AMERICAN GENERAL HOSPITALITY CORP, 424B1, 1997-02-04

AMERICAN GENERAL HOSPITALITY CORP
424B1, 1997-02-04
REAL ESTATE INVESTMENT TRUSTS

Previous: UGLY DUCKLING CORP, 8-K, 1997-02-04

Next: REMEDYTEMP INC, 10-Q, 1997-02-04

<PAGE>

PROSPECTUS 5,800,000 Shares
[LOGO OF AMERICAN GENERAL HOSPITALITY CORPORATION
AMERICAN GENERAL Common Stock
HOSPITALITY
CORPORATION]
------------
American General Hospitality Corporation (collectively with its
subsidiaries, the "Company") is a self-administered real estate investment
trust ("REIT") that owns sixteen hotels in eleven states containing an
aggregate of 3,858 guest rooms (the "Current Hotels"). In addition, the
Company has entered into contracts to purchase four additional hotels
containing an aggregate of 775 guest rooms (the "Proposed Acquisition
Hotels"). The Company's portfolio consists primarily of full-service hotels
located in major metropolitan markets. Ten of the Current Hotels are currently
undergoing product and brand repositioning that is expected to result in the
conversion of such hotels to leading franchise brands. To enable the Company
to qualify as a REIT, the Company leases the Current Hotels to AGH Leasing,
L.P. (the "Lessee"), which is owned in part by certain executive officers of
the Company, under participating leases that are designed to allow the Company
to achieve substantial participation in any future growth of revenues
generated at the Current Hotels. See "AGHI, the Lessee and Other Operators."

All the shares of Common Stock offered hereby are being offered by the
Company. The Company has paid regular quarterly distributions on the Common
Stock since its initial public offering in July 1996. The Common Stock is
listed on the New York Stock Exchange, Inc. (the "NYSE") under the symbol
"AGT." On February 3, 1997, the last reported sale price of the Common Stock
on the NYSE was $27 1/2 per share. See "Price Range of Common Stock and
Distribution Policy." The Company's Charter limits 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 16 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ---------------------------------------------------
<S> <C> <C> <C>
Per Share $27.25 $1.43 $25.82
- ---------------------------------------------------
Total(3) $158,050,000 $8,294,000 $149,756,000
</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 $2,239,000, which are payable by
the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 865,000 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 $181,621,250, $9,530,950 and $172,090,300, 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 February 7,
1997 at the offices of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.

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

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

February 3, 1997
<PAGE>

The text "American General Hospitality Corporation" and the Company's symbol
appear on the upper left hand corner of the page. There are four pictures on
this page which appear counter clockwise as follows:

1) A photograph of the exterior of the French Quarter Suites Hotel.
2) A photograph of the interior atrium of the French Quarter Suites Hotel.

Between pictures 1) and 2) appears the text "Doubletree Guest Suites;
Atlanta, GA (Currently French Quarter Suites Hotel) (Proposed
Acquisition Hotel)".

3) A photograph of the Radisson Hotel Arlington Heights with the text
"Radisson Hotel; Arlington Heights, IL (Proposed Acquisition Hotel)"
appearing beside the picture.

4) A photograph of the Holiday Inn Resort - Monterey with the text "Hilton
Hotel; Monterey, CA (Currently Holiday Inn Resort)" appearing beside
the picture.
<PAGE>

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY........................................................ 1
The Company.............................................................. 1
Risk Factors............................................................. 3
Developments Since the Initial Public Offering........................... 4
The Hotels............................................................... 7
AGHI, the Lessee and Other Operators..................................... 9
Formation Transactions and Benefits to Related Parties................... 10
Distribution Policy...................................................... 10
Tax Status............................................................... 11
The Offering............................................................. 11
Summary Financial Information............................................ 12
RISK FACTORS.............................................................. 16
Risk That Proposed Acquisition Hotels Will Not Be Acquired............... 16
Risks Associated with the Company's Acquisition of a Substantial Number
of Additional Hotels.................................................... 16
Conflicts of Interest.................................................... 16
Dependence on Lessee and Payments Under the Participating Leases......... 17
Lack of Control Over Operations of the Hotels............................ 18
Hotel Industry Risks..................................................... 18
Contingent Liabilities of Selling Partnerships........................... 19
Risks of Leverage; No Limits on Indebtedness............................. 19
Lack of Operating History or Revenues; History of Losses................. 20
Possible Adverse Effects of Shares Available for Future Sale Upon Market
Price of Common Stock................................................... 20
Competition for Management Time.......................................... 21
Real Estate Investment Risks............................................. 21
Tax Risks................................................................ 23
ERISA.................................................................... 25
Risks of Operating Hotels Under Franchise Agreements; Approval for Brand
Conversions............................................................. 25
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Potential Anti-Takeover Effect of Certain Provisions of Maryland Law and
of the Company's Charter and Bylaws..................................... 25
Reliance on Board of Directors and Management............................ 27
Contingent Obligation to Construct Additional Hotel Rooms................ 27
Ability of Board to Change Policies...................................... 27
Adverse Effect of Increase in Market Interest Rates on Price of Common
Stock................................................................... 27
THE COMPANY............................................................... 28
General.................................................................. 28
Growth Strategies........................................................ 30
Acquisitions............................................................. 30
Development.............................................................. 31
Internal Growth.......................................................... 31
Other Operators.......................................................... 33
Financing Strategy....................................................... 34
The Operating Partnership................................................ 34
Developments Since the Initial Public Offering........................... 35
USE OF PROCEEDS........................................................... 38
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION POLICY....................... 39
CAPITALIZATION............................................................ 40
SELECTED FINANCIAL INFORMATION............................................ 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 46
Overview and Recent Developments......................................... 46
Results of Operations.................................................... 47
Results of Operations of AGH Predecessor Hotels.......................... 48
The Lessee............................................................... 49
Liquidity and Capital Resources.......................................... 51
Renovations and Other Capital Improvements............................... 52
Inflation................................................................ 53
Seasonality.............................................................. 53
</TABLE>

i
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE HOTEL INDUSTRY......................................................... 54
THE HOTELS................................................................. 55
Descriptions of Hotels.................................................... 58
Initial Hotels............................................................ 58
Acquired Hotels........................................................... 62
Proposed Acquisition Hotels............................................... 64
The Participating Leases.................................................. 66
The Management Agreements................................................. 76
Mortgage Indebtedness..................................................... 77
Line of Credit............................................................ 78
Ground Leases............................................................. 79
Franchise Conversions and Other Capital Improvements...................... 80
Franchise Agreements...................................................... 80
Employees................................................................. 83
Environmental Matters..................................................... 83
Options to Purchase and Rights of First Refusal........................... 84
Competition............................................................... 84
Insurance................................................................. 84
Legal Proceedings......................................................... 85
FORMATION TRANSACTIONS..................................................... 86
Benefits to the Officers and the Primary Contributors..................... 87
Valuation of Interests.................................................... 88
Transfer of Initial Hotels................................................ 88
MANAGEMENT................................................................. 89
Directors and Executive Officers.......................................... 89
Board of Directors and Committees......................................... 91
Compensation Committee Interlocks and Insider Participation............... 91
Executive Compensation.................................................... 91
Option Grants............................................................. 92
Employment Agreements..................................................... 92
Compensation of Directors................................................. 93
Stock Incentive Plans..................................................... 93
Limitation of Liability and Indemnification............................... 97
Indemnification Agreements................................................ 97
CERTAIN RELATIONSHIPS AND TRANSACTIONS..................................... 99
Relationships Among Officers and Directors................................ 99
Acquisition of Interests in Certain of the Initial Hotels................. 99
Shared Services and Office Space Agreement................................ 99
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Options to Purchase and Rights of First Refusal......................... 99
Employment Agreements and Stock Incentive Plans......................... 100
Purchase of Personal Property........................................... 100
The Participating Leases................................................ 100
The Management Agreements............................................... 100
The Beverage Corporations............................................... 101
AGHI, THE LESSEE AND OTHER OPERATORS..................................... 101
PRINCIPAL STOCKHOLDERS................................................... 104
DESCRIPTION OF CAPITAL STOCK............................................. 106
General................................................................. 106
Common Stock............................................................ 106
Power to Issue Additional Shares of Common Stock........................ 106
Restrictions on Transfer................................................ 107
Transfer Agent and Registrar............................................ 109
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S CHARTER AND
BYLAWS.................................................................. 110
Number of Directors; Classification of the Board of Directors........... 110
Removal; Filling Vacancies.............................................. 110
Limitation of Liability and Indemnification............................. 110
Business Combinations................................................... 111
Control Share Acquisition Statute....................................... 112
Amendment to the Charter................................................ 112
Dissolution of the Company.............................................. 113
Advance Notice of Director Nominations and New Business................. 113
Meetings of Stockholders................................................ 113
Operations.............................................................. 113
Anti-Takeover Effect of Certain Provisions of Maryland Law and of the
Charter and Bylaws..................................................... 113
POLICIES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES............... 114
Investment Policies..................................................... 114
Financing............................................................... 114
Hotel Operator Policy................................................... 115
Conflict of Interest Policies........................................... 116
Policies with Respect to Other Activities............................... 117
Working Capital Reserves................................................ 117
SHARES AVAILABLE FOR FUTURE SALE......................................... 118
</TABLE>

ii
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PARTNERSHIP AGREEMENT...................................................... 120
Management................................................................ 120
Transferability of Interests.............................................. 120
Capital Contribution...................................................... 120
Exchange Rights........................................................... 121
Registration Rights....................................................... 121
Operations................................................................ 121
Distributions and Allocations............................................. 122
Term...................................................................... 122
Tax Matters............................................................... 122
FEDERAL INCOME TAX CONSIDERATIONS.......................................... 123
Requirements for Qualification as a REIT.................................. 123
Failure to Qualify as a REIT.............................................. 131
Taxation of the Company................................................... 131
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Taxation of Stockholders.................................................. 132
Tax-exempt Stockholders................................................... 133
Statement of Stock Ownership.............................................. 135
Tax Aspects of the Operating Partnership.................................. 135
Income Taxation of the Operating Partnership and Its Partners............. 137
Other Tax Considerations.................................................. 138
UNDERWRITING............................................................... 141
EXPERTS.................................................................... 142
LEGAL MATTERS.............................................................. 142
ADDITIONAL INFORMATION..................................................... 142
GLOSSARY................................................................... 144
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
</TABLE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

WHEN USED IN THIS PROSPECTUS, THE WORDS "BELIEVES," "ANTICIPATES,"
"EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN THIS
PROSPECTUS PURSUANT TO THE "SAFE HARBOR" PROVISION OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "RISK
FACTORS" AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." READERS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF
THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE
THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES
OCCURRING AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.

iii
<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 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. The offering of
the Common Stock pursuant to this Prospectus is referred to herein as the
"Offering." 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 is a self-administered real estate investment trust ("REIT") that
owns sixteen hotels containing an aggregate of 3,858 guest rooms located in
eleven states (the "Current Hotels"). The Current Hotels consist of fourteen
full-service hotels and two limited-service hotels located primarily in major
metropolitan markets. For the twelve months ended September 30, 1996, the
Current Hotels had a weighted average occupancy of 72.8% and a weighted average
daily room rate ("ADR") of $73.08. Ten of the Current Hotels are currently
undergoing significant renovations and refurbishments that will allow the
Company to convert such hotels to leading franchise brands and reposition them
for future revenue growth. Upon completion of the planned franchise
conversions, the Current Hotels will consist of three Wyndham Hotels(R), two
Crowne Plazas(R), three Hilton Hotels(R), one Courtyard by Marriott(R), three
Holiday Inn Selectssm (the premium Holiday Inn brand), one Holiday Inn(R), two
Hampton Inns(R) and one independent luxury hotel. However, there can be no
assurance that such brand conversions and hotel repositionings will occur as
planned.

Since the Company's initial public offering in July 1996 (the "IPO"), the
Company has acquired three hotels with an aggregate of 846 guest rooms (the
"Acquired Hotels") located in Orlando, Florida, Monterey, California and
Durham, North Carolina, for an aggregate purchase price of approximately $58.0
million. In addition, the Company has entered into contracts to purchase four
additional hotels with an aggregate of 775 guest rooms located in Atlanta,
Georgia, Marietta, Georgia (located in metropolitan Atlanta), Arlington
Heights, Illinois (located in metropolitan Chicago) and Key Largo, Florida (the
"Proposed Acquisition Hotels," and together with the Current Hotels, the
"Hotels") for purchase prices aggregating approximately $70.6 million. The
Company's purchase of each of the Proposed Acquisition Hotels is subject to the
satisfaction of various closing conditions and, therefore, no assurances can be
given that these acquisitions will be completed. See "Developments Since the
Initial Public Offering--Proposed Acquisition Hotels." If the Proposed
Acquisition Hotels are acquired, the Company will have invested approximately
$128.6 million since the IPO in hotel acquisitions, and will own 20 hotels
containing approximately 4,600 guest rooms. This represents a more than 50%
increase in the Company's portfolio since the IPO based upon the number of
guest rooms.

The Company was formed for the purpose of continuing and expanding the hotel
acquisition, development and repositioning operations of American General
Hospitality, Inc. and certain of its affiliates ("AGHI"). AGHI, which manages
the Current Hotels and will manage three of the Proposed Acquisition Hotels,
was founded in 1981 by Steven D. Jorns, the Company's Chairman of the Board,
Chief Executive Officer and President. 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 expects to continue to capitalize on AGHI's expertise
to achieve revenue growth at the Company's hotels. The Company does not have
any economic interest in AGHI's hotel management operations.

1
<PAGE>

In order to qualify as a REIT, the Company may not operate hotels. As a
result, the Company leases the Current Hotels and will lease the Proposed
Acquisition Hotels to AGH Leasing, L.P. (the "Lessee"), which is owned in part
by certain executive officers of the Company, pursuant to separate
participating leases (the "Participating Leases"). The Participating Leases are
designed to allow the Company to achieve substantial participation in any
future growth of revenues generated at the Current Hotels. The Lessee, in turn,
has entered into separate management agreements (the "Management Agreements")
with AGHI to operate the Current Hotels. See "AGHI, the Lessee and Other
Operators."

The Company intends to selectively seek other qualified hotel management
companies, in addition to the Lessee and AGHI, to lease and/or manage certain
of the Company's future hotel acquisitions. The Company intends to seek
operational relationships with independent hotel operators that, in the
Company's judgment, have demonstrated one or more of the following
characteristics: (i) certain unique knowledge of the hotel or the market in
which such hotel operates, (ii) a proven track record for implementing product,
brand and operational repositioning strategies, (iii) a significant national or
regional lodging industry reputation or (iv) substantial financial resources.
The Company believes that the use of a flexible lessee or manager structure,
coupled with the continued expansion of its brand and franchise relationships,
will result in additional acquisition opportunities for the Company. The Lessee
has advised the Company that it expects to retain Wyndham Hotel Corporation as
the manager of one of the Proposed Acquisition Hotels following its purchase by
the Company. See "The Company--Other Operators."

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

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- ----------------
1993(1) 1994(1) 1995(1) 1995(1) 1996(1)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Occupancy........................... 71.0% 71.9% 73.0% 75.5% 75.2%
ADR................................. $58.58 $62.06 $67.76 $67.57 $74.42
REVPAR.............................. $41.60 $44.65 $49.49 $51.00 $55.97
</TABLE>
- --------
(1) For comparative 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 nine months ended September 30, 1995 and
1996 were as follows: occupancy: 63.0%, 64.7%, 65.5%, 67.1% and 67.6%,
respectively; ADR: $61.93, $64.24, $67.34, $67.07 and $71.48, respectively;
and REVPAR: $39.01, $41.56, $44.11, $45.00 and $48.31, 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.

Management believes that the full-service hotel segment, in particular, has
potential for improved performance as the economy continues to grow and as
business and leisure travel activity increases. The Company continues to target
the full-service segment of the hotel industry due, in part, to its belief that
the

2
<PAGE>

approximate three- to five-year lead time from conception to completion of the
development of a full-service hotel represents a significant barrier to entry
that will lessen near-term competition resulting from a new supply of guest
rooms. Management also believes that the full-service segment of the market
continues 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 markets that the Company believes have
attractive economic characteristics. In order to enhance its acquisition
capabilities, the Company expects to continue to utilize borrowings available
under its $100 million revolving line of credit (the "Line of Credit") to
purchase hotels. The Company has received a commitment from its Line of Credit
lenders that will permit the Company, following the consummation of the
Offering, to increase its borrowing limit from $100 million to $150 million.
See "Developments Since the Initial Public Offering--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 that the purchase of one or more of the Proposed Acquisition Hotels
will not be consummated, which may adversely affect the Company's Cash
Available for Distribution (as defined in "Summary Financial
Information") after the Offering;

. Risks associated with the Company's rapid growth through the acquisition
and planned acquisition of a substantial number of additional hotels
since the IPO;

. Conflicts of interest between the Company and certain of its executive
officers who own interests in the Lessee and AGHI that could lead to
decisions that do not reflect solely the interests of the Company's
stockholders, including 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;

. 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 in an amount sufficient to permit the
Company to make distributions to its stockholders, the failure or delay
in making rent payments, the failure of the Lessee, AGHI and any third
party managers to effectively operate and manage the Hotels, the failure
to meet the obligations under the franchise licenses relating to the
franchised Hotels and the limited operating history of the Lessee as a
recently organized entity;

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

. Risks affecting the real estate industry generally, including economic
and other conditions that may adversely affect real estate investments,
including the Hotels, and the Lessee's ability to make rent

3
<PAGE>

payments from the operations of the 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 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 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;

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

DEVELOPMENTS SINCE THE INITIAL PUBLIC OFFERING

Set forth below is a summary of the significant developments involving the
Company since the IPO:

ACQUIRED HOTELS

The Company has invested approximately $58.0 million in the purchase of the
Acquired Hotels, representing a more than 28% increase in the Company's
portfolio since the IPO, based upon the number of guest rooms. Set forth below
are summary descriptions of the Acquired Hotels:

Days Inn(R) Lake Buena Vista--Lake Buena Vista, Florida

On October 22, 1996, the Company acquired the 490-room Days Inn Lake Buena
Vista for an aggregate purchase price of approximately $30.5 million that was
paid as follows: (i) $30.0 million in cash and (ii) $500,000 through the
issuance of 25,397 shares of restricted Common Stock. In connection with the
acquisition, the Company also paid an aggregate of approximately $2.4 million
to acquire a license and an association membership related to the hotel's
African royal safari theme (as described below) and for certain hotel related
design services. The Days Inn Lake Buena Vista was developed in 1985 and is
located approximately one-quarter mile south of Walt Disney World's Lake Buena
Vista entrance. The hotel contains 94 suites and approximately 4,200 square
feet of meeting and convention space. The Company has budgeted approximately
$9.3 million to complete an extensive renovation program to upgrade the entire
hotel and to reposition the hotel as a Wyndham Hotel during the fourth quarter
of 1997. The renovations will include the addition of approximately 9,000
square feet of convention space and the redesign of the exterior of the hotel
to reflect an African royal safari theme that will tie in with Disney's Animal
Kingdom theme park, which is expected to open in 1998.

4
<PAGE>

Holiday Inn Resort Monterey--Monterey, California

On November 21, 1996, the Company acquired the 204-room Holiday Inn Resort
Monterey for approximately $15.5 million in cash. This hotel, which was
constructed in 1971, is located in the major tourist destination city of
Monterey, California. The Company has budgeted approximately $3.9 million in
renovations to upgrade the hotel's guest rooms and public areas in order to
reposition the hotel as a Hilton Hotel during the fourth quarter of 1997.

Hilton Hotel-Durham--Durham, North Carolina

On January 8, 1997, the Company acquired the 152-room Hilton Hotel-Durham for
approximately $12.1 million in cash. The hotel, which was constructed in 1987,
is located in northwest Durham, one mile from Duke University, Duke Medical
Center and Research Triangle Park. During 1997 the Company expects to add 42
guest rooms to the hotel at an anticipated cost of approximately $2.4 million.
See "Risk Factors--Conflicts of Interest--Conflicts Related to Continued
Ownership of Other Hotel Properties."

PROPOSED ACQUISITION HOTELS

The Company has entered into contracts to purchase the Proposed Acquisition
Hotels for purchase prices aggregating approximately $70.6 million. The closing
of the purchase of each of the Proposed Acquisition Hotels is subject to
satisfactory completion of various closing conditions. Accordingly, no
assurance can be given that the Company will acquire any or all of the Proposed
Acquisition Hotels. See "Risk Factors--Risk That Proposed Acquisition Hotels
Will Not Be Acquired." If the Proposed Acquisition Hotels are acquired, the
Company will have invested approximately $128.6 million in hotel acquisitions
since the IPO and will own 20 hotels containing approximately 4,600 guest
rooms. This represents more than a 50% increase in the Company's portfolio
since the IPO based upon the number of guest rooms. Set forth below are summary
descriptions of the Proposed Acquisition Hotels:

Portfolio Purchase. In December 1996, the Company entered into a series of
agreements to acquire a portfolio of hotels, including the Four Points by
Sheraton, the Sheraton Key Largo and the French Quarter Suites Hotel for
purchase prices aggregating approximately $59.1 million (the "Portfolio
Purchase"). The purchase price for the Portfolio Purchase will be payable as
follows: (i) approximately $49.5 million in cash and (ii) the assumption of
approximately $9.6 million of mortgage indebtedness secured by the French
Quarter Suites Hotel.

Four Points by Sheraton(R)--Marietta, Georgia

In December 1996, the Company entered into an agreement to acquire the Four
Points by Sheraton as part of the Portfolio Purchase. The Company has allocated
a cash purchase price of $17.0 million to the Four Points by Sheraton. The 219-
room hotel was built in 1985 and is located in Marietta, a northwestern suburb
of Atlanta. During 1997, the Company expects to invest approximately $2.8
million to renovate the hotel and to reposition the hotel to operate as a
Wyndham Garden Hotel(R). The Company expects to lease the hotel to the Lessee
which, in turn, is expected to retain Wyndham Hotel Corporation to manage the
hotel.

Sheraton(R) Key Largo--Key Largo, Florida

In December 1996, the Company entered into an agreement to acquire the
Sheraton Key Largo as part of the Portfolio Purchase. The Company has allocated
a cash purchase price of $26.1 million to the Sheraton Key Largo. This hotel,
which is located on US Highway 1 in Key Largo and was developed in 1985, is a
200-room resort complex situated on a private beach on the western coastline of
the Florida Keys. During 1997, the Company expects to invest approximately $3.0
million in improvements to the hotel and to reposition the hotel to operate as
a Westin Resort(R). The Company expects that the hotel will be leased to the
Lessee and managed by AGHI.

5
<PAGE>

French Quarter Suites(R) Hotel--Atlanta, Georgia

In December 1996, the Company entered into an agreement to acquire the French
Quarter Suites Hotel as part of the Portfolio Purchase. The Company has
allocated a $16.0 million purchase price to the French Quarter Suites Hotel
that will be payable as follows: (i) approximately $6.4 million in cash and
(ii) the assumption of approximately $9.6 million in mortgage indebtedness,
which bears interest at the rate of 9.75% per annum. The French Quarter Suites
Hotel is located in the Cumberland/Galleria area of northwest Atlanta. The
hotel was constructed in 1985 and contains a total of 155 guest rooms, of which
144 are suites. During 1997, the Company plans to invest approximately $2.8
million to complete an extensive renovation of the hotel and to reposition the
hotel to operate as a DoubleTree Guest Suites(R). The Company expects that the
hotel will be leased to the Lessee and managed by AGHI.

Radisson Hotel(R) Arlington Heights--Arlington Heights, Illinois

In January 1997, the Company entered into a contract to purchase the Radisson
Hotel Arlington Heights for approximately $11.5 million that will be payable as
follows: (i) $3.3 million in cash and (ii) the assumption of a one-year, $8.2
million first mortgage note, which bears interest at the rate of 7.5% per
annum. In addition, commencing on the earlier of the fourth anniversary of the
completion of initial renovations of the hotel or January 1, 2003, the seller
will have the right to receive from the Company a 25% profits interest in the
net cash flow and the net proceeds from certain capital transactions generated
at the hotel. The Company has the option to purchase this profits interest for
an amount equal to 25% of the fair market value of the hotel less the aggregate
of $11.2 million plus the costs related to any additional expansion of the
hotel at any time after the fourth anniversary of the completion of the initial
renovations of the hotel (subject to a 30 month extension in certain
circumstances). If the Company exercises its option to acquire the profits
interest, the profits interest will terminate immediately upon acquisition. See
"The Hotels--Proposed Acquisition Hotels--Radisson Hotel Arlington Heights."
This future cash flow right was granted in order to compensate the sellers for
the expected improvement in the hotel's performance that is not fully reflected
in the historical operating results. The Radisson Hotel Arlington Heights,
which is currently managed by AGHI, is a 201-room full-service hotel
constructed in 1981. It is located in suburban northwest Chicago approximately
8.5 miles from O'Hare International Airport. During 1998, the Company intends
to complete a $6.0 million renovation of the hotel, which is expected to
include the addition of at least 31 guest rooms. The Company expects that the
hotel will be leased to the Lessee and continue to be managed by AGHI.

In addition to the Proposed Acquisition Hotels, as part of its ongoing
business, the Company continually engages in discussions with public and
private real estate entities regarding possible portfolio or single asset
acquisitions.

WYNDHAM ALLIANCE

On January 9, 1997, the Company entered into an agreement with Wyndham Hotel
Corporation and its affiliates (collectively, "Wyndham") relating to a
strategic alliance (the "Wyndham Alliance") between Wyndham and the Company.
Pursuant to the Wyndham Alliance, (i) in connection with the conversion of a
hotel owned by the Company to the Wyndham brand, Wyndham will acquire, as
directed by the Company, Common Stock or OP Units (the "Alliance Securities")
in an amount equal to nine times the estimated franchise fee payable to Wyndham
during the first twelve months such hotel is operated as a Wyndham brand, (ii)
Wyndham will have the non-exclusive right to franchise new hotel acquisitions
that the Company has determined should undergo a brand conversion and (iii) the
Company will be given the opportunity to bid on any hotels to be acquired by
Wyndham that it intends to assign to a REIT or any hotel with respect to which
Wyndham intends to enter into a sale-leaseback arrangement with a REIT
simultaneously with the hotel's purchase. Wyndham's purchase of the Alliance
Securities pursuant to the Wyndham Alliance is subject to the satisfaction of
certain conditions, including the consent of Wyndham's lenders, and will be at
a price per share of Common Stock or OP Unit equal to the average closing sale
price of the Common Stock on the NYSE for the 30 trading days

6
<PAGE>

preceding the earlier of (i) the date on which Wyndham consents to the
conversion of a Company hotel to a Wyndham brand or (ii) the date on which the
Company publicly announces its proposed acquisition of a hotel that is to be
converted to a Wyndham brand. Any such purchase of Alliance Securities will
occur within 30 days after a Company hotel is converted to a Wyndham brand. No
purchase of Alliance Securities will occur in connection with the planned
conversion of the Best Western(R) Albuquerque Airport Hotel, the Days Inn Lake
Buena Vista and the Four Points by Sheraton to Wyndham brands. See "The
Company--Developments Since the Initial Public Offering--Wyndham Alliance."
Within 30 days after the conversion of the Le Baron Airport Hotel to the
Wyndham Hotel brand, Wyndham has agreed, subject to certain conditions, to
purchase 112,969 shares of Common Stock at a negotiated price of $22.13 per
share. The Wyndham Alliance will expire on December 31, 1999.

CAPITAL IMPROVEMENTS, RENOVATIONS AND BRAND CONVERSIONS

The Company believes a regular program of capital improvements, including
replacement and refurbishment of FF&E at the Current Hotels, as well as the
renovation and redevelopment of selected hotels, is essential to maintaining
the competitiveness of the hotels and maximizing revenue growth. Consistent
with this strategy, as of December 31, 1996, the Company had invested
approximately $10.7 million (an average of approximately $2,800 per guest room)
in capital improvements and renovations at the Current Hotels. The Company has
budgeted for 1997 approximately $33.3 million (an average of approximately
$8,600 per guest room) for additional renovations and capital improvements at
these hotels. In addition, the Company has budgeted approximately $14.6 million
(an average of approximately $19,000 per guest room) to be spent on renovations
and capital improvements at the four Proposed Acquisition Hotels. The Company
attempts to schedule renovations and improvements during traditionally lower
occupancy periods in an effort to minimize disruptions to the hotel's
operations. In addition, the Company has agreements in place that will permit
the Company to convert, by the first quarter of 1998, ten of the Current Hotels
to new brand affiliations with nationally recognized hotel companies.

LINE OF CREDIT

The Company has received a commitment from its Line of Credit lenders to
increase the borrowing limit under the Line of Credit from $100 million to $150
million and to make certain other modifications thereto that would increase the
financial flexibility of the Company. This commitment to increase the maximum
amount available under the Line of Credit is subject to the consummation of the
Offering and the satisfaction of other customary conditions. Accordingly, there
can be no assurance that these modifications to the Line of Credit will occur.

THE HOTELS

The sixteen Current Hotels are diversified by five different national hotel
brands and include fourteen full-service hotels and two limited-service hotels.
In addition, the Company plans to reposition, by the first quarter of 1998, ten
of the Current Hotels (six Holiday Inns, two Days Inns and two independent
hotels), through an upgrade and conversion, into hotels that operate under the
Wyndham Hotel, Hilton 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 any or all of 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
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.

7
<PAGE>

The following table sets forth certain information with respect to the
Hotels, including their current brand affiliations. The Lessee is obligated to
pay to the Company annually the greater of fixed weekly base rent payments
("Base Rent") or monthly participating rent payments based on a percentage of
revenues (the "Participating Rent") at each of the Current Hotels.

<TABLE>
<CAPTION>
NUMBER YEAR
OF BUILT/
GUEST RENO-
HOTELS LOCATION ROOMS VATED(1)
------ -------- ------ ---------
<S> <C> <C> <C>
INITIAL
HOTELS(5):
Holiday Inn
Dallas DFW
Airport
West(6)........ Bedford, TX 243 1974/1995
Courtyard by
Marriott-
Meadowlands(6).. Secaucus, NJ 165 1989/1994
Hampton Inn
Richmond
Airport(6)..... Richmond, VA 124 1987/1995
Hotel Maison de
Ville(6)....... New Orleans, LA 23 1788/1994
Hilton Hotel-
Toledo(6)...... Toledo, OH 213 1987/1994
Holiday Inn
Dallas DFW
Airport
South(6)(7)(8).. Irving, TX 409 1974/1995
Holiday Inn New
Orleans
International
Airport(6)(7)(8).. Kenner, LA 304 1973/1994
Days Inn Ocean
City(6)(8)(9).. Ocean City, MD 162 1989/1994
Holiday Inn
Select-
Madison(8)(10).. Madison, WI 227 1987/1995
Holiday Inn Park
Center
Plaza(8)(10)... San Jose, CA 231 1975/1990
Best Western
Albuquerque
Airport
Hotel(8)(11)... Albuquerque, NM 266 1972/1994
Le Baron Airport
Hotel(8)(11)... San Jose, CA 327 1973/1995
Holiday Inn
Mission
Valley(7)(8)... San Diego, CA 318 1970/1995
ACQUIRED HOTELS:
Days Inn Lake
Buena
Vista(8)(11)(12).. Lake Buena Vista, FL 490 1985/1994
Holiday Inn
Resort
Monterey(8)(13).. Monterey, CA 204 1971/1996
Hilton Hotel-
Durham......... Durham, NC 152 1987/1995
-----
Totals/Weighted
Average--All
Current
Hotels......... 3,858
-----
PROPOSED
ACQUISITION
HOTELS:
Four Points by
Sheraton(8)(14).. Marietta, GA 219 1985/1996
Sheraton Key
Largo(8)(15)... Key Largo, FL 200 1985/1996
French Quarter
Suites
Hotel(8)(16)... Atlanta, GA 155 1985/1996
Radisson Hotel
Arlington
Heights(6)..... Arlington Heights, IL 201 1981/1995
-----
Totals/Weighted
Average--All
Proposed
Acquisition
Hotels......... 775
-----
TOTALS/WEIGHTED
AVERAGES--ALL
HOTELS......... 4,633
=====
<CAPTION>
TWELVE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------------------------------------
PRO
PRO FORMA
PRO PRO FORMA LESSEE
FORMA FORMA PARTICI- NET
TOTAL BASE PATING INCOME REVPAR
HOTELS REVENUE RENT(2) RENT(2) (LOSS)(3) OCCUPANCY ADR (4)
------ ------------ ----------- ----------- ----------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL
HOTELS(5):
Holiday Inn
Dallas DFW
Airport
West(6)........ $5,286,322 $ 827,000 $ 1,542,313 $(3,691) 66.4% $65.49 $43.49
Courtyard by
Marriott-
Meadowlands(6).. 4,886,754 946,000 1,859,318 (4,450) 79.0 89.38 70.62
Hampton Inn
Richmond
Airport(6)..... 2,090,079 530,000 952,411 (2,279) 72.2 59.63 43.08
Hotel Maison de
Ville(6)....... 1,937,038 274,000 454,022 (1,087) 65.1 239.36 155.71
Hilton Hotel-
Toledo(6)...... 5,978,346 832,000 1,314,825 (3,146) 69.5 63.45 44.08
Holiday Inn
Dallas DFW
Airport
South(6)(7)(8).. 12,028,095 2,410,000 4,049,496 (9,691) 75.4 74.78 56.42
Holiday Inn New
Orleans
International
Airport(6)(7)(8).. 8,421,215 2,099,000 3,479,622 (8,327) 76.9 77.59 59.63
Days Inn Ocean
City(6)(8)(9).. 2,443,358 719,000 1,256,174 (3,006) 50.7 77.60 39.33
Holiday Inn
Select-
Madison(8)(10).. 7,971,543 1,597,000 2,856,621 (6,836) 77.3 81.01 62.65
Holiday Inn Park
Center
Plaza(8)(10)... 7,930,550 1,091,000 2,273,039 (5,440) 78.0 83.29 64.99
Best Western
Albuquerque
Airport
Hotel(8)(11)... 6,440,475 1,202,000 2,051,165 (4,909) 81.8 54.62 44.67
Le Baron Airport
Hotel(8)(11)... 9,937,556 1,323,000 3,130,677 (7,376) 73.8 73.07 53.95
Holiday Inn
Mission
Valley(7)(8)... 6,893,159 1,542,000 2,293,999 (5,490) 68.4 66.86 45.77
ACQUIRED HOTELS:
Days Inn Lake
Buena
Vista(8)(11)(12).. 9,212,007 5,044,000 5,044,000 (1,044,489) 73.3 58.78 43.07
Holiday Inn
Resort
Monterey(8)(13).. 6,104,448 1,279,000 1,682,267 (49,590) 65.5 100.08 65.50
Hilton Hotel-
Durham......... 5,235,689 1,133,000 1,578,567 (40,397) 74.8 81.80 61.20
------------ ----------- ----------- ----------- --------- ------ ------
Totals/Weighted
Average--All
Current
Hotels......... 102,796,634 22,848,000 35,818,516 (1,200,204) 72.8% $73.08 $53.18
------------ ----------- ----------- ----------- --------- ------ ------
PROPOSED
ACQUISITION
HOTELS:
Four Points by
Sheraton(8)(14).. $ 5,803,428 $ 1,350,000 $ 1,951,920 $ 233,888 65.2% $81.41 $53.11
Sheraton Key
Largo(8)(15)... 9,236,761 2,184,000 2,613,727 (9,924) 77.3 116.70 90.19
French Quarter
Suites
Hotel(8)(16)... 5,669,531 1,373,000 2,345,137 (8,903) 73.6 107.00 78.70
Radisson Hotel
Arlington
Heights(6)..... 4,517,794 922,000 1,539,616 (9,346) 69.9 74.52 52.08
------------ ----------- ----------- ----------- --------- ------ ------
Totals/Weighted
Average--All
Proposed
Acquisition
Hotels......... 25,227,514 5,829,000 8,450,400 205,715 71.2% $94.86 $67.56
------------ ----------- ----------- ----------- --------- ------ ------
TOTALS/WEIGHTED
AVERAGES--ALL
HOTELS......... $128,024,148 $28,677,000 $44,268,916 $ (994,489) 72.5% $76.65 $55.58
============ =========== =========== =========== ========= ====== ======
</TABLE>

8
<PAGE>

- --------
(1) Year renovated reflects the calendar year in which management deems that a
significant renovation was completed at that hotel.
(2) 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 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 commencing January 1, 1997. See "The Hotels--The
Participating Leases."
(3) After pro forma management fees of approximately $2.5 million payable to
AGHI and Wyndham Hotel Corporation. Excludes fees forfeited by AGHI of
approximately $800,000. Such management fees are subordinate to
Participating Lease payments to the Company. See "Selected Financial
Information," "AGHI, the Lessee and Other Operators" and "The Hotels--The
Management Agreements."
(4) REVPAR is determined by dividing total room revenue by total available
rooms for the applicable period.
(5) The "Initial Hotels" consist of the thirteen initial hotels acquired by
the Company in connection with the IPO (the "Initial Hotels").
(6) This hotel was operated and managed by AGHI prior to its acquisition by
the Company.
(7) The Company plans to reposition this hotel and convert it to a hotel that
operates under the Holiday Inn Select brand.
(8) There can be no assurance that the brand conversion and repositioning of
this hotel will occur as planned.
(9) The Company plans to reposition this hotel and convert it to a hotel that
operates under the Hampton Inn brand.
(10) The Company plans to reposition this hotel and convert it to a hotel that
operates under the Crowne Plaza brand.
(11) The Company plans to reposition this hotel and convert it to a hotel that
operates under the Wyndham Hotel brand.
(12) Pro forma Base Rent at the Days Inn Lake Buena Vista exceeded
Participating Rent by $476,000 and therefore Participating Rent has been
increased by this amount to reflect the excess of Base Rent over
Participating Rent for the applicable period.
(13) The Company plans to reposition this hotel and convert it to a hotel that
operates under the Hilton Hotel brand.
(14) The Company plans to reposition this hotel and convert it to a hotel that
operates under the Wyndham Garden Hotel brand.
(15) The Company plans to reposition this hotel and convert it to a hotel that
operates under the Westin Resort brand.
(16) The Company plans to reposition this hotel and convert it to a hotel that
operates under the DoubleTree Guest Suites brand.

AGHI, THE LESSEE AND OTHER OPERATORS

American General Hospitality, Inc.

AGHI was founded in 1981 by Mr. Jorns, the Company's Chairman of the Board,
Chief Executive Officer and President. As of December 31, 1996, AGHI's
management portfolio consisted of 64 hotels containing in excess of 11,200
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 the number of hotels under management. 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 has no economic interest in AGHI's hotel management operations. The
Lessee has contracted with AGHI to manage the Current Hotels under an incentive
compensation structure. The Lessee has advised the Company that it will retain
AGHI to manage three of the Proposed Acquisition Hotels pursuant to the same
incentive compensation structure. See "The Hotels--The Management Agreements."
Two executive officers of the Company, Mr. Jorns and Bruce G. Wiles, the
Company's Executive Vice President, own collectively approximately 21.0% of
AGHI. The remaining interests in AGHI are owned by persons unaffiliated with
the Company, who also hold interests in the Lessee. See "AGHI, the Lessee and
Other Operators" and "Formation Transactions."

AGH Leasing, L.P.

9
<PAGE>

corporate general partner. See "AGHI, the Lessee and Other Operators." The
remaining interests in the Lessee are owned by persons unaffiliated with the
Company, who also hold interests in AGHI. Each Participating Lease has a term
of twelve years from the inception of the lease, subject to earlier termination
upon the occurrence of certain events. Under the Participating Leases, the
Lessee is obligated to pay the Company fixed weekly Base Rent and monthly
Participating Rent based on a percentage of revenues. 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, the
Lessee and Other Operators," "The Hotels--The Participating Leases" and "--The
Management Agreements."

Other Operators

The Company intends to selectively seek other qualified hotel brand
owner/operators and hotel management companies, in addition to the Lessee and
AGHI, to lease and/or manage certain of the Company's future hotel
acquisitions. The Company, with the consent of its Line of Credit lenders,
anticipates that it will lease hotels to independent hotel operators or, as a
condition to entering into a Participating Lease with the Lessee, will require
the Lessee to retain an independent hotel manager in connection with selected
acquisitions. The Company will seek lessee or management relationships with
hotel operating companies that have demonstrated, in the Company's judgment,
(i) certain unique knowledge of the hotel or the market in which such hotel
operates, (ii) a proven track record for implementing product, brand and
operational repositioning strategies, (iii) a significant national or regional
lodging industry reputation or (iv) substantial financial resources. The
Company believes that the use of a flexible lessee or manager structure,
coupled with the continued expansion of its brand and franchise relationships,
will result in additional acquisition opportunities for the Company. The Lessee
has advised the Company that it expects to retain Wyndham Hotel Corporation to
manage the Four Points by Sheraton hotel following its acquisition by the
Company. According to public filings, Wyndham Hotel Corporation is a NYSE
listed company which, as of December 31, 1996, operated or franchised in excess
of 75 hotels. See "The Company--Developments Since the Initial Public
Offering--Wyndham Alliance."

FORMATION TRANSACTIONS AND BENEFITS TO RELATED PARTIES

The Company was formed to own hotel properties and to continue and expand the
hotel acquisition, development and repositioning operations of AGHI. Certain
investors in the entities that owned the Initial Hotels acquired by the Company
in connection with the IPO, including members of management, received certain
benefits in connection with the IPO and the transactions described elsewhere in
this Prospectus under "Formation Transactions."

DISTRIBUTION POLICY

On December 18, 1996, the Board of Directors of the Company declared a
quarterly distribution of $0.4075 per share of Common Stock payable on January
30, 1997 to stockholders of record on December 30, 1996, which on an annualized
basis represents a distribution rate of $1.63 per share. While future
distributions paid by the Company will be at the discretion of the Board of
Directors of the Company and will depend on the actual cash flow of the
Company, its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), and such other factors as the Board of Directors may deem
relevant, it is the present intention of the Company to pay regular quarterly
distributions. See "Tax Status" below and "Price Range of Common Stock and
Distribution Policy."

10
<PAGE>

TAX STATUS

The Company will elect to be taxed as a REIT under Sections 856 through 860
of the Code, commencing with its 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 alternative 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 has not requested a ruling from the Internal Revenue Service (the
"IRS") as to its REIT status, the Company has received 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 has adopted 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

All of the shares of Common Stock offered hereby are being sold by the
Company. None of the Company's stockholders are selling any shares of Common
Stock in the Offering.

<TABLE>
<S> <C>
Common Stock offered hereby....5,800,000.shares...........
Common Stock to
be outstanding
after the Of-
fering......... 15,985,837 shares(1)
Use of Pro- To reduce the amounts outstanding under the Line of
ceeds.......... Credit, to pay fees and expenses incurred in connection
with the increase in the Company's borrowing limit
under the Line of Credit, to pay a substantial portion of
the cash part of the purchase price of the Proposed
Acquisition Hotels and for general corporate and
working capital purposes. See "Use of Proceeds."
NYSE symbol..... AGT
</TABLE>
- --------
(1) Includes (i) 1,896,996 shares of Common Stock to be issuable after July 31,
1997 at the Company's option upon the exchange of OP Units issued in the
Formation Transactions (other than to AGH GP and AGH LP), (ii) 162,405
shares of restricted Common Stock issued in connection with the acquisition
of certain of the Current Hotels, (iii) 50,000 shares of restricted Common
Stock granted to the Company's executive officers as stock awards that are
subject to certain vesting rights and (iv) 1,436 shares of restricted
Common Stock issued on October 1, 1996 to certain of the Company's
directors under the American General Hospitality Corporation Non-Employee
Directors' Incentive Plan (the "Directors' Plan"). Excludes 850,000
reserved but unissued shares of Common Stock under the American General
Hospitality Corporation 1996 Incentive Plan (the "1996 Plan"), including
360,000 shares as to which options are outstanding, and 98,564 reserved but
unissued shares of Common Stock under the Directors' Plan, including 40,000
shares as to which options are outstanding. See "Management--Stock
Incentive Plans," "Formation Transactions" and "Partnership Agreement--
Exchange Rights."

11
<PAGE>

SUMMARY FINANCIAL INFORMATION

The following tables set forth summary historical and pro forma consolidated
financial data for the Company and summary historical and pro forma financial
data for the Lessee. This financial information should be read in conjunction
with the financial statements and notes thereto that are contained elsewhere in
this Prospectus. The pro forma statements of operations and other data are
presented as if the IPO and related Formation Transactions, the acquisition of
all Hotels and the consummation of the Offering and the application of the net
proceeds therefrom had occurred on January 1, 1995 and therefore incorporate
certain assumptions that are included in the notes to the Pro Forma Statements
of Operations included elsewhere in the Prospectus. The pro forma balance sheet
data is presented as if the acquisition of the Acquired Hotels and the Proposed
Acquisition Hotels and the consummation of the Offering and the application of
the net proceeds therefrom had occurred on September 30, 1996. The pro forma
statements of operations do not include interest income on pro forma cash and
cash equivalents, in accordance with the rules and regulations of the
Securities and Exchange Commission.

AMERICAN GENERAL HOSPITALITY CORPORATION
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
PRO FORMA (1)
------------------------------------------------------
HISTORICAL TWELVE MONTHS NINE MONTHS NINE MONTHS
JULY 31, 1996 YEAR ENDED ENDED ENDED ENDED
THROUGH DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
SEPTEMBER 30, 1996 1995 1996 1995 1996
------------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Participating Lease
revenue(2)............. $5,218,526 $39,837,690 $44,268,916 $30,360,945 $34,792,171
Interest income......... 32,227 31,500 31,500 23,625 23,625
---------- ----------- ----------- ----------- -----------
Total revenue........ 5,250,753 39,869,190 44,300,416 30,384,570 34,815,796
---------- ----------- ----------- ----------- -----------
Depreciation............ 1,008,874 11,086,724 10,032,584 8,315,043 7,260,903
Amortization............ 106,155 904,625 904,625 676,907 676,907
Real estate and personal
property taxes and
property insurance..... 511,115 4,637,615 4,787,885 3,366,543 3,516,813
General and
administrative(3)...... 194,226 1,700,000 1,700,000 1,275,000 1,275,000
Ground lease expense.... 218,000 881,217 942,559 660,913 722,245
Amortization of unearned
officers'
compensation(4)........ 14,792 88,750 88,750 66,563 66,563
Interest expense........ 347,622 3,119,221 3,119,221 2,334,447 2,334,447
---------- ----------- ----------- ----------- -----------
Total expenses....... 2,400,784 22,418,152 21,575,614 16,695,416 15,852,878
---------- ----------- ----------- ----------- -----------
Income before minority
interest............... 2,849,969 17,451,038 22,724,802 13,689,154 18,962,918
Minority interest(5).... 547,102 2,071,053 2,696,933 1,624,601 2,250,481
---------- ----------- ----------- ----------- -----------
Net income applicable to
common stockholders.... $2,302,867 $15,397,985 $20,027,869 $12,064,553 $16,712,437
========== =========== =========== =========== ===========
Net income per common
share.................. $ 0.29 $ 1.09 $ 1.42 $ 0.86 $ 1.19
========== =========== =========== =========== ===========
Weighted average number
of shares of Common
Stock outstanding...... 8,002,331 14,087,405 14,087,405 14,087,405 14,087,405
========== =========== =========== =========== ===========
</TABLE>

See notes on page 14.

12
<PAGE>

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
SEPTEMBER 30, SEPTEMBER 30,
1996 1996
------------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 4,436,235 $ 33,131,264
Investment in hotel properties, net................. 175,613,813 308,747,568
Total assets........................................ 187,870,508 350,791,292
Debt................................................ 22,297,508 37,076,073
Minority interest in Operating Partnership.......... 29,305,376 36,292,925
Stockholders' equity................................ 127,407,866 268,467,536
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA(1)
---------------------------------------------------------
HISTORICAL TWELVE MONTHS NINE MONTHS NINE MONTHS
JULY 31, 1996 YEAR ENDED ENDED ENDED ENDED
THROUGH DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
SEPTEMBER 30, 1996 1995 1996 1995 1996
------------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Funds From
Operations(6).......... $ 3,118,037 $ 25,147,389 $ 28,866,576 $ 19,390,106 $ 23,181,902
Cash Available for
Distribution(7)........ 2,737,710 21,776,046 25,230,168 16,916,503 20,297,989
Net cash provided by
operating
activities(8).......... 4,687,975 29,531,137 33,750,761 25,753,929 26,967,291
Net cash used in
investing
activities(9).......... (130,226,886) (4,820,098) (5,120,966) (3,679,317) (3,980,184)
Net cash provided by
(used in) financing
activities(10)......... 129,975,146 (26,222,705) (26,222,705) (19,667,028) (19,667,028)
Weighted average number
of shares of Common
Stock and of OP Units
outstanding............ 9,899,327 15,984,401 15,984,401 15,984,401 15,984,401
</TABLE>

See notes on page 14.

13
<PAGE>

LESSEE

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

<TABLE>
<CAPTION>
PRO FORMA (1)(11)
--------------------------------------------------------
HISTORICAL TWELVE MONTHS NINE MONTHS NINE MONTHS
JULY 31, 1996 YEAR ENDED ENDED ENDED ENDED
THROUGH DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
SEPTEMBER 30, 1996 1995 1996 1995 1996
------------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Room revenue............ $11,185,140 $ 86,924,872 $ 94,322,228 $67,087,557 $74,484,913
Food and beverage
revenue................ 2,982,331 27,119,189 27,167,284 20,133,742 20,181,837
Other revenue........... 623,824 6,458,397 6,534,636 4,761,623 4,837,862
----------- ------------ ------------ ----------- -----------
Total revenue........ 14,791,295 120,502,458 128,024,148 91,982,922 99,504,612
Hotel operating
expenses............... 9,360,407 81,479,020 84,263,004 61,044,842 64,128,628
Depreciation and
amortization........... 10,500 63,000 63,000 47,250 47,250
Interest expense........ 5,250 31,500 31,500 23,625 23,625
Other expenses.......... 17,448 154,151 392,217 35,659 273,725
Participating Lease
expenses(2)............ 5,218,526 39,837,690 44,268,916 30,360,945 34,792,171
----------- ------------ ------------ ----------- -----------
Net income (loss)....... $ 179,164 $ (1,062,903) $ (994,489) $ 470,601 $ 239,213
=========== ============ ============ =========== ===========
</TABLE>
- --------
(1) The pro forma information does not purport to represent what the Company's
financial position or the Company's and the Lessee's results of operations
would actually have been if the IPO and related Formation Transactions, the
acquisition of all Hotels and the consummation of the Offering and the
application of the net proceeds therefrom had, in fact, occurred on such
dates, or to project the Company's financial position or the Company's and
Lessee's results of operations at any future date or for any future period.
(2) Pro forma amounts represent 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
revenues of the Hotels. The departmental revenue thresholds in the
Participating Leases are seasonally adjusted for interim periods and
certain of the Participating Lease formulas adjust beginning in January
1997 and January 1998. See "The Hotels--The Participating Leases."
(3) Pro forma amounts represent 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 1997
expenses.
(4) Represents amortization of unearned officers' compensation represented by
an aggregate of 50,000 shares of restricted Common Stock issued to the
Company's executive officers, 10% of which shares vested at the date of
grant (5,000 shares at $17.75 per share, the price per share of Common
Stock issued in the IPO).
(5) Calculated as 19.2% for the historical period from July 31, 1996 through
September 30, 1996. Calculated as 11.9% of income before minority interest
for all pro forma periods presented.
(6) Represents Funds From Operations of the Company. The items added back to
net income applicable to common stockholders have been adjusted by the
Company's ownership percentage in the Operating Partnership of 80.8% for
the historical period from July 31, 1996 through September 30, 1996 and
88.1% for all pro forma periods presented. The following table computes
Funds From Operations under the 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 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 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 Hotels.

Notes continued on following page.

14
<PAGE>

<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------------------------
TWELVE MONTHS NINE MONTHS NINE MONTHS
JULY 31, 1996 YEAR ENDED ENDED ENDED ENDED
THROUGH DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
SEPTEMBER 30, 1996 1995 1996 1995 1996
------------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net income applicable to
common stockholders.... $2,302,867 $15,379,985 $20,027,869 $12,064,553 $16,712,437
Depreciation............ 815,170 9,767,404 8,838,707 7,325,553 6,469,465
---------- ----------- ----------- ----------- -----------
Funds From Operations... $3,118,037 $25,147,389 $28,866,576 $19,390,106 $23,181,902
========== =========== =========== =========== ===========
Weighted average number
of shares of Common
Stock outstanding...... 8,002,331 14,087,405 14,087,405 14,087,405 14,087,405
</TABLE>

(7) Cash Available for Distribution represents Funds From Operations of the
Company plus the Company's ownership percentage in the Operating
Partnership of 80.8% for the historical period from July 31, 1996 through
September 30, 1996 and 88.1% for all pro forma periods presented 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 same percentage share of the sum of 4.0% of total revenue for
each of the 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 terms of the Participating
Leases. Cash Available for Distribution does not include the interest
expense associated with borrowings under the Line of Credit that are
expected to be made in order to fund capital expenditures at the Hotels. In
addition, Cash Available for Distribution does not include the effects of
any revenue increases expected to result from capital expenditures at the
Hotels.
(8) Pro forma amounts represent net income 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 amounts represent cash used in investing activities and 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 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
Hotels--The Participating Leases."
(10) Pro forma amounts represent pro forma initial distributions to be paid
based on the current annual distribution rate of $1.63 per share of Common
Stock and OP Unit and an aggregate of 15,984,401 shares of Common Stock
and OP Units outstanding plus the debt service on the indebtedness
collateralized by the Holiday Inn Dallas DFW Airport South, Courtyard by
Marriott-Meadowlands, French Quarter Suites Hotel and the Radisson Hotel
Arlington Heights.
(11) 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 owned all of the
Hotels as of January 1, 1995.

15
<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.

RISK THAT PROPOSED ACQUISITION HOTELS WILL NOT BE ACQUIRED

The Company has entered into contracts to acquire the four Proposed
Acquisition Hotels. The purchase of each of the Proposed Acquisition Hotels is
subject to the satisfaction of a number of conditions (certain of which are
material and beyond the control of the Company and, unless satisfied, could
result in one or more of such hotels not being acquired), and should any of
these purchases not occur, for whatever reason, a portion of the net proceeds
of the Offering will not have any specific designated use. There can be no
assurance that the Company will be able to locate and acquire sufficient
additional hotels meeting the Company's acquisition criteria to utilize any
such undesignated net proceeds and, in such event, the Company's anticipated
Cash Available for Distribution could be adversely affected.

RISKS ASSOCIATED WITH THE COMPANY'S ACQUISITION OF A SUBSTANTIAL NUMBER OF
ADDITIONAL HOTELS

The Company is currently experiencing a period of rapid growth. Since the
IPO, the Company has spent approximately $58.0 million to purchase the three
Acquired Hotels, increasing its room portfolio by approximately 28%.
Additionally, the Company has entered into contracts to purchase the four
Proposed Acquisition Hotels for an aggregate purchase price of approximately
$70.6 million. Assuming completion of the acquisition of the Proposed
Acquisition Hotels, the Company will have increased its guest room portfolio
by more than 50% since the IPO. The Company's ability to manage its growth
effectively will require it to select companies to lease and manage newly
acquired hotels. There can be no assurance that the Company, the Lessee, AGHI
or other hotel management companies and/or operators will be able to manage
these additional hotels effectively.

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 ongoing lease, acquisition, disposition, operation and management of the
Hotels. Accordingly, the interests of the Company's stockholders 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

The terms of the Participating Leases, the Management Agreements, and the
Option Agreements (as defined in "The Hotels--Options to Purchase and Rights
of First Refusal") relating to the Option Hotels (as defined in "The Company--
Development") and the agreements related to the Beverage Subleases (as defined
in "Formation Transactions") were not negotiated on an arm's-length basis. In
the event revenues from the 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 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 does 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 an inherent 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, the Lessee and Other Operators."

16
<PAGE>

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 a
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. 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 a Hotel that do not reflect solely the
interests of the Company's stockholders. See "The Hotels--The Participating
Leases."

Conflicts Relating to Continued Management of Hotels

AGHI, in which Messrs. Jorns and Wiles own collectively a 21.0% interest,
manages hotels for third parties. There are no restrictions in either the
Participating Leases or the Management Agreements that 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 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

AGHI continues to own three hotel properties (including one hotel currently
under development). One of these hotels, a Ramada Limited(R) located in
Madison, Wisconsin, was not transferred to the Company in connection with the
IPO because at the time of the IPO it was being offered for sale for its land
value due to its location in a prime retail area. Currently, AGHI plans to
continue to operate that hotel and to renovate and reposition the hotel to
operate as a Holiday Inn by February 1998. The Company is currently
negotiating with AGHI regarding the purchase of that hotel, which purchase
will be subject to approval by a majority of the Independent Directors of the
Company. The other two hotels owned by AGHI (the "Option Hotels"), are
Courtyards by Marriott (one of which is still under development) that were not
transferred to the Company in connection with the IPO because construction of
those hotels had not been completed at that time. The Company holds an option
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 during the two-year period following their respective openings
(the Option Hotel located in Boise, Idaho was opened in October 1996). See
"The Hotels--Options to Purchase and Rights of First Refusal." The Option
Hotel located in Durham, North Carolina (the "Durham Option Hotel"), remains
under development and is located approximately one mile from the Hilton Hotel-
Durham, an Acquired Hotel. The Durham Option Hotel is expected to compete with
the Hilton Hotel-Durham.

DEPENDENCE ON LESSEE AND PAYMENTS UNDER THE PARTICIPATING LEASES

The Company's ability to make distributions to its stockholders depends
solely upon the ability of the Lessee to make rent payments under the
Participating Leases (which will be dependent primarily on the ability of AGHI
and other potential operators to generate sufficient revenues from the 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 Hotels or in the net operating income
of the Lessee or otherwise. On a pro forma basis for the twelve months ended
December 31, 1995 and the nine months ended September 30, 1996, the Lessee
experienced net losses. Accordingly, there can be no assurance that the Lessee
will not experience net losses in the future. The Lessee is a recently
organized limited purpose entity; accordingly, it has limited assets. The
partners of the Lessee have pledged 275,000 OP Units to the Company to secure
the Lessee's obligations under the Participating Leases (the "Lessee Pledge").
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) gives the
Company the non-exclusive right to terminate such lease, repossess the
applicable property and enforce the payment obligations under the lease and
the Lessee Pledge (as defined in "The Company--Participating Leases
Structure"), the Company would then be required to find another lessee to
lease such hotel. 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.

17
<PAGE>

LACK OF CONTROL OVER OPERATIONS OF THE HOTELS

The Company is dependent on the ability of the Lessee, AGHI and other
operators of hotels to operate and manage the Hotels. To maintain its status
as a REIT, the Company will not be able to operate the Hotels or any
subsequently acquired hotels. As a result, the Company will be unable to
directly implement strategic business decisions with respect to the operation
and marketing of its hotels, such as decisions with respect to the setting of
room rates, food and beverage operations and certain similar matters.

HOTEL INDUSTRY RISKS

Operating Risks

The Hotels are 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 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
Hotels and pay for periodic replacement or refurbishment of FF&E. The Company
controls 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
Hotels through the first quarter of 1998. 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.

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

18
<PAGE>

the year. Seasonal variations in revenue at the 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.

CONTINGENT LIABILITIES OF SELLING PARTNERSHIPS

In connection with the Formation Transactions, the Company acquired all the
partnership interests in the entities that owned eight of the Initial Hotels,
and since the IPO the Company acquired all the partnership interests in the
entity that owned the Days Inn Lake Buena Vista. As a result, 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.

RISKS OF LEVERAGE; NO LIMITS ON INDEBTEDNESS

Upon completion of the Offering and the purchase of the Proposed Acquisition
Hotels, the Company expects that it will have outstanding mortgage
indebtedness encumbering four of the Hotels of approximately $36.9 million.
Neither the Company's Bylaws nor its Charter limits the amount of indebtedness
the Company may incur. In addition, in connection with the planned capital
improvements and renovations at the Current Hotels, the Company has budgeted
to borrow during 1997 an approximate $33.3 million under the Line of Credit
and also intends to borrow under the Line of Credit approximately $14.6
million for capital improvements and renovations at the Proposed Acquisition
Hotels. The Company intends to continue 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 Line of Credit has been used to fund the
acquisition and renovation of certain Current Hotels, to pay certain costs in
connection with the closing of the IPO and for working capital. The Line of
Credit is currently 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 is secured by a first mortgage lien
on fourteen of the Current Hotels. Two of the Proposed Acquisition Hotels, as
well as other hotels acquired in the future, may be added as security for the
Line of Credit. The Line of Credit requires 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 and
managers for such hotels. The Company has received a committment from its Line
of Credit lenders to increase its borrowing limit from $100 million to $150
million. 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 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 any Hotels that secure the Line
of Credit or other indebtedness, 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 the
Company 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,
which may result in a financial loss to the Company.

19
<PAGE>

LACK OF OPERATING HISTORY OR REVENUES; HISTORY OF LOSSES

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

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. In connection with the Formation Transactions, (i) the Operating
Partnership issued to persons other than the Company an aggregate of 1,896,996
OP Units, and (ii) the Company issued 137,008 shares of restricted Common
Stock. In connection with the acquisition of the Days Inn Lake Buena Vista,
the Company issued 25,397 shares of restricted Common Stock. Commencing July
31, 1997, the OP Units issued in the Formation Transactions may be exchanged
pursuant to the Exchange Agreement (as defined in "Partnership Agreement--
Exchange Rights") for cash based on their fair market value or, at the
Company's sole 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. In
addition, the officers and directors of the Company, certain other persons 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)
until July 31, 1997 (the "Lock-up Period") without the prior written consent
of the Company and/or Smith Barney Inc. The Registration Rights Agreements (as
defined in "Partnership Agreement--Registration Rights") requires the Company
to register all restricted shares of Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), including shares issuable upon the
exchange of OP Units. As a result, at the conclusion of the Lock-up Period,
all shares of Common Stock issued in connection with the Formation
Transactions, acquired upon exchange of OP Units or issued to acquire the Days
Inn Lake Buena Vista may be sold in the public market. In addition, 850,000
shares of Common Stock (exclusive of stock awards issued under the 1996 Plan
as described below) are reserved for issuance pursuant to the 1996 Plan and
98,564 shares of Common Stock (exclusive of the 1,436 shares of restricted
Common Stock issued under the Directors' Plan) are 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, of which 5,000 have
vested, and options to purchase 360,000 shares of Common Stock, of which
90,000 are currently exercisable, have been granted to the Company's executive
officers under the 1996 Plan, and 1,436 shares of restricted Common Stock, and
options to purchase 40,000 shares of Common Stock, of which 13,332 are
currently exercisable, have been granted to the Company's directors under the
Directors' Plan. The Company has filed a Registration Statement on Form S-8 to
register the shares of Common Stock reserved for issuance under the 1996 Plan
and the Directors' Plan. Moreover, in connection with the Wyndham Alliance,
the Company has agreed to issue, and Wyndham has agreed to purchase,
restricted shares of Common Stock or OP Units in an amount equal to nine times
the estimated franchise fee that is payable to Wyndham during the first twelve
months following the conversion of a Company hotel to a Wyndham brand. During
1997, the Company estimates that Wyndham will acquire 112,969 shares of Common
Stock pursuant to the Wyndham Alliance upon conversion of the Le Baron Airport
Hotel to the Wyndham Hotel brand. This purchase right will not apply to the
planned conversion to Wyndham brands of the Best Western Albuquerque Airport
Hotel, the Days Inn Lake Buena Vista and the Four Points by Sheraton. Subject
to certain limited exceptions, Wyndham has agreed not to offer, sell, contract
to sell or otherwise dispose of any Alliance Securities for a period of six
months after their acquisition without the prior written consent of the
Company. Any OP Units issued to Wyndham may be exchanged for cash based on
their fair market value or, at the Company's sole option, for shares of Common
Stock on a one-for-one basis commencing one year after their issuance. The
Company is obligated to register under the Securities Act all restricted
shares of Common Stock and shares issuable upon the exchange of OP Units that
are issued to Wyndham pursuant to the

20
<PAGE>

Wyndham Alliance. See "Management--Stock Incentive Plans," "Shares Available
for Future Sale" and "Underwriting."

COMPETITION FOR MANAGEMENT TIME

Messrs. Jorns, Wiles, Barr and Valentine are employed both as executive
officers of the Company and AGHI and are thus necessarily 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 are 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,
AGHI and any third party operators to operate the 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 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 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,
hurricanes, floods 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 Current Hotels are located throughout the United States, but 16.9% and
14.5% of the total number of the guest rooms of the Current Hotels
(representing 15.6% and 15.1%, respectively, of the Company's pro forma
estimated Participating Rent revenues for the twelve months ended September
30, 1996) are located at the Dallas/Fort Worth Airport and in the San Jose
area, respectively. The Company's cash flow, ability to make distributions to
its stockholders and the value of the Common Stock will be affected, to a
significant degree, by economic conditions and the demand for hotel rooms in
the Dallas/Fort Worth and San Jose markets in which these four 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. 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 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 Current Hotel is 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 Hotels

The Best Western Albuquerque Airport Hotel, the Courtyard by Marriott-
Meadowlands, the Le Baron Airport Hotel and the Hilton Hotel-Toledo are each
subject to ground leases, the Hotel Maison de Ville is

21
<PAGE>

subject to a space lease for its restaurant facilities and certain of its
guest rooms and the Sheraton Key Largo is subject to a bay bottom lease for
certain offshore property at the resort, each with third-party lessors. In
addition, the Radisson Hotel Arlington Heights is subject to a space lease
with respect to its restaurant facilities until January 1998. Any proposed
sale of such hotels by the Company or any proposed assignment of the Company's
leasehold interest in the ground leases, the space lease and the bay bottom
lease, as well as the subletting to the Lessee 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 Hotels
in the future, even if such transactions may be in the best interests of the
stockholders of the Company.

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 use the property, sell the property or 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 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 Hotels by qualified independent environmental
engineers. The purpose of Phase I ESAs is to identify potential sources of
contamination for which the 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 Current 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

22
<PAGE>

similar provisions. However, there are certain types of losses, generally of a
catastrophic nature, such as those caused by earthquakes, hurricanes 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.

Acquisition and Development Risks

The Company intends to pursue acquisitions of additional hotels (including
the Proposed Acquisition 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 provides 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 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 operates in a manner designed to permit it to qualify as a REIT
for federal income tax purposes.

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 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 has
received an opinion of Battle Fowler LLP, counsel to the Company ("Counsel"),
to the effect that, based on various assumptions relating to the operation of
the Company and representations made by the Company as to certain factual
matters, the Company meets the requirements for qualification and taxation as
a REIT. Such legal opinion is not 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

23
<PAGE>

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 operates 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 has made distributions to its stockholders to comply with the
distribution provisions of the Code and to avoid federal income taxes and the
non-deductible 4.0% excise tax. The Company's income consists primarily of its
share of the income of the Operating Partnership, and the Company's cash flow
consists 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 non-deductible capital expenditures,
the creation of reserves or required debt amortization payments could in the
future 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 are determined by its sole
general partner, a wholly owned subsidiary of the Company and are dependent on
a number of factors, including the amount of Cash Available for Distribution,
the Operating Partnership's financial condition, any decision by the Company's
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 avoid corporate income taxation on the earnings that it
distributes. See "Federal Income Tax Considerations--Requirements for
Qualification as a REIT--Annual Distribution Requirements."

Consequences of Failure to Qualify as Partnerships

The Operating Partnership has received 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,

24
<PAGE>

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 not be an appropriate investment for an ERISA Plan, a
Qualified Plan or an IRA. In deciding whether to purchase Common 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

Thirteen of the Current Hotels and three of the Proposed Acquisition Hotels
are subject to franchise agreements with nationally recognized hotel
companies. In addition, two of the Current Hotels which are not currently
subject to franchise agreements are expected to become subject to franchise
agreements during the second quarter of 1997. 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, AGHI or third party operators
could result in a breach of such standards or other terms and conditions of
the franchise agreements 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 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 ten of the Current Hotels and three of the
Proposed Acquisition Hotels that either operate under one franchise brand or
do not operate under a franchise brand 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 and, in
turn, Cash Available for Distribution.

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,

25
<PAGE>

if any partner 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 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 is 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 elected 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 Stockholder") or an affiliate thereof are
prohibited for five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder. 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 Stockholder 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 statute 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
stockholder approval. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions.

26
<PAGE>

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.

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. See "Certain Provisions of Maryland Law and of
the Company's Charter and Bylaws--Control Share Acquisition Statute."

RELIANCE ON BOARD OF DIRECTORS AND MANAGEMENT

Stockholders 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 are responsible for directing the management
of the business and affairs of the Company. The Company relies upon the
services and expertise of its management for strategic business direction. The
Company has in effect employment agreements with Steven D. Jorns, Chairman of
the Board, Chief Executive Officer and President; Bruce G. Wiles, Executive
Vice President; Kenneth E. Barr, Executive Vice President and Chief Financial
Officer; and Russ C. Valentine, Senior Vice President--Acquisitions, which
currently provide for base salary at below market rates for comparable
positions. Accordingly, the loss of services of any such officer may require
the Company to hire a replacement officer at a salary greater than the Company
is currently obligated to pay, which, in turn, would increase the Company's
operating costs and reduce Cash Available for Distribution.

CONTINGENT OBLIGATION TO CONSTRUCT ADDITIONAL HOTEL ROOMS

Pursuant to the terms of the ground lease relating to the Best Western
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 September 30, 1996, the occupancy rate at
the hotel was 81.8%.

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, are determined by its Board of Directors. The Board of
Directors may amend or revise these and other policies at any time and from
time to time at the Board's discretion 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.

27
<PAGE>

THE COMPANY

GENERAL

The Company is a self-administered REIT that owns sixteen hotels containing
an aggregate of 3,858 guest rooms located in eleven states. The Current Hotels
consist of fourteen full-service hotels and two limited-service hotels located
primarily in major metropolitan markets. For the twelve months ended September
30, 1996, the Current Hotels had a weighted average occupancy of 72.8% and an
ADR of $73.08. Ten of the Current Hotels are currently undergoing significant
renovations and refurbishments that will allow the Company to convert such
hotels to leading franchise brands and reposition them for future revenue
growth. Upon completion of the planned franchise conversions, the Current
Hotels will consist of three Wyndham Hotels, two Crowne Plazas, three Hilton
Hotels, one Courtyard by Marriott, three Holiday Inn Selects (the premium
Holiday Inn brand), one Holiday Inn, two Hampton Inns and one independent
luxury hotel. However, there can be no assurance that such brand conversions
and hotel repositionings will occur as planned. Certain of the Current 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.

Since the Company's IPO in July 1996, the Company has acquired three hotels
with an aggregate of 846 guest rooms located in Orlando, Florida, Monterey,
California and Durham, North Carolina, for an aggregate purchase price of
approximately $58.0 million. In addition, the Company has entered into
contracts to purchase four additional hotels with an aggregate of 775 guest
rooms located in Atlanta, Georgia, Marietta, Georgia (located in metropolitan
Atlanta), Arlington Heights, Illinois (located in metropolitan Chicago) and
Key Largo, Florida for purchase prices aggregating approximately $70.6
million. The Company's purchase of each of the Proposed Acquisition Hotels is
subject to the satisfaction of various closing conditions and, therefore, no
assurances can be given that these acquisitions will be completed. See
"Developments Since the Initial Public Offering--Proposed Acquisition Hotels."
If the Proposed Acquisition Hotels are acquired, the Company will have
invested approximately $128.6 million since the IPO in hotel acquisitions, and
will own 20 hotels containing approximately 4,600 guest rooms. This represents
a more than 50% increase in the Company's portfolio since the IPO based upon
the number of guest rooms.

The Company was formed for the purpose of continuing and expanding the hotel
acquisition, development and repositioning operations of AGHI and certain of
its affiliates. AGHI, which manages the Current Hotels and will manage three
of the Proposed Acquisition Hotels, was founded in 1981 by Steven D. Jorns,
the Company's Chairman of the Board, Chief Executive Officer and President. As
of December 31, 1996, AGHI operated and managed 64 hotels in 24 states
containing in excess of 11,200 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 expects to continue to capitalize on
AGHI's expertise to achieve revenue growth at the Company's hotels. The
Company does not have any economic interest in AGHI's hotel management
operations.

In order to qualify as a REIT, the Company may not operate hotels. As a
result, the Company leases the Current Hotels and will lease the Proposed
Acquisition Hotels to the Lessee, which is owned in part by certain executive
officers of the Company, pursuant to separate 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
Current Hotels. The Lessee, in turn, has entered into separate Management
Agreements with AGHI to operate the Current Hotels. See "AGHI, the Lessee and
Other Operators."

28
<PAGE>

in which such hotel operates, (ii) a proven track record for implementing
product, brand and operational repositioning strategies, (iii) a significant
national or regional lodging industry reputation or (iv) substantial financial
resources. The Company believes that the use of a flexible lessee or manager
structure, coupled with the continued expansion of its brand and franchise
relationships, will result in additional acquisition opportunities for the
Company. The Lessee has advised the Company that it expects to retain Wyndham
Hotel Corporation as the manager of one of the Proposed Acquisition Hotels
following its purchase by the Company. See "The Company--Other Operators."

The Company believes that the growth in occupancy, ADR and REVPAR at the
eight Current Hotels managed and operated by AGHI prior to and after the IPO
reflects the successful repositioning, renovation and marketing strategies of
AGHI as well as AGHI's superior management and operational capabilities. See
"The Hotels." The Company attributes the success of the Hotels, in part, 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
Hotels and for acquisitions. The following table compares occupancy, ADR, and
REVPAR at the Current 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>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER
------------------------- --------------
1993 1994 1995 1995 1996
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
OCCUPANCY
Current Hotels(1).................... 71.0% 71.9% 73.0% 75.5% 75.2%
All Midscale Hotels(2)............... 63.0 64.1 64.6 66.7 66.5
All Lower Upscale Hotels(2).......... 67.3 69.9 70.2 71.6 72.2
All U.S. Hotels(2)................... 63.0 64.7 65.5 67.1 67.6
ADR(3)
Current Hotels(1).................... $ 58.58 $ 62.06 $ 67.76 $67.57 $74.42
All Midscale Hotels(2)............... 54.55 56.23 58.97 59.13 62.63
All Lower Upscale Hotels(2).......... 71.98 74.72 78.81 78.72 84.21
All U.S. Hotels(2)................... 61.93 64.24 67.34 67.07 71.48
REVPAR(4)
Current Hotels(1).................... $ 41.60 $ 44.65 $ 49.49 $51.00 $55.97
All Midscale Hotels(2)............... 34.36 36.04 38.08 39.44 41.65
All Lower Upscale Hotels(2).......... 48.44 52.21 55.36 56.36 60.80
All U.S. Hotels(2)................... 39.01 41.56 44.11 45.00 48.31
</TABLE>
- --------
(1) The occupancy, ADR and REVPAR calculations for the Current Hotels are
derived from room revenue that is included in the audited financial data
relating to each of the Current 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 or the Company (such date is
set forth in parentheses): the Hilton Hotel-Durham (January 1997), the
Holiday Inn Resort Monterey (November 1996), 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 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) 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. Two of the Current Hotels are
currently within the "Lower Upscale" category and ten of the Current
Hotels are currently within the "Midscale" category. The Company expects
that upon completion of its subsequent product and brand repositioning
program, eight of the Current Hotels will be within the "Lower Upscale"
category and seven of the Current Hotels will be within the "Midscale"
category.
(3) Determined by dividing total room revenue by total rooms sold.
(4) Determined by dividing total room revenue by total available rooms.

29
<PAGE>

Management believes that the full-service hotel segment, in particular, has
potential for improved performance as the economy continues to grow, and as
business and leisure travel activity increases. The Company targets 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 the
development of a full-service hotel 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
offers 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 markets that the Company believes have attractive
economic characteristics. In order to enhance its acquisition capabilities,
the Company expects to continue to utilize borrowings available under the Line
of Credit to purchase hotels. The Company has received a commitment from its
Line of Credit lenders that will permit the Company, following the
consummation of the Offering, to increase its borrowing limit from $100
million to $150 million. See "Developments Since the Initial Public Offering--
Line of Credit."

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 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 continue 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. As an example of
the benefits of this relationship, the Company's proposed acquisition of the
Radisson Hotel Arlington Heights arose out of AGHI's position as manager of
that hotel. In addition, the Company expects the adoption of a flexible lessee
and/or manager structure will result in additional acquisition opportunities
for the Company. The Company employs four professionals devoted exclusively to
hotel acquisitions.

The Company seeks 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;

. 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

30
<PAGE>

. 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.

The Company's ability to continue to make acquisitions will depend, in part,
on its ability to access debt and equity financing. The Company expects to
continue to fund its acquisitions by utilizing funds available under its Line
of Credit, through the issuance of equity and OP Units and, subject to the
consent of the Line of Credit lenders, the assumption or issuance of debt.
Although as a public company the Company may have available alternative
sources of financing, no commitments relating to such financing currently
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 seven hotel
properties, with an aggregate development cost of approximately $70 million,
and has completed redevelopment or repositioning projects at approximately 70
hotel properties, including both full- and limited-service hotels. Recently,
AGHI completed development of a 167-room Courtyard by Marriott in Boise, Idaho
and currently has one hotel under development, 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 the Option Hotels for a two-year period
following the opening of each such hotel. See "The Hotels--Options to Purchase
and Rights of First Refusal." The Company anticipates that most of the hotels
it develops in the future will be in the full-service market segment. 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
Current Hotels, the strength of the Company's and AGHI's existing management
teams and the structure of the Participating Leases, the Current Hotels
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 Current
Hotels in a manner that will increase revenue and the Cash Available for
Distribution. See "The 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.

31
<PAGE>

The Company believes there is significant potential to increase revenues at
the Hotels and increase Participating Lease payments by continuing to employ
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 continue to employ at the Current Hotels and any additional
hotels acquired by the Company and managed by AGHI.

Product Repositioning. The Company believes that a regular program of
capital improvements, including replacement and refurbishment of FF&E at the
Current Hotels, as well as the renovation and redevelopment of selected
Hotels, is essential to maintaining the competitiveness of the hotels and
maximizing revenue growth. Consistent with this strategy, as of December 31,
1996, the Company had invested approximately $10.7 million (an average of
approximately $2,800 per guest room) in capital improvements and renovations
at the Current Hotels. The Company has budgeted for 1997 approximately $33.3
million (an average of approximately $8,600 per guest room) for additional
capital improvements and renovations at these hotels. In addition, the Company
has budgeted approximately $14.6 million (an average of approximately $19,000
per guest room) to be spent on capital improvements and renovations at the
four Proposed Acquisition Hotels (see "Brand Repositioning" below).

The Participating Leases require the Company to establish reserves of 4.0%
of total revenue for each of the Current Hotels (which, on a consolidated pro
forma basis for the twelve months ended September 30, 1996, represented
approximately 5.4% 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 Current 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, Hilton,
Holiday Inn, Holiday Inn Select, Wyndham and Westin brands, in order to
improve the operating performance at these hotels. Ten of the Current Hotels
are anticipated to undergo brand conversions during the next twelve months. It
is expected that the Holiday Inn Park Center Plaza will be converted 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 Wyndham Hotel, the Holiday Inn New
Orleans International Airport will be converted to a Holiday Inn Select, the
Holiday Inn Dallas DFW Airport South will be converted to a Holiday Inn
Select, the Holiday Inn Mission Valley will be converted to a Holiday Inn
Select, the Best Western Albuquerque Airport Hotel will be converted to a
Wyndham Hotel, the Days Inn Lake Buena Vista will be converted to a Wyndham
Hotel and the Holiday Inn Resort Monterey will be converted to a Hilton Hotel.
Three of the Proposed Acquisition Hotels are expected to undergo brand
conversions upon their purchase by the Company. The French Quarter Suites
Hotel will be converted to a DoubleTree Guest Suites, the Four Points by
Sheraton will be converted to a Wyndham Garden Hotel, and the Sheraton Key
Largo will be converted to a Westin Resort. 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."

32
<PAGE>

The Company's ability to utilize its brand 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 conversion and brand
repositioning strategy at certain of the 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. The Company,
however, attempts to schedule renovations and improvements during
traditionally lower occupancy periods in an effort to minimize disruption to
the hotels' operations. 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 AGHI's marketing and yield
management techniques contribute to maximizing revenues at the hotels managed
by it, thereby increasing the rent payable to the Company by the Lessee under
the Participating Leases. 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 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 (i) capitalized the Lessee with $500,000
in cash and (ii) pledged 275,000 OP Units to the Company to secure the
Lessee's obligations under the Participating Leases;

. 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 include an incentive fee of up
to 2.0% of gross revenues based upon reaching certain gross revenue
targets at the Hotels;

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

. 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, have agreed 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 established a Leasing Committee,
consisting entirely of Independent Directors, that reviews not less
frequently than annually the Lessee's compliance with the terms of the
Participating Leases and reviews and approves the terms of each new
Participating Lease between the Company and the Lessee.

OTHER OPERATORS

33
<PAGE>

to entering into a Participating Lease with the Lessee, will require the
Lessee to retain an independent hotel manager in connection with selected
acquisitions, provided such lessee or manager has demonstrated, in the
Company's judgment, (i) certain unique knowledge of the hotel or the market in
which the hotel operates, (ii) a proven track record for implementing product,
brand and operational repositioning strategies, (iii) a significant national
or regional lodging industry reputation or (iv) substantial financial
resources. In addition, the Company will seek to develop lessee or management
relationships with operators that are capable of providing the Company with
attractive acquisition opportunities that satisfy its investment criteria. The
Company believes that the use of a flexible lessee or manager structure,
coupled with the continued expansion of its brand and franchise relationships,
will result in additional acquisition opportunities for the Company.
Consistent with this strategy, the Lessee has advised the Company that it
expects to retain Wyndham Hotel Corporation to manage the Four Points by
Sheraton hotel following its acquisition by the Company. According to public
filings, Wyndham Hotel Corporation is a NYSE listed company which, as of
December 31, 1996, operated or franchised in excess of 75 hotels. The
engagement of a lessee or manager other than the Lessee or AGHI to operate the
Company's hotels is subject to the approval of the Line of Credit lenders. See
"The Hotels--The Management Agreements--Wyndham."

FINANCING STRATEGY

Upon completion of this Offering and the purchase of the Proposed
Acquisition Hotels, the Company will have outstanding mortgage indebtedness
encumbering four of the Hotels of approximately $36.9 million. In addition, in
connection with the planned capital improvements and renovations at the
Current Hotels, the Company has budgeted to borrow approximately $33.3 million
under the Line of Credit and also intends to borrow under the Line of Credit
approximately $14.6 million for capital improvements and renovations at the
Proposed Acquisition Hotels. While its organizational documents contain no
limitation on the amount of debt it may incur, the Company, subject to the
discretion of the Board of Directors, intends to continue 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 has 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
Line of Credit is currently 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 is currently secured by a
first mortgage lien on fourteen of the Current Hotels and is expected to be
secured by two of the Proposed Acquisition 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. The Company has received a commitment from its Line of Credit lenders
to increase the borrowing limit under the Line of Credit from $100 million to
$150 million and to make certain other modifications thereto that would
increase the financial flexibility of the Company. This commitment to increase
the maximum amount available under the Line of Credit is subject to the
consummation of the Offering and the satisfaction of other customary
conditions. Accordingly, there can be no assurance that these modifications to
the Line of Credit will occur. See "The Hotels--Line of Credit."

THE OPERATING PARTNERSHIP

The Company owns an approximate 81.4% interest in the Operating Partnership,
a Delaware limited partnership. The Company holds its interest in the
Operating Partnership through two wholly owned subsidiaries, AGH GP and AGH
LP. AGH GP is the sole general partner of the Operating Partnership and owns a
1.0% general partnership interest in the Operating Partnership. Through AGH
GP, the Company controls the Operating Partnership and its assets. AGH LP is
one of the Operating Partnership's limited partners (the "Limited Partners")
and owns an approximate 80.4% limited partnership interest in the Operating
Partnership. In their

34
<PAGE>

capacity as such, the Limited Partners have no authority to transact business
for, or participate in the management, activities or decisions of, the
Operating Partnership. The Operating Partnership owns, directly or through one
or more subsidiary partnerships or limited liability companies (the
"Subsidiary Partnerships"), all of the Current Hotels and leases such hotels
to the Lessee. The Operating Partnership owns, directly or indirectly, a 99.9%
interest in each Subsidiary Partnership. Upon completion of the Offering, the
Company will own indirectly through AGH GP and AGH LP an approximate 88.1%
interest in the Operating Partnership, consisting of a 1.0% general
partnership interest and an approximate 87.1% limited partnership interest.

DEVELOPMENTS SINCE THE INITIAL PUBLIC OFFERING

Set forth below is a summary of the significant developments involving the
Company since the IPO:

Acquired Hotels:

The Company has invested approximately $58.0 million in the purchase of the
Acquired Hotels containing an aggregate 846 guest rooms, representing a more
than 28% increase in the Company's portfolio since the IPO, based upon the
number of guest rooms. Set forth below are summary descriptions of the
Acquired Hotels:

Days Inn Lake Buena Vista--Lake Buena Vista, Florida

On October 22, 1996, the Company acquired the 490-room Days Inn Lake Buena
Vista for an aggregate purchase price of approximately $30.5 million that was
paid as follows: (i) $30.0 million in cash and (ii) $500,000 through the
issuance of 25,397 shares of restricted Common Stock. In connection with the
acquisition, the Company also paid an aggregate of approximately $2.4 million
to acquire a license and an association membership related to the hotel's
African royal safari theme (as described below) and for certain hotel-related
design services. The Days Inn Lake Buena Vista was developed in 1985 and is
located approximately one-quarter mile south of Walt Disney World's Lake Buena
Vista entrance. The hotel contains 94 suites and approximately 4,200 square
feet of meeting and convention space. The Company has budgeted approximately
$9.3 million to complete an extensive renovation program to upgrade the entire
hotel and to reposition the hotel as a Wyndham Hotel during the fourth quarter
of 1997. The renovations will include the addition of approximately 9,000
square feet of convention space and the redesign of the exterior of the hotel
to reflect an African royal safari theme that will tie in with Disney's Animal
Kingdom theme park, which is expected to open in 1998.

Holiday Inn Resort Monterey--Monterey, California

On November 21, 1996, the Company acquired the 204-room Holiday Inn Resort
Monterey for approximately $15.5 million in cash. This hotel, which was
constructed in 1971, is located in the major tourist destination of Monterey,
California. The Company has budgeted approximately $3.9 million in renovations
to upgrade the hotel's guest rooms and public areas in order to reposition the
hotel as a Hilton Hotel during the fourth quarter of 1997.

Hilton Hotel-Durham--Durham, North Carolina

On January 8, 1997, the Company acquired the 152-room Hilton Hotel-Durham
for approximately $12.1 million in cash. The hotel, which was constructed in
1987, is located in northwest Durham, one mile from Duke University, Duke
Medical Center and Research Triangle Park. During 1997 the Company expects to
add 42 guest rooms to the hotel at an anticipated cost of approximately $2.4
million. However, there can be no assurance that such hotel expansion will
occur. See "Risk Factors--Conflicts of Interest--Conflicts Relating to
Continued Ownership of Other Hotel Properties."

Proposed Acquisition Hotels:

The Company has entered into contracts to purchase the Proposed Acquisition
Hotels for purchase prices aggregating approximately $70.6 million. The
closing of the purchase of each of the Proposed Acquisition Hotels is subject
to satisfactory completion of various closing conditions. Accordingly, no
assurance can be given that the Company will acquire any or all of the
Proposed Acquisition Hotels. See "Risk Factors--Risk That Proposed Acquisition
Hotels Will Not Be Acquired." If the Proposed Acquisition Hotels are acquired,
the Company will have invested approximately $128.6 million in hotel
acquisitions since the IPO and will own 20 hotels containing approximately
4,600 guest rooms. This represents a more than 50% increase in the Company's
portfolio since

35
<PAGE>

the IPO based upon the number of guest rooms. Set forth below are summary
descriptions of the Proposed Acquisition Hotels:

Portfolio Purchase. In December 1996, the Company entered into a series of
agreements to acquire a portfolio of hotels, including the Four Points by
Sheraton, the Sheraton Key Largo and the French Quarter Suites Hotel for
purchase prices aggregating approximately $59.1 million. The purchase price
for the Portfolio Purchase will be payable as follows: (i) approximately $49.5
million in cash and (ii) the assumption of approximately $9.6 million of
mortgage indebtedness secured by the French Quarter Suites Hotel.

Four Points by Sheraton--Marietta, Georgia

In December 1996, the Company entered into an agreement to acquire the Four
Points by Sheraton as part of the Portfolio Purchase. The Company has
allocated a cash purchase price of $17.0 million to the Four Points by
Sheraton. The 219-room hotel was built in 1985 and is located in Marietta, a
northwestern suburb of Atlanta. During 1997, the Company expects to invest
approximately $2.8 million to renovate the hotel and to reposition the hotel
to operate as a Wyndham Garden Hotel. The Company expects to lease the hotel
to the Lessee which, in turn, is expected to retain Wyndham Hotel Corporation
to manage the hotel.

Sheraton Key Largo--Key Largo, Florida

In December 1996 the Company entered into an agreement to acquire the
Sheraton Key Largo as part of the Portfolio Purchase. The Company has
allocated a cash purchase price of $26.1 million to the Sheraton Key Largo.
This hotel, which is located on US Highway 1 in Key Largo, and was developed
in 1985, is a 200-room resort complex situated on a private beach on the
western coastline of the Florida Keys. The Company intends to invest
approximately $3.0 million in improvements to the hotel and to reposition the
hotel to operate as a Westin Resort. The Company expects that the hotel will
be leased to the Lessee and managed by AGHI.

French Quarter Suites Hotel--Atlanta, Georgia

In December 1996, the Company entered into an agreement to acquire the
French Quarter Suites Hotel as part of the Portfolio Purchase. The Company has
allocated a $16.0 million purchase price to the French Quarter Suites Hotel
that will be payable as follows: (i) approximately $6.4 million in cash and
(ii) the assumption of approximately $9.6 million in mortgage indebtedness,
which bears interest at the rate of 9.75% per annum. The French Quarter Suites
Hotel is located in the Cumberland/Galleria area of northwest Atlanta. The
hotel was constructed in 1985 and contains a total of 155 guest rooms, of
which 144 are suites. During 1997, the Company plans to invest approximately
$2.8 million to complete an extensive renovation of the hotel and to
reposition the hotel to operate as a DoubleTree Guest Suites. The Company
expects that the hotel will be leased to the Lessee and managed by AGHI.

Radisson Hotel Arlington Heights--Arlington Heights, Illinois

In January 1997, the Company entered into a contract to purchase the
Radisson Hotel Arlington Heights for approximately $11.5 million that will be
payable as follows: (i) $3.3 million in cash and the (ii) assumption of a one-
year $8.2 million first mortgage note, which bears interest at the rate of
7.5% per annum. In addition, commencing on the earlier of the fourth
anniversary of the completion of initial renovations of the hotel or January
1, 2003, the seller will have the right to receive from the Company a 25%
profits interest in the net cash flow and the net proceeds from certain
capital transactions generated at the hotel. The Company has the option to
purchase this profits interest, for an amount equal to 25% of the fair market
value of the hotel less the aggregate of $11.2 million plus the costs related
to any additional expansion of the hotel, at any time after the fourth
anniversary of the completion of the initial renovations at the hotel (subject
to a 30 month extension in certain circumstances). If the Company exercises
its option to acquire the profits interest, the profits interest will
terminate immediately upon acquisition. See "The Hotels--Proposed Acquisition
Hotels--Radisson Hotel Arlington Heights." This future cash flow right was
granted in order to compensate the sellers for the expected improvement in the
hotel's performance that is not fully reflected in the historical operating
results. The Radisson Hotel Arlington Heights, which is currently managed by
AGHI, is a 201-room full-service hotel constructed in 1981. It is located in
suburban northwest Chicago approximately 8.5 miles from O'Hare International
Airport. During 1998, the Company

36
<PAGE>

intends to complete a $6.0 million renovation of the hotel, which is expected
to include the addition of at least 31 guest rooms. The Company expects that
the hotel will be leased to the Lessee and continue to be managed by AGHI.

In addition to the planned purchase of the Proposed Acquisition Hotels, as
part of its ongoing business, the Company continually engages in discussions
with public and private real estate entities regarding possible portfolio or
single asset acquisitions.

Wyndham Alliance:

On January 9, 1997, the Company entered into an agreement with Wyndham
relating to a strategic alliance between Wyndham and the Company. Pursuant to
the Wyndham Alliance, (i) in connection with the conversion of a hotel owned
by the Company to the Wyndham brand, Wyndham will acquire, as directed by the
Company, Common Stock or OP Units in an amount equal to nine times the
estimated franchise fee payable to Wyndham during the first twelve months such
hotel is operated as a Wyndham brand, (ii) Wyndham will have the non-exclusive
right to franchise new hotel acquisitions that the Company has determined
should undergo a brand conversion and (iii) the Company will be given the
opportunity to bid on any hotels to be acquired by Wyndham that it intends to
assign to a REIT or any hotel with respect to which Wyndham intends to enter
into a sale- leaseback arrangement with a REIT simultaneously with the hotel's
purchase. Wyndham's purchase of the Alliance Securities pursuant to the
Wyndham Alliance is subject to the satisfaction of certain conditions,
including the consent of Wyndham's lenders, and will be at a price per share
of Common Stock or OP Unit equal to the average closing sale price of the
Common Stock on the NYSE for the 30 trading days preceding the earlier of (i)
the date on which Wyndham consents to the conversion of a Company hotel to a
Wyndham brand or (ii) the date on which the Company publicly announces its
proposed acquisition of a hotel that is to be converted to a Wyndham brand.
Any such purchase of Alliance Securities will occur within 30 days after a
Company hotel is converted to a Wyndham brand. No purchase of Alliance
Securities will occur in connection with the planned conversion of the Best
Western Albuquerque Airport Hotel, the Days Inn Lake Buena Vista and the Four
Points by Sheraton to Wyndham brands. Within 30 days after the conversion of
the Le Baron Airport Hotel to the Wyndham Hotel brand, Wyndham has agreed,
subject to certain conditions, to purchase 112,969 shares of Common Stock at a
negotiated price of $22.13 per share. The Wyndham Alliance will expire on
December 31, 1999.

Capital Improvements, Renovations and Brand Conversions:

The Company believes a regular program of capital improvements, including
replacement and refurbishment of FF&E at the Current Hotels, as well as the
renovation and redevelopment of selected Hotels, is essential to maintaining
the competitiveness of the Hotels and maximizing revenue growth. Consistent
with this strategy, as of December 31, 1996, the Company had invested
approximately $10.7 million (an average of approximately $2,800 per guest
room) for capital improvements and renovations at the Current Hotels. The
Company has budgeted for 1997 approximately $33.3 million (an average of
approximately $8,600 per guest room) for additional renovations and capital
improvements at these hotels. In addition, the Company has budgeted
approximately $14.6 million (an average of approximately $19,000 per guest
room) to be spent on renovations and capital improvements at the four Proposed
Acquisition Hotels. The Company attempts to schedule renovations and
improvements during traditionally lower occupancy periods in an effort to
minimize disruptions to the hotel's operations. In addition, the Company has
agreements in place that will permit the Company to convert, by the first
quarter of 1998, ten of the Current Hotels to new brand affiliations with
nationally recognized hotel companies.

Line of Credit:

The Company has received a commitment from its Line of Credit lenders to
increase the borrowing limit under the Line of Credit from $100 million to
$150 million and to make certain other modifications thereto that would
increase the financial flexibility of the Company. This commitment to increase
the maximum amount available under the Line of Credit is subject to the
consummation of the Offering and the satisfaction of other customary
conditions. Accordingly, there can be no assurance that these modifications to
the Line of Credit will occur.

37
<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 $147.5 million (approximately $169.8 million if the
Underwriters' overallotment is exercised in full). The Company will contribute
the net proceeds from the Offering to the Operating Partnership in exchange
for additional interests therein, and following such contribution will own an
approximate 88.1% interest in the Operating Partnership (an approximate 88.7%
interest if the Underwriters' overallotment option of 865,000 shares is
exercised in full). The Operating Partnership intends to use such net proceeds
as follows: (i) approximately $76.0 million to repay indebtedness borrowed
under the Line of Credit; (ii) approximately $700,000 to pay fees and expenses
incurred in connection with the anticipated modifications to the Line of
Credit, which include an increase in the borrowing limit to $150 million;
(iii) approximately $44.1 million to pay a substantial portion of the cash
part of the purchase price of the Proposed Acquisition Hotels; and (iv) the
balance for general corporate and working capital purposes. The Company's
borrowings under the Line of Credit, with accrued interest, totalled
approximately $57.5 million as of December 31, 1996, which amounts have been
borrowed principally to purchase the Acquired Hotels and to make renovations
and capital improvements to certain of the Current Hotels. The estimated $76.0
million balance under the Line of Credit at the time of the closing of the
Offering consists of the approximately $57.5 million of outstanding borrowings
at December 31, 1996 plus approximately $12.4 million of borrowings in
connection with the Company's January 8, 1997 acquisition of the Hilton Hotel-
Durham and $6.1 million of borrowings incurred during January 1997 in
connection with the Company's capital improvement program. Borrowings under
the Line of Credit bear interest at a 30-day, 60-day or 90-day LIBOR (5.50%,
5.53% and 5.56% at December 31, 1996), at the option of the Company, plus
1.85% per annum, and mature on July 31, 1999. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

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.

38
<PAGE>

PRICE RANGE OF COMMON STOCK AND DISTRIBUTION POLICY

The Company's Common Stock began trading on the NYSE on July 26, 1996 under
the symbol "AGT." On February 3, 1997, the last reported sale price per share
of Common Stock on the NYSE was $27 1/2 and there were 52 holders of record of
the Company's Common Stock. The following table sets forth the quarterly high
and low closing sale prices per share of Common Stock reported on the NYSE and
the cash distributions declared per share by the Company with respect to each
such period.

<TABLE>
<CAPTION>
CASH
PRICE RANGE DISTRIBUTIONS
--------------- DECLARED
HIGH LOW PER SHARE
---- ------- -------------
<S> <C> <C> <C>
1996
Third Quarter, from July 26, 1996.............. $19 $17 1/2 $0.2476(1)
Fourth Quarter................................. 23 3/4 18 7/8 $0.4075(2)
1997
First Quarter (through February 3, 1997)....... 27 1/2 23 1/4 N/A
</TABLE>
- --------
(1) Represents a pro rata distribution of the Company's initial quarterly
distribution of $0.4075 per share of Common Stock, based on a partial
calendar quarter beginning on July 31, 1996 (the closing date of the IPO)
through September 30, 1996.
(2) On December 18, 1996, the Company declared a distribution of $0.4075 per
share relating to the fourth quarter of 1996 that was paid on January 30,
1997 to stockholders of record as of December 30, 1996. Purchasers of
Common Stock in the Offering will not receive the fourth quarter 1996
dividend in respect of the shares of Common Stock offered hereby.

Future distributions by the Company will be at the discretion of the Board
of Directors and will depend on the Company's financial condition, its capital
requirements, the annual distribution requirements under the REIT provisions
of the Code and such other factors as the Board of Directors deems relevant.
There can be no assurance that any such distributions will be made by the
Company. For a discussion of the tax treatment of distributions to holders of
shares of Common Stock, see "Federal Income Tax Considerations."

Distributions by the Company to the extent of its current and accumulated
earnings and profits for federal income tax purposes generally will be taxable
to stockholders as ordinary dividend income. Distributions in excess of
current and accumulated earnings and profits will be treated as a non-taxable
reduction of the stockholder's basis in its shares of Common Stock to the
extent thereof, and thereafter as taxable gain. Distributions that are treated
as a reduction of the stockholder's basis in its shares of Common Stock will
have the effect of deferring taxation until the sale of the stockholder's
shares. The Company has determined that, for federal income tax purposes,
approximately 18% of the $0.6551 per share distribution paid for 1996
represented a return of capital to the stockholders. No assurances can be
given regarding what portion of future distributions will constitute return of
capital for federal income tax purposes.

39
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1996 on a historical basis and on a pro forma basis, assuming
completion of the Offering and the use of the net proceeds from the Offering
as described in "Use of Proceeds."

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------
HISTORICAL PRO FORMA
------------ ------------
<S> <C> <C>
Long-term debt..................................... $ 22,297,508 $ 37,076,073
Minority interest in Operating Partnership(1)...... 29,305,376 36,292,925
Stockholders' equity:
Common Stock, $0.01 par value per share,
100,000,000 shares authorized, 8,262,008 shares
issued and outstanding, and 14,087,405 shares
issued and outstanding, as adjusted(2).......... 82,620 140,874
Additional paid-in capital....................... 128,163,835 269,165,251
Unearned officers' compensation.................. (872,708) (872,708)
Earnings in excess of distributions.............. 34,119 34,119
------------ ------------
Total stockholders' equity..................... 127,407,866 268,467,536
------------ ------------
Total Capitalization........................... $179,010,750 $341,836,534
============ ============
</TABLE>
- --------
(1) At September 30, 1996, the Company owned an approximate 81.4% interest in
the Operating Partnership. If the acquisition of the Acquired Hotels, the
consummation of the Offering and related transactions had occurred on
September 30, 1996, the Company would have owned an approximate 88.1%
interest in the Operating Partnership.
(2) Includes (i) 162,405 shares of restricted Common Stock issued in
connection with the acquisition of certain of the Current Hotels and (ii)
50,000 shares of restricted Common Stock granted to the Company's
executive officers as stock awards that are subject to certain vesting
requirements. Excludes (i) 1,896,996 shares of Common Stock to be issuable
at the Company's option upon the exchange of OP Units issued in the
Formation Transactions, (ii) 850,000 reserved but unissued shares of
Common Stock under the 1996 Plan, including 360,000 shares as to which
options are outstanding, (iii) 98,564 reserved but unissued shares of
Common Stock under the Directors' Plan, including 40,000 shares as to
which options are outstanding and (iv) 1,436 shares of restricted Common
Stock issued on October 1, 1996 to certain of the Company's directors
under the Directors' Plan. See "Management--Stock Incentive Plans,"
"Formation Transactions" and "Partnership Agreement--Exchange Rights."

40
<PAGE>

SELECTED FINANCIAL INFORMATION

The following tables set forth (1) selected historical financial data for
the Company as of September 30, 1996 and for the period from July 31, 1996
through September 30, 1996 and selected pro forma consolidated financial data
for the Company as of and for the year ended December 31, 1995, the twelve
months ended September 30, 1996 and the nine months ended September 30, 1996
and 1995, (2) selected historical combined financial data for the Initial
Hotels for each of the years in the five-year period ended December 31, 1995,
(3) selected historical financial data for the Lessee for the period from July
31, 1996 through September 30, 1996 and pro forma financial data for the
Lessee for the year ended December 31, 1995, the twelve months ended September
30, 1996 and the nine months ended September 30, 1996 and 1995, (4) selected
historical combined financial data for the AGH Predecessor Hotels (as defined
in the Glossary) for each of the years in the three-year period ended December
31, 1995, and the period from January 1, 1996 through July 30, 1996 and (5)
selected historical combined financial data for the Other Initial Hotels for
each of the years in the five-year period ended December 31, 1995 and the
period from January 1, 1996 through June 30, 1996. The selected historical
combined financial data of the AGH Predecessor Hotels for the periods
presented and the selected historical combined financial data of the Other
Initial Hotels (as defined in the Glossary) for each of the years in the
three-year period ended December 31, 1995 have been derived from the
historical financial data of the Company, the selected historical combined
financial statements and notes thereto of the AGH Predecessor Hotels and the
Other Initial Hotels audited by Coopers & Lybrand L.L.P., independent
accountants, whose reports with respect thereto are included elsewhere in this
Prospectus. The selected historical financial data of the Lessee and the
selected historical combined financial data of the Other Initial Hotels for
each of the years in the two-year period ended December 31, 1992 have been
derived from unaudited internal statements of operations of the Lessee and the
Other Initial Hotels. In the opinion of management, the unaudited financial
data include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial information set forth
therein.

The pro forma and other data are presented as if the IPO and related
Formation Transactions, the acquisition of all Hotels and the consummation of
the Offering and the application of the net proceeds therefrom had occurred on
January 1, 1995 and therefore incorporate certain assumptions that are
included in the Notes to the Pro Forma Statements of Operations included
elsewhere in this Prospectus. The pro forma operating data for the 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 acquisition of the Acquired Hotels and the Proposed Acquisition Hotels and
the consummation of the Offering had occurred on September 30, 1996. The pro
forma statements of operations do not include income on the pro forma cash and
cash equivalents in accordance with the rules and regulations of the
Commission.

The pro forma information does not purport to represent what the Company's
financial position or the Company's or the Lessee's results of operations
would have been if the IPO and related Formation Transactions, the acquisition
of all Hotels and the consummation of the Offering had, in fact, occurred on
such dates, or to project the Company's or the 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 Other Initial 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 the Other Initial Hotels for these periods is unavailable.
Therefore, historical financial information for the Other Initial Hotels 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.

41
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
PRO FORMA(1)
--------------------------------------------------------------
HISTORICAL TWELVE MONTHS NINE MONTHS NINE MONTHS
JULY 31, 1996 YEAR ENDED ENDED ENDED ENDED
THROUGH DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
SEPTEMBER 30, 1996 1995 1996 1995 1996
------------------ ------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Participating Lease
revenue(2)............. $ 5,218,526 $ 39,837,690 $ 44,268,916 $ 30,360,945 $ 34,792,171
Interest income......... 32,227 31,500 31,500 23,625 23,625
------------- ------------ ------------ ------------ ------------
Total revenue........ 5,250,753 39,869,190 44,300,416 30,384,570 34,815,796
------------- ------------ ------------ ------------ ------------
Depreciation............ 1,008,874 11,086,724 10,032,584 8,315,043 7,260,903
Amortization............ 106,155 904,625 904,625 676,907 676,907
Real estate and personal
property taxes and
property insurance..... 511,115 4,637,615 4,787,885 3,366,543 3,516,813
General and
administrative(3)...... 194,226 1,700,000 1,700,000 1,275,000 1,275,000
Ground lease expense.... 218,000 881,217 962,993 660,913 722,245
Amortization of unearned
officers'
compensation(4)........ 14,792 88,750 88,750 66,563 66,563
Interest expense........ 347,622 3,119,221 3,119,221 2,334,447 2,334,447
------------- ------------ ------------ ------------ ------------
Total expenses....... 2,400,784 22,418,152 21,575,614 16,695,416 15,852,878
------------- ------------ ------------ ------------ ------------
Income before minority
interest............... 2,849,969 17,451,038 22,724,802 13,689,154 18,962,918
Minority interest(5).... 547,102 2,071,053 2,696,933 1,624,601 2,250,481
------------- ------------ ------------ ------------ ------------
Net income applicable to
common stockholders.... $ 2,302,867 $ 15,379,985 $ 20,027,869 $ 12,064,553 $ 16,712,437
============= ============ ============ ============ ============
Net income per common
share.................. $ 0.29 $ 1.09 $ 1.42 $ .86 $ 1.19
============= ============ ============ ============ ============
Weighted average number
of shares of Common
Stock outstanding...... 8,002,331 14,087,405 14,087,405 14,087,405 14,087,405
============= ============ ============ ============ ============
<CAPTION>
HISTORICAL PRO FORMA(1)
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 4,436,235 $ 33,131,264
Investment in hotel
properties, net........ 175,613,813 308,747,568
Total assets............ 187,870,508 350,791,292
Debt.................... 22,297,508 37,076,073
Minority interest in
Operating Partnership.. 29,305,376 36,292,925
Stockholders' equity.... 127,407,866 268,467,536
<CAPTION>
PRO FORMA(1)
--------------------------------------------------------------
HISTORICAL NINE MONTHS NINE MONTHS
JULY 31, 1996 YEAR ENDED TWELVE MONTHS ENDED ENDED
THROUGH SEPTEMBER 30, ENDED SEPTEMBER 30, SEPTEMBER 30,
SEPTEMBER 30, 1996 1995 SEPTEMBER 30, 1996 1995 1996
------------------ ------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Funds From
Operations(6).......... $ 3,118,037 $ 25,147,389 $ 28,866,576 $ 19,390,106 $ 23,181,902
Cash Available for
Distribution(7) 2,737,710 21,776,046 25,230,168 16,916,503 20,297,989
Net cash provided by
operating
activities(8).......... 4,687,975 29,531,137 33,750,761 25,753,929 26,967,291
Net cash used in
investing
activities(9).......... (130,226,886) (4,820,098) (5,120,966) (3,679,317) (3,980,184)
Net cash provided by
(used in) financing
activities(10)......... 129,975,146 (26,222,705) (26,222,705) (19,667,028) (19,667,028)
Weighted average number
of shares of Common
Stock and of OP Units
outstanding............ 9,899,327 15,984,401 15,984,401 15,984,401 15,984,401
</TABLE>

See notes on page 44.

42
<PAGE>

LESSEE

SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

<TABLE>
<CAPTION>
PRO FORMA(1)(11)
HISTORICAL -------------------------------------------------------
JULY 31, 1996 TWELVE MONTHS NINE MONTHS NINE MONTHS
THROUGH YEAR ENDED ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995 1996
------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Room revenue............ $11,185,140 $86,924,872 $94,322,228 $67,087,557 $74,484,913
Food and beverage
revenue................ 2,982,331 27,119,189 27,167,284 20,133,742 20,181,837
Other revenue........... 623,824 6,458,397 6,534,636 4,761,623 4,837,862
----------- ----------- ----------- ----------- -----------
Total revenue........ 14,791,295 120,502,458 128,024,148 91,982,922 99,504,612
Hotel operating
expenses............... 9,360,407 81,479,020 84,263,004 61,044,842 64,128,628
Depreciation and
amortization........... 10,500 63,000 63,000 47,250 47,250
Interest expense........ 5,250 31,500 31,500 23,625 23,625
Other expenses.......... 17,448 154,151 392,217 35,659 273,725
Participating Lease
expenses(2)............ 5,218,526 39,837,690 44,268,916 30,360,945 34,792,171
----------- ----------- ----------- ----------- -----------
Net income (loss)....... $ 179,164 $(1,062,903) $ (994,489) $ 470,601 $ 239,213
=========== =========== =========== =========== ===========
</TABLE>

INITIAL HOTELS

SELECTED HISTORICAL COMBINED FINANCIAL DATA(12)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -----------
<S> <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
Food and beverage
revenue................ 13,526,143 13,597,748 15,453,080 16,378,861 17,717,760
Other revenue........... 2,434,535 2,528,364 4,680,010 3,392,275 4,147,900
----------- ----------- ----------- ----------- -----------
Total revenue........ 43,924,480 46,502,262 56,962,967 63,312,342 75,622,586
Hotel operating
expenses............... 32,251,012 35,083,148 40,130,782 44,349,278 51,198,375
Depreciation and
amortization........... 2,575,564 6,329,770 5,847,629 5,986,460 8,131,244
Interest expense........ 3,802,670 4,819,749 4,667,281 4,771,483 6,307,202
Other expenses.......... 1,946,193 617,334 2,543,235 2,996,568 3,132,865
----------- ----------- ----------- ----------- -----------
Revenues over (under)
expenses(13)........... $ 3,349,041 $ (347,739) $ 3,774,040 $ 5,208,553 $ 6,852,900
=========== =========== =========== =========== ===========
</TABLE>

AGH PREDECESSOR HOTELS

SELECTED HISTORICAL COMBINED FINANCIAL DATA(14)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SEVEN MONTHS
--------------------------------- ENDED
1993 1994 1995 JULY 30, 1996
-------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Room revenue................. $ 17,941 $3,431,654 $ 9,020,479 $6,770,568
Food and beverage revenue.... 6,158 552,697 1,293,238 1,175,807
Other revenue................ 1,448 223,211 568,415 432,750
-------- ---------- ----------- ----------
Total revenue............. 25,547 4,207,562 10,882,132 8,379,125
Hotel operating expenses..... 8,741 3,173,721 7,565,824 5,682,473
Depreciation and
amortization................ 46,982 364,513 2,480,054 645,195
Interest expense............. 430,535 1,572,244 1,129,060
Other expenses............... 831 525,287 754,193 443,295
-------- ---------- ----------- ----------
Net income (loss)......... $(31,007) $ (286,494) $(1,490,183) $ 479,102
======== ========== =========== ==========
</TABLE>

See notes on page 44.

43
<PAGE>

OTHER INITIAL HOTELS

SELECTED HISTORICAL COMBINED FINANCIAL DATA(15)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------------------ JUNE 30,
1991 1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <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 $23,779,491
Food and beverage
revenue................ 13,526,143 13,597,748 15,446,922 15,826,164 16,424,522 8,260,931
Other revenue........... 2,434,535 2,528,364 4,678,562 3,169,064 3,579,485 1,827,603
----------- ----------- ----------- ----------- ----------- -----------
Total revenue........ 43,924,480 46,502,262 56,937,420 59,104,780 64,740,454 33,868,025
Hotel operating
expenses............... 32,251,012 35,083,148 40,122,041 41,175,557 43,632,551 22,175,694
Depreciation and
amortization........... 2,575,564 6,329,770 5,800,647 5,621,947 5,651,190 2,302,865
Interest expense........ 3,802,670 4,819,749 4,667,281 4,340,948 4,734,958 2,161,521
Other expenses.......... 1,946,193 617,334 2,542,404 2,471,281 2,378,672 1,592,414
----------- ----------- ----------- ----------- ----------- -----------
Revenues over (under)
expenses............... $ 3,349,041 $ (347,739) $ 3,805,047 $ 5,495,047 $ 8,343,083 $ 5,635,531
=========== =========== =========== =========== =========== ===========
</TABLE>

(1) The pro forma information does not purport to represent what the Company's
financial position or the Company's and the Lessee's results of operations
would actually have been if the IPO and related Formation Transactions,
the acquisitions of all Hotels and the consummation of the Offering and
the application of the net proceeds therefrom, in fact, occurred on such
dates, or to project the Company's financial position or the Company's and
Lessee's results of operations at any future date or for any future
period.
(2) Pro forma amounts represent 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 revenues of the Hotels. The departmental revenue thresholds
in the Participating Leases are seasonally adjusted for interim periods
and certain of the Participating Lease formulas adjust beginning in
January 1997 or January 1998. See "The Hotels--The Participating Leases."
(3) Pro forma amounts represent 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 1997
expenses.
(4) Represents amortization of unearned officer's compensation, represented by
an aggregate of 50,000 shares of restricted Common Stock issued to
executive officers, 10% of which shares vested at the date of grant (5,000
shares at $17.75 per share, the price per share of Common Stock issued in
the IPO).
(5) Calculated as 19.2% for the historical period from July 31, 1996 through
September 30, 1996. Calculated as 11.9% of income before minority interest
for all pro forma periods presented.
(6) Represents Funds From Operations of the Company. The items added back to
net income applicable to common stockholders have been adjusted by the
Company's ownership percentage in the Operating Partnership of 80.8% for
the historical period from July 31, 1996 through September 30, 1996 and
88.1% for all pro forma periods presented. The following table computes
Funds From Operations under the 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 NAREIT definition, Funds From
Operations as presented may not be comparable to other similarly titled
measures used by other REITs. Funds From Operation does not reflect cash
expenditures for capital improvements or principal amortization of
indebtedness on the Hotels.

Notes continued on following page.

44
<PAGE>

<TABLE>
<CAPTION>
PRO FORMA (1)
------------------------------------------------------
HISTORICAL
JULY 31, 1996 TWELVE MONTHS NINE MONTHS NINE MONTHS
THROUGH YEAR ENDED ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995(1) 1996(1) 1995 1996(1)
------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net income applicable to
common stockholders.... $2,302,867 $15,379,985 $20,027,869 $12,064,553 $16,712,437
Depreciation............ 815,170 9,767,404 8,838,707 7,325,553 6,469,465
---------- ----------- ----------- ----------- -----------
Funds From Operations... $3,118,037 $25,147,389 $28,866,576 $19,390,106 $23,181,902
========== =========== =========== =========== ===========
Weighted average number
of shares of Common
Stock outstanding...... 8,002,331 14,087,405 14,087,405 14,087,405 14,087,405
========== =========== =========== =========== ===========
</TABLE>
(7) Cash Available for Distribution represents Funds From Operations of the
Company plus the Company's ownership percentage in the Operating
Partnership of 80.8% for the historical period from July 31, 1996 through
September 30, 1996 and 88.1% for all pro forma periods presented
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 same percentage share of the sum of 4.0%
of total revenue for each of the 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 terms
of the Participating Leases. Cash Available for Distribution does not
include the interest expense allocated to borrowings under the Line of
Credit that are expected to be made in order to fund capital expenditures
at the Hotels. In addition, Cash Available for Distribution does not
include the effects of any revenue increases expected to result from
capital expenditures at the Hotels.
(8) Pro forma amounts represent net income 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 amounts represent cash used in investing activities and 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 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 interests of the
Company. See "The Hotels--The Participating Leases."
(10) Pro forma amounts represent pro forma initial distributions to be paid
based on the current annual distribution rate of $1.63 per share of
Common Stock and OP Unit and an aggregate of 15,984,401 shares of Common
Stock and OP Units outstanding plus the debt service on the indebtedness
collateralized by the Holiday Inn Dallas DFW Airport South, Courtyard by
Marriott--Meadowlands, French Quarter Suites Hotel and the Radisson Hotel
Arlington Heights.
(11) 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 owned all of the
Hotels as of January 1, 1995.
(12) The Initial Hotels' financial data is derived by adding selected
financial data of the AGH Predecessor Hotels and the Other Initial
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."
(13) Income taxes for the Other Initial Hotels have not been deducted in
calculating revenue over (under) expenses.
(14) Information is for the periods owned by AGHI.
(15) Includes information from each Other Initial 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 Other Initial Hotels was obtained from the owners of
the Other Initial Hotels and includes information for all periods.

45
<PAGE>

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

OVERVIEW AND RECENT DEVELOPMENTS

On July 31, 1996, the Company completed its IPO of 7,500,000 shares of
Common Stock and commenced operations. The Company contributed substantially
all of the net proceeds from the IPO in exchange for an approximate 80.2%
interest in the Operating Partnership.

The Operating Partnership used approximately $119.8 million of the net
proceeds from the IPO together with the proceeds of initial borrowings of
$10.0 million under the Line of Credit to acquire the thirteen Initial Hotels
and to repay existing mortgage indebtedness encumbering the Initial Hotels. In
addition, in connection with the IPO, the Company closed on its $100 million
Line of Credit that it utilizes primarily for the acquisition of hotels, the
renovation of certain hotels and for working capital.

On August 28, 1996, the Company sold an additional 575,000 shares of Common
Stock in connection with the exercise of the IPO underwriters' over-allotment
option. The Company contributed the net proceeds from the exercise of this
over-allotment option to the Operating Partnership in exchange for additional
partnership interests therein, thereby raising its aggregate percentage
interest in the Operating Partnership to approximately 81.3%. The Operating
Partnership utilized the net proceeds from the exercise of the IPO over-
allotment option to repay the initial $10.0 million of borrowings under the
Line of Credit.

Consistent with the Company's acquisition strategy, the Company has acquired
or has entered into binding agreements to purchase the following hotels for
the purchase prices (including closing costs) set forth below:

<TABLE>
<S> <C>
Acquired Hotels:
Days Inn Lake Buena Vista.................................... $ 33,150,000
Holiday Inn Resort Monterey.................................. 15,790,000
Hilton Hotel-Durham.......................................... 12,400,000
------------
Total/All Acquired Hotels.................................. 61,340,000
------------
Proposed Acquisition Hotels:
Radisson Hotel Arlington Heights............................. 11,818,755
Four Points by Sheraton...................................... 17,300,000
French Quarter Suites Hotel.................................. 16,300,000
Sheraton Key Largo........................................... 26,375,000
------------
Total/All Proposed Acquisition Hotels...................... 71,793,755
------------
Total/All Acquired and Proposed Acquisition Hotels......... $133,133,755
============
</TABLE>

On January 27, 1997, the Company announced that it had revenues of
approximately $8.2 million and net income available to its common stockholders
of $2.8 million, or $0.34 per share of Common Stock, for the three months
ended December 31, 1996. During this same period, REVPAR at the Current Hotels
was $48.99, ADR at the Current Hotels was $75.22 and occupancy at the Current
Hotels was 65.0%.

Immediately following the closing of this Offering, the Company will
contribute all of the net proceeds of the Offering to the Operating
Partnership and, following such contribution, will own an approximate 88.1%
interest in the Operating Partnership. The Operating Partnership will use such
net proceeds (i) to repay amounts borrowed under the Line of Credit, (ii) to
pay fees and expenses in connection with the anticipated increase in the
borrowing limit under the Line of Credit, (iii) to fund a substantial portion
of the cash part of the purchase price of the Proposed Acquisition Hotels, and
(iv) for working capital purposes. See "Use of Proceeds."

In order for the Company to qualify as a REIT, neither the Company nor the
Operating Partnership can operate hotels; therefore, the Operating Partnership
leases the Current Hotels and expects to lease the Proposed Acquisition Hotels
to the Lessee. The principal source of revenue for the Operating Partnership
and the Company is lease payments paid by the Lessee under the Participating
Leases. Participating Rent is based upon the Current Hotels' gross revenues.
The Lessee's ability to make payments to the Company under the Participating
Leases is dependent on the ability of the Lessee, AGHI and any other lessees
or operators to generate cash flow from the operations of the Hotels. See
"Risk Factors--Dependence on Lessee and Payments Under the Participating
Leases."

46
<PAGE>

RESULTS OF OPERATIONS

Actual for the period July 31, 1996 through September 30, 1996

The Company earned $5,218,526 in Participating Lease revenue from the
Lessee. Depreciation of the Company's investment in hotel properties was
$1,008,874. Amortization, consisting primarily of deferred financing costs and
franchise transfer fees, was $120,947 and real estate and personal property
taxes and insurance was $511,115. Interest expense attributable to
indebtedness relating to the Holiday Inn Dallas DFW Airport South, Courtyard
by Marriott-Meadowlands and borrowings under the Line of Credit were $205,682,
$68,344, and $73,596, respectively. Interest expense relating to the Line of
Credit borrowings includes interest on borrowings of approximately $10,000,000
from July 31, 1996 to August 28, 1996, which were repaid with the proceeds
from the exercise of the overallotment option in connection with the IPO, and
borrowings of $3,000,000 from September 16, 1996 to September 30, 1996, which
were utilized for working capital purposes. The minority interest in income
was $547,102 and the resulting net income applicable to the common
stockholders was $2,302,867 for the period.

Funds from Operations, calculated using the NAREIT definition of Funds From
Operations, was $3,118,037, which is the sum of net income applicable to
common stockholders, and the Company's ownership percentage in the Operating
Partnership multiplied by depreciation.

Pro Forma Comparison of the Nine Months ended September 30, 1996 and 1995

Participating Lease revenue would have increased $4,431,226 or 14.6% from
$30,360,945 to $34,792,171 primarily due to ADR increases at many of the
hotels. Interest income for each period would have been $23,625 attributable
to the FF&E Note issued by the Lessee. Depreciation expense, accounting for
45.8% and 49.8% of the nine months ended September 30, 1996 and 1995 expenses
respectively, would have decreased $1,054,140 from $8,315,043 to $7,260,903.
Depreciation expense represents depreciation of the AGH Predecessor Hotels'
historical carryover cost basis plus depreciation of the new cost basis of the
Other Initial Hotels, Acquired Hotels and Proposed Acquisition Hotels. This
decrease is due to the accelerated depreciation recorded in 1995 on FF&E that
was replaced in connection with renovations at the AGH Predecessor Hotels.
General and administrative expenses would have been $1,275,000 for the nine
months ended September 30, 1996 and 1995 representing salaries and wages of
$420,685, professional fees of $158,175, directors and officers' insurance
expense of $67,500 and other expenses of $628,640. Interest expense for the
nine months ended September 30, 1996 and 1995 would have been $2,334,447 on
indebtedness totaling approximately $37.1 million. Debt includes approximately
$14.1 million of mortgage indebtedness relating to the Holiday Inn Dallas DFW
Airport South hotel (8.75% interest rate), $5.2 million of mortgage
indebtedness relating to the Courtyard by Marriott-Meadowlands (range of 7.5%
to 7.89% interest rate), $9.6 million of mortgage indebtedness relating to the
French Quarter Suites Hotel (9.75% interest rate), and $8.2 million of
mortgage indebtedness relating to the Radisson Hotel Arlington Heights (7.5%
interest rate).

Pro Forma Funds From Operations

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 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.

The following is a reconciliation of pro forma net income applicable to
common stockholders to Pro Forma Funds From Operations and illustrates the
difference in the two measures of operating performance:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Pro forma net income applicable to common
stockholders................................... $12,064,553 $16,712,437
Depreciation (Company share).................... 7,325,553 6,469,465
----------- -----------
Funds From Operations........................... $19,390,106 $23,181,902
=========== ===========
Weighted Average Number of shares of Common
Stock Outstanding.............................. 14,087,405 14,087,405
=========== ===========
</TABLE>

47
<PAGE>

RESULTS OF OPERATIONS OF AGH PREDECESSOR HOTELS

The accompanying discussion and analysis of financial condition and results
of operations is based on the consolidated historical financial statements of
the Company and the Lessee and the combined historical financial statements of
the AGH Predecessor 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 affiliates of
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 four AGH Predecessor Hotels were
combined into one set of financial statements since they were acquired by the
Company from a group of limited partnerships controlled by shareholders of
AGHI.

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
DECEMBER 31,
---------------
1994 1995
------ ------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Room revenue............................................. 81.6% 82.9%
Food and beverage revenue................................ 13.1 11.9
Other revenue............................................ 5.3 5.2
------ ------
Total revenue.......................................... 100.0 100.0
Hotel operating expenses................................. 75.4 69.6
Depreciation and amortization............................ 8.7 22.8
Interest expense......................................... 10.2 14.4
Other corporate expenses................................. 12.5 6.9
------ ------
Net loss............................................... (6.8%) (13.7%)
====== ======
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1994 1995
------ ------
<S> <C> <C>
KEY FACTORS:
Occupancy................................................ 71.1% 72.1%
ADR...................................................... $62.10 $73.26
REVPAR................................................... $44.14 $52.84
</TABLE>

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 year ended December 31, 1995 and 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

48
<PAGE>

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 such 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 and 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.

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.

THE LESSEE

Actual for the period from July 31, 1996 through September 30, 1996

The Lessee had room revenues of $11,185,140 from the Initial Hotels. The
Participating Lease payments and property operating costs and expenses were
$5,218,526 and $9,360,407, respectively. Net income for the period was
$179,164.

Pro Forma Operations

The following table sets forth pro forma financial information for the
Lessee, as a percentage of revenue, for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1995 1996
-------- --------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Room revenue.......................................... 72.9% 74.9%
Food and beverage revenue............................. 21.9 20.3
Other revenue......................................... 5.2 4.8
-------- --------
Total revenue....................................... 100.0 100.0
Hotel operating expenses.............................. 66.4 64.5
Other corporate expenses.............................. 0.1 0.3
Participating Lease expenses.......................... 33.0 35.0
-------- --------
Net Income.......................................... 0.5% 0.2%
======== ========
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1995 1996
-------- --------
<S> <C> <C>
Key Factors:
Occupancy........................................... 75.0% 74.8%
ADR................................................. $70.65 $78.18
REVPAR.............................................. $52.99 $58.50
</TABLE>

49
<PAGE>

The following table sets forth room revenue for each of the Hotels and the
percentage changes between the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
PERCENT
1995 1996 CHANGE
----------- ----------- -------
<S> <C> <C> <C>
INITIAL HOTELS:
Holiday Inn Dallas DFW
Airport West................................ $2,792,749 $3,069,720 9.9%
Courtyard by Marriott-Meadowlands............ 2,792,612 3,250,259 16.4
Hampton Inn Richmond Airport................. 1,444,733 1,555,913 7.7
Hotel Maison de Ville........................ 941,437 958,853 1.8
Hilton Hotel-Toledo.......................... 2,630,401 2,673,599 1.6
Holiday Inn Dallas DFW Airport South......... 6,194,350 6,491,623 4.8
Holiday Inn New Orleans International
Airport..................................... 4,919,684 4,990,643 1.4
Days Inn Ocean City.......................... 2,015,226 2,129,547 5.7
Holiday Inn Select-Madison................... 3,982,525 4,100,587 3.0
Holiday Inn Park Center Plaza................ 3,643,675 4,313,287 18.4
Best Western Albuquerque Airport Hotel....... 3,267,688 3,344,851 2.4
Le Baron Airport Hotel....................... 3,766,332 5,209,398 38.3
Holiday Inn Mission Valley................... 4,166,821 4,312,791 3.5
----------- ----------- ----
Subtotals/Percent change..................... 42,558,233 46,401,071 9.0
ACQUIRED HOTELS:
Days Inn Lake Buena Vista.................... 5,438,660 6,337,411 16.5
Holiday Inn Resort Monterey.................. 3,462,967 4,021,248 16.1
Hilton Hotel-Durham.......................... 2,326,615 2,648,478 13.8
----------- ----------- ----
Subtotals/Percent change..................... 11,228,242 13,007,137 15.8
PROPOSED ACQUISITION HOTELS:
Radisson Hotel Arlington Heights............. 2,330,786 2,976,613 27.7
Four Points by Sheraton...................... 2,978,257 3,343,064 12.2
French Quarter Suites Hotel.................. 3,246,097 3,438,215 5.9
Sheraton Key Largo........................... 4,745,942 5,318,813 12.1
----------- ----------- ----
Subtotals/Percent change..................... 13,301,082 15,076,705 13.3
----------- ----------- ----
Totals (All Hotels).......................... $67,087,557 $74,484,913 11.0%
=========== =========== ====
</TABLE>

Pro Forma Comparison for the nine months ended September 30, 1996 and 1995

Room revenue increased to $74,484,913 from $67,087,557, an increase of
$7,397,356 or 11.0%, principally resulting from: (i) an increase of $457,647
in Courtyard by Marriott-Meadowlands' room revenue due to a 15.1% increase in
REVPAR (resulting from an increase in ADR to $90.98 from $80.76 and an
increase in occupancy to 78.4% from 76.8%), (ii) an increase of $669,612 in
Holiday Inn Park Center Plaza's room revenue due to a 20% increase in REVPAR
(resulting from an increase in ADR to $86.94 from $80.40 and an increase in
occupancy to 78.4% from 70.6%), (iii) an increase in Le Baron Airport Hotel's
room revenues of $1,443,066 due to a 37.8% increase in REVPAR (resulting from
an increase in ADR to $74.47 from $63.35 and an increase in occupancy to 78.1%
from 66.6%), (iv) an increase of $276,971 in Holiday Inn Dallas DFW West's
room revenue due to an increase in ADR to $64.82 from $58.10, (v) an increase
of $898,751 in Days Inn Lake Buena Vista's room revenue due to an increase in
ADR to $61.44 from $49.01, (vi) an increase in Holiday Inn Resort Monterey's
room revenue due to a 15.7% increase in REVPAR (resulting from an increase in
ADR to $100.27 from $89.45 and an increase in occupancy from 69.5% to 71.8%),
and (vii) an increase in Radisson Hotel Arlington Heights' room revenue due to
a 27.7% increase in REVPAR (resulting from an increase in ADR to $76.36 from
$67.90 and occupancy to 71.0% from 62.6%) attributable to the completion of
road construction during 1995 that improved the access to the hotel.

Food and beverage revenue increased to $20,181,837 from $20,133,742, an
increase of $48,095 or 0.2%. Most of the hotels experienced slight increases
in food and beverage revenues with the exception of Holiday Inn

50
<PAGE>

Dallas DFW Airport West, which had a significant increase of $251,160. This
increase is mainly due to major renovations of the restaurant and the bar
during the fourth quarter of 1995.

Hotel operating expenses increased to $64,128,628 from $61,044,842, an
increase of $3,083,786 or 5.1%; however, as a percentage of total revenue,
expenses decreased to 64.5% from 66.4%, due primarily to revenue increases
that were not accompanied by corresponding increases in hotel operating
expenses.

Participating Lease expenses increased to $34,792,171 from $30,360,945, an
increase of $4,431,226 or 14.6%. The increase is primarily due to increased
revenues at the hotels which resulted in increased Participating Rent payments
to the Company.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal source of cash to meet its cash requirements,
including distributions to stockholders, is its share of the Operating
Partnership's cash flow from the Participating Leases. For the period from
July 31, 1996 through September 30, 1996, cash flow provided by the operating
activities, consisting primarily of Participating Lease revenues, was
$4,687,975 and Funds from Operations was $3,118,037. The Lessee's obligations
under the Participating Leases are 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, are substantially dependent on the ability of the Lessee and
AGHI to generate sufficient cash flow from the operation of the Current Hotels
and, upon the Company's acquisition of the Proposed Acquisition Hotels, will
be dependent upon the Lessee's, AGHI's and Wyndham's operation of all the
Hotels.

The Company has entered into contracts to acquire the four Proposed
Acquisition Hotels. The acquisitions are subject to various closing conditions
and there can be no assurance that any or all of the Proposed Acquisition
Hotels will be consummated. The Company currently intends to utilize proceeds
from this Offering as well as borrowings under its Line of Credit to acquire
these hotels. While no definitive agreements with respect to the acquisition
of any additional hotels has been entered into, the Company expects that
during 1997 additional acquisitions will be completed and funded with
borrowings under the Line of Credit or permanent debt or equity financing. 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 investments in
hotels.

Upon the consummation of the IPO, the Company closed on its $100 million
Line of Credit. The Company has received a commitment from its Line of Credit
lenders that, subject to the satisfaction of certain conditions, will permit
the Company to increase its borrowing limit to $150 million. At December 31,
1996 the Company had approximately $57.5 million outstanding under the Line of
Credit. Upon the acquisition of the two Proposed Acquisition Hotels that are
not expected to be encumbered by mortgage indebtedness upon their acquisition
by the Company (Four Points by Sheraton and Sheraton Key Largo) and assuming
the increase in the Company's borrowing limit under the Line of Credit to $150
million, the Company anticipates that its borrowing capacity under the Line of
Credit will increase to approximately $106.9 million. Borrowings under the
Line of Credit bear interest at 30-day, 60-day or 90-day LIBOR (5.50%, 5.53%
and 5.56% at December 31, 1996) at the option of the Company, plus 1.85% per
annum, payable monthly in arrears or one-half percent in excess of the prime
rate.

Cash and cash equivalents as of September 30, 1996 were $4,436,235,
including capital improvement reserves of $425,710 and an escrow deposit that
is used to pay certain unused facility fees under the Line of Credit. Cash
flow from operating activities of the Company was $4,687,875 for the period
from July 31, 1996 through September 30, 1996, which primarily represents the
collection of rents under the Participating Leases, less the Company's
operating expenses for the period. Cash flow used in investing activities
during that period in the amount of $130,226,886 resulted from the purchase
and improvements made to the Initial Hotels. Cash flows from financing
activities of $129,975,146 during this period was primarily related to the
receipt of proceeds from the IPO and borrowings on the Line of Credit, net of
principal payments on borrowings and payments for deferred loan costs.

51
<PAGE>

RENOVATIONS AND OTHER CAPITAL IMPROVEMENTS

The Participating Leases require the Company to establish annual minimum
reserves equal to 4.0% of total revenue of the Current Hotels which 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 Current
Hotels. The Company and the Lessee will jointly determine the use of funds in
this reserve, and the Company will have the right to approve the Lessee's
capital expenditure budgets. 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 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.

The Company has budgeted $33.3 million to fund capital improvements and
renovations at the Current Hotels during 1997 and has budgeted approximately
$14.6 million to fund capital improvements and renovations at the Proposed
Acquisition Hotels. In certain circumstances such capital improvements are
being completed in connection with franchisor requirements. The following
table describes such renovations and improvements:

<TABLE>
<CAPTION>
DESCRIPTION OF
CURRENT HOTELS: RENOVATION/IMPROVEMENT BUDGETED AMOUNT
- --------------- ---------------------------------- ---------------
<S> <C> <C>
Holiday Inn Dallas DFW Upgrade of guest rooms and
Airport West............. corridors. $ 242,000
Hampton Inn Richmond Upgrade of public areas and 50,000
Airport.................. replacement of roof.
Hotel Maison de Ville..... Upgrade of selected guest rooms 26,000
and public areas.
Hilton Hotel-Toledo....... Upgrade of guest rooms and 341,000
renovation of public areas.
Holiday Inn Dallas DFW Upgrade of guest rooms, public 1,600,000
Airport South............ areas and hotel exterior in
connection with conversion to the
Holiday Inn Select brand.
Holiday Inn New Orleans Upgrade of guest rooms and public 1,100,000
International Airport.... areas in connection with
conversion to the Holiday Inn
Select brand and renovation of
roof.
Days Inn Ocean City....... Upgrade of guest rooms and public 990,000
areas in connection with
conversion to the Hampton Inn
brand.
Holiday Inn Select- Upgrade of guest rooms, public 870,000
Madison.................. areas and reservation equipment in
connection with conversion to the
Crowne Plaza brand.
Holiday Inn Park Center Upgrade of guest rooms and public 3,600,000
Plaza.................... areas and conversion of the ninth
floor to "club" level in
connection with conversion to the
Crowne Plaza brand.
Best Western Albuquerque Upgrade of guest rooms and public 3,600,000
Airport Hotel............ areas and convert meeting space to
additional guest rooms in
connection with conversion to the
Wyndham Hotel brand.
Le Baron Airport Hotel.... Upgrade of public areas and guest 5,000,000
rooms and convert ninth floor to
concierge floor in connection with
conversion to the Wyndham Hotel
brand.
Holiday Inn Mission Upgrade of guest rooms and public 1,800,000
Valley................... areas in connection with
conversion to the Holiday Inn
Select brand.
</TABLE>

52
<PAGE>

<TABLE>
<CAPTION>
DESCRIPTION OF
RENOVATION/IMPROVEMENT BUDGETED AMOUNT
---------------------------------- ---------------
<S> <C> <C>
Days Inn Lake Buena Upgrade and renovation of guest $ 7,500,000
Vista.................... rooms and public areas, including
the addition of approximately
9,000 square feet of convention
space as well as the addition of
extensive landscaping and
entertainment attractions to hotel
exterior in connection with
conversion to the Wyndham Hotel
brand.
Holiday Inn Resort- Upgrade and renovation of guest 3,900,000
Monterey................. rooms and public areas in
connection with conversion to the
Hilton Hotel brand.
Hilton Hotel-Durham....... Addition of 42 guest rooms and 2,650,000
renovation of guest rooms and -----------
public areas.
Current Hotels--subtotal: 33,269,000
-----------
PROPOSED ACQUISITION
HOTELS:
Four Points by Sheraton... Upgrade and renovation of guest 2,800,000
rooms, public areas and restaurant
in connection with conversion to
the Wyndham Hotel brand.
Sheraton Key Largo........ Upgrade and renovation of guest 3,000,000
rooms, public areas and exterior
in connection with conversion to
the Westin Resort brand.
French Quarter Suites Upgrade and renovation of guest 2,800,000
Hotel.................... rooms, atrium and public areas in
connection with conversion to the
DoubleTree Guest Suites brand.
Radisson Hotel Arlington Upgrade and renovation of guest 6,000,000
Heights.................. rooms and public areas as well as -----------
addition of 31 guest rooms.
Proposed Acquisition Hotels-- 14,600,000
subtotal: -----------
All Hotels--Total: $47,869,000
===========
</TABLE>

There can be no assurance that the Company will be able to complete the
scheduled capital improvements within the expected time frames 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. The Company attempts to schedule renovations and
improvements during traditionally lower occupancy periods in an effort to
minimize disruption to the hotels' operations.

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.

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 Hotels may
cause quarterly fluctuations in the Company's lease revenue. To the extent
that cash flow from operations may be insufficient during any quarter to pay
distributions at its current distribution rate due to temporary or seasonal
fluctuations in lease revenues, the Company expects to utilize other cash on
hand or borrowings under the Line of Credit to make such distributions.

53
<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 during the late 1980's and early 1990's. The Company
believes that this broad industry recovery will contribute to growth in
revenues at the 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

54
<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 REVPAR 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
during 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 during the late 1980's and increasing the
prospect for continued growth of revenues in the hotel industry for the
foreseeable future.

THE HOTELS

The sixteen Current Hotels are diversified by five different national hotel
brands and include fourteen full-service hotels and two limited-service
hotels. In addition, the Company plans to reposition, by the first quarter of
1998, ten of the Current Hotels (six Holiday Inns, two Days Inns, and two
independent hotels) through upgrade and conversion into hotels that operate
under the Wyndham Hotel, Hilton 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 any or
all of 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 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 following table sets forth certain information with respect to the
Current Hotels and the Proposed Acquisition Hotels. The chart summarizes the
historical performance of the Hotels for each of the three years ended
December 31, 1995 and for the nine months ended September 30, 1995 and 1996.
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.

55
<PAGE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- ------------------------
YEAR NUMBER
OPENED/ OF GUEST % % %
HOTELS/LOCATION(1) RENOVATED(2) ROOMS 1993 1994 CHANGE 1995 CHANGE 1995 1996 CHANGE
------------------ ------------ -------- ------- ------- ------ ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INITIAL HOTELS:
Holiday Inn Dallas DFW
Airport West(3)
Bedford, Texas.......... 1974/1995 243
Occupancy.............. 74.2% 70.0% (5.7)% 69.4% (0.8)% 73.1% 70.5% (3.6)%
ADR.................... $ 46.37 $ 48.85 5.3 % $ 60.08 23.0 % $ 58.10 $ 64.82 11.6 %
REVPAR................. $ 34.41 $ 34.19 (0.6)% $ 41.70 22.0 % $ 42.48 $ 45.73 7.7 %
Courtyard by Marriott-
Meadowlands(3)
Secaucus, New Jersey.... 1989/1994 165
Occupancy.............. 74.8% 70.1% (6.3)% 77.8% 10.9 % 76.8% 78.4% 2.1 %
ADR.................... $ 65.63 $ 73.37 11.8 % $ 81.77 11.4 % $ 80.76 $ 90.98 12.7 %
REVPAR................. $ 49.09 $ 51.44 4.8 % $ 63.58 23.6 % $ 62.00 $ 71.37 15.1 %
Hampton Inn Richmond
Airport(3)
Richmond, Virginia...... 1987/1995 124
Occupancy.............. 75.9% 76.3% 0.6 % 70.8% (7.2)% 72.8% 74.6% 2.5 %
ADR.................... $ 46.71 $ 50.84 8.8 % $ 57.69 13.5 % $ 58.44 $ 60.92 4.2 %
REVPAR................. $ 35.45 $ 38.81 9.5 % $ 40.86 5.3 % $ 42.52 $ 45.46 6.9 %
Hotel Maison de Ville(3)
New Orleans, Louisiana.. 1788/1994 23
Occupancy.............. 64.1% 61.7% (3.8)% 66.5% 7.8 % 64.9% 63.0% (2.9)%
ADR.................... $188.18 $201.80 7.2 % $232.97 15.4 % $230.91 $239.65 3.8 %
REVPAR................. $120.65 $124.50 3.2 % $154.91 24.4 % $149.93 $151.05 0.7 %
Hilton Hotel-Toledo(3)
Toledo, Ohio............ 1987/1994 213
Occupancy.............. 66.7% 72.5% 8.8 % 72.8% 0.3 % 75.8% 71.4% (5.8)%
ADR.................... $ 52.29 $ 54.59 4.4 % $ 59.98 9.9 % $ 59.67 $ 64.16 7.5 %
REVPAR................. $ 34.87 $ 39.59 13.6 % $ 43.65 10.2 % $ 45.24 $ 45.81 1.3 %
Holiday Inn Dallas DFW
Airport South(3)(4)(5)
Irving, Texas........... 1974/1995 409
Occupancy.............. 76.0% 76.7% 0.9 % 76.9% 0.3 % 77.9% 76.0% (2.4)%
ADR.................... $ 51.82 $ 63.19 22.0 % $ 71.26 12.8 % $ 70.92 $ 75.56 6.5 %
REVPAR................. $ 39.39 $ 48.44 23.0 % $ 54.78 13.1 % $ 55.27 $ 57.44 3.9 %
Holiday Inn New Orleans
International
Airport(3)(4)(5)
Kenner, Louisiana....... 1973/1994 304
Occupancy.............. 80.8% 79.2% (1.9)% 81.2% 2.5 % 82.4% 76.5% (7.2)%
ADR.................... $ 60.61 $ 61.49 1.5 % $ 72.83 18.5 % $ 71.99 $ 78.30 8.8 %
REVPAR................. $ 48.94 $ 48.71 (0.5)% $ 59.16 21.5 % $ 59.28 $ 59.91 1.1 %
Days Inn Ocean
City(3)(5)(6)
Ocean City, Maryland.... 1989/1994 162
Occupancy.............. 45.9% 45.8% (0.3)% 49.3% 7.6 % 55.5% 57.3% 3.2 %
ADR.................... $ 64.72 $ 70.91 9.6 % $ 76.10 7.3 % $ 82.14 $ 83.70 1.9 %
REVPAR................. $ 29.71 $ 32.47 9.3 % $ 37.50 15.5 % $ 45.57 $ 47.98 5.3 %
Holiday Inn Select-Madi-
son(5)(7)
Madison, Wisconsin...... 1987/1995 227
Occupancy.............. 79.6% 78.7% (1.2)% 79.3% 0.8 % 81.4% 78.6% (3.4)%
ADR.................... $ 74.47 $ 78.25 5.1 % $ 78.46 0.3 % $ 78.99 $ 82.32 4.2 %
REVPAR................. $ 59.31 $ 61.60 3.9 % $ 62.26 1.1 % $ 64.26 $ 64.75 0.8 %
Holiday Inn Park Center
Plaza(5)(7)
San Jose, California.... 1975/1990 231
Occupancy.............. 58.4% 62.2% 6.4 % 72.1% 16.0 % 70.6% 78.4% 11.0 %
ADR.................... $ 72.47 $ 73.41 1.3 % $ 78.16 6.5 % $ 80.40 $ 86.94 8.1 %
REVPAR................. $ 42.35 $ 45.66 7.8 % $ 56.38 23.5 % $ 56.79 $ 68.15 20.0 %
Best Western Albuquerque
Airport
Hotel(5)(8)
Albuquerque, New Mexi-
co..................... 1972/1994 266
Occupancy.............. 85.2% 83.5% (2.0)% 83.7% 0.2 % 84.6% 82.0% (3.1)%
ADR.................... $ 48.11 $ 53.23 10.6 % $ 53.24 0.0 % $ 53.32 $ 55.14 3.4 %
REVPAR................. $ 40.98 $ 44.44 8.4 % $ 44.55 0.2 % $ 45.09 $ 45.23 0.3 %
Le Baron Airport Ho-
tel(5)(9)
San Jose, California.... 1973/1995 327
Occupancy.............. 64.3% 66.2% 3.0 % 65.2% (1.4)% 66.6% 78.1% 17.3 %
ADR.................... $ 47.85 $ 52.77 10.3 % $ 64.40 22.0 % $ 63.35 $ 74.47 17.6 %
REVPAR................. $ 30.76 $ 34.93 13.5 % $ 42.01 20.3 % $ 42.19 $ 58.14 37.8 %
Holiday Inn Mission Val-
ley(4)(5)
San Diego, California... 1970/1995 318
Occupancy.............. 68.6% 69.8% 1.7 % 68.5% (1.9)% 73.2% 73.1% (0.1)%
ADR.................... $ 61.09 $ 62.94 3.0 % $ 65.17 3.5 % $ 65.55 $ 67.67 3.2 %
REVPAR................. $ 41.94 $ 43.94 4.8 % $ 44.63 1.6 % $ 48.00 $ 49.50 3.1 %
ACQUIRED HOTELS:
Days Inn Lake Buena Vis-
ta(5)(9)
Orlando, Florida........ 1985/1994 490
Occupancy.............. 73.9% 77.9% 5.4 % 77.8% (0.1)% 83.0% 76.8% (7.5)%
ADR.................... $ 48.44 $ 47.45 (2.0)% $ 49.02 3.3 % $ 49.01 $ 61.44 25.4 %
REVPAR................. $ 35.82 $ 36.95 3.2 % $ 38.16 3.3 % $ 40.66 $ 47.20 16.1 %
</TABLE>
See notes on page 57.

56
<PAGE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- ------------------------
YEAR NUMBER
OPENED/ OF GUEST % % %
HOTELS/LOCATION(1) RENOVATED(2) ROOMS 1993 1994 CHANGE 1995 CHANGE 1995 1996 CHANGE
------------------ ------------ -------- ------- ------- ------ ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Holiday Inn Resort
Monterey(5)(10)
Monterey, California.... 1971/1996 204
Occupancy.............. 60.7% 60.8% 0.2 % 63.8% 4.9 % 69.5% 71.8% 3.3 %
ADR.................... $ 93.40 $ 94.13 0.8 % $ 91.25 (3.1)% $ 89.45 $100.27 12.1 %
REVPAR................. $ 56.69 $ 57.18 0.9 % $ 58.19 1.8 % $ 62.18 $ 71.94 15.7 %
Hilton Hotel-Durham,
North Carolina.......... 1987/1995 152
Occupancy.............. 65.4% 72.4% 10.7 % 72.1% (0.4)% 72.8% 76.5% 5.1 %
ADR.................... $ 66.96 $ 72.05 7.6 % $ 76.42 6.1 % $ 76.08 $ 83.13 9.3 %
REVPAR................. $ 43.81 $ 52.20 19.2 % $ 55.08 5.5 % $ 55.40 $ 63.59 14.8 %
PROPOSED ACQUISITION HO-
TELS:
Four Points by
Sheraton(5)(11)
Marietta, Georgia....... 1985/1996 219
Occupancy.............. * * * 70.4% * 73.4% 66.4% (9.5)%
ADR.................... * * * $ 69.02 * $ 68.06 $ 84.29 23.8 %
REVPAR................. * * * $ 48.60 * $ 49.93 $ 55.97 12.1 %
Sheraton Key
Largo(5)(12)
Key Largo, Florida...... 1985/1996 200
Occupancy.............. 75.0% 70.3% (6.3)% 73.3% 4.3 % 75.7% 81.0% 7.0 %
ADR.................... $104.49 $109.46 4.8 % $112.70 3.0 % $114.83 $119.79 4.3 %
REVPAR................. $ 78.42 $ 76.90 (1.9)% $ 82.59 7.4 % $ 86.92 $ 97.06 11.7 %
French Quarter Suites
Hotel(5)(13)
Atlanta, Georgia........ 1985/1996 155
Occupancy.............. 75.5% 78.2% 3.6 % 78.5% 0.4 % 80.6% 74.0% (8.2)%
ADR.................... $ 84.33 $ 91.24 8.2 % $ 96.21 5.4 % $ 95.15 $109.38 15.0 %
REVPAR................. $ 63.70 $ 71.33 12.0 % $ 75.52 5.9 % $ 76.71 $ 80.96 5.5 %
Radisson Hotel Arlington
Heights(3)
Arlington Heights,
Illinois............... 1981/1995 201
Occupancy.............. 60.7% 67.0% 10.4 % 63.5% (5.2)% 62.6% 71.0% 13.4 %
ADR.................... $ 61.52 $ 62.15 1.0 % $ 68.08 9.5 % $ 67.90 $ 76.36 12.5 %
REVPAR................. $ 37.34 $ 41.64 11.5 % $ 43.25 3.9 % $ 42.48 $ 54.25 27.7 %
-----
Totals--All Hotels..... 4,633
=====
WEIGHTED AVERAGES:
Initial Hotels
Occupancy.............. 71.6% 71.7% 0.1 % 72.9% 1.7 % 74.8% 75.1% 0.4 %
ADR.................... $ 57.65 $ 62.28 8.0 % $ 69.19 11.1 % $ 69.11 $ 74.46 7.7 %
REVPAR................. $ 41.26 $ 44.67 8.3 % $ 50.46 13.0 % $ 51.70 $ 55.93 8.2 %
Acquired Hotels
Occupancy.............. 69.2% 72.8% 5.2 % 73.4% 0.8 % 77.9% 75.5% (3.1)%
ADR.................... $ 61.08 $ 61.30 0.4 % $ 62.72 2.3 % $ 62.29 $ 74.28 19.3 %
REVPAR................. $ 42.27 $ 44.60 5.5 % $ 46.04 3.2 % $ 48.51 $ 56.11 15.7 %
Proposed Acquisition Ho-
tels
Occupancy.............. 70.0% 71.3% 1.8 % 71.0% (0.4)% 72.6% 72.9% 0.4 %
ADR.................... $ 84.94 $ 87.80 3.4 % $ 86.46 (1.5)% $ 86.63 $ 97.60 12.7 %
REVPAR................. $ 59.45 $ 62.58 5.3 % $ 61.38 (1.9)% $ 62.91 $ 71.16 13.1 %
</TABLE>
- --------
* Occupancy, ADR and REVPAR for the noted periods were not available to the
Company.
(1) The occupancy, ADR and REVPAR calculations for the Hotels are derived from
room revenue included in the audited financial data relating to each of
the 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): Hilton
Hotel-Durham (January 1997), Holiday Inn Resort Monterey (November 1996),
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) 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), the Days Inn
Ocean City (February 1993) and the Radisson Hotel Arlington Heights (March
1993).

Notes continued on following page.

57
<PAGE>

(4) The Company plans to reposition this hotel to operate as a Holiday Inn
Select.
(5) There can be no assurance that the brand conversion and repositioning of
this hotel will occur as planned.
(6) The Company plans to reposition this hotel to operate as a Hampton Inn.
(7) The Company plans to reposition this hotel to operate as a Crowne Plaza.
(8) This hotel also has an affiliation with Best Western. The Company plans
to reposition this hotel to operate as a Wyndham Hotel.
(9) The Company plans to reposition this hotel to operate as a Wyndham Hotel.
(10) The Company plans to reposition this hotel to operate as a Hilton Hotel.
(11) The Company plans to reposition this hotel to operate as a Wyndham Garden
Hotel. The Lessee has advised the Company that it plans to retain Wyndham
Hotel Corporation as the manager of this hotel.
(12) The Company plans to reposition this hotel to operate as a Westin Resort.
(13) The Company plans to reposition this hotel to operate as a DoubleTree
Guest Suites.

DESCRIPTIONS OF HOTELS

Fourteen of the Current Hotels, containing an aggregate of 3,572 guest
rooms, are full-service hotels 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
brand conversion of the Current Hotels, the Company's full-service hotels will
include one Courtyard by Marriott, three Hilton Hotels, one Holiday Inn, two
Crowne Plazas, three Holiday Inn Selects, three Wyndham Hotels and one
independent hotel. All four of the Proposed Acquisition Hotels are full-
service hotels with an aggregate of 775 guest rooms. After the Company's
planned acquisition and repositioning of the Proposed Acquisition Hotels, such
hotels will operate under the DoubleTree Guest Suites, Radisson Hotel, Wyndham
Garden Hotel and Westin Resort brands. 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 Current Hotels, containing an aggregate of 286 guest rooms, are
limited-service hotels which target both business and leisure travelers. After
completion of the Company's planned brand repositionings of the Current
Hotels, the Company's limited-service hotels will consist of two Hampton Inns.
Limited-service hotels have limited or no meeting space and typically do not
offer food and beverage facilities. 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 each of the Current Hotels and Proposed
Acquisition Hotels.

INITIAL 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 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.

58
<PAGE>

The Company acquired the hotel at the time of the IPO and plans to make
approximately $242,000 in additional improvements and renovations to the hotel
by August 1997.

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. From May 1994 through the hotel's July
1996 acquisition by the Company, AGHI had invested an additional $845,400 to
further improve the restaurant, lounge, exterior entrances, guest rooms and
meeting facilities at the hotels.

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 time it implemented a $376,000 capital improvement program
which included the renovation of guest rooms and public areas. The Company
acquired the hotel at the time of the IPO and plans to invest an aggregate of
approximately $50,000 in additional improvements to the hotel during 1997.

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 residents 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 an outdoor pool. The hotel is associated
with the prestigious Small Luxury Hotels(R), Historic Hotels of America and
Luxury Hotels of America(R) affiliations.

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. The Company acquired the hotel at the
time of the IPO and since its acquisition has made approximately $24,000 in
improvements to the hotel. The Company has budgeted $26,000 for additional
improvements to the hotel during 1997. 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).

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

59
<PAGE>

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. The Company acquired the hotel at
the time of the IPO and plans to invest approximately $341,000 in capital
improvements at the hotel during 1997.

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
Holiday Inn Dallas DFW Airport South targets the business traveler but also
offers additional facilities which appeal to families. The hotel 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 AGHI's 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. Following
AGHI's completion of the initial renovations in 1992 and until the Company's
acquisition of the hotel at the time of the IPO, an additional $2.5 million
was spent upgrading the hotel. Since the Company's acquisition of the hotel,
it has spent approximately $730,000 renovating and improving the hotel and has
budgeted for 1997 an additional $1.6 million for renovations and improvements
in anticipation of repositioning the hotel to operate under the Holiday Inn
Select brand. There can be no assurance that such brand conversion will occur.

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.

The Company acquired the hotel at the time of the IPO and since that date
has spent approximately $1.2 million renovating and improving the hotel. The
Company has budgeted for 1997 approximately $1.1 million in additional
improvements to the hotel in anticipation of repositioning the hotel under the
Holiday Inn Select brand. There can be no assurance that such brand conversion
will occur.

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 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 acquired the hotel at the time of the IPO and since
that date has invested approximately $975,000 on renovations and improvements
to the hotel. The Company has budgeted for 1997 approximately

60
<PAGE>

$990,000 in additional improvements to the hotel in anticipation of
repositioning the hotel to operate under the Hampton Inn brand by March 1997.
There can be no assurance that such brand conversion will occur.

Holiday Inn Select-Madison--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 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.

The Company acquired the Holiday Inn Select--Madison at the time of the IPO
and since that date has invested approximately $850,000 on renovations and
improvements to the hotel. The Company has budgeted for 1997 approximately
$870,000 in additional improvements to the hotel in anticipation of
repositioning the hotel as a Crowne Plaza. There can be no assurance that such
brand conversion will occur.

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.

The Company acquired the hotel at the time of the IPO and since that date
has spent approximately $1.6 million on an extensive renovation program at the
hotel. The Company has budgeted for 1997 approximately $3.6 million in order
to complete this renovation program and to convert the hotel from a
traditional Holiday Inn into a Crowne Plaza hotel. In addition, it was
recently recommended to the Redevelopment Agency of the City of San Jose that
the Company be issued a $350,000 grant for renovation of the exterior of the
hotel. The Company expects to utilize the funds during 1997, assuming they are
received during this year. There can be no assurance that such brand
conversion and improved operating results will occur.

Best Western Albuquerque Airport Hotel--Albuquerque, New Mexico

The Best Western 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 acquired the hotel at the time of the IPO and since that date
has embarked on an extensive renovation program at the hotel that includes 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. Since the Company's acquisition of the hotel, it has
spent approximately $1.6 million on the renovation program and has budgeted
for 1997 an additional $3.6 million in order to complete the program.

61
<PAGE>

Upon the completion of the renovation program, the Company expects that it
will convert the hotel to the Wyndham Hotel brand. There can be no assurance
that such brand conversion will occur.

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 acquired the hotel at the time of the IPO and since that date
has embarked on an extensive renovation program to upgrade the entire hotel
and reposition it as a Wyndham Hotel. The renovations include the conversion
of currently underutilized space to an additional 33 guest rooms. Since the
Company's acquisition of the hotel, the Company has spent approximately $1.7
million on the renovation program and has budgeted for 1997 an additional $5.0
million in order to complete the program. There can be no assurance that such
brand conversion and improved operating results will occur. The Company
originally anticipated converting this hotel to a DoubleTree brand; however,
as a result of DoubleTree Corporation's recent acquisition of Red Lion Hotels
and its subsequent decision to convert the Red Lion branded hotel in this
market to a DoubleTree Hotel, the Company altered its initial branding plan
for the hotel.

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 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.

The Company acquired the hotel at the time of the IPO and since that date
has spent approximately $390,000 on renovations and capital improvements at
the hotel. The Company has budgeted for 1997 approximate $1.8 million in
additional capital improvements 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 originally anticipated converting
this hotel to a DoubleTree brand; however as a result of DoubleTree
Corporation's recent acquisition of Red Lion Hotels and its subsequent
decision to convert the Red Lion branded hotel in this market to a DoubleTree
Hotel, the Company altered its initial branding plan for the hotel.

ACQUIRED HOTELS

Days Inn Lake Buena Vista--Lake Buena Vista, Florida

On October 22, 1996, the Company acquired the 490-room Days Inn Lake Buena
Vista for an aggregate purchase price of $30.5 million, consisting of $30.0
million in cash and 25,397 shares of restricted Common Stock valued at
$500,000 at the time of the closing of the acquisition of the hotel. In
addition, in connection with this acquisition the Company entered into an
agreement to purchase a license and an association membership from one of the
sellers, which agreement the Company immediately assigned to the Lessee, for
the membership in Grand Theme Hotels and exclusive use of the African royal
safari theme in the Orlando area for approximately $1.3 million payable in
installments through 1997, and will pay an additional $1.1 million for certain
construction, design and other services related to the operation of the hotel.
The Lessee also paid the seller $200,000 for certain cash flow guarantees
through 1997. In addition, commencing January 1998, in connection with the
license and the association membership, the Lessee is required to pay
recurring association fees including a base monthly fee equal to 1.0% of the
prior month's gross monthly room revenues generated at the hotel, and an
additional fee of 0.5% to 1.0% of gross monthly room revenues if the trailing
twelve month's gross room revenues at the hotel exceeds a threshold of
approximately $13 million, (subject to increase based on

62
<PAGE>

the percentage increase in the CPI). In addition, the Lessee is obligated to
pay a recurring royalty for the African royal safari theme equal to an amount
which ranges from 10% to 25% of net operating income in excess of $6 million
(subject to adjustment if the Lessee invests more than $40 million in the
hotel). The Lessee is also obligated to pay a marketing assistance fee equal
to .25% of gross room revenues. The marketing and association fees are not
expected to exceed 2.25% of gross room revenues for any twelve-month period.
The association membership agreement terminates in October 2008; the Lessee is
obligated to pay liquidated damages if the agreement is terminated earlier.

The Days Inn Lake Buena Vista is located approximately one-quarter mile
south of Walt Disney World's Lake Buena Vista entrance. The area in which the
hotel is located is resort-oriented and includes hotels, strip retail centers
and numerous free standing restaurants. Currently, Orlando is a $15 billion-
per-year tourism market, and management believes that local hotels will
benefit from even greater demand in the future with both Universal Studios and
Walt Disney World recently announcing multi-billion dollar expansion projects.
Hotel occupancy in the Orlando market is very strong, with a year-to-date
occupancy through September 30, 1996 of 82.3%. The hotel has also been
selected by Disney as one of the hotels outside its park to which it will
offer reservations to overflow customers. The hotel was developed in 1985 and
contains a total of 490 guest rooms, including 94 suites. The hotel is
configured around a large courtyard area which contains a swimming pool and
play areas. Additional amenities include a restaurant, deli, cocktail lounge,
approximately 4,200 square feet of convention space and a gift shop.

Since its acquisition of the hotel, the Company has commenced an extensive
renovation program to upgrade the entire hotel and to reposition the facility
as a Wyndham Hotel. The renovations include refurbishing all areas of the
hotel including public areas and guest rooms, including the addition of
approximately 9,000 square feet of convention space, as well as significant
alterations to the hotels exterior, including extensive landscaping and other
entertainment attractions. The hotel will be redesigned to reflect an African
royal safari theme that will tie in with Disney's new Wild Animal Kingdom
theme park, which is expected to open in 1998. Since the Company's acquisition
of the hotel, the Company has spent approximately $1.8 million on this
renovation program and has budgeted for 1997 an additional $7.5 million in
order to complete this program. There can be no assurance that such brand
conversion and improved operating results will occur.

The Days Inn Lake Buena Vista constitutes more than 10% of the aggregate
historical cost basis of the Company's assets as of December 31, 1996. The
aggregate tax bases of depreciable real and personal property of the hotel for
federal income tax purposes were approximately $28.2 million and $500,000,
respectively, as of December 31, 1996. 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 5 to 7
years for the personal property. The 1996 realty tax rate for the Days Inn
Lake Buena Vista was $21.08 per $1,000 of assessed value. The occupancy rate
for the Days Inn Lake Buena Vista was as follows: (i) 73.9% for the year ended
December 31, 1993; (ii) 77.9% for the year ended December 31, 1994; (iii)
77.8% for the year ended December 31, 1995; and (iv) 76.8% for the 9 months
ended September 30, 1996. Occupancy information for the year ended December
31, 1992 was not available to the Company.

Holiday Inn Resort Monterey--Monterey, California

On November 21, 1996, the Company acquired the 204-room Holiday Inn Resort
Monterey for approximately $15.5 million in cash. The Holiday Inn Resort
Monterey is located in the major tourist destination city of Monterey,
California. The hotel is a three-story, interior corridor facility configured
around a central courtyard and pool. Amenities include two tennis courts, a
heated outdoor pool, an indoor therapy whirlpool, restaurant, lounge and
approximately 6,200 square feet of meeting space.

The Monterey/Carmel area is nationally known for its beautiful coastline
scenery, the scenic 17 Mile Drive, Fisherman's Wharf, the Monterey Aquarium,
the golf courses of Pebble Beach, Spy Glass and Cypress Point and the historic
Cannery Row. In addition, the communities of Monterey and Carmel have limited
the development of new lodging facilities in their area through several voter
initiatives. The hotel had occupancy,

63
<PAGE>

ADR and REVPAR of 65.5%, $100.08 and $65.50, respectively, for the twelve
months ended September 30, 1996. The hotel was developed in 1971 and is wood
frame construction with painted stucco and wood exterior walls trimmed with
rock veneer. The contemporary architecture and well-developed landscaping
combine to produce an appealing complex similar to others found in the area.
The Company has budgeted for 1997 approximately $3.9 million in renovations
and capital improvements to the hotel in order to reposition the hotel as a
Hilton Hotel. There can be no assurance that such brand conversion and
improved operating results will occur.

Hilton Hotel-Durham--Durham, North Carolina

On January 8, 1997, the Company acquired the 152-room Hilton Hotel-Durham
for approximately $12.1 million in cash. The Hilton Hotel-Durham is located in
northwestern Durham, one mile from Duke University and Duke Medical Center.
The hotel is accessible by two major highways and is situated in proximity to
a number of business centers. The hotel has been well maintained and underwent
an interior renovation in 1993 and 1994. The competitive market in which the
hotel operates has experienced significant increases in rate and occupancy
levels over the last several years, with overall demand for guest rooms
increasing by 8.1% from 1992 to 1995, from 64.0% to 72.1%, and average room
rates increased by 13.2% for the same time period, from $63.22 to $76.42.

The hotel, which was constructed in 1987, offers 152 guest rooms, 300
parking spaces and over 6,000 square feet of meeting space. The hotel also
contains a full-service restaurant, an entertainment lounge and a lobby bar,
an outdoor pool, an exercise room, a business center and a car rental counter.
The Company has budgeted for 1997 approximately $250,000 for renovations and
improvements of the hotel and approximately $2.4 million on a 42 guest room
expansion of the hotel.

This hotel competes with the Durham Option Hotel. Pursuant to the Option
Agreement, the Company has the option and right of first refusal to acquire
AGHI's 16.7% partnership interest in the Durham Option Hotel. See "Risk
Factors--Conflicts Relating to Continued Ownership of Other Hotel Properties"
and "Certain Relationships and Transactions--Options to Purchase and Rights of
First Refusal."

PROPOSED ACQUISITION HOTELS

The Company has entered into contracts to purchase the Proposed Acquisition
Hotels for purchase prices aggregating approximately $70.6 million. The
closing of the purchase of each of the Proposed Acquisition Hotels is subject
to satisfactory completion of various closing conditions. Accordingly, no
assurance can be given that the Company will acquire any or all of the
Proposed Acquisition Hotels. See "Risk Factors--Risk That Proposed Acquisition
Hotels Will Not Be Acquired." If the Proposed Acquisition Hotels are acquired,
the Company will have invested approximately $128.6 million in hotel
acquisitions since the IPO and will own 20 hotels containing approximately
4,600 guest rooms. This represents a more than 50% increase in the Company's
portfolio since the IPO based upon the number of guest rooms. Set forth below
are summary descriptions of the Proposed Acquisition Hotels:

Portfolio Purchase. In December 1996, the Company entered into a series of
agreements to acquire a portfolio of hotels, including the Four Points by
Sheraton, the Sheraton Key Largo and the French Quarter Suites Hotel for an
aggregate purchase price of approximately $59.1 million. The purchase price
for the Portfolio Purchase is as follows: (i) approximately $49.5 million in
cash and (ii) the assumption of approximately $9.6 million of mortgage
indebtedness secured by the French Quarter Suites Hotel.

Four Points by Sheraton--Marietta, Georgia

The Four Points by Sheraton is located in Marietta, Georgia, a northwest
suburb of Atlanta. The hotel was built in 1985 as a 219-room Sheraton. The
hotel is situated within a highly traveled commercial and residential area in
central Marietta. Amenities at the hotel include a restaurant, lounge, outdoor
pool, fitness center and approximately 10,000 square feet of meeting space.
The hotel's extensive meeting space is the largest in Marietta, allowing the
hotel to accommodate the majority of the group and meetings demand in that
market.

64
<PAGE>

The Company has budgeted approximately $2.8 million to renovate the hotel
during 1997 in order to reposition the hotel to operate under the Wyndham
Garden Hotel brand. There can be no assurance that such brand conversion will
occur. The Company expects to lease the hotel to the Lessee, which, in turn,
expects to engage Wyndham Hotel Corporation as the manager of this property.
Assuming the acquisition of this hotel by the Company, this will be the first
hotel owned by the Company that is not managed by AGHI.

The hotel is being acquired as part of the Portfolio Purchase. The Company
has allocated a $17.0 million cash purchase price to Four Points by Sheraton.
The hotel had occupancy, ADR and REVPAR of 65.2%, $81.41 and $53.11,
respectively, for the twelve months ended September 30, 1996. The closing is
scheduled to occur in March 1997 and is conditioned on, among other things,
the receipt of certain lender consents.

Sheraton Key Largo--Key Largo, Florida

The Sheraton Key Largo is located at Mile Marker 97 and US Highway 1 in Key
Largo, Florida. The hotel, developed in 1985, is a 200-room resort complex
contained within three sprawling four-story structures nestled within highly
dense vegetation and situated on the island's western coastline. The resort
offers a private beach, boat dock, two outdoor pools, two tennis courts, a
2,000 foot nature trail, two restaurants, a lounge and approximately 10,500
square feet of meeting space. Additional amenities include a gift shop, hair
salon and water sports activities. The Sheraton Key Largo is the largest hotel
facility in the major tourist destination of Key Largo.

The Company has budgeted approximately $3.0 million to renovate the hotel
during 1997 in order to reposition the hotel to operate as a Westin Resort.
There can be no assurance that such conversion will occur. The hotel had
occupancy, ADR and REVPAR of 77.3%, $116.70 and $90.19, respectively, for the
twelve months ended September 30, 1996.

The hotel is being acquired as part of the Portfolio Purchase. The Company
has allocated a $26.1 million cash purchase price to the Sheraton Key Largo.
The closing of the acquisition is scheduled to occur in March 1997 and is
conditioned on, among other things, the receipt of certain lender consents.
The Company expects that the hotel will be leased to the Lessee and will be
managed by AGHI.

French Quarter Suites Hotel--Atlanta, Georgia

The French Quarter Suites Hotel is located in the Cumberland Mall/Galleria
area of northwestern Atlanta. The hotel was constructed in 1985 and contains a
total of 155 guest rooms of which 144 are two-room, 600 square foot suites.
The hotel also contains an upscale restaurant, the Cafe New Orleans, as well
as a fitness center, an outdoor pool and 3,500 square feet of meeting space.

The Company has budgeted approximately $2.8 million during 1997 to complete
an extensive renovation of the hotel in order to convert the facility to
operate as a DoubleTree Guest Suites hotel. There can be no assurance that
such brand conversion will occur. The hotel had occupancy, ADR and REVPAR of
73.6%, $107.00 and $78.70, respectively, for the twelve months ended September
30, 1996.

The hotel is being acquired as part of the Portfolio Purchase. The Company
has allocated a $16.0 million purchase price to the French Quarter Suites
Hotel, consisting of approximately $6.4 million in cash and the assumption of
approximately $9.6 million of mortgage indebtedness bearing an interest rate
of 9.75% per annum and secured by the property. The closing of the acquisition
is scheduled to occur in March 1997 and is conditioned on, among other things,
the receipt of certain lender consents. The Company expects that the hotel
will be leased to the Lessee and managed by AGHI.

65
<PAGE>

Radisson Hotel Arlington Heights--Arlington Heights, Illinois

The Radisson Hotel Arlington Heights is located in suburban northwest
Chicago, approximately 8.5 miles from O'Hare International Airport, in an area
dominated by a large number of corporate users of lodging facilities,
including National Car Rental, United Airlines, American Airlines, Airborne
Express and Pepsi-Cola. The hotel, which was developed in 1981, is a 201-room
full-service facility. The six-story hotel contains a restaurant, lobby and
approximately 7,200 square feet of meeting space. Other amenities at the hotel
include an indoor heated pool, exercise room and gift shop.

The hotel has been managed by AGHI since March 1993. In 1993, when AGHI
commenced managing the property, occupancy, ADR and REVPAR at the hotel were
60.7%, $61.52 and $37.34, respectively. By the twelve months ended September
30, 1996, occupancy at the hotel had increased 15.2% to 69.9%, ADR at the
hotel had increased 21.1% to $74.52 and REVPAR at the hotel had increased
39.5% to $52.08.

The purchase price of the hotel is approximately $11.5 million payable as
follows: (i) $3.3 million in cash and (ii) the assumption of a one-year, $8.2
million first mortgage note, which bears interest at the rate of 7.5% per
annum. In addition, commencing on the earlier of the fourth year anniversary
of the completion of initial renovations of the hotel or January 1, 2003, the
seller will have the right to receive a 25% profits interest in the net cash
flow and the net proceeds from certain capital transactions generated at the
hotel. The Company has the option to purchase this profits interest for an
amount equal to 25% of the fair market value of the hotel less the sum of
$11.2 million plus the costs related to any additional expansion of the hotel
at any time after the fourth anniversary of the completion of the initial
renovations at the hotel (subject to a 30-month extension in certain
circumstances). If the Company exercises its option and acquires the seller's
25% profit interest, the profits interest will be extinguished immediately
upon acquisition. This future cash flow right was granted in order to
compensate the sellers for the expected improvement in the hotel's performance
that is not fully reflected in the historical operating results. The Company
expects that the hotel will be leased to the Lessee and continue to be managed
by AGHI.

The Company has budgeted for 1998 approximately $4.0 million to renovate the
hotel and approximately $2.0 million to add at least 31 guest rooms to the
hotel. The restaurant facilities are subject to a space lease with a third
party lessee; such lease provides for monthly payments of $11,111 from the
date of the closing of the purchase through December 1997, at which time the
lease expires.

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 leases each Current Hotel and will lease each Proposed Acquisition
Hotel to the Lessee for a term of twelve years from the inception of the lease
pursuant to separate Participating Leases that provide for rent equal to the
greater of Base Rent or Participating Rent. The Participating Leases for the
Proposed Acquisition Hotels are expected to contain substantially the same
basic terms as the Participating Leases for the Current Hotels. In addition,
the Company and the Lessee are party to a Lease Master Agreement (the "Lease
Master Agreement"), which sets 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.

Participating Lease Terms. Each Participating Lease has a term of twelve
years from the date of the Company's acquisition of the hotel subject to such
lease, subject to earlier termination upon the occurrence of certain
contingencies described in the Participating Lease (including, particularly,
the provisions described herein under "Damage to Hotels," "Condemnation of
Hotels," and "Termination of Participating Leases Upon Disposition of the
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

66
<PAGE>

other revenue at each Hotel, and (iii) certain other amounts, including
interest accrued on any late payments or charges ("Additional Charges"). Base
Rent and Participating Rent departmental thresholds (departmental revenue on
which the rent percentage is based) are 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 ten of the
Hotels, the franchise agreements for the hotels require increases in the
franchise royalty rates in future years and the Participating Leases for those
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
fourteen of the Hotels, the Company plans to undertake substantial renovations
that are expected to be completed by the fourth quarter of 1997. At thirteen
of these Hotels, the renovations are expected to significantly negatively
affect the operating margins at these 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 hotels contain Participating Rent
thresholds that adjust effective January 1, 1997 and/or January 1, 1998, as
the case may be, 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 thirteen Hotels will adjust effective January 1,
1997 and/or January 1, 1998, as the case may be, 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 budgeted 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. The monthly departmental thresholds and the weekly Base Rent are set
based on the Company's annual budget, which reflects the seasonal variations
in the Company's revenues. 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.

67
<PAGE>

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 hotel
pursuant to the terms of the Participating Leases based on the historical
revenues for the twelve months ended September 30, 1996, as if the Company had
owned the hotels and the Participating Leases were in effect during such
twelve-month period and October 1, 1995 was the beginning of the lease year.
For each hotel, pro forma Participating Rent is greater than Base Rent.

<TABLE>
<CAPTION>
LEASE TWELVE MONTHS ENDED
EXPIRATION SEPTEMBER 30, 1996
DATE BASE RENT PARTICIPATING -----------------------------------
(MONTH/ (DOLLARS IN RENT FORMULA PRO FORMA
HOTEL PROPERTIES YEAR) THOUSANDS) (DOLLARS IN THOUSANDS) PARTICIPATING RENT
- ------------------------ ---------- ----------- ------------------------------- -------------------------
PRO FORMA TELEPHONE
TOTAL AND
REVENUE ROOM F&B OTHER
--------- ------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL HOTELS
Holiday Inn Dallas DFW
Airport West
--Bedford, Texas....... 6/08 $ 827 Rooms: 25.0% of first $2,650; $ 5,286 $ 1,421 $ 68 $ 53
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 Jersey..
6/08 946 Rooms: 20.0% of first $2,150; 4,887 1,787 0 72
60.0% of next $1,315; 70.0%
thereafter; Telephone and
Other: 25.0%
Hampton Inn Richmond
Airport
- --Richmond, Virginia....
6/08 530 Rooms: 30.0% of first $1,155; 2,090 917 0 36
70.0% thereafter; Telephone
and Other: 30.0%
Hotel Maison de Ville(2)
- --New Orleans,
Louisiana.............. 6/08 274 Rooms: 15.0% of first $890; 1,937 410 33 11
60.0% of next $210; 70.0%
thereafter; F&B: 5.0% of first
$430; 10.0% thereafter;
Telephone and Other: 15.0%
Hilton Hotel--Toledo
- --Toledo, Ohio.......... 6/08 832 Rooms: 15.0% of first $2,400; 5,978 1,020 239 55
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; 12,028 3,540 449 60
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; 8,421 3,216 149 115
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, Maryland..
6/08 719 Rooms: 30.0% of first $1,025; 2,443 1,222 0 34
70.0% thereafter; Telephone
and Other: 30.0%
</TABLE>

See notes on page 71.

68
<PAGE>

<TABLE>
<CAPTION>
LEASE TWELVE MONTHS ENDED
EXPIRATION SEPTEMBER 30, 1996
DATE BASE RENT PARTICIPATING ----------------------------------
(MONTH/ (DOLLARS IN RENT FORMULA PRO FORMA
HOTEL PROPERTIES YEAR) THOUSANDS) (DOLLARS IN THOUSANDS) PARTICIPATING RENT
------------------------ ---------- ----------- ------------------------------- ------------------------
PRO FORMA TELEPHONE
TOTAL AND
REVENUE ROOM F&B OTHER
--------- ------- ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL HOTELS
Holiday Inn Select-
Madison(5)(6)
--Madison, Wisconsin...
6/08 $1,597 Rooms: 25.0% of first $2,250; $ 7,972 $ 2,476 $ 319 $ 62
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)
--San Jose,
California............ 6/08 1,091 Rooms: 20.0% of first $3,600; 7,931 1,976 128 169
65.0% of next $1,050; 75.0%
thereafter; F&B: 5.0% of first
$1,350; 10.0% thereafter;
Telephone and Other: 30.0%
Best Western Albuquerque
Airport Hotel(9)
--Albuquerque, New
Mexico................ 6/08 1,202 Rooms: 25.0% of first $2,560; 6,440 1,834 106 111
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 Jose,
California............ 6/08 1,323 Rooms: 20.0% of first $3,100; 9,938 2,799 176 156
60.0% of next $1,975; 70.0%
thereafter; F&B: 5.0% of first
$2,320; 15.0% thereafter;
Telephone and Other: 30.0%
Holiday Inn Mission
Valley(12)(13)
--San Diego,
California............ 6/08 1,542 Rooms: 25.0% of first $3,570; 6,893 2,120 75 99
65.0% of next $900; 75.0%
thereafter; F&B: 5.0% of first
$845; 10.0% thereafter;
Telephone and Other: 25.0%
ACQUIRED HOTELS
Days Inn Lake
Buena Vista(14)(15)
--Lake Buena Vista,
Florida...............
10/08 5,044* Rooms: 25.0% of first $2,152; 10,257 4,627 41 376
60.0% of next $2,868, 70.0%
thereafter; F&B: 5.0% of first
$589; 10.0% thereafter;
Telephone and Other: 50.0%
Holiday Inn Resort
Monterey(16)(17)
--Monterey,
California............ 11/08 1,279 Rooms: 20.0% of first $3,240; 6,104 1,559 30 93
60.0% of next $1,660; 70.0%
thereafter; F&B: 2.5% of first
$765; 5.0% thereafter;
Telephone and Other: 40.0%
</TABLE>

See notes on page 71.

69
<PAGE>

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
LEASE SEPTEMBER 30, 1996
EXPIRATION -----------------------------------
DATE BASE RENT PARTICIPATING PRO FORMA
(MONTH/ (DOLLARS IN RENT FORMULA PARTICIPATING
HOTEL PROPERTIES YEAR) THOUSANDS) (DOLLARS IN THOUSANDS) RENT
------------------------ ---------- ----------- ------------------------------- -------------------------
PRO FORMA TELEPHONE
TOTAL AND
REVENUE ROOM F&B OTHER
--------- ------- ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ACQUIRED HOTELS
Hilton Hotel-Durham(18)
--Durham,
North Carolina........ 1/09 $ 1,133 Rooms: 25.0% of first $2,075; $ 5,236 $ 1,380 $ 160 $ 38
------- 60.0% of next $692; 70.0% -------- ------- ------ ------
thereafter; F&B: 7.5% of first
$1,276; 15.0% thereafter;
Telephone and Other: 30.0%
TOTALS--Current
Hotels................. 22,848 103,841 32,304* 1,973 1,540
------- -------- ------- ------ ------
PROPOSED
ACQUISITION HOTELS
Four Points by
Sheraton(19)
--Marietta, Georgia....
3/09 1,350 Rooms: 20.0% of first $2,400; 5,803 1,754 127 71
65.0% of next $1,150; 75.0%
thereafter; F&B: 7.5% of first
$1,090; 20.0% thereafter;
Telephone and Other: 30.0%
Sheraton Key
Largo(20)(21)
--Key Largo, Florida...
3/09 2,184 Rooms: 20.0% of first $3,950; 9,237 2,459 74 81
60.0% of next $1,875; 70.0%
thereafter; F&B: 2.5% of first
$1,674; 5.0% thereafter;
Telephone and Other: 25.0%
French Quarter Suites
Hotel(22)(23)
--Atlanta, Georgia.....
3/09 1,373 Rooms: 25.0% of first $2,050; 5,670 2,231 65 49
65.0% of next $925; 75.0%
thereafter; F&B: 5.0% of first
$715; 10.0% thereafter;
Telephone and Other: 25.0%
Radisson Hotel
Arlington Heights(24)
--Arlington Heights,
Illinois..............
2/09 922 Rooms: 20.0% of first $2,450; 4,518 1,356 108 76
------- 60.0% of next $820; 70.0% -------- ------- ------ ------
thereafter; F&B: 15.0% of
first $300; 60.0% thereafter;
Telephone and Other: 25.0%
TOTALS--Proposed
Acquisition Hotels..... 5,829 25,228 7,800 374 277
------- -------- ------- ------ ------
TOTALS--All Hotels..... $28,677 $129,069 $40,104* $2,347 $1,817
======= ======== ======= ====== ======
</TABLE>
* Pro forma Base Rent at the Days Inn Lake Buena Vista exceeded Participating
Rent by $476 and therefore Participating Rent has been increased by this
amount to reflect the excess of Base Rent over Participating Rent for the
applicable period.

See notes on page 71.

70
<PAGE>

(1) If food & beverage ("F&B") revenue exceeds $1,000, Participating Rent
will include 5% of total F&B revenue.
(2) There was an additional adjustment to the room department Participating
Rent thresholds of 4.0% in 1997.
(3) There was an additional adjustment to the room department Participating
Rent thresholds of 2.0% in 1997 and 2.0% in 1998.
(4) The Participating Rent formula was reset in 1997 to the following: Rooms:
30.0% of first $1,400; 70.0% thereafter; Telephone and Other: 30.0%. Base
Rent was reset in 1997 to $800 and will grow at CPI thereafter.
(5) There will be an additional adjustment to the room department
Participating Rent thresholds of 3.0% in 2000.
(6) The Participating Rent formula was reset in 1997 to the following: Rooms:
25.0% of the 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: 30.0%. Base
Rent was reset in 1997 to $1,750 and will grow at CPI thereafter.
(7) The Participating Rent formula was reset in 1997 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
was reset in 1997 to $1,400 and will grow at CPI thereafter.
(8) There will be an additional adjustment to the room department
Participating Rent thresholds of 2.0% in 1999 and 2.0% in 2000.
(9) The Participating Rent formula was reset in 1997 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
was reset in 1997 to $1,400 and will grow at CPI thereafter.
(10) The Participating Rent formula was reset in 1997 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%. The
Participating Rent formula will be reset in 1998 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
was reset in 1997 to $2,100 and will grow at CPI thereafter.
(11) There will be an additional adjustment to the room department
Participating Rent thresholds of 4.0% in 1999.
(12) The Participating Rent formula was reset in 1997 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 was
reset in 1997 to $1,800 and will grow at CPI thereafter.
(13) There will be an additional adjustment to the room department
Participating Rent thresholds of 3.0% in 1999.
(14) There will be an additional adjustment to the room department
Participating Rent thresholds of 2.0% in 1999 and 2.0% in 2000.
(15) The Participating Rent formula will be reset in 1998 to the following:
Rooms: 25.0% of first $5,744; 60.0% of next $4,468; 70.0% thereafter;
F&B: 5.0% of first $747; 10.0% thereafter; Telephone and Other: 50.0%.
Base Rent will reset in 1998 to $4,459 and grow at CPI thereafter.
(16) There will be an additional adjustment to the room department
Participating Rent thresholds of 6.5% in 1999 and 3.0% in 2000.
(17) The Participating Rent formula will be reset in 1998 to the following:
Rooms: 20.0% of first $3,180; 60.0% of next $1,430; 70.0% thereafter;
F&B: 2.5% of first $794; 5.0% thereafter; Telephone and Other: 50.0%.
Base Rent will reset in 1998 to $1,543 and grow at CPI thereafter.
(18) The Participating Rent formula will be reset in 1998 to the following:
Rooms: 25.0% of first $2,460; 60.0% of next $911; 70.0% thereafter; F&B:
7.5% of first $1,522; 15.0% thereafter; Telephone and Other: 30.0%. Base
Rent will reset in 1998 to $1,564 and grow at CPI thereafter.
(19) The Participating Rent formula will be reset in 1998 to the following:
Rooms: 25.0% of first $2,625; 65.0% of next $1,275; 75.0% thereafter;
F&B: 7.5% of first $1,130; 20.0% thereafter; Telephone and Other 30.0%.
Base Rent will be reset to $1,460 and grow at CPI thereafter.
(20) There will be an additional adjustment to the room department
Participating Rent thresholds of 2.5% in 1999 and 2.5% in 2000 and 1.0%
in 2001.
Notes continued on following page.

71
<PAGE>

(21) The Participating Rent formula will be reset in 1998 to the following:
Rooms: 20.0% of first $3,875; 60.0% of next $2,200; 70.0% thereafter;
F&B: 2.5% of first $1,737; 5.0% thereafter; Telephone and Other: 25.0%.
Base Rent will reset in 1998 to $2,284 and grow at CPI thereafter.
(22) There will be an additional adjustment to the room department
Participating Rent thresholds of 3.0% in 1999 and 1.0% in 2000.
(23) The Participating Rent formula will be reset in 1998 to the following:
Rooms: 25.0% of first $2,450; 65.0% of next $1,050; 75.0% thereafter;
F&B: 5.0% of first $742; 10.0% thereafter; Telephone and Other: 25.0%.
Base Rent will reset in 1998 to $1,466 and grow at CPI thereafter.
(24) The Participating Rent formula will be reset in 1998 to the following:
Rooms: 20.0% of first $2,575; 60.0% of next $1,000; 70.0% thereafter;
F&B: 7.5% of first $1,100; 15.0% thereafter; Telephone and Other: 25.0%.
Base Rent will reset in 1998 to $1,162 and grow at CPI thereafter.

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 Hotels. The Participating Leases also provide
for rent reductions and abatements in the event of damage or destruction or a
partial taking of any Hotel as described under "Damage to Hotels" and
"Condemnation of Hotels."

Lessee Capitalization; Lessee Pledge. At the time of the IPO, the partners
of the Lessee (i) capitalized the Lessee with $500,000 in cash and (ii)
pursuant to the Lessee Pledge, pledged 275,000 OP Units 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 to be released from the Lessee Pledge.

Distribution Restrictions. The Lessee may 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 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) (the
"Lessee Distribution Restriction"). 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 limitation in the
Company's Charter, or 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 net worth threshold for
the Lessee Distribution Restriction, annual rent payments will be determined
on a calendar year basis and will be annualized for any partial calendar year.
If the Lessee's net worth exceeds the net worth threshhold for 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 net worth threshold for 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 Common Stock or OP
Units acquired by the Lessee during the period of the Lessee Distribution
Restriction 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 net worth threshhold for the Lessee Distribution
Restriction is satisfied.

Subordination of Management Fees. The Lessee has engaged AGHI to operate the
Current Hotels and will engage AGHI to operate three of the Proposed
Acquisition Hotels. See "--The Management Agreements." The Participating
Leases provide that effective upon written notice by the Company of any
monetary Event of Default

72
<PAGE>

under the Participating Leases or a default under the FF&E Note, and during
the continuance thereof, no management fees will be paid to AGHI with respect
to any 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 Current Hotel
(including the periodic replacement or refurbishment of FF&E). The aggregate
amount of such reserves is equal 4.0% of total revenue for each Current Hotel
(which, on a consolidated pro forma basis for the twelve months ended
September 30, 1996, represented approximately 5.4% 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 Current 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 Current Hotels in good order and
repair.

The Lessee is not obligated to bear the cost of any capital improvements or
capital repairs to the Current Hotels. With the consent of the Company,
however, the Lessee, at its expense, may make capital additions, modifications
or improvements to the Hotels, provided that such action does not
significantly alter their character or purposes and maintains or enhances the
value of the Hotels. All such alterations, replacements and improvements are
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 owns substantially all personal property (other than
inventory) not affixed to, or deemed a part of, the real estate or
improvements at the Current Hotels, but does not own such personal property
which 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."

Insurance and Property Taxes and Assessments. The Company is responsible for
paying for (i) real estate and personal property taxes and assessments at the
Current Hotels (except to the extent that personal property associated with
the Current Hotels is owned by the Lessee), (ii) casualty insurance on the
Current Hotels and (iii) business interruption insurance covering the Base
Rent and Participating Rent. The aggregate real estate and personal property
tax obligations for the Current Hotels during the twelve months ended
September 30, 1996 was approximately $2.8 million. The Lessee is required to
pay or reimburse the Company for all liability insurance on the Current
Hotels, with extended coverage, including comprehensive general public
liability, workers' compensation and other insurance appropriate and customary
for properties similar to the Current 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;

73
<PAGE>

(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 a Current 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 Current 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 has
agreed to indemnify, and is 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 Current 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 Current 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 Current Hotels and capital
impositions); (v) any breach of the Participating Leases by the Lessee; or
(vi) any breach of any subleases related to the Current Hotels, provided,
however, that such indemnification does not require the Lessee to indemnify
the Company against the Company's own negligent acts or omissions or willful
misconduct.

Assignment and Subleasing. The Lessee is not permitted to sublet all or any
part of the Current 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 Current Hotel that sells
alcoholic beverages to the Beverage Corporations (as defined in "Formation
Transactions") or of a retail portion of any Current 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 such assignment or subletting will release the Lessee
from any of its obligations under the Participating Leases.

Damage to Hotels. In the event of damage to or destruction of any Current
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 a 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 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 a Current 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 Hotel, rent
will be equitably abated.

74
<PAGE>

Condemnation of Hotels. In the event of a total condemnation of a Current
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 Current
Hotels. In the event the Company enters into an agreement to sell or otherwise
transfer a Current 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 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 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, Crowne Plaza, Westin and Sheraton. 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, the Lessee subleases those areas of the Current 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 has been purchased at the Lessee's expense and is
owned by the Lessee. Any inventory used by the Lessee in the operation of each
Current Hotel shall, upon termination of its Participating Lease, be purchased
by the Company or its designee for its fair market value.

75
<PAGE>

Approval of Managers by Company. The Company has the right to approve (which
approval will not be unreasonably withheld) the engagement by the Lessee of
any operator of a Current 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

AGHI

The Lessee has engaged AGHI to manage the Current Hotels and will engage
AGHI to manage three of the Proposed Acquisition Hotels pursuant to the
Management Agreements. The following is a summary of the Management Agreements
and certain related agreements:

Management Agreement Terms. Each Management Agreement has an initial twelve-
year term. 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 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 is 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 is payable quarterly and is
adjusted at the end of each calendar year to reflect actual results. Every
four years the basis upon which the incentive fee is calculated is required to
be renegotiated between the Lessee and the Manager. 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 to AGHI during 1996 and 1997, respectively, will be earned only to the
extent that the Lessee's taxable income during each such year 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. AGHI will be
reimbursed, at the rate of $1,500 per month for each full-service hotel and
$1,000 per month for each limited-service hotel for accounting and financial
services performed by AGHI, which will be funded by the Lessee under the
Participating Leases. See "The Hotels--The Participating Leases--Subordination
of Management Fees."

Termination of Participating Lease. In the event of a termination of a
Participating Lease for a 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, have
agreed 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 IPO, additional shares of Common
Stock, or, if any such purchase would violate the ownership limitation in the
Company's Charter, or 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 Management Agreements with respect to the
Initial Hotels 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 is 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
means 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

76
<PAGE>

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 of 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.

Wyndham

The Lessee has advised the Company that it expects to engage Wyndham to
manage the Four Points by Sheraton. It is expected that the management
agreement with Wyndham will have an initial twelve year term and will provide
for the payment of a base management fee equal to 1.5% of gross revenues at
the hotel plus an incentive management fee of up to 1.5% of gross revenues.
Wyndham will be entitled to receive the incentive management fee during the
first two years of the term of the agreement if (i) annualized 1997 gross
revenues for the hotel exceed 1996 gross revenues for the hotel by at least 6%
and (ii) 1998 gross revenues for the hotel exceed 1996 gross revenues for the
hotel by at least 12%. Thereafter, the incentive management fee will be earned
if annual gross revenues for the hotel exceed the 1998 gross revenues for the
hotel by at least the cumulative percentage increase in CPI since 1998. The
Lessee's payment of the base management fee to Wyndham will be subordinated to
the payment of Base Rent under the Participating Lease relating to the hotel,
and the payment of the incentive management fee to Wyndham will be
subordinated to the payment of the Base Rent and Participating Rent
thereunder. In addition, Wyndham will be reimbursed by the Lessee, at an
initial rate of approximately $4,960 per month, for accounting and financial
services performed by Wyndham. The retention of Wyndham as a manager of the
Four Points by Sheraton is subject to the execution of a definitive management
agreement with the Lessee. Accordingly, there can be no assurance that the
terms of the management agreement will not change or that Wyndham will
ultimately agree to manage the hotel upon its acquisition by the Company or in
the future.

MORTGAGE INDEBTEDNESS

The Holiday Inn Dallas DFW South is subject to non-recourse mortgage
indebtedness in the outstanding principal amount of $14.0 million as of
December 31, 1996 (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.

The Courtyard by Marriott-Meadowlands is subject to non-recourse mortgage
indebtedness that secures two notes in the outstanding principal amounts of
approximately $4.5 million and $575,800, respectively, as of December 31, 1996
(the "Secaucus Loans"). The $4.5 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.

The $575,800 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 IPO
and the transfer of the Courtyard by Marriott-Meadowlands hotel to a
subsidiary of the Operating Partnership, the Company agreed to guarantee to
the holder of the Secaucus Loans payment of rent under the ground lease
relating to the hotel

77
<PAGE>

($150,000 per annum), real estate taxes ($159,600 for the twelve months ended
September 30, 1996) and capital reserves required by the Secaucus Loans (4% of
the gross revenues), and guarantee 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 connection with the planned purchase by the Company of the French Quarter
Suites Hotel, the Company will assume a non-recourse mortgage note encumbering
the hotel in the outstanding principal amount, as of December 31, 1996, of
approximately $9.6 million (the "French Quarter Loan"). The French Quarter
Loan was entered into on June 14, 1995, bears interest at the rate of 9.75%
per annum and is payable in equal monthly installments of principal and
interest of approximately $93,100 each. The French Quarter Loan matures on
July 1, 2002, at which time a balloon payment of approximately $8.2 million
will be due and payable.

In connection with the planned purchase of the Radisson Hotel Arlington
Heights, the Company will assume a one-year mortgage note in the principal
amount of approximately $8.2 million (the "Radisson Loan"). The Radisson Loan
bears interest at the rate of 7.5% per annum, and will require quarterly
payments in arrears of interest only of $154,100. The Radisson Loan will
mature on the one year anniversary of the date of the closing of the purchase
of that hotel, at which time a balloon payment of approximately $8.2 million
will be due and payable.

LINE OF CREDIT

Neither the Company's Bylaws nor its Charter limits 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 access to the Line of
Credit. The Line of Credit is secured by, among other things, first mortgage
liens on all of the Current Hotels, other than Holiday Inn Dallas DFW Airport
South and Courtyard by Marriott-Meadowlands, and is expected to be secured by
two of the Proposed Acquisition Hotels. The Line of Credit also will be
secured by a mortgage lien on any subsequently acquired hotels purchased
without outstanding mortgage indebtedness. While the Company currently has a
maximum borrowing limit 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 Current 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 Current 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 Hotels and any other hotels securing the Line of Credit,
multiplied by 5.0. The Company has received a commitment from its Line of
Credit lenders to increase the borrowing limit under the Line of Credit from
$100 million to $150 million and to make certain other modifications thereto
that would increase the financial flexibility of the Company. This commitment
to increase the maximum amount available under the Line of Credit is subject
to consummation of the Offering and the satisfaction of other customary
conditions. Accordingly, there can be no assurance that these modifications to
the Line of Credit will occur. The Company expects to pay commitment and other
fees of approximately $700,000 in connection with such increase. After taking
into account the increase in the borrowing limit under the Line of Credit and
assuming the Offering is completed and the Proposed Acquisition Hotels are
acquired, the Company expects to have approximately $106.9 million of
borrowing capacity under the Line of Credit. 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,
manager and the franchise brand of any hotel securing the Line of Credit in
the future. In addition, the Line of Credit requires that the current limited
partners of the Lessee own no less than 65% of the limited partnership
interests of the Lessee at all times.

78
<PAGE>

Outside of the Line of Credit, the Company and its subsidiaries may not
currently incur any additional debt or recourse obligations, without the
consent of its Line of Credit lenders, other than the debt assumed in
connection with the acquisition of the Holiday Inn Dallas DFW Airport South
and Courtyard by Marriott-Meadowlands Hotel. Under the commitment relating to
the modifications to the Line of Credit, the Company will be permitted to
incur up to $50 million in recourse and property specific debt. Accordingly,
if the closing of these modifications to the Line of Credit do not occur prior
to the Company's acquisition of the Radisson Hotel Arlington Heights and the
French Quarter Suites Hotel, such acquisitions will be subject to the approval
of the Company's lenders under the Line of Credit. The Line of Credit expires
on July 31, 1999 and is subject to extension under certain circumstances for
an additional one-year term. Borrowings under the Line of Credit bear interest
at 30-day, 60-day or 90-day LIBOR, (5.50%, 5.53% and 5.56% at December 31,
1996), 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."

GROUND LEASES

Four of the Current 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. One of the Proposed Acquisition Hotels is subject to a ground
lease with the state of Florida for certain offshore real property accessible
by the guests of the hotel.

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 Best Western 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 Best Western Albuquerque Airport Hotel for the twelve
months ended September 30, 1996 was 81.8%. 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.

The Sheraton Key Largo property includes approximately 42,500 square feet of
off-shore bay bottom land in Florida Bay on which a commercial marina is
operated pursuant to a lease from the Board of Trustees of the Internal
Improvement Trust Fund of the State of Florida, as lessor. The lease, which
terminates in May 2021,

79
<PAGE>

requires an annual lease fee of approximately $3,100. SKL of Florida, Inc.,
the lessee under the lease and the seller of the hotel, will assign its
interest in the lease to the Company upon the closing of the purchase of the
hotel. However, the lessor will not give its consent to the assignment of
lessee's interest in the lease until after the Company has acquired the hotel.
Accordingly, there can be no assurance that the Company will obtain the
lessor's consent to the assignment.

FRANCHISE CONVERSIONS AND OTHER CAPITAL IMPROVEMENTS

The Company has budgeted during 1997 approximately $33.3 million for
additional capital improvements and renovations at the Current Hotels. In
addition, the Company has budgeted approximately $14.6 million to renovate and
refurbish the Proposed Acquisition Hotels. 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."

FRANCHISE AGREEMENTS

Thirteen of the Current Hotels and three of the Proposed Acquisition Hotels
are operated under Franchise Licenses with nationally recognized hotel
companies. In addition, two of the Current Hotels that are not currently
subject to franchise agreements are expected to become subject to franchise
agreements during the second quarter of 1997. The Company anticipates that
most of the additional hotels in which it invests will be operated under
Franchise 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 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 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 is not entitled to terminate the Franchise Licenses unless
it receives the prior written consent of the Company. The Franchise Licenses
do not renew automatically upon expiration. The Lessee is responsible for
making all payments under the Franchise Licenses to the franchisors. Under the
franchise agreements, the Lessee pays franchise royalty fees ranging 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

80
<PAGE>

OR ANY WRITTEN OR ORAL COMMUNICATIONS REGARDING THE SUBJECT MATTER HEREOF. A
GRANT OF A HILTON FRANCHISE LICENSE FOR CERTAIN OF THE 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 HOTELS SET FORTH IN THIS PROSPECTUS. A GRANT OF A
COURTYARD BY MARRIOTT FRANCHISE LICENSE FOR CERTAIN OF THE 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 SELECTSM 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 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
HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR
IMPLIED 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 THE COMPANY, THE OPERATING
PARTNERSHIP, THE LESSEE, OR THE COMMON STOCK OFFERED HEREBY.

WYNDHAM GARDEN(R) IS A REGISTERED TRADEMARK AND WYNDHAMTM AND THE WYNDHAM
WTM 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 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, THE LESSEE 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.

81
<PAGE>

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 HOTELS SET FORTH IN THIS PROSPECTUS. A GRANT OF A
DAYS INN OR A RAMADA FRANCHISE LICENSE FOR CERTAIN OF THE 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) AND DOUBLETREE GUEST SUITES(R) ARE REGISTERED TRADEMARKS
OF DOUBLETREE CORPORATION WHICH HAS NOT ENDORSED OR APPROVED THE OFFERING OR
ANY OF THE FINANCIAL RESULTS OF THE HOTELS SET FORTH IN THIS PROSPECTUS. A
GRANT OF A (FRANCHISE/LICENSE) FOR CERTAIN OF THE HOTELS IS NOT INTENDED AS,
AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR
ENDORSEMENT BY DOUBLETREE CORPORATION (OR ANY OF ITS AFFILIATES, SUBSIDIARIES
OR DIVISIONS) OF THE COMPANY, THE OPERATING PARTNERSHIP, THE LESSEE 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 HOTELS SET FORTH IN THIS PROSPECTUS. A GRANT OF A
SMALL LUXURY HOTELS AFFILIATION LICENSE FOR CERTAIN OF THE 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.

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

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

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

82
<PAGE>

WESTIN RESORTS(R) AND WESTIN HOTELS & RESORTS(R) ARE REGISTERED TRADEMARKS
OF THE PARTNERSHIP OF STARWOOD CAPITAL GROUP, L.P., GOLDMAN SACHS & CO. AND
NOMURA ASSET CAPITAL CORPORATION, WHICH HAS NOT ENDORSED OR APPROVED THE
OFFERING OR ANY OF THE FINANCIAL RESULTS OF THE HOTELS SET FORTH IN THIS
PROSPECTUS. A GRANT OF A WESTIN LICENSE FOR CERTAIN OF THE HOTELS IS NOT
INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL
OR ENDORSEMENT BY THE PARTNERSHIP OF STARWOOD CAPITAL GROUP, L.P., GOLDMAN
SACHS & CO. AND NOMURA ASSET CAPITAL CORPORATION (OR ANY OF THEIR AFFILIATES,
SUBSIDIARIES, OR DIVISIONS) OF THE COMPANY, THE OPERATING PARTNERSHIP, THE
LESSEE, OR THE COMMON STOCK OFFERED HEREBY.

LUXURY HOTELS OF AMERICA(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 HOTELS SET FORTH IN THIS PROSPECTUS. A GRANT
OF A LUXURY HOTELS OF AMERICA AFFILIATION LICENSE FOR CERTAIN OF THE 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.

EMPLOYEES

The Company is self-administered and employs Messrs. Jorns, Wiles, Barr,
Valentine and three 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 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 Hotels by qualified
independent environmental engineers. The purpose of the Phase I ESAs is to
identify potential sources of contamination for which the Hotels may be
responsible and to assess the status of environmental regulatory compliance.
The Phase I ESAs include historical reviews of the 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

83
<PAGE>

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 Hotels will not be affected by the condition of the
properties in the vicinity of the 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 Hotels are in
material compliance 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 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 has the option and right of first refusal to acquire
AGHI's (i) 50.0% partnership interest in the partnership that owns the Boise,
Idaho Option Hotel and (ii) 16.7% partnership interest in the partnership that
owns 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 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 to a Participating Lease
relating to such Option Hotels. The Boise, Idaho Option Hotel was opened in
October 1996. The Durham, North Carolina Option Hotel is currently under
development and is expected to open during the first quarter of 1997. 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 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 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 is 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 carries comprehensive liability, fire, extended coverage and
business interruption insurance with respect to the Current 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

84
<PAGE>

arising from hurricanes and earthquakes, 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 Current 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.

85
<PAGE>

FORMATION TRANSACTIONS

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).

Simultaneously with the closing of the IPO, the Company consummated the
Formation Transactions, which included the following:

. The Company sold 8,075,000 shares of Common Stock in the IPO. All of the
net proceeds to the Company from the Offering were contributed to AGH GP
and AGH LP, which, in turn, contributed such proceeds, together with
certain other assets acquired from the Plan (as described below), to the
Operating Partnership in exchange for an approximate 81.3% interest in
the Operating Partnership. AGH GP, a wholly owned subsidiary of the
Company and the sole general partner of the Operating Partnership
received a 1.0% interest in the Operating Partnership. AGH LP, also a
wholly owned subsidiary of the Company, received an approximate 80.3%
limited partnership interest in the Operating Partnership;

. The Company acquired, 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 was repaid from the net
proceeds of the IPO, as follows):

. The Operating Partnership acquired 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 in the IPO);

. The Company acquired 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
in the IPO), and the Company, in turn, contributed such interests to
the Operating Partnership in exchange for 137,008 OP Units; and

. The Operating Partnership acquired, 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 in the
IPO) and approximately $91.0 million in cash.

. The Operating Partnership reimbursed 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;

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

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

. The Lessee contracted 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;

86
<PAGE>

. The Operating Partnership established the Line of Credit;

. In order to facilitate compliance with state and local liquor laws and
regulations, the Lessee subleased (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
are contractually obligated to pay to the Lessee rent payments equal to
30% of gross revenues net of cost of goods sold and certain related
taxes from the sale of food and beverages generated from such areas;
however, pursuant to the Participating Leases, such subleases do not
reduce the Participating Rent payments to the Company, which it is
entitled to receive from such food and beverage sales; and

. In order for the Company to qualify as a REIT, the Operating Partnership
sold 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 is
secured by such personal property (collectively, the "FF&E Note");

BENEFITS TO THE OFFICERS AND THE PRIMARY CONTRIBUTORS

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

. Mr. Jorns received 89,441 OP Units, Mr. Wiles received 26,846 OP Units,
Mr. Barr received 10,000 OP Units, Mr. Sowell received 256,120 OP Units,
Mr. Lewis W. Shaw II received 89,441 OP Units, and Mr. Kenneth W. Shaw
received 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 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 IPO) were valued at approximately $1.6
million, $476,516, $177,500, $4.5 million, $1.6 million and $1.6 million
(based on the offering price in the IPO), respectively, and are more
liquid than their interests in the Initial Hotels;

. Messrs. Jorns, Wiles, Barr and Valentine were granted options to acquire
225,000, 75,000, 40,000 and 20,000 shares of Common Stock, respectively,
at the offering price in the IPO, which are exercisable in four equal
annual installments commencing on the date of grant;

. Messrs. Jorns, Wiles, Barr and Valentine received stock awards of
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;

. The Operating Partnership reimbursed 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;

. The Operating Partnership repaid 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, were 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, is 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

87
<PAGE>

up to 2.0% of gross revenues that will be earned incrementally upon
reaching certain gross revenue targets. The management fees payable to
AGHI are subordinate to the rent payments due to the Company under the
Participating Leases. Prior to 1998, all unpaid management fees are
forfeited; thereafter, unpaid management fees are 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, are entitled to all cash flow from 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 initial valuation of the Company was determined primarily based upon a
capitalization of the Company's estimated Cash Available for Distribution and
other factors rather than on the basis of each hotel's cost or appraised
value.

The purchase prices for the interests 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 was 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 was acquired pursuant to
various agreements. These acquisitions were subject to all of the terms and
conditions of such agreements. The Company assumed 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 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
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 agreed to indemnify the Company against breaches of such
representations and warranties. These representations and warranties survive
until July 31, 1997.

88
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The Board of Directors consists of five members, four of whom are
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 is divided into three classes serving
staggered three-year terms. The Company has four executive officers and three
other professionals 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 48 Class I/1997
Executive Officer, and
President
Bruce G. Wiles............. Executive Vice President 45 --
Kenneth E. Barr............ Executive Vice President, 48 --
Chief Financial Officer,
Secretary
and Treasurer
Russ C. Valentine.......... Senior Vice President-- 51 --
Acquisitions
H. Cabot Lodge III......... Independent Director 41 Class II/1998
James R. Worms............. Independent Director 51 Class II/1998
James McCurry.............. Independent Director 48 Class III/1999
Kent R. Hance.............. Independent Director 54 Class III/1999
</TABLE>

Steven D. Jorns became the Chairman of the Board, Chief Executive Officer
and President of the Company in April 1996. Mr. 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 became an Executive Vice President of the Company in April
1996. Mr. 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, NYSE 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 became an Executive Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company in April 1996. Mr. 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,

89
<PAGE>

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.

Russ C. Valentine became Senior Vice-President--Acquisitions of the Company
in April 1996. Mr. 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 became a director of the Company in July 1996. Mr. Lodge
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. From August 1983 to August 1995, 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 became a director of the Company in July 1996. Mr. 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 B. McCurry became a director of the Company in July 1996. Mr. McCurry
served from December 1994 through December 1996 as Chief Executive Officer of
NeoStar Retail Group, Inc. ("NeoStar"), a specialty retailer of consumer
software. Currently, Mr. McCurry is a business consultant. NeoStar filed a
voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in September
1996. From April 1983 to December 1994, Mr. McCurry was the Chairman of
Babbage's Inc., a consumer software retailer, which merged with Software Etc.
Stores, Inc. in December of 1994 to form NeoStar. 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 became a director of the Company in July 1996. Mr. Hance has
been since 1994 a law partner in the firm Hance, Scarborough, Woodward &
Weisbart, L.L.P., Austin, 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.

90
<PAGE>

BOARD OF DIRECTORS AND COMMITTEES

The Company is managed by a five-member Board of Directors, a majority of
whom are Independent Directors. The Board of Directors has an Audit Committee,
a Compensation Committee and a Leasing Committee.

Audit Committee. The Audit Committee consists of Messrs. Hance and McCurry.
The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public
accountants the plans and results of the audit engagement, approves
professional services provided by the independent public accountants, reviews
the independence of the independent public accountants, considers the range of
audit and non-audit fees, and reviews the adequacy of the Company's internal
accounting controls.

Compensation Committee. The Compensation Committee consists of Messrs. Hance
and Worms. The Compensation Committee determines compensation of the Company's
executive officers and administers the 1996 Plan.

Leasing Committee. The Leasing Committee consists of Messrs. Lodge and
Worms. Leasing Committee reviews not less frequently than annually the
Lessee's compliance with the terms of the Participating Leases and reviews and
approves the terms of any new leases between the Company and the Lessee.

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.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company's Compensation Committee during 1996 consisted of Messrs. Hance
and Worms, neither of whom was, prior to or during 1996, an officer or
employee of the Company. Neither of such persons had any relationships
requiring disclosure under applicable rules and regulations.

EXECUTIVE COMPENSATION

The Company was organized as a Maryland corporation on April 12, 1996 and
commenced operations upon the completion of its IPO on July 31, 1996. The
following table sets forth information, for the fiscal year ended December 31,
1996, regarding the compensation of the Company's Chief Executive Officer. No
executive officer of the Company earned annual salary and bonus in excess of
$100,000 during the fiscal year ended December 31, 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATIONS
AWARDS
----------------------------
RESTRICTED
ANNUAL COMPENSATION AWARDS
---------------------------------- -------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
POSITION YEAR(1) SALARY($) BONUS($) COMPENSATION($) AWARD(S)$/(2) OPTIONS/(#)(3) COMPENSATION
------------------ ------- --------- -------- --------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Steven D. Jorns......... 1996 41,667 None None $532,500 225,000 None
Chief Executive
Officer and President
</TABLE>
- --------
(1) Includes compensation only during the period from July 31, 1996
(inception) through December 31, 1996.
(2) In connection with the IPO, the Company granted Mr. Jorns stock awards of
30,000 shares of restricted Common Stock, 6,000 of which vested on the
date of grant and the remainder vest over a four-year period from the date
of grant. Calculation is based on a per share price of Common Stock of
$17.75, the offering price in connection with the IPO.

91
<PAGE>

(3) In connection with the IPO, the Company granted incentive stock options
("ISOs") and nonqualified options to Mr. Jorns to purchase shares of
Common Stock. Of the 225,000 options granted to Mr. Jorns, 202,468 are
nonqualified stock options and 22,532 are ISOs, 56,250 of which vested on
the date of grant and the remainder become exercisable over a three-year
period from the date of grant.

The executive officers, including Mr. Jorns, receive health and disability
insurance benefits which do not exceed 10% of their respective salaries. These
benefits are also provided to all other employees of the Company.

OPTION GRANTS

The following table sets forth information regarding grants of stock options
to the Company's executive officers during the 1996 fiscal year. The options
were granted pursuant to the 1996 Plan. See "Management--Stock Incentive
Plans."

OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATE OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
---------------------------------------------- -----------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ---------- ------------ ----------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Steven D. Jorns......... 225,000 62.50% $17.75 7/24/06 $ 2,511,000 $ 6,365,250
Bruce G. Wiles.......... 75,000 20.83 17.75 7/24/06 837,000 2,121,750
Kenneth E. Barr......... 40,000 11.11 17.75 7/24/06 446,400 1,131,600
Russ C. Valentine....... 20,000 5.56 17.75 7/24/06 223,200 565,800
</TABLE>

The options granted to Messrs. Jorns, Wiles, Barr and Valentine were granted
as of July 25, 1996 at an exercise price of $17.75 per share, the per share
price of the Common Stock in the IPO. Each of such options becomes exercisable
over four equal annual installments, commencing on the date of grant and
expires on the tenth anniversary of the date of grant.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED ON VALUE DECEMBER 31, 1996 DECEMBER 31, 1996(2)
NAME EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
Steven D. Jorns......... None None 56,250/168,750 $ 337,500 $ 1,012,500
Bruce G. Wiles.......... None None 18,750/56,250 112,500 337,500
Kenneth E. Barr......... None None 10,000/30,000 60,000 180,000
Russ C. Valentine....... None None 5,000/15,000 30,000 90,000
</TABLE>
- --------
(1) No options were exercised in 1996.
(2) Represents the number of shares of Common Stock underlying the options
(excluding options the exercise price of which was more than the market
value of the underlying securities) times the market price at December 31,
1996 of $23.75, minus the exercise price.

EMPLOYMENT AGREEMENTS

At the closing of the IPO, the Company entered into an employment agreement
with Mr. Jorns, pursuant to which Mr. Jorns serves 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, at
the closing of the IPO, the Company entered into employment agreements with
Messrs. Wiles, Barr and Valentine, pursuant to which Mr. Wiles served as
Executive Vice President, Mr. Barr served as Executive Vice President and
Chief Financial Officer

92
<PAGE>

and Mr. Valentine served 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 is 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 is paid an annual fee of
$17,000. In addition, each such director is 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 is paid to such directors 50.0% in cash and
50.0% in shares of Common Stock. Meeting fees are paid in cash. Directors who
are employees of the Company do not receive any fees for their service on the
Board of Directors or a committee thereof. In addition, the Company reimburses
directors for their out-of-pocket expenses incurred in connection with their
service on the Board of Directors.

In connection with the IPO, each non-employee director was granted
nonqualified options to purchase 10,000 shares of Common Stock at an exercise
price of $17.75 per share (the offering price in connection with the IPO) that
vest in three annual installments commencing on the date of grant. Any non-
employee director who ceases to be a director will forfeit the right to
receive any options not previously vested. See "--Stock Incentive Plans--The
Directors' Plan."

STOCK INCENTIVE PLANS

The 1996 Plan and the Directors' Plan were approved and adopted 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 is 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 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

93
<PAGE>

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 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

94
<PAGE>

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 approved prior to the IPO 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
are exercisable in four equal annual installments, commencing on July 25,
1996, subject to continued employment through the applicable vesting date.
Both the ISOs and the nonqualified options are 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 are ISOs to the extent permitted under the ISO "$100,000
limitation" described above. In addition, Messrs. Jorns, Wiles, Barr and
Valentine were 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
(July 25, 1996), 20.0% on each of the first and second anniversaries and 25.0%
on each of the third and fourth 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

95
<PAGE>

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. Pursuant to the Directors' Plan, each Independent Director was
awarded nonqualified options to purchase 10,000 shares of Common Stock on July
25, 1996 (the date the registration statement relating to the Common Stock
sold in the IPO was declared effective by the Commission) (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 IPO have an exercise price equal to
the public offering price in the IPO of $17.75 per share and 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 shares 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 were made to each
Founding Director on July 25, 1996 (the date that the registration statement
relating to the IPO was declared effective by the Commission) and to each Non-

96
<PAGE>

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, 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, under the
MGCL, 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 has entered into indemnification agreements with each of its
executive officers and directors. The indemnification agreements require,
among other matters, that the Company indemnify its executive officers

97
<PAGE>

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.

98
<PAGE>

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
owned equity interests or contract rights relating to certain of the Initial
Hotels prior to the acquisition of such hotels by the Company. Such persons
and affiliates received an aggregate of 126,287 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 July 1997), such persons
and entities may receive cash 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 reimbursed 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 repaid
approximately $3.75 million of indebtedness guaranteed by AGHI in connection
with the Formation Transactions. 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

The Company has entered into a shared services and office space agreement
with AGHI pursuant to which AGHI provides 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 has the option and right of
first refusal to acquire AGHI's (i) 50.0% partnership interest in the
partnership that owns the Boise, Idaho Option Hotel, and (ii) 16.7%
partnership interest in the partnership that owns 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. The Boise, Idaho Option Hotel was opened in October 1996,
and the Durham, North Carolina Option Hotel is currently under development and
is expected to be open during the first quarter of 1997. 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.

99
<PAGE>

EMPLOYMENT AGREEMENTS AND STOCK INCENTIVE PLANS

The Company has entered into an employment agreement with Mr. Jorns,
pursuant to which Mr. Jorns serves as Chairman, Chief Executive Officer, and
President of the Company for a term expiring on July 31, 2001 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
has entered into employment agreements with Messrs. Wiles, Barr and Valentine,
pursuant to which Mr. Wiles serves as Executive Vice President, Mr. Barr
serves as Executive Vice President and Chief Financial Officer and Mr.
Valentine serves as Senior Vice President--Acquisitions, each for a term
expiring on July 31, 2001, 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, 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
sold certain personal property relating to certain of the Initial Hotels to
the Lessee for $315,000, which amount was 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 expiring on July 31,
2001.

THE PARTICIPATING LEASES

The Company and the Lessee have entered into the Participating Leases, each
with a term of twelve years from the inception of the lease, relating to the
Current Hotels. The Company anticipates that similar Participating Leases will
be entered into with respect to the Proposed Acquisition Hotels upon their
acquisition and any additional hotel properties acquired by the Company in the
future. See "The 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 Hotels after the payment of operating
and other expenses. See "Selected Financial Information--The Lessee." In
addition, the Company has entered into a Lease Master Agreement which sets
forth the terms of the Lessee Pledge and certain other matters.

THE MANAGEMENT AGREEMENTS

The Lessee and AGHI entered into the Management Agreements, each with a term
of twelve years from the date of the acquisition of the applicable hotel,
relating to the management of the Current Hotels. The Company anticipates that
similar Management Agreements will be entered into with AGHI with respect to
three of the Proposed Acquisition Hotels and selected additional 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 Hotels--The Management
Agreements."

100
<PAGE>

THE BEVERAGE CORPORATIONS

In order to facilitate compliance with state and local liquor laws and
regulations, the Lessee subleases those areas of the Current Hotels that
comprise the restaurant and other areas where alcoholic beverages are served
to the Beverage Corporations, fourteen 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. The Lessee is expected to enter into similar sublease
arrangements with the Beverage Corporations upon purchase of the Proposed
Acquisition Hotels.

AGHI, THE LESSEE AND OTHER OPERATORS

American General Hospitality, Inc.

AGHI was founded in 1981 by Mr. Jorns, the Company's Chairman of the Board,
Chief Executive Officer and President. As of December 31, 1996, AGHI's
management portfolio consisted of 64 hotels containing in excess of 11,200
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. AGHI has a
national presence, with operating experience in 40 states, involving 212
different hotels. AGHI has developed seven hotels from the ground up.
Recently, AGHI completed development of a Courtyard by Marriott in Boise,
Idaho and has a Courtyard by Marriott under development in Durham, North
Carolina for which the Company has limited purchase options. See "The 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 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.

The Company believes that it will benefit significantly from the hotel
management experience of AGHI. AGHI manages all of the Current Hotels and is
expected to be retained by the Lessee as manager of three of the Proposed
Acquisition Hotels. 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, Radisson, the Choice Hotels family of brands and the HFS
Incorporated family of brands. The Company believes that these relationships
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 Hotels--The Management Agreements." Except for the two Option Hotels,
for which the Company has purchase options on AGHI's interests in such hotels,
and one other hotel that was excluded from the IPO (see "Risk Factors--
Conflicts of Interest--Conflicts Relating to Continued Ownership of Other
Hotel Properties"), AGHI's activities are limited to managing and operating
Company-owned hotels and hotels owned by third parties. See "The Hotels--
Options to Purchase and Rights of First Refusal."

The Lessee has contracted with AGHI to manage the Current Hotels under an
incentive compensation structure (as described below). The Lessee has advised
the Company that it will retain AGHI to manage three of the Proposed
Acquisition Hotels pursuant to the same incentive compensation structure.
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 persons unaffiliated with the Company, who also hold interests in the
Lessee.

101
<PAGE>

AGH Leasing, L.P.

The Company leases each Current Hotel, and expects to lease each of the
Proposed Acquisition Hotels, to the Lessee pursuant to a separate
Participating Lease. In addition, selected newly acquired hotels may be leased
by the Company to the Lessee. Messrs. Jorns, Wiles and Barr, executive
officers of the Company, own collectively approximately 23.0% of the Lessee.
The remaining interests in the Lessee are owned by persons unaffiliated with
the Company, who also hold interests in AGHI. Each Participating Lease has a
term of twelve years from the inception of the lease, 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 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 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.

Other Operators

The Company intends to selectively seek other qualified hotel brand
owner/operators and hotel management companies, in addition to the Lessee and
AGHI, to lease and/or manage certain of the Company's future new hotel
acquisitions. The Company, with the consent of its Line of Credit lenders,
anticipates that it will lease hotels to independent hotel operators or, as a
condition to entering into a Participating Lease with the Lessee, will require
the Lessee to retain an independent hotel manager in connection with selected
acquisitions, provided such lessee or manager has demonstrated, in the
Company's judgment, (i) certain unique knowledge of the hotel or the market in
which the hotel operates that will enhance the revenues that could be expected
to be generated by the hotel, (ii) a proven track record for implementing
product, brand and repositioning strategies, (iii) a significant national or
regional lodging industry reputation or (iv) substantial financial resources.
In addition, the Company will seek to develop lessee or management
relationships with operators which are capable of providing the Company with
additional acquisition opportunities that satisfy its investment criteria. The
Company believes that the use of a flexible lessee or manager structure,
coupled with the continued expansion of its brand and franchise relationships,
will result in additional acquisition opportunities for the Company. The
Lessee has advised the Company that it expects to retain Wyndham to manage the
Four Points by Sheraton hotel following its acquisition by the Company.
According to public filings, Wyndham Hotel Corporation is a NYSE listed
company which, as of December 31, 1996, operated or franchised in excess of 75
hotels.

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

. the partners of the Lessee have (i) capitalized the Lessee with $500,000
in cash and (ii) pursuant to the Lessee Pledge, pledged to the Company
275,000 OP Units having a value of approximately $4.9 million, based on
the IPO offering price of the Common Stock, 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 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

102
<PAGE>

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) (the "Lessee
Distribution Restriction") 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 net worth threshold of the Lessee
Distribution Restriction is satisfied);

. management fees paid to AGHI by the Lessee under the Management
Agreements are 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 incremental upon reaching certain gross revenue targets;

. base and incentive management fees payable by the Lessee to AGHI are
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, have agreed 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 IPO;

. 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 has established 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 has established a Leasing Committee, consisting
entirely of Independent Directors, that reviews not less frequently than
annually the Lessee's compliance with the terms of the Participating
Leases and reviews and approves the terms of each new Participating
Lease between the Company and the Lessee.

103
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth as of January 31, 1997 certain information
regarding the beneficial ownership of shares of Common Stock 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 exchanged his OP Units for shares of Common Stock under certain
circumstances.

<TABLE>
<CAPTION>
PERCENT
NUMBER OF SHARES OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS(1)
------------------------ --------------------- --------
<S> <C> <C>
Kenneth E. Barr(2)....................... 26,779 *
Kent R. Hance(3)......................... 6,192 *
Steven D. Jorns(4)....................... 177,958 2.1%
H. Cabot Lodge III(5).................... 3,692 *
James McCurry(5)......................... 3,692 *
Russ C. Valentine(6)..................... 11,840 *
Bruce G. Wiles(7)........................ 57,948 *
James R. Worms(8)........................ 4,692 *
Executive officers and directors as a
group
(8 persons)............................. 292,793 3.5%
Morgan Stanley Group Inc. and Morgan
Stanley Asset Management Inc.(9)........ 1,170,300 14.2%
</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
July 31, 1997, the first anniversary date of the closing of the IPO.
(2) Includes (a) 10,000 shares of Common Stock that have vested under options
granted pursuant to the 1996 Plan, (b) 6,000 shares of restricted Common
Stock that constitute stock awards, (c) 600 shares of Common Stock
purchased through open market transactions after the IPO, (d) 79 shares of
Common Stock held by the Plan and attributable to Mr. Barr, (e) 10,000 OP
Units issued to Mr. Barr in connection with the Formation Transactions and
(f) 100 shares of Common Stock purchased by Mr. Barr through open market
transactions since the IPO, as custodian on behalf of a family member,
with respect to which Mr. Barr disclaims beneficial ownership.
(3) Includes (a) 3,333 shares of Common Stock that have vested under options
granted pursuant to the Directors' Plan, (b) 359 shares of Common Stock
issued pursuant to the Directors' Plan and (c) 2,500 shares of Common
Stock purchased through open market transactions after the IPO.
(4) Includes (a) options to purchase 56,250 shares of Common Stock that have
vested under options granted pursuant to the 1996 Plan, (b) 30,000 shares
of restricted Common Stock that constitute stock awards, (c) 100 shares of
Common Stock purchased through open market transactions after the IPO, (d)
70,337 OP Units issued to Mr. Jorns in connection with the Formation
Transactions, (e) 19,104 OP Units issued to Mr. Jorns' wife in connection
with the Formation Transactions and (f) 2,167 shares of Common Stock held
by the Plan and attributable to Mr. Jorns. Mr. Jorns disclaims beneficial
ownership of all OP Units held by his wife.

104
<PAGE>

(5) Includes (a) 3,333 shares of Common Stock that have vested under options
granted pursuant to the Directors' Plan and (b) 359 shares of Common Stock
issued pursuant to the Directors' Plan.
(6) Includes (a) options to purchase 5,000 shares of Common Stock that have
vested under options granted pursuant to the 1996 Plan, (b) 4,000 shares
of restricted Common Stock that constitute stock awards, (c) 1,000 shares
of Common Stock purchased through open market transactions after the IPO
and (d) 1,840 shares of Common Stock held by the Plan and attributable to
Mr. Valentine.
(7) Includes (a) 18,750 shares of Common Stock that have vested under options
granted pursuant to the 1996 Plan, (b) 10,000 shares of restricted Common
Stock that constitute stock awards, (c) 2,352 shares of Common Stock held
by the Plan and attributable to Mr. Wiles and (d) 26,846 OP Units issued
to Mr. Wiles in connection with the Formation Transactions.
(8) Includes (a) 3,333 shares of Common Stock that have vested under options
granted pursuant to the Directors Plan, (b) 359 shares of Common Stock
issued pursuant to the Directors' Plan and (c) 1,000 shares of Common
Stock purchased through open market transactions after the IPO.
(9) Beneficial ownership information is based on the Schedule 13G jointly
filed by Morgan Stanley Group Inc. (1585 Broadway, New York, New York
10036) and Morgan Stanley Asset Management Inc. (1221 Avenue of the
Americas, New York, New York 10020), dated November 8, 1996.

105
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The following summary description of (i) the capital stock of the Company
and (ii) certain provisions of Maryland law and of the Charter and Bylaws of
the Company does not purport to be complete and is subject to and qualified in
its entirety by reference to Maryland law described herein, and to the Charter
and Bylaws of the Company.

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.

Subject to the provisions of the Charter regarding the restrictions on
transfer of stock, 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, redemption or appraisal 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.

106
<PAGE>

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 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 shares of stock of 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, provides 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).
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 second sentence of the succeeding paragraph.

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.

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.

107
<PAGE>

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 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.

108
<PAGE>

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 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.

109
<PAGE>

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.

NUMBER OF DIRECTORS; CLASSIFICATION OF THE BOARD OF DIRECTORS

The Charter and Bylaws 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.
There are five directors, four of whom are Independent Directors. The holders
of Common Stock are 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, the Board of Directors is 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 precludes stockholders from removing incumbent directors except
upon a substantial affirmative vote and filling the vacancies created by such
removal with their own nominees.

LIMITATION OF LIABILITY AND INDEMNIFICATION

110
<PAGE>

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 has purchased and maintains 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 Stockholder") or an
affiliate thereof are prohibited for five years after the most recent date on
which the Interested Stockholder became an Interested Stockholder. 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
corporation and (b) two-thirds of the votes entitled to be cast by holders of
voting shares of such corporation

111
<PAGE>

other than shares held by the Interested Stockholder 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 Stockholder 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 Stockholder becomes an Interested
Stockholder.

CONTROL SHARE ACQUISITION STATUTE

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 stockholder 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

112
<PAGE>

the Charter may be added, amended or repealed in any respect that would, in
the determination of the Board of 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. As permitted by the MGCL,
the Bylaws of the Company provide that 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 Charter requires the Board of Directors generally to use commercially
reasonable efforts to cause the Company 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.

113
<PAGE>

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 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 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

114
<PAGE>

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
Company has access to the Line of Credit. Borrowings under the Line of Credit
have been utilized to purchase the Acquired Hotels and will be utilized to
purchase the Proposed Acquisition Hotels, and additional funds may be used to
acquire additional hotels. The Line of Credit is secured by a first mortgage
lien on fourteen of the Current Hotels. The Line of Credit will be secured by
two of the Proposed Acquisition Hotels and by subsequently acquired hotels
that are not encumbered with other indebtedness. The Company intends to
continue to maintain a conservative capital structure and expects to continue
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
received a commitment from its Line of Credit lenders that, subject to the
satisfaction of certain conditions, would permit the Company to increase its
borrowing limit under the Line of Credit from $100 million to $150 million.

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 hotels, 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 hotels owned by the Operating Partnership.
Such indebtedness may be recourse to all or any part of the hotels of the
Company or the Operating Partnership, or may be limited to the particular
hotel 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 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."

HOTEL OPERATOR POLICY

The Company intends to selectively seek other qualified hotel brand
owner/operators and hotel management companies, in addition to the Lessee and
AGHI, to lease and/or manage certain of the Company's future new hotel
acquisitions. The Company anticipates that it will lease hotels to independent
hotel operators or, as a condition to entering into a Participating Lease with
the Lessee, will require the Lessee to retain an independent hotel manager in
connection with selected acquisitions. The Company will seek lessee or
management relationships with hotel operating companies that have
demonstrated, in the Company's judgment, (i) certain unique knowledge of the
hotel or the market in which such hotel operates, (ii) a proven track record
for implementing product, brand and operational repositioning strategies,
(iii) a significant national or regional lodging industry reputation or (iv)
substantial financial resources. In addition, the Company will seek to develop
lessee or management relationships with operators that are capable of
providing the Company with additional acquisition opportunities that satisfy
its investment criteria. The Company believes that the use of a flexible
lessee or manager structure, coupled with the continued expansion of its brand
and franchise relationships, will

115
<PAGE>

result in additional acquisition opportunities for the Company. The Lessee has
advised the Company that it expects to retain Wyndham to manage the Four
Points by Sheraton hotel following its acquisition. According to public
filings, Wyndham is an NYSE listed company which, as of December 31, 1996,
operated or franchised in excess of 75 hotels. See "The Hotels--Management
Agreements--Wyndham."

CONFLICT OF INTEREST POLICIES

The Company has adopted certain policies and entered 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 provide that any action pertaining to any transaction in which the
Company is purchasing, selling, leasing or mortgaging any real estate asset,
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 Hotels by the
Operating Partnership resulting from the differing tax bases of the Company
and such affiliates associated with such hotels. In an effort to address this
and other potential conflicts of interest, the Company's Bylaws provide that
the Company's decision with respect to the subsequent sale of a Hotel
purchased from a Primary Contributor or their affiliates must be made by a
majority of 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 has 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." In addition,
the Independent Directors must approve the terms of any acquisition from AGHI
of the Ramada Limited--Madison, Wisconsin. See "Risk Factors--Conflicts of
Interest--Conflicts Relating to Continued Ownership of Other Hotel
Properties."

116
<PAGE>

Provisions of the MGCL

Pursuant to the MGCL, 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 fact of the common
directorship or interest is disclosed or known to (i) the board of directors
or committee, and the board or committee authorizes, approves or ratifies the
contract or transaction by the affirmative vote of a majority of disinterested
directors, even if the disinterested directors constitute less than a quorum,
or (ii) the stockholders entitled to vote, and the transaction or contract is
authorized, approved or ratified by a majority of the votes cast by the
stockholders entitled to vote other than the votes of shares owned of record
or beneficially by the interested director or corporation, firm or other
entity, 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 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 has made
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.

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.

117
<PAGE>

SHARES AVAILABLE FOR FUTURE SALE

Upon the completion of the Offering 14,087,405 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
948,564 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 set forth in the Charter. See
"Description of Capital Stock--Restrictions on Transfer." The 162,405 shares
of restricted Common Stock issued in connection with the acquisition of
certain Hotels, the 1,896,996 shares of Common Stock available for issuance
upon exchange of OP Units issued in connection with the Formation
Transactions, the 1,436 shares of restricted Common Stock issued to the
Company's directors under the Directors' Plan, and the 50,000 shares of
restricted Common Stock, of which 5,000 have vested, granted to the Company's
executive officers under the 1996 Plan and any shares of Common Stock or
shares of Common Stock available for issuance upon exchange of OP Units issued
in connection with the Wyndham Alliance (collectively, "Restricted Shares")
are "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 and the acquisition of certain Hotels have agreed with
Smith Barney Inc. and/or the Company, subject to limited exceptions, 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, until July 31, 1997, without the prior written consent of Smith
Barney Inc. and/or the Company. Wyndham has agreed, subject to limited
exceptions, not to sell, offer or contract to sell, grant any options for the
sale of, or otherwise transfer any Common Stock or OP Units acquired by it
pursuant to the Wyndham Alliance for a period of six months from the date of
the acquisition of such Common Stock or OP Units. The Company has agreed to
file a registration statement with the Commission by October 1997 with respect
to sales of (i) Common Stock received upon exchange of OP Units issued in the
Formation Transactions, (ii) 25,397 shares of Common Stock issued in
connection with the acquisition of one of the Current Hotels and (iii) any
shares of Common Stock issued or received upon the exchange of OP Units
pursuant to the Wyndham Alliance. The Company is 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 (a) have been disposed of pursuant to such registration statement,
(b) have been otherwise distributed pursuant to Rule 144, or (c) have been
otherwise transferred in a transaction resulting in the transferee receiving
Common Stock no longer deemed to be "restricted securities." In addition, the
Company has granted to Wyndham certain demand and piggyback registration
rights in connection with any Restricted Shares issued pursuant to the Wyndham
Alliance.

118
<PAGE>

The Company has also filed a registration statement on Form S-8 with respect
to the shares of Common Stock issued to the Company's executive officers and
directors under the 1996 Plan and the Directors' Plan and shares of Common
Stock issuable in respect of the exercise of the Company Options. Such shares
of Common Stock issued pursuant to the 1996 Plan and the Directors' Plan or
upon the exercise of the Company Options will be available for sale in the
public market without restriction to the extent they are held by persons who
are not affiliates of the Company and, to the extent they are held by
affiliates, pursuant to Rule 144 under the Securities Act, without observance
of the holding period requirement. 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.

The Company's Common Stock trades on the NYSE under the symbol "AGT." No
prediction can be made as to the effect, if any, that the Offering, or future
sales of shares, or the availability of shares for future 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.

119
<PAGE>

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.

MANAGEMENT

The Operating Partnership is organized as a Delaware limited partnership
with AGH GP, as general partner, AGH LP, as a 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"), has 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 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 Partner, (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 Partner, 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, contributed to the Operating
Partnership substantially all of the net proceeds of the IPO, in consideration
of which AGH GP received an approximate 1.0% general partnership interest and
AGH LP received an approximate 80.3% limited partnership interest in the
Operating Partnership. Since the IPO, the Company through AGH GP and AGH LP,
made certain additional contributions to the Operating Partnership thereby
increasing its interest therein to approximately 81.4%. 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, 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.

120
<PAGE>

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 received rights (the "Exchange Rights")
that enable them to cause the Operating Partnership to exchange each OP Unit
for cash equal to the value of one 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 July 31, 1997 (one year following
the closing of the IPO), 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 July 31, 1997, 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 lock-up agreements
described in "Shares Available for Future Sale." The aggregate number of
shares of Common Stock currently issuable upon exercise of the Exchange Rights
is 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 Agreements among the Company and the
Limited Partners other than AGH LP and the sellers of certain of the Hotels
(the "Sellers"), and Wyndham (together, the "Registration Rights Agreements"),
the Limited Partners or the Sellers, as the case may be, 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 prior to October 1997. Wyndham has also been
granted certain demand and piggyback registration rights. 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 pays all
administrative costs and expenses of the Company, AGH GP and AGH LP (the
"Company Expenses"), and the Company Expenses are treated as expenses of the
Operating Partnership. The Company Expenses generally include (i) all expenses
relating to the formation of the 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, do not include any administrative and operating
costs and expenses incurred by the Company that are attributable to hotel
properties or partnership interests in a

121
<PAGE>

Subsidiary Partnership that are owned by the Company directly rather than
through the Operating Partnership. The Company does not own any of the 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 the
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.

122
<PAGE>

FEDERAL INCOME TAX CONSIDERATIONS

The Company operates 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
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
qualifies 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 generally 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

123
<PAGE>

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.

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. The Company has two wholly owned subsidiary corporations, AGH GP
and AGH LP, which are "qualified REIT subsidiaries." Consequently, AGH GP and
AGH LP will not be subject to federal corporate income taxation, although they
may be subject to state and local taxation. 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 to customers in the ordinary
course of business) 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.

124
<PAGE>

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 as rents from real property 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 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 has leased from the Operating
Partnership the land, buildings, improvements, furnishings, and equipment
comprising the Hotels for a term of twelve years and will also lease the land,
buildings, improvements, furnishings and equipment comprising the Proposed
Acquisition 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 Hotels and Proposed Acquisition
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.

125
<PAGE>

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 Hotels and the Proposed Acquisition 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
Hotels and the Proposed Acquisition Hotels and generally will control how the
Hotels and the Proposed Acquisition Hotels are operated and maintained, (iv)
the Lessee will bear all of the costs and expenses of operating the Hotels and
the Proposed Acquisition 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 Hotels and the Proposed Acquisition Hotels during the term of
the 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 Hotels and the Proposed Acquisition Hotels or (B) the Lessee's use,
management, maintenance or repair of the Hotels and the Proposed Acquisition
Hotels, (vii) the Lessee is obligated to pay substantial fixed rent for the
period of use of the Hotels and the Proposed Acquisition Hotels, and (viii)
the Lessee stands to incur substantial losses (or reap substantial gains)
depending on how successfully it operates the Hotels and the Proposed
Acquisition 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 a Hotel must not be
greater than 15% of the Rents received under the Participating Lease. The
Rents attributable to the personal property in a 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 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 Hotel at the
beginning and at the end of such taxable year (the "Adjusted Basis Ratio").
With respect to each 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 is in the process
of obtaining appraisals of the personal property for each Proposed Acquisition
Hotel that the Operating Partnership will acquire for cash. The Participating
Leases provide that the Adjusted Basis Ratio for each 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 Hotel from exceeding 15%, which cooperation includes the purchase by
Lessee at fair market value of enough personal property at such Hotel so that
the Adjusted Basis Ratio for such Hotel is less than 15%. In the event that
the amount of personal property relating to certain of the 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 Hotels to not qualify as
rents from real property, the Operating Partnership will sell a portion of
such personal property relating to such Hotels to the Lessee in exchange for
the FF&E Note. In addition, the Participating

126
<PAGE>

Leases provide that if future renovations and refurbishments to a Hotel would
cause the Adjusted Basis Ratio for such 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 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 a Hotel to the extent that such acquisition would cause the
Adjusted Basis Ratio for that Hotel to exceed 15%. The Company does not expect
the Adjusted Basis Ratio for any Hotel to exceed 15% and therefore expects
that the portion of rents 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 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 income that is nonqualifying income for purposes of the 95% gross income
test, 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 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. The only equity interest that the
Company owns directly in the Lessee is an option to acquire a 25% profits
interest in the Radisson Hotel Arlington Heights Hotel. That profits interest
represents less than a 1% of the assets or net profits of the Lessee, and will
be extinguished immediately upon its acquisition by the Company. 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 purchase 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 after-tax 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

127
<PAGE>

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 prohibits a stockholder 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 Hotels, or manage or operate the Hotels and
Proposed Acquisition 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 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 with respect to the Initial
Hotels indicate that the Franchise Licenses with respect to the Initial Hotels
represent less than 1.0% of the total value of the Company's assets. The
Company is currently in the process of obtaining appraisals of the Franchise
Licenses with respect to all hotels acquired after the Initial Hotels. 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
Hotels, or manages or operates the 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).

128
<PAGE>

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 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 95% gross income
test (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 the Subsidiary
Partnerships), 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 25%
asset requirement. In addition, the Company has represented that it will not
acquire or dispose, or cause the Operating

129
<PAGE>

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.
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 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

130
<PAGE>

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
alternative 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 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 Hotels and Proposed Acquisition 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

131
<PAGE>

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 a Hotel or
Proposed Acquisition Hotel, the Company terminates the Participating Lease,
and the Company is unable to find a replacement lessee for such Hotel or
Proposed Acquisition Hotel within 90 days of such foreclosure, gross income
from hotel operations conducted by the Company from such Hotel or Proposed
Acquisition 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 Hotel or Proposed
Acquisition 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 undistributed 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.

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.

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

132
<PAGE>

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.

Distributions from the Company to holders which are not designated as
capital gains dividends and which are in excess of the Company's current and
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 gain realized from the sale
of the shares of Common Stock, taxable as described below.

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

133
<PAGE>

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 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 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 Hotels and Proposed Acquisition Hotels) by
the Company will be taxed as though the Foreign Investors were

134
<PAGE>

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 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 Operating Partnership and 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

135
<PAGE>

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.

Under recently issued regulations ("check the box regulations"), an
organization with two or more members will be classified as a partnership on
or after January 1, 1997 unless it elects to be treated as an association (and
therefore taxable as a corporation) or falls within one of several specific
provisions which define a corporation. For entities which were in existence
prior to January 1, 1997 (such as the Operating Partnership and the Subsidiary
Partnerships), the claimed classification by the entity will be respected for
all periods prior to January 1, 1997 if (i) the entity had a reasonable basis
for its claimed classification under the law prior to January 1, 1997; (ii)
the entity and all members thereof recognized the federal tax consequence of
any change in the entity's classification within the sixty (60) months prior
to January 1, 1997; and (iii) neither the entity nor any member was notified
in writing on or before May 8, 1996 that the classification of the entity was
under examination (in which case the entity's classification would be
determined in the examination). An exception to partnership classification
under the "check the box regulations" exists for 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). A publicly traded partnership is treated
as a corporation unless at least 90% of the gross income of such partnership,
for each taxable year the partnership is a publicly 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 pursuant to the provisions of the "check the
box regulations" as well as the law prior to January 1, 1997 will be treated
for federal income tax purposes as partnerships and not as associations
taxable as corporations or as publicly traded partnerships. 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 partnerships for federal income
tax purposes. If such challenge were sustained by a court, the Operating
Partnership and each Subsidiary Partnership would be treated as corporations
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

136
<PAGE>

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 partnership in which the Company has an interest was
taxable as a corporation rather than as a partnership for federal income tax
purposes, the Company likely 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 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 an 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.

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.

137
<PAGE>

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. The Proposed
Acquisition Hotels will be acquired for cash. The Company will allocate the
purchase price among land, building and personal property and will claim
depreciation deductions based on prescribed tax depreciation rates.

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 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 is organized as a Maryland corporation and has
an office in Texas. AGH LP is organized as a Nevada corporation and will not
have any contacts with Texas other than ownership of its limited partnership
interest in the Operating Partnership. The Operating Partnership is 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

138
<PAGE>

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 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.

139
<PAGE>

The Company has received a private determination from the Comptroller that
verifies the foregoing Texas franchise tax consequences of this structure.
There can be no assurance, however, that the Comptroller will not revoke the
pronouncements upon which that determination is based. In addition, that
determination will not be binding upon the Comptroller to the extent the
Company or its subsidiaries fail to comply with the factual representations
set forth in the determination.

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 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, presently
are not subject to the Texas franchise tax. The corporate general partners in
those partnerships, however, are subject to the Texas franchise tax. It is
expected that Texas legislators and/or the Comptroller will propose or
recommend, as the case may be, statutory amendments subjecting all comparable
limited partners to the franchise tax or expanding 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, AGH LP and/or Subsidiary Partnerships that own property in Texas
would be subjected to the then applicable Texas franchise tax.

140
<PAGE>

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............................................... 1,160,000
Legg Mason Wood Walker, Incorporated........................... 1,160,000
Montgomery Securities.......................................... 1,160,000
Prudential Securities Incorporated............................. 1,160,000
The Robinson-Humphrey Company, Inc............................. 1,160,000
---------
Total...................................................... 5,800,000
=========
</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., Legg Mason Wood Walker,
Incorporated, Montgomery Securities, Prudential Securities 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 $0.85 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 public offering,
the public offering price, concessions and reallowances to dealers may be
changed by the Underwriters.

The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 865,000 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 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 is traded on the NYSE under the symbol "AGT." In order to
maintain the requirements for listing the shares of Common Stock on the NYSE,
the Underwriters have undertaken to sell lots of 100 or more shares of Common
Stock.

The Company and its officers and directors agreed in connection with the IPO
that, for a period of one year ending July 25, 1997, they would not, without
the prior written consent of Smith Barney Inc., sell, offer to sell, solicit
and offer to buy, contract to sell, grant any option to purchase or otherwise
transfer or dispose of any shares of Common Stock or any other securities
convertible into, or exercisable for, shares of Common Stock.

141
<PAGE>

EXPERTS

The Consolidated Financial Statements of American General Hospitality
Corporation as of September 30, 1996 and for the period from July 31, 1996
through September 30, 1996 and the related financial statement schedule; the
Combined Financial Statements of the AGH Predecessor Hotels as of December 31,
1994 and 1995 and July 30, 1996 and for each of the three years in the period
ended December 29, 1995 and for the period from December 30, 1995 through July
30, 1996 and the related financial statement schedule; the Combined Financial
Statements of the Other Initial 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 Financial Statements of the Days
Inn Lake Buena Vista as of December 31, 1995 and for the year then ended;
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 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. The validity of the shares
of Common 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.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (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 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. The Commission also
maintains a site on the World Wide Web, the address of which is
http://www.sec.gov, that contains reports, proxy and information statements
and other information regarding issuers, such as the Company, that file
electronically with the Commission. Such reports, proxy statements and other
information concerning the Company can also be inspected at the offices of the
National Association of Securities Dealers, 1735 K Street, N.W., Washington,
D.C. 20006, which supervises the NYSE on which the Company's Common Stock is
traded.

142
<PAGE>

The Company is 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 furnishes 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. The Company includes in such reports annual
audited and quarterly unaudited financial statements for the Lessee.

The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the information that has
been incorporated by reference in this Prospectus (not including exhibits to
the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this
Prospectus incorporates). Requests for such copies should be directed to
American General Hospitality Corporation, 3860 West Northwest Highway, Suite
300, Dallas, Texas 75220 (telephone (214) 904-2000), Attention: Kenneth E.
Barr.

143
<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.

"Acquired Hotels" means the Days Inn Lake Buena Vista, the Holiday Inn
Resort-Monterey and the Hilton Hotel-Durham.

"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 Hotel, the ratio that the average of
the adjusted bases of the personal property in a 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 Hotel at the beginning
and at the end of a taxable year.

"ADR" means average daily room rate.

"AGH GP" means AGH GP, Inc., a Nevada corporation and wholly owned
subsidiary of the Company, which is 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 is a Limited Partner of the Operating
Partnership.

"AGH Predecessor Hotels" means the following four Initial Hotels that were
acquired primarily from partnerships controlled by stockholders 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 operates the Current
Hotels pursuant to the Management Agreements, and certain of its affiliates.

"Alliance Securities" means those shares of Common Stock or OP Units issued
to Wyndham Hotel Corporation and its affiliates pursuant to the Wyndham
Alliance.

"Anti-Abuse Rule" means the regulations issued by the United States Treasury
Department under the Partnership Provisions of the Code that 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 sublease from the Lessee the portion of fourteen of the Current
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 Current
Hotels where alcoholic beverages are sold.

"Board of Directors" means the Board of Directors of the Company.

144
<PAGE>

"Bylaws" means the Bylaws of the Company.

"Cash Available for Distribution" means Funds From Operations adjusted for
amortization of deferred financing costs, franchise transfer costs and
unearned officers' compensation, 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, 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).

"Current Hotels" means the sixteen hotels that the Company currently owns.

"DFW South Loan" means the non-recourse mortgage on Holiday Inn Dallas DFW
Airport South in the outstanding principal amount as of December 31, 1996 of
approximately $14.0 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.

"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,
one share 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.

145
<PAGE>

"Foreign Investors" means nonresident alien individuals, foreign
corporations, foreign partnerships and foreign trusts and estates.

"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 Hotels.

"French Quarter Loan" means the non-recourse note in the outstanding
principal amount of approximately $9.6 million, as of December 31, 1996, to be
assumed by the Company in connection with the purchase of the French Quarter
Suites Hotel.

"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.

"Hotels" means collectively the Current Hotels and the Proposed Acquisition
Hotels.

"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 acquired
pursuant to the Formation Transactions at the time of the IPO.

"IPO" means the Company's initial public offering of Common Stock.

"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 sets forth the terms of the Lessee's required
capitalization and certain other matters.

"Lessee" means AGH Leasing, L.P., which leases the 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 Company's $100 million line of credit with
Societe Generale, Southwest Agency, Bank One Texas, N.A. and certain other
lenders.

"Lock-up Period" means the one-year period that expires in July 1997.

"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 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 of Common Stock which is the subject of the
Prospectus.

146
<PAGE>

"OP Units" means units of limited partnership interest in the Operating
Partnership.

"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 two Courtyard by Marriott currently located in
Boise, Idaho and in Durham, North Carolina in which AGHI holds an interest.

"Other Initial Hotels" means the following nine Initial Hotels that were
acquired primarily from persons unaffiliated with AGHI in connection with the
IPO and the related Formation Transactions: 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 Best Western
Albuquerque Airport Hotel.

"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 leases the current 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.

"Portfolio Purchase" means the Company's proposed acquisition of the Four
Points by Sheraton Hotel, the French Quarter Suites Hotel and the Sheraton Key
Largo from French Quarter Holdings, Inc. for an aggregate purchase price of
approximately $59.1 million.

"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).

"Proposed Acquisition Hotels" means collectively the Four Points by
Sheraton, Sheraton Key Largo, French Quarter Suites Hotel and the Radisson
Hotel Arlington Heights.

"Radisson Loan" means the one-year mortgage note in the principal amount of
approximately $8.2 million to be assumed by the Company in connection with the
purchase of Radisson Hotel Arlington Heights.

"Registration Rights Agreements" means the Registration Rights Agreement
among the Company and the Limited Partners other than AGH LP and the Plan, the
Registration Rights Agreement entered into by the Company in connection with
acquisition of certain Hotels and the Registration Rights Agreement that will
be entered into between the Company and Wyndham pursuant to the Wyndham
Alliance.

"REIT" means real estate investment trust as defined in Section 856 of the
Code.

"Related Party Tenant" under the Code means, a tenant of the Company's real
property in which the Company, or an owner of 10.0% or more of the Company,
directly or constructively owns 10.0% or more of the ownership interests.

"Rents" means, collectively, Base Rent and Participating Rent.

147
<PAGE>

"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 December 31, 1996 of approximately $4.5
million and $575,800, respectively.

"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 Hotels.

"Treasury Regulations" means the income tax regulations promulgated under
the Code.

"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 Hotels divided by the total number of guest rooms sold
at all of the Hotels.

"Weighted Average Occupancy" means the total number of guest rooms sold at
all of the Hotels divided by the total number of guest rooms available at all
of the Hotels.

"Wyndham" means Wyndham Hotel Corporation, together with its subsidiaries.

"Wyndham Alliance" means the strategic alliance between the Company and
Wyndham.

148
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
American General Hospitality Corporation
Pro Forma Statements of Operations for the Year Ended December 31, 1995,
the Twelve Months Ended September 30, 1996 and the Nine Months Ended
September 30, 1996 and 1995 (unaudited)................................ F-3
Pro Forma Consolidated Balance Sheet as of September 30, 1996
(unaudited)............................................................ F-10
Report of Independent Accountants....................................... F-14
Consolidated Balance Sheet as of September 30, 1996..................... F-15
Consolidated Statement of Operations for the Period from July 31, 1996
(inception of operations) through September 30, 1996................... F-16
Consolidated Statement of Shareholders' Equity for the Period from April
12, 1996 (date of capitalization) through September 30, 1996........... F-17
Consolidated Statement of Cash Flows for the Period from July 31, 1996
(inception of operations) through September 30, 1996................... F-18
Notes to Consolidated Financial Statements.............................. F-19
Schedule III--Real Estate and Accumulated Depreciation as of September
30, 1996............................................................... F-26
AGH Leasing, L.P.
Pro Forma Combined Statements of Operations for the Year Ended December
31, 1995, the Twelve Months Ended September 30, 1996 and the Nine
Months Ended September 30, 1996 and 1995 (unaudited)................... F-27
Balance Sheet as of September 30, 1996 (unaudited)...................... F-34
Statement of Operations for the Period from July 31, 1996 (inception of
operations) through September 30, 1996 (unaudited)..................... F-35
Statement of Cash Flows for the Period from July 31, 1996 (inception of
operations) through September 30, 1996 (unaudited)..................... F-36
Notes to Financial Statements........................................... F-37
AGH Predecessor Hotels
The AGH Predecessor Hotels represent four of the Initial Hotels
acquired, concurrent with the Company's initial public offering
primarily from limited partnerships controlled by shareholders of
American General Hospitality, Inc. The AGH Predecessor Hotels are
deemed to be the predecessor of the Company.
Report of Independent Accountants....................................... F-40
Combined Balance Sheets as of December 30, 1994, December 29, 1995 and
July 30, 1996.......................................................... F-41
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 for the period from December 30, 1995 through
July 30, 1996.......................................................... F-42
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 for the period from December 30, 1995 through
July 30, 1996.......................................................... F-43
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 for the period from December 30, 1995 through
July 30, 1996.......................................................... F-44
Notes to Combined Financial Statements.................................. F-45
Schedule III--Real Estate and Accumulated Depreciation as of July 30,
1996................................................................... F-50
</TABLE>

F-1
<PAGE>

<TABLE>
<S> <C>
Other Initial Hotels
The Other Initial Hotels represent nine of the Initial Hotels acquired,
concurrent with the Company's initial public offering, primarily from
parties unaffiliated with the Company through contracts with the
sellers acquired from an AGHI affiliate.
Report of Independent Accountants....................................... F-51
Combined Balance Sheets as of December 31, 1994 and 1995 (audited) and
June 30, 1996 (unaudited).............................................. F-52
Combined Statements of Operations for each of the Three Years in the
Period Ended
December 31, 1995 (audited) and the Six Months Ended June 30, 1996
(unaudited)............................................................ F-53
Combined Statements of Equity for each of the Three Years in the Period
Ended
December 31, 1995 (audited) and the Six Months Ended June 30, 1996
(unaudited)............................................................ F-54
Combined Statements of Cash Flows for each of the Three Years in the
Period Ended
December 31, 1995 (audited) and the Six Months ended June 30, 1996
(unaudited)............................................................ F-55
Notes to Combined Financial Statements.................................. F-56
Schedule III--Real Estate and Accumulated Depreciation as of December
31, 1995............................................................... F-62
</TABLE>

<TABLE>
<S> <C>
Days Inn Lake Buena Vista hotel
Represents the Days Inn Lake Buena Vista hotel in Orlando, Florida (one
of the Acquired Hotels) acquired by the Company on October 22, 1996.
Audited financial statements are provided in accordance with the
significant business acquisition rules and regulations of the
Securities and Exchange Commission.
</TABLE>

<TABLE>
<S> <C>
Report of Independent Accountants....................................... F-63
Balance Sheets as of December 31, 1995 (audited) and September 30, 1996
(unaudited)............................................................ F-64
Statements of Operations for the Year Ended December 31, 1995 (audited)
and the Nine Months Ended September 30, 1996 and 1995 (unaudited)...... F-65
Statements of Equity for the Year Ended December 31, 1995 (audited) and
the Nine Months Ended September 30, 1996 and 1995 (unaudited).......... F-66
Statements of Cash Flows for the Year Ended December 31, 1995 (audited)
and the Nine Months Ended September 30, 1996 and 1995 (unaudited)...... F-67
Notes to Financial Statements........................................... F-68
</TABLE>

F-2
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995, THE TWELVE MONTHS ENDED SEPTEMBER 30,
1996 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)

The following unaudited Pro Forma Statements of Operations of the Company for
the year ended December 31, 1995, the twelve months ended September 30, 1996,
and the nine months ended September 30, 1996 and 1995 are presented as if the
consummation of the IPO and related Formation Transactions, the acquisition of
all Hotels and the consummation of the Offering and application of the net
proceeds therefrom had occurred on January 1, 1995 and all of the Hotels had
been leased pursuant to the Participating Leases as of that date. 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 IPO and related Formation Transactions, the
acquisition of all Hotels and the consummation of the Offering have been made.

The following unaudited Pro Forma Statements of Operations 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.

YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
OFFERING
PROPOSED AND LINE
INITIAL ACQUIRED ACQUISITION OF
HOTELS HOTELS HOTELS CREDIT TOTAL
----------- ---------- ----------- -------- -----------
(A) (A) (A) (B)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Participating Lease
revenue (C).......... $24,754,071 $7,836,247 $7,247,372 $39,837,690
Interest income (D)... 31,500 31,500
----------- ---------- ---------- -------- -----------
Total revenue......... 24,785,571 7,836,247 7,247,372 39,869,190
----------- ---------- ---------- -------- -----------
Depreciation (E)...... 7,404,235 1,650,173 2,032,316 11,086,724
Amortization (F)...... 640,128 14,783 14,000 $235,714 904,625
Real estate and
personal property
taxes and property
insurance (G)........ 2,165,073 1,071,082 1,401,460 4,637,615
General and
administrative (H)... 1,137,857 240,918 321,225 1,700,000
Ground lease expense
(G).................. 881,217 881,217
Amortization of
unearned officers'
compensation (I)..... 88,750 88,750
Interest expense (J).. 1,886,733 1,548,488 (316,000) 3,119,221
----------- ---------- ---------- -------- -----------
Total expenses........ 14,203,993 2,976,956 5,317,489 (80,286) 22,418,152
----------- ---------- ---------- -------- -----------
Income before minority
interest............... 10,581,578 4,859,291 1,929,883 80,286 17,451,038
Minority interest (K)... 1,978,755 2,071,053
----------- -----------
Net income applicable to
common shareholders.... $ 8,602,823 $15,379,985
=========== ===========
Net income per common
share.................. $ 1.04 $ 1.09
=========== ===========
Weighted average number
of shares of Common
Stock outstanding...... 8,262,008 14,087,405
=========== ===========
</TABLE>

See notes beginning on page F-5.

F-3
<PAGE>

TWELVE MONTHS ENDED SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
HISTORICAL
JULY 31,
1996 OFFERING
THROUGH PROPOSED AND
SEPTEMBER PRO FORMA INITIAL ACQUIRED ACQUISITION LINE OF
30, 1996 ADJUSTMENTS HOTELS HOTELS HOTELS CREDIT TOTAL
---------- ----------- ----------- ---------- ----------- -------- -----------
(L) (M) (A) (A) (A) (B)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Participating Lease
revenue (C).......... $5,218,526 $22,295,156 $27,513,682 $8,304,834 $ 8,450,400 $44,268,916
Interest income (D)... 32,227 (727) 31,500 31,500
---------- ----------- ----------- ---------- ----------- -------- -----------
Total revenue......... 5,250,753 22,294,429 27,545,182 8,304,834 8,450,400 44,300,416
---------- ----------- ----------- ---------- ----------- -------- -----------
Depreciation (E)...... 1,008,874 5,341,221 6,350,095 1,650,173 2,032,316 10,032,584
Amortization (F)...... 106,155 533,973 640,128 14,783 14,000 235,714 904,625
Real estate and per-
sonal property taxes
and property insur-
ance (G)............. 511,115 1,804,228 2,315,343 1,071,082 1,401,460 4,787,885
General and adminis-
trative (H).......... 194,226 943,631 1,137,857 240,918 321,225 1,700,000
Ground lease expense
(G).................. 218,000 724,549 942,549 942,549
Amortization of
unearned officers'
compensation (I)..... 14,792 73,958 88,750 88,750
Interest expense (J).. 347,622 1,539,111 1,886,733 1,548,488 (316,000) 3,119,221
---------- ----------- ----------- ---------- ----------- -------- -----------
Total expenses........ 2,400,784 10,960,671 13,361,455 2,976,956 5,317,489 (80,286) 21,575,614
---------- ----------- ----------- ---------- ----------- -------- -----------
Income before minority
interest............... 2,849,969 11,333,758 14,183,727 5,327,878 3,132,911 80,286 22,724,802
Minority interest (K)... 547,102 2,652,357 2,696,933
---------- ----------- -----------
Net income applicable to
common shareholders.... $2,302,867 $11,531,370 $20,027,869
========== =========== ===========
Net income per common
share.................. $ 0.29 $ 1.40 $ 1.42
========== =========== ===========
Weighted average number
of shares of Common
Stock outstanding...... 8,002,331 8,262,008 14,087,405
========== =========== ===========
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
HISTORICAL
JULY 31,
1996 OFFERING
THROUGH PROPOSED AND
SEPTEMBER PRO FORMA INITIAL ACQUIRED ACQUISITION LINE OF
30, 1996 ADJUSTMENTS HOTELS HOTELS HOTELS CREDIT TOTAL
---------- ----------- ----------- ---------- ----------- -------- -----------
(L) (M) (A) (A) (A) (B)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Participating Lease
revenue (C).......... $5,218,526 $16,357,390 $21,575,916 $6,386,185 $ 6,830,070 $34,792,171
Interest income (D)... 32,227 (8,602) 23,625 23,625
---------- ----------- ----------- ---------- ----------- -------- -----------
Total revenue......... 5,250,753 16,348,788 21,599,541 6,386,185 6,830,070 34,815,796
---------- ----------- ----------- ---------- ----------- -------- -----------
Depreciation (E)...... 1,008,874 3,490,162 4,499,036 1,237,630 1,524,237 7,260,903
Amortization (H)...... 106,155 373,941 480,096 9,525 10,500 176,786 676,907
Real estate and per-
sonal property taxes
and property insur-
ance (G)............. 511,115 1,262,960 1,774,075 691,643 1,051,095 3,516,813
General and adminis-
trative (H).......... 194,226 659,167 853,393 180,689 240,918 1,275,000
Ground lease expense
(G).................. 218,000 504,245 722,245 722,245
Amortization of
unearned officers'
compensation (I)..... 14,792 51,771 66,563 66,563
Interest expense (J).. 347,622 810,090 1,157,712 1,174,270 2,465 2,334,447
---------- ----------- ----------- ---------- ----------- -------- -----------
Total expenses........ 2,400,784 7,152,336 9,553,120 2,119,487 4,001,020 179,251 15,852,878
---------- ----------- ----------- ---------- ----------- -------- -----------
Income before minority
interest............... 2,849,969 9,196,452 12,046,421 4,266,698 2,829,050 (179,251) 18,962,918
Minority interest (K)... 547,102 2,252,681 2,250,481
---------- ----------- -----------
Net income applicable to
common shareholders.... $2,302,867 $ 9,793,740 $16,712,437
========== =========== ===========
Net income per common
share.................. $ 0.29 $ 1.19 $ 1.19
========== =========== ===========
Weighted average number
of shares of Common
Stock outstanding...... 8,002,331 8,262,008 14,087,405
========== =========== ===========
</TABLE>

See notes beginning on page F-5.

F-4
<PAGE>

NINE MONTHS ENDED SEPTEMBER 30, 1995

<TABLE>
<CAPTION>
PROPOSED OFFERING
INITIAL ACQUIRED ACQUISITION AND LINE
HOTELS HOTELS HOTELS OF CREDIT TOTAL
----------- ---------- ----------- --------- -----------
(A) (A) (A) (B)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Participating Lease
revenue (C).......... $18,816,305 $5,917,598 $5,627,042 $30,360,945
Interest income (D)... 23,625 23,625
----------- ---------- ---------- --------- -----------
Total revenue......... 18,839,930 5,917,598 5,627,042 30,384,570
----------- ---------- ---------- --------- -----------
Depreciation (E)...... 5,553,176 1,237,630 1,524,237 8,315,043
Amortization (F)...... 480,096 9,525 10,500 $ 176,786 676,907
Real estate and
personal property
taxes and property
insurance (G)........ 1,623,805 691,643 1,051,095 3,366,543
General and
administrative (H)... 853,392 180,689 240,919 1,275,000
Ground lease expense
(G).................. 660,913 660,913
Amortization of
unearned officers'
compensation (I)..... 66,563 66,563
Interest expense (J).. 1,157,712 1,174,270 2,465 2,334,447
----------- ---------- ---------- --------- -----------
Total expenses........ 10,395,657 2,119,487 4,001,021 179,251 16,695,416
----------- ---------- ---------- --------- -----------
Income before minority
interest............... 8,444,273 3,798,111 1,626,021 (179,251) 13,689,154
Minority interest (K) .. 1,579,079 1,624,601
----------- -----------
Net income applicable to
common shareholders.... $ 6,865,194 $12,064,553
=========== ===========
Net income per common
share.................. $ 0.83 $ 0.86
=========== ===========
Weighted average number
of shares of Common
Stock outstanding...... 8,262,008 14,087,405
=========== ===========
</TABLE>

NOTES TO STATEMENTS OF OPERATIONS

(A) Represents the pro forma statements of operations of the Initial Hotels,
Acquired Hotels and Proposed Acquisition Hotels as if all of the Hotels were
acquired on January 1, 1995 and leased to the Lessee pursuant to the
Participating Leases since that date.

(B) Represents amortization of deferred loan costs associated with the
commitment to be received by the Company to increase the borrowing capacity
under the Line of Credit to $150 million. Also represents adjustments to
interest expense due to the change in borrowings outstanding after adjustments
for the Offering and Line of Credit.

(C) 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 revenues of
the Hotels. The departmental revenue thresholds in the Participating Lease are
seasonally adjusted for interim periods and certain of the Participating Lease
formulas adjust in January 1997 and/or January 1998. See "The Hotels--The
Participating Leases."

F-5
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO STATEMENTS OF OPERATIONS -- (CONTINUED)

The Participating Lease revenue is comprised of the following:

<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED ENDED
DECEMBER SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
31, 1995 1996 1996 1995
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Base rent............... $28,677,000 $28,677,000 $21,507,750 $21,507,750
Excess of Participating
Rent over Base Rent.... 11,160,690 15,591,916 13,284,421 8,853,195
----------- ----------- ----------- -----------
Total Participating
Lease revenue........ $39,837,690 $44,268,916 $34,792,171 $30,360,945
=========== =========== =========== ===========
</TABLE>

(D) 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 commencing July 31, 1996 and bears
interest at 10% per annum.

(E) Represents depreciation on the Hotels. Pro forma 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.

At September 30, 1996, the Company's pro forma investment in hotel
properties, at cost, consists of the following:

<TABLE>
<CAPTION>
AGH OTHER PROPOSED
PREDECESSOR INITIAL ACQUIRED ACQUISITION
HOTELS HOTELS HOTELS HOTELS TOTAL
----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Land.................... $ 1,496,515 $ 11,311,000 $ 6,134,000 $ 7,179,375 $ 26,120,890
Building and
improvements........... 19,293,233 134,699,284 53,860,300 62,460,567 270,313,384
Furniture, fixtures and
equipment.............. 2,847,464 6,560,598 1,345,700 2,153,813 12,907,575
----------- ------------ ----------- ----------- ------------
$23,637,212 $152,570,882 $61,340,000 $71,793,755 $309,341,849
=========== ============ =========== =========== ============
</TABLE>

(F) Represents amortization of deferred loan costs related to the Line of
Credit, amortization of franchise transfer costs and amortization of
organizational costs and other deferred expenses. Deferred loan costs of
$3,075,000 (at cost) are amortized utilizing a method which approximates the
interest method over four years which is the term of the Line of Credit
(including option periods). Franchise transfer costs of $949,000 (at cost) are
amortized over the term of the related franchise agreements which approximates
10 years. Organizational costs and other deferred expenses of $40,887 (at cost)
are amortized over terms ranging from 5 to 12 years.

F-6
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO STATEMENTS OF OPERATIONS--(CONTINUED)

(G) Represents amounts to be paid by the Operating Partnership. Such amounts
were derived from the historical amounts paid with respect to the Hotels
adjusted for the probable real estate and personal property tax increases.
Four of the Other Initial Hotels (Holiday Inn Park Plaza, LeBaron Airport
Hotel, Holiday Inn Mission Valley and Hilton Hotel--Toledo) and one Acquired
Hotel (Days Inn Lake Buena Vista) are located in states which require tax
reassessments based primarily on the price as specified in a sale to an
unrelated third party.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------
PROPOSED
INITIAL ACQUIRED ACQUISITION
HOTELS HOTELS HOTELS TOTAL
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Real estate and personal
property taxes................... $1,854,104 $913,809 $1,240,416 $4,008,329
Property insurance................ 310,969 157,273 161,044 629,286
---------- ---------- ---------- ----------
Total real estate and
personal property taxes
and insurance.................. $2,165,073 $1,071,082 $1,401,460 $4,637,615
========== ========== ========== ==========
Ground lease expense.............. $ 881,217 $ 881,217
========== ==========
</TABLE>

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SEPTEMBER 30, 1996
--------------------------------------------
COMBINED
HISTORICAL
JULY 31,
1996
THROUGH PROPOSED
SEPTEMBER PRO FORMA INITIAL ACQUIRED ACQUISITION
30, 1996 ADJUSTMENTS HOTELS HOTELS HOTELS TOTAL
---------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Real estate and
personal property
taxes................. $ 419,376 $1,539,340 $1,958,716 $ 913,809 $1,240,416 $4,112,941
Property insurance..... 91,739 264,888 356,627 157,273 161,044 674,944
--------- ---------- ---------- ---------- ---------- ----------
Total real estate and
personal property
taxes and
insurance........... $ 511,115 $1,804,228 $2,315,343 $1,071,082 $1,401,460 $4,787,885
========= ========== ========== ========== ========== ==========
Ground lease expense... $ 218,000 $ 724,549 $ 942,549 $ 942,549
========= ========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------
COMBINED
HISTORICAL
JULY 31,
1996
THROUGH PROPOSED
SEPTEMBER PRO FORMA INITIAL ACQUIRED ACQUISITION
30, 1996 ADJUSTMENTS HOTELS HOTELS HOTELS TOTAL
---------- ----------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Real estate and
personal
property taxes........ $ 419,376 $1,088,832 $1,508,208 $590,438 $ 930,312 $3,028,958
Property insurance..... 91,739 174,128 265,867 101,205 120,783 487,855
--------- ---------- ---------- -------- ---------- ----------
Total real estate and
personal property
taxes and
insurance........... $ 511,115 $1,262,960 $1,774,075 $691,643 $1,051,095 $3,516,813
========= ========== ========== ======== ========== ==========
Ground lease expense... $ 218,000 $ 504,245 $ 722,245 $ 722,245
========= ========== ========== ==========
</TABLE>

F-7
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO STATEMENTS OF OPERATIONS--(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
------------------------------------------
PROPOSED
INITIAL ACQUIRED ACQUISITION
HOTELS HOTELS HOTELS TOTAL
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Real estate and personal property
taxes.............................. $1,390,578 $590,438 $ 930,312 $2,911,328
Property insurance.................. 233,227 101,205 120,783 455,215
---------- -------- ---------- ----------
Total real estate and personal
property taxes and insurance..... $1,623,805 $691,643 $1,051,095 $3,366,543
========== ======== ========== ==========
Ground lease expense................ $ 660,913 $ 660,913
========== ==========
</TABLE>

(H) Represents general and administrative expenses to be paid or reimbursed
to the Company by the Operating Partnership. The following annual general and
administrative expenses are based on historical general and administrative
expenses as well as estimated 1997 expenses:

<TABLE>
<S> <C>
Salaries and wages (including directors fees)................ $ 688,500
Professional fees............................................ 334,500
Directors' and officers' insurance........................... 94,500
Allocated rent, supplies and other........................... 103,000
Other operating expenses..................................... 479,500
----------
$1,700,000
==========
</TABLE>

(I) 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, the price per share of Common Stock issued in the IPO).

(J) Represents interest expense on the following debt for the year ended
December 31, 1995:

<TABLE>
<S> <C>
Holiday Inn Dallas DFW Airport South(1)....................... $1,181,103
Courtyard by Marriott--Meadowlands(2)......................... 389,630
French Quarter Suites Hotel(3)................................ 932,081
Radisson Hotel Arlington Heights(4)........................... 616,407
----------
$3,119,221
==========
</TABLE>

Interest expense for the twelve months ended September 30, 1996 and the nine
months ended September 30, 1996 and 1995 are calculated in the same manner as
the year ended December 31, 1995 interest expense.

(1) Represents debt assumed by the Operating Partnership of approximately
$14.1 million collateralized by 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% per annum.

(2) Represents two notes assumed by the Operating Partnership totalling
approximately $5.2 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% per annum, respectively.

F-8
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO STATEMENTS OF OPERATIONS--(CONTINUED)

(3) Represents debt assumed by the Operating Partnership of approximately
$9.6 million collateralized by the French Quarter Suites Hotel. The debt
matures in July 2002 and bears interest at a fixed rate of 9.75% per annum.

(4) Represents debt assumed by the Operating Partnership of approximately
$8.2 million collateralized by the Radisson Hotel Arlington Heights.
Interest only payments are due quarterly in arrears. The debt will mature
on the first anniversary of the acquisition by the Operating Partnership
and bears interest at a fixed rate of 7.5% per annum.

Approximately $3.0 million of borrowings under the Line of Credit were
borrowed to fund construction and renovations and were outstanding since
September 18, 1996. The Line of Credit interest expense is based on the 30-day
LIBOR plus 1.85% (7.3%). Such borrowings are collateralized by first mortgage
liens on the Hotels excluding the hotels which collateralize other borrowings
described previously.

As of December 31, 1996, the Company had invested approximately $10.7
million in capital improvements and renovations at the Current Hotels. The
Company has budgeted approximately $33.3 million for additional renovations
and refurbishments at these hotels. In addition, the Company has budgeted
approximately $14.6 million to be spent on renovations and refurbishments at
the four Proposed Acquisition Hotels during 1997. Interest expense related to
borrowings incurred after September 30, 1996 to fund these estimated costs
over the next twelve months is not included in the pro forma statements of
operations.

(K) Calculated as 11.9% of income before minority interest.

(L) Represents the Company's historical statement of operations for the
period from July 31, 1996 (inception of operations) to September 30, 1996.

(M) Represents the pro forma statement of operations of the Initial Hotels
for periods prior to July 31, 1996 (inception of operations) adjusted for the
acquisition of the Initial Hotels by the Company and related Formation
Transactions.

F-9
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)

The following unaudited Pro Forma Consolidated Balance Sheet is presented as
if the acquisition of the Acquired Hotels and the Proposed Acquisition Hotels
and the comsummation of the Offering and the application of the net proceeds
therefrom as set forth under the caption "Use of Proceeds" had occurred on
September 30, 1996. Such pro forma information is based upon the consolidated
balance sheet of the Company and 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 acquisition of all Hotels
and the consummation of 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 September 30, 1996, nor does
it purport to represent the future financial position of the Company.

<TABLE>
<CAPTION>
ACQUIRED HOTELS OFFERING AND
AND PROPOSED LINE OF
HISTORICAL ACQUISITION HOTELS CREDIT PRO FORMA
------------ ------------------ ------------- ------------
(A) (B) (C)
<S> <C> <C> <C> <C>
ASSETS
Investment in hotel
properties, net........ $175,613,813 $133,133,755 (D) $308,747,568
Cash and cash
equivalents............ 4,436,235 (3,686,235)(E) $ 32,381,264 (E) 33,131,264
Accounts receivable,
net.................... 4,100,406 4,100,406
Deferred expenses, net.. 2,866,731 267,000 (F) 825,000 (F) 3,958,731
Other assets............ 538,323 538,323
Advances to Lessee...... 315,000 315,000
------------ ------------ ------------- ------------
Total assets........ $187,870,508 $129,714,520 $ 33,206,264 $350,791,292
============ ============ ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt.................... $ 19,297,508 $ 17,778,565 (G) $ 37,076,073
Debt, Line of Credit.... 3,000,000 111,435,955 (H) $(114,435,955)(H)
Distributions payable... 2,790,057 2,790,057
Accounts payable,
accrued expenses and
other liabilities...... 6,069,701 125,000 (I) 6,194,701
Minority interest in
Operating Partnership.. 29,305,376 (63,703)(J) 7,021,252 (J) 36,292,925
------------ ------------ ------------- ------------
Total liabilities... 60,462,642 129,150,817 (107,289,703) 82,323,756
------------ ------------ ------------- ------------
Stockholders' equity:
Common stock.......... 82,620 254 (K) 58,000 (K) 140,874
Additional paid-in
capital.............. 128,163,835 563,449 (L) 140,437,967 (L) 269,165,251
Unearned officers'
compensation......... (872,708) (872,708)
Retained earnings..... 34,119 34,119
------------ ------------ ------------- ------------
Total stockholders'
equity............. 127,407,866 563,703 140,495,967 268,467,536
------------ ------------ ------------- ------------
Total liabilities
and stockholders'
equity............. $187,870,508 $129,714,520 $ 33,206,264 $350,791,292
============ ============ ============= ============
</TABLE>

See Notes to Pro Forma Consolidated Balance Sheet.

F-10
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET

(A) Represents the historical balance sheet of the Company as of September 30,
1996.

(B) Represents the acquisition of the assets relating to the Acquired Hotels
and the Proposed Acquisition Hotels, including estimated closing costs. The
acquisitions are financed through borrowings under the Company's Line of
Credit, assumption of indebtedness, cash on hand (including net proceeds from
the Offering--See Note E) and issuance of 25,397 shares of restricted Common
Stock. Additionally franchise transfer costs of $267,000 related to the
Acquired Hotels and Proposed Acquisition Hotels were incurred. See following
notes.

(C) Represents the net proceeds from the Offering and related allocation to
minority interest and deferred financing fees incurred in connection with the
Company's receipt of the commitment from its lenders to increase its Line of
Credit.

(D) Increase represents the purchase of the following Acquired Hotels and
Proposed Acquisition Hotels, including estimated closing costs (the purchase
included only the land, building and improvements and furniture, fixtures and
equipment):

Purchase of Acquired Hotels, including closing costs:
<TABLE>
<S> <C>
Days Inn Lake Buena Vista.................................. $ 33,150,000
Holiday Inn Resort Monterey................................ 15,790,000
Hilton Hotel--Durham....................................... 12,400,000
------------
Total increase due to the purchase of the Acquired Hotels.. 61,340,000
------------
Purchase of the Proposed Acquisition Hotels, including estimated
closing costs:
Radisson Hotel Arlington Heights........................... 11,818,755
Four Points by Sheraton.................................... 17,300,000
French Quarter Suites Hotel................................ 16,300,000
Sheraton Key Largo......................................... 26,375,000
------------
Total increase due to the purchase of the Proposed
Acquisition Hotels........................................ 71,793,755
------------
Total increase due to the purchase of the Acquired Hotels
and Proposed Acquisition Hotels........................... $133,133,755
============
</TABLE>

The allocation of the Acquired Hotels' and Proposed Acquisition Hotels'
purchase price to the assets acquired consists of the following:

<TABLE>
<CAPTION>
PROPOSED
ACQUIRED ACQUISITION
HOTELS HOTELS TOTAL
----------- ----------- ------------
<S> <C> <C> <C>
Land................................ $ 6,134,000 $ 7,179,375 $ 13,313,375
Building and improvements........... 53,860,300 62,460,567 116,320,867
Furniture, fixtures and equipment... 1,345,700 2,153,813 3,499,513
----------- ----------- ------------
$61,340,000 $71,793,755 $133,133,755
=========== =========== ============
</TABLE>

The acquisitions have been accounted for as purchases.

As of December 31, 1996, the Company had invested approximately $10.7
million in capital improvements and renovations at the Current Hotels. The
Company has budgeted for 1997 approximately $33.3 million for

F-11
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET--(CONTINUED)
additional renovations and refurbishments at these hotels. In addition, the
Company has budgeted approximately $14.5 million to be spent on renovations
and refurbishments at the four Proposed Acquisition Hotels during 1997. These
estimated costs which will be made over the next twelve months are 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
Operations.

(E) Net decrease represents the following:

<TABLE>
<CAPTION>
ACQUIRED
HOTELS AND
PROPOSED OFFERING AND
ACQUISITION LINE OF
HOTELS CREDIT TOTAL
------------ ------------- ------------
<S> <C> <C> <C>
Gross proceeds of the Offering..... $ 158,050,000 $158,050,000
Underwriters' discount............. (8,294,000) (8,294,000)
Other expected expenses of the
Offering.......................... (2,238,781) (2,238,781)
Cash payments to acquire the
Acquired Hotels, including closing
costs (the Company also issued
$500,000 of restricted Common
Stock)............................ $(59,540,000) (59,540,000)
Cash payments to acquire the
Proposed Acquisition Hotels
including closing costs (the
Company also assumed debt of
$17,778,565)...................... (55,315,190) (55,315,190)
Payment of anticipated loan costs
related to the Line of Credit..... (700,000) (700,000)
Payment of franchise transfer costs
and other deferred expenses....... (267,000) (267,000)
Borrowings (payments) under Line of
Credit............................ 111,435,955 (114,435,955) (3,000,000)
------------ ------------- ------------
$ (3,686,235) $ 32,381,264 $ 28,695,029
============ ============= ============
</TABLE>

The Company's borrowing limit under its Line of Credit is $100 million. The
Company has received a commitment from its lenders to increase the line to
$150 million. The Company will be required to utilize a portion of the net
proceeds from the Offering to fund the acquisition of certain of the Proposed
Acquisition Hotels.

(F) Net increase represents the following:

<TABLE>
<S> <C>
Franchise transfer costs relating to the Acquired Hotels and
Proposed Acquisition Hotels................................ 267,000
Deferred loan costs related to the Line of Credit........... 825,000
----------
$1,092,000
==========
</TABLE>

Deferred loan costs related to the increase in the borrowing limit under the
Company's Line of Credit consist of a commitment fee, attorneys' fees,
appraisal costs, surveys, etc. to be paid from the proceeds of the Offering
($700,000) and a fee payable at the date the Company exercises its option to
extend the term of the Line of Credit ($125,000).

F-12
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET--(CONTINUED)

(G) Represents debt assumed in connection with the acquisitions of the
Radisson Hotel Arlington Heights ($8,218,755) and the French Quarter Suites
Hotel ($9,559,810). The Radisson Hotel Arlington Heights debt bears interest
at a fixed rate of 7.5% and will mature on the first anniversary of the
acquisition by the Operating Partnership. The French Quarter Suites Hotel debt
bears interest at a fixed rate of 9.75% and matures on July 2002. Each hotel
collateralizes the related debt.

(H) Represents the repayment of borrowings after the purchase of the
Acquired Hotels and Proposed Acquisition Hotels and related transactions and
use of the net proceeds from the Offering. The Company's borrowing limit under
its Line of Credit is $100 million. The Company has received a commitment from
its lenders to increase the Line of Credit to $150 million.

(I) Represents deferred loan costs which are payable at the date the Company
exercises its option to extend the term of the Line of Credit.

(J) Represents the recognition of minority interest in the Operating
Partnership that will not be owned by the Company (11.9%).

(K) Represents the $0.01 par value of the 25,397 shares of Common Stock
issued in connection with the acquisition of the Days Inn Lake Buena Vista
hotel and the Offering.

(L) Represents the following proposed transactions:

<TABLE>
<S> <C>
Gross proceeds of the Offering............................ $158,050,000
Underwriters' discount.................................... (8,294,000)
Other estimated expenses of the Offering.................. (2,238,781)
Par value of Common Stock................................. (58,254)
Shares issued in connection with the acquisition of the
Days Inn Lake Buena Vista hotel ......................... 500,000
Allocation to minority interest in Operating
Partnership.............................................. (6,957,549)
------------
$141,001,416
============
</TABLE>

The pro forma consolidated balance sheet does not include any proceeds from
the sale of Common Stock or OP Units (the "Alliance Securities") under the
Wyndham Alliance. In connection with the conversion of certain hotels to the
Wyndham brand, Wyndham will acquire the Alliance Securities with a value equal
to nine times the estimated franchise fee that is payable to Wyndham during
the first twelve months such hotel is operated as a Wyndham hotel.

The Company anticipates the Le Baron Airport Hotel to be converted to the
Wyndham brand in April 1997. Accordingly, approximately $2.5 million of
Alliance Securities are anticipated being sold pursuant to the Wyndham
Alliance with respect to this hotel.

F-13
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
American General Hospitality Corporation

We have audited the accompanying consolidated balance sheet and financial
statement schedule of American General Hospitality Corporation as of September
30, 1996 and the related consolidated statements of operations, shareholders'
equity and cash flows for the period from July 31, 1996 (inception of
operations) through September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule
based on our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
General Hospitality Corporation as of September 30, 1996 and the consolidated
results of their operations and their cash flows for the period from July 31,
1996 (inception of operations) through September 30, 1996 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.

Coopers & Lybrand L.L.P.

Dallas, Texas
November 27, 1996,
except for Note 10
as to which the
date is January 8,
1997

F-14
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investment in hotel properties:
Land and land improvements.......................................... $ 12,523,202
Buildings and improvements.......................................... 152,052,563
Furniture, fixtures and equipment................................... 10,018,789
Construction-in-progress............................................ 3,580,951
------------
178,175,505
Less: accumulated depreciation....................................... (2,561,692)
------------
Net investment in hotel properties................................... 175,613,813
Cash and cash equivalents............................................ 4,436,235
Percentage lease receivable--AGH Leasing, L.P........................ 4,093,764
Deferred expenses, net............................................... 2,866,731
Other assets......................................................... 544,965
Note receivable--Lessee.............................................. 315,000
------------
Total assets..................................................... $187,870,508
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt................................................................. $ 19,297,508
Debt, Line of Credit................................................. 3,000,000
Distributions payable................................................ 2,790,057
Accounts payable, accrued expenses and other liabilities............. 6,069,701
Minority interest in Operating Partnership........................... 29,305,376
------------
Total liabilities................................................ 60,462,642
------------
Commitments and contingencies (Notes 4 and 5)
Shareholders' equity:
Common stock $0.01 par value per share, 100,000,000 shares
authorized,
8,262,008 shares issued and outstanding............................. 82,620
Additional paid-in capital........................................... 128,163,835
Unearned officers' compensation...................................... (872,708)
Earnings in excess of distributions.................................. 34,119
------------
Total shareholders' equity....................................... 127,407,866
------------
Total liabilities and shareholders' equity....................... $187,870,508
============
</TABLE>

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

F-15
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JULY 31, 1996 (INCEPTION OF OPERATIONS) THROUGH SEPTEMBER
30, 1996

<TABLE>
<S> <C>
Revenues:
Participating Lease revenue ....................................... $5,218,526
Interest income ................................................... 32,227
----------
Total revenue ................................................... 5,250,753
----------
Expenses:
Depreciation ...................................................... 1,008,874
Amortization of deferred loan costs ............................... 93,750
Amortization of franchise fees..................................... 10,877
Amortization of other deferred expenses............................ 1,528
Real estate and personal property taxes and property insurance .... 511,115
General and administrative ........................................ 194,226
Ground lease expense .............................................. 218,000
Amortization of unearned officers' compensation ................... 14,792
Interest expense .................................................. 347,622
----------
Total expenses .................................................. 2,400,784
----------
Income before minority interest ..................................... 2,849,969
Minority interest ................................................... 547,102
----------
Net income applicable to common shareholders .................... $2,302,867
==========
Per Common Share Information:
Net income per common share ..................................... $ 0.29
==========
Weighted average number of common shares outstanding ................ 8,002,331
==========
</TABLE>

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

F-16
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 12, 1996 (DATE OF CAPITALIZATION) THROUGH SEPTEMBER
30, 1996

<TABLE>
<CAPTION>
ADDITIONAL UNEARNED EARNINGS IN
COMMON STOCK PAID-IN OFFICERS' EXCESS OF
SHARES DOLLARS CAPITAL COMPENSATION DISTRIBUTIONS TOTAL
--------- ------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common
shares, net of offering
expenses and allocation
to minority interest
($1,974,943)........... 8,212,008 $82,120 $127,276,835 $127,358,955
Issuance of officers'
shares................. 50,000 500 887,000 $(887,500)
Distributions declared
September 28, 1996
($0.2746 per share).... $(2,268,748) (2,268,748)
Amortization of unearned
officers'
compensation........... 14,792 14,792
Net income.............. 2,302,867 2,302,867
--------- ------- ------------ --------- ----------- ------------
Balance at September 30,
1996................... 8,262,008 $82,620 $128,163,835 $(872,708) $ 34,119 $127,407,866
========= ======= ============ ========= =========== ============
</TABLE>

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

F-17
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JULY 31, 1996 (INCEPTION OF OPERATIONS) THROUGH SEPTEMBER
30, 1996

<TABLE>
<S> <C>
Cash flow from operating activities:
Net income................................................... $ 2,302,867
Adjustments to reconcile net income to net cash provided by
operating
activities, net of effects of acquisitions:
Depreciation............................................... 1,008,874
Amortization............................................... 120,947
Minority interest.......................................... 547,102
Changes in assets and liabilities:
Participating Lease rents receivable--AGH Leasing, L.P..... (4,093,764)
Payment of organization costs and franchise fees........... (722,787)
Other assets............................................... (544,965)
Accounts payable, accrued expenses and other liabilities... 6,069,701
-------------
Net cash flow provided by operating activities........... 4,687,975
-------------
Cash flows from investing activities:
Purchase of hotel properties and related assets.............. (126,645,935)
Improvements and additions to hotel properties............... (3,580,951)
-------------
Net cash flow used in investing activities............... (130,226,886)
-------------
Cash flows from financing activities:
Proceeds from borrowings..................................... 13,000,000
Net proceeds from public offering............................ 129,333,898
Principal payments on borrowings............................. (10,108,752)
Payments for deferred loan costs............................. (2,250,000)
-------------
Net cash flow provided by financing activities........... 129,975,146
-------------
Net change in cash and cash equivalents...................... 4,436,235
Cash and cash equivalents as of July 31, 1996 (inception of
operations)................................................... 0
-------------
Cash and cash equivalents as of September 30, 1996............. $ 4,436,235
=============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest..................... $ 309,435
=============
</TABLE>

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

F-18
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND INITIAL PUBLIC OFFERING

Organization--American General Hospitality Corporation (the "Company" or the
"Registrant") was incorporated and formed on April 12, 1996 as a Maryland
corporation which intends to qualify as a real estate investment trust
("REIT"). The Company commenced operations on July 31, 1996 (see Initial
Public Offering discussion below). Upon commencement of operations, the
Company acquired equity interests in 13 hotels (the "Initial Hotels"). Four of
the Initial Hotels (the "AGH Predecessor Hotels") were acquired primarily from
limited partnerships controlled by the shareholders of American General
Hospitality, Inc. (the "AGHI Affiliates"). The remaining nine Initial Hotels
(the "Other Initial Hotels") were acquired primarily from parties unaffiliated
with the Company through contracts with the sellers acquired from an AGHI
affiliate.

Upon completion of the initial public offering described below, the Company,
through wholly owned subsidiaries, acquired an approximate 81.3% equity
interest in American General Hospitality Operating Partnership, L.P. (the
"Operating Partnership"). A wholly owned subsidiary of the Company is the sole
general partner of the Operating Partnership. The Operating Partnership and
entities which it controls own the Initial Hotels and 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 the Initial Hotels are managed by
American General Hospitality, Inc. ("AGHI").

Initial Public Offering--As of July 31, 1996, the Company completed an
initial public offering of 7,500,000 shares of its Common Stock and an
additional 575,000 shares of common stock were issued by the Company on August
28, 1996 upon exercise of the underwriters' over-allotment option at a price
per share of $17.75 (the "IPO"). In addition, concurrently with the July 31,
1996 closing of the IPO, the Company acquired interests in five of the Initial
Hotels from the AGHI Employee Retirement Savings Plan (the "Retirement Plan")
in exchange for 137,008 shares. Upon consummation of the IPO, the Company
contributed all of the net proceeds of the IPO ($129.3 million after deducting
IPO expenses), together with interests in five of the Initial Hotels acquired
in connection with the Retirement Plan acquisition, to AGH GP, Inc. ("General
Partner") and AGH LP, Inc. ("Limited Partner"), which, in turn, contributed
such proceeds and interests to the Operating Partnership in exchange for an
approximate 81.3% equity interest in the Operating Partnership. The General
Partner, a wholly owned subsidiary of the Company, owns a 1.0% interest in the
Operating Partnership. The Limited Partner, also a wholly owned subsidiary of
the Company, owns an approximate 80.3% limited partnership interest in the
Operating Partnership.

Also on July 31, 1996 the Operating Partnership acquired directly or
indirectly the remaining interests in each of the Initial Hotels for an
aggregate of 1,896,996 units of limited partnership interest in the Operating
Partnership ("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) and approximately $91.0 million in cash to parties
unaffiliated with the Primary Contributors. At the time of their acquisition,
the Initial Hotels were subject to approximately $52.9 million in mortgage
indebtedness of which approximately $33.5 million was repaid from the net
proceeds of the Offering and the initial draw from the Line of Credit. On
August 28, 1996, the outstanding borrowings under the Line of Credit were
repaid with proceeds of the exercise of the underwriters' over-allotment
option. The Operating Partnership reimbursed 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, concurrent with the consummation of the IPO, the
Operating Partnership sold certain personal property relating to certain of
the Initial Hotels to the Lessee in exchange for a series of three five-year
recourse promissory notes in the aggregate principal amount of $315,000 that
are collateralized by such personal property.

Upon the closing of the Offering, the Company closed a $100 million line of
credit with a consortium of banks led by Societe Generale, Southwest Agency
and Bank One, Texas, N.A. (the "Line of Credit"). The Line

F-19
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of Credit is collateralized by, among other things, first mortgage liens on
all of the Initial Hotels, other than the Holiday Inn Dallas DFW Airport South
and the Courtyard by Marriott-Meadowlands, which hotels collateralize other
indebtedness. The Line of Credit has 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 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 or one-half percent
in excess of the prime rate.

At September 30, 1996, the Company owned a 81.3% interest in the Operating
Partnership. The Operating Partnership owned 13 hotels and leased them to the
Lessee. The Lessee has entered into management agreements pursuant to which
all hotels are managed by AGHI.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principals of Consolidation--The consolidated financial statements include
the accounts of the Company and the Operating Partnership. All significant
intercompany balances and transactions have been eliminated.

Investment in Hotel Properties--Hotel properties are stated at cost and are
depreciated using the straight-line method over estimated useful lives of 39
years for buildings and improvements and 5 to 7 years for furniture, fixtures
and equipment.

The Company periodically reviews the carrying value of each of its
investments in hotel properties to determine if circumstances exist indicating
an impairment in the carrying value of the investment in hotel property or
that depreciation periods should be modified. If facts or circumstances
support the possibility of impairment, the Company 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
Company does not believe that their 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 improvements are capitalized. Upon the sale or disposition of a
fixed asset, the asset and related accumulated depreciation accounts are
removed from the accounts and the related 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.
Cash and cash equivalents include restricted cash of $250,000 including a Line
of Credit escrow account that will be used to pay certain unused faculty fees
under the Line of Credit.

Deferred Expenses--Organizational costs of approximately $40,287, deferred
loan costs of approximately $2,250,000 and franchise fees of approximately
$682,600 at September 30, 1996 are stated at cost. Amortization of
organization costs is computed using the straight-line method over five years.
Amortization of deferred loan costs is computed using the effective yield
method over the original term of the related debt of four years. Amortization
of franchise fees is computed using the straight-line method over the average
life of the franchise agreements of approximately 10 years. Accumulated
amortization at September 30, 1996 is $116,572.

Revenue Recognition--Participating Lease revenue is recognized when earned
from the Lessee under the Participating Lease agreements (see Note 4). The
Participating Lease revenue is based on a percentage of room revenues, food
and beverage revenues and telephone and other revenues. The departmental
revenue thresholds in the Participating Leases are seasonally adjusted for
interim periods and the Participating Lease formulas adjust effective January
1, 1997 by a percentage equal to the percentage increase in the Consumer Price
Index as compared to the prior year. Additionally, seven of the Initial Hotels
will have further adjustments to the Participating Lease formulas due to the
significant renovations expected to be completed on those hotels in 1997. The
Lessee is in compliance with its obligations stipulated in the Percentage
Leases.

F-20
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At September 30, 1996, the Lessee owed the Company $4,093,764 under the
Participating Leases which was paid in November 1996.

Net Income Per Common Share--Net income per common share is computed by
dividing net income applicable to common shareholders by the weighted average
number of shares of common stock and equivalents outstanding. Common share
equivalents that have a dilutive effect represent the restricted shares issued
to certain officers. For the period from July 31, 1996 through September 30,
1996, the outstanding common stock options had an immaterial dilutive effect.

Distributions--The Company pays regular quarterly distributions which are
dependent on receipt of distributions from the Operating Partnership.

Income Taxes--The Company intends to qualify as a REIT under Section 856
through 860 of the Internal Revenue Code. Accordingly, no provision for
federal income taxes has been reflected in the consolidated financial
statements.

Earnings and profits, which will determine the taxability of distributions
to stockholders, will differ from income reported for financial reporting
purposes due to the differences for federal tax purposes primarily in the
estimated useful lives used to compute depreciation.

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--The Company places cash deposits at a major
bank. At September 30, 1996, bank account balances exceeded Federal Deposit
Insurance Corporation limits by approximately $2.5 million. Management
believes credit risk related to these deposits is minimal.

3. DEBT OBLIGATIONS

Debt at September 30, 1996 consists of the following:

<TABLE>
<S> <C>
First mortgage note payable in monthly installments including
interest at the fixed rate of 8.75%; maturing on February 1, 2011
at which time a balloon payment of approximately $6,120,000 will
be due and payable collateralized by the Holiday Inn Dallas DFW
Airport South hotel............................................... $14,069,257
First mortgage note payable in monthly installments including
interest at the fixed rate of 7.5%; maturing on December 1, 2001
at which time a balloon payment of approximately $3,985,000 will
be due and payable collateralized by the Courtyard by Marriott-
Meadowlands hotel................................................. 4,579,142
Construction loan payable in monthly installments including
interest at the fixed rate of 7.89%; maturing on January 1, 2001
collateralized by the Courtyard by Marriott-Meadowlands hotel..... 649,109
-----------
19,297,508
Line of Credit..................................................... 3,000,000
-----------
Total debt obligations............................................. $22,297,508
===========
</TABLE>

F-21
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has an $100 million Line of Credit which matures on July 31,
1999. At September 30, 1996, the Company has approximately $57 million
available for borrowing under the Line of Credit ($41.2 million after closing
the Days Inn Lake Buena Vista Hotel acquisition and its admission into the
approved borrowing base--see note 10). 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 hotels or the acquisition of additional hotels. Borrowings under the Line
of Credit bear interest at 30-day, 60-day or 90-day LIBOR, at the option of
the Company, plus 1.85% per annum (7.28% at September 30, 1996), payable
monthly in arrears or one-half percent in excess of prime rate.

The Line of Credit is collateralized by the Company's investment in hotel
properties other than the hotel properties collateralizing the previous debt
obligations.

Aggregate annual principal payments for the Company's debt at September 30,
1996 are as follows.

<TABLE>
<CAPTION>
YEAR
----
<S> <C>
Remainder of 1996............................................. $ 135,499
1997.......................................................... 557,816
1998.......................................................... 584,965
1999.......................................................... 3,614,586
2000.......................................................... 646,906
2001 and thereafter........................................... 16,757,736
-----------
$22,297,508
===========
</TABLE>

4. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS

Franchise and Management Fees

Franchise costs represent the annual expense for franchise royalties and
reservation services under the terms of hotel franchise agreements which
expire from 1998 to 2013. Franchise costs are based upon varying percentages
of gross room revenue ranging from 1.0% to 5.0%. These fees are paid by the
Lessee. No franchise costs were incurred for the Le Baron Airport Hotel or the
Hotel Maison de Ville.

The hotels are managed by AGHI on behalf of the Lessee. The Lessee pays AGHI
a base management 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 revenue over the
total revenues for the preceding twelve month period up to the maximum
incentive fee.

Each hotel, except the Le Baron Airport Hotel and the Hotel Maison de Ville,
is required to remit varying percentages of gross room revenues ranging from
1.0% to 5.0% 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. These fees are
paid by the Lessee.

Participating Leases

The Lessee has future lease commitments to the Company under the
Participating Leases which expire in July, 2008. Minimum future rental income
(i.e., base rents) under these noncancellable Participating Leases at
September 30, 1996 is as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------------
<S> <C>
Remainder of 1996........................................... $ 5,109,002
1997........................................................ 20,096,208
1998........................................................ 20,849,816
1999........................................................ 21,631,684
2000........................................................ 22,442,872
2001 and thereafter......................................... 200,608,680
------------
Total................................................... $290,738,262
============
</TABLE>

F-22
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Under the Participating Leases, the Company is obligated to pay the costs of
real estate and personal property taxes, property insurance and maintaining
underground utilities and structural elements of the Initial Hotels.
Additionally, the Company is required to establish annual minimum reserves
equal to 4.0% of total revenue for each of the Hotels which will be utilized
by the Lessee for the replacement and refurbishment of furniture, fixtures &
equipment ("FF&E") and other capital expenditures to enhance the competitive
position of the Hotels. At September 30, 1996, $425,710 of cash is reserved
for capital investments.

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 Best Western 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 construction 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 Best Western Albuquerque Airport Hotel for the twelve
months ended September 30, 1996 was 81.8%.

Minimum future rental payments for the Company at September 30, 1996 are as
follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
Remainder of 1996.................................... $ 98,550
1997................................................. 343,846
1998................................................. 361,416
1999................................................. 366,866
2000................................................. 372,725
2001 and thereafter.................................. 18,425,301
-----------
Total.............................................. $19,968,704
===========
</TABLE>

F-23
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. EMPLOYEE BENEFITS

The Board of Directors adopted 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.

Concurrent with the IPO, the Company granted to the Company's officers and
directors options ("Options") to acquire an aggregate 400,000 shares of Common
Stock at an exercise price of $17.75 per share (the offering price in the IPO)
and stock awards ("Awards") representing 50,000 shares of restricted Common
Stock. The Options and Awards vest and are exercisable over five years. The
Options expire in 2006. As of September 30, 1996, no options had been
exercised.

Employment Agreements--The Company entered 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 entered into
employment agreements with three other executive officers each for a term of
five years at an aggregate annual base compensation of $230,000.

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards ("SFAS") No. 107 requires all
entities to disclose the fair value of certain financial instruments in their
financial statements. Accordingly, the Company reports the carrying amount of
cash and cash equivalents, accounts receivable, 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 Company's
debt obligations approximates fair value due to the Company's ability to
obtain such borrowings at comparable interest rates.

7. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in
October 1995. This statement encourages companies to recognize stock-based
compensation using new fair value accounting rules and requires companies not
adopting such rules to include fair value financial disclosures. The Company
has elected to adopt the disclosure requirements and has determined that the
additional disclosures as a result of this pronouncement are not significant.

8. NON-CASH INVESTING AND FINANCING ACTIVITIES.

The Operating Partnership issued 506,825 OP Units to AGHI Affiliates,
137,008 shares of restricted common stock to the Retirement Plan and cash of
$282,229 in exchange for the AGH Predecessor Hotels' investment in hotel
properties of $22,757,560 (recorded at carryover historical cost) and assumed
related debt of $5,267,990.

F-24
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Operating Partnership issued 1,336,818 OP Units to parties unaffiliated
with the Primary Contributors, 53,353 OP Units to the Primary Contributors
which had an aggregate value of $25,473,288 and assumed $14,138,270 of
indebtedness in exchange for partial interests in four of the Other Initial
Hotels.

The Operating Partnership advanced $315,000 in the form of a note receivable
to the Lessee for the purchase of FF&E.

The Company issued 50,000 shares of restricted common stock to four
executive officers which, at the date of issuance, were valued at $17.75 per
share.

At September 28, 1996, $2,790,057 in distributions to common stock and OP
Unit holders had been declared but not yet paid.

9. PRO FORMA INFORMATION (UNAUDITED)

Due to the impact of the IPO and related Formation Transactions including
the acquisitions of the Initial Hotels, the historical results of operations
may not be indicative of future results of operations and net income per
common share. The following unaudited pro forma information for the year ended
December 31, 1995 and the nine months ended September 30, 1996 are presented
as if the transactions previously described had occurred on January 1, 1995,
and all of the hotels had been leased to the Lessee pursuant to the Percentage
Leases since that date.

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Participating lease revenue........... $24,754,071 $21,575,916
Net income applicable to common
shareholders......................... $ 8,602,823 $ 9,793,741
Net income per common share........... $ 1.04 $ 1.19
Weighted average number of common
shares outstanding................... 8,262,008 8,262,008
</TABLE>

10. SUBSEQUENT EVENTS

On October 22, 1996, the Company and the Operating Partnership purchased
100.0% of the limited and general partnership interest in the Lake Buena Vista
Partners, Ltd. (the "Partnership") from unrelated third parties. The
Partnership, which owns the 490 room Days Inn Lake Buena Vista Resort & Suites
in Lake Buena Vista, Florida (the "Days Inn Lake Buena Vista hotel"), was
acquired for a purchase price of $30,500,000, plus estimated closing costs of
$300,000, which is payable as follows: (i) $30,000,000 in cash, and (ii)
$500,000 through the issuance of 25,397 shares of restricted common stock of
the Company. In addition, in connection with this acquisition, the Company
purchased a license and an association membership from one of the sellers for
the membership in Grand Theme Hotels and exclusive use of the African royal
safari theme in the Orlando area for approximately $1.3 million payable in
installments through 1997, and will pay an additional $1.1 million for certain
construction, design and other services related to the operation of the Days
Inn Lake Buena Vista hotel. The cash required to purchase the hotel was
provided by cash on hand and borrowings from the Line of Credit.

On November 21, 1996, the Company and the Operating Partnership purchased
the 204-room Holiday Inn Resort Monterey from an unrelated third party for a
purchase price of approximately $15.5 million in cash plus estimated closing
costs of $300,000. The cash required to acquire the hotel was provided from
borrowings under the Line of Credit.

On January 2, 1997, the Company's board of directors approved the filing of
a registration statement on Form S-11 for the issuance of 5,500,000 shares of
Common Stock.

On January 8, 1997, the Company and the Operating Partnership purchased the
152-room Hilton Hotel in Durham, North Carolina from an unrelated third party.
The acquisition cost of approximately $12.1 million was provided by cash on
hand and borrowings from the Line of Credit.

The Company has entered into contracts to purchase four hotels (the
"Proposed Acquisition Hotels") for an aggregate purchase price, including
closing costs, of approximately $72.9 million. The closing of the purchase of
each of the Proposed Acquisition Hotels is subject to satisfactory completion
of various closing conditions.

F-25
<PAGE>

AMERICAN GENERAL HOSPITALITY CORPORATION

SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
COST CAPITALIZED GROSS AMOUNTS AT
SUBSEQUENT TO WHICH CARRIED
INITIAL COST ACQUISITION AT COST OF PERIOD
------------------------ -------------------- ------------------------
ACCUMULATED
DEPRECIATION
BUILDING BUILDING BUILDING BUILDING
AND AND AND AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL IMPROVEMENTS
----------- ------------ ----------- ------------ ------- ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Courtyard by
Marriott
Meadowlands
Secaucus, NJ $ 5,228,251 $ 4,780,496 $ 965,831 $ 5,746,327 $ 5,746,327 $ 341,828
Hampton Inn
Richmond Airport
Richmond, VA $ 505,000 3,590,369 $28,405 464,211 $ 533,405 4,054,580 4,587,985 166,862
Holiday Inn
Dallas DFW
Airport West
Bedford, TX 816,515 6,532,118 23,442 1,173,901 839,957 7,706,019 8,545,976 203,264
Hotel Maison De
Ville
New Orleans, LA 175,000 1,641,777 39,126 1,040,180 214,126 2,681,957 2,896,083 107,981
Holiday Inn
Dallas DFW
Airport South
Dallas, TX 14,069,257 2,468,943 20,986,013 2,468,943 20,986,013 23,454,956 89,670
Holiday Inn Park
Center Plaza
San Jose, CA 1,249,414 10,869,901 1,249,414 10,869,901 12,119,315 46,442
Best Western
Albuquerque
Airport Hotel
Albuquerque, NM 9,037,689 9,037,689 9,037,689 38,607
Holiday Inn
Select--Madison
Madison, WI 2,135,059 18,148,002 2,135,059 18,148,002 20,283,061 77,526
Holiday Inn New
Orleans
International
Airport
Kenner, LA 2,391,580 20,328,433 2,391,580 20,328,433 22,720,013 86,819
Days Inn Ocean
City
Ocean City, MD 736,514 6,407,673 736,514 6,407,673 7,144,187 27,364
Le Baron Airport
Hotel
San Jose, CA 19,102,129 19,102,129 19,102,129 81,596
Holiday Inn
Mission Valley
San Diego, CA 1,954,204 17,001,577 1,954,204 17,001,577 18,955,781 72,613
Hilton Hotel--
Toledo
Toledo, OH 9,982,263 9,982,263 9,982,263 42,812
----------- ----------- ------------ ------- ---------- ----------- ------------ ------------ ----------
$19,297,508 $12,432,229 $148,408,440 $90,973 $3,644,123 $12,523,202 $152,052,563 $164,575,765 $1,383,384
=========== =========== ============ ======= ========== =========== ============ ============ ==========
<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>
Courtyard by
Marriott
Meadowlands
Secaucus, NJ $ 5,404,499 1989 1993 39 YRS
Hampton Inn
Richmond Airport
Richmond, VA 4,421,123 1972 1994 39 YRS
Holiday Inn
Dallas DFW
Airport West
Bedford, TX 8,342,712 1974 1995 39 YRS
Hotel Maison De
Ville
New Orleans, LA 2,788,102 1778 1994 39 YRS
Holiday Inn
Dallas DFW
Airport South
Dallas, TX 23,365,286 1974 1996 39 YRS
Holiday Inn Park
Center Plaza
San Jose, CA 12,072,873 1975 1996 39 YRS
Best Western
Albuquerque
Airport Hotel
Albuquerque, NM 8,999,082 1972 1996 39 YRS
Holiday Inn
Select--Madison
Madison, WI 20,205,535 1987 1996 39 YRS
Holiday Inn New
Orleans
International
Airport
Kenner, LA 22,633,194 1973 1996 39 YRS
Days Inn Ocean
City
Ocean City, MD 7,116,823 1989 1996 39 YRS
Le Baron Airport
Hotel
San Jose, CA 19,020,533 1974 1996 39 YRS
Holiday Inn
Mission Valley
San Diego, CA 18,883,168 1970 1996 39 YRS
Hilton Hotel--
Toledo
Toledo, OH 9,939,451 1987 1996 39 YRS
------------
$163,192,381
============
</TABLE>

<TABLE>
<CAPTION>
PERIOD JULY 31
THROUGH
SEPTEMBER 30,
1996
--------------
(a) Reconciliation of Land and Buildings and Improvements:
<S> <C> <C>
Balance at July 31,
1996(1) $ 20,078,175
Additions for the
period 144,497,590
------------
Balance at September
30, 1996 $164,575,765
============
(b) Reconciliation of Accumulated Depreciation:
Balance at July 31,
1996(1) $ 737,503
Depreciation for the
period 645,881
------------
Balance at September
30, 1996 $ 1,383,384
============
</TABLE>
- -----
(1) Represents amounts from AGH Predecessor Hotels as of July 30, 1996

F-26
<PAGE>

LESSEE

PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995, THE TWELVE MONTHS ENDED SEPTEMBER 30,
1996 ANDTHE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)

The following unaudited Pro Forma Combined Statements of Operations are
presented as if the consummation of the IPO and related Formation
Transactions, the acquisition of all Hotels, and the consummation of the
Offering and the application of the net proceeds therefrom had occurred on
January 1, 1995, and all of the Hotels had been leased by the Lessee pursuant
to the Participating Leases since that date. 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
Offering have been made.

The following unaudited Pro Forma Combined Statements of Operations are not
necessarily indicative of what results of operations of the 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.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------
REDUCTION
PROPOSED IN
INITIAL ACQUIRED ACQUISITION MANAGEMENT
HOTELS HOTELS HOTELS FEES TOTAL
----------- ----------- ----------- ---------- -----------
(A) (A) (A) (D)
<S> <C> <C> <C> <C> <C>
Revenues:
Room revenue (B)....... $55,330,171 $14,240,840 $17,353,861 $86,924,872
Food and beverage
revenue (B)........... 18,191,504 3,791,094 5,136,591 27,119,189
Other revenue (B)...... 4,363,432 995,040 1,099,925 6,458,397
----------- ----------- ----------- -----------
Total revenue........ 77,885,107 19,026,974 23,590,377 120,502,458
----------- ----------- ----------- -----------
Expenses:
Property operating
costs and expenses
(C) .................. 29,624,254 7,435,674 8,911,869 45,971,797
General and
administrative (C).... 7,020,088 1,655,888 2,007,890 10,683,866
Advertising and
promotion............. 4,625,086 1,282,980 1,593,413 7,501,479
Repairs and
maintenance........... 3,296,167 1,093,827 1,198,947 5,588,941
Utilities.............. 3,546,149 975,778 1,159,955 5,681,882
Management fees (D).... 2,352,918 290,533 825,494 $(489,875) 2,979,070
Franchise costs (E).... 2,117,338 531,368 423,279 3,071,985
Depreciation (F)....... 63,000 63,000
Amortization (G).......
Real estate and
personal property
taxes, and property
insurance (H).........
Interest expense (I)... 31,500 31,500
Other expense.......... 58,084 69,288 26,779 154,151
Participating Lease
expenses (J).......... 24,754,071 7,836,247 7,247,372 39,837,690
----------- ----------- ----------- --------- -----------
Total expenses....... 77,488,655 21,171,583 23,394,998 (489,875) 121,565,361
----------- ----------- ----------- --------- -----------
Net income (loss).... $ 396,452 $(2,144,609) $ 195,379 $ 489,875 $(1,062,903)
=========== =========== =========== ========= ===========
</TABLE>

See Notes to Pro Forma Combined Statements of Operations

F-27
<PAGE>

LESSEE

PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SEPTEMBER 30, 1996
HISTORICAL --------------------------------------------------------------
JULY 31, 1996 REDUCTION
THROUGH PROPOSED IN
SEPTEMBER 30, PRO FORMA INITIAL ACQUIRED ACQUISITION MANAGEMENT
1996 ADJUSTMENTS HOTELS HOTELS HOTELS FEES TOTAL
------------- ----------- ----------- ----------- ----------- ---------- ------------
(K) (L) (A) (A) (A) (D)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Room revenue(B)........ $11,185,140 $47,987,870 $59,173,010 $16,019,734 $19,129,484 $ 94,322,228
Food and beverage
revenue(B)............ 2,982,331 15,760,495 18,742,826 3,383,889 5,040,569 27,167,284
Other revenue(B)....... 623,824 3,706,521 4,330,345 1,146,830 1,057,461 6,534,636
----------- ----------- ----------- ----------- ----------- ------------
Total revenue........ 14,791,295 67,454,886 82,246,181 20,550,453 25,227,514 128,024,148
----------- ----------- ----------- ----------- ----------- ------------
Expenses:
Property operating
costs and
expenses(C)........... 5,396,204 26,036,759 31,432,963 7,491,963 9,199,720 48,124,646
General and
administrative(C)..... 1,205,355 6,473,025 7,678,380 1,695,474 1,947,405 11,321,259
Advertising and
promotion............. 772,999 3,990,029 4,763,028 1,270,207 1,685,641 7,718,876
Repairs and
maintenance........... 522,792 2,638,439 3,161,231 1,159,370 1,355,018 5,675,619
Utilities.............. 668,296 2,815,050 3,483,346 958,666 1,175,433 5,617,445
Management fees(D)..... 390,736 1,737,469 2,128,205 306,292 845,455 $(790,416) 2,489,536
Franchise costs(E)..... 404,025 1,874,711 2,278,736 597,206 439,681 3,315,623
Depreciation(F)........ 10,500 52,500 63,000 63,000
Amortization(G)........
Real estate and
personal property
taxes, and property
insurance(H)..........
Interest expense(I).... 5,250 26,250 31,500 31,500
Other expense.......... 17,448 229,223 246,671 42,316 103,230 392,217
Participating Lease
expenses(J)........... 5,218,526 22,295,156 27,513,682 8,304,834 8,450,400 44,268,916
----------- ----------- ----------- ----------- ----------- --------- ------------
Total expenses....... 14,612,131 68,168,611 82,780,742 21,826,328 25,201,983 (790,416) 129,018,637
----------- ----------- ----------- ----------- ----------- --------- ------------
Net income (loss).... $ 179,164 $ (713,725) $ (534,561) $(1,275,875) $ 25,531 $ 790,416 $ (994,489)
=========== =========== =========== =========== =========== ========= ============
</TABLE>

See Notes to Pro Forma Combined Statements of Operations

F-28
<PAGE>

LESSEE

PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
--------------------------------------------------------------------------------
HISTORICAL
JULY 31, 1996 PROPOSED
THROUGH PRO FORMA INITIAL ACQUIRED ACQUISITION
SEPTEMBER 30, 1996 ADJUSTMENTS HOTELS HOTELS HOTELS TOTAL
------------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues: (K) (L) (A) (A) (A)
Room revenue(B)........ $11,185,140 $35,215,932 $46,401,072 $13,007,136 $15,076,705 $ 74,484,913
Food and beverage
revenue(B)............ 2,982,331 10,885,595 13,867,926 2,506,558 3,807,353 20,181,837
Other revenue(B)....... 623,824 2,518,325 3,142,149 892,169 803,544 4,837,862
----------- ----------- ----------- ----------- ----------- ------------
Total revenue........ 14,791,295 48,619,852 63,411,147 16,405,863 19,687,602 99,504,612
----------- ----------- ----------- ----------- ----------- ------------
Expenses:
Property operating
costs and
expenses(C)........... 5,396,204 18,079,623 23,475,827 5,711,823 7,014,060 36,201,710
General and
administrative(C)..... 1,205,355 4,334,289 5,539,644 1,299,295 1,465,561 8,304,500
Advertising and
promotion............. 772,999 2,880,823 3,653,822 990,380 1,269,292 5,913,494
Repairs and
maintenance........... 522,792 1,989,338 2,512,130 912,824 1,057,226 4,482,180
Utilities.............. 668,296 1,961,997 2,630,293 723,214 892,165 4,245,672
Management fees(D)..... 390,736 1,185,515 1,576,251 243,952 651,657 2,471,860
Franchise costs(E)..... 404,025 1,266,021 1,670,046 483,131 356,035 2,509,212
Depreciation(F)........ 10,500 36,750 47,250 47,250
Amortization(G)........
Real estate and
personal property
taxes, and property
insurance(H)..........
Interest expense(I).... 5,250 18,375 23,625 23,625
Other expense.......... 17,448 171,139 188,587 6,211 78,927 273,725
Participating Lease
expenses(J)........... 5,218,526 16,357,390 21,575,916 6,386,185 6,830,070 34,792,171
----------- ----------- ----------- ----------- ----------- ------------
Total expenses....... 14,612,131 48,281,260 62,893,391 16,757,015 19,614,993 99,265,399
----------- ----------- ----------- ----------- ----------- ------------
Net income (loss).... $ 179,164 $ 338,592 $ 517,756 $ (351,152) $ 72,609 $ 239,213
=========== =========== =========== =========== =========== ============
</TABLE>

See Notes to Pro Forma Combined Statements of Operations

F-29
<PAGE>

LESSEE

PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
------------------------------------------------
PROPOSED
INITIAL ACQUIRED ACQUISITION
HOTELS HOTELS HOTELS TOTAL
----------- ----------- ----------- -----------
(A) (A) (A)
<S> <C> <C> <C> <C>
Revenues:
Room revenue(B).............. $42,558,233 $11,228,242 $13,301,082 $67,087,557
Food and beverage
revenue(B).................. 13,316,604 2,913,763 3,903,375 20,133,742
Other revenue(B)............. 3,175,236 740,379 846,008 4,761,623
----------- ----------- ----------- -----------
Total revenue.............. 59,050,073 14,882,384 18,050,465 91,982,922
----------- ----------- ----------- -----------
Expenses:
Property operating costs and
expenses(C)................. 21,667,118 5,656,273 6,726,209 34,049,600
General and
administrative(C)........... 4,881,352 1,259,709 1,526,046 7,667,107
Advertising and promotion.... 3,515,880 1,003,153 1,177,064 5,696,097
Repairs and maintenance...... 2,647,066 847,281 901,155 4,395,502
Utilities.................... 2,693,096 740,326 876,687 4,310,109
Management fees(D)........... 1,800,964 228,193 631,696 2,660,853
Franchise costs(E)........... 1,508,648 417,293 339,633 2,265,574
Depreciation(F).............. 47,250 47,250
Amortization(G)..............
Real estate and personal
property taxes, and
property insurance(H).......
Interest expense(I).......... 23,625 23,625
Other expense................ 33,183 2,476 35,659
Participating Lease
expenses(J)................. 18,816,305 5,917,598 5,627,042 30,360,945
----------- ----------- ----------- -----------
Total expenses............. 57,601,304 $16,103,009 $17,808,008 91,512,321
----------- ----------- ----------- -----------
Net income (loss).......... $ 1,448,769 $(1,220,625) $ 242,457 $ 470,601
=========== =========== =========== ===========
</TABLE>

See Notes to Pro Forma Combined Statements of Operations

F-30
<PAGE>

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 American General
Hospitality Operating Partnership, L.P. (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
Company, which consent may not be unreasonably withheld. The Lessee, with the
written consent of the Company, has entered or expects to enter into
management agreements pursuant to which all of the Hotels will be managed by
AGHI, except for the Four Points by Sheraton which is expected to be managed
by Wyndham.

The Lessee's results of operations are seasonal. The aggregate room revenues
in the second and third quarters in the pro forma statements of operations are
generally higher than room revenues in the first and fourth quarters of each
fiscal year. Consequently, the following Lessee pro forma statements of
operations reflect net income in the second and third quarters and a net loss
in the fourth quarter.

(A) Represents the pro forma statements of operations of the Initial Hotels,
Acquired Hotels and Proposed Acquisition Hotels as if all of the Hotels were
leased by the Lessee pursuant to the Participating Leases commencing on
January 1, 1995.

(B) Represents historical room and food and beverage revenues of the Hotels
adjusted for telephone commissions totalling approximately $122,648 to conform
the Hotels' commission structure to the structure under new contracts AGHI
will have with its telecommunications providers. Amounts that would be
received in connection with a cash flow guarantee and the recurring
association fee agreements with one seller of the Days Inn Lake Buena Vista
hotel of $1.1 million, $1.0 million, $680,000 and $746,000 for the year ended
December 31, 1995, twelve months ended September 30, 1996, nine months ended
September 30, 1996 and 1995, respectively, are recorded as deferred revenue
and consequently are not included in revenues until the commencement of the
association fee agreement on January 1, 1998.

(C) Reflects the historical expenses of the Hotels less expenses which are
not expected to be incurred by the Lessee. The expenses not expected to be
incurred by the Lessee consist primarily of the following:

<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED TWELVE MONTHS ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1995
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Property operating costs
and expenses:
Certain changes in
employee benefits...... $(155,002) $ (80,222) $ (41,168) $(115,947)
Operating lease
expense................ (277,673) (180,820) (110,930) (207,783)
--------- --------- --------- ---------
$(432,675) $(261,042) $(152,098) $(323,730)
========= ========= ========= =========
General and
administrative
expenses:
Certain changes in
employee benefits...... $ (24,431) $ (11,980) $ (6,209) $ (18,660)
Operating lease
expense................ (32,054) (24,038) (15,556) (23,572)
Owner related
expenses............... (264,448) (181,710) (119,059) (201,797)
--------- --------- --------- ---------
$(320,933) $(217,728) $(140,824) $(244,029)
========= ========= ========= =========
</TABLE>

The elimination of historical expenses for certain changes in employee
benefits represents changes in employee benefits at two hotels to conform to
the benefits provided by AGHI. The elimination of certain

F-31
<PAGE>

LESSEE

NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS--(CONTINUED)
historical operating lease expenses results from the pay-off of certain
operating leases of the Hotels at closing. The elimination of historical owner
related expenses represents the elimination of various charges from the owners
at four of the Hotels, which related to personal expenditures.

(D) Represents management fees to be incurred under the Management
Agreements. The management fees payable to AGHI 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. Such incentive
fee is payable quarterly and is 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 Lease. The full
management fees payable during 1996 and 1997 will be earned only to the extent
that the Lessee has taxable income equal to or greater than $50,000. If the
Lessee's taxable income is below $50,000 in 1996 and or 1997, management fees
are forfeited by AGHI to increase the Lessee's taxable income to $50,000.

The management fees expected to be paid to Wyndham for managing the Four
Points by Sheraton will provide for the payment of a base management fee equal
to 1.5% of total revenue at the hotel plus an incentive management fee of up
to 1.5% of total revenue. Wyndham will be entitled to secure the incentive
management fee during the first two years of the term of the agreement if (i)
annualized 1997 total revenue for the hotel exceeds 1996 total revenue for the
hotel by at least 6% and (ii) 1998 total revenue for the hotel exceeds 1996
total revenue for the hotel by at least 12%. Thereafter, the incentive
management fee will be earned if annual total revenue for the hotel exceeds
the total revenue for the hotel for the prior year by at least the percentage
increase in CPI for such year.

All historical management fees have been eliminated.

(E) Represents the historical franchise fees of the Hotels. Franchise fees
associated with the hotel conversions are not included in the pro forma
statements of operations since other impacts including possible revenue
enhancements and operating expense reductions are also not included.

(F) Historical depreciation expense at the Hotels has been eliminated due to
depreciation being recorded by the Operating Partnership. Represents
depreciation related to the $315,000 of furniture, fixtures and equipment
("FF&E") purchased by the Lessee from the Operating Partnership. The FF&E is
depreciated over an estimated useful life of 5 years.

(G) Historical deferred loan costs and the related amortization has been
eliminated since the Lessee is not expected to incur similar costs.

(H) Real estate and personal property taxes, and property insurance expense
at the Hotels has been eliminated since it is to be paid by the Operating
Partnership.

(I) Any future interest expense related to debt for the Hotels will be
incurred and paid by the Operating Partnership. 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
commencing July 31, 1996.

(J) 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 revenues of
the Hotels. The departmental revenue thresholds in the Participating Leases
are seasonally adjusted for interim periods and certain of the Participating
Lease formulas adjust beginning January 1, 1997. See "The Hotels--The
Participating Leases."

F-32
<PAGE>

LESSEE

NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS--(CONTINUED)

The Participating Lease expense is comprised of the following:

<TABLE>
<CAPTION>
TWELVE NINE MONTHS NINE MONTHS
YEAR ENDED MONTHS ENDED ENDED ENDED
DECEMBER SEPTEMBER SEPTEMBER SEPTEMBER
31, 1995 30, 1996 30, 1996 30, 1995
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Base Rent.................... $28,677,000 $28,677,000 $21,507,750 $21,507,750
Excess of Participating Rent
over Base Rent.............. 11,160,690 15,591,916 13,284,421 8,853,195
----------- ----------- ----------- -----------
Total Participating Lease
expense................. $39,837,690 $44,268,916 $34,792,171 $30,360,945
=========== =========== =========== ===========
</TABLE>

(K) Represents the Lessee's historical statement of operations for the
period from July 31, 1996 (inception of operation) to September 30, 1996.

(L) Represents the Lessee's pro forma statement of operations for periods
prior to July 31, 1996 adjusted for the leasing of the Initial Hotels pursuant
to the Participating Leases commencing on January 1, 1996.

F-33
<PAGE>

AGH LEASING, L.P.
BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)

<TABLE>
<S> <C>
ASSETS
Investments in hotel properties, at cost:
Furniture, fixtures and equipment............................... $ 315,000
Less accumulated depreciation................................... (10,500)
----------
Net investment in hotel properties................................ 304,500
Cash and cash equivalents......................................... 5,994,553
Accounts receivable, net of allowance for doubtful accounts of
$5,500........................................................... 2,414,921
Inventories....................................................... 366,653
Prepaid expenses.................................................. 462,960
Other assets...................................................... 46,987
----------
Total assets.................................................... $9,590,574
==========
LIABILITIES AND PARTNERS CAPITAL
Accounts payable, trade........................................... $ 472,191
Participating rent payable, American General Hospitality Operating
Partnership, L.P. ............................................... 4,093,764
Advance from American General Hospitality Operating Partnership,
L.P. ............................................................ 315,000
Accrued expenses and other liabilities............................ 4,030,455
----------
Total liabilities............................................... 8,911,410
----------
Commitments and contingencies (Notes 1 and 2)
Partners' capital................................................. 500,000
Net income........................................................ 179,164
----------
Total partners' capital......................................... 679,164
----------
Total liabilities and partners' capital......................... $9,590,574
==========
</TABLE>

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

F-34
<PAGE>

AGH LEASING, L.P.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JULY 31, 1996 (INCEPTION OF OPERATIONS) THROUGH SEPTEMBER
30, 1996
(UNAUDITED)

<TABLE>
<S> <C>
Revenues:
Room revenue..................................................... $11,185,140
Food and beverage revenue........................................ 2,982,331
Other revenue.................................................... 623,824
-----------
Total revenue.................................................. 14,791,295
-----------
Expenses:
Property operating costs and expenses............................ 3,135,269
Food and beverage costs and expenses............................. 2,260,935
General and administrative....................................... 1,205,355
Advertising and promotion........................................ 772,999
Repairs and maintenance.......................................... 522,792
Utilities........................................................ 668,296
Management fees.................................................. 390,736
Franchise costs.................................................. 404,025
Depreciation..................................................... 10,500
Interest expense................................................. 5,250
Other expense.................................................... 17,448
Participating Lease expenses..................................... 5,218,526
-----------
Total expenses................................................. 14,612,131
-----------
Net income..................................................... $ 179,164
===========
</TABLE>

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

F-35
<PAGE>

AGH LEASING, L.P.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JULY 31, 1996 (INCEPTION OF OPERATIONS) THROUGH
SEPTEMBER 30, 1996
(UNAUDITED)

<TABLE>
<S> <C>
Cash flow from operating activities:
Net income....................................................... $ 179,164
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.................................................... 10,500
Changes in assets and liabilities:
Accounts receivable............................................ (2,414,921)
Inventories.................................................... (366,653)
Prepaid expenses............................................... (462,960)
Other assets................................................... (46,987)
Accounts payable, trade........................................ 472,191
Participating rent payable, American General Hospitality
Operating Partnership, L.P. .................................. 4,093,764
Accrued expenses and other liabilities......................... 4,030,455
-----------
Net cash provided by operating activities...................... 5,494,553
-----------
Cash flows from financing activities:
Capital contributions............................................ 500,000
-----------
Net change in cash and cash equivalents........................... 5,994,553
Cash and cash equivalents at beginning of period.................. 0
-----------
Cash and cash equivalents at end of period........................ $ 5,994,553
===========

Supplemental schedule of cash flow information and non cash investing and
financing activities:

Cash paid during the period for interest........................ $ 0
===========
</TABLE>

The Operating Partnership advanced $315,000 in the form of a note
receivable to the Lessee for the purchase of furniture, fixtures and
equipment.

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

F-36
<PAGE>

AGH LEASING, L.P.

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

1. ORGANIZATION AND 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 initial public
offering described below and commencement of operations on July 31, 1996,
American General Hospitality Corporation (the "Company") acquired an
approximate 81.3% 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 owns 13 hotels (the "Initial Hotels"), leases 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 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 are managed by AGHI. The Lessee is owned in part by certain
executive officers of the Company and AGHI.

The Lessee's results of operations are seasonal. The aggregate room revenues
in the second and third quarters of each fiscal year may be higher than room
revenues in the first quarter and may be much higher than room revenues in the
fourth quarter of each fiscal year. Consequently, the Lessee may have net
income in the second and third quarters and may have a net loss in the fourth
quarter.

Initial Public Offering--As of July 31, 1996, the Company completed an
initial public offering of 7,500,000 shares of its common stock and an
additional 575,000 shares of common stock were issued by the Company on August
28, 1996 upon exercise of the underwriters' over-allotment option at a price
per common share of $17.75 (the "IPO"). Upon consummation of the IPO, the
Company contributed all of the net proceeds of the IPO to the Operating
Partnership in exchange for an approximate 81.3% equity interest in the
Operating Partnership. The Operating Partnership used such funds to purchase
certain of the Initial Hotels, repay debt and other obligations of the Initial
Hotels, and for working capital.

Upon consummation of the IPO, the partners of the Lessee capitalized the
Lessee with $500,000 cash and pledged 275,000 units of limited partnership
interest in the Operating Partnership ("OP Units") to the Company to secure
the Lessee's obligations under the Participating Leases.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investment in Hotel Properties--Hotel properties consist principally of FF&E
and 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 3 to 7 years.

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.

Inventories--Inventories consisting primarily of food and beverage items and
are stated at the lower of cost (generally, first-in first-out) or market.

F-37
<PAGE>

AGH LEASING, L.P.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

Income Taxes--The Lessee is a Texas limited partnership which is not a
taxable entity. 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.

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.

Concentration of Credit Risk--The Lessee places cash deposits at a major
bank. At September 30, 1996, bank account balances exceeded Federal Deposit
Insurance Corporation limits by approximately $3.3 million. Management
believes credit risk related to these deposits is minimal.

3. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS

The Initial Hotels are managed by AGHI on behalf of the Lessee. The Lessee
pays AGHI a base management 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 revenue
over the total revenues for the preceding twelve month period up to the
maximum incentive fee. Such incentive fee is payable quarterly and is 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 full management fees payable during 1996 and 1997,
will be earned only to the extent that the Lessee has taxable income equal to
or greater than $50,000. If the Lessee's taxable income is below $50,000 in
1996 and or 1997 management fees are forfeited by AGHI to increase the
Lessee's taxable income to $50,000.

Each hotel, except the Le Baron Airport Hotel and the Hotel Maison de Ville,
is required to remit varying percentages of gross room revenue ranging from
1.0% to 5.0% 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. These fees are
prepaid by the Lessee.

F-38
<PAGE>

The Lessee has future lease commitments to the Company under the
Participating Leases which expire in July, 2008. The Participating Lease
expenses are based on a percentage of room revenues, food and beverage
revenues and telephone and other revenues. The departmental revenue thresholds
in the Participating Leases are seasonally adjusted for interim periods and
the Participating Lease formulas adjust effective January 1, 1997 by a
percentage equal to the percentage increase in the Consumer Price Index as
compared to the prior year. Additionally, several of the Initial Hotels will
have further adjustments to the Participating Lease formulas due to the
significant renovations expected to be completed in those hotels in 1997.
Minimum future rental expense (i.e. base rents) under these noncancellable
Participating Leases is as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------------
<S> <C>
Remainder of 1996............................................. $ 5,109,002
1997.......................................................... 20,096,208
1998.......................................................... 20,849,816
1999.......................................................... 21,631,684
2000.......................................................... 22,442,872
2001 and thereafter........................................... 200,608,680
------------
Total......................................................... $290,738,262
============
</TABLE>

4. PRO FORMA INFORMATION

Due to the impact of the IPO and related Formation Transactions, the
historical results of operations may not be indicative of future results of
operations. The following unaudited pro forma information of the Lessee is
presented as if the consummation of IPO and the related Formation Transactions
had occurred on January 1, 1995 and all of the Initial Hotels had been leased
pursuant to the Participating Leases since that date.

In management's opinion, all adjustments necessary to reflect the effects of
the IPO and related Formation Transactions have been made. The pro forma
information does not purport to present what the actual results of operations
of the Lessee would have been if the previously mentioned transactions had
occurred on such date or to project the future financial position or results
of operations of the Lessee for any future period.

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Room revenue.......................... $55,330,171 $46,401,072
Total revenue......................... $77,885,107 $63,411,147
Percentage lease expenses............. $24,754,071 $21,527,411
Net income............................ $ 396,452 $ 566,261
</TABLE>

5. SUBSEQUENT EVENTS

As of January 8, 1997, the Lessee and the Operating Partnership entered into
three operating lease agreements for three hotels which were acquired by the
Operating Partnership. The leases are substantially similar to the other
Participating Lease agreements between the Lessee and the Operating
Partnership. The base rent for the three hotels will be approximately
$7,456,000 for 1997, subject to completion of planned renovations and other
activities.

F-39
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
American General Hospitality Corporation

We have audited the accompanying combined balance sheets and financial
statement schedule of the AGH Predecessor Hotels (described in Note 1) as of
December 30, 1994, December 29, 1995, and July 30, 1996, and the related
combined statements of operations, equity and cash flows for the period from
December 30, 1993 through December 31, 1993, the years ended December 30, 1994
and December 29, 1995 and for the period from December 30, 1995 through July
30, 1996. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule 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, December 29, 1995 and July 30,
1996 and the combined results of their operations and their cash flows for the
period from December 30, 1993 through December 31, 1993, the years ended
December 30, 1994 and December 29, 1995 and for the period from December 30,
1995 through July 30, 1996 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.

Coopers & Lybrand L.L.P.

Dallas, Texas
September 19, 1996

F-40
<PAGE>

AGH PREDECESSOR HOTELS

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29, JULY 30,
1994 1995 1996
------------ ------------ -----------
ASSETS
<S> <C> <C> <C>
Investment in hotel properties, at
cost
Land............................... $ 680,000 $ 1,496,515 $ 1,496,515
Buildings and improvements......... 11,162,793 18,427,855 18,581,660
Furniture, fixtures and equipment.. 3,028,860 3,439,484 4,232,203
----------- ----------- -----------
14,871,653 23,363,854 24,310,378
Less accumulated depreciation........ (409,067) (945,502) (1,552,818)
----------- ----------- -----------
Net investment in hotel properties 14,462,586 22,418,352 22,757,560
Cash and cash equivalents............ 615,066 857,608 1,415,865
Restricted cash...................... 130,386 441,445 386,827
Accounts receivable, net............. 109,719 281,169 305,097
Inventories.......................... 41,407 55,611 63,937
Prepaid expenses..................... 44,400 166,463 162,985
Deferred expenses.................... 50,212 370,046 365,621
Other assets......................... 9,000 85,410 156,538
----------- ----------- -----------
Total assets..................... $15,462,776 $24,676,104 $25,614,430
=========== =========== ===========
<CAPTION>
LIABILITIES AND EQUITY
<S> <C> <C> <C>
Debt................................. $11,016,322 $19,277,646 $20,114,415
Accounts payable, trade.............. 199,312 560,862 481,993
Accrued expenses and other
liabilities......................... 419,643 832,889 719,213
----------- ----------- -----------
Total liabilities................ 11,635,277 20,671,397 21,315,621
----------- ----------- -----------
Commitments and contingencies (Note
4)
Capital.............................. 4,145,000 5,812,391 5,627,391
Accumulated deficit.................. (317,501) (1,807,684) (1,328,582)
----------- ----------- -----------
Total equity......................... 3,827,499 4,004,707 4,298,809
----------- ----------- -----------
Total liabilities and equity..... $15,462,776 $24,676,104 $25,614,430
=========== =========== ===========
</TABLE>

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

F-41
<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
FOR THE PERIOD FROM DECEMBER 30, 1995 THROUGH JULY 30, 1996

<TABLE>
<CAPTION>
1993 1994 1995 1996
-------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Room revenue................. $ 17,941 $ 3,431,654 $ 9,020,479 $ 6,770,568
Food and beverage revenue.... 6,158 552,697 1,293,238 1,175,807
Other revenue................ 1,448 223,211 568,415 432,750
-------- ----------- ----------- -----------
Total revenue.............. 25,547 4,207,562 10,882,132 8,379,125
-------- ----------- ----------- -----------
Expenses:
Property operating costs and
expenses.................... 2,907 1,070,415 2,610,089 1,911,317
Food and beverage costs and
expenses.................... 1,115 503,537 1,318,712 1,072,852
General and administrative... 1,922 561,140 1,270,163 954,143
Advertising and promotion.... 966 308,497 663,285 468,248
Repairs and maintenance...... 809 195,279 478,552 338,456
Utilities.................... 217,496 509,142 370,969
Management fees.............. 1,022 162,151 383,607 295,538
Franchise costs.............. 155,206 332,274 270,950
Depreciation................. 46,982 362,085 2,409,211 607,316
Amortization................. 2,428 70,843 37,879
Real estate and personal
property taxes, and property
insurance................... 831 177,717 389,955 245,263
Interest expense............. 430,535 1,572,244 1,129,060
Other expense................ 347,570 364,238 198,032
-------- ----------- ----------- -----------
Total expenses............. 56,554 4,494,056 12,372,315 7,900,023
-------- ----------- ----------- -----------
Net income (loss).......... $(31,007) $ (286,494) $(1,490,183) $ 479,102
======== =========== =========== ===========
</TABLE>

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

F-42
<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....................................................... 479,102
Capital contributions............................................ 50,000
Distributions.................................................... (235,000)
-----------
Balance, July 30, 1996............................................ $ 4,298,809
===========
</TABLE>

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

F-43
<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
FOR THE PERIOD FROM DECEMBER 30, 1995 THROUGH JULY 30, 1996

<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Cash flow from operating
activities:
Net income (loss)........... $ (31,007) $ (286,494) $ (1,490,183) $ 479,102
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation .............. 46,982 362,085 2,409,211 607,316
Amortization............... 2,428 70,843 37,879
Changes in assets and
liabilities...............
Restricted cash........... (130,386) (311,059) (23,928)
Accounts receivable....... (8,120) (101,599) (171,450) (8,326)
Inventories............... (8,275) (33,132) (14,204) 3,478
Prepaid expenses.......... (15,770) (28,630) (122,063) (71,128)
Other assets.............. (9,000) (76,410)
Franchise agreements...... (170,500) (13,680)
Organization costs........ (13,139) (108,677) (86,691)
Accounts payable, trade... 440 198,872 361,550 (105,854)
Accrued expenses and other
liabilities.............. 163,366 256,277 413,246 54,618
---------- ---------- ------------ ----------
Net cash provided by
operating activities.... 147,616 217,282 790,304 872,786
---------- ---------- ------------ ----------
Cash flows from investing
activities:
Improvements and additions
to hotel
properties................. (1,294,387) (2,199,840) (946,524)
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) (946,524)
---------- ---------- ------------ ----------
Cash flows from financing
activities:.................
Proceeds from borrowings.... 4,875,000 6,350,000 10,357,250 1,056,237
Principal payments on
borrowings................. (208,678) (2,095,926) (219,468)
Payments for deferred loan
costs...................... (39,500) (111,500) (19,774)
Capital contributions....... 1,600,000 3,086,000 1,863,118 50,000
Distributions paid.......... (541,000) (195,727) (235,000)
---------- ---------- ------------ ----------
Net cash provided by
financing
activities.............. 6,475,000 8,646,822 9,817,215 631,995
---------- ---------- ------------ ----------
Net change in cash and cash
equivalents................. 743,116 (128,050) 242,542 558,257
Cash and cash equivalents at
beginning of
periods..................... 743,116 615,066 857,608
---------- ---------- ------------ ----------
Cash and cash equivalents at
end of periods.............. $ 743,116 $ 615,066 $ 857,608 $1,415,865
========== ========== ============ ==========
Supplemental disclosures of
cash flow
information:
Cash paid during the year
for interest............... $ 430,535 $ 1,572,244 $1,017,316
========== ============ ==========
</TABLE>

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

F-44
<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" or the
"Registrant") was incorporated and formed on April 12, 1996, as a Maryland
corporation which intends to qualify as a real estate investment trust
("REIT"). The Company commenced operations on July 31, 1996 (see Initial
Public Offering discussion below). Upon commencement of operations, the
Company acquired equity interests in 13 hotels (the "Initial Hotels"). Four of
the Initial Hotels (the "AGH Predecessor Hotels") were acquired primarily from
limited partnerships controlled by the shareholders of American General
Hospitality, Inc. (the "AGHI Affiliates"). The remaining nine Initial Hotels
(the "Other Initial Hotels") were acquired primarily from parties unaffiliated
with the Company through contracts with the sellers acquired from an AGHI
affiliate.

Upon completion of the initial public offering described below, the Company,
through wholly owned subsidiaries, acquired an approximate 81.3% equity
interest in American General Hospitality Operating Partnership, L.P. (the
"Operating Partnership"). A wholly owned subsidiary of the Company is the sole
general partner of the Operating Partnership. The Operating Partnership and
entities which it controls own the Initial Hotels and 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 are 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 were 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 ("FF&E") 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 FF&E 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 FF&E 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 FF&E 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.

F-45
<PAGE>

AGH PREDECESSOR 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 39 years for building and
improvements and 3 to 7 years for FF&E.

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.

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 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 and are recorded at cost.
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 July 30, 1996, is
$111,150.

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 intends 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-46
<PAGE>

AGH PREDECESSOR HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Concentration of Credit Risk--Management of the AGHI Affiliates places cash
deposits at a major bank. At July 30, 1996, bank account balances exceeded
Federal Deposit Insurance Corporation limits by approximately $700,000.
Management believes credit risk related to these deposits is minimal.

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 has no material effect on the AGH Predecessor
Hotels' financial statements.

3. DEBT

Debt as of December 30, 1994, December 29, 1995 and July 30, 1996, consists
of the following:

<TABLE>
<CAPTION>
JULY 30,
1994 1995 1996
----------- ----------- -----------
<S> <C> <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 $17,547,924
Product improvement plan note payable in
various monthly installments including
interest at LIBOR plus 4.25%............. 1,511,352 1,907,090
Note payable to AGHI...................... 100,000 100,000
Construction loan payable in monthly
installments including interest at the
fixed rate of 7.89%; maturing on January
1, 2001.................................. 659,401
----------- ----------- -----------
$11,016,322 $19,277,646 $20,114,415
=========== =========== ===========
</TABLE>

All debt is collateralized by the investment in hotel properties.

Aggregate annual principal payments for the AGHI Affiliates' debt at July
30, 1996, are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
Remaining five months of 1996................................ $ 825,647
1997......................................................... 786,928
1998......................................................... 818,102
1999......................................................... 2,225,175
2000......................................................... 12,952,549
2001 and thereafter.......................................... 2,506,014
-----------
$20,114,415
===========
</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-47
<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 revenue which for the periods ended December 30,
1994, December 29, 1995 and July 30, 1996 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 July 30, 1996 are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
Remaining five months of 1996 ............................... $ 95,975
1997 ........................................................ 175,300
1998 ........................................................ 187,800
1999 ........................................................ 187,800
2000 ........................................................ 189,690
2001 and thereafter.......................................... 14,242,650
-----------
$15,079,215
===========
</TABLE>

Rental expense was $311,007 and $360,011 and $192,190 for the years ended
December 30, 1994, December 29, 1995 and the period ended July 30, 1996,
respectively.

As a result of the IPO and the resulting prepayment of debt, a portion of
the proceeds of the IPO was utilized to pay prepayment penalties on two notes
payable totaling approximately $734,000.

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 Affiliates'
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-48
<PAGE>

AGH PREDECESSOR HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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...................................... 2,543,015 1,973,765
Other corporate expenses...................... 761,215 791,599
----------- ------------
Net loss...................................... $(1,587,835) $ (1,361,381)
=========== ============
</TABLE>

7. SUBSEQUENT EVENT

As discussed in Note 1, the four AGH Predecessor Hotels were acquired by the
Operating Partnership on July 31, 1996. The Company and the Operating
Partnership exchanged shares of Common Stock and OP Units for interests in the
selling entities and certain net assets were transferred at historical cost
basis. In addition, the hotels were refinanced upon acquisition and post-
acquisition debt is different than the historical debt reflected in the
accompanying financial statements. Furthermore, all management agreements were
terminated and new management agreements were implemented. The combined
financial statements do not reflect any of the transactions in connection with
the IPO 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-49
<PAGE>

AGH PREDECESSOR HOTELS

SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF JULY 30, 1996

<TABLE>
<CAPTION>
COST CAPITALIZED
SUBSEQUENT GROSS AMOUNTS AT WHICH ACCUMULATED
INITIAL COST TO ACQUISITION CARRIED AT CLOSE OF PERIOD DEPRECIATIONS
----------------------- -------------------- ----------------------------------- BUILDINGS
ENCUM- BUILDING AND BUILDING AND BUILDING AND AND IMPROV-
DESCRIPTION BRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL EMENTS
----------- ----------- ---------- ------------ ------- ------------ ---------- ------------ ----------- -------------
(A) (B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Courtyard by $ 5,257,770 $ 4,780,496 $ 259,189 $ 5,039,685 $ 5,039,685 $317,967
Marriott
Meadowlands
Secaucus, N.J.
Hampton Inn 4,763,550 $505,000 3,590,369 246,049 $ 505,000 3,836,418 4,341,418 150,258
Richmond Airport
Richmond, VA
Holiday Inn DFW 8,557,090 816,515 6,532,118 963,609 816,515 7,495,727 8,312,242 171,138
West
Bedford, TX
Hotel Mason 1,536,005 175,000 1,641,777 568,053 175,000 2,209,830 2,384,830 98,140
DeVille
New Orleans, LA
----------- ---------- ----------- ------- ---------- ---------- ----------- ----------- --------
$20,114,415 $1,496,515 $16,544,760 $2,036,900 $1,496,515 $18,581,660 $20,078,175 $737,503
=========== ========== =========== ======= ========== ========== =========== =========== ========
<CAPTION>
NET BOOK LIFE UPON
VALUE WHICH
BUILDINGS DATE OF DATE DEPRECIATION
AND IMPROV- CON- OF AC- IN STATEMENT
DESCRIPTION EMENTS STRUCTION QUISITION IS COMPUTED
----------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C>
Courtyard by $ 4,721,718 1989 12/30/93 40 YRS
Marriott
Meadowlands
Secaucus, N.J.
Hampton Inn 4,191,160 1972 12/29/94 40 YRS
Richmond Airport
Richmond, VA
Holiday Inn DFW 8,141,104 1974 6/7/95 40 YRS
West
Bedford, TX
Hotel Mason 2,286,690 1788 8/8/94 40 YRS
DeVille
New Orleans, LA
-----------
$19,340,672
===========
</TABLE>

(a) Reconciliation of land and buildings and improvements:

<TABLE>
<S> <C>
Balance at January 1, 1995 $ 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
Additions for the year to date
July 30, 1996: 153,805
-----------
Balance at July 30, 1996 $20,078,175
===========

(b) Reconciliation of Accumulated Depreciation

Balance at beginning of year
January 1, 1994 $ 46,982
Depreciation for the year 1994: 185,175
-----------
Balance at December 30, 1994 232,157
Depreciation for the year 1995: 274,250
-----------
Balance at December 29, 1995 506,407
Depreciation for the year to date
July 30, 199 231,096
-----------
Balance at July 30, 1996 $ 737,503
===========
</TABLE>

F-50
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
American General Hospitality Corporation

We have audited the accompanying combined balance sheets and financial
statement schedule of the Other Initial 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 and financial statement schedule 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 Other Initial Hotels.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Other Initial
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. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.

Coopers & Lybrand L.L.P.

Dallas, Texas
April 8, 1996

F-51
<PAGE>

OTHER INITIAL HOTELS

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
ASSETS ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
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 71,582,742
Furniture, fixtures and
equipment........................ 21,948,731 21,999,984 24,438,661
------------ ------------ ------------
101,697,539 104,222,555 105,196,126
Less accumulated depreciation....... (33,171,163) (36,842,175) (38,542,112)
------------ ------------ ------------
Net investment in hotel properties.. 68,526,376 67,380,380 66,654,014
Cash and cash equivalents........... 2,514,782 4,247,740 5,847,809
Restricted cash..................... 1,006,323 1,454,731 1,957,813
Accounts receivable, net............ 1,917,888 1,677,438 2,856,684
Inventories......................... 571,883 735,266 647,266
Prepaid expenses.................... 379,842 477,443 486,957
Deferred expenses................... 462,933 558,706 650,306
Other assets........................ 661,774 90,669 30,218
------------ ------------ ------------
Total assets.................... $ 76,041,801 $ 76,622,373 $ 79,131,067
============ ============ ============
<CAPTION>
LIABILITIES AND EQUITY
<S> <C> <C> <C>
Debt................................ $ 46,013,273 $ 43,861,547 $ 51,374,169
Capital lease obligation............ 2,862,995 2,625,082 2,499,589
Accounts payable, trade............. 884,218 768,251 957,638
Payable to affiliates............... 2,145,068 2,231,449 1,998,191
Accrued expenses and other
liabilities........................ 3,819,118 3,847,515 3,535,184
------------ ------------ ------------
Total liabilities............... 55,724,672 53,333,844 60,364,771
------------ ------------ ------------
Commitments and contingencies (Note
4)
Capital............................. 11,960,065 6,588,382 (3,569,391)
Retained earnings................... 8,357,064 16,700,147 22,335,687
------------ ------------ ------------
Total equity.................... 20,317,129 23,288,529 18,766,296
------------ ------------ ------------
Total liabilities and equity.... $ 76,041,801 $ 76,622,373 $ 79,131,067
============ ============ ============
</TABLE>

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

F-52
<PAGE>

OTHER INITIAL HOTELS

COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1996

<TABLE>
<CAPTION>
JUNE 30,
1993 1994 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Room revenue................. $36,811,936 $40,109,552 $44,736,447 $23,779,491
Food and beverage revenue.... 15,446,922 15,826,164 16,424,522 8,260,931
Other revenue................ 4,678,562 3,169,064 3,579,485 1,827,603
----------- ----------- ----------- -----------
Total revenue.............. 56,937,420 59,104,780 64,740,454 33,868,025
----------- ----------- ----------- -----------
Expenses:
Property operating costs and
expenses.................... 11,639,735 11,611,249 12,583,203 6,519,270
Food and beverage costs and
expenses.................... 12,023,204 12,331,905 12,741,884 6,312,164
General and administrative... 4,877,037 5,398,014 5,780,741 2,904,924
Advertising and promotion.... 3,735,277 3,822,370 3,874,160 2,237,109
Repairs and maintenance...... 2,744,397 2,564,251 2,719,954 1,437,289
Utilities.................... 2,898,837 3,021,303 2,945,878 1,326,429
Management fees.............. 799,987 933,961 1,285,385 723,653
Franchise costs.............. 1,403,567 1,492,504 1,701,346 714,856
Depreciation................. 5,550,188 5,344,060 5,498,602 2,110,088
Amortization................. 250,459 277,887 152,588 192,777
Real estate and personal
property taxes, and property
insurance................... 1,632,849 1,651,113 1,481,258 722,903
Interest expense............. 4,667,281 4,340,948 4,734,958 2,161,521
Other expense................ 909,555 820,168 897,414 869,511
----------- ----------- ----------- -----------
Total expenses............. 53,132,373 53,609,733 56,397,371 28,232,494
----------- ----------- ----------- -----------
Revenues over expenses..... $ 3,805,047 $ 5,495,047 $ 8,343,083 $ 5,635,531
=========== =========== =========== ===========
</TABLE>

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

F-53
<PAGE>

OTHER INITIAL 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
Revenues over expenses (unaudited)............................... 5,635,531
Capital contributions (unaudited)................................ 1,674,711
Distributions.................................................... (11,832,475)
-----------
Balance, June 30, 1996 (unaudited)................................. $18,766,296
===========
</TABLE>

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

F-54
<PAGE>

OTHER INITIAL HOTELS

COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996

<TABLE>
<CAPTION>
JUNE 30,
1993 1994 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flow from operating
activities: (UNAUDITED)
Revenues over expenses.. $ 3,805,047 $ 5,495,047 $ 8,343,083 $ 5,635,531
Adjustments to reconcile
revenues over expenses
to net cash provided by
operating activities:
Depreciation.......... 5,550,188 5,344,060 5,498,602 2,110,088
Amortization.......... 250,459 277,887 152,588 192,777
Changes in assets and
liabilities:
Restricted cash....... (501,015) 128,081 (448,408)
Accounts receivable... 208,742 393,847 240,450 (1,179,246)
Inventories........... 17,473 17,928 (163,383) 88,000
Prepaid expenses...... (84,011) (53,658) (97,601) (9,514)
Other assets.......... (511,774) 1,546,499 571,105 60,451
Franchise agreements.. (78,804) (4,000)
Organization costs.... (135,928) (3,239) (82,727)
Accounts payable,
trade................ (311,030) 141,223 (115,967) 189,387
Payable to
affiliates........... 129,927 66,559 86,381 (233,258)
Accrued expenses and
other liabilities.... 881,626 357,616 28,397 (312,331)
Restricted cash....... (503,082)
----------- ----------- ----------- -----------
Net cash provided by
operating
activities......... 9,220,900 13,711,089 14,092,008 5,956,076
----------- ----------- ----------- -----------
Cash flows from investing
activities:
Improvements and
additions to hotel
properties............. (1,274,727) (4,903,592) (4,352,606) (1,383,722)
----------- ----------- ----------- -----------
Cash flows from financing
activities:
Proceeds from
borrowings............. 493,713 202,287 638,538 7,965,739
Principal payments on
borrowings............. (4,374,090) (2,662,272) (2,790,264) (453,117)
Payments on capital
lease obligation....... (206,194) (221,486) (237,913) (125,493)
Payments for deferred
loan costs............. (189,152) (245,122) (201,650)
Capital contributions... 1,803,806 1,486,050 1,674,711
Distributions paid...... (3,743,317) (6,750,264) (6,857,733) (11,832,475)
----------- ----------- ----------- -----------
Net cash used in
financing
activities......... (7,829,888) (7,817,081) (8,006,444) (2,972,285)
----------- ----------- ----------- -----------
Net change in cash and
cash equivalents......... 116,285 990,416 1,732,958 1,600,069
Cash and cash equivalents
at beginning of period... 1,408,081 1,524,366 2,514,782 4,247,740
----------- ----------- ----------- -----------
Cash and cash equivalents
at end of period......... $ 1,524,366 $ 2,514,782 $ 4,247,740 $ 5,847,809
=========== =========== =========== ===========
Supplemental disclosures
of cash flow information:
Cash paid during the
year for interest...... $ 4,793,349 $ 4,275,522 $ 4,590,280 $ 2,215,191
=========== =========== =========== ===========
</TABLE>

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

F-55
<PAGE>

OTHER INITIAL HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

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") were acquired primarily from limited partnerships
controlled by the shareholders of American General Hospitality, Inc. (the
"AGHI Affiliates"). The remaining nine Initial Hotels (the "Other Initial
Hotels") were acquired primarily from parties controlled by persons
unaffiliated with AGHI.

Upon completion of the proposed initial public offering described below, the
Company acquired a 80.2% equity interest in American General Hospitality
Operating Partnership, L.P. (the "Operating Partnership"). A wholly owned
subsidiary of the Company is the sole general partner of the Operating
Partnership. The Operating Partnership owns the Initial Hotels and leases 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
Other Initial 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 Other Initial 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
Best Western 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 Other Initial Hotels,
substantially all of whose assets and operations have been 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.

Initial Public Offering--As of July 31, 1996, the Company completed an
initial public offering of 7,500,000 shares of its common stock and an
additional 575,000 shares of common stock were issued by the Company on August
28, 1996, upon exercise of the underwriters' over-allotment option at a price
per common share of $17.75 (the "IPO"). Upon consummation of the IPO, the
Company contributed all of the net proceeds of the IPO to the Operating
Partnership in exchange for an approximate 81.3% equity interest in the
Operating Partnership. The Operating Partnership used such funds to purchase
certain of the Initial Hotels, repay debt and other obligations of the Initial
Hotels, and for working capital.

F-56
<PAGE>

OTHER INITIAL 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 Other Initial 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 Other Initial 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 Other Initial 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-57
<PAGE>

OTHER INITIAL HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Concentration of Credit Risk--The Other Initial Hotels place cash deposits
at major banks. At December 31, 1995, bank account balances exceeded Federal
Deposit Insurance Corporation 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 Other
Initial 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.

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.

Aggregate annual principal payments for the Other Initial 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>

F-58
<PAGE>

OTHER INITIAL HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 Best Western 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 Best Western 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 Best Western Albuquerque Airport Hotel land lease requires
the owner to add 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>

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.

F-59
<PAGE>

OTHER INITIAL HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

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 IPO and the resulting prepayment of debt, a selling
partnership will pay prepayment penalties on one note payable totalling
approximately $504,000.

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 Other Initial 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 Other
Initial Hotels' debt approximates fair value due to the Other Initial Hotels'
ability to obtain such borrowings at comparable interest rates.

7. RELATED PARTY TRANSACTIONS

During 1993, 1994, and 1995, the owner of the Best Western 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 Best Western
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.

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.

F-60
<PAGE>

OTHER INITIAL HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

As discussed in Note 1, the nine Other Initial Hotels were acquired by the
Company subsequent to April 8, 1996. The acquisitions were accounted for by
the Company under the purchase method of accounting. Accordingly, the cost
basis of the hotels changed 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 were refinanced upon acquisition and postacquisition
debt is different than the historical debt reflected in the accompanying
financial statements. All management agreements were 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-61
<PAGE>

OTHER INITIAL 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
Best Western
Albuquerque
Airport Hotel;
Albuquerque,
NM.............. 7,995,562 1,655,118 9,650,680 9,650,680 302,770
Holiday Inn
Select-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
Mission 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-
Toledo; 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
Best Western
Albuquerque
Airport Hotel;
Albuquerque,
NM.............. 9,347,910 1972 1988 27 YRS
Holiday Inn
Select-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
Mission Valley;
San Diego, CA... 8,562,345 1970 1991 40 YRS
Hilton Hotel-
Toledo; 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-62
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
American General Hospitality Corporation

We have audited the accompanying balance sheet of the Days Inn Lake Buena
Vista hotel (described in Note 1) as of December 31, 1995 and the related
statements of operations, equity and cash flows for the period then ended.
These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Days Inn Lake Buena
Vista hotel as of December 31, 1995, and the result of its operations and its
cash flows for the period then ended in conformity with generally accepted
accounting principles.

Coopers & Lybrand L.L.P.

Dallas, Texas
November 26, 1996

F-63
<PAGE>

DAYS INN LAKE BUENA VISTA HOTEL

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER
1995 30 1996
ASSETS ----------- -----------
(UNAUDITED)
<S> <C> <C>
Investments in hotel properties, at cost:
Land and land improvement........................... $ 2,096,028 $ 2,096,028
Buildings and improvements.......................... 18,859,256 18,889,376
Furniture, fixtures and equipment................... 3,165,265 3,623,972
----------- -----------
24,120,549 24,609,376
Less accumulated depreciation......................... (1,003,306) (1,754,155)
----------- -----------
Net investment in hotel properties.................... 23,117,243 22,855,221
Cash and cash equivalents............................. 73,606 258,807
Restricted cash....................................... 8,340 418,947
Accounts receivable, net.............................. 409,542 323,559
Inventories........................................... 20,972 13,925
Prepaid expenses...................................... 58,580 98,168
Deferred expenses..................................... 304,581 246,407
Other assets.......................................... 2,151
----------- -----------
Total assets...................................... $23,995,015 $24,215,034
=========== ===========
LIABILITIES AND EQUITY
Debt.................................................. $20,000,000 $20,000,000
Capital lease obligation.............................. 253,506
Accounts payable, trade............................... 261,583 130,769
Accrued expenses and other liabilities................ 50,660 790,740
----------- -----------
Total liabilities................................. 20,312,243 21,175,015
----------- -----------
Commitments and contingencies (Note 4)................
Capital............................................... 4,292,000 3,242,000
Accumulated deficit................................... (609,228) (201,981)
----------- -----------
Total equity...................................... 3,682,772 3,040,019
----------- -----------
Total liabilities and equity...................... $23,995,015 $24,215,034
=========== ===========
</TABLE>

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

F-64
<PAGE>

DAYS INN LAKE BUENA VISTA HOTEL

STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE NINE MONTHS ENDED SEPTEMBER 31, 1995 AND 1996

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
DECEMBER ----------------------
31 1995 1995 1996
---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues:
Room revenue............................. $6,825,271 $5,438,660 $6,337,410
Food and beverage revenue................ 810,066 671,266 561,985
Other revenue............................ 668,959 511,060 594,208
---------- ---------- ----------
Total revenue.......................... 8,304,296 6,620,986 7,493,603
---------- ---------- ----------
Expenses:
Property operating costs and expenses.... 2,054,677 1,632,694 1,703,115
Food and beverage costs and expenses..... 627,923 496,344 478,086
General and administrative............... 782,649 575,386 623,056
Advertising and promotion................ 468,824 328,469 441,557
Repairs and maintenance.................. 485,870 354,280 400,059
Utilities................................ 512,447 415,098 409,586
Management fees.......................... 131,004 98,253 144,007
Franchise costs.......................... 443,643 353,513 411,932
Depreciation............................. 929,559 697,170 750,849
Amortization............................. 77,043 57,651 58,174
Real estate and personal property taxes,
and property insurance ................. 459,228 399,197 424,267
Interest expense......................... 1,770,833 1,333,333 1,241,668
---------- ---------- ----------
Total expense.......................... 8,743,700 6,741,388 7,086,356
---------- ---------- ----------
Net income (loss)...................... $ (439,404) $ (120,402) $ 407,247
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements

F-65
<PAGE>

DAYS INN LAKE BUENA VISTA HOTEL

STATEMENTS OF EQUITY

<TABLE>
<CAPTION>
EQUITY
----------
<S> <C>
Balance, December 31, 1994 $4,430,176
Net loss.......................................................... (439,404)
Distributions..................................................... (308,000)
----------
Balance December 31, 1995 3,682,772
Net income (unaudited)............................................ 407,247
Distributions (unaudited)......................................... (1,050,000)
----------
Balance, September 30, 1996 (unaudited)............................. $3,040,019
==========
</TABLE>

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

F-66
<PAGE>

DAYS INN LAKE BUENA VISTA HOTEL

STATEMENTS OF CASH FLOWS
FOR THE YEAR MONTHS ENDED DECEMBER 31, 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
DECEMBER 31 ------------------------
1995 1995 1996
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss)....................... $ (439,404) $ (120,402) $ 407,247
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation.......................... 929,559 697,170 750,849
Amortization.......................... 77,043 57,651 58,174
Changes in assets and liabilities:
Restricted cash....................... 30,827 (686,417) (410,607)
Accounts receivable................... (125,246) (121,875) 85,983
Inventories........................... (1,833) (1,609) 7,047
Prepaid expenses...................... 69,876 88,342 (39,588)
Other assets.......................... (2,151) (2,151) 2,151
Organization costs.................... (15,679) (15,679)
Accounts payable, trade............... 113,824 (29,042) (130,814)
Accrued expenses and other
liabilities.......................... (369,360) 347,603 740,080
---------- ---------- -----------
Net cash provided by operating
activities......................... 267,456 213,591 1,470,522
---------- ---------- -----------
Cash flows from investing activities:
Improvements and additions to hotel
properties............................. (496,076) (380,902) (224,299)
---------- ---------- -----------
Cash flows from financing activities:
Payments on capital lease obligation.... (11,022)
Distributions paid...................... (308,000) (108,000) (1,050,000)
---------- ---------- -----------
Net cash used in financing
activities......................... (308,000) (108,000) (1,061,022)
---------- ---------- -----------
Net change in cash and cash equivalents .. (536,620) (275,311) 185,201
Cash and cash equivalents at beginning of
period................................... 610,226 610,226 73,606
---------- ---------- -----------
Cash and cash equivalents at end of
periods.................................. $ 73,606 $ 334,915 $ 258,807
========== ========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for interest.. $1,770,833 $1,333,333 $ 1,241,668
========== ========== ===========
</TABLE>

Supplemental schedule of non cash financing activities:
The Partnership entered into a capital lease obligation in the amount of
$264,528 in August 1996.

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

F-67
<PAGE>

DAYS INN LAKE BUENA VISTA HOTEL

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization--American General Hospitality Operating Partnership, L.P.
acquired a 100% ownership interest in a 490 room Days Inn hotel located in
Lake Buena Vista, Florida (the "Days Inn Lake Buena Vista hotel") from persons
unaffiliated with the Operating Partnership on October 22, 1996. The Operating
Partnership, a subsidiary of American General Hospitality Corporation (the
"Company") which is a Maryland corporation that intends to qualify as a real
estate investment trust ("REIT"), was established to acquire, own and lease
hotel properties. The Company completed its initial public offering on July
31, 1996.

Basis of Presentation--The accompanying financial statements of the Days Inn
Lake Buena Vista hotel have been presented on a basis consistent with the
Company due to the anticipated common ownership and management since the
entity will be the subject of a business combination with the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investment in Hotel Property--The hotel property is stated at the lower of
cost or net realizable value and is depreciated using the straight-line method
over estimated useful lives ranging from 39 years for building and
improvements and 3 to 7 years for furniture, fixtures and equipment.

The owners of the Days Inn Lake Buena Vista hotel review the carrying value
of the 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 owners of the Days Inn Lake Buena Vista hotel
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 owners of the Days Inn Lake Buena Vista hotel 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 of food and beverage items and are stated
at the lower of cost (generally, first-in first-out) or market.

Deferred Expenses--Deferred expenses primarily consist of organization
costs. Amortization of organization costs is computed using the straight-line
method over five years. Accumulated amortization at December 31, 1995 is
$83,245.

Income Taxes--The Days Inn Lake Buena Vista hotel is included in a limited
partnership which is not a taxable entity. The results of operations are
included in the tax returns of the partners. The partnership's tax return 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.

F-68
<PAGE>

DAYS INN LAKE BUENA VISTA HOTEL

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.

Concentration of Credit Risk--At December 31, 1995, bank account balances
exceeded Federal Deposit Insurance Corporation limits by approximately
$148,642.

Recently Issued Statement of Financial Accounting Standards--The Days Inn
Lake Buena Vista hotel 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 Orlando
Acquisition Hotel's financial statements.

Interim Financial Information--The unaudited interim financial statements as
of September 30, 1996 and for the nine months ended September 31, 1995 and
1996 have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission ("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 as of December 31, 1995, consists of a $20,000,000 first mortgage note
payable in monthly interest-only payments at the prime rate (8.5% at December
31, 1995) through December 31, 1997, and monthly principal plus interest
payments at prime plus 1.5% from January 1998 through the maturity date of
November 30, 2004. A final principal payment of $17,642,267 is due at
maturity. All debt is collateralized by the investment in hotel property.

Aggregate annual principal payments for the Days Inn Lake Buena Vista
hotel's debt at December 31, 1995, are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
1998.......................................................... $ 261,764
1999.......................................................... 306,837
2000 and thereafter........................................... 19,431,399
-----------
Total..................................................... $20,000,000
===========
</TABLE>

F-69
<PAGE>

DAYS INN LAKE BUENA VISTA HOTEL

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

4. COMMITMENTS

Management fees represent amounts paid to an affiliated party. The basic
management fee is $10,917 per month. The incentive management fee is paid
based on net cash flow as follows:

Net Cash Flow ("NCF"______________________________________________Incentive)Fee
Less than $600,000.........................................................None
$ 600,000-$ 750,000....................$ 29,000 x [NCF--$600,000) / $150,000]
$ 750,001-$ 900,000...........$ 29,000 +[31,000 x (NCF--$750,000) / $150,000]
$ 900,001-$1,000,000.........$ 60,000 + [$14,000 x (NCF--$900,000) / $100,000]
$1,000,001-$1,200,000......$ 74,000 + [$101,000 x (NCF--$1,000,000) / $200,000]
$1,200,001-$1,500,000......$175,000 + [$116,000 x (NCF--$1,200,000) / $300,000]
Greater than $1,500,000...$291,000 + [$.0045 x (annual gross room revenues less
gross room revenues at date on which
NCF surpassed $1,500,000)] to a
maximum of 20% x (NCF--$1,500,000)

An incentive management fee of $45,754 was paid as of September 30, 1996. No
incentive fee was paid in 1995. Net cash flow for a particular year is defined
in the management agreement as gross revenues attributable to the property
less (i) all amounts required to service indebtedness, (ii) operating expenses
including the basic management fee, and (iii) all reserves including but not
limited to the 3% FF&E reserve.

Franchise costs represent the annual expense for franchise royalties and
reservation services under the terms of the franchise agreement expiring in
2004. Franchise costs are based upon 6.5% of gross room revenue.

The Days Inn Lake Buena Vista hotel pays, on a program by program basis, the
franchisor for sales and advertising expenses incurred to promote the hotel at
the national level. These costs are included in advertising and promotion
expenses in the Statements of Operations. Additional sales and advertising
costs are incurred at the local property level.

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 Days Inn Lake Buena Vista hotel reports 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 Days Inn Lake Buena Vista hotel's debt approximates fair value due to
the Days Inn Lake Buena Vista hotel's ability to obtain such borrowings at
comparable interest rates.

6. RELATED PARTY TRANSACTIONS

The Days Inn Lake Buena Vista hotel's annual management fee for all periods
presented was paid to a company owned by Richard Kessler, a partner of the
Days Inn Lake Buena Vista hotel.

The Days Inn Lake Buena Vista hotel purchased property insurance for all
periods presented from an entity affiliated with Howard Milstein, a partner of
the Days Inn Lake Buena Vista hotel.

7. SUBSEQUENT EVENTS

In August 1996, the Days Inn Lake Buena Vista hotel entered into a capital
lease obligation in exchange for equipment. Leased capital assets included in
furniture, fixtures, and equipment as of September 30, 1996, were $264,528
with $6,613 in accumulated depreciation.

F-70
<PAGE>

DAYS INN LAKE BUENA VISTA HOTEL

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

On October 22, 1996, the Company and the Operating Partnership purchased
100.0% of the partnership interest in Lake Buena Vista Partners, Ltd. (the
"Partnership") from unrelated third parties. The Partnership, which owns the
Days Inn Lake Buena Vista hotel was acquired for a purchase price of
$30,500,000, plus estimated closing costs of $300,000, which is payable as
follows: (i) $30,000,000 in cash, and (ii) $500,000 through the issuance of
25,397 shares of restricted common stock of the Company. In addition, in
connection with this acquisition, the Company purchased a license and an
association membership from the seller for the membership in Grand Theme
Hotels and the exclusive use of the African royal safari theme in the Orlando
area for approximately $1.3 million payable in installments through 1997, and
will pay an additional $900,000 for certain construction, design and other
services related to the operation of the Days Inn Lake Buena Vista hotel.

The cash required to acquire the Partnership was provided from borrowings
under the Company's Line of Credit.

F-71
<PAGE>

There are six pictures on this page which appear counter-clockwise as follows:

1) A photograph of the Hilton Hotel - Toledo with the text "Hilton Hotel;
Toledo, OH" appearing beside the picture.

2) A rendering of the LeBaron Airport Hotel as it will appear following the
completion of proposed renovations and its conversion to the Wyndham brand.
The text "Proposed" is superimposed on the picture.

3) A photograph of the LeBaron Airport Hotel. The text "Existing" is
superimposed on the photograph.

The text "Wyndham Hotel Albuquerque Airport; Albuquerque, NM (Currently
Best Western)" appears besides pictures 2) and 3).

4) A rendering of the Holiday Inn Park Center Plaza, as it will appear
following the completion of proposed renovations and its conversion to the
Wyndham brand. The text "Proposed" is superimposed on the picture.

5) A photograph of the Holiday Inn Park Center Plaza. The text "Existing" is
superimposed on the photograph.

The text "Crowne Plaza Downtown; San Jose, CA (Currently Holiday Inn)"
appears between pictures 4) and 5).

6) A photograph of the Four Points by Sheraton with the text "Wyndham Garden
Hotel; Marietta, GA (Currently Four Points by Sheraton) (Proposed
Acquisition Hotel)" appearing beside the picture.

The text "American General Hospitality Corporation" and the Company's
symbol appear on the lower left hand corner of the page.
<PAGE>

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

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............................................................. 16
The Company.............................................................. 28
Use of Proceeds.......................................................... 38
Price Range of Common Stock and Distribution Policy...................... 39
Capitalization........................................................... 40
Selected Financial Information........................................... 41
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 46
The Hotel Industry....................................................... 54
The Hotels............................................................... 55
Formation Transactions................................................... 86
Management............................................................... 89
Certain Relationships and Transactions................................... 99
AGHI, the Lessee and Other Operators..................................... 101
Principal Stockholders................................................... 104
Description of Capital Stock............................................. 106
Certain Provisions of Maryland Law and of the Company's Charter and
Bylaws.................................................................. 110
Policies and Objectives with Respect to Certain Activities............... 114
Shares Available for Future Sale......................................... 118
Partnership Agreement.................................................... 120
Federal Income Tax Considerations........................................ 123
Underwriting............................................................. 141
Experts.................................................................. 142
Legal Matters............................................................ 142
Additional Information................................................... 142
Glossary................................................................. 144
Index to Financial Statements............................................ F-1
</TABLE>

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

5,800,000 Shares

[LOGO OF AMERICAN GENERAL HOSPITALITY CORPORATION]

Common Stock

-----------

PROSPECTUS

FEBRUARY 3, 1997

-----------

Smith Barney Inc.

Legg Mason Wood Walker
Incorporated

Montgomery Securities

Prudential Securities Incorporated

The Robinson-Humphrey Company, Inc.

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