possible Legislative or Other Actions Affecting Tax Consequences; Possible
Adverse Tax Legislation. Prospective stockholders should recognize that the
present federal income tax treatment of an investment in the Company may be
modified by legislative, judicial or administrative action at any time and
that any such action may affect investments and commitments previously made.
The rules dealing with federal income taxation are constantly under
legislative and administrative review, resulting in revisions of regulations
and revised interpretations of established concepts as well as statutory
changes. Revisions in federal tax laws and interpretations thereof could
adversely affect the tax consequences of an investment in the Company.

Current Texas franchise tax law applies only to corporations and limited
liability companies. Thus, partnerships engaged in business in Texas,
including the Subsidiary Partnerships that own property in Texas,

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presently fall outside the jurisdiction of the Texas franchise tax. The
corporate general partners in those partnerships, however, are subject to
Texas franchise tax. It is expected that Texas legislators and/or the
Comptroller will propose or recommend, as the case may be, statutory
amendments to expand the application of the Texas franchise tax to include
certain non-corporate businesses, specifically including partnerships, in the
franchise tax base. It cannot be predicted whether such proposals will be
adopted by the legislature. If such proposals are enacted, Subsidiary
Partnerships that own property in Texas would be subjected to the then
applicable Texas franchise tax.

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UNDERWRITING

Upon the terms and subject to the conditions stated in the Underwriting
Agreement, dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
the number of shares of Common Stock set forth opposite the name of such
Underwriter.

<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C>
Smith Barney Inc. ............ 1,200,000
Prudential Securities
Incorporated................. 1,200,000
Legg Mason Wood Walker,
Incorporated................. 1,200,000
The Robinson-Humphrey Company,
Inc. ........................ 1,200,000
Advest, Inc................... 100,000
Bear, Stearns & Co. Inc. ..... 150,000
J.C. Bradford & Co. .......... 100,000
Alex. Brown & Sons
Incorporated................. 150,000
BT Securities Corporation..... 150,000
CS First Boston Corporation... 150,000
Crowell, Weedon & Co. ........ 100,000
Dean Witter Reynolds Inc. .... 150,000
EVEREN Securities, Inc. ...... 100,000
First of Michigan
Corporation.................. 100,000
First Southwest Company....... 100,000
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C>
Furman Selz Incorporated...... 100,000
Harris Webb & Garrison, Inc.
............................. 100,000
Merrill Lynch, Pierce, Fenner
& Smith
Incorporated................. 150,000
Montgomery Securities......... 150,000
Morgan Keegan & Company, Inc.
............................. 100,000
Ormes Capital Markets, Inc. .. 100,000
PaineWebber Incorporated...... 150,000
Principal Financial
Securities, Inc. ............ 100,000
Rauscher Pierce Refsnes, Inc.
............................. 100,000
Raymond James & Associates,
Inc. ........................ 100,000
Southwest Securities Inc. .... 100,000
Stifel, Nicolaus & Company,
Incorporated................. 100,000
---------
Total....................... 7,500,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to the
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the Underwriters' over-allotment
option described below) if any such shares are taken.

The Underwriters, for whom Smith Barney Inc., Prudential Securities
Incorporated, Legg Mason Wood Walker, Incorporated and The Robinson-Humphrey
Company, Inc. are acting as representatives (the "Representatives"), propose
to offer part of the shares directly to the public at the public offering
price set forth on the cover page of this Prospectus and to offer part of the
shares to certain dealers at a price which represents a concession not in
excess of $0.66 per share under the public offering price. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $0.10
per share to certain other dealers. After the initial public offering, the
public offering price, concessions and reallowances to dealers may be changed
by the Underwriters. The Representatives have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.

The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 1,125,000 additional
shares of Common Stock at the price to the public set forth on the cover page
of this Prospectus minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering over-
allotments, if any, in connection with the Offering.

The Company will pay an advisory fee equal to 0.75% of the gross proceeds of
the Offering (including any exercise of the Underwriters' over-allotment
option) to Smith Barney Inc. for advisory services in connection with the
evaluation, analysis and structuring of the Company's formation and the
Offering.

The Company and its officers and directors have agreed that, for a period of
one year from the date of this Prospectus, they will not, without the prior
written consent of Smith Barney Inc., sell, offer to sell, solicit an offer to
buy, contract to sell, grant any option to purchase or otherwise transfer or
dispose ("Transfer") of any

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shares of Common Stock or any other securities convertible into, or
exercisable or exchangeable for, shares of Common Stock. Messrs. Sowell, Shaw
and Shaw have agreed that, for a period of one year from the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., Transfer any OP Units or any shares of Common Stock issuable upon
exchange of such OP Units.

Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the shares of Common Stock
included in the Offering was determined by negotiation between the Company and
the Representatives. Among the factors considered in making such determination
were the history of and prospects for the Company's business and the industry
in which it competes, an assessment of the Company's management, the prospects
for growth of the Company's revenues and earnings, the current state of the
economy in the United States and the current level of economic activity in the
industry in which the Company competes and in related or comparable
industries, and currently prevailing conditions in the securities markets,
including current market valuations of the publicly traded companies which the
Company and the Representatives believe to be comparable to the Company. There
can be no assurance that an active trading market will develop for the Common
Stock or that the Common Stock will trade in the public market subsequent to
the Offering or at or above the initial public offering price.

At the request of the Company, the Underwriters have reserved up to 350,000
shares of Common Stock for sale at the public offering price to certain
employees of the Company, their business affiliates and related parties who
have expressed an interest in purchasing shares. Such purchases will be made
under the same terms and conditions as will be initially offered by the
Underwriters in the public offering.

The Company and the Underwriters have agreed to indemnify each other against
certain liabilities that may be incurred in connection with the Offering,
including liabilities under the Securities Act.

The Common Stock has been approved for listing on the NYSE, subject to
official notice of issuance, under the symbol AGT. In order to meet one of the
requirements for listing the Common Stock on the NYSE, the Underwriters have
undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial
holders.

EXPERTS

The Consolidated Balance Sheet of American General Hospitality Corporation
as of April 12, 1996; the Balance Sheet of AGH Leasing, L.P. as of May 29,
1996; the Combined Financial Statements of the AGH Predecessor Hotels as of
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995 and the related financial statement schedule and the
Combined Financial Statements of the AGH Acquisition Hotels as of December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995 and the related financial statement schedule included in this Prospectus
have been audited by Coopers & Lybrand L.L.P., independent accountants, as set
forth in their reports thereon included elsewhere herein and in the
Registration Statement. Such Balance Sheets, Combined Financial Statements and
financial statement schedules are included in reliance upon such reports given
on their authority as experts in accounting and auditing.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Battle Fowler LLP, New York, New York. In addition,
the description of federal income tax consequences contained in the section of
the Prospectus entitled "Federal Income Tax Considerations" is based on the
opinion of Battle Fowler LLP, New York, New York. The description of Texas
franchise tax matters contained in the section of the Prospectus entitled
"Federal Income Tax Considerations-Other Tax Considerations," is based on the
opinion of Coopers & Lybrand L.L.P., Dallas, Texas. Calhoun & Stacy P.L.L.C.,
Dallas, Texas has also advised the Company on certain matters relating to the
acquisition of the Initial Hotels. The validity of the shares of Common

138
<PAGE>

Stock offered hereby will be passed upon for the Underwriters by Hunton &
Williams. Battle Fowler LLP and Hunton & Williams will rely on Ballard Spahr
Andrews & Ingersoll, Baltimore, Maryland as to certain matters of Maryland
law.

The Company will be required to file reports and other information with the
Commission pursuant to the Exchange Act in addition to any other legal or NYSE
requirements. The Company intends to furnish its stockholders with annual
reports containing consolidated financial statements audited by its
independent certified public accountants and with quarterly reports containing
unaudited condensed consolidated financial statements for each of the first
three quarters of each fiscal year.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-11 (of which this Prospectus is a part) under the Securities Act with
respect to the securities offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain portions
of which have been omitted as permitted by the rules and regulations of the
Securities and Exchange Commission. Statements contained in this Prospectus as
to the content of any contract or other document are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference and the exhibits
and schedules hereto. For further information regarding the Company and the
shares of Common Stock offered hereby, reference is hereby made to the
Registration Statement and such exhibits and schedules.

The Registration Statement and the exhibits and schedules forming a part
thereof filed by the Company with the Commission can be inspected and copies
obtained from the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Copies of such materials can be obtained by mail from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.

139
<PAGE>

GLOSSARY

Unless the context otherwise requires, the following capitalized terms have
the meanings set forth below for the purposes of this Prospectus.

"1996 Plan" means the American General Hospitality Corporation 1996
Incentive Plan.

"ACMs" means asbestos-containing materials.

"ADA" means the Americans with Disabilities Act of 1990, as amended.

"Additional Charges" means certain amounts of money, including interest
accrued on any late payments or charges, that the Lessee will be obligated to
pay to the Company in addition to Base Rent or Participating Rent, pursuant to
the Participating Leases.

"Adjusted Basis Ratio" means, for each Initial Hotel, the ratio that the
average of the adjusted bases of the personal property in the Initial Hotel at
the beginning and at the end of a taxable year bears to the average of the
aggregate adjusted bases of both the real and personal property comprising the
Initial Hotel at the beginning and at the end of a taxable year.

"ADR" means average daily room rate.

"AGH Acquisition Hotels" means the following nine Initial Hotels that will
be acquired primarily from persons unaffiliated with AGHI: the Holiday Inn
Dallas DFW Airport South, Hilton Hotel-Toledo, Holiday Inn New Orleans
International Airport, Holiday Inn Park Center Plaza, Holiday Inn Select-
Madison, Holiday Inn Mission Valley, Le Baron Airport Hotel, Days Inn Ocean
City, and Fred Harvey Albuquerque Airport Hotel.

"AGH GP" means AGH GP, Inc., a Nevada corporation and wholly owned
subsidiary of the Company, which will be the sole general partner of the
Operating Partnership.

"AGH LP" means AGH LP, Inc., a Nevada corporation and wholly owned
subsidiary of the Company, which will be a Limited Partner of the Operating
Partnership.

"AGH Predecessor Hotels" means the following four Initial Hotels that will
be acquired primarily from partnerships controlled by shareholders of AGHI:
the Holiday Inn Dallas DFW Airport West, Courtyard by Marriott-Meadowlands,
Hotel Maison de Ville, and the Hampton Inn Richmond Airport.

"AGHI" means American General Hospitality, Inc., which will operate the
Initial Hotels pursuant to the Management Agreements, and certain of its
affiliates.

"Anti-Abuse Rule" means the regulations issued by the United States Treasury
Department under the Partnership Provisions that would authorize the IRS, in
certain "abusive" transactions involving partnerships, to disregard the form
of a transaction and recast it for federal tax purposes as it deems
appropriate.

"Base Rent" means the fixed obligation of the Lessee to pay a sum certain in
weekly rent under each of the Participating Leases.

"Beverage Corporations" means those corporations wholly owned by Steven D.
Jorns that will sublease from the Lessee the portion of eleven of the Initial
Hotels that sell alcoholic beverages.

"Beverage Subleases" means those subleases between the Lessee and the
Beverage Corporations relating to the sublease of the areas at the Initial
Hotels where alcoholic beverages are sold.

"Board of Directors" means the Board of Directors of the Company.

"Bylaws" means the Bylaws of the Company.

140
<PAGE>

"Cash Available for Distribution" means Funds From Operations adjusted for
certain non-cash items, less reserves for capital expenditures.

"Charter"means the charter of the Company filed for record with the State
Department of Assessments and Taxation of Maryland, as may be amended from
time to time.

"Code" means the Internal Revenue Code of 1986, as amended.

"Commission" means the United States Securities and Exchange Commission.

"Common Stock" means the shares of Common Stock, $0.01 par value per share,
of the Company.

"Company" means American General Hospitality Corporation, a Maryland
corporation, which was incorporated on April 12, 1996, together with AGH GP,
AGH LP, and the Operating Partnership, and any subsidiaries thereof.

"Company Expenses" means all administrative costs and expenses of the
Company, AGH GP, and AGH LP.

"Comptroller" means the office of the Texas State Comptroller of Public
Accounts.

"Counsel" means Battle Fowler LLP.

"CPI" means the United States Consumer Price Index, All Urban Consumers,
U.S. City Average, All Items (1982 - 84 = 100).

"DFW South Loan" means the non-recourse mortgage on Holiday Inn Dallas DFW
Airport South in the outstanding principal amount as of March 31, 1996 of
approximately $14.2 million.

"Director Share Awards" means the annual award of shares of Common Stock to
each eligible director under the Directors' Plan.

"Directors' Plan" means the American General Hospitality Corporation Non-
Employee Directors' Incentive Plan.

"ESAs" means phase I environmental site assessments.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Exchange Agreement" means that Exchange Rights Agreement among the Company,
the Operating Partnership and the Limited Partners, other than AGH LP, other
persons or parties thereto.

"Exchange Rights" means, pursuant to the Partnership Agreement, the rights
of the Limited Partners, other than AGH LP, to cause the Operating Partnership
to exchange each OP Unit in exchange for cash or, at the Company's election,
shares of Common Stock.

"F&B" means food and beverage.

"FF&E" means furniture, fixtures and equipment.

"FF&E Note" means collectively the one or more five-year amortizing recourse
promissory notes in the aggregate principal amount of $315,000 issued by the
Lessee to the Operating Partnership in connection with the sale by the
Operating Partnership of certain personal property relating to certain of the
Initial Hotels.

"Foreign Investors" means nonresident alien individuals, foreign
corporations, foreign partnerships and foreign trusts and estates.

141
<PAGE>

"Formation Transactions" means the principal transactions in connection with
the formation of the Company and the acquisition of the Initial Hotels.

"Franchise Licenses" means those franchise licenses relating to the
franchised Initial Hotels.

"Funds From Operations" means income (loss) before minority interest
(computed in accordance with generally accepted accounting principles),
excluding gains (losses) from debt restructuring and sales of property, plus
real estate related depreciation and amortization (excluding amortization of
financing costs), and after adjustments for unconsolidated partnerships and
joint ventures.

"General Partner" means AGH GP, Inc., a Nevada corporation.

"Independent Directors" means a director of the Company who is not an
officer or employee of the Company, any affiliate of an officer or employee or
any affiliate of any advisor to the Company under an advisory agreement, any
lessee of any property of the Company, any subsidiary of the Company or any
partnership which is an affiliate of, the Company.

"Initial Hotels" means the thirteen hotels that the Company will own upon
the completion of the Offering.

"IRS" means the U.S. Internal Revenue Service.

"ISOs" means incentive stock options.

"Lease Master Agreement" means the agreement between the Operating
Partnership and the Lessee which will set forth the terms of the Lessee's
required capitalization and certain other matters.

"Lessee" means AGH Leasing, L.P., which will lease the Initial Hotels from
the Operating Partnership pursuant to the Participating Leases.

"Limited Partners" means the limited partners of the Operating Partnership.

"Line of Credit" means the $100 million line of credit for which the Company
has obtained a commitment.

"Lock-up Period" means the one-year period after the effective date of this
Prospectus.

"Look-Through Ownership Limitation" means the ownership of as much as 15.0%
of any class of the Company's stock by mutual funds and certain other
entities.

"Management Agreements" means the agreements between AGHI and the Lessee to
operate the Initial Hotels.

"MGCL" means the Maryland General Corporation Law, as may be amended from
time to time.

"NAREIT" means the National Association of Real Estate Investment Trusts.

"NYSE" means the New York Stock Exchange, Inc.

"Offering" means the offering which is the subject of the Prospectus.

"Offering Price" means the initial public offering price of the Common Stock
of $17.75 per share.

"OP Units" means units of limited partnership interest in the Operating
Partnership.

142
<PAGE>

"Operating Partnership" means American General Hospitality Operating
Partnership, L.P., a limited partnership organized under the laws of Delaware.
Unless the context requires otherwise, Operating Partnership includes any
subsidiaries of the Operating Partnership.

"Option Hotels" means the Courtyard by Marriott currently under development
in Boise, Idaho and the Courtyard by Marriott currently under development in
Durham, North Carolina.

"Ownership Limitation" means the ownership of more than 9.8% of any class of
the Company's outstanding stock by any person.

"Participating Leases" means the operating leases between the Lessee and the
Operating Partnership pursuant to which the Lessee will lease the Initial
Hotels from the Operating Partnership.

"Participating Rent" means rent based on percentages of room revenue, food
and beverage revenue and telephone and other revenue payable by the Lessee
pursuant to the Participating Leases.

"Partnership Agreement" means the partnership agreement relating to the
Operating Partnership.

"Partnership Provisions" means the partnership provisions of the Code.

"PCBs" means polychlorinated biphenyls.

"Plan" means AGHI's Retirement Savings Plan.

"Primary Contributors" means Steven D. Jorns, Bruce G. Wiles, Kenneth E.
Barr, James E. Sowell, Lewis W. Shaw II, and Kenneth W. Shaw (who are the
principals of AGHI and/or the Lessee) and where applicable includes their
respective controlled affiliates and associates (including spouses).

"Registration Rights Agreement" means the Registration Rights Agreement
among the Company and the Limited Partners other than AGH LP and the Plan.

"REIT" means real estate investment trust as defined in Section 856 of the
Code.

"Related Party Tenant" under the Code means, the Company or an owner of
10.0% or more of the Company, which directly or constructively, owns 10.0% or
more of a tenant.

"Rents" means, collectively, Base Rent and Participating Rent.

"REVPAR" means average total revenue per available room and is determined by
dividing room revenue by available rooms for the applicable period.

"Secaucus Loans" means the two promissory notes secured by a non-recourse
mortgage on the Courtyard by Marriott-Meadowlands hotel that were in the
outstanding principal amount as of March 31, 1996 of approximately $4.6
million and $508,500, respectively, and which will remain outstanding after
the Offering and the acquisition of the Courtyard by Marriott-Meadowlands by
the Company.

"Securities Act" means the Securities Act of 1933, as amended.

"Subsidiary Partnerships" means one or more subsidiary partnerships, joint
ventures, general partnerships and limited liability companies through which
the Operating Partnership owns certain of the Initial Hotels.

"Treasury Regulations" means the income tax regulations promulgated under
the Code.

143
<PAGE>

"UBTI" means unrelated business taxable income.

"Underwriters" means the underwriters named in the Prospectus relating to the
Offering.

"Weighted Average Daily Room Rate" means the total guest room revenue derived
from all of the Initial Hotels divided by the total number of guest rooms sold
at all of the Initial Hotels.

"Weighted Average Occupancy" means the total number of guest rooms sold at
all of the Initial Hotels divided by the total number of guest rooms available
at all of the Initial Hotels.

144
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
American General Hospitality Corporation
Statements of Estimated Revenues Less Expenses for the Year Ended
December 31, 1995, the Twelve Months Ended March 31, 1996 and the Three
Months Ended March 31, 1996 (unaudited)................................ F-2
Pro Forma Consolidated Balance Sheet as of March 31, 1996 (unaudited)... F-6
Report of Independent Accountants....................................... F-11
Balance Sheet as of April 12, 1996 (date of inception).................. F-12
Notes to Balance Sheet.................................................. F-13
AGH Leasing, L.P.
Pro Forma Balance Sheet as of May 29, 1996 (unaudited).................. F-15
Report of Independent Accountants....................................... F-16
Balance Sheet as of May 29, 1996 (date of inception).................... F-17
Notes to Balance Sheet.................................................. F-18
Initial Hotels and Lessee
Pro Forma Combined Statements of Operations for the Year Ended December
31, 1995, the Twelve Months Ended March 31, 1996 and the Three Months
Ended March 31, 1996 (unaudited)....................................... F-19
Notes to Combined Statements of Operations.............................. F-22
AGH Predecessor Hotels
Report of Independent Accountants....................................... F-24
Combined Balance Sheets as of December 30, 1994, December 29, 1995
(audited) and March 31, 1996 (unaudited)............................... F-25
Combined Statements of Operations for the Period from December 30, 1993
through December 31, 1993, the Years Ended December 30, 1994 and
December 29, 1995 (audited) and the Three Months Ended March 31, 1995
and 1996 (unaudited)................................................... F-26
Combined Statements of Equity for the Period from December 30, 1993
through December 31, 1993, the Years Ended December 30, 1994 and
December 29, 1995 and the Three Months Ended March 31, 1996
(unaudited)............................................................ F-27
Combined Statements of Cash Flows for the Period from December 30, 1993
through December 31, 1993, the Years Ended December 30, 1994 and
December 29, 1995 (audited) and the Three Months Ended March 31, 1995
and 1996 (unaudited)................................................... F-28
Notes to Combined Financial Statements.................................. F-29
Schedule III--Real Estate and Accumulated Depreciation.................. F-34
AGH Acquisition Hotels
Report of Independent Accountants....................................... F-35
Combined Balance Sheets as of December 31, 1994 and 1995 (audited) and
March 31, 1996 (unaudited)............................................. F-36
Combined Statements of Operations for each of the Three Years in the
Period Ended December 31, 1995 (audited) and the Three Months Ended
March 31, 1995 and 1996 (unaudited).................................... F-37
Combined Statements of Equity for each of the Three Years in the Period
Ended December 31, 1995 and the Three Months Ended March 31, 1996
(unaudited)............................................................ F-38
Combined Statements of Cash Flows for each of the Three Years in the
Period Ended December 31, 1995 (audited) and the Three Months Ended
March 31, 1995 and 1996 (unaudited).................................... F-39
Notes to Combined Financial Statements.................................. F-40
Schedule III--Real Estate and Accumulated Depreciation.................. F-46
</TABLE>

F-1
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

STATEMENTS OF ESTIMATED REVENUES LESS EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995, THE TWELVE MONTHS ENDED MARCH 31, 1996
AND THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)

The following unaudited Statements of Estimated Revenues Less Expenses of
the Company for the year ended December 31, 1995, the twelve months ended
March 31, 1996, and the three months ended March 31, 1996 are presented as if
the consummation of the Formation Transactions and the application of the net
proceeds of the Offering as set forth under the caption "Use of Proceeds" had
occurred on January 1, 1995 and all of the Initial Hotels had been leased
pursuant to the Participating Leases. Such estimated information is based in
part upon the Combined Statements of Operations of the AGH Predecessor Hotels
(unaudited financial information for the Holiday Inn Dallas DFW Airport West
hotel for the period prior to its acquisition in June 1995 was obtained from
the prior owners), the AGH Acquisition Hotels and the Pro Forma Combined
Statements of Operations of the Initial Hotels and Lessee. Such information
should be read in conjunction with the Financial Statements included in this
Prospectus. In management's opinion, all adjustments necessary to reflect the
effects of the Formation Transactions and the Offering have been made.

The following unaudited Statements of Estimated Revenues Less Expenses are
not necessarily indicative of what the results of operations of the Company
would have been assuming such transactions had been completed on January 1,
1995, nor does it purport to represent the results of operations for future
periods.

<TABLE>
<CAPTION>
TWELVE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996 MARCH 31, 1996
----------------- -------------- --------------
<S> <C> <C> <C>
Estimated Revenues Less
Expenses Data:
Participating Lease
revenue (A)............. $24,775,142 $25,902,292 $6,527,908
Interest income (B)...... 31,500 31,500 7,875
----------- ----------- ----------
Total revenue............ 24,806,642 25,933,792 6,535,783
----------- ----------- ----------
Depreciation (C)......... 7,404,235 6,551,936 1,485,233
Amortization (D)......... 646,660 646,660 161,665
Real estate and personal
property taxes and
property insurance (E).. 2,165,073 2,165,073 541,268
General and
administrative (F)...... 1,130,000 1,130,000 282,500
Ground lease expense
(E)..................... 881,217 902,196 193,156
Amortization of unearned
officers' compensation
(G)..................... 88,750 88,750 22,188
Interest expense (H)..... 1,886,733 2,276,058 569,015
----------- ----------- ----------
Total expenses......... 14,202,668 13,760,673 3,255,025
----------- ----------- ----------
Estimated revenues less
expenses before minority
interest.................. 10,603,974 12,173,119 3,280,758
Minority interest (I)...... 2,099,587 2,410,278 649,590
----------- ----------- ----------
Estimated revenues less
expenses applicable to
common shareholders....... $ 8,504,387 $ 9,762,841 $2,631,168
=========== =========== ==========
Estimated revenues less
expenses per common
share..................... $ 1.11 $ 1.27 $ 0.34
=========== =========== ==========
Weighted average number of
shares of Common Stock
outstanding............... 7,687,008 7,687,008 7,687,008
=========== =========== ==========
</TABLE>

See Notes to Statements of Estimated Revenues Less Expenses.

F-2
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO STATEMENTS OF ESTIMATED REVENUES LESS EXPENSES

(A) Represents lease payments from the Lessee to the Operating Partnership
pursuant to the Participating Leases calculated on a pro forma basis by
applying the rent provisions of the Participating Leases to the pro forma
revenues of the Initial Hotels. The departmental revenue thresholds in certain
of the Participating Lease formulas adjust in the future beginning January 1,
1997. See "The Initial Hotels--The Participating Leases."

The Participating Lease revenue is comprised of the following:

<TABLE>
<CAPTION>
TWELVE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996 MARCH 31, 1996
----------------- -------------- --------------
<S> <C> <C> <C>
Base rent..................... $15,392,000 $15,392,000 $3,848,000
Excess of Participating Rent
over Base Rent............... 9,383,142 10,510,292 2,679,908
----------- ----------- ----------
Total Participating Lease
revenue.................... $24,775,142 $25,902,292 $6,527,908
=========== =========== ==========
</TABLE>

(B) Represents interest income on the advance to Lessee for the purchase of
certain furniture, fixtures and equipment from the Company ($315,000). The
advance to Lessee is due over five years and bears interest at 10% per annum.

(C) Represents depreciation on the Initial Hotels. Estimated depreciation is
computed based upon estimated useful lives of 39 years for buildings and
improvements and 5 years for furniture, fixtures and equipment. These
estimated useful lives are based on management's knowledge of the properties
and the hotel industry in general.

The AGH Predecessor Hotels estimated depreciation expense is computed as
follows:

<TABLE>
<CAPTION>
TWELVE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996 MARCH 31, 1996
----------------- -------------- --------------
<S> <C> <C> <C>
Historical depreciation
expense....................... $2,409,211 $1,661,334 $ 288,688
Holiday Inn Dallas DFW Airport
West depreciation expense for
the period prior to
acquisition................... 208,844 104,422
Estimated depreciation expense
for increase in basis of the
Hotel Maison de Ville and
closing costs on the AGH
Predecessor Hotels............ 20,232 20,232 5,058
---------- ---------- ----------
$2,638,287 $1,785,988 $ 293,746
========== ========== ==========
</TABLE>

Additionally, the estimated depreciation expense for the AGH Acquisition
Hotels includes an annual depreciation on furniture, fixtures and equipment of
$1,312,120 and on buildings and improvements of $3,453,828.

F-3
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO STATEMENTS OF ESTIMATED REVENUES LESS EXPENSES--(CONTINUED)

At March 31, 1996, the Company's pro forma investment in hotel properties,
at cost, consists of the following:

<TABLE>
<CAPTION>
AGH AGH
PREDECESSOR ACQUISITION
HOTELS HOTELS TOTAL
----------- ------------ ------------
<S> <C> <C> <C>
Land..................................... $ 1,496,515 $ 11,311,000 $ 12,807,515
Building and improvements................ 19,293,233 134,699,284 153,992,517
Furniture, fixtures and equipment........ 2,847,464 6,560,598 9,408,062
----------- ------------ ------------
$23,637,212 $152,570,882 $176,208,094
=========== ============ ============
</TABLE>

(D) Represents amortization of expected deferred loan costs related to the
Line of Credit and amortization of franchise transfer costs. Deferred loan
costs of $2,350,000 are amortized utilizing a method which approximates the
interest method over four years which is the anticipated term of the Line of
Credit. Franchise transfer costs of $591,600 are amortized over the term of
the related franchise agreements which approximates 10 years.

(E) Represents amounts to be paid by the Operating Partnership. Such amounts
were derived from the historical amounts paid with respect to the Initial
Hotels adjusted for the Holiday Inn Dallas DFW Airport West hotel inclusion
for the full year and probable real estate and personal property tax
increases. Four AGH Acquisition Hotels (Holiday Inn Park Plaza, LeBaron
Airport Hotel, Holiday Inn Mission Valley and Hilton Hotel- Toledo) are
located in states which require tax reassessments based primarily on the price
as specified in a sale to an unrelated third party. The estimated adjustment
column below is based on the purchase price multiplied by the applicable tax
rates less the amounts included in the historical financial statements.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------
HISTORICAL
-----------------------
AGH AGH
PREDECESSOR ACQUISITION ESTIMATED
HOTELS HOTELS ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Real estate and personal
property taxes................. $344,036 $1,222,750 $287,318 $1,854,104
Property insurance.............. 45,919 258,508 6,542 310,969
-------- ---------- -------- ----------
Total real estate and personal
property taxes and
insurance.................... $389,955 $1,481,258 $293,860 $2,165,073
======== ========== ======== ==========
Ground lease expense............ $334,024 $ 547,193 $ 881,217
======== ========== ==========
<CAPTION>
TWELVE MONTHS ENDED MARCH 31, 1996
----------------------------------------------
HISTORICAL
-----------------------
AGH AGH
PREDECESSOR ACQUISITION ESTIMATED
HOTELS HOTELS ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Real estate and personal
property taxes................. $389,919 $1,201,152 $263,033 $1,854,104
Property insurance.............. 48,981 255,031 6,957 310,969
-------- ---------- -------- ----------
Total real estate and personal
property taxes and
insurance.................... $438,900 $1,456,183 $269,990 $2,165,073
======== ========== ======== ==========
Ground lease expense............ $327,711 $ 574,485 $ 902,196
======== ========== ==========
</TABLE>

F-4
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO STATEMENTS OF ESTIMATED REVENUES LESS EXPENSES--(CONTINUED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
---------------------------------------------
HISTORICAL
-----------------------
AGH AGH
PREDECESSOR ACQUISITION ESTIMATED
HOTELS HOTELS ADJUSTMENTS COMBINED
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Real estate and personal property
taxes........................... $101,461 $315,363 $46,702 $ 463,526
Property insurance............... 12,677 57,594 7,471 77,742
-------- -------- ------- ---------
Total real estate and personal
property taxes and insurance.. $114,138 $372,957 $54,173 $ 541,268
======== ======== ======= =========
Ground lease expense............. $ 43,812 $149,344 $ 193,156
======== ======== =========
</TABLE>

(F) Represents general and administrative expenses to be paid by the
Operating Partnership. These amounts are based on historical general and
administrative expenses as well as probable 1996 expenses:

<TABLE>
<S> <C>
Salaries and wages............................................ $ 561,000
Professional fees............................................. 125,000
Directors' and officers' insurance............................ 90,000
Allocated rent, supplies and other............................ 103,000
Other operating expenses...................................... 251,000
----------
$1,130,000
==========
</TABLE>

(G) Represents amortization of unearned officers' compensation represented
by an aggregate of 50,000 shares of restricted Common Stock issuable to
executive officers which shares vest 10% at the date of grant (5,000 shares at
$17.75 per share).

(H) Represents interest expense on the following debt:

(1) Debt assumed by the Operating Partnership of approximately $14.2
million in connection with the acquisition of the Holiday Inn Dallas DFW
Airport South hotel. Principal payments are based on a 20 year amortization
and interest is due monthly. The debt matures on February 1, 2011 and bears
interest at a fixed rate of 8.75%.

(2) Two notes assumed by the Operating Partnership totalling
approximately $5.3 million collateralized by the Courtyard by Marriott-
Meadowlands. Principal payments on the debt instruments are based on a 25
year and 5 year amortization, respectively, and interest is due monthly.
The debt matures on December 1, 2000 and January 1, 2001, respectively, and
bears interest at fixed rates of 7.5% and 7.89%, respectively.

(3) Borrowings of $8,820,000 under the Line of Credit based on the 30-day
LIBOR plus 1.85% (7.28%). Such borrowings will be collateralized by first
mortgage liens on eleven of the Initial Hotels.

(I) Calculated as approximately 19.8% of income before minority interest.

F-5
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

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

The following Pro Forma Consolidated Balance Sheet is presented as if the
consummation of the Formation Transactions and the application of the net
proceeds of the Offering as set forth under the caption "Use of Proceeds" had
occurred on March 31, 1996. The pro forma adjustments have been marked with a
number to identify the correlating debits and credits. Such pro forma
information is based in part upon the combined balance sheets of the AGH
Predecessor Hotels and the AGH Acquisition Hotels. Such information should be
read in conjunction with the Financial Statements included in this Prospectus.
In management's opinion, all adjustments necessary to reflect the effects of
the Formation Transactions and the Offering have been made.

The following Pro Forma Consolidated Balance Sheet is not necessarily
indicative of what the financial position of the Company would have been
assuming such transactions had been completed on March 31, 1996, nor does it
purport to represent the future financial position of the Company.

<TABLE>
<CAPTION>
AGH
AGH PREDECESSOR ACQUISITION PRO FORMA
HOTELS(A) HOTELS(B) ADJUSTMENTS PRO FORMA
--------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investment in hotel
properties, net........ $ 22,848,146 $ 66,595,969 $ 86,763,979 (C) $176,208,094
Cash and cash
equivalents............ 1,240,272 7,625,737 (8,862,325)(D) 3,684
Accounts receivable,
net.................... 392,552 2,521,992 (2,914,544)(E)
Deferred expenses, net.. 375,912 520,636 2,045,052 (F) 2,941,600
Other assets............ 258,122 1,253,608 (1,511,730)(E)
Advances to Lessee...... 315,000 (G) 315,000
------------ ------------ ------------ ------------
Total assets........ $ 25,115,004 $ 78,517,942 $ 75,835,432 $179,468,378
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt.................... $19,972,015 $54,390,363 $(46,190,139)(H) $ 28,172,239
Accounts payable, trade,
accrued expenses and
other liabilities...... 944,683 6,823,690 (7,518,373)(I) 250,000
Minority interest in
Operating Partnership.. 29,907,136 (J) 29,907,136
------------ ------------ ------------ ------------
Total liabilities... 20,916,698 61,214,053 (23,801,376) 58,329,375
------------ ------------ ------------ ------------
Stockholders' equity:
Preferred stock.......
Common stock.......... 76,870 (K) 76,870
Additional paid-in
capital.............. 121,949,633 (L) 121,949,633
Unearned officers'
compensation......... (887,500)(M) (887,500)
Retained earnings..... 4,198,306 17,303,889 (21,502,195)(N)
------------ ------------ ------------ ------------
Total stockholders'
equity............. 4,198,306 17,303,889 99,636,808 121,139,003
------------ ------------ ------------ ------------
Total liabilities
and stockholders'
equity............. $ 25,115,004 $ 78,517,942 $ 75,835,432 $179,468,378
============ ============ ============ ============
</TABLE>

See Notes to Pro Forma Consolidated Balance Sheet.

F-6
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET

(A) Reflects the AGH Predecessor Hotels' historical combined balance sheet
at March 31, 1996.

(B) Reflects the AGH Acquisition Hotels' historical combined balance sheet
at March 31, 1996.

Purchase of the following AGH Acquisition Hotels, including estimated
closing costs (the purchase of the AGH Acquisition Hotels included only the
land, building and improvements and furniture, fixtures and equipment):

<TABLE>
<S> <C>
Purchase of AGH Acquisition Hotels, including closing
costs:
Holiday Inn Dallas DFW Airport South................. $ 25,256,000
Holiday Inn Park Center Plaza ....................... 12,970,200
Fred Harvey Albuquerque Airport Hotel................ 9,490,300
Holiday Inn Select-Madison........................... 21,581,300
Holiday Inn New Orleans International Airport........ 26,033,200
Holiday Inn Mission Valley........................... 19,632,500
Le Baron Airport Hotel............................... 19,737,500
Hilton Hotel-Toledo.................................. 10,308,082
Days Inn Ocean City.................................. 7,636,800
Sale of certain furniture, fixtures and equipment to
Lessee.............................................. (315,000)
Purchase of furniture, fixtures and equipment
previously under operating leases................... 240,000
Remove historical cost basis of the AGH Acquisition
Hotels................................................ (66,595,969)
------------
Total increase in the AGH Acquisition Hotels......... 85,974,913
------------
Purchase of AGH Predecessor Hotels, including estimated
closing costs:
Basis increase resulting from the cash purchase of an
interest in the Hotel Maison de Ville............... 288,466
Real estate closing and other costs related to the
acquisition of the AGH Predecessor Hotels........... 500,600
------------
Total increase in the AGH Predecessor Hotels......... 789,066
------------
Total pro forma adjustment........................... $ 86,763,979 (1)
============
</TABLE>

The net book value of the investment in hotel properties of the AGH
Acquisition Hotels at March 31, 1996 was $66,595,969. The aggregate
consideration paid for the AGH Acquisition Hotels to third party sellers is
$152,645,882, including estimated closing costs of $1,269,100 (excludes the
$315,000 sale of certain furniture, fixtures and equipment to the Lessee and
the $240,000 purchase of furniture, fixtures and equipment previously under
operating leases described above).

The allocation of the AGH Acquisition Hotels' purchase price to the assets
acquired consists of the following (inclusive of the $315,000 sale and
$240,000 purchase of furniture, fixtures and equipment described above):

<TABLE>
<S> <C>
Land........................................................ $ 11,311,000
Building and improvements................................... 134,699,284
Furniture, fixtures and equipment........................... 6,560,598
------------
$152,570,882
============
</TABLE>

F-7
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET--(CONTINUED)

The acquisitions of the AGH Acquisition Hotels have been accounted for as
"purchases." The interests of the Primary Contributors and other minority
partners receiving OP Units in exchange for their interests in the AGH
Predecessor Hotels have been recorded at their historical cost basis. The
Primary Contributors received 560,178 OP Units for their interests in the AGH
Predecessor Hotels and certain other assets. Certain unaffiliated partners
received $288,466 cash for their interests in the AGH Predecessor Hotels,
which has been accounted for as a "purchase," resulting in an increase in the
Company's basis in the hotel.

The estimated cost of approximately (i) $24.6 million of planned renovations
and refurbishments at the seven Initial Hotels the Company plans to convert to
leading franchise brands in order to reposition such hotels for future growth
and (ii) $2.6 million of planned improvements that the Company expects to make
at five other Initial Hotels which will be made over the next twelve months is
not included in the Pro Forma Consolidated Balance Sheet. The capital
improvements are anticipated to be allocated to furniture, fixtures and
equipment (30%) and buildings and improvements (70%), which will be
depreciated over 5 years and 39 years, respectively. This depreciation is not
included in the Statements of Estimated Revenues Less Expenses.

(D) Net decrease represents the following:

<TABLE>
<CAPTION>
AGH PREDECESSOR AGH ACQUISITION
HOTELS HOTELS OFFERING TOTAL
--------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Gross proceeds of the
Offering............... $133,125,000 $133,125,000 (2)
Underwriters' discount.. (8,320,313) (8,320,313)(2)
Other expected expenses
of the Offering........ (5,000,000) (5,000,000)(2)
Payments to acquire the
Initial Hotels
including closing
costs.................. $ (789,066) $ (90,254,825) (91,043,891)(1)
Payment to purchase
furniture, fixtures and
equipment previously
under operating
leases................. (240,000) (240,000)(1)
Payment of AGH
Predecessor Hotels'
historical debt........ (14,825,570) (14,825,570)(3)
Payment of prepayment
penalties on debt of
the AGH Predecessor
Hotels................. (733,879) (733,879)(4)
Payment of AGH
Acquisition Hotels debt
assumed................ (19,086,063) (19,086,063)(1)
Payment of anticipated
loan costs related to
the Line of Credit..... (2,100,000) (2,100,000)(5)
Payment of franchise
transfer costs......... (591,600) (591,600)(6)
Borrowings under Line of
Credit................. 8,820,000 8,820,000 (10)
Cash and cash
equivalents not being
purchased.............. (1,240,272) (7,625,737) (8,866,009)(7)
--------------- --------------- ------------ ------------
$ (17,588,787) $ (117,206,625) $125,933,087 $ (8,862,325)
=============== =============== ============ ============
</TABLE>

F-8
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET--(CONTINUED)
(E) Decrease reflects the following assets which are not being purchased by
the Company:

<TABLE>
<CAPTION>
AGH AGH
PREDECESSOR ACQUISITION
HOTELS HOTELS TOTAL
----------- ----------- ------------
<S> <C> <C> <C>
Accounts receivable, net............. $(392,552) $(2,521,992) $ (2,914,544)
Other assets......................... (258,122) (1,253,608) (1,511,730)
--------- ----------- ------------
$(650,674) $(3,775,600) $ (4,426,274)(7)
========= =========== ============
</TABLE>

(F) Net increase represents the following:

<TABLE>
<S> <C>
Deferred loan costs related to debt of the AGH
Predecessor Hotels which will be repaid with a portion
of the proceeds of the Offering....................... $ (375,912)(7)
Deferred loan costs related to debt of the AGH
Acquisition Hotels which will not be assumed by the
Company............................................... (520,636)(7)
Deferred loan costs related to the Line of Credit...... 2,350,000 (5)
Franchise transfer costs............................... 591,600 (6)
------------
$ 2,045,052
============

Deferred loan costs related to the Line of Credit consist of attorney fees,
appraisal costs, surveys, etc. to be paid from the proceeds of the Offering
($600,000), fees payable upon initial borrowings under the Line of Credit
($1,500,000) at the time of the Offering and a fee payable at the date the
Company exercises its option to extend the term of the Line of Credit
($250,000).

(G) Increase represents advances for the purchase of furniture, fixtures and
equipment from the Company after the purchase of the AGH Acquisition Hotels
($315,000).(1) The advances bear interest at 10% and are due over five years.

(H) Decrease reflects the following:

Payment of AGH Predecessor Hotels' debt................ $(14,825,570)(3)
Payment of AGH Acquisition Hotels' debt................ (19,086,063)(1)
Debt of the AGH Acquisition Hotels not assumed......... (21,098,506)(1)
Borrowings under Line of Credit........................ $8,820,000 (10)
------------
$(46,190,139)
============

(I) Net increase reflects the following:

Accounts payable, trade, accrued expenses and other
liabilities which are not being purchased by the
Company:
AGH Predecessor Hotels............................... $ (944,683)(7)
AGH Acquisition Hotels............................... (6,823,690)(7)
Line of credit fees payable............................ 250,000 (5)
------------
$ (7,518,373)
============
</TABLE>

(J) Represents the recognition of minority interest in the Operating
Partnership that will not be owned by the Company (19.8%).(1)

(K) Represents the $0.01 par value of the Common Stock.(8)

F-9
<PAGE>

(L) Represents the following proposed transactions:

<TABLE>
<S> <C>
Gross proceeds of the Offering......................... $133,125,000 (2)
Underwriters' discount and other estimated expenses of
the Offering.......................................... (13,320,313)(2)
Par value of Common Stock.............................. (76,870)(8)
Prepayment penalties on debt of the AGH Predecessor
Hotels ............................................... (733,879)(4)
Unearned officers' compensation........................ 887,500 (9)
Reclassification of retained earnings of the AGH
Predecessor Hotels to additional paid-in capital...... 4,198,306 (1)
Net assets of the AGH Predecessor Hotels which are not
being purchased by the Company........................ (1,322,175)(7)
Net assets of the AGH Acquisition Hotels which are not
being purchased by the Company........................ (5,098,283)(7)
Minority interest in Operating Partnership............. 4,290,347 (1)
------------
$121,949,633
============
</TABLE>

(M) Represents the value of common shares issued to officers ($887,500)
which vest 10% in the first year.(9)

(N) Represents reclassification of retained earnings of the AGH Predecessor
Hotels to Common Stock and the elimination of historical retained earnings of
the AGH Acquisition Hotels.(1)

F-10
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
American General Hospitality Corporation

We have audited the accompanying balance sheet of American General
Hospitality Corporation as of April 12, 1996 (date of inception). This balance
sheet is the responsibility of the Company's management. Our responsibility is
to express an opinion on this balance sheet 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 balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of American General Hospitality
Corporation as of April 12, 1996 in conformity with generally accepted
accounting principles.

Coopers & Lybrand L.L.P.

Dallas, Texas
April 12, 1996

F-11
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

BALANCE SHEET
APRIL 12, 1996

ASSETS
<TABLE>
<S> <C>
Cash.................................................................... $100
----
$100
====
</TABLE>

LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
Commitments and contingencies
Preferred stock, $.01 par value per share, 20,000,000 shares autho-
rized, no shares issued or outstanding...............................
Common stock, $.01 par value per share, 100,000,000 shares authorized,
100 shares issued and outstanding.................................... $100
====
</TABLE>

The accompanying notes are an integral part of this balance sheet.

F-12
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO BALANCE SHEET

1. ORGANIZATION AND PROPOSED INITIAL PUBLIC OFFERING

Organization--American General Hospitality Corporation (the "Company") was
formed on April 12, 1996 as a Maryland corporation which intends to qualify as
a real estate investment trust ("REIT"). The Company has been formed to
acquire equity interests in 13 hotels (the "Initial Hotels"). Four of the
Initial Hotels (the "AGH Predecessor Hotels") will be acquired primarily from
limited partnerships controlled by the shareholders of American General
Hospitality, Inc. (the "AGHI Affiliates"). The remaining nine Initial Hotels
(the "AGH Acquisition Hotels") will be acquired primarily from parties
unaffiliated with the Company through contracts with the sellers acquired from
an AGHI affiliate.

Upon completion of the proposed initial public offering described below, the
Company will acquire an approximate 80.2% equity interest in American General
Hospitality Operating Partnership, L.P. (the "Operating Partnership"). A
wholly owned subsidiary of the Company will be the sole general partner of the
Operating Partnership. The Operating Partnership will own the Initial Hotels
and will lease them to AGH Leasing, L.P. (the "Lessee"), which is owned, in
part, by certain officers of the Company, under operating leases
("Participating Leases") which provide for rent based on the revenues of the
Initial Hotels. The Lessee has entered into management agreements pursuant to
which all of the Initial Hotels will be managed by American General
Hospitality, Inc. ("AGHI").

Proposed Initial Public Offering--The Company has filed a registration
statement with the Securities and Exchange Commission pursuant to which the
Company expects to offer 7,500,000 shares of its common stock to the public
(the "Offering"). The Company expects to qualify as a REIT under sections 856-
860 of the Internal Revenue Code. Upon consummation of the Offering, the
Company will contribute all of the net proceeds of the Offering to AGH GP,
Inc. ("General Partner") and AGH LP, Inc. ("Limited Partner"), which, in turn,
will contribute such proceeds to the Operating Partnership in exchange for an
approximate 80.2% equity interest in the Operating Partnership. The General
Partner, a wholly owned subsidiary of the Company, will own a 1.0% interest in
the Operating Partnership. The Limited Partner, also a wholly owned subsidiary
of the Company, will initially own an approximately 79.2% limited partnership
interest in the Operating Partnership.

The Company will acquire directly or indirectly a 100% interest in each of
the Initial Hotels for an aggregate of 1,896,996 of units of limited
partnership interest ("OP Units") (560,178 OP Units to the Primary
Contributors, which consist of the principals of AGHI and the Lessee and
certain of their respective affiliates, and 1,336,818 OP Units to parties
unaffiliated with the Primary Contributors); 137,008 shares of Common Stock to
the AGHI Employee Retirement and Savings Plan (the "Plan"), which the
Company's executive officers own less than a 5.0% beneficial interest in the
Plan); and approximately $91.0 million in cash to parties unaffiliated with
the Primary Contributors, which will be subject to approximately $52.9 million
in mortgage indebtedness of which approximately $33.5 million will be repaid
from the net proceeds of the Offering). The Operating Partnership will
reimburse AGHI for approximately $900,000 for direct out-of-pocket expenses
incurred in connection with the acquisition of the Initial Hotels, including
legal, environmental and engineering expenses. In addition, the Operating
Partnership will sell certain personal property relating to certain of the
Initial Hotels to the Lessee in exchange for one or more five-year recourse
promissory notes in the aggregate principal amount of $315,000 that will be
secured by such personal property.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Distributions--The Company intends to make regular quarterly distributions
to stockholders which are dependent upon receipt of distributions from the
Operating Partnership.

3. DESCRIPTION OF CAPITAL STOCK

The total number of shares of all classes of stock that the Company has
authority to issue consists of 100,000,000 shares of Common Stock, $.01 par
value per share.

F-13
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO BALANCE SHEET--(CONTINUED)

Common Stock--The holders of Common Stock are entitled to one vote per share
on all matters voted on by shareholders, including elections of directors. The
holders of Common Stock are entitled to such dividends as may be declared from
time to time by the Board of Directors from funds available therefrom, and
upon liquidation are entitled to receive a pro rata share of all assets of the
Company available for distribution to such holders.

4. EMPLOYEE BENEFITS

The Board of Directors will adopt, subject to stockholder approval prior to
the Offering, the American General Hospitality Corporation 1996 Incentive Plan
(the "1996 Plan") and the American General Hospitality Corporation Non-
Employee Directors' Incentive Plan (the "Directors' Plan").

The 1996 Plan--Each employee of the Company or of an affiliate of the
Company (other than employees of the Lessee and AGHI who are not also
employees of the Company), or any other person whose efforts contribute to the
Company's performance is eligible to participate in the 1996 Plan. The
Compensation Committee of the Board of Directors may grant stock options,
stock awards, incentive awards or performance shares to participants. Under
the 1996 Plan the total number of shares available for grant is 900,000 shares
of Common Stock of which not more than 50,000 shares may be granted as stock
awards.

The Directors' Plan--A maximum of 100,000 shares of Common Stock may be
issued under the Directors' Plan. The Directors' Plan provides that each
director will be awarded nonqualified options to purchase 10,000 shares of
Common Stock at the fair market value at the date of grant.

Following consummation of the Offering, the Company intends to grant to the
Company's officers and directors options to acquire an aggregate 400,000
shares of Common Stock at the Offering Price and stock awards representing
50,000 shares of restricted Common Stock.

Employment Agreements--The Company will enter into an employment agreement
with Mr. Steven D. Jorns, the Company's Chairman of the Board, President and
Chief Executive Officer for a term of five years at an initial annual base
compensation of $100,000, subject to any increases in base compensation
approved by the Compensation Committee. In addition, the Company will enter
into employment agreements with three other executive officers each for a term
of five years at an aggregate annual base compensation of $230,000.

F-14
<PAGE>

AGH LEASING, L.P.

PRO FORMA BALANCE SHEET
MAY 29, 1996
(UNAUDITED)

<TABLE>
<S> <C>
ASSETS
Furniture, fixtures and equipment.................................. $315,000(A)
Cash and cash equivalents.......................................... 500,000(B)
--------
Total assets................................................... $815,000
========
LIABILITIES AND EQUITY
Advances from Operating Partnership................................ $315,000(A)
Equity............................................................. 500,000(B)
--------
Total liabilities and equity................................... $815,000
========
</TABLE>
- --------
(A) Upon consummation of the Offering, the Lessee will purchase $315,000 of
furniture, fixtures, and equipment from the Company in exchange for a note
payable of $315,000 which will be due over five years and will bear
interest at 10% per annum.
(B) Reflects the cash contribution of $500,000 from the partners upon
consummation of the Offering.

F-15
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
AGH Leasing, L.P.

We have audited the accompanying balance sheet of AGH Leasing, L.P. (The
"Partnership") as of May 29, 1996 (date of inception). This balance sheet is
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on this balance sheet based on our audit.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of AGH Leasing, L.P. as of May 29,
1996 in conformity with generally accepted accounting principles.

Coopers & Lybrand L.L.P.

Dallas, Texas
May 29, 1996

F-16
<PAGE>

AGH LEASING, L.P.

BALANCE SHEET
MAY 29, 1996

<TABLE>
<S> <C>
ASSETS
Cash.................................................................... $100
----
$100
====
LIABILITIES AND EQUITY
Commitments and contingencies...........................................
Equity.................................................................. $100
====
</TABLE>

The accompanying notes are an integral part of this balance sheet.

F-17
<PAGE>

AGH LEASING, L.P.

NOTES TO BALANCE SHEET

1. ORGANIZATION AND PROPOSED INITIAL PUBLIC OFFERING

Organization--AGH Leasing, L.P. (the "Lessee"), was formed on May 29, 1996
as a Delaware limited partnership. Upon completion of the proposed initial
public offering described below, American General Hospitality Corporation (the
"Company") will acquire an approximate 80.2% equity interest in American
General Hospitality Operating Partnership, L.P. (the "Operating Partnership").
In order for the Company to qualify as a real estate investment trust
("REIT"), neither the Company nor the Operating Partnership can operate
hotels; therefore, the Operating Partnership, which will own 13 hotels (the
"Initial Hotels"), and will lease the Initial Hotels to the Lessee under
operating leases ("Participating Leases") which provide for rent based on the
revenues of the Initial Hotels.

The financial statements of the Lessee will include the results of
operations of the hotels leased from the Operating Partnership due to the
Lessee's control over the operations of the hotels during the 12 year term of
the Participating Leases. The Lessee has complete discretion in establishing
room rates and all rates for hotel goods and services. Likewise, all operating
expenses of the hotels are under the control of the Lessee. The Lessee has the
right to manage or to enter into management contracts with other parties to
manage the hotels. If the Lessee elects to enter into management contracts
with parties other than American General Hospitality, Inc. ("AGHI"), the
Lessee must obtain the prior written consent of the Operating Partnership,
which consent may not be unreasonably withheld. The Lessee, with the written
consent of the Operating Partnership, has entered into management agreements
pursuant to which all of the Initial Hotels will be managed by AGHI. The
Lessee is owned in part by certain executive officers of the Company and AGHI.

Proposed Initial Public Offering--The Company, which intends to qualify as a
REIT, has filed a registration statement with the Securities and Exchange
Commission pursuant to which the Company expects to offer 7,500,000 shares of
its common stock to the public (the "Offering"). The Company expects to
qualify as a REIT under sections 856-860 of the Internal Revenue Code. Upon
consummation of the Offering, the Company will contribute all of the net
proceeds of the Offering to the Operating Partnership in exchange for an
approximate 80.2% equity interest in the Operating Partnership. The Operating
Partnership will use such funds to purchase certain of the Initial Hotels,
repay debt and other obligations of the Initial Hotels, and for working
capital.

2. EQUITY

Each partner contributed a pro-rata cash contribution based on his
respective partnership interest.

The partners of the Lessee have agreed upon consummation of the Offering to
(i) initially capitalize the Lessee with $500,000 in cash and (ii) pledge
275,000 units in the Operating Partnership ("OP Units") having a value of
approximately $4.9 million based on the Offering Price to the Operating
Partnership to collateralize the Lessee's obligations under the Participating
Leases.

Until the Lessee's net worth equals the greater of (i) $6 million and (ii)
17.5% of actual rent payments from hotels leased to the Lessee during the
preceding calender year, the Lessee will not pay distributions to its partners
or make any other distributions to affiliates of the Lessee other than
pursuant to the management agreements with AGHI and for limited amounts
related to Lessee overhead (except for the purpose of permitting its partners
to pay taxes on the income attributable to them from the Lessee while it is a
limited partnership and except for distributions relating to interest or
dividends received by the Lessee from cash or securities held by it) and will
be required during this period, subject to compliance with applicable
securities laws, to purchase annually Common Stock on the open market or, if
any such purchase would violate the ownership limitations in the Company's
Charter, at the option of the Company, OP Units from the Operating
Partnership, in an amount equal to the Lessee's cash flow attributable to the
Participating Leases for the preceding fiscal year (after establishing a
reserve for partner tax distributions).

F-18
<PAGE>

INITIAL HOTELS AND LESSEE

PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995, THE TWELVE MONTHS ENDED MARCH 31, 1996
ANDTHE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)

The following unaudited Pro Forma Combined Statements of Operations are
presented as if the consummation of the Formation Transactions and the
application of the net proceeds of the Offering as set forth under the caption
"Use of Proceeds" had occurred on January 1, 1995, and all of the Initial
Hotels had been leased by the Lessee pursuant to the Participating Leases.
Such pro forma information is based in part upon the combined statements of
operations of the AGH Predecessor Hotels (unaudited financial information for
the Holiday Inn Dallas DFW Airport West hotel for the period prior to its
acquisition in June 1995 was obtained from the prior owner) and AGH
Acquisition Hotels. Such information should be read in conjunction with the
Financial Statements included in this Prospectus. In management's opinion, all
adjustments necessary to reflect the effects of the Formation Transactions and
the Offering have been made.

The following unaudited Pro Forma Combined Statements of Operations are not
necessarily indicative of what results of operations of the Initial Hotels and
Lessee would have been assuming such transactions had been completed on
January 1, 1995, nor does it purport to represent the results of operations
for future periods.

FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
AGH PREDECESSOR HOTELS AGH ACQUISITION HOTELS
---------------------------------------------------- ----------------------------------------
PRIOR TO PRO FORMA PRO FORMA PRO FORMA
HISTORICAL ACQUISITION ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA COMBINED
----------- ----------- ----------- ----------- ----------- ------------ ----------- -----------
(A)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Room revenue...... $ 9,020,479 $ 1,532,369 $ 16,391 (B) $10,569,239 $44,736,447 $ 24,485 (B) $44,760,932 $55,330,171
Food and beverage
revenue.......... 1,293,238 420,569 1,713,807 16,424,522 53,175 (B) 16,477,697 18,191,504
Other revenue..... 568,415 92,884 81,592 (B) 742,891 3,579,485 41,056 (B) 3,620,541 4,363,432
----------- ----------- ----------- ----------- ----------- ------------ ----------- -----------
Total revenue... 10,882,132 2,045,822 97,983 13,025,937 64,740,454 118,716 64,859,170 77,885,107
----------- ----------- ----------- ----------- ----------- ------------ ----------- -----------
Expenses:
Property
operating costs
and expenses..... 3,928,801 743,827 (22,614)(C) 4,650,014 25,325,087 (350,847)(C) 24,974,240 29,624,254
General and
administrative... 1,270,163 157,452 (8,675)(C) 1,418,940 5,780,741 (179,593)(C) 5,601,148 7,020,088
Advertising and
promotion........ 663,285 97,924 761,209 3,874,160 (10,283)(D) 3,863,877 4,625,086
Repairs and
maintenance...... 478,552 104,843 583,395 2,719,954 (7,182)(D) 2,712,772 3,296,167
Utilities......... 509,142 91,129 600,271 2,945,878 2,945,878 3,546,149
Management fees... 383,607 61,199 7,709 (E) 452,515 1,285,385 615,018 (E) 1,900,403 2,352,918
Franchise costs... 332,274 83,718 415,992 1,701,346 1,701,346 2,117,338
Depreciation...... 2,409,211 126,676 (2,535,887)(F) 5,498,602 (5,435,602)(F) 63,000 63,000
Amortization...... 70,843 (70,843)(G) 152,588 (152,588)(G)
Real estate and
personal
property taxes,
and property
insurance........ 389,955 37,406 (427,361)(H) 1,481,258 (1,481,258)(H)
Interest
expense.......... 1,572,244 (1,572,244)(I) 4,734,958 (4,703,458) 31,500 31,500
Other expense..... 364,238 (360,011)(J) 4,227 897,414 (843,557)(J) 53,857 58,084
Participating
Lease expenses... 4,195,780 (K) 4,195,780 20,579,362 (K) 20,579,362 24,775,142
----------- ----------- ----------- ----------- ----------- ------------ ----------- -----------
Total expenses.. 12,372,315 1,504,174 (794,146) 13,082,343 56,397,371 8,030,012 64,427,383 77,509,726
----------- ----------- ----------- ----------- ----------- ------------ ----------- -----------
Revenues over
(under)
expenses....... $(1,490,183) $ 541,648 $ 892,129 $ (56,406) $ 8,343,083 $ (7,911,296) $ 431,787 $ 375,381
=========== =========== =========== =========== =========== ============ =========== ===========
</TABLE>

See Notes to Pro Forma Combined Statements of Operations

F-19
<PAGE>

INITIAL HOTELS AND LESSEE
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MARCH 31, 1996

<TABLE>
<CAPTION>
AGH AGH
PREDECESSOR PRIOR TO PRO FORMA ACQUISITION PRO FORMA PRO FORMA
HOTELS ACQUISITION ADJUSTMENTS PRO FORMA HOTELS ADJUSTMENTS PRO FORMA COMBINED
----------- ----------- ----------- ----------- ----------- ------------ ----------- -----------
(A)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Room revenue...... $10,019,733 $692,473 $ 24,678 (B) $10,736,884 $46,065,824 $ 27,320 (B) $46,093,144 $56,830,028
Food and beverage
revenue.......... 1,587,236 166,659 1,753,895 16,522,311 59,376 (B) 16,581,687 18,335,582
Other income...... 639,498 37,778 81,592 (B) 758,868 3,699,579 41,374 (B) 3,740,953 4,499,821
----------- -------- ----------- ----------- ----------- ------------ ----------- -----------
Total revenue... 12,246,467 896,910 106,270 13,249,647 66,287,714 128,070 66,415,784 79,665,431
----------- -------- ----------- ----------- ----------- ------------ ----------- -----------
Expenses:
Property
operating costs
and expenses..... 4,454,876 315,602 (29,068)(C) 4,741,410 25,738,591 (354,125)(C) 25,384,466 30,125,876
General and
administrative... 1,409,498 72,488 (9,555)(C) 1,472,431 5,864,772 (178,685)(C) 5,686,087 7,158,518
Advertising and
promotion........ 719,942 41,034 760,976 3,954,203 (10,283)(D) 3,943,920 4,704,896
Repairs and
maintenance...... 518,315 40,656 558,971 2,760,199 (7,182)(D) 2,753,017 3,311,988
Utilities......... 588,889 26,410 615,299 2,920,854 2,920,854 3,536,153
Management fees... 430,939 26,744 (61,287) (E) 396,396 1,308,331 358,477 (E) 1,666,808 2,063,204
Franchise costs... 382,827 37,524 420,351 1,739,901 1,739,901 2,160,252
Depreciation...... 1,661,334 50,670 (1,712,004)(F) 4,992,005 (4,929,005)(F) 63,000 63,000
Amortization...... 82,238 (82,238)(G) 123,198 (123,198)(G)
Real estate and
personal
property taxes,
and property
insurance........ 438,900 7,123 (446,023)(H) 1,456,183 (1,456,183)(H)
Interest
expense.......... 1,773,838 (1,773,838)(I) 4,827,694 (4,796,194)(I) 31,500 31,500
Other expense..... 354,524 (346,517)(J) 8,007 918,472 (881,706) 36,766 44,773
Participating
Lease expenses... 4,321,394 (K) 4,321,394 21,580,898 (K) 21,580,898 25,902,292
----------- -------- ----------- ----------- ----------- ------------ ----------- -----------
Total expenses.. 12,816,120 618,251 (139,136) 13,295,235 56,604,403 9,202,814 65,807,217 79,102,452
----------- -------- ----------- ----------- ----------- ------------ ----------- -----------
Revenues over
(under)
expenses....... $ (569,653) $278,659 $ 245,406 $ (45,588) $ 9,683,311 $ (9,074,744) $ 608,567 $ 562,979
=========== ======== =========== =========== =========== ============ =========== ===========
</TABLE>

See Notes to Pro Forma Combined Statements of Operations

F-20
<PAGE>

INITIAL HOTELS AND LESSEE
PRO FORMA COMBINED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 1996

<TABLE>
<CAPTION>
AGH AGH
PREDECESSOR PRO FORMA ACQUISITION PRO FORMA PRO FORMA
HOTELS ADJUSTMENTS PRO FORMA HOTELS ADJUSTMENTS PRO FORMA COMBINED
----------- ----------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Room revenue........... $2,624,614 $ 8,287 (B) $2,632,901 $11,561,801 $ 7,204 (B) $11,569,005 $14,201,906
Food and beverage
revenue............... 509,331 509,331 4,173,807 49,185 (B) 4,222,992 4,732,323
Other income........... 173,450 (B) 173,450 989,702 (B) 989,702 1,163,152
---------- --------- ---------- ----------- ----------- ----------- -----------
Total revenue........ 3,307,395 8,287 3,315,682 16,725,310 56,389 16,781,699 20,097,381
---------- --------- ---------- ----------- ----------- ----------- -----------
Expenses:
Property operating
costs and expenses.... 1,201,571 (7,313)(C) 1,194,258 6,380,431 (90,513)(C) 6,289,918 7,484,176
General and
administrative........ 371,977 (2,495)(C) 369,482 1,421,240 (45,252)(C) 1,375,988 1,745,470
Advertising and
promotion............. 178,207 178,207 1,146,405 (2,396)(D) 1,144,009 1,322,216
Repairs and
maintenance........... 130,247 130,247 712,728 (1,795)(D) 710,933 841,180
Utilities.............. 155,844 155,844 653,974 653,974 809,818
Management fees........ 115,115 (16,091) (E) 99,024 332,666 99,547 (E) 432,213 531,237
Franchise costs........ 100,695 100,695 315,052 315,052 415,747
Depreciation........... 288,688 (288,688)(F) 1,222,556 (1,206,806)(F) 15,750 15,750
Amortization........... 16,248 (16,248)(G) 39,528 (39,528)(G)
Real estate and
personal property
taxes, and property
insurance............. 114,138 (114,138)(H) 372,957 (372,957)(H)
Interest expense....... 457,146 (457,146)(I) 1,248,618 (1,240,743)(I) 7,875 7,875
Other expense.......... 48,920 (44,840)(J) 4.080 262,596 (248,695)(J) 13,901 17,981
Participating Lease
expenses.............. 1,047,441 (K) 1,047,441 5,480,467 (K) 5,480,467 6,527,908
---------- --------- ---------- ----------- ----------- ----------- -----------
Total expenses....... 3,178,796 100,482 3,279,278 14,108,751 2,331,329 16,440,080 19,719,358
---------- --------- ---------- ----------- ----------- ----------- -----------
Revenues over (under)
expenses............ $ 128,599 $ (92,195) $ 36,404 $ 2,616,559 $(2,274,940) $ 341,619 $ 378,023
========== ========= ========== =========== =========== =========== ===========
</TABLE>

See Notes to Pro Forma Combined Statements of Operations

F-21
<PAGE>

INITIAL HOTELS AND LESSEE

NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS

The pro forma combined statements of operations of the Lessee include the
results of operations of the hotels leased from the Operating Partnership due
to the Lessee's control over the operations of the hotels during the twelve-
year term of the Participating Leases. The Lessee has complete discretion in
establishing room rates and all rates for hotel goods and services. Likewise,
all operating expenses of the hotels are under the control of the Lessee. The
Lessee has the right to manage or to enter into management contracts with
other parties to manage the hotels. If the Lessee elects to enter into
management contracts with parties other than American General Hospitality,
Inc. ("AGHI"), the Lessee must obtain the prior written consent of the
Operating Partnership, which consent may not be unreasonably withheld. The
Lessee, with the written consent of the Company, has entered into management
agreements pursuant to which all of the Initial Hotels will be managed by
AGHI.

(A) Represents the historical results of operations of the Holiday Inn
Dallas DFW Airport West prior to acquisition by the AGH Predecessor Hotels in
June 1995.

(B) Represents adjustments for certain room and food and beverage revenues
that were treated as complimentary in the historical statement of operations.
Also includes adjustments to telephone commissions to conform the Initials
Hotels' commission structure to the structure under new contracts AGHI will
have with its telecommunications providers.

(C) Reflects the elimination of expenses which are not expected to be
incurred by the Lessee. The expenses consist primarily of the following:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996 MARCH 31, 1996
----------------- -------------- --------------
<S> <C> <C> <C>
Property Operating Costs and
Expenses:
Certain changes in employee
benefits.................... $(155,002) $(158,332) $(41,090)
Operating lease expense...... (218,459) (224,861) (56,736)
--------- --------- --------
$(373,461) $(383,193) $(97,826)
========= ========= ========
General and Administrative
expenses:
Certain changes in employee
benefits.................... $ (24,431) $ (23,523) $ (6,462)
Operating lease expense...... (19,837) (20,717) (5,285)
Owner related expenses....... (144,000) (144,000) (36,000)
--------- --------- --------
$(188,268) $(188,240) $(47,747)
========= ========= ========
</TABLE>

The pro forma adjustment for certain changes in employee benefits represents
changes in employee benefits at two hotels to conform to the benefits provided
by AGHI. The pro forma adjustment to operating lease expense results from the
pay-off of certain operating leases of the hotels at closing. The pro forma
adjustment for owner related expenses represents the elimination of various
charges from the owners at one of the hotels, which related to personal
expenditures.

(D) Represents changes in employee benefits at one hotel to conform to the
benefits provided by AGHI.

(E) Represents the elimination of historical management fees, and the
addition of new management fees to be incurred under the Management
Agreements. The new management fees consist of a base fee of 1.5% of total
revenue and an incentive fee of up to 2.0% of total revenue. The incentive
fee, if applicable, is equal to 0.025% of annual total revenue for each 0.1%
increase in annual total revenues over the total revenues for the preceding
twelve month period up to the maximum incentive fee.

(F) Reflects the elimination of historical depreciation which is to be
recorded by the Operating Partnership and the addition of the depreciation
related to the $315,000 of furniture, fixtures and equipment purchased by the
Lessee from the Operating Partnership. The furniture, fixtures and equipment
will be depreciated over an estimated useful life of 5 years.

(G) Net decrease reflects the elimination of deferred loan costs
amortization.

(H) Reflects the elimination of real estate and personal property taxes, and
property insurance which is to be paid by the Operating Partnership.

F-22
<PAGE>

INITIAL HOTELS AND LESSEE

NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS

(I) Reflects elimination of historical debt interest expense. Any future
interest expense related to debt will be paid by the Operating Partnership.
The addition to interest expense relates to an advance made by the Operating
Partnership to the Lessee for the FF&E purchase. The advance of $315,000 bears
interest at 10% and is due over five years.

(J) Represents ground lease expense to be paid by the Operating Partnership
and the elimination of operating lease expense resulting from the pay-off of
certain operating leases of the hotels at closing.

(K) Represents lease payments to the Operating Partnership from the Lessee
pursuant to the Participating Leases calculated on a pro forma basis by
applying the rent provisions of the Participating Leases to the pro forma
revenues of the Initial Hotels. The departmental revenue thresholds in certain
of the Participating Lease formulas adjust in the future beginning January 1,
1997. See "The Initial Hotels--the Participating Leases."

The Participating Lease expense is comprised of the following:

<TABLE>
<CAPTION>
TWELVE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996 MARCH 31, 1996
----------------- -------------- --------------
<S> <C> <C> <C>
Base Rent..................... $15,392,000 $15,329,000 $3,848,000
Excess of Participating Rent
over Base Rent............... 9,383,142 10,510,292 2,679,908
----------- ----------- ----------
Total Participating Lease
expense.................... $24,775,142 $25,902,292 $6,527,908
=========== =========== ==========
</TABLE>

F-23
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
American General Hospitality Corporation

We have audited the accompanying combined balance sheets of the AGH
Predecessor Hotels (described in Note 1) as of December 30, 1994 and December
29, 1995 and the related combined statements of operations, equity and cash
flows for the period from December 30, 1993 through December 31, 1993 and the
years ended December 30, 1994 and December 29, 1995. These combined financial
statements are the responsibility of 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 combined financial position of the AGH
Predecessor Hotels as of December 30, 1994 and December 29, 1995 and the
combined results of their operations and their cash flows for the period from
December 30, 1993 through December 31, 1993 and the years ended December 30,
1994 and December 29, 1995 in conformity with generally accepted accounting
principles.

Coopers & Lybrand L.L.P.

Dallas, Texas
March 29, 1996

F-24
<PAGE>

AGH PREDECESSOR HOTELS

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29, MARCH 31,
1994 1995 1996
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Investment in hotel properties, at cost:
Land.................................. $ 680,000 $ 1,496,515 $ 1,496,515
Buildings and improvements............ 11,162,793 18,427,855 19,111,550
Furniture, fixtures and equipment..... 3,028,860 3,439,484 3,474,271
----------- ----------- -----------
14,871,653 23,363,854 24,082,336
Less accumulated depreciation........... (409,067) (945,502) (1,234,190)
----------- ----------- -----------
Net investment in hotel properties...... 14,462,586 22,418,352 22,848,146
Cash and cash equivalents............... 615,066 857,608 845,258
Restricted cash......................... 130,386 441,445 395,014
Accounts receivable, net................ 109,719 281,169 392,552
Inventories............................. 41,407 55,611 59,889
Prepaid expenses........................ 44,400 166,463 108,907
Deferred expenses....................... 50,212 370,046 375,912
Other assets............................ 9,000 85,410 89,326
----------- ----------- -----------
Total assets........................ $15,462,776 $24,676,104 $25,115,004
=========== =========== ===========
LIABILITIES AND EQUITY
Debt.................................... $11,016,322 $19,277,646 $19,972,015
Accounts payable, trade................. 199,312 560,862 364,519
Accrued expenses and other liabilities.. 419,643 832,889 580,164
----------- ----------- -----------
Total liabilities................... 11,635,277 20,671,397 20,916,698
----------- ----------- -----------
Commitments and contingencies (Note 4)
Capital................................. 4,145,000 5,812,391 5,877,391
Accumulated deficit..................... (317,501) (1,807,684) (1,679,085)
----------- ----------- -----------
Total equity........................ 3,827,499 4,004,707 4,198,306
----------- ----------- -----------
Total liabilities and equity........ $15,462,776 $24,676,104 $25,115,004
=========== =========== ===========
</TABLE>

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

F-25
<PAGE>

AGH PREDECESSOR HOTELS

COMBINED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 30, 1993 THROUGH DECEMBER 31, 1993,
THE YEARS ENDED DECEMBER 30, 1994 AND DECEMBER 29, 1995 AND
THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1993 1994 1995 1995 1996
-------- ---------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Room revenue.......... $ 17,941 $3,431,654 $ 9,020,479 $1,625,360 $2,624,614
Food and beverage
revenue.............. 6,158 552,697 1,293,238 215,333 509,331
Other revenue......... 1,448 223,211 568,415 102,367 173,450
-------- ---------- ------------ ---------- ----------
Total revenue....... 25,547 4,207,562 10,882,132 1,943,060 3,307,395
-------- ---------- ------------ ---------- ----------
Expenses:
Property operating
costs and expenses... 2,907 1,070,415 2,610,089 456,990 750,262
Food and beverage
costs and expenses... 1,115 503,537 1,318,712 218,506 451,309
General and
administrative....... 1,922 561,140 1,270,163 232,642 371,977
Advertising and
promotion............ 966 308,497 663,285 121,550 178,207
Repairs and
maintenance.......... 809 195,279 478,552 90,484 130,247
Utilities............. 217,496 509,142 76,097 155,844
Management fees....... 1,022 162,151 383,607 67,783 115,115
Franchise costs....... 155,206 332,274 50,142 100,695
Depreciation.......... 46,982 362,085 2,409,211 1,036,565 288,688
Amortization.......... 2,428 70,843 4,853 16,248
Real estate and
personal property
taxes, and property
insurance............ 831 177,717 389,955 65,193 114,138
Interest expense...... 430,535 1,572,244 255,552 457,146
Other expense......... 347,570 364,238 58,634 48,920
-------- ---------- ------------ ---------- ----------
Total expenses...... 56,554 4,494,056 12,372,315 2,734,991 3,178,796
-------- ---------- ------------ ---------- ----------
Net income (loss)... $(31,007) $ (286,494) $ (1,490,183) $ (791,931) $ 128,599
======== ========== ============ ========== ==========
</TABLE>

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

F-26
<PAGE>

AGH PREDECESSOR HOTELS

COMBINED STATEMENTS OF EQUITY

<TABLE>
<CAPTION>
EQUITY
-----------
<S> <C>
Balance, December 30, 1993
Net loss........................................................ $ (31,007)
Capital contributions........................................... 1,600,000
-----------
Balance, December 31, 1993........................................ 1,568,993
Net loss........................................................ (286,494)
Capital contributions........................................... 3,086,000
Distributions................................................... (541,000)
-----------
Balance, December 30, 1994........................................ 3,827,499
Net loss........................................................ (1,490,183)
Capital contributions........................................... 1,863,118
Distributions................................................... (195,727)
-----------
Balance, December 29, 1995........................................ 4,004,707
Net income (unaudited).......................................... 128,599
Capital contributions (unaudited)............................... 65,000
-----------
Balance, March 31, 1996 (unaudited)............................... $ 4,198,306
===========
</TABLE>

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

F-27
<PAGE>

AGH PREDECESSOR HOTELS

COMBINED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 30, 1993 THROUGH DECEMBER 31, 1993,
THE YEARS ENDED DECEMBER 30, 1994 AND DECEMBER 29, 1995 AND THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------------------------- ---------------------
1993 1994 1995 1995 1996
----------- ----------- ------------ ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating
activities:
Net income (loss)...... $ (31,007) $ (286,494) $ (1,490,183) $ (791,931) $ 128,599
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Depreciation.......... 46,982 362,085 2,409,211 1,036,565 288,688
Amortization.......... 2,428 70,843 4,853 16,248
Changes in assets and
liabilities:
Restricted cash..... (130,386) (311,059) (70,228) 46,431
Accounts receiv-
able............... (8,120) (101,599) (171,450) (16,135) (111,383)
Inventories......... (8,275) (33,132) (14,204) 9,294 (4,278)
Prepaid expenses.... (15,770) (28,630) (122,063) (19,770) 57,556
Other assets........ (9,000) (76,410) (93,916) (3,916)
Franchise
agreements......... (170,500)
Organization costs.. (13,139) (108,677) (10,873) (9,764)
Accounts payable,
trade.............. 440 198,872 361,550 (27,096) (196,343)
Accrued expenses and
other liabilities.. 163,366 256,277 413,246 (73,794) (252,725)
----------- ----------- ------------ ---------- ---------
Net cash provided by
(used in) operating
activities......... 147,616 217,282 790,304 (53,031) (40,887)
----------- ----------- ------------ ---------- ---------
Cash flows from
investing activities:
Improvements and
additions to hotel
properties........... (1,294,387) (2,199,840) (280,728) (718,482)
Acquisition of hotel
properties, net of
cash acquired........ (5,879,500) (7,697,767) (8,165,137)
----------- ----------- ------------ ---------- ---------
Net cash used in
investing
activities......... (5,879,500) (8,992,154) (10,364,977) (280,728) (718,482)
----------- ----------- ------------ ---------- ---------
Cash flows from
financing activities:
Proceeds from
borrowings............ 4,875,000 6,350,000 10,357,250 266,576 713,498
Principal payments on
borrowings............ (208,678) (2,095,926) (147,445) (19,129)
Payments for deferred
loan costs............ (39,500) (111,500) (25,000) (12,350)
Capital contributions.. 1,600,000 3,086,000 1,863,118 5,000 65,000
Distributions paid..... (541,000) (195,727) (35,300)
----------- ----------- ------------ ---------- ---------
Net cash provided by
financing
activities......... 6,475,000 8,646,822 9,817,215 63,831 747,019
----------- ----------- ------------ ---------- ---------
Net change in cash and
cash equivalents....... 743,116 (128,050) 242,542 (269,928) (12,350)
Cash and cash
equivalents at
beginning of periods... 743,116 615,066 615,066 857,608
----------- ----------- ------------ ---------- ---------
Cash and cash
equivalents at end of
periods................ $ 743,116 $ 615,066 $ 857,608 $ 345,138 $ 845,258
=========== =========== ============ ========== =========
Supplemental disclosures
of cash flow
information:
Cash paid during the
year for interest..... $ 430,535 $ 1,572,244 $ 255,552 $ 457,146
=========== ============ ========== =========
</TABLE>

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

F-28
<PAGE>

AGH PREDECESSOR HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION, BASIS OF PRESENTATION AND PROPOSED INITIAL PUBLIC OFFERING

Organization--American General Hospitality Corporation (the "Company"), a
newly organized Maryland corporation which intends to qualify as a real estate
investment trust ("REIT"), has been formed to acquire equity interests in 13
hotels (the "Initial Hotels"). Four of the Initial Hotels (the "AGH
Predecessor Hotels") will be acquired primarily from limited partnerships
controlled by the shareholders of American General Hospitality, Inc. (the
"AGHI Affiliates"). The remaining nine Initial Hotels (the "AGH Acquisition
Hotels") will be acquired primarily from parties controlled by persons
unaffiliated with AGHI.

Upon completion of the proposed initial public offering described below, the
Company will acquire a 80.2% equity interest in American General Hospitality
Operating Partnership, L.P. (the "Operating Partnership"). A wholly owned
subsidiary of the Company will be the sole general partner of the Operating
Partnership. The Operating Partnership will own the Initial Hotels and will
lease them to AGH Leasing, L.P. (the "Lessee") under operating leases
("Participating Leases") which provide for rent based on the revenues of the
Initial Hotels. The Lessee has entered into management agreements pursuant to
which all of the Initial Hotels will be managed by American General
Hospitality, Inc. ("AGHI").

Basis of Presentation--The accompanying combined financial statements of the
AGH Predecessor Hotels have been presented on a combined basis due to common
ownership and management and because the entities are expected to be the
subject of a business combination with the Company upon consummation of the
proposed initial public offering.

The AGH Predecessor Hotels consist of the 165 room Courtyard by Marriott-
Meadowlands located in Secaucus, New Jersey (purchased land, buildings and
improvements, and furniture, fixtures and equipment for cash in December 1993
for approximately $5.9 million), the 23 room Hotel Maison de Ville located in
New Orleans, Louisiana (purchased land, buildings and improvements, and
furniture, fixtures and equipment for cash in August 1994 for approximately
$2.5 million), the 124 room Hampton Inn Richmond Airport located in Richmond,
Virginia (purchased land, buildings and improvements, and furniture, fixtures
and equipment for cash in December 1994 for approximately $5.1 million) and
the 243 room Holiday Inn Dallas DFW Airport West located in Bedford, Texas
(purchased land, buildings and improvements, and furniture, fixtures and
equipment for cash in June 1995 for approximately $8.0 million).

The acquisition of each AGH Predecessor Hotel has been accounted for as a
purchase and accordingly, the results of operations for each AGH Predecessor
Hotel has been included in the combined statements of operations since the
respective dates of acquisition.

Proposed Initial Public Offering--The Company expects to file a registration
statement with the Securities and Exchange Commission (the "SEC") pursuant to
which the Company expects to offer 7,500,000 shares of its common stock to the
public (the "Offering"). The Company expects to qualify as a REIT under
sections 856-860 of the Internal Revenue Code of 1986, as amended (the
"Code"). Upon consummation of the Offering, the Company will contribute all of
the net proceeds of the Offering to the Operating Partnership in exchange for
an approximate 80.2% equity interest in the Operating Partnership. The
Operating Partnership will use such funds to purchase certain of the Initial
Hotels, repay debt and other obligations of the Initial Hotels, and for
working capital.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investment in Hotel Properties--Hotel properties are stated at the lower of
cost or net realizable value and are depreciated using the straight-line
method over estimated useful lives of 39 years for building and improvements
and 5 to 7 years for furniture, fixtures and equipment.

F-29
<PAGE>

AGH PREDECESSOR HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Management of the AGHI Affiliates review the carrying value of each property
to determine if circumstances exist indicating an impairment in the carrying
value of the investment of the hotel property or that depreciation periods
should be modified. If facts or circumstances support the possibility of
impairment, management of the AGHI Affiliates will prepare a projection of the
undiscounted future cash flows, without interest charges, of the specific
hotel property and determine if the investment in hotel property is
recoverable based on the undiscounted future cash flows. Management of the
AGHI Affiliates does not believe that there are any factors or circumstances
indicating impairment of any of its investment in hotel properties.

Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and the related accumulated depreciation are removed
from the accounts and the gain or loss is included in operations.

Cash and Cash Equivalents--All highly liquid investments with a maturity of
three months or less when purchased are considered to be cash equivalents.

Restricted Cash--Restricted cash consists primarily of amounts held in
escrow for capital and property tax reserves.

Inventories--Inventories, consisting primarily of food and beverage items,
are stated at the lower of cost (generally, first-in, first-out) or market.

Deferred Expenses--Deferred expenses primarily consist of deferred loan
costs, franchise fees and organization costs. Amortization of deferred loan
cost is computed using the effective yield method based upon the terms of the
loan agreements. Amortization of franchise fees is computed using the
straight-line method based upon the terms of the agreements. Amortization of
organization costs is computed using the straight-line method over five years.
Accumulated amortization at December 29, 1995 is $73,271.

Income Taxes--The AGH Predecessor Hotels are owned by Texas limited
partnerships which are not taxable entities. The results of operations are
included in the tax returns of the partners. The partnerships' tax returns and
the amount of allocable income or loss are subject to examination by federal
and state taxing authorities. If such examinations result in changes to income
or loss, the tax liability of the partners could be changed accordingly. The
Company proposes to qualify as a REIT under the Code, and will therefore not
be subject to corporate income taxes. Accordingly, the combined statements of
operations contain no provision for federal income taxes.

Revenue Recognition--Revenue is recognized as earned. Ongoing credit
evaluations are performed and an allowance for potential credit losses is
provided against the portion of accounts receivable which is estimated to be
uncollectible.

Use 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--Management of the AGHI Affiliates places cash
deposits at a major bank. At December 31, 1995, bank account balances exceeded
federal depository insurance limits by approximately $600,000. Management
believes credit risk related to these deposits is minimal.

F-30
<PAGE>

AGH PREDECESSOR HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Recently Issued Statement of Financial Accounting Standards--The AGH
Predecessor Hotels adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" during the year ended December 29, 1995.
The adoption of SFAS No. 121 had no material effect on the AGH Predecessor
Hotels' financial statements.

Interim Financial Information -- The unaudited interim financial statements
as of March 31, 1996 and for the three months ended March 31, 1995 and 1996
have been prepared pursuant to the rules and regulations of the SEC. The notes
to the interim financial statements included herein are intended to highlight
significant changes to the notes to the December 31, 1996 financial statements
and present interim disclosures required by the SEC. The accompanying interim
financial statements reflect, in the opinion of management, all adjustments
necessary for a fair presentation of the interim financial statements. All
such adjustments are of a normal and recurring nature.

3. DEBT

Debt at December 30, 1994 and December 29, 1995 consists of the following:

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
First mortgage notes payable in various monthly
installments including interest at rates ranging from
LIBOR plus 4.25% (5.44% at December 29, 1995) to
prime plus 1% (8.5% at December 29, 1995) maturing at
various dates from August 1999 through December
2001................................................. $10,916,322 $17,666,294
Product improvement plan note payable in various
monthly installments including interest at LIBOR plus
4.25%................................................ 1,511,352
Note payable to AGHI.................................. 100,000 100,000
----------- -----------
$11,016,322 $19,277,646
=========== ===========
</TABLE>

All debt is collateralized by the investment in hotel properties.

Aggregate annual principal payments for the AGHI Affiliates' debt at
December 31, 1995 are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
1996.......................................................... $ 605,506
1997.......................................................... 656,503
1998.......................................................... 687,677
1999.......................................................... 2,094,750
2000 and thereafter........................................... 15,233,210
-----------
$19,277,646
===========
</TABLE>

4. COMMITMENTS

Management fees represent amounts paid to AGHI based upon percentages of
gross revenue ranging from 3% to 4%.

Franchise costs represent the annual expense for franchise royalties and
reservation services under the terms of hotel franchise agreements expiring in
2005 (Holiday Inn), 2007 (Hampton Inn), and 2013 (Courtyard by Marriott).
Franchise costs are based upon varying percentages of gross room revenue
ranging from 4% to 5%. No franchise costs were incurred for the Hotel Maison
de Ville.

F-31
<PAGE>

AGH PREDECESSOR HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Each hotel, except for the Hotel Maison de Ville, is required to remit
varying percentages of gross room revenue ranging from 1.5% to 4% to the
various franchisors for sales and advertising expenses incurred to promote the
hotel at the national level. Additional sales and advertising costs are
incurred at the local property level.

The AGHI Affiliates lease the Courtyard by Marriott-Meadowlands hotel land,
under a noncancellable operating lease agreement which expires in 2036. The
AGHI Affiliates have the option to extend the lease for an additional twenty
years upon the same terms. The lease provides for contingent rental payments
based on 3% of gross room revenues which for the years ended December 30, 1994
and December 29, 1995 approximated 65% of the aggregate rental expense under
the operating lease. Additionally, certain equipment is leased under
noncancellable operating lease agreements expiring at varying intervals
through August 1996. Minimum future rental payments required under operating
leases as of December 31, 1995 are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
1996.......................................................... $ 163,842
1997.......................................................... 175,300
1998.......................................................... 187,800
1999.......................................................... 187,800
2000 and thereafter........................................... 14,432,340
-----------
$15,147,082
===========
</TABLE>

Rental expense was $311,007 and $360,011 for the years ended December 30,
1994 and December 29, 1995, respectively.

As a result of the Offering and the resulting prepayment of debt, a portion
of the proceeds of the Offering will be utilized to pay prepayment penalties
on two notes payable totalling $733,879 based on an estimated pay off date of
July 19, 1996.

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards 107 requires all entities to
disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the AGHI Affiliates report the carrying amount of
cash and cash equivalents, restricted cash, accounts payable, accrued expenses
and other liabilities at cost which approximates fair value due to the short
maturity of these instruments. The carrying amount of the AGHI Affiliate's
debt approximates fair value due to the AGHI Affiliates ability to obtain such
borrowings at comparable interest rates.

6. PRO FORMA INFORMATION (UNAUDITED)

Due to the impact of the acquisitions discussed in Note 1, the historical
results of operations may not be indicative of future results of operations.
The following unaudited pro forma condensed combined statements of operations
for the years ended December 30, 1994 and December 29, 1995 are presented as
if the hotel acquisitions described in Note 1 occurred on January 1, 1994.

The unaudited pro forma condensed combined statements of operations do not
purport to represent what actual results of operations would have been if the
acquisitions had occurred on such date or to project results

F-32
<PAGE>

AGH PREDECESSOR HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONCLUDED)
for any future period. The following unaudited pro forma information does not
include pro forma adjustments related to the proposed initial public offering
and related transactions.

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Total revenue.................................. $11,171,889 $12,927,954
Hotel operating expenses....................... 8,257,439 8,905,916
Depreciation................................... 1,198,055 2,618,055
Interest....................................... 2,543,215 1,973,765
Other corporate expenses....................... 761,015 791,599
----------- -----------
Net loss....................................... $(1,587,835) $(1,361,381)
=========== ===========
</TABLE>

7. SUBSEQUENT EVENT

As discussed in Note 1, the four AGH Predecessor Hotels will be acquired
subsequent to March 29, 1996. The Company and the Operating Partnership will
exchange shares of Common Stock and OP Units for interests in the selling
entities and certain net assets will be transferred at historical cost basis.
In addition, the hotels will be refinanced upon acquisition and post-
acquisition debt will be different than the historical debt reflected in the
accompanying financial statements. Furthermore, all management agreements will
be terminated and new management agreements will be implemented. The combined
financial statements do not reflect any of the transactions in connection with
the Offering and related transactions.

The AGH Predecessor Hotels repaid in full the December 29, 1995 outstanding
debt of $100,000 and the accounts payable of $195,000 to AGHI.

F-33
<PAGE>

AGH PREDECESSOR HOTELS

SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 29, 1995

(a) Reconciliation of land and buildings and improvements:

<TABLE>
<S> <C>
Balance at January 1, 1994... $ 4,780,496
Additions during the year
1994:
Improvements................ 7,062,297
-----------
Balance at December 30,
1994......................... 11,842,793
Additions during the year
1995: 8,081,577
-----------
Balance at December 29,
1995......................... $19,924,370
===========
</TABLE>

(b) Reconciliation of Accumulated Depreciation:

<TABLE>
<S> <C>
Balance at beginning of year Jan-
uary 1, 1994..................... $ 46,982
Depreciation for the year 1994: 185,174
--------
Balance at December 30, 1994..... 232,156
Depreciation for the year 1995: 274,251
--------
Balance at December 29, 1995..... $506,407
========
</TABLE>

F-34
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors American General Hospitality Corporation

We have audited the accompanying combined balance sheets of the AGH
Acquisition Hotels (described in Note 1) as of December 31, 1994 and 1995 and
the related combined statements of operations, equity and cash flows for each
of the three years in the period ended December 31, 1995. These combined
financial statements are the responsibility of management. Our responsibility
is to express an opinion on these financial statements based on our audits.

The accompanying financial statements were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission as described in Note 1 to the financial statements and are not
intended to be a complete presentation of the AGH Acquisition Hotels.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the AGH
Acquisition Hotels as of 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.

Dallas, Texas
April 8, 1996

F-35
<PAGE>

AGH ACQUISITION HOTELS

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Investments in hotel properties, at
cost:
Land and land improvement.......... $ 9,174,723 $ 9,174,723 $ 9,174,723
Buildings and improvements......... 70,574,085 73,047,848 73,218,749
Furniture, fixtures and equipment.. 21,948,731 21,999,984 22,267,228
------------ ------------ -----------
101,697,539 104,222,555 104,660,700
Less accumulated depreciation........ (33,171,163) (36,842,175) (38,064,731)
------------ ------------ -----------
Net investment in hotel properties... 68,526,376 67,380,380 66,595,969
Cash and cash equivalents............ 2,514,782 4,247,740 5,245,341
Restricted cash...................... 1,006,323 1,454,731 2,380,396
Accounts receivable, net............. 1,917,888 1,677,438 2,521,992
Inventories.......................... 571,883 735,266 624,557
Prepaid expenses..................... 379,842 477,443 518,929
Deferred expenses.................... 462,933 558,706 520,636
Other assets......................... 661,774 90,669 110,122
------------ ------------ -----------
Total assets..................... $ 76,041,801 $ 76,622,373 $78,517,942
============ ============ ===========
LIABILITIES AND EQUITY
Debt................................. $ 46,013,273 $ 43,861,547 $51,827,466
Capital lease obligation............. 2,862,995 2,625,082 2,562,897
Accounts payable, trade.............. 884,218 768,251 1,135,404
Payable to affiliates................ 2,145,068 2,231,449 2,173,403
Accrued expenses and other liabili-
ties................................ 3,819,118 3,847,515 3,514,883
------------ ------------ -----------
Total liabilities................ 55,724,672 53,333,844 61,214,053
------------ ------------ -----------
Commitments and contingencies (Note
4)..................................
Capital.............................. 11,960,065 6,588,382 (2,012,817)
Retained earnings.................... 8,357,064 16,700,147 19,316,706
------------ ------------ -----------
Total equity..................... 20,317,129 23,288,529 17,303,889
------------ ------------ -----------
Total liabilities and equity..... $ 76,041,801 $ 76,622,373 $78,517,942
============ ============ ===========
</TABLE>

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

F-36
<PAGE>

AGH ACQUISITION HOTELS

COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995 AND THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Room revenue.......... $36,811,936 $40,109,552 $44,736,447 $10,232,424 $11,561,801
Food and beverage rev-
enue................. 15,446,922 15,826,164 16,424,522 4,076,018 4,173,807
Other revenue......... 4,678,562 3,169,064 3,579,485 869,608 989,702
----------- ----------- ----------- ----------- -----------
Total revenue....... 56,937,420 59,104,780 64,740,454 15,178,050 16,725,310
----------- ----------- ----------- ----------- -----------
Expenses:
Property operating
costs and expenses... 11,639,735 11,611,249 12,583,203 2,898,122 3,232,127
Food and beverage
costs and expenses... 12,023,204 12,331,905 12,741,884 3,068,805 3,148,304
General and adminis-
trative.............. 4,877,037 5,398,014 5,780,741 1,337,209 1,421,240
Advertising and promo-
tion................. 3,735,277 3,822,370 3,874,160 1,066,362 1,146,405
Repairs and mainte-
nance................ 2,744,397 2,564,251 2,719,954 672,483 712,728
Utilities............. 2,898,837 3,021,303 2,945,878 678,998 653,974
Management fees....... 799,987 933,961 1,285,385 309,720 332,666
Franchise costs....... 1,403,567 1,492,504 1,701,346 276,497 315,052
Depreciation.......... 5,550,188 5,344,060 5,498,602 1,729,152 1,222,556
Amortization.......... 250,459 277,887 152,588 68,918 39,528
Real estate and
personal property
taxes, and
property insurance... 1,632,849 1,651,113 1,481,258 398,032 372,957
Interest expense...... 4,667,281 4,340,948 4,734,958 1,155,882 1,248,618
Other expense......... 909,555 820,168 897,414 241,539 262,596
----------- ----------- ----------- ----------- -----------
Total expenses...... 53,132,373 53,609,733 56,397,371 13,901,719 14,108,751
----------- ----------- ----------- ----------- -----------
Revenues over ex-
penses............. $ 3,805,047 $ 5,495,047 $ 8,343,083 $ 1,276,331 $ 2,616,559
=========== =========== =========== =========== ===========
</TABLE>

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

F-37
<PAGE>

AGH ACQUISITION HOTELS

COMBINED STATEMENTS OF EQUITY

<TABLE>
<CAPTION>
EQUITY
-----------
<S> <C>
Balance, December 31, 1992......................................... $19,706,810
Revenues over expenses........................................... 3,805,047
Distributions.................................................... (3,743,317)
-----------
Balance, December 31, 1993......................................... 19,768,540
Revenues over expenses........................................... 5,495,047
Capital contributions............................................ 1,803,806
Distributions.................................................... (6,750,264)
-----------
Balance, December 31, 1994......................................... 20,317,129
Revenues over expenses........................................... 8,343,083
Capital contributions............................................ 1,486,050
Distributions.................................................... (6,857,733)
-----------
Balance, December 31, 1995......................................... 23,288,529
Net income (unaudited)........................................... 2,616,559
Capital contributions (unaudited)................................ 404,221
Distributions (unaudited)........................................ (9,005,420)
-----------
Balance, March 31, 1996 (unaudited)................................ $17,303,889
===========
</TABLE>

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

F-38
<PAGE>

AGH ACQUISITION HOTELS

COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating
activities:
Revenues over
expenses............. $ 3,805,047 $ 5,495,047 $ 8,343,083 $1,276,331 $2,616,559
Adjustments to
reconcile revenues
over expenses
to net cash provided
by operating
activities:
Depreciation......... 5,550,188 5,344,060 5,498,602 1,729,152 1,222,556
Amortization......... 250,459 277,887 152,588 68,918 39,528
Changes in assets and
liabilities:
Restricted cash...... (501,015) 128,081 (448,408) (1,274,883) (925,665)
Accounts receivable.. 208,742 393,847 240,450 (60,067) (844,554)
Inventories.......... 17,473 17,928 (163,383) 26,161 110,709
Prepaid expenses..... (84,011) (53,658) (97,601) (224,638) (41,486)
Other assets......... (511,774) 1,546,499 571,105 514,939 (19,453)
Franchise
agreements.......... (78,804) (4,000)
Organization costs... (135,928) (3,239)
Accounts payable,
trade............... (311,030) 141,223 (115,967) 115,377 367,153
Payable to
affiliates.......... 129,927 66,559 86,381 55,577 (58,046)
Accrued expenses and
other liablilities.. 881,626 357,616 28,397 (287,973) (332,632)
----------- ----------- ----------- ---------- ----------
Net cash provided by
operating
activities......... 9,220,900 13,711,089 14,092,008 1,938,894 2,134,669
----------- ----------- ----------- ---------- ----------
Cash flows from invest-
ing activities:
Improvements and
additions to hotel
properties........... (1,274,727) (4,903,592) (4,352,606) (972,147) (438,145)
----------- ----------- ----------- ---------- ----------
Cash flows from financ-
ing activities:
Proceeds from
borrowings........... 493,713 202,287 638,538 561,111 14,316,797
Principal payments on
borrowings........... (4,374,090) (2,662,272) (2,790,264) (445,592) (6,350,878)
Payments on capital
lease obligation..... (206,194) (221,486) (237,913) (57,893) (62,185)
Payments for deferred
loan costs........... (189,152) (245,122) (13,342) (1,458)
Capital
contributions........ 1,803,806 1,486,050 654,515 404,221
Distributions paid.... (3,743,317) (6,750,264) (6,857,733) (1,270,136) (9,005,420)
----------- ----------- ----------- ---------- ----------
Net cash used in
financing
activities......... (7,829,888) (7,817,081) (8,006,444) (571,337) (698,923)
----------- ----------- ----------- ---------- ----------
Net change in cash and
cash equivalents....... 116,285 990,416 1,732,958 395,410 997,601
Cash and cash
equivalents at
beginning of period.... 1,408,081 1,524,366 2,514,782 2,514,782 4,247,740
----------- ----------- ----------- ---------- ----------
Cash and cash
equivalents at end of
period................. $ 1,524,366 $ 2,514,782 $ 4,247,740 $2,910,192 $5,245,341
=========== =========== =========== ========== ==========
Supplemental disclosures of cash
flow information:
Cash paid during the
year for interest.... $ 4,793,349 $ 4,275,522 $ 4,590,280 $1,221,248 $1,402,999
=========== =========== =========== ========== ==========
</TABLE>

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

F-39
<PAGE>

AGH ACQUISITION HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

Basis of Presentation--The accompanying combined financial statements of the
AGH Acquisition Hotels have been presented on a combined basis due to
anticipated common ownership and management since each of the entities are
expected to be the subject of a business combination with the Company upon
consummation of the proposed initial public offering. The AGH Acquisition
Hotels consist of the following:

<TABLE>
<CAPTION>
PROPERTY NAME LOCATION NO. OF ROOMS
------------- -------- ------------
<S> <C> <C>
Holiday Inn Dallas DFW Airport South Irving, Texas 409
Hilton Hotel-Toledo Toledo, Ohio 213
Holiday Inn New Orleans International
Airport Kenner, Louisiana 304
Holiday Inn Park Center Plaza San Jose, California 231
Holiday Inn Select-Madison Madison, Wisconsin 227
Holiday Inn Mission Valley San Diego, California 318
Le Baron Airport Hotel San Jose, California 327
Days Inn Ocean City Ocean City, Maryland 162
Fred Harvey Albuquerque Airport Hotel Albuquerque, New Mexico 266
</TABLE>

Two hotels are owned by entities that conduct business as taxable
corporations and were managed so that income taxes were the responsibility of
the owners. The remaining hotels are owned by various partnerships for income
tax purposes. These financial statements have been prepared to show the
operations and financial position of the combined AGH Acquisition Hotels,
substantially all of whose assets and operations will be acquired by the
Company. The Company intends to qualify as a REIT and will not pay any federal
income taxes, therefore the financial statements have been presented on a
pretax basis.

Proposed Initial Public Offering--The Company has filed its registration
statement with the Securities and Exchange Commission (the "SEC") pursuant to
which the Company expects to offer 7,500,000 shares of its common stock to the
public (the "Offering"). The Company expects to qualify as a REIT under
sections 856-860 of the Internal Revenue Code of 1986, as amended (the
"Code"). Upon consummation of the Offering, the Company will contribute all of
the net proceeds of the Offering to the Operating Partnership in exchange for
an approximate 80.2% equity interest in the Operating Partnership. The
Operating Partnership will use such funds to purchase certain of the Initial
Hotels, repay debt and other obligations of the Initial Hotels, and for
working capital.

F-40
<PAGE>

AGH ACQUISITION HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investment in Hotel Properties--Hotel properties are stated at the lower of
cost or net realizable value and are depreciated using the straight-line
method over estimated useful lives ranging from 31 to 40 years for building
and improvements and 5 to 7 years for furniture, fixtures and equipment.

The respective owners of the AGH Acquisition Hotels review the carrying
value of each property to determine if circumstances exist indicating an
impairment in the carrying value of the investment of the hotel property or
that depreciation periods should be modified. If facts or circumstances
support the possibility of impairment, the respective owners of the AGH
Acquisition Hotels will prepare a projection of the undiscounted future cash
flows, without interest charges, of the specific hotel property and determine
if the investment in hotel property is recoverable based on the undiscounted
future cash flows. The respective owners of the AGH Acquisition Hotels do not
believe that there are any factors or circumstances indicating impairment of
any of its investment in hotel properties.

Cash and Cash Equivalents--All highly liquid investments with a maturity of
three months or less when purchased are considered to be cash equivalents.

Restricted Cash--Restricted cash consists primarily of amounts held in
escrow for capital and property tax reserves.

Inventories--Inventories consist primarily of food and beverage items;
china; glass and silver; and linen and are stated at the lower of cost
(generally, first-in, first-out) or market.

Deferred Expenses--Deferred expenses primarily consist of deferred loan
costs, franchise fees, and organization costs. Amortization of deferred loan
cost is computed using the effective yield method based upon the terms of the
loan agreements. Amortization of franchise fees is computed using the
straight-line method based upon the terms of the agreements. Amortization of
organization costs is computed using the straight-line method over five years.
Accumulated amortization at December 31, 1994 and 1995 is $892,441 and
$1,045,029, respectively.

Income Taxes--Seven of the nine hotels are included in various limited
partnerships which are not taxable entities. The results of operations are
included in the tax returns of the partners. The partnerships' tax returns and
the amount of allocable income or loss are subject to examination by federal
and state taxing authorities. If such examinations result in changes to income
or loss, the tax liability of the partners could be changed accordingly. The
Company proposes to qualify as a REIT under the Code and will therefore not be
subject to corporate income taxes. Accordingly, the combined statements of
operations contain no provision for federal income taxes.

F-41
<PAGE>

AGH ACQUISITION HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Concentration of Credit Risk--The AGH Acquisition Hotels place cash deposits
at major banks. At December 31, 1995, bank account balances exceeded federal
depository insurance limits by approximately $2.5 million. Management believes
credit risk related to these deposits is minimal.

Significant Customer--The owner of the Hilton Hotel-Toledo is a major
customer of the Hilton Hotel- Toledo. In 1995, 20% of the hotel's room revenue
was attributed to other businesses of the owner.

Recently Issued Statement of Financial Accounting Standards--The AGH
Acquisition Hotels adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" during the year ended December 31, 1995.
The adoption of SFAS No. 121 had no material effect on the AGH Acquisition
Hotels' financial statements.

Interim Financial Information--The unaudited interim financial statements as
of March 31, 1996 and for the three months ended March 31, 1995 and 1994 have
been prepared pursuant to the rules and regulations of the SEC. The notes to
the interim financial statements included herein are intended to highlight
significant changes to the notes to the December 31, 1995 financial statements
and present interim disclosures required by the SEC. The accompanying interim
financial statements reflect, in the opinion of management, all adjustments
necessary for a fair presentation of the interim financial statements. All
such adjustments are of a normal and recurring nature.

3. DEBT

Debt at December 31, 1994 and 1995 consists of the following:

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
First mortgage notes payable in various monthly
installments including interest at fixed rates
ranging from 8.5% to 10% maturing at various dates
through October 1, 2004.............................. $18,028,545 $15,959,484
First mortgage notes payable in various monthly
installments including interest at the commercial
paper rate (5.81% at December 31, 1995) plus 4.75%
maturing at July 15, 1997............................ 5,655,275 5,915,904
First mortgage notes payable in quarterly installments
including interest at the prime rate (8.5% at
December 31, 1995) maturing at October 30, 1999...... 7,692,000 7,575,000
First mortgage note payable in monthly installments
including interest at the federal funds rate (6% at
December 31, 1995) plus 2.5% maturing at July 10,
1997................................................. 10,695,513 10,319,709
Product improvement plan loans payable in various
monthly installments including interest at rates
ranging from the bank reference rate (7.8% at
December 31, 1995) plus .5% to 12% maturing at
various dates through April 1, 2001.................. 3,825,000 4,091,450
Other non-current debt................................ 116,940
----------- -----------
$46,013,273 $43,861,547
=========== ===========
</TABLE>

All debt is collateralized by the investments in hotel properties.

F-42
<PAGE>

AGH ACQUISITION HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Aggregate annual principal payments for the AGHI Acquisition Hotels debt at
December 30, 1995 are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
1996.......................................................... $13,408,767
1997.......................................................... 11,420,835
1998.......................................................... 8,220,838
1999.......................................................... 1,209,019
2000 and thereafter........................................... 9,602,088
-----------
Total..................................................... $43,861,547
===========
</TABLE>

In December 1993, the partnership which owns the Holiday Inn New Orleans
International Airport hotel received $1,814,609 as a full pay-off from a
default on the lease of the hotel in 1992 which resulted in the default of the
mortgage. The $1,814,609 proceeds were transferred to the lender and applied
as a reduction of the principal balance on the nonrecourse mortgage loan to
cure the default. The payoff of $1,814,609 is recognized as other revenue. The
partnership has agreed that the $1,814,609 received in connection with the
promissory note payoff will be netted from funds they may be entitled to
receive in the future in connection with their bankruptcy claims against the
lessee.

4. LEASES

The Fred Harvey Albuquerque Airport Hotel has a noncancellable capital
building lease expiring in December 2013 and a noncancellable operating land
lease that also expires in December 2013; both leases include two five-year
options to renew the leases. The Le Baron Airport Hotel has a noncancellable
operating land lease expiring in July 2002, with one option to renew for an
additional 30 years. The Hilton Hotel-Toledo has a noncancellable operating
land lease that expires in December 2026, with four successive options to
renew the lease. Additionally, certain equipment is leased under
noncancellable lease agreements expiring at varying intervals through April
1998. The Fred Harvey Albuquerque Airport Hotel and the Le Baron Airport Hotel
land leases provide for contingent rental payments based on varying
percentages of revenues which for the years ended December 31, 1994 and 1995
approximated 50% of the aggregate rental expense under the operating leases.

Additionally, the Fred Harvey Albuquerque Airport Hotel land lease requires
the owner to add a new rooms building with at least 100 more guest rooms if
the average occupancy at the hotel is 85% or greater for 24 consecutive
months.

Leased capital assets included in buildings and improvements at December 31,
1994 and 1995 are as follows:

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Building and improvements....................... $ 4,620,000 $ 4,620,000
Accumulated depreciation........................ (3,323,102) (3,424,155)
----------- -----------
$ 1,296,898 $ 1,195,845
=========== ===========
</TABLE>

F-43
<PAGE>

AGH ACQUISITION HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Minimum future rental payments required under these capital leases (together
with the present value of net minimum lease payments) and operating leases
that have an initial term or remaining noncancellable lease terms in excess of
one year at December 31, 1995 are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
---- ---------- ----------
<S> <C> <C>
1996.................................................. $ 438,236 $ 409,014
1997.................................................. 438,236 299,327
1998.................................................. 438,236 228,613
1999.................................................. 438,236 216,331
2000 and thereafter................................... 2,674,704 3,707,785
---------- ----------
Total minimum lease payment........................... 4,427,648 $4,861,070
==========
Less imputed interest................................. 1,802,566
----------
Present value of net minimum lease payments........... $2,625,082
==========
</TABLE>

Rental expense was $584,924, $676,531, and $705,943 for the years ended
December 31, 1993, 1994, and 1995, respectively.

5. COMMITMENTS

Management fees represent amounts paid to affiliated parties based upon
percentages of gross revenue ranging from 1.5% to 3.0%.

Franchise costs represent the annual expense for franchise royalties and
reservation services under the terms of hotel franchise agreements expiring in
various years ranging from 1998 to 2007. Franchise costs are based upon
varying percentages of gross room revenue ranging from 1.8% to 6.5%.

Each hotel is required to remit varying percentages of gross room revenue
ranging from 1.5% to 4% to the various franchisors for sales and advertising
expenses incurred to promote the hotel at the national level. Additional sales
and advertising costs are incurred at the local property level.

As a result of the Offering and the resulting prepayment of debt, a selling
partnership will pay prepayment penalties on one note payable totalling
approximately $504,000 based on an estimated pay off date of July 19, 1996.

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards 107 requires all entities to
disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the AGH Acquisition Hotels report the carrying amount
of cash and cash equivalents, restricted cash, accounts payable, accrued
expenses and other liabilities at cost which approximates fair value due to
the short maturity of these instruments. The carrying amount of the AGH
Acquisition Hotels' debt approximates fair value due to the AGH Acquisition
Hotels' ability to obtain such borrowings at comparable interest rates.

7. RELATED PARTY TRANSACTIONS

During 1993, 1994, and 1995, the owner of the Fred Harvey Albuquerque
Airport Hotel paid for all accounts payable, payroll and other miscellaneous
payments for the hotel. The hotel's outstanding payable to the owner for these
payments, included in accounts payable, was $118,512 and $204,893 at December
31, 1994 and 1995, respectively. In addition, an affiliate of the Fred Harvey
Albuquerque Airport Hotel made payments for the hotel in 1992, totalling
$389,000, which are still outstanding and included in accounts payable as of
December 31, 1995.

F-44
<PAGE>

AGH ACQUISITION HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Holiday Inn Park Center Plaza paid an annual management fee to an
officer of the entity owning the hotel for the years ending December 31, 1993,
1994 and 1995 of $60,000, $90,000 and $70,000, respectively.

An oral agreement for purchasing and management/financial services exists
between the Le Baron Airport Hotel and an affiliate of the owner. Fees (based
on 2% of gross revenues) paid to the affiliate for the years ending December
31, 1993, 1994 and 1995 are $139,947, $156,041 and $161,009, respectively.

As of December 31, 1995, the Holiday Inn Mission Valley hotel has a $312,500
receivable from its owners.

8. SUBSEQUENT EVENTS

On January 30, 1996, the Holiday Inn Dallas DFW Airport South hotel entered
into a long-term mortgage indebtedness agreement with a financial institution,
for proceeds of $14,250,000 at a fixed interest rate of 8.75% that matures on
February 1, 2011. Proceeds from the loan were used to repay the outstanding
debt of $5,915,904 and for distributions to the owners.

As discussed in Note 1, the nine AGH Acquisition Hotels will be acquired by
the Company subsequent to April 8, 1996. The acquisitions will be accounted
for by the Company under the purchase method of accounting. Accordingly, the
cost basis of the hotels will change to reflect the acquisition prices of the
hotels by the Company. In addition, with the exception of the Holiday Inn
Dallas DFW Airport South, the hotels will be refinanced upon acquisition and
postacquisition debt will be different than the historical debt reflected in
the accompanying financial statements. All management agreements will be
terminated concurrently with the sales of the hotels to the Company. The
combined financial statements do not reflect any of the transactions in
connection with the acquisitions of the nine hotels by the Company.

F-45
<PAGE>

AGH ACQUISITION HOTELS

SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995

<TABLE>
<CAPTION>
COST CAPITALIZED GROSS AMOUNTS AT
SUBSEQUENT TO WHICH CARRIED
INITIAL COST ACQUISITION AT CLOSE OF PERIOD ACCUMULATED
----------------------- --------------------- ----------------------------------- DEPRECIATION
BUILDING BUILDING BUILDING BUILDING
AND AND AND AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL IMPROVEMENTS
----------- ------------ ---------- ------------ -------- ------------ ---------- ------------ ----------- ------------
(A) (B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Holiday Inn
Dallas DFW
Airport South
Irving, TX...... $5,915,904 $ 500,000 $ 2,810,500 $461,129 $ 1,144,140 $ 961,129 $ 3,954,640 $ 4,915,769 $ 360,051
Holiday Inn Park
Center Plaza San
Jose, CA........ 4,768,192 236,463 2,356,705 6,392,404 236,463 8,749,109 8,985,572 3,662,314
Fred Harvey Al-
buquerque
Airport Hotel
Albuquerque,
NM.............. 7,995,562 1,655,118 9,650,680 9,650,680 302,770
Holiday Inn Se-
lect-Madison
Madison, WI..... 4,231,600 2,615,614 7,050,569 2,215,924 2,615,614 9,266,493 11,882,107 3,802,233
Holiday Inn New
Orleans
International
Airport
Kenner, LA...... 7,440,696 2,567,967 12,179,629 3,390,411 2,567,967 15,570,040 18,138,007 1,847,633
Days Inn Ocean
City
Ocean City, MD.. 500,000 4,230,000 524,000 500,000 4,754,000 5,254,000 438,194
Le Baron Airport
Hotel
San Jose, CA.... 3,163,996 7,000,000 270,716 7,270,716 7,270,716 4,777,777
Holiday Inn Mis-
sion Valley
San Diego, CA... 10,766,159 2,293,550 5,354,094 1,697,161 2,293,550 7,051,255 9,344,805 782,460
Hilton Hotel-To-
ledo
Toledo, OH...... 7,575,000 6,753,093 27,822 6,780,915 6,780,915 580,558
----------- ---------- ----------- -------- ----------- ---------- ----------- ----------- -----------
$43,861,547 $8,713,594 $55,730,152 $461,129 $17,317,696 $9,174,723 $73,047,848 $82,222,571 $16,553,990
=========== ========== =========== ======== =========== ========== =========== =========== ===========
<CAPTION>
NET LIFE
BOOK VALUE UPON WHICH
BUILDING DEPRECIATION
AND DATE OF DATE OF IN STATEMENT
DESCRIPTION IMPROVEMENTS CONSTRUCTION ACQUISITION IS COMPUTED
----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Holiday Inn
Dallas DFW
Airport South
Irving, TX...... $ 4,555,718 1974 1993 40 YRS
Holiday Inn Park
Center Plaza San
Jose, CA........ 5,323,258 1975 1975 40 YRS
Fred Harvey Al-
buquerque
Airport Hotel
Albuquerque,
NM.............. 9,347,910 1972 1988 27 YRS
Holiday Inn Se-
lect-Madison
Madison, WI..... 8,079,874 1987 1987 40 YRS
Holiday Inn New
Orleans
International
Airport
Kenner, LA...... 16,290,374 1973 1988 40 YRS
Days Inn Ocean
City
Ocean City, MD.. 4,815,806 1989 1992 40 YRS
Le Baron Airport
Hotel
San Jose, CA.... 2,492,939 1974 1974 40 YRS
Holiday Inn Mis-
sion Valley
San Diego, CA... 8,562,345 1970 1991 40 YRS
Hilton Hotel-To-
ledo
Toledo, OH...... 6,200,357 1987 1993 40 YRS
------------
$65,668,581
============
</TABLE>

(a) Reconciliation of Land and Buildings and Improvements:
<TABLE>
<S> <C>
Balance at January 1, 1994... $76,600,731
Additions during the year
1994:
Improvements................ 3,148,077
-----------
Balance at December 31,
1994......................... 79,748,808
Additions during the year
1995........................ 2,473,763
-----------
Balance at December 31,
1995......................... $82,222,571
===========
</TABLE>

(b) Reconciliation of Accumulated Depreciation:

<TABLE>
<S> <C>
Balance at January 1, 1994.... $12,044,953
Depreciation for the year
1994......................... 2,250,929
-----------
Balance at December 31, 1994.. 14,295,882
Depreciation for the year
1995......................... 2,258,108
-----------
Balance at December 31, 1995.. $16,553,990
===========
</TABLE>

F-46
<PAGE>

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

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AU-
THORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUAL-
IFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HERE-
UNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

-----------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 20
The Company.............................................................. 33
Use of Proceeds.......................................................... 41
Distribution Policy...................................................... 42
Capitalization........................................................... 45
Dilution................................................................. 46
Selected Financial Information........................................... 47
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 53
The Hotel Industry....................................................... 63
The Initial Hotels....................................................... 64
Formation Transactions................................................... 87
Management............................................................... 90
Certain Relationships and Transactions................................... 97
AGHI and the Lessee...................................................... 99
Principal Stockholders................................................... 102
Description of Capital Stock............................................. 103
Certain Provisions of Maryland Law and of the Company's Charter and
Bylaws.................................................................. 107
Policies and Objectives with Respect to Certain Activities............... 111
Shares Available for Future Sale......................................... 114
Partnership Agreement.................................................... 115
Federal Income Tax Considerations........................................ 118
Underwriting............................................................. 137
Experts.................................................................. 138
Legal Matters............................................................ 138
Additional Information................................................... 139
Glossary................................................................. 140
Index to Financial Statements............................................ F-1
</TABLE>

-----------

UNTIL AUGUST 19, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

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

7,500,000 Shares

[LOGO OF AMERICAN GENERAL HOSPITALITY CORPORATION]

Common Stock

-----------

PROSPECTUS

JULY 25, 1996

-----------

Smith Barney Inc.

Prudential Securities Incorporated

Legg Mason Wood Walker
Incorporated

The Robinson-Humphrey Company, Inc.

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