BOYKIN LODGING CO, 424B4, 1996-10-31

BOYKIN LODGING CO
424B4, 1996-10-31
REAL ESTATE INVESTMENT TRUSTS

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<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-6341
PROSPECTUS

8,275,000 COMMON SHARES

BOYKIN LODGING COMPANY
Boykin Lodging Company (the "Company") was formed to continue and expand the
hotel ownership, acquisition, redevelopment and repositioning operations of
Boykin Management Company and its affiliates (collectively, the "Boykin Group").
The Company will own nine national franchise hotels, all managed by the Boykin
Group, containing a total of 2,408 rooms located in California, Florida, New
York, North Carolina and Ohio (the "Initial Hotels") upon completion of this
offering (the "Offering"). The Company's operations will focus on the ownership
of full-service hotels that serve both business and leisure travelers under
franchise agreements with Marriott, Radisson, Holiday Inn and other national
franchisors.
The Company will operate as a self-administered equity real estate
investment trust (a "REIT"). The Initial Hotels will be leased to Boykin
Management Company Limited Liability Company (the "Initial Lessee"), which is
owned by Robert W. Boykin and John E. Boykin, pursuant to leases (the
"Percentage Leases") designed to allow the Company to achieve substantial
participation in the future revenue growth generated by the Initial Hotels. The
Company intends to lease its hotel properties to the Initial Lessee and other
selected operating companies. The Company intends to pay regular quarterly
dividends, initially at a rate of $1.80 per share per annum, beginning with a
prorated dividend for the quarter ending December 31, 1996.
All of the common shares, without par value (the "Common Shares"), offered
hereby are being offered by the Company. Upon completion of the Offering, the
Common Shares offered hereby will represent 85.7% of the fully diluted equity of
the Company. Members of management and other Boykin Group Affiliates will own
approximately 12.7% of the equity of the Company in the form of interests
exchangeable for Common Shares.
Prior to the Offering, there has been no public market for the Common
Shares. The Common Shares have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance, under the symbol "BOY". The
initial public offering price per Common Share will be $20.00. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price.

SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON SHARES, INCLUDING:

- dependence of the Company on Robert W. Boykin and other key personnel;
- dependence of the Company on lessees for its operating income;
- risks affecting the hotel industry generally and the Company's hotels
specifically, including potential loss of franchises and risks arising
from requirements imposed by franchisors;
- conflicts of interest between the Company and certain of its Affiliates,
including lack of independent appraisals for the Initial Hotels and lack
of arm's-length negotiations in connection with the formation of the
Company;
- risks associated with the leasing, acquisition and development of real
property;
- the Company's lack of operating history and lack of experience in
operating in accordance with the requirements for maintaining its
qualification as a REIT;
- adverse tax consequences if the Company fails to qualify as a REIT;
- risks associated with debt to be incurred in connection with future
acquisitions;
- limitations on shareholders' ability to change control of the Company,
including restriction of ownership of Common Shares by any single person
to 9.0% of the outstanding shares; and
- risks associated with distributing 97% of estimated Cash Available for
Distribution, including the risk that actual Cash Available for
Distribution will be insufficient to permit the Company to maintain its
proposed initial distribution rate.
------------------------
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>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------------
Per Share $20.00 $1.30 $18.70
- ---------------------------------------------------------------------------------------------------------
Total(3) $165,500,000 $10,757,500 $154,742,500
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<FN>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities arising under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses, estimated at $2,300,000, payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
1,241,250 additional Common Shares solely to cover over-allotments, if any.
See "Underwriting." If such option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $190,325,000,
$12,371,125 and $177,953,875, respectively.
</TABLE>
------------------------

The Common Shares are offered by the several Underwriters named herein,
subject to prior sale, withdrawal, cancellation or modification of the offer
without notice, to delivery to and acceptance by the Underwriters and to certain
further conditions. It is expected that certificates for the Common Shares
offered hereby will be available for delivery on or about November 4, 1996 at
the offices of Lehman Brothers Inc., New York, New York.
------------------------

LEHMAN BROTHERS

ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.

EVEREN SECURITIES, INC.

MCDONALD & COMPANY
October 29, 1996 SECURITIES, INC.
<PAGE> 2

[INSIDE FRONT COVER]

[Reserved for Photos]

THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
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.
<PAGE> 3

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY................... 1
The Company..................... 1
Risk Factors.................... 2
The Initial Lessee.............. 3
Additional Lessees.............. 4
The Initial Hotels.............. 5
Business Objectives and
Strategies.................... 6
Formation Transactions.......... 8
Organizational Chart............ 9
Summary Financial Information... 10
Distributions................... 14
Tax Status of The Company....... 15
The Offering.................... 15
RISK FACTORS......................... 16
Dependence on Key Personnel..... 16
Control by Boykin Group and Lack
of Shareholder Control........ 16
Dependence on Lessees........... 16
Hotel Industry Risks............ 17
Conflicts of Interest........... 18
Lack of Independent Appraisals
and Arm's-Length
Negotiations.................. 19
Affiliates' Benefits From the
Formation..................... 19
Real Estate Investment Risks.... 20
The Company's Lack of Operating
History....................... 22
Potential Adverse Effect on the
Value of the Common Shares of
Fluctuations in Interest Rates
or Equity Markets............. 22
Potential Environmental
Liability..................... 22
Tax Risks....................... 23
Anti-Takeover Effect of
Ownership Limit............... 24
No Limitation on Debt; Ability
to Issue Preferred Shares..... 24
Dilution........................ 25
Absence of Prior Public Market
for Common Shares............. 25
Limitations on Ownership of
Common Shares................. 25
Risk of High Distribution Payout
Percentage.................... 25
Board's Ability to Change
Policies...................... 25
Effect on Market Price of Shares
Available for Future Sale..... 26
Forward-Looking Statements...... 26
ERISA........................... 26
THE COMPANY.......................... 26
General......................... 26
Business Objectives and
Strategies.................... 29
LESSEES.............................. 32
The Initial Lessee.............. 32
Additional Lessees.............. 33
USE OF PROCEEDS...................... 34

<CAPTION>
PAGE
----
<S> <C>
DISTRIBUTION POLICY.................. 35
CAPITALIZATION....................... 37
DILUTION............................. 38
SELECTED FINANCIAL INFORMATION....... 39
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS......................... 45
Overview........................ 45
General......................... 45
Pro Forma Results of Operations
for the Consolidated
Company....................... 45
Results of Operations of the
Initial Hotels (Excluding Lake
Norman Hotels)................ 45
Liquidity and Capital
Resources..................... 48
Inflation....................... 49
Seasonality..................... 50
BUSINESS AND PROPERTIES.............. 51
The Hotel Industry.............. 51
The Initial Hotels.............. 52
The Percentage Leases........... 57
Franchise Agreements............ 60
Excluded Properties............. 62
Other Activities................ 62
Employees....................... 63
Environmental Matters........... 63
Competition..................... 64
Tax Depreciation................ 64
The Intercompany Convertible
Note.......................... 64
Legal Proceedings............... 65
POLICIES AND OBJECTIVES WITH RESPECT
TO CERTAIN ACTIVITIES.............. 65
Investment Policies............. 65
Financing....................... 66
Policies with Respect to Certain
Other Activities.............. 66
Conflict of Interest Policy..... 66
THE FORMATION........................ 67
MANAGEMENT........................... 69
Company Directors and Executive
Officers...................... 69
Audit Committee................. 70
Compensation Committee.......... 70
Liability and Indemnification of
Directors and Officers........ 70
Executive Compensation.......... 71
Employment Contracts............ 71
Registration Rights............. 72
Compensation of Directors....... 72
Directors' Deferred Compensation
Plan.......................... 72
Long-Term Incentive Plan........ 72
Initial Lessee Directors and
Officers...................... 73
</TABLE>

i
<PAGE> 4

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CERTAIN TRANSACTIONS................. 74
PRINCIPAL SHAREHOLDERS OF THE
COMPANY............................ 75
CAPITAL STOCK OF THE COMPANY......... 76
General......................... 76
Common Shares................... 76
Preferred Shares................ 76
Restrictions on Transfer........ 77
Ohio Anti-Takeover Provisions... 78
THE PARTNERSHIP...................... 78
Management...................... 78
Transferability of Interests.... 78
Capital Contributions........... 78
Exchange Rights................. 79
Tax Matters; Profits and
Losses........................ 79
Operations...................... 79
Distributions................... 79
Term............................ 80
SHARES AVAILABLE FOR FUTURE SALE..... 80
FEDERAL INCOME TAX CONSIDERATIONS.... 80
General......................... 81
Taxation of the Company as a
REIT.......................... 81

PAGE
----
Requirements for Qualification
as a REIT..................... 82
Tax Aspects of the Company's
Investment in the
Partnership................... 88
Taxation of Taxable Domestic
Shareholders.................. 90
Taxation of Tax-Exempt
Shareholders.................. 91
Taxation of Foreign
Shareholders.................. 92
Other Tax Considerations........ 93
ERISA CONSIDERATIONS................. 93
UNDERWRITING......................... 95
EXPERTS.............................. 97
LEGAL MATTERS........................ 97
ADDITIONAL INFORMATION............... 97
GLOSSARY............................. 98
INDEX TO FINANCIAL STATEMENTS........ F-1
</TABLE>

ii
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial information and statements, and the notes thereto,
appearing elsewhere in this Prospectus. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, those discussed in "Risk Factors." Unless otherwise indicated, the
information contained in this Prospectus assumes (i) an initial offering price
of $20.00 per Common Share, (ii) that the Underwriters' over-allotment option is
not exercised; (iii) that the units of limited partnership interest ("Units") in
Boykin Hotel Properties, L.P., an Ohio limited partnership which will own the
Company's initial hotel properties (the "Partnership"), that are outstanding on
the date the Offering is consummated are exchanged for Common Shares on a
one-for-one basis; (iv) that an intercompany convertible note payable to the
Company which is convertible into equity interests in the Partnership is so
converted; and (v) that options granted to directors and officers of the Company
for the purchase of Common Shares are not exercised.

See "Glossary" for the definitions of certain terms used in this
Prospectus.

THE COMPANY

The Company was formed to continue and expand the hotel ownership,
acquisition, redevelopment and repositioning activities of the Boykin Group and
will operate as a self-administered equity real estate investment trust (a
"REIT"). Upon completion of the Offering and Formation Transactions described
herein, the Company will own nine hotels with a total of 2,408 guest rooms. The
Initial Hotels are operated under franchise license agreements with premier
nationally-recognized hotel chains, including Marriott(R), Radisson(R),
Holiday Inn(R), Quality Suites(R), and Hampton Inns(R). Serving both business
and leisure travelers, the Initial Hotels are geographically diversified and
are located in Berkeley, California; Buffalo, New York; Cleveland and Columbus,
Ohio; Charlotte, North Carolina; and Ft. Myers and Melbourne, Florida. The
Initial Hotels include eight full-service hotels and one limited-service hotel,
all of which compete in the upscale to moderate price segment of the
hospitality market. For the twelve months ended June 30, 1996, the Initial
Hotels had an average occupancy rate of 76.2%, an average daily room rate
("ADR") of $87.62 and an average room revenue per available room night
("REVPAR") of $66.74. The Boykin Group developed and has owned and managed
seven of the Initial Hotels since their opening.

The Company will capitalize on the substantial hotel operating,
development, acquisition and transactional experience of its management and the
Boykin Group. The Boykin Group was one of the first franchisees of Marriott
Hotels(R) and an early franchisee of Howard Johnson's Hotels(R). Since its
founding in 1959, the Boykin Group has developed 13 full-service hotels
containing a total of 3,085 rooms and has owned or managed 36 properties
containing a total of 6,943 rooms. Robert W. Boykin, the President and Chief
Executive Officer of the Company, has over 27 years of experience in the hotel
industry, all with the Boykin Group. Raymond P. Heitland, the Company's Chief
Financial Officer, has 26 years of industry experience and tenure with the
Boykin Group. Mark L. Bishop, the Company's Senior Vice President --
Acquisitions and Development, has 18 years of industry experience. During the
past 10 years, the Company's officers have directly overseen the acquisition,
disposition, recapitalization, development and repositioning of approximately
$750 million of hotel assets throughout the United States. Upon completion of
the Offering, Company management and other Boykin Group Affiliates will own
approximately 12.7% of the outstanding equity of the Company. Each Boykin Group
Affiliate will conduct all future hotel acquisition, development and ownership
activities only through the Company.

The current and the historical performance of the Initial Hotels have
exceeded industry averages. During the five year period ended December 31, 1995,
the Initial Hotels generated REVPAR that exceeded the REVPAR of their local
competing hotels (in each market, four to seven competitors as currently defined
by Boykin Management for property and personnel performance evaluation purposes)
by 16% on average and exceeded the U.S. average REVPAR for upscale/moderate
full-service hotels by 26%. In 1991, a year generally considered weak in the
hotel industry, the REVPAR of the Initial Hotels exceeded the REVPAR of their
local competing hotels by 19% and exceeded the U.S. average REVPAR for
upscale/moderate full-

1
<PAGE> 6

service hotels by 29%. Over the three year and five year periods ended December
31, 1995 the aggregate revenues of the Initial Hotels increased at a compound
annual rate of 4.4% and 3.6% per year, respectively.

The following table compares average occupancy, ADR and REVPAR for the
Initial Hotels with that for their local competition for the periods indicated.

(2) Source: Smith Travel Research (reports dated August 1 and 5, 1996). Smith
Travel Research is not associated in any way with the Company or any of its
Affiliates and has not provided any form of assistance in connection with
the Offering. Local Competition includes the Initial Hotels and four to
seven competitors in each market, as currently defined by Boykin Management
for property and personnel performance evaluation purposes and used for all
periods shown. Boykin Management's consistently-applied criteria for
defining each hotel's competitive set include comparability of location,
target customers, rates, and level of service provided. See the table under
"The Company -- General -- Historical Performance" for comparative
information regarding all upscale/moderate hotels and all U.S. hotels, and
"Business and Properties -- The Initial Hotels -- General."
</TABLE>

Management believes that, while the lodging industry as a whole is
benefiting from an improved supply/demand dynamic, the greatest opportunities
for revenue growth and profitability will arise from skillful management of
hotel properties. An integral element of this management is the continuous
evaluation of each hotel's position in its market and the implementation, as
necessary, of changes in franchise, theme and customer focus to maximize the
continuing returns from the hotel. The Company attributes the excellent
performance of the Initial Hotels to the successful implementation of this asset
management strategy.

The Company also intends to achieve a significant part of its growth
through the acquisition, redevelopment, repositioning and active asset
management of additional full-service hotels. The Company has entered into an
agreement providing for a $75 million credit facility (the "Credit Facility")
for acquiring additional hotels and for certain other purposes, including
capital expenditures and working capital, as necessary, and will draw
approximately $5 million from the Credit Facility in conjunction with the
Offering. The Company believes that there are full-service hotel properties that
can be acquired at a discount to replacement cost, and that many of these
properties are located in areas of increasing demand.

RISK FACTORS

An investment in the Common Shares involves various risks (see "Risk
Factors"), including, among others:

- Dependence on key personnel and control over the operations of the
Company, the Partnership and the Initial Lessee by Robert and John
Boykin;

- Dependence on lessees for operating income, including risks that the
lessees will become subject to liabilities relating to the Initial Hotels
and hotel properties subsequently leased to them, risks of default
resulting in the termination of franchise, liquor and other operating
licenses, and risks associated with re-leasing hotel properties after a
lessee default or other lease termination event;

- The hotel industry generally and the Initial Hotels specifically;

- Franchise relationships, including the possibility that a franchisor may
impose various increased costs, exercise options to buy or lease
properties, impose restrictions on the Company's or the Initial Lessee's

2
<PAGE> 7

ability to compete with other franchisor-affiliated hotels, potential
loss of franchises on franchise defaults and the uncertainty and costs of
renewing franchises upon their expiration;

- Conflicts of interest between the Company and Boykin Group Affiliates,
including risks associated with the lack of third party appraisals for
the Initial Hotels and arm's-length negotiations in connection with the
formation of the Company;

- Receipt by Boykin Group Affiliates, including Robert and John Boykin, of
substantial benefits from the Formation Transactions;

- The ownership, leasing, acquisition, development and expansion of hotel
properties, including risks of changes in economic and real estate market
conditions, changes in interest rates and the availability of financing,
the impact of environmental laws, the ongoing need for capital
improvements, and other factors beyond the Company's control;

- The Company's lack of operating history and lack of experience in
operating in accordance with the requirements for maintaining its
qualification as a REIT, and taxation of the Company as a regular
corporation if it fails to quality as a REIT;

- Limitations on shareholders' ability to acquire or change control of the
Company, including the restriction on ownership of Common Shares by any
single person to 9.0% of the outstanding shares;

- The absence of any contractual limitation on debt that the Company may
incur;

- Substantial and immediate dilution in the net tangible book value per
Common Share to be experienced by the purchasers of Common Shares in the
Offering (see "Dilution"); and

- The absence of any public market for the Company's Common Shares prior to
the Offering.

THE INITIAL LESSEE

In order to qualify as a REIT, the Company may not operate hotels. The
Company will lease its properties to established hotel operators pursuant to
leases that will provide the Company with the greater of a base rental income or
a percentage of revenues from operations. The Initial Hotels will be leased
pursuant to such leases (the "Percentage Leases") to the Initial Lessee. The
Company's structure is designed to accommodate multiple lessees, and the Company
intends to aggressively pursue relationships with additional hotel operators
that have successful operating histories and demonstrated management expertise.

In connection with the Formation Transactions, Robert W. Boykin and John E.
Boykin will form and indirectly own the Initial Lessee. The Initial Lessee will
continue the 37-year hotel operation and management business of the Boykin Group
and will operate the Initial Hotels under the Percentage Leases. The operations
of the Boykin Group are fully integrated, with capabilities in all phases of
development and management of hotel properties. As of June 30, 1996, the Boykin
Group had approximately 2,400 employees and owned or managed 21 properties
containing 4,354 rooms located throughout the United States. Because neither the
Company nor the Initial Lessee will have to pay a separate hotel management
company to manage the Initial Hotels, the Company believes it will obtain a
higher rent than such added management arrangements would permit, thus
maximizing the Company's Percentage Lease revenues. The Company believes that
the Boykin Group's ability to achieve consistently above-average market
penetration during various economic cycles positions the Company, through the
Initial Lessee, to maximize its returns on the Initial Hotels.

While the Initial Lessee will manage hotels only under the Percentage
Leases, its subsidiaries will continue hotel management activities for owners
other than the Company, and the award-winning hotel interior design business and
the hotel and restaurant food, beverage, supply and equipment purchasing
business now operated by the Boykin Group. The Company expects that these
operations will be continued in part with a view to introducing the Company to
acquisition opportunities. In addition, the income generated by the Initial
Lessee and its subsidiaries will strengthen the Initial Lessee's ability to
perform under the Percentage Leases.

3
<PAGE> 8

The Initial Lessee and its owners will have interests that conflict with
the Company's interests in connection with the structuring and enforcement of
the Percentage Leases and any other leases and agreements between the Company
and the Initial Lessee, and in connection with activities that may maximize
profits for the Initial Lessee without necessarily benefiting the Company. The
Company and the Initial Lessee have agreed on several measures to align the
interests of the Initial Lessee and its owners with the interests of the Company
and its shareholders and to address these conflicts of interest:

- The Initial Lessee's owners and certain other Boykin Group
Affiliates will own approximately 12.6% of the Company following
completion of the Offering in the form of Units exchangeable, at the
Company's election, for Common Shares, and have agreed to retain
these interests for at least three years following completion of the
Offering;

- Robert W. Boykin will resign from his positions with Boykin
Management in connection with the Formation Transactions and will
not hold office in the Initial Lessee, and neither John E. Boykin
nor any other officer of the Initial Lessee will hold office in the
Company;

- Any distributions from the Initial Lessee (other than distributions
to cover income taxes) during the first ten years after the
Offering, and any net cash proceeds of any sale of the Initial
Lessee within ten years after the Offering, will be used to purchase
Units or Common Shares (subject to applicable ownership limitations)
that must be held for at least two years from the purchase date;

- The Initial Lessee's consolidated net worth on completion of the
Formation Transactions will be approximately $3 million, and half of
the Initial Lessee's consolidated earnings (after distributions to
cover income taxes) during the first ten years after the Offering
will be retained in the Initial Lessee and its subsidiaries until
their consolidated net worth reaches 25% of the aggregate annual
rent payments under the Percentage Leases (and will be retained
thereafter during that period to maintain that level);

- Determinations to be made on behalf of the Company in connection
with any conflict of interest involving any Boykin Group Affiliate
will be made by the Company's Independent Directors;

- Each Boykin Group Affiliate will conduct all future hotel
acquisition, development and ownership activities only through the
Company;

- Any change in control of the Initial Lessee without the prior
written consent of the Company will constitute a default under the
Percentage Leases; and

- The Percentage Leases will contain cross-default provisions that
will enhance the Company's ability to enforce strict compliance with
each Percentage Lease.

The Initial Lessee also intends to develop incentive compensation plans for
its hotel-level and corporate-level senior executives which tie such
compensation in part to the performance of the Company and in part to the
performance of the Initial Hotels. Such plans may include awards of Company
shares, options and other similar incentives.

ADDITIONAL LESSEES

The Company believes that having multiple tenants will facilitate meeting
its growth objectives, and intends to pursue relationships with additional
lessees. The Company believes there are a number of capable hotel
owner-operators who are undercapitalized and thus unable to reposition their
properties adequately, or are faced with a difficult financing environment
because of today's increased equity requirements, and will be willing to engage
in a sale and leaseback of their properties on terms that would allow both
parties to participate in the improving fundamentals of the lodging industry. In
addition, the Company believes certain national franchisors are willing to
develop a relationship with the Company and may become additional lessees as a
means of expanding their franchise systems. The Company believes that its
management's long tenure and reputation in the hotel industry will provide the
Company access to these opportunities and enable the Company to select hotel
properties and lessees that will further its acquisition and growth strategies.

4
<PAGE> 9

THE INITIAL HOTELS

The following table sets forth certain information regarding the Initial
Hotels:
<TABLE>
<CAPTION>

AVERAGE OCCUPANCY
-----------------------------------------------
NUMBER YEARS ENDED: SIX MONTHS ENDED:
OF --------------------- ---------------------
PROPERTY/LOCATION ROOMS 12/31/94 12/31/95 6/30/95 6/30/96
- ---------------------------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Berkeley Marina Marriott
Berkeley, CA................ 373 80.3% 81.1% 80.1% 85.4%
Buffalo Marriott
Buffalo, NY................. 356 76.0% 73.4% 69.1% 71.3%
Cleveland Airport Marriott
Cleveland, OH............... 375 70.9% 71.0% 67.3% 73.5%
Cleveland Marriott East
Cleveland, OH............... 403 72.9% 72.7% 69.7% 72.1%
Columbus North Marriott
Columbus, OH................ 300 72.7% 71.9% 72.8% 75.6%
Lake Norman Hampton Inn
Charlotte, NC............... 117 75.8% 78.6% 79.9% 77.0%
Lake Norman Holiday Inn
Charlotte, NC............... 119 73.0% 75.7% 75.1% 71.2%
Melbourne Quality Suites
Melbourne, FL............... 208 78.1% 79.0% 84.7% 81.3%
Radisson Inn Sanibel Gateway
Fort Myers, FL.............. 157 72.2% 76.3% 83.2% 88.8%
------
Total....................... 2,408
=======
Weighted average............ 268 74.7% 74.9% 74.2% 76.8%

AVERAGE DAILY RATE ROOM REVENUES PER AVAILABLE ROOM
------------------------------------------------ -----------------------------------------------
YEARS ENDED: SIX MONTHS ENDED: YEARS ENDED: SIX MONTHS ENDED
--------------------- --------------------- --------------------- --------------------
PROPERTY/LOCATION 12/31/94 12/31/95 6/30/95 6/30/96 12/31/94 12/31/95 6/30/95 6/30/96
- ---------------------------- -------- -------- --------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Berkeley Marina Marriott
Berkeley, CA................ $96.61 $100.03 $99.04 $102.56 $77.54 $81.17 $79.36 $87.63
Buffalo Marriott
Buffalo, NY................. $85.32 $ 91.79 $90.30 $ 94.02 $64.85 $67.34 $62.39 $67.00
Cleveland Airport Marriott
Cleveland, OH............... $81.99 $ 90.35 $89.47 $ 89.87 $58.11 $64.11 $60.25 $66.02
Cleveland Marriott East
Cleveland, OH............... $80.74 $ 89.54 $87.51 $ 91.10 $58.90 $65.11 $60.98 $65.64
Columbus North Marriott
Columbus, OH................ $77.98 $ 85.20 $84.79 $ 89.18 $56.68 $61.29 $61.71 $67.44
Lake Norman Hampton Inn
Charlotte, NC............... $45.70 $ 52.67 $49.16 $ 61.63 $34.63 $41.40 $39.26 $47.45
Lake Norman Holiday Inn
Charlotte, NC............... $54.13 $ 60.72 $57.46 $ 68.41 $39.50 $45.96 $43.18 $48.74
Melbourne Quality Suites
Melbourne, FL............... $72.98 $ 77.61 $78.50 $ 82.26 $57.02 $61.34 $66.49 $66.91
Radisson Inn Sanibel Gateway
Fort Myers, FL.............. $66.03 $ 66.12 $80.21 $ 81.23 $47.71 $50.43 $66.77 $72.12

Total.......................

Weighted average............ $79.27 $ 85.47 $84.82 $ 89.03 $59.24 $63.98 $62.93 $68.35
</TABLE>

5
<PAGE> 10

BUSINESS OBJECTIVES AND STRATEGIES

BUSINESS OBJECTIVES

The Company's primary business objectives are to maximize current returns
to shareholders through increases in cash flow available for distribution and to
increase long-term total returns to shareholders through appreciation in value
of the Common Shares. The Company will seek to achieve these objectives through
participation in increased revenues from the Initial Hotels pursuant to the
Percentage Leases and by selective acquisition, ownership, redevelopment,
repositioning and expansion of additional hotel properties. The Company will
seek to continue to invest in properties where the Company's established
industry and marketing expertise and other resources will enable it to improve
the acquired hotels' performance.

BUSINESS STRATEGIES

The Company's strategies to meet its objectives include (i) achieving
revenue growth in the Initial Hotels, (ii) acquiring and leasing hotel and
resort properties in the upscale and moderate markets on an accretive basis,
(iii) strategically upgrading hotel properties, and (iv) expanding and
developing additional hotel properties.

Internal Growth. The Company believes that, based on historical operating
results and the strength of the Company's management team, portfolio and
markets, the Initial Hotels should provide the Company with the opportunity for
cash flow growth through the Percentage Leases. Over the three year and five
year periods ended December 31, 1995 the aggregate total revenues of the Initial
Hotels increased at a compound annual rate of 4.4% and 3.6% per year,
respectively. See "The Company -- General -- Cash Flow Growth" and "--
Historical Performance" for further discussion of the performance of the Initial
Hotels. The Company believes that the revenue and cash flow of the Initial
Hotels will be maximized by intensive management and marketing. The Company
intends to derive increased cash flow through the application of the Initial
Lessee's operating strategies, which include the active management and balancing
of room rates with forecasted room demand in order to maximize total hotel
revenues ("yield management"). The Company believes that the Initial Lessee's
commitment to customer service and the experience of its management team should
position the Company to capitalize on the expected continued strength in the
economy and improvement in the U.S. hotel market. The Company's objectives
include enhancing its competitive position by continuing a regular program of
renovation and capital improvement.

Acquisitions. The Company believes that attractive opportunities exist to
acquire full-service hotels serving the upscale and moderate market segments of
the lodging industry. The Company intends to concentrate its investment
activities on hotel properties that are in one or more of the following
categories:

- Product Type -- Full-service commercial hotels, airport hotels, major
tourist hotels and destination resorts in major markets and business
centers;

- Market Repositioning Opportunities -- Undervalued hotels whose
performance can be significantly enhanced through new brand affiliations,
implementation of new marketing strategies and effective yield
management;

- Redevelopment and Renovation Opportunities -- Hotels with sound
operational fundamentals that, because of a lack of capital, require
physical renovation or redevelopment to achieve their full performance
potential; and

- Portfolio Acquisitions -- Portfolios of hotels that result in geographic
economies of scale or that may be leased back to qualified hotel
operators as additional lessees, and that may benefit from the Company's
repositioning and redevelopment experience and access to capital.

As a result of the Company's management's successful transactional
activities, which include approximately $750 million in hotel acquisition,
disposition, recapitalization, renovation, development and repositioning over
the last 10 years, the Company believes it possesses a competitive advantage in
market knowledge, technical expertise and industry relationships that will
enable it to continue successfully to implement its acquisition strategy on a
national scale. Further, the Company believes it will benefit from its
continuing

6
<PAGE> 11

relationship with the Initial Lessee and from developing relationships with
additional lessees who have a demonstrated history of managing hotel properties.
As a public company, the Company expects to have access to a wide variety of
financing sources to fund acquisitions, such as the ability to issue public and
private debt, equity and hybrid securities, and the ability to utilize Units as
consideration when cash is not appropriate for tax or other reasons.
Additionally, the Credit Facility will enable the Company to contract for and
complete the acquisition of additional hotels without financing contingencies.
See "The Company -- Business Objectives and Strategies -- Financing Strategy"
for a description of the terms of the Credit Facility.

The Company's philosophy is to identify and actively seek hotel properties
that can be associated with the brands that will lead the hospitality industry
in REVPAR, such as Marriott(R), Radisson(R), Hilton(R), Hyatt(R), Westin(R),
Omni(R), Doubletree(R), Sheraton(R), Holiday Inn(R) and Quality Suites(R). The
Company believes that it can maximize its market share and revenues by taking
advantage of its orientation toward sales and marketing to identify the most
effective branding and to leverage its brands with effective direct sales
strategies. The Company expects to continue to affiliate with a number of
different franchise companies in order to maximize the performance of its
hotels by providing greater access to a broad base of national marketing and
reservation systems and to mitigate the risks of franchise loss and franchise
overlap. The Company will seek to maintain a geographically diversified hotel
portfolio, and may also cluster hotels within certain primary markets in order
to take advantage of operational and managerial economies of scale. The Company
believes it has the capacity to acquire additional hotels without significantly
increasing management and overhead expenses.

Renovation and Development. The Company believes that a regular program of
capital improvements at the Initial Hotels, including replacement and
refurbishment of FF&E, will maintain and enhance their competitiveness and
maximize revenue growth under the Percentage Leases. During the fiscal years
1991 through 1995, approximately $18 million was spent on renovations and
capital improvements at the Initial Hotels, including approximately $1.1 million
for restoration of the Melbourne Quality Suites hotel following damage from
Hurricane Erin in August 1995. This represents an average of approximately
$1,400 per room per year (excluding the amount spent on the Melbourne property
restoration, which was funded entirely from insurance proceeds). The Percentage
Leases require the Company to contribute to the capital expenditures fund (the
"Capital Expenditures Fund") aggregate minimum reserves of 4% of total revenue
of the Initial Hotels. For the 12-month period ended June 30, 1996, this reserve
would have represented approximately 6.1% of room revenue and an average of
approximately $1,400 per room. The Company intends to use the Capital
Expenditures Fund for the replacement and refurbishment of FF&E and other
capital expenditures (approximately $250,000 of which is required by
franchisors) to maintain and enhance the competitive position of the Initial
Hotels, although it may make other uses of amounts in the fund that it considers
appropriate from time to time. The Company intends to make available $3.5
million from the Credit Facility to fund the Capital Expenditures Fund, as
needed. See "The Company -- Business Objectives and Strategies -- Renovation
Strategy," and "Business and Properties -- The Initial Hotels." The Boykin
Group's experience in developing and renovating its properties will assist the
Company in maintaining its properties' competitive edge in their respective
markets.

The Company may develop additional full-service or upscale limited-service
hotels on land that the Company acquires in its current geographic markets or on
land contiguous to the Initial Hotels. The Company believes that selective
development of hotels in its existing geographic markets would enable it to take
advantage of operating efficiencies to generate attractive returns on
investment.

Financing Strategy. Upon completion of the Offering, the Company will have
approximately $5 million of outstanding debt. 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 use the Credit Facility
for acquisitions while maintaining a debt-to-total market capitalization ratio
(measured at the time debt is incurred) of not more than 45%. The Company may
from time to time re-evaluate its debt capitalization policy in light of
economic conditions, relative costs of debt and equity capital, market values of
its properties, acquisition, development and expansion opportunities, and other
factors.

7
<PAGE> 12

FORMATION TRANSACTIONS

The principal transactions in connection with the formation (the
"Formation") of the Company as a REIT and the acquisition of the Initial Hotels
by the Partnership (the "Formation Transactions") are as follows:

- The Company was formed as an Ohio corporation in February 1996 and issued
one Common Share to Raymond P. Heitland.

- Upon completion of the Offering, the Company will contribute
approximately $111.6 million of the net proceeds to the Partnership in
exchange for an approximately 82.0% equity interest as the sole general
partner of the Partnership, and will lend approximately $40 million of
the net proceeds to the Partnership in exchange for a note (the
"Intercompany Convertible Note") bearing interest initially at 9.5% per
annum, which is convertible by the Company into equity interests in the
Partnership based on the initial public offering price of the Common
Shares.

- After the Contributed Partnerships convey certain working capital assets
and liabilities to the Initial Lessee, certain Boykin Group Affiliates,
the Other Partners and the Boykin Associates will contribute their
interests in the Contributed Partnerships to the Partnership and
indemnify the Partnership against liabilities of the Contributed
Partnerships other than the mortgage indebtedness to be discharged by the
Partnership. The Partnership will thereby acquire a 100% ownership
interest in all of the Initial Hotels for an aggregate of approximately
1.38 million Units (valued at approximately $27.6 million), approximately
$9.1 million in cash, the repayment of approximately $8.1 million of
existing indebtedness on the Initial Hotels, and the assumption of
approximately $136.6 million of mortgage indebtedness to be repaid from
the proceeds of the Offering. Completion of the Formation Transactions
will result in the realization by the Boykin Group Affiliates, the Boykin
Associates and Other Partners of an immediate accretion in the net
tangible book value of their investment in the Partnership of $37.62 per
Unit (an aggregate accretion of $51.8 million).

- The recipients of Units will have rights (generally not exercisable until
the third anniversary of the closing of the Offering, in the case of the
Boykin Group Affiliates and Boykin Associates) to exchange their Units
for cash (the "Exchange Rights"), subject to the Company's right to issue
Common Shares for those Units on a one-for-one basis.

- The Partnership will use approximately $134.4 million of the funds
contributed to it, along with approximately $5 million from the Credit
Facility to repay $136.6 million of third-party mortgage indebtedness
encumbering the Initial Hotels, and for the payment of formation costs,
working capital and other general partnership purposes.

- Robert and John Boykin will form the Initial Lessee, which will acquire
and succeed to the business of Boykin Management, and the Partnership
will lease each Initial Hotel to the Initial Lessee pursuant to a
Percentage Lease.

- The Initial Lessee will assume the liquor licenses, franchise agreements
and other licenses and permits and certain working capital liabilities of
the Initial Hotels.

- Robert W. Boykin will resign from Boykin Management and become the
Chairman, President and Chief Executive Officer of the Company and will
enter into the employment agreement and be granted the stock options
described under "Management -- Employment Agreements" and "Management --
Executive Compensation."

See "The Formation" for a further discussion of the benefits to, and value
received by, the Boykin Group Affiliates, the Boykin Associates and the Other
Partners in connection with the Formation Transactions.

8
<PAGE> 13

ORGANIZATIONAL CHART

As a result of the Offering and the Formation Transactions, the
relationships among the Company, the Partnership, the Initial Hotels and the
Initial Lessee will be as follows:

[graphic]

[The propsectus contains a flow chart which sets forth the
relationships among the Company, the Partnership, the Initial Hotels and the
Initial Lessee as a result of the Offering and the Formation Transactions. The
Company will own an 85.7% general partner interest (assuming conversion of the
Intercompany Convertible Note) and certain Boykin Group Affiliates and Other
Partners will own a 12.6% and 1.7% limited partner interest, respectively, in
the Partnership. The Partnership, which will own the Initial Hotels, will
lease the Initial Hotels to the Initial Lessee pursuant to the Percentage
Leases. Robert W. Boykin and John E. Boykin are the sole beneficial owners of
the Initial Lessee with a 53.8% and 46.2% interest, respectively.]

9
<PAGE> 14

SUMMARY FINANCIAL INFORMATION

The following table sets forth unaudited summary pro forma consolidated
financial information for the Company, unaudited summary pro forma financial
information for the Initial Lessee and summary combined historical financial
information for the Initial Hotels, which are presented as the Initial Hotels
(Excluding Lake Norman Hotels), and the Lake Norman Hotels. This information
should be read in conjunction with the financial statements and the notes
thereto contained elsewhere in this Prospectus. The pro forma operating
information for the Company and for the Initial Lessee is presented as if the
Offering, the Formation Transactions and the beginning of the relevant lease
year had occurred on January 1, 1995. The pro forma balance sheet data is
presented as if the Offering and the Formation Transactions had occurred on June
30, 1996.

BOYKIN LODGING COMPANY

SUMMARY CONSOLIDATED PRO FORMA FINANCIAL DATA (1)

(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,(2)
YEAR ENDED TWELVE MONTHS -------------------
DECEMBER 31, 1995(2) ENDED JUNE 30, 1996(2) 1995 1996
-------------------- ---------------------- ------- -------
<S> <C> <C> <C> <C>
OPERATING DATA:
Percentage Lease revenue(3)... $ 25,521 $ 27,166 $12,277 $13,922
---------- ---------- ------- -------
Depreciation.................. 9,514 9,514 4,757 4,757
Real estate and personal
property taxes, property
and casualty insurance and
ground rent................ 3,893 3,935 1,973 2,015
General and
administrative(4).......... 1,450 1,450 725 725
Interest expense.............. 736 736 368 368
Minority Interest(5).......... 1,420 1,649 637 866
---------- ---------- ------- -------
Total Expenses and Minority
Interest................... 17,013 17,284 8,460 8,731
---------- ---------- ------- -------
Net income attributable to
Common Shares.............. $ 8,508 $ 9,882 $ 3,817 $ 5,191
================ ================= ======= =======
Net Income per Common Share... $ 1.03 $ 1.19 $ .46 $ .63
Weighted average number of
Common Shares
outstanding................ 8,275 8,275 8,275 8,275
OTHER DATA:
Funds From Operations(6)...... $ 19,442 $ 21,045 $ 9,211 $10,814
Additions to Capital
Expenditures Fund(7)....... (3,373) (3,492) (1,654) (1,773)
Amortization of debt issue
costs included in interest
expense.................... 367 367 184 184
Cash Available For
Distribution(8)............ 16,436 17,920 7,741 9,225
Distributions(9).............. 17,375 17,375 8,688 8,688
Number of Common Shares and
Units outstanding.......... 9,653 9,653 9,653 9,653
</TABLE>

<TABLE>
<CAPTION>
AT JUNE 30, 1996(2)
----------------------
<S> <C>
BALANCE SHEET DATA:
Investment in hotel
properties, net............ $115,293
Total assets.................. 117,828
Total debt.................... 5,000
Minority interest in
Partnership................ 15,850
Shareholders' equity.......... 94,987
</TABLE>

10
<PAGE> 15

INITIAL LESSEE

SUMMARY PRO FORMA FINANCIAL DATA(1)

(UNAUDITED, AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,(2)
YEAR ENDED TWELVE MONTHS -------------------
DECEMBER 31, 1995(2) ENDED JUNE 30, 1996(2) 1995 1996
-------------------- ---------------------- ------- -------
<S> <C> <C> <C> <C>
OPERATING DATA:
Room revenue.................. $ 54,785 $ 57,298 $27,398 $29,911
Food and beverage revenue..... 23,643 23,980 11,711 12,048
Other revenue -- Initial
Hotels..................... 4,643 4,760 2,237 2,354
---------- ---------- ------- -------
Total revenues of Initial
Hotels................... 83,071 86,038 41,346 44,313
Other revenue -- Initial
Lessee..................... 2,051 2,270 1,042 1,355
---------- ---------- ------- -------
Total revenues............. 85,122 88,308 42,388 45,668
---------- ---------- ------- -------
Operating expenses............ 56,601 58,315 28,090 29,899
Cost of goods sold of Initial
Lessee..................... 1,254 1,438 511 756
Percentage Lease
payments(3)................ 25,521 27,166 12,277 13,922
---------- ---------- ------- -------
Total expenses............. 83,376 86,919 40,878 44,577
---------- ---------- ------- -------
Income before extraordinary
items...................... $ 1,746 $ 1,389 $ 1,510 $ 1,091
================ ================= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AT JUNE 30, 1996(2)
----------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 3,833
Total assets................... 11,429
Equity......................... 3,000
</TABLE>

11
<PAGE> 16

INITIAL HOTELS (EXCLUDING LAKE NORMAN HOTELS)

SUMMARY COMBINED HISTORICAL FINANCIAL DATA

(UNAUDITED, AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31,(2) JUNE 30,(2)
-------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Room revenue................ $ 42,645 $ 45,200 $ 45,753 $ 48,652 $ 50,730 $25,631 $ 27,845
Food and beverage revenue... 21,791 22,514 22,357 22,811 22,984 11,411 11,763
Other revenue............... 3,334 3,634 3,977 4,092 4,490 2,159 2,266
-------- -------- -------- -------- -------- ------- --------
Total revenues............ 67,770 71,348 72,087 75,555 78,204 39,201 41,874
-------- -------- -------- -------- -------- ------- --------
Departmental and other
expenses.................. 51,321 52,248 53,242 53,967 54,629 27,161 28,864
Real estate and personal
property taxes, insurance
and rent.................. 2,534 2,988 3,112 3,329 3,579 1,818 1,863
Depreciation and
amortization.............. 5,663 5,822 5,822 5,690 6,545 2,990 3,528
Interest expense............ 12,557 12,997 12,375 12,397 14,169 6,452 7,367
Gain on property insurance
recovery.................. -- -- -- -- (670) -- --
-------- -------- -------- -------- -------- ------- --------
Income (loss) before
extraordinary items....... (4,305) (2,707) (2,464) 172 (48) 780 252
Extraordinary item -- gain
(loss) on early
extinguishment of debt.... -- -- -- -- 556 556 (1,315)
-------- -------- -------- -------- -------- ------- --------
Net income (loss)......... $ (4,305) $ (2,707) $ (2,464) $ 172 $ 508 $ 1,336 $ (1,063)
========= ========= ========= ========= ========= ======== =========
BALANCE SHEET DATA:
Investment in hotel
properties, net........... $ 66,238 $ 62,497 $ 59,457 $ 58,527 $ 70,577 N/A $ 68,204
Total assets................ 74,380 70,823 68,757 68,688 83,332 N/A 83,421
Mortgage notes payable...... 114,132 113,333 112,660 111,788 122,203 N/A 123,726
Total partners' deficit..... (61,256) (64,458) (66,795) (67,197) (56,260) N/A (57,192)
CASH FLOW DATA:
Net cash provided by
operating activities...... N/A N/A $ 3,723 $ 7,700 $ 7,175 $ 5,853 $ 3,326
Net cash used for investing
activities................ N/A N/A (2,771) (4,746) (4,244) (2,006) (1,546)
Net cash used for financing
activities................ N/A N/A (635) (1,488) (4,018) (3,287) (842)
OTHER DATA:
EBITDA(10).................. $ 13,915 $ 16,112 $ 15,733 $ 18,259 $ 19,996 $10,222 $ 11,147
</TABLE>

12
<PAGE> 17

LAKE NORMAN HOTELS

SUMMARY COMBINED HISTORICAL FINANCIAL DATA

(UNAUDITED, AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31,(2) JUNE 30,(11)
---------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Room revenue.................. $2,643 $2,596 $2,764 $3,200 $3,764 $1,767 $ 2,066
Food and beverage
revenue(12)................ 612 631 300 -- -- -- 223
Other revenue................. 117 132 149 153 124 78 88
------ ------ ------ ------ ------ ------ -------
Total revenues........ 3,372 3,359 3,213 3,353 3,888 1,845 2,377
------ ------ ------ ------ ------ ------ -------
Departmental and other
expenses................... 2,485 2,605 2,225 2,096 2,437 1,244 1,580
Real estate and personal
property taxes, insurance
and rent................... 125 130 129 96 106 55 52
Depreciation and
amortization............... 601 606 576 523 466 289 289
Interest expense.............. 507 401 289 326 415 759 759
------ ------ ------ ------ ------ ------ -------
Net income (loss)..... $ (346) $ (383) $ (6) $ 312 $ 464 $ (502) $ (303)
====== ====== ====== ====== ====== ====== =======
BALANCE SHEET DATA:
Investment in hotel
properties, net............ $7,268 $6,807 $6,276 $5,888 $5,739 N/A $ 9,438
Total assets.................. 7,803 7,199 6,846 6,452 6,229 N/A 10,465
Mortgage notes payable........ 6,050 5,860 5,595 5,318 5,057 N/A 9,618
Total partners' equity........ 1,372 988 982 894 938 N/A 456
CASH FLOW DATA:
Net cash provided by (used
for) operating
activities................. N/A N/A $ 477 $ 804 $ 938 $ (54) $ 155
Net cash used for investing
activities................. N/A N/A (30) (129) (311) (247) (51)
Net cash used for financing
activities................. N/A N/A (265) (677) (681) (43) (49)
OTHER DATA:
EBITDA(10).................... $ 762 $ 624 $ 859 $1,161 $1,345 $ 546 $ 745
<FN>
- ---------------

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

2. Eight of the Initial Hotels utilize December 31 as year-end for financial
reporting purposes and one of the Initial Hotels utilizes a September 30
fiscal year-end. For pro forma purposes, adjustments have been made to
conform the year-ends of all the Initial Hotels to stated periods shown. For
historical financial reporting purposes of the Initial Hotels (Excluding the
Lake Norman Hotels), for the five years ended December 31, 1995, the
September 30 financial data of the Initial Hotel having a September 30
fiscal year end have been combined with the December 31, 1995 financial data
of the other Initial Hotels. For the twelve months ended June 30, 1996 and
six month periods ended June 30, 1995 and 1996, the financial data of the
hotel with the September 30 year end have been combined using the same month
and periods as the other eight hotels. Pro forma financial data of the
Initial Lessee for the year ended December 31, 1995 includes the operating
results of Boykin Management Company (BMC) for the fiscal year ended March
31, 1996. For all other pro forma periods, the operating results of BMC have
been conformed to June 30, 1995 and 1996 as applicable. In the opinion of
management, the impact of using the different interim period ends is not
material.

3. Represents lease payments from the Initial Lessee to the Partnership
calculated on a pro forma basis by applying the rent provisions in the
Percentage Leases to the historical revenues of the Initial Hotels for the
period indicated, including for the Melbourne Quality Suites Inn an
additional $725 of rent for the year ended December 31, 1995 and the 12
months ended June 30, 1996, required under the rental interruption insurance
provision of the Percentage Lease agreements. The rent formula utilized in
computing the pro forma Percentage Lease revenue and expense includes, for
the calendar year 1995, an adjustment to reduce the threshold revenue
amounts in the Percentage Lease formulas by the 2.5% increase in the
Consumer Price Index for that year.
</TABLE>

13
<PAGE> 18

4. Estimated at $1.45 million annually for salaries, professional fees,
directors' and officers' insurance, directors fees and expenses and other
general and administrative expenses associated with being a public company.

5. Calculated as 14.3% of the income before minority interest.

6. Represents Funds From Operations of the Company, on a consolidated basis.
The following table computes Funds From Operations for the twelve months
ended June 30, 1996 under the newly adopted National Association of Real
Estate Investment Trusts ("NAREIT") definition. Funds From Operations
consists of income (loss) before minority interest (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. Industry analysts consider
Funds From Operations to be an appropriate measure of the performance of an
equity REIT. Funds From Operations should not be considered as a basis for
computing distributions or as an alternative (i) to net income or other
measurements under generally accepted accounting principles, as an indicator
of operating performance, or (ii) to cash flows from operating, investing,
or financing activities, as a measure of liquidity. Funds From Operations
does not reflect cash expenditures for capital improvements or principal
amortization of indebtedness on the Initial Hotels.

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
JUNE 30, 1996
-------------------
<S> <C>
Net income................................................... $ 9,882
Minority interest............................................ 1,649
Depreciation................................................. 9,514
--------
Funds From Operations........................................ $21,045
====================
</TABLE>

7. Represents additions to the Capital Expenditures Fund calculated as 4% of
total revenue of the Initial Hotels, adjusted for $1,261 of additional
revenues at the Melbourne Quality Suites for the year ended December 31,
1995 and the twelve months ended June 30, 1996 as required under the rental
interruption insurance provision of the Percentage Leases.

8. Calculated as Funds From Operations less additions to the Capital
Expenditures Fund plus amortization of debt issue costs included in interest
expense.

9. Represents estimated initial dividends to be paid based on the initial
dividend rate of $1.80 per share and an aggregate of 9,653 Common Shares and
Units outstanding.

10. Represents income (loss) before extraordinary items, excluding depreciation
and amortization, interest expense and gain on property insurance recovery.

11. The Summary Combined Historical Operating Data, Cash Flow Data and Other
Data for the Lake Norman Hotels for the six months ended June 30, 1995 and
1996 are presented on a pro forma basis, making necessary pro forma
adjustments to the historical operating results to reflect additional
depreciation expense associated with the purchase accounting writeup to the
investment in hotel properties, the additional interest expense associated
with the acquisition indebtedness and an increase in management fee expense.

12. From August 1993 until February 1996, the catering, meeting, lounge and
restaurant facilities of the Lake Norman Holiday Inn were operated by a
third party operator. In February 1996, when a Boykin Group Affiliate
purchased the hotel facility, it also purchased the food and beverage
business assets of this operator.

DISTRIBUTIONS

The Company intends to make regular quarterly distributions to holders of
Common Shares initially equal to $0.45 per share ($1.80 per share on an annual
basis), which would represent approximately 97% of the Company's pro forma Cash
Available for Distribution for the twelve months ending June 30, 1996. The
distribution for the period commencing on the completion of the Offering and
ending December 31, 1996 is expected to be a pro rata portion of the initial
quarterly distribution. The Company does not intend to change its estimated
initial distribution per share if the Underwriters' over-allotment option is
exercised. The Company estimates that the entire annual distribution to holders
of Common Shares for 1996 will represent a return of capital for Federal income
tax purposes. The Company's expectation reflects, among other things, the effect
of nonrecurring penalties to be incurred in connection with the prepayment of
certain debt at the time of the Formation Transactions. The Company anticipates
that substantially all of the distributions in respect of 1997 will be taxable
as dividends. The statements in this paragraph are forward-looking statements
involving certain risks and uncertainties that could cause actual results to
differ materially from those projected in such statements. Factors that might
cause such differences are discussed elsewhere in this Prospectus. See
"Distribution Policy" for information regarding the basis for the Company's
estimates, and "Risk Factors." The declaration and payment of any distributions
by the Company will be at the discretion of the Company's Board of Directors and
will depend on, among other things, the Company's receipt of cash

14
<PAGE> 19

distributions from the Partnership, the Company's level of indebtedness, any
contractual restrictions, and other factors considered relevant by the Board.
The level of the Partnership's cash distributions will be determined by the
Partnership in light of its cash needs, including its requirements for investing
and financing activities and other anticipated cash needs. The Partnership's
principal source of revenue initially will be payments of rent by the Initial
Lessee under the Percentage Leases. See "Risk Factors -- Hotel Industry
Risks -- Seasonality" for a discussion of the effect of the seasonal nature of
hotel revenues on the Company's receipt of rent payments from the Initial
Lessee.

TAX STATUS OF THE COMPANY

The Company intends to 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 as a REIT, under current Federal income tax laws
the Company generally will not be subject to federal income tax on income it
distributes to shareholders as long as it distributes at least 95% of its REIT
taxable income currently and satisfies a number of organizational and
operational requirements. If the Company fails to qualify as a REIT in any
taxable year, the Company will be subject to Federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates, which would effectively impose on the Company's shareholders the "double
taxation" that generally results from investment in a corporation. The Company
will receive an opinion of its counsel in connection with the closing of the
Offering to the effect that, based on certain representations made by the
Company and certain assumptions, the Company will be organized in conformity
with the requirements for qualification as a REIT under the Code and that the
method of operation of the Company and the Partnership will permit the Company
to continue to so qualify for its current and future taxable years. See "Risk
Factors -- Tax Risks -- Failure to Qualify as a REIT" and "Federal Income Tax
Considerations." Even if the Company qualifies for taxation as a REIT, the
Company may be subject to certain state and local taxes on its income and
property and will be subject to Federal and state income taxes and may be
subject to excise taxes on its undistributed income.

THE OFFERING

All Common Shares offered hereby are being offered by the Company.

<TABLE>
<S> <C>
Common Shares offered:............................. 8,275,000 shares(1)
Common Shares and Units to be outstanding after the
Offering......................................... 9,653,000 shares(2)
Use of Proceeds:................................... Acquisition of the Initial Hotels;
repayment of mortgage indebtedness
relating to the Initial Hotels
(including prepayment penalties);
repayment of loans made by Boykin
Management and by certain Other Partners
to one of the Initial Hotels; and
formation costs, working capital and
other general purposes. See "Use of
Proceeds."
New York Stock Exchange symbol..................... BOY
<FN>
- ---------------

(1) Assumes the Underwriters' over-allotment option is not exercised.

(2) Includes 1,378,000 shares issuable on exchange of 1,378,000 Units. Does not
give effect to the 1,000,000 Common Shares issuable under the Company's
Long-Term Incentive Plan or to the Common Shares subject to the options
covering 25,000 Common Shares to be granted to the Company's Independent
Directors upon completion of the Offering. See "Management -- Long-Term
Incentive Plan" and "-- Compensation of Directors."
</TABLE>

15
<PAGE> 20

RISK FACTORS

Prospective investors should carefully consider, among other factors, the
matters described below, each of which could have adverse consequences to the
Company and adversely affect the value of the Common Shares.

DEPENDENCE ON KEY PERSONNEL

The Company is dependent on the efforts of Robert W. Boykin, Chairman,
President and Chief Executive Officer, Raymond P. Heitland, Chief Financial
Officer and Treasurer, and Mark L. Bishop, Senior Vice President -- Acquisitions
and Development. The loss of the services of any of these executive officers
could have a material adverse effect on the performance of the Company. The
Company does not maintain a "key-man" life insurance policy with respect to any
executive officer.

CONTROL BY BOYKIN GROUP AND LACK OF SHAREHOLDER CONTROL

Upon completion of the Offering, Robert and John Boykin (who are brothers)
will have the ability to acquire in the aggregate approximately 11.0% of the
Company through their direct or indirect ownership of Units that they may
exchange for Common Shares on a one-for-one-basis (subject to the Company's
right to pay cash in lieu of issuing shares), commencing on the third
anniversary of the closing of the Offering. Robert Boykin will also have
significant control over the operations of the Company as a result of his senior
management position with the Company. Robert and John Boykin will have
significant control over the operations of the Initial Lessee as a result of
their ownership interests and directorships in the Initial Lessee and John
Boykin's senior management position with the Initial Lessee. See "Lessees -- The
Initial Lessee" and "Management." Accordingly, Robert and John Boykin and their
Affiliates will have substantial influence over the Company, which influence may
not necessarily be consistent with the interests of other shareholders.

The investment and financing policies of the Company and its policies with
respect to certain other activities, including its growth, capitalization,
distributions, REIT status and operating policies, are determined by the Board
of Directors. These policies may be changed from time to time at the discretion
of the Board of Directors without a vote of the shareholders of the Company,
although the Board of Directors has no present intention to make any such
change. Any such change could be detrimental to the value of the shareholders'
interests in the Company.

DEPENDENCE ON LESSEES

The Company will lease the Initial Hotels to the Initial Lessee under the
Percentage Leases and expects to lease any hotels acquired after completion of
the Offering to the Initial Lessee or to other lessees under similar leases. As
a result, the Company will be dependent on lessees for all of its operating
income. The Initial Lessee may be subject to obligations to and possible claims
of third parties arising out of its subsidiaries' separate operating activities.
See "The Lessees -- The Initial Lessee." The incurrence of any such liabilities
could have a material adverse effect on the Initial Lessee's ability to perform
under the Percentage Leases and any other leases between the Company and the
Initial Lessee. The Initial Lessee's obligations under the Percentage Leases are
unsecured.

Each lessee is expected to hold in its name the franchise licenses, liquor
licenses and other operating licenses and permits relating to the hotels leased
to it. On a default by a lessee resulting in the termination of any Percentage
Lease or other lease, the franchise license, liquor licenses and operating
licenses and permits held by the lessee with respect to the affected property
will not devolve automatically on a successor operator designated by the
Company, and the process of transferring those licenses and permits to a
successor operator may be costly and time-consuming. Furthermore, any default by
a lessee under any such franchise license, liquor license or operating license
or permit could result in the loss or suspension of that license or permit. The
Company may be adversely affected as a result of any loss, suspension or delay
in reinstating or transferring any such license or permit.

If the Company terminates any Percentage Lease or other lease following a
default by a lessee, the Company will have to re-lease the affected property in
order to maintain its qualification as a REIT. There can

16
<PAGE> 21

be no assurance that the Company would be able to do so on terms substantially
similar to those contained in the terminated lease. The Company also may have to
incur substantial expenditures in connection with any such re-leasing. Moreover,
in the event of a bankruptcy of a lessee, the Company's ability to re-lease the
affected hotels or recover damages based on the default under or rejection of
the relevant leases by the lessee would be adversely affected.

With respect to any hotel property acquired by the Company following the
Offering, the Company will seek to enter into a lease with the Initial Lessee or
another lessee on terms substantially similar to the Percentage Leases. The
inability to conclude any such lease or any lease with a different lessee, or
any delay in establishing the terms thereof, could adversely affect the
Company's ability to expand its portfolio of properties.

HOTEL INDUSTRY RISKS

OPERATING RISKS. The Company's hotel properties will be subject to all
operating risks common to the hotel industry. These risks include, among other
things, competition from other hotels; overbuilding in the hotel industry, which
has adversely affected occupancy and room rates; increases in operating costs
attributable to inflation and other factors, which increases have not
consistently been, and may not necessarily in the future be, offset by increased
room rates; significant dependence on business and commercial travelers and
tourism; increases in energy costs and other expenses of travel; and adverse
effects of general and local economic conditions. The Company's hotel properties
are also subject to risks associated with food and beverage operations and risks
presented by governmental regulations and authorities, particularly with respect
to liquor licenses, which could result in interruptions in food and beverage
operations. These factors could adversely affect a lessee's ability to make
lease payments and therefore the Company's ability to make expected
distributions to shareholders.

COMPETITION. The Company's hotel properties will compete with other hotel
properties in their geographic markets. The Company may also 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 entities in which investments may be made or risks attendant
to a geographic concentration of 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.

INVESTMENT IN SINGLE INDUSTRY. The Company's current strategy is to acquire
interests in hotel properties. The Company does not expect to seek to diversify
its real estate investments, and will therefore be subject to risks inherent in
investments in a single industry.

SEASONALITY. The hotel industry is seasonal. Generally, hotel revenues are
greater in the second and third quarters than in the first and fourth quarters.
While the Initial Hotels in Florida generate comparatively greater revenues from
January through April than the other Initial Hotels, the Initial Hotels continue
to experience this quarterly effect on an aggregate basis. This effect can be
expected to cause quarterly fluctuations in the Company's lease revenues.
Notwithstanding these fluctuations, the Company does not expect this seasonality
to affect its quarterly dividend payments.

LIMITED NUMBER OF HOTELS; GEOGRAPHIC CONCENTRATION. The Company initially
will own nine hotels, two of which, containing approximately 32% of the rooms of
the Initial Hotels, are in the Cleveland, Ohio market. Significant adverse
changes in the operating results of any of the Initial Hotels, or in economic
conditions in any of the Company's markets, could have a material adverse effect
on lease revenues and on the Company's ability to make expected distributions to
its shareholders.

FRANCHISE RISKS. The Initial Hotels are subject to franchise agreements.
The Company expects that hotels that it may acquire will also be subject to
franchise agreements. The failure of an Initial Hotel, the Company, the Initial
Lessee or another Company lessee to meet standards imposed by a franchisor or
otherwise to adhere to a franchise agreement could result in the loss or
cancellation of the franchise agreement. A franchisor also could condition the
continuation of a franchise agreement on the completion of

17
<PAGE> 22

capital improvements that the Company determines are unwarranted in light of
economic conditions. In that event, the Company may elect to allow a franchise
agreement to lapse. If any franchise is terminated or expires, the Company and
the lessee may seek to obtain a suitable replacement franchise or to operate the
affected property independently of a franchise agreement. The loss of a
franchise could have a material adverse effect on 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. In addition, a franchisor may seek to impose
a charge as a condition to consenting to a proposed sale or lease of a hotel
property. The Percentage Leases require the Initial Lessee to cooperate with the
Company in its efforts to effect relevant sales and leases without incurring
such charges.

The franchise agreements with Marriott governing five of the Initial Hotels
contain a provision requiring the franchisee, on receiving a bona fide offer to
buy the related Initial Hotel, to give the franchisor the option to buy that
hotel on the same terms as are contained in that offer. These agreements also
require Marriott's consent to the sale of the hotel and, subject to certain
conditions, to the incurrence and refinancing of indebtedness secured by the
hotel, which Marriott may not unreasonably withhold. These provisions may
inhibit the Company's ability to sell the hotels. The Marriott Franchise
Agreements also require the Company, upon a default under the franchise
agreement by the Initial Lessee, (i) to arrange for a replacement lessee,
acceptable to Marriott, for the remainder of the franchise term, and (ii) to
guarantee the performance of certain obligations of the Initial Lessee,
including the payment of specified fees, the making of required renovations and
other capital improvements, the replacement of FF&E and certain equipment and
materials, the maintenance of insurance, and certain other obligations relating
to the maintenance of the Marriott system's standards.

RENOVATION AND CAPITAL IMPROVEMENTS REQUIREMENTS. Hotel properties require
continuing renovation and capital improvements, including periodic refurbishment
and replacement of FF&E, to remain competitive. While the Company will maintain
the Capital Expenditures Fund to fund such renovations and improvements,
required expenditures could exceed the Company's expectations. If that occurs,
the incremental costs could adversely affect Cash Available for Distribution. In
addition, renovations and other capital improvements entail certain risks,
including environmental risks, construction cost overruns and delays, and
unanticipated downturns in demand or unanticipated emergence of competition in
the affected market.

CONFLICTS OF INTEREST

CONFLICTS BETWEEN INITIAL LESSEE'S INTERESTS AND COMPANY'S
INTERESTS. Robert and John Boykin will derive benefits from the operation of the
Initial Hotels by the Initial Lessee. Accordingly, they have faced conflicts of
interest in connection with the structuring of the Percentage Leases and may
face such conflicts upon renewals thereof. They will also face conflicts of
interest in connection with the structuring of leases for hotels the Company may
acquire in the future and lease to the Initial Lessee and in operating the
Initial Hotels and such other acquired hotels in a manner that may maximize
profits for the Initial Lessee without necessarily benefiting the Company.
Determinations to be made on behalf of the Company in connection with any such
conflict will be subject to the approval of the Company's Independent Directors.
See "Policies and Objectives with Respect to Certain Activities -- Conflict of
Interest Policy."

DIFFERING CONSEQUENCES OF FINANCING OR SALE OF HOTELS. Unlike public
shareholders purchasing Common Shares in the Offering, certain Boykin Group
Affiliates will own interests in the Partnership in addition to Common Shares.
As a result, the sale of the Initial Hotels by the Partnership may result in
different and more adverse tax consequences to these Boykin Group Affiliates
than would be experienced by the Company and the public shareholders, and they
may seek to influence the Company not to sell an Initial Hotel even though that
sale might otherwise be financially advantageous to the Company and the public
shareholders. In addition, if the Company sells an Initial Hotel to a
non-Affiliate and terminates the related Percentage Lease in connection
therewith, the Company must pay the Initial Lessee the fair market value of its
leasehold interest in the remaining term of that Percentage Lease. Finally,
certain Boykin Group Affiliates and certain Other Partners of the Contributed
Partnerships may seek to influence the Partnership to incur debt on the Initial
Hotels or any acquired hotels, on the prepayment or conversion of the
Intercompany Convertible

18
<PAGE> 23

Note, to continue the tax deferral inherent in the assets they will be
contributing to the Partnership. See "Business and Properties -- The
Intercompany Convertible Note."

CONFLICTING INTERESTS IN ENFORCEMENT OF TERMS OF CERTAIN AGREEMENTS; TIME
ALLOCATION CONFLICTS. Robert W. Boykin will have a conflict of interest with
respect to his obligations as an executive officer and director of the Company
to enforce the terms of certain agreements being entered into in connection with
the Formation, including the Percentage Leases, his and certain Boykin Group
Affiliates' noncompetition agreements with the Company, the agreements relating
to the conveyance to the Company of the Initial Hotels and certain related
assets, and the Intercompany Convertible Note. Any failure to enforce the
material terms of any of these agreements, including the indemnification
provisions for breaches of representations and warranties contained in the
agreements governing the contribution of the Initial Hotels, could have a
material adverse effect on the Company. Mr. Boykin, who will be an officer and
director of the Company and a director of the Initial Lessee, may also face
conflicts of interest with respect to the allocation of his time and resources.

AFFILIATES' PARTICIPATION IN OTHER ACTIVITIES. At the time of the Formation
Transactions, subsidiaries of the Initial Lessee will acquire and continue the
third-party hotel management, interior design and purchasing services businesses
of Boykin Management. John E. Boykin will serve as the initial Secretary of the
subsidiaries. The subsidiaries initially will manage 11 hotels, none of which is
owned by the Company, Boykin Management or any other Boykin Group Affiliate.
Three of these hotels are Hampton Inns in the Chicago, Illinois area, containing
an aggregate of 366 rooms. These hotels are owned by an insurance company and
have been managed by Boykin Management since December 1995. The remaining eight
managed hotels, which Boykin Management has managed since February 1996 on
behalf of an institutional investor, contain an aggregate of 1,154 rooms and are
located in Santa Barbara County and Ventura County, California.

Robert and John Boykin hold interests in a joint venture formed to
purchase, other than for hotel purposes, a six-acre parcel in the immediate
vicinity of the Buffalo Marriott Hotel. The Company and the joint venture have
entered into an agreement that provides for certain cross-easements between the
properties and provides that the land will contain specific deed restrictions to
prevent the development of any hotel thereon.

William J. Boykin, the retired Chairman of Boykin Management and the father
of Robert and John Boykin, is developing a Hampton Inn on certain real property
owned by him in Miami, Florida that is adjacent to a shopping center developed
by him in 1989. The hotel is expected to open in the fall of 1996. No other
Boykin Group Affiliate will have an interest in the development of this hotel,
but the Company will have a right of first refusal to purchase the hotel if
William J. Boykin elects to sell it.

LACK OF INDEPENDENT APPRAISALS AND ARM'S-LENGTH NEGOTIATIONS

No independent appraisals were obtained or arm's length negotiations
conducted in connection with the formation of the Company. The terms of the
contribution of the Initial Hotels to the Company were determined by the
principals of the Boykin Group, who will receive an economic benefit as a result
of these contributions. The Company believes it is appropriate to value the
Company as a going concern, rather than with a view toward values that could be
obtained from a liquidation of the Company or of the assets owned by the
Company. Accordingly, the valuation of the Company has been determined based
primarily on an estimate of the Company's Cash Available for Distribution,
rather than on an asset-by-asset valuation based on historical costs or current
market value. No assurance can be given that the value of the economic benefits
received by the principals of the Boykin Group and other Boykin Group Affiliates
in the formation of the Company accurately reflects the fair market value of the
assets contributed by them to the Company. See "Certain Transactions" and
"Underwriting."

AFFILIATES' BENEFITS FROM THE FORMATION

Certain Boykin Group Affiliates will receive the following benefits as a
result of the Formation Transactions: (i) increased cash distributions from the
operations of the Initial Hotels, because of the prepayment of mortgage debt;
(ii) elimination of approximately $5.3 million of mortgage debt guaranties;
(iii) the ability to exchange Units received in the Formation Transactions for
cash or, at the Company's election, for Common Shares with registration rights,
which will be more liquid than their interests in the Contributed Partnerships;
(iv) deferral of income tax by contributing their interests in the Contributed

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<PAGE> 24

Partnerships; (v) repayment from the proceeds of the Offering of approximately
$3.1 million of loans made by Boykin Management for the benefit of one of the
Initial Hotels; (vi) realization of an immediate accretion in the net tangible
book value of their investment in the Partnership of $37.62 per Unit (for an
aggregate accretion of $45.6 million); (vii) receipt by Robert W. Boykin of
options to purchase an aggregate of 250,000 Common Shares under the Company's
Long-Term Incentive Plan; and (viii) beneficial ownership of the Initial Lessee,
which will be entitled to all profits and cash flow from the Initial Hotels
after payment of rent under the Percentage Leases and other operating expenses.
See "The Formation" for further discussion of the benefits to Boykin Group
Affiliates from the Formation Transactions.

REAL ESTATE INVESTMENT RISKS

GENERAL. The Company's investments will be subject to varying degrees of
risk generally incident to the ownership of real estate. These risks include,
among others, changes in national, regional and local economic conditions, local
real estate market conditions, changes in interest rates and in the
availability, costs and terms of financing, the impact of present or future
environmental legislation and compliance with environmental laws, the ongoing
need for capital improvements, changes in real estate tax rates and other
operating expenses, adverse changes in governmental laws and rules, the
potential for uninsured or underinsured losses, adverse changes in zoning laws,
and other factors beyond the control of the Company.

VALUE AND ILLIQUIDITY OF REAL ESTATE. Real estate investments are
relatively illiquid. The Company's ability to vary its portfolio of hotels in
response to changes in economic and other conditions will therefore be limited.
In addition, certain significant expenditures associated with each equity
investment (such as mortgage payments, real estate taxes and maintenance costs)
are generally not reduced when circumstances cause a reduction in income from
the investment. After completion of the Offering and the application of the
proceeds therefrom as set forth under "Use of Proceeds," certain of the Initial
Hotels may be mortgaged to secure the Credit Facility. See "The
Company -- Business Objectives and Strategies -- Financing Strategy."

UNINSURED AND UNDERINSURED LOSSES. The Percentage Leases require the
Initial Lessee to maintain comprehensive insurance on each of the Initial
Hotels, including loss of business income, liability, and employee dishonesty
coverage. The Company is required to maintain building casualty insurance on
each Initial Hotel. Management believes the Initial Hotels' coverage is of the
type and amount, including coverage limits and deductibility provisions,
customarily carried on similar properties. However, there are certain types of
losses, generally of a catastrophic nature, such as earthquakes and floods, that
may be uninsurable or not economically insurable. Should an uninsured loss or a
loss in excess of insured limits occur, the Company could lose its investment in
the affected Initial Hotel as well as the anticipated future revenues from that
hotel, while remaining obligated for any mortgage indebtedness or other
financial obligations related to that hotel.

ACQUISITION RISKS. The Company intends to pursue acquisition of future
hotels selectively. In undertaking these acquisitions, the Company will incur
certain risks, including the expenditure of funds on, and the devotion of
management's time to, transactions that may not come to fruition. Additional
risks inherent in acquisitions include risks that the properties will not
achieve anticipated occupancy levels or sustain anticipated room rate levels,
and that judgments with respect to the cost of improvements to bring acquired
properties to the Company's standards will prove inaccurate. In addition, the
Company anticipates that new acquisitions will be financed under the Credit
Facility or other forms of interim financing, resulting in the risk that
permanent financing may not be available or may be available only on
disadvantageous terms. If permanent financing is not available on acceptable
terms, the Company may be forced to dispose of the affected property or other
property on disadvantageous terms.

DEVELOPMENT AND REDEVELOPMENT RISKS. The Company may develop and redevelop
hotels when it believes that doing so is consistent with its business
strategies. While the Company's policies with respect to these activities are
intended to limit some of the risks associated with those activities, new and
continued project development will be subject to a number of risks, including
that financing may not be available on favorable terms, that construction costs
of a property may exceed original estimates, that occupancy rates and ADR may
not stabilize at anticipated levels, that financing may not be available on
completion of construction, and that construction may not be completed on
schedule. If the Company undertakes but elects not to proceed with a development
or redevelopment opportunity, the costs associated therewith will ordinarily

20
<PAGE> 25

be charged against income for the current period. The Company continually
attempts to improve its ability to evaluate projects in advance and to minimize
the costs incurred before it acquires the properties that are the subject of
contemplated development or redevelopment projects. These activities are also
subject to risks relating to the inability to obtain, or delays in obtaining,
the necessary zoning, land-use, building, occupancy and other required
governmental permits and authorizations.

PROPERTY TAX CHANGES. Under the Percentage Leases, the Company will be
responsible for the payment of real and personal property taxes and assessments.
These taxes and assessments may increase or decrease as property tax rates
change and as the properties are assessed or reassessed by taxing authorities.
If property taxes increase or assessments are levied, the Company's ability to
make distributions to its shareholders could be adversely affected.

COSTS OF COMPLIANCE WITH CERTAIN LAWS. The Initial Hotels must comply with
Title III of the Americans with Disabilities Act (the "ADA") to the extent that
they are "public accommodations" or "commercial facilities" as defined in the
ADA. Noncompliance with the ADA could result in the imposition of fines or an
award of damages to private litigants. The Company believes, based on an
internal review, that the Initial Hotels comply in all material respects with
the ADA and similar applicable state laws. If changes in these laws involve
substantial expenditures or must be made on an accelerated basis, the Company's
ability to make distributions to shareholders could be adversely affected.

RISKS INVOLVED IN INVESTMENTS THROUGH JOINT VENTURES AND OTHER ENTITIES. On
consummation of the Offering, all of the Company's hotels will be owned solely
by the Partnership. However, the Company may in the future invest as a
co-venturer in a hotel property if it will have control of the operation of the
joint venture assets. Any such investment may involve risks such as the
possibility that the co-venturer may become bankrupt or have economic or
business interests or goals that are inconsistent with the business interests or
goals of the Company.

The Company may also invest in securities of other entities engaged in the
ownership of hotels. Investments of this type may not entitle the Company to
control the ownership and leasing of the underlying hotels or to control
distributions therefrom, which may adversely affect the Company's ability to
make distributions to its shareholders. Furthermore, the Company may be
prevented from controlling an issuer of securities by the percentage limitations
on the ownership of securities and the gross income tests for REIT
qualification. See "Policies and Objectives with Respect to Certain
Activities -- Investment Policies" and "Federal Income Tax
Considerations -- Taxation of the Company as a REIT."

REAL ESTATE FINANCING RISKS. The Company expects to finance future
acquisitions in part through the Credit Facility or other new debt financing. In
doing so the Company will be subject to the risks normally associated with debt
financing, including the risk that the Company's cash flow will be insufficient
to meet required payments of principal and interest, the risk that the Company
will not be able to refinance that indebtedness or that the terms of any such
refinancing will not be as favorable as the terms of the existing indebtedness,
and the risk that necessary capital expenditures for such purposes as
renovations and other improvements cannot be financed on favorable terms, if at
all. If the Company were unable to secure refinancing of any such indebtedness
on acceptable terms, the Company might be forced to dispose of properties on
disadvantageous terms, which could result in losses to the Company and could
adversely affect the cash flow of the Company available for distribution. If the
Company incurs variable rate mortgage indebtedness, an increase in interest
rates could have an adverse effect on the Company's net income and Distributable
Cash Flow. In addition, if a property is mortgaged to secure payment of
indebtedness and the Company is unable to make mortgage payments, the property
could be foreclosed upon by, or otherwise transferred to, the mortgagee with a
consequent loss of income and asset value to the Company. The Credit Facility is
expected to be secured by mortgages on several of the Initial Hotels.

In addition, the Company's need to distribute 95% of its REIT taxable
income in order to maintain its qualification as a REIT will limit its ability
to rely on cash flow from operations to finance new development or acquisitions.
As a result, if permanent debt or equity financing is not available on
acceptable terms to refinance new development or acquisitions undertaken without
permanent financing, further development activities or acquisitions may not be
feasible.

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<PAGE> 26

THE COMPANY'S LACK OF OPERATING HISTORY

The Company is a newly formed corporation. Accordingly, the Company does
not have any operating history or experience in operating in accordance with the
requirements for maintaining its qualification as a REIT.

POTENTIAL ADVERSE EFFECT ON THE VALUE OF THE COMMON SHARES OF
FLUCTUATIONS IN INTEREST RATES OR EQUITY MARKETS

The market price of equity securities of a publicly traded REIT is
determined in part by the attractiveness of the yield from distributions on
those securities in relation to prevailing interest rates. Accordingly, an
increase in interest rates generally may lead purchasers of the Common Shares to
demand a higher annual yield, which could adversely affect the market price of
the Common Shares. Moreover, the market value of the Common Shares could be
substantially and adversely affected by changes in general securities market
conditions or fluctuations in the markets for equity securities.

POTENTIAL ENVIRONMENTAL LIABILITY

Under various federal, state and local laws, ordinances, 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, under or in the
property. This liability may be imposed without regard to whether the owner or
operator knew of, or was responsible for, the presence of the hazardous or toxic
substances. Furthermore, a person that arranges for the disposal of a hazardous
substance at another property or transports a hazardous substance for disposal
or treatment at another property may be liable for the costs of removal or
remediation of hazardous substances at that property, regardless whether that
person owns or operates that property. The costs of any such remediation or
removal may be substantial, and the presence of any such substance, or the
failure promptly to remediate any such substance, may adversely affect the
property owner's ability to sell or lease the property or to borrow using it as
collateral. Other federal, state and local laws, ordinances and regulations
require abatement or removal of certain asbestos-containing materials in
connection with demolition or certain renovations or remodeling, impose certain
worker protection and notification requirements, and govern emissions of and
exposure to asbestos fibers in the air. Other federal, state and local laws,
ordinances and regulations and the common law impose on owners and operators
certain requirements regarding conditions and activities that may affect human
health or the environment. These conditions and activities include, for example,
the presence of lead in drinking water, the presence of lead-containing paint in
occupied structures, and the ownership or operation of underground storage
tanks. Failure to comply with applicable requirements could result in difficulty
in the lease or sale of any affected property or the imposition of monetary
penalties, in addition to the costs required to achieve compliance and potential
liability to third parties. The Company, the Partnership or the Initial Lessee,
as the case may be, may be potentially liable for such costs or claims in
connection with the ownership and operation of the Initial Hotels.

Phase I environmental site assessments or assessment updates have been
completed within the last 24 months on each Initial Hotel, and a Phase II
assessment was conducted for one hotel in April 1996. Additional sampling was
conducted at one Initial Hotel because its Phase I assessment identified the
presence of contaminants at an adjacent gasoline station. None of the Phase I or
Phase II assessments revealed any environmental contamination or condition that
the Company believes would have a material adverse effect on the Company's
business, assets or results of operations, nor is the Company aware of any such
contamination or condition. Nonetheless, it is possible that material
environmental contamination or conditions exist of which the Company is unaware.

No assurance can be given that (i) the assessments referred to above
revealed all potential environmental liabilities, (ii) future or amended laws,
ordinances or regulations, or more stringent interpretations or enforcement
policies of existing environmental requirements, will not impose any material
environmental liability or (iii) the environmental condition of the Initial
Hotels has not been and will not be affected by changes in the condition of
properties in the vicinity of the Initial Hotels or by the acts of third parties
unrelated to the Company or the Partnership. See "Business and
Properties -- Environmental Matters."

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<PAGE> 27

TAX RISKS

FAILURE TO QUALIFY AS A REIT. The Company intends to operate as a REIT
under the Code, commencing with its initial taxable year ending December 31,
1996. The Company has not requested, and does not expect to request, a ruling
from the IRS regarding its status as a REIT. Qualification as a REIT involves
the application of technical and complex provisions of the Code for which there
are only limited judicial or administrative interpretations. The determination
of various factual matters and circumstances not entirely within the Company's
control may affect its ability to qualify as a REIT, including default by a
lessee under, and a termination of, an operating lease. In addition, no
assurance can be given that legislation, regulations, administrative
interpretations or court decisions will not significantly change the rules
applicable to the Company with respect to its qualification as a REIT or the
federal income tax consequences of such qualification.

The Company will receive an opinion of Baker & Hostetler that, based on the
assumption that the Percentage Leases, the Partnership Agreement, the Company's
organizational documents, and all other documents to which the Company is a
party will be complied with by all parties thereto, and based upon certain
representations of the Company, the Company will qualify as a REIT under the
Code. Investors should be aware, however, that opinions of counsel are not
binding on the IRS or the courts. Both the opinion and the continued
qualification of the Company as a REIT will depend on the Company's continuing
ability to meet various requirements concerning, among other things, the
ownership of its outstanding shares, the nature of its assets, the sources of
its income, and the amount of its distributions to shareholders. See "Federal
Income Tax Considerations -- Taxation of the Company as a REIT."

If the Company were to fail to qualify as a REIT in any taxable year, the
Company would not be allowed a deduction for distributions to shareholders in
computing its taxable income and would be subject to federal income tax
(including any applicable minimum tax) on its taxable income at regular
corporate rates. Unless entitled to relief under certain Code provisions, the
Company also would be disqualified from treatment as a REIT for the four taxable
years following the year during which REIT qualification was lost. As a result,
the cash available for distribution to the shareholders could be reduced or
eliminated for each of the years involved. Although the Company currently
intends to operate in a manner designed to qualify it as a REIT, it is possible
that future economic, market, legal, tax or other considerations may cause the
Board of Directors, with the consent of a majority of the shareholders, to
revoke the REIT election.

REIT MINIMUM DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, the
Company generally will be required each year to distribute to its shareholders
at least 95% of its net taxable income (excluding any net capital gain).
Further, the Company will be subject to a 4% 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 85% of its ordinary income plus 95% of
its capital gain net income for that year plus amounts not distributed in prior
years.

The Company intends to make distributions to its shareholders to comply
with the 95% distribution requirement and to avoid the nondeductible excise tax.
The Company's income will consist primarily of its share of the income of the
Partnership. The Company's cash available for distribution will consist
primarily of cash distributions from the Partnership. Differences in timing
between taxable income and receipt of cash available for distribution and the
seasonality of the hospitality industry could require the Company, through the
Partnership, to borrow funds on a short-term basis to meet the 95% distribution
requirement and to avoid the nondeductible excise tax. Under certain
circumstances, the Company may be required from time to time to accrue certain
income items for tax purposes prior to their receipt in cash (for example, rent
earned but not yet received). These differences in timing between the accrual of
certain income items for tax purposes and the receipt thereof could cause the
Company to have taxable income without sufficient cash to make the annual
distributions required of a REIT under the Code. In such cases, the Company may
be compelled to borrow funds or liquidate investments on terms that are
disadvantageous to the Company in order to meet the distribution requirements.
See "Federal Income Tax Considerations."

Distributions by the Partnership will be determined by the Company's Board
of Directors and will be dependent on a number of factors, including the amount
of cash in the Partnership available for distribution,

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<PAGE> 28

the Partnership's financial condition, any decision by the Board of Directors to
reinvest funds rather than distributing such funds, the Partnership's capital
expenditures, the annual distribution requirements under the REIT provisions of
the Code, and any other factor the Board of Directors believes is relevant. See
"Federal Income Tax Considerations -- Requirements for Qualification as a REIT
- -- Annual Distribution Requirements."

FAILURE OF THE PARTNERSHIP TO BE CLASSIFIED AS A PARTNERSHIP FOR FEDERAL
INCOME TAX PURPOSES: IMPACT ON REIT STATUS. The Company will receive an opinion
from Baker & Hostetler stating that the Partnership will be classified as a
partnership for federal income tax purposes. If the IRS were to challenge
successfully the tax status of the Partnership as a partnership for federal
income tax purposes, the Partnership would be taxable as a corporation. In that
event, because the value of the Company's ownership interest in the Partnership
(i) constitutes more than 10% of the Partnership's voting securities and (ii)
exceeds 5% of the Company's assets, the Company would cease to qualify as a
REIT. Further, the imposition of a corporate-level tax on the Partnership would
substantially reduce the amount of cash available for distribution to the
Company and its shareholders. See "Federal Income Tax Considerations -- Tax
Aspects of the Company's Investments in the Partnership."

TAX ON NET INCOME FROM FORECLOSURE PROPERTY. The Company will be subject to
a tax at the highest rate applicable to corporations (currently 35%) on any "net
income from foreclosure property." "Foreclosure property" is property acquired
by the Company as a result of a foreclosure proceeding or by otherwise reducing
such property to ownership by agreement or process of law. "Net income from
foreclosure property" is the gross income derived during the taxable year from
foreclosure property, less applicable deductions, but only to the extent such
income does not qualify under the 75% income test and 95% income test. As a
result of the rules with respect to foreclosure property, if the Initial Lessee
defaults on its obligations under a Percentage Lease for an Initial Hotel, the
Company terminates the Percentage Lease, and the Company is unable to find a
replacement lessee for such Initial Hotel within 90 days of such foreclosure,
gross income from hotel operations conducted by the Company from such Initial
Hotel would cease to qualify for the 75% and 95% gross income tests and, thus,
the Company would fail to qualify as a REIT; however, although it is unclear
under the Code, if the hotel operations were conducted by an independent
contractor, it may be possible for the Initial Hotel to be foreclosure property
for two years after such foreclosure (which period could be extended an
additional four years) without the disqualifying the Company as a REIT.

ANTI-TAKEOVER EFFECT OF OWNERSHIP LIMIT

Generally prohibiting any shareholder from owning more than 9.0% of the
Common Shares may (i) discourage a change in control of the Company, (ii) deter
tender offers for the Common Shares, which may otherwise be attractive to the
Company's shareholders, or (iii) limit the opportunity for shareholders to
receive a premium for their Common Shares that may otherwise exist if an
investor attempted to assemble a block of Common Shares in excess of 9.0% of the
outstanding Common Shares or to effect a change in control of the Company. The
ownership limitation exists to enable the Company to meet the REIT qualification
requirement that not more than 50% in value of its outstanding shares be owned
by five or fewer individuals, while providing the Company's Board of Directors
the flexibility to allow an individual to own more than 10% of the Company's
outstanding shares so long as that ownership will not violate other REIT
qualification requirements. Certain tender offers and invitations for tenders
for more than 10% of the Common Shares of the Company are also subject to
certain advance filing and notification requirements under Section 1707.041 of
the Ohio Revised Code.

NO LIMITATION ON DEBT; ABILITY TO ISSUE PREFERRED SHARES

The Company has entered into an agreement relating to the Credit Facility
with a lending syndicate led by Lehman Brothers Holdings, Inc. and may incur
other indebtedness in the future. The Company currently has a policy of
maintaining a ratio of debt-to-total market capitalization (i.e., total
third-party debt of the Company as a percentage of the market value of issued
and outstanding Common Shares, including Common Shares issuable on exchange of
outstanding Units, plus total debt, measured at the time the debt is incurred)
of not more than 45%. The Company's organizational documents, however, do not
contain any limitation on

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<PAGE> 29

the amount or percentage of indebtedness the Company may incur, and the Board of
Directors could alter or eliminate the Company's current borrowing policy. If
this policy were changed or eliminated, the Company could become more highly
leveraged, resulting in an increase in debt service, which could adversely
affect the Company's funds from operations and its ability to make expected
distributions to its shareholders, and in an increased risk of default on the
Company's obligations. The more leveraged a company is, the more likely it is
that a decrease in cash flow would impair its ability to make debt service
payments in the normal course of business. The Company's Articles of
Incorporation authorize the Board of Directors to issue up to 10,000,000
preferred shares and to establish certain preferences and rights of any such
shares issued. See "Description of Capital Stock -- Preferred Shares." While the
Company has no current intention to issue any preferred shares, the issuance of
any such shares with preferential dividend rights could diminish the cash
available for distribution to the holders of Common Shares. In addition, the
issuance of such shares could have the effect of delaying or preventing a change
in control of the Company even if a change in control were in the shareholders'
interest.

The Initial Hotels mortgage indebtedness that is being prepaid in
connection with the Offering includes an aggregate of approximately $67.1
million in principal and interest payable under loans from Lehman Brothers
Holdings, Inc. to the Contributed Partnerships that own four of the Initial
Hotels. See "Use of Proceeds."

DILUTION

Purchasers of the Common Shares will experience immediate and substantial
dilution from the initial public offering price in the net tangible book value
per share of the Common Shares. See "Dilution." Any exercise of options to
purchase Common Shares at a price below the market price of the Common Shares at
the time of exercise will also be dilutive.

ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON SHARES

Prior to the Offering, there has been no public market for the Company's
Common Shares. There can be no assurance that an active trading market will
develop or be sustained following the Offering or that Common Shares may be
resold at or above the initial public offering price. The initial public
offering price will be determined through negotiations between the Company and
the representatives of the Underwriters (the "Representatives") and may not be
indicative of the market price of the Common Shares after the Offering. See
"Underwriting."

LIMITATIONS ON OWNERSHIP OF COMMON SHARES

In order for the Company to maintain its qualification as a REIT, not more
than 50% in value of the outstanding Shares of the Company may be owned,
directly or indirectly, by five or fewer individuals. Accordingly, the Company's
Articles of Incorporation prohibit ownership of more than 9.0% of the Common
Shares by any single shareholder following completion of the Offering, with
certain exceptions. The Board of Directors may waive this restriction if
evidence satisfactory to it and to the Company's tax counsel is presented
showing that ownership in excess of this limit will not jeopardize the Company's
status as a REIT. See "Capital Stock of the Company -- Restrictions on
Transfer." Accordingly, a holder of Common Shares may be prohibited from
increasing his holdings of Common Shares.

RISK OF HIGH DISTRIBUTION PAYOUT PERCENTAGE

The Company's estimated annual distribution rate to shareholders is 97% of
the Company's estimated Cash Available for Distribution for the twelve months
ended June 30, 1996. See "Distribution Policy." Should actual Cash Available for
Distribution be less than estimated Cash Available for Distribution, the Company
may not be able to achieve and maintain its proposed initial distribution rate.

BOARD'S ABILITY TO CHANGE POLICIES

The principal policies of the Company, including its policies with respect
to acquisitions, financing, growth, operations, debt capitalization and
distributions, will be determined by its Board of Directors. The

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<PAGE> 30

Board of Directors may amend or revise these and other policies from time to
time without a vote of the shareholders of the Company. See "Policies and
Objectives with Respect to Certain Activities."

EFFECT ON MARKET PRICE OF SHARES AVAILABLE FOR FUTURE SALE

No prediction can be made as to the effect, if any, that future sales, or
the availability of Common Shares for future sale, by the Company or by its
executive officers will have on the market price of the Common Shares prevailing
from time to time. Sales of substantial amounts of Common Shares (including
shares issued on the exercise of options), or the perception that such sales
could occur, could adversely affect prevailing market prices for the Common
Shares. The Boykin Group Affiliates and Boykin Associates have agreed, subject
to certain limited exceptions, not to offer, sell, contract to sell or otherwise
dispose of any Common Shares for a period of three years after the date of this
Prospectus. See "Shares Available for Future Sale" and "Underwriting."

FORWARD-LOOKING STATEMENTS

This Prospectus contains statements that constitute forward-looking
statements. Those statements appear in a number of places in this Prospectus and
include statements regarding the intent, belief or current expectations of the
Company, its directors or its officers with respect to (i) the declaration or
payments of dividends; (ii) the leasing, management or operation of the Initial
Hotels and of hotels to be acquired; (iii) the adequacy of reserves for
renovation and refurbishment; (iv) potential acquisitions by the Company; (v)
the use of the proceeds of the Offering; (vi) the Company's financing plans;
(vii) the Company's policies regarding investments, dispositions, financings,
conflicts of interest and other matters; (viii) the Company's qualification and
continued qualification as a REIT; and (ix) trends affecting the Company's or
any hotel's financial condition or results of operations.

Prospective investors are cautioned that any such forward-looking statement
is not a guarantee of future performance and involves risks and uncertainties,
and that actual results may differ materially from those in the forward-looking
statement as a result of various factors. The accompanying information contained
in this Prospectus, including without limitation the information set forth above
and the information under the headings "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Policies and Objectives with
Respect to Certain Activities" and "Federal Income Tax Considerations,"
identifies important factors that could cause such differences. With respect to
any such forward-looking statement that includes a statement of its underlying
assumptions or bases, the Company cautions that, while it believes such
assumptions or bases to be reasonable and has formed them in good faith, assumed
facts or bases almost always vary from actual results, and the differences
between assumed facts or bases and actual results can be material depending on
the circumstances. When, in any forward-looking statement, the Company, or its
management, expresses an expectation or belief as to future results, that
expectation or belief is expressed in good faith and is believed to have a
reasonable basis, but there can be no assurance that the stated expectation or
belief will result or be achieved or accomplished.

ERISA

An investment in Common Shares may be an appropriate investment for a
pension, profit sharing, retirement, welfare or other employee benefit plan
subject to ERISA, depending upon the circumstances of the plan. In deciding
whether to purchase Common Shares, a fiduciary of any such 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.

THE COMPANY

GENERAL

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<PAGE> 31

Group was founded in 1959, and was one of the first franchisees of Marriott
Hotels and an early franchisee of Howard Johnson's Hotels. Since its founding,
the Boykin Group has developed 13 full-service hotels containing a total of
3,085 rooms and has owned or managed 36 properties containing a total of 6,943
rooms. Upon completion of the Offering and the Formation Transactions, the
Company will own nine hotels with a total of 2,408 guest rooms. The Company's
primary business strategies are to achieve revenue growth in the Initial Hotels,
acquire and lease additional hotel and resort properties in the upscale and
moderate markets on an accretive basis, strategically renovate and upgrade
properties to maximize performance, and selectively expand and develop
additional hotel properties.

Quality of Initial Hotel Portfolio

The Initial Hotels are operated under franchise license agreements with
premiere nationally-recognized hotel chains, including Marriott(R),
Radisson(R), Holiday Inn(R), Quality Suites(R), and Hampton Inns(R). Serving
both business and leisure travelers, the Initial Hotels are geographically
diversified and located in Berkeley, California; Buffalo, New York; Cleveland
and Columbus, Ohio; Charlotte, North Carolina; and Ft. Myers and Melbourne,
Florida. The Initial Hotels include eight full-service hotels and one
limited-service hotel, all of which compete in the upscale to moderate price
segment of the hospitality market. For the twelve months ended June 30, 1996,
the Initial Hotels had an average occupancy rate of 76.2%, an ADR of $87.62 and
a REVPAR of $66.74. The Boykin Group developed and has owned and managed seven
of the Initial Hotels since their opening.

Long-standing Management Team

The Company will capitalize on the substantial hotel operating,
development, acquisition and transactional experience of its management and the
Boykin Group. Robert W. Boykin, President and Chief Executive Officer of the
Company, has over 27 years of experience in the hotel industry, all with the
Boykin Group. Raymond P. Heitland, the Company's Chief Financial Officer, has 26
years of industry experience and tenure with the Boykin Group. Mark L. Bishop,
the Company's Senior Vice President -- Acquisitions and Development, has 18
years of industry experience. During the past 10 years, the Company's officers
have directly overseen the acquisition, disposition, recapitalization,
development and repositioning of approximately $750 million of hotel assets
throughout the United States. Upon completion of the Offering, Company
management and their affiliates will own approximately 12.7% of the outstanding
equity of the Company. All future hotel acquisition, development and ownership
activities of the Boykin Group will be conducted through the Company.

Focus on Full-service Hotels

The Company intends to achieve a significant part of its growth through the
acquisition, redevelopment and repositioning of additional full-service hotels.
The Company believes that there are full-service hotel properties that can be
acquired at a discount to replacement cost, and that many of these properties
are located in areas of increasing demand. The Company further believes that the
full-service segment of the market, in particular, has potential for improved
performance as business and leisure travel continues to increase and demand
rises at a faster rate than supply. The Company expects no significant new
supply of full-service hotels over the next several years because current costs
do not justify new hotel construction. While the Company intends to maintain its
focus on full-service hotels, it may also acquire upscale limited-service hotels
in selected cases when doing so will further its strategic objectives. For
example, when the Boykin Group acquired a Holiday Inn in February 1996, it also
acquired a Hampton Inn located in close proximity to enable it to benefit from
cross-over marketing and training and the operating efficiencies achievable
through having multiple hotels in one geographic area.

Cash Flow Growth

The Company believes that it will have long-term financial stability as a
result of its ownership of the Initial Hotels and the expected growth of its
hotel portfolio.

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<PAGE> 32

The Company will focus on maximizing cash flow from both the Initial Hotels
and acquired hotels through the implementation of the active asset management
strategies of the Boykin Group. The Company has demonstrated the ability to
increase cash flow from the hotels which it owns. Over the three year and five
year periods ended December 31, 1995, the aggregate revenues of the Initial
Hotels increased at a compound annual rate of 4.4% and 3.6% per year,
respectively, and EBITDA from the Initial Hotels increased at a compound annual
rate of 13.4% and 9.8% per year, respectively.

EBITDA should not be considered as a basis for computing distributions, as
a measure of liquidity, or as an alternative to other measurements under
generally accepted accounting principles such as net income, or cash flows from
operating, investing, or financing activities. The combined operating results of
the Initial Hotels for the three and five year periods ended December 31, 1995
improved from net losses of $4,651 in 1991 and $2,470 in 1993 to combined net
income of $972 in 1995. For the three year period ended December 31, 1995, cash
flows from operating activities of the Initial Hotels increased from $4,200 to
$8,113, cash used for investing activities increased from $2,801 to $4,555, and
cash used for financing activities increased from $900 to $4,699.

The Company believes that EBITDA is an important measure of its historical
operating results, and uses this measure to evaluate hotel performance. Interest
expense and depreciation expense are material components of both net income and
cash flows from operating activities, but are not included in the calculation of
EBITDA. As the Initial Lessee will incur neither interest expense nor
depreciation expense, EBITDA is presented to further assist investors in
analyzing the historical performance of the Initial Hotels and in evaluating the
Initial Lessee's ability to make Percentage Lease payments. These charges varied
significantly in the periods discussed and will also change materially after
completion of the Formation Transactions. Interest expense varied because of
significant changes in borrowing levels. Upon completion of the Formation
Transactions, interest expense and charges relating to early extinguishment of
debt, along with cash flows historically used for debt service, will be
eliminated for the Initial Lessee. Furthermore, as a result of the application
of purchase accounting rules, depreciation expense increased significantly over
the periods discussed, and will further increase after the Formation
Transactions.

Historical Performance
The current and the historical performance of the Initial Hotels has well
exceeded the industry averages. During the five year period ended December 31,
1995, the Initial Hotels generated REVPAR that exceeded the REVPAR of their
local competing hotels (in each market, six to eight competitors as currently
defined by Boykin Management for performance evaluation purposes and compared
over that period) by 16% on average and exceeded the U.S. average REVPAR for
upscale/moderate full-service hotels by 26%. In 1991, a year generally
considered weak in the hotel industry, REVPAR of the Initial Hotels exceeded the
REVPAR of their local competing hotels by 19% and exceeded the U.S. average
REVPAR for upscale/moderate full-service hotels by 29%. The following table
compares average occupancy, ADR and REVPAR for the Initial Hotels with that for
their local competition, all upscale/moderate U.S. hotels and all U.S. hotels
for the periods indicated.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OCCUPANCY RATE
Initial Hotels(1)..................... 69.9% 71.6% 72.6% 74.7% 74.9% 74.2% 76.8%
Local Competition(2).................. 66.3% 68.7% 70.3% 71.6% 72.1% 71.9% 73.2%
All U.S. Upscale/Moderate(2).......... 61.9% 63.2% 64.5% 66.1% 66.8% 66.1% 66.8%
All U.S. Hotels(2).................... 60.6% 61.7% 63.0% 64.6% 65.3% 64.4% 65.3%
ADR
Initial Hotels(1)..................... $75.83 $75.45 $75.50 $79.27 $85.47 $84.82 $89.03
Local Competition(2).................. $67.37 $68.02 $69.51 $71.39 $75.45 $75.31 $80.45
All Upscale/Moderate(2)............... $66.46 $66.84 $68.83 $71.71 $75.32 $74.87 $79.85
All U.S. Hotels(2).................... $59.04 $59.92 $61.99 $64.34 $67.43 $67.22 $71.38
REVPAR
Initial Hotels(1)..................... $52.97 $54.05 $54.80 $59.24 $63.98 $62.93 $68.35
Local Competition(2).................. $44.68 $46.75 $48.89 $51.12 $54.39 $54.15 $58.90
All Upscale/Moderate(2)............... $41.12 $42.27 $44.39 $47.39 $50.28 $49.50 $53.36
All U.S. Hotels(2).................... $35.80 $36.94 $39.04 $41.56 $44.04 $43.31 $46.62
<FN>
- ---------------

(1) Source: Company-provided information.
</TABLE>

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<PAGE> 33

Management believes that, while the lodging industry as a whole is
benefiting from an improved supply/demand dynamic, the most significant advances
in revenue growth and profitability will arise from skillful management of hotel
properties. An integral element of this management is the continuous evaluation
of each hotel's position in its market and the implementation, as necessary, of
changes in franchise, theme and customer focus to maximize the continuing
returns from the hotel. The Company attributes the excellent performance of the
Initial Hotels to the successful implementation of this asset management
strategy.

Access to Capital

The Company has obtained a $75 million Credit Facility for acquiring hotels
without financing contingencies and for certain other purposes, including
capital expenditures and working capital, as necessary, and expects to draw
approximately $5 million from the Credit Facility in conjunction with the
Offering. As a public company, the Company expects to have access to a wide
variety of financing sources to fund acquisitions, such as the ability to issue
public and private debt, equity and hybrid securities, and the ability to
utilize Units as consideration when cash is not appropriate for tax or other
reasons. 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 maintain a debt-to-total market capitalization ratio
(measured at the time debt is incurred) of not more than 45%. The Company may
from time to time re-evaluate its debt capitalization policy in light of
economic conditions, relative costs of debt and equity capital, market values of
its properties, acquisition, development and expansion opportunities and other
factors.

BUSINESS OBJECTIVES AND STRATEGIES

The Company's primary business objectives are to maximize current returns
to shareholders through increases in cash flow available for distribution and to
increase long-term total returns to shareholders through appreciation in value
of the Common Shares. The Company will seek to achieve these objectives through
participation in increased revenues from the Initial Hotels pursuant to the
Percentage Leases and by selective acquisition, ownership, redevelopment,
repositioning and expansion of additional hotel properties. The Company will
seek to continue to invest in properties where the Company's established
industry and marketing expertise enable it to improve the acquired hotels'
performance.

Internal Growth Strategy

The Company believes that, based on historical operating results and the
strength of the Company's management team, portfolio and markets, the Initial
Hotels should provide the Company with the opportunity for cash flow growth
through the Percentage Leases. The Company believes that the revenue and cash
flow of the Initial Hotels will be maximized by intensive management and
marketing. The Company intends to derive increased cash flow through the
application of the Initial Lessee's operating strategies, which include the
active management and balancing of room rates with forecasted room demand in
order to maximize total hotel revenues (a system known as "yield management").
The Company believes that the Initial Lessee's continued commitment to customer
service and the experience of its management team should position the Company to
capitalize on the expected continued strength in the economy and improvement in
the U.S. hotel market. The Company's objectives include enhancing its
competitive market position through the continuation of a regular program of
renovation and capital improvement.

An example of the active yield management employed by the Boykin Group is
its strategies during 1995 at the Cleveland Airport Marriott. The Boykin Group
anticipated increased demand in the business transient sector and scaled back
lower-rated contract rooms in order to maximize revenue. The result was an
increase in room revenues in excess of $800,000 for calendar year 1995 over
1994, and a corresponding increase in REVPAR for the same period of 10.3%. See
"Prospectus Summary -- The Initial Hotels" for information regarding the
operating performance of the Initial Hotels.

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<PAGE> 34

Acquisition Strategy

The Company believes that attractive opportunities exist to acquire
full-service hotels serving the upscale and moderate market segments of the
lodging industry. The Company intends to concentrate its investment activities
on hotel properties that are in one or more of the following categories:

Product Type -- Full-service commercial hotels, airport hotels, major
tourist hotels and destination resorts in major markets and business centers.

Market Repositioning Opportunities -- Undervalued hotels whose occupancy,
daily rates and overall revenues can be significantly enhanced through new brand
affiliations, implementation of new marketing strategies and effective yield
management.

Redevelopment and Renovation Opportunities -- Hotels with sound operational
fundamentals that, because of a lack of capital, require physical renovation or
redevelopment to achieve their full performance potential.

Portfolio Acquisitions -- Portfolios of hotels which result in geographic
economies of scale or which may be leased back to proven hotel operators as
additional lessees, and that may benefit from the Company's repositioning and
redevelopment experience and access to capital.

As a result of the Company's management's successful transactional
activities, the Company believes it possesses a competitive advantage in market
knowledge, technical expertise and industry relationships that will enable it to
continue to successfully implement its acquisition strategy on a national scale.
Further, the Company believes it will benefit from its continuing relationship
with the Initial Lessee and from developing relationships with additional
lessees who have demonstrated ability to manage hotel properties.

The Boykin Group's recent purchase of the Lake Norman Holiday Inn and Lake
Norman Hampton Inn exemplifies the strategies described above. The Company
believes that those hotels' present franchise affiliations will enable the
Company to maximize REVPAR in the local market. The hotels' purchase price
represented a significant discount to replacement costs, and the hotels'
historical earnings represented an attractive yield on the purchase price. The
Company believes that the Initial Lessee can increase the ADR and REVPAR of both
hotels, and the Boykin Group has been implementing its yield management systems
since the acquisition to achieve these results. REVPAR for the six months ended
June 30, 1996 increased over REVPAR for the same period in 1995 by 21% for the
Lake Norman Hampton Inn and by 13% for the Lake Norman Holiday Inn, with a
resulting increase in pro forma Percentage Lease revenues. The Boykin Group also
took over the previously out-sourced food and beverage operations at the Lake
Norman Holiday Inn, and is currently in the process of repositioning the food
and beverage operations at the hotel in order to generate more business from
hotel guests and to increase patronage of the restaurant and catering facilities
by the local residents. The Boykin Group also caused the Lake Norman hotels to
implement a combined purchasing program, direct overflow business to each other
and begin cross-training and sharing employees. The Company believes the
economies gained from the clustering of the Lake Norman acquisitions, combined
with the active yield management strategies and product repositioning strategies
employed by the Boykin Group at these hotels, has resulted in a significantly
more attractive yield than that calculated based on their trailing operating
performance at the time of the acquisitions.

30
<PAGE> 35

There can be no assurance that the Company will be able to acquire
properties that meet its investment criteria or that have operations that can be
successfully integrated with the operation of the Initial Hotels.

Renovation Strategy

The Company believes that a regular program of capital improvements at the
Initial Hotels, including replacement and refurbishment of FF&E, will maintain
and enhance their competitiveness and maximize revenue growth under the
Percentage Leases. During the fiscal years 1991 through 1995, approximately $18
million was spent on renovations and capital improvements at the Initial Hotels,
including approximately $1.1 million for the restoration of the Melbourne
Quality Suites hotel following damage from Hurricane Erin in August 1995. This
represents an average of approximately $1,400 per room per year (excluding the
amount spent on the Melbourne property restoration, which was funded entirely
from insurance proceeds). The Company intends to make available $3.5 million of
the Credit Facility to fund the Capital Expenditures Fund, as needed. The
Percentage Leases require the Company to contribute to the Capital Expenditures
Fund additional aggregate minimum reserves of 4.0% of total revenue of the
Initial Hotels. For the 12-month period ended June 30, 1996, this reserve would
have represented approximately 6.1% of room revenue and an average of $1,400 per
room. The Company intends to use the Capital Expenditures Fund for the
replacement and refurbishment of FF&E and other capital expenditures
(approximately $250,000 of which is required by franchisors) to maintain and
enhance the competitive position of the Initial Hotels, although it may make
other uses of amounts in the fund that it considers appropriate from time to
time. The Company believes that the fund will be adequate to meet its continuing
capital expenditure and FF&E needs for the Initial Hotels in light of their age
and condition. The Boykin Group's experience in developing and renovating its
properties will assist the Company in maintaining its properties' competitive
edge in their respective markets.

The following table sets forth information about the historical capital
expenditures of the Initial Hotels for the five fiscal years ended December 31,
1995:

<TABLE>
<CAPTION>
5 YEAR TOTAL
CAPITAL 5 YEAR
EXPENDITURES AVERAGE PER
INITIAL HOTEL ROOMS (000'S) ROOM(1)
- ------------------------------------------------- ----- ------------ -----------
<S> <C> <C> <C>
Berkeley Marina Marriott......................... 373 $ 3,520 $ 1,900
Buffalo Marriott................................. 356 3,208 1,800
Cleveland Airport Marriott....................... 375 2,606 1,400
Cleveland Marriott East.......................... 403 2,611 1,300
Columbus North Marriott.......................... 300 2,961 2,000
Lake Norman Hampton Inn.......................... 117 329 600
Lake Norman Holiday Inn.......................... 119 286 500
Melbourne Quality Suites......................... 208 1,869 1,800(2)
Radisson Inn Sanibel Gateway..................... 157 514 700
----- -------- -------
Total/Average.................................... 2,408 $ 17,904 $ 1,500(2)
<FN>
- ---------------

(1) Rounded to the nearest $100

(2) Includes the amount spent on the Melbourne property restoration described in
the paragraph preceding the table.
</TABLE>

The Company expects to spend approximately $4.0 million on capital
improvements at the Initial Hotels during the first twelve months after the
Offering as part of its ongoing renovation and capital expenditures program.
These expenditures will be funded from funds contributed to the Capital
Expenditures Fund from the Initial Hotels' revenues during that period and from
draws on the Credit Facility, as needed. Some of the major ongoing capital
expenditure items included in the capital expenditures program over the next 12
months are: renovation and refurbishment of lobby and public spaces, upgrading
and redecorating the guest rooms including expanding the Marriott "room that
works" concept and incorporating other amenities designed to meet the needs of
today's business travelers, and repositioning of several hotel restaurants and
lounges to increase both guest and local patronage.

31
<PAGE> 36

Development Strategy

The Company may develop additional full-service or upscale limited-service
hotels on land that the Company acquires in its current geographic markets or on
land contiguous to the Initial Hotels. Full-service hotels may include hotels
affiliated with Marriott, Radisson, Hilton, Hyatt, Westin, Omni, Doubletree,
Sheraton, Holiday Inn and Quality Suites. Limited-service hotels may include
Marriott Courtyard Hotels, Fairfield Inns, Residence Inns, Homewood Suites and
Hampton Inns. The Company believes that selective development of hotels in its
existing geographic markets would enable it to take advantage of operating
efficiencies to generate attractive returns on investment.

Financing Strategy

On completion of the Offering, the Company expects to have approximately $5
million of outstanding debt. 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 maintain a debt-to-total market
capitalization ratio (measured at the time debt is incurred) of not more than
45%. The Company may from time to time re-evaluate its debt capitalization
policy in light of economic conditions, relative costs of debt and equity
capital, market values of its properties, acquisition, development and expansion
opportunities, and other factors.

The Company has obtained the Credit Facility from a lending syndicate led
by Lehman Brothers Holdings, Inc. Upon the closing of the Credit Facility, Wells
Fargo Bank, National Association will be the administrative agent of the Credit
Facility. The Company intends to use this facility to provide interim financing
for property acquisitions and capital improvements in anticipation of long-term
financing and to fund working capital and capital expenditure requirements, as
necessary. The Credit Facility will be secured by first mortgages on several of
the Initial Hotels.

Other

On completion of the Offering, assuming the conversion of Intercompany
Convertible Note and further assuming the Units have not been exchanged the
Company will own approximately 85.7% of the equity interests in the Partnership
and be its general partner, and the executive officers of the Company will own
in the aggregate approximately 12.7% of the equity interests in the Company,
directly or through ownership of Units.

The Company's executive offices are located at Terminal Tower, Suite 1500,
50 Public Square, Cleveland, Ohio 44113, and its telephone number is (216)
241-6375.

LESSEES

THE INITIAL LESSEE

In order to qualify as a REIT, the Company will not operate its hotels, but
will lease its properties to established hotel operators pursuant to leases
which will provide the Company with the greater of a base rental income or a
percentage of revenues of operations. In connection with the Formation
Transactions, Robert and John Boykin will form and indirectly own the Initial
Lessee. The Initial Lessee will acquire and continue the 37-year hotel operation
and management business of the Boykin Group and will operate the Initial Hotels
under the Percentage Leases. The operations of the Boykin Group are fully
integrated, with capabilities in all phases of development and management of
hotel properties. As of June 30, 1996, the Boykin Group had approximately 2,400
employees and owned or managed 21 properties containing 4,354 rooms located
throughout the United States. Because neither the Company nor the Initial Lessee
will have to pay a separate hotel management company to manage the Initial
Hotels, the Company believes it will obtain a higher rent than such added
management arrangements would permit, thus maximizing the Company's Percentage
Lease revenues. The Company believes that the Boykin Group's ability to achieve
consistently above-average market penetration during various economic cycles
positions the Company, through the Initial Lessee, to maximize its returns on
the Initial Hotels. See "The Company -- General -- Strong Historical
Performance."

The Initial Lessee's core capabilities will be based on continued
implementation of the Boykin Group's (i) commitment to superior customer service
and satisfaction; (ii) sophisticated sales and marketing systems, including
customer lead-generating and management incentive systems; (iii) effective
personnel recruitment,

32
<PAGE> 37

selection, orientation, training and retention programs; (iv) comprehensive
property operations and maintenance capabilities, including design, renovation
management, energy conservation, purchasing and preventive maintenance; and (v)
strong auditing, cash-handling, recordkeeping and information management systems
and controls.

While the Initial Lessee will operate and manage hotels only under the
Percentage Leases, its subsidiaries will continue hotel management activities
for owners other than the Company and the award-winning hotel interior design
business and the hotel and restaurant food, beverage, supply and equipment
purchasing business currently operated by the Boykin Group. The Company expects
that these operations will be continued in part with a view to introducing the
Company to acquisition opportunities. In addition, the income generated by the
Initial Lessee and its subsidiaries will strengthen the Initial Lessee's ability
to perform under the Percentage Leases.

The Initial Lessee intends to develop incentive compensation plans for its
hotel-level and corporate-level senior executives which tie such compensation in
part to the performance of the Company and in part to the performance of the
Initial Hotels. Such plans may include awards of Company shares, options and
other similar incentives.

The Company and the Initial Lessee have agreed on several measures to align
the interests of the Initial Lessee and its owners with the interests of the
Company's shareholders and to minimize conflicts of interest between them:

- The Initial Lessee's owners and certain other Boykin Group Affiliates
will own approximately 12.6% of the Company following completion of the
Offering in the form of Units exchangeable, at the Company's election,
for Common Shares, and have agreed to retain these interests for at least
three years following completion of the Offering;

- Robert W. Boykin will resign from his positions with Boykin Management in
connection with the Formation Transactions and will not hold office in
the Initial Lessee, and neither John E. Boykin nor any other officer of
the Initial Lessee will hold office in the Company;

- Any distributions from the Initial Lessee (other than distributions to
cover income taxes) during the first ten years after the Offering that
are distributed to the Initial Lessee's owners, and any net cash proceeds
of any sale of the Initial Lessee within ten years after the Offering,
will be used to purchase Units or Common Shares (subject to applicable
ownership limitations) that must be held for at least two years from the
purchase date;

- The Initial Lessee's and its subsidiaries' consolidated net worth on
completion of the Formation Transactions will be approximately $3
million, and half of the Initial Lessee's and its subsidiaries'
consolidated earnings (after distributions to cover income taxes) during
the first ten years after the Offering will be retained in the Initial
Lessee and its subsidiaries until their consolidated net worth reaches
25% of the aggregate annual rent payments under the Percentage Leases
(and will be retained thereafter during that period to maintain that
level);

- Determinations to be made on behalf of the Company in connection with any
conflict of interest involving any Boykin Group Affiliate will be made by
the Company's independent directors;

- Each Boykin Group Affiliate will conduct all future hotel acquisition,
development and ownership activities only through the Company;

- Any change in control of the Initial Lessee without the prior written
consent of the Company will constitute a default under the Percentage
Leases; and

- The Percentage Leases will contain cross-default provisions that will
enhance the Company's ability to enforce strict compliance with each
Percentage Lease.

ADDITIONAL LESSEES

The Company believes that having multiple tenants will facilitate meeting
its growth objectives, and therefore intends to pursue relationships with
additional lessees. The Company believes there are a number of

33
<PAGE> 38

capable hotel owner-operators who are undercapitalized and, therefore, unable to
reposition their properties adequately, or are faced with a difficult financing
environment because of today's increased equity requirements, and will be
willing to engage in a sale and leaseback of their properties on terms that
would allow both parties to achieve participation in the improving fundamentals
of the lodging industry. In addition, the Company believes certain national
franchisors are willing to develop a relationship with the Company and may
become additional lessees as a means of expanding their franchise systems. The
Company believes that its management's long tenure and reputation in the hotel
industry will provide the Company access to these acquisition opportunities and
enable the Company to select hotel properties and lessees that will further its
acquisition and growth strategies.

USE OF PROCEEDS

The net proceeds to the Company from the Offering, after payment of
expenses incurred in connection with the Offering, are estimated to be
approximately $151.6 million ($174.7 million if the over-allotment option is
exercised in full), based on the initial public offering price of $20.00 per
share. The Company will (i) contribute $111.6 million of the net proceeds to the
Partnership in exchange for an 82.0% general partnership interest, and (ii) lend
$40.0 million of the net proceeds to the Partnership in exchange for the
Intercompany Convertible Note. The Intercompany Convertible Note bears interest
at 9.5% and is convertible by the Company into an additional 3.7% interest in
the Partnership. In conjunction with the Offering, the Partnership expects to
borrow approximately $5.0 million under the Credit Facility. The Credit Facility
is expected to bear interest at a variable rate computed at 200 basis points
over LIBOR, which would result in an initial rate of 7.375%.

The Partnership will use the amounts contributed and loaned to it
approximately as follows:

<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Repayment of third party mortgage indebtedness (including certain
prepayment penalties).................................................. $ 136.6
Repayment of loans payable to Boykin Management.......................... 3.1
Purchase of interests held by certain Other Partners and Boykin
Associates, including repayment of advances and accrued interest
thereon of $5.0 million................................................ 14.1
Working capital, formation costs and general partnership purposes........ 2.8
-------------
Total uses of proceeds................................................. $ 156.6
===========
</TABLE>

If the over-allotment option is exercised in full, the additional net
proceeds will be invested in the Partnership and used by it for general
purposes, including possible future acquisitions of additional hotel properties.
While the Company engages from time to time in discussions regarding potential
acquisitions, it has not entered into any agreement as of the date of this
Prospectus to make any such acquisition. Pending the described uses, the net
proceeds may be invested in interest-bearing accounts and short-term
interest-bearing securities that are consistent with the Company's intention to
qualify for taxation as a REIT. These investments may include, for example,
government and government agency securities, certificates of deposit,
interest-bearing bank deposits, mortgage loan participations and shares of other
real estate investment trusts.

34
<PAGE> 39

The mortgage indebtedness to be paid out of the net proceeds of the
Offering matures at various times from June 1998 through October 2004 and bears
interest at effective rates varying from 8.7% to 11.8% per year, as follows:

<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
-------------------------------------
PRINCIPAL PREPAYMENT TOTAL TO INTEREST MATURITY
INITIAL HOTEL BALANCE CHARGES BE PAID RATE DATE NOTES
- -------------------------- --------- ---------- -------- -------- ----------------- ------
<S> <C> <C> <C> <C> <C> <C>
Berkeley Marina
Marriott................ $ 28.5 $0.9 $ 29.4 9.8% June 1, 1998 (1)
Buffalo Marriott.......... 14.2 0.3 14.5 8.7% February 1, 2001 (2)
Cleveland Airport
Marriott................ 19.0 0.6 19.6 9.8% June 1, 1998 (1)
Cleveland Marriott East... 28.2 0.5 28.7 8.7% February 1, 2001 (2)
Columbus North Marriott... 13.7 2.5 16.2 11.0% October 1, 2004
Columbus North Marriott... 3.1 3.1 10.0% (3)
Columbus North Marriott... 5.0 5.0 10.0% (4)
Lake Norman Hotels........ 9.5 0.6 10.1 11.8% February 8, 2001 (5)
Melbourne Quality
Suites.................. 12.8 0.4 13.2 9.8% June 1, 1998 (1)
Radisson Inn Sanibel
Gateway................. 4.8 0.1 4.9 9.8% June 1, 1998 (1)
--------- ----- --------
Total........... $ 138.8 $5.9 $144.7
<FN>
- ---------------

(1) Payable to an affiliate of Lehman Brothers Inc.

(2) Incurred within the last twelve months; proceeds were used to refinance
outstanding indebtedness. See Note 3 of the Initial Hotels Excluding Lake
Norman Hotels Notes to Combined Financial Statements.

(3) Payable to Boykin Management; matures based on cash flow.

(4) Payable to certain Other Partners; matures based on cash flow.

(5) Incurred within the last twelve months; proceeds were used to fund the
acquisition of the Lake Norman hotels. See Notes 3 and 4 of the Lake Norman
Hotels Notes to Combined Financial Statements.
</TABLE>

The $3.1 million indebtedness payable to Boykin Management will be paid to
the Initial Lessee, as Boykin Management's successor. The Initial Lessee will
use approximately $1.5 million of the amount paid to it to repay a third party
lender, and will use the remaining balance to pay income taxes arising from the
Formation Transactions or for working capital purposes. Robert and John Boykin
are the sole beneficial owners of the Initial Lessee.

DISTRIBUTION POLICY

The Company intends to make regular quarterly distributions to holders of
Common Shares initially equal to $0.45 per share, which on an annual basis would
equal $1.80 per share and would represent approximately 97% of the Company's pro
forma Cash Available for Distribution for the twelve months ending June 30,
1996. The distribution for the period commencing on the completion of the
Offering and ending December 31, 1996 is expected to be a pro rata portion of
the initial quarterly distribution. The Company intends to maintain its initial
dividend rate for the first 12 months following the completion of the Offering,
unless actual results of operations, economic conditions or other factors differ
from the assumptions used in its estimate. The Company does not expect to change
its estimated dividend rate per share if the Underwriters' over-allotment option
is exercised.

For Federal income tax purposes, distributions paid to shareholders may
consist of ordinary income, capital gains, nontaxable returns of capital, or a
combination thereof. Aggregate distributions for the 12 months following the
closing of the Offering are expected to be greater than 95% of the Company's
REIT taxable income. The estimated minimum distribution required for the Company
to maintain REIT status, based on the Company's estimated revenues less expenses
for the 12 months ended June 30, 1996, is $13,800,000. Distributions in excess
of earnings and profits generally will be treated as nontaxable return of

35
<PAGE> 40

capital and, therefore, will result in a reduction of a shareholder's basis in
the Common Shares, to the extent thereof, and thereafter as taxable gain. Those
distributions will have the effect of deferring taxation until the sale of the
shareholder's Common Shares. The Company will provide its shareholders an annual
statement as to its designation of the taxability of distributions. The Company
estimates that approximately 100% of the annual distribution to holders of
Common Shares for 1996 will represent a return of capital for Federal income tax
purposes. The Company's expectation reflects, among other things, the effect of
nonrecurring penalties to be incurred in connection with the prepayment of
certain debt at the time of the Formation Transactions. The Company anticipates
that substantially all of the distributions in respect of 1997 will be taxable
as dividends.

The following table sets forth certain pro forma financial information for
the Partnership for the twelve months ended June 30, 1996, which was used to
establish the expected initial distribution per share.

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
JUNE 30, 1996
--------------------
(IN THOUSANDS,
EXCEPT
PER SHARE DATA)
<S> <C>
Pro forma income before minority interest.................. $ 11,531
Depreciation............................................... 9,514
----------
Pro forma Funds From Operations............................ $ 21,045
Additions to Capital Expenditures Fund..................... (3,492)
Amortization of debt issue costs included in interest
expense.................................................. 367
----------
Estimated Cash Available for Distribution(1)............... $ 17,920
----------
Estimated initial annual distribution(2)................... $ 17,375
Estimated initial annual distribution per share............ $ 1.80
Estimated payout ratio of Cash Available for
Distribution(3).......................................... 97%
<FN>
- ---------------

(1) The amount of Cash Available for Distribution if the Partnership received
only the Minimum Rent under the Percentage Leases is estimated to be $9,394.

(2) Based on 8,275 Common Shares and 1,378 Units outstanding on completion of
the Formation Transactions. Represents approximately 83% of Funds From
Operations. Funds From Operations consists of income (loss) before minority
interest (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. Industry analysts consider Funds From Operations to be an
appropriate measure of the performance of an equity REIT. Funds From
Operations should not be considered as a basis for computing distributions
or as an alternative (i) to net income or other measurements under generally
accepted accounting principles, as an indicator of operating performance, or
(ii) to cash flows from operating, investing, or financing activities, as a
measure of liquidity. Funds From Operations does not reflect cash
expenditures for capital improvements or principal amortization of
indebtedness on the Initial Hotels.

(3) Represents the anticipated initial aggregate annual distribution divided by
estimated Cash Available for Distribution.
</TABLE>

The primary source of proceeds to be used for distributions to shareholders
is the Company's share of the rents due the Partnership pursuant to the
Percentage Leases. The anticipated revenue may or may not be realized or
collected. Accordingly, the statements set forth above with regard to
distributions are forward-looking statements involving certain risks and
uncertainties that could cause actual results to differ materially from those
expressed in such statements. Important factors that could cause such different
results include, but are not limited to, competition from other hotels,
increases in operating costs, seasonality effects in hotel occupancy and
revenues, and the potential loss of a franchise or liquor license in respect of
any Initial Hotel or acquired hotel. See "Risk Factors."

36
<PAGE> 41

CAPITALIZATION

The following table sets forth as of June 30, 1996 (i) the historical
combined capitalization of the Initial Hotels and (ii) the pro forma
consolidated capitalization of the Company, as adjusted to give effect to the
Formation Transactions and the use of the net proceeds as described under the
caption "Use of Proceeds." The information set forth in the following table
should be read in conjunction with the "Selected Financial Information," the pro
forma consolidated financial statements of the Company, the historical combined
financial statements of the Initial Hotels, and the discussion set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-------------------------
INITIAL
HOTELS COMPANY
HISTORICAL PRO FORMA
-------- ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Long-term debt............................................. $133,344 $ 5,000
-------- ------------
Advances from partners..................................... 7,725 --
-------- ------------
Minority Interest(1)....................................... -- 15,850
-------- ------------
Shareholders' Equity/Partners' Deficit, Combined Initial
Hotels................................................... (56,736) --
Preferred Shares, without par value, 10,000,000 shares
authorized, none issued............................... -- --
Common Shares, without par value, 40,000,000 shares
authorized, 8,275,000 shares issued and
outstanding(2)........................................ -- --
Capital Surplus............................................ -- 101,805
Retained earnings(3)....................................... -- (6,818)
-------- ------------
Total shareholders' equity (deficit)..................... (56,736) 94,987
-------- ------------
Total capitalization..................................... $ 84,333 $115,837
======== ===========
<FN>
- ---------------

(1) Assumes conversion of the Intercompany Convertible Note.

(2) Excludes the exchange of 1,378,000 Units issued in the Formation
Transactions for a like number of Common Shares.

(3) Reflects estimated prepayment penalties and other fees of $4,508 on the
anticipated repayment of long-term debt with a portion of the proceeds from
the Offering, and the writeoff of deferred financing costs of $2,310.
</TABLE>

37
<PAGE> 42

DILUTION

The expected initial public offering price per Common Share exceeds the pro
forma net tangible book value per share. Therefore, the Boykin Group Affiliates
who receive Units will realize an immediate increase in the net tangible book
value of their Units, while purchasers of Common Shares sold in the Offering
will realize an immediate and substantial dilution in the net tangible book
value of their shares. Pro forma net tangible book value per share is determined
by subtracting total liabilities from total tangible assets and dividing the
remainder by the number of Common Shares and Units that will be outstanding
after the Offering. The following table illustrates the dilution to purchasers
of Common Shares sold in the Offering, based on the initial public offering
price of $20.00 per share.

<TABLE>
<S> <C> <C>
Assumed initial public offering price per Common
Share(1)................................................. $20.00
Pro forma net tangible book value per share prior to the
Offering(2).............................................. $(26.25)
Increase in pro forma net tangible book value per Common
Share and Unit attributable to purchases of Common Shares
in the Offering.......................................... $ 37.62
-------
Pro forma net tangible book value per Common Share and Unit
after the Offering and the Formation Transactions(3)..... $11.37
------
Dilution per Common Share purchased in the Offering........ $ 8.63
======
</TABLE>

The following table sets forth (i) the number of Common Shares to be sold
by the Company in the Offering, the total contributions to be paid to the
Company by purchasers of Common Shares sold in the Offering (based on the
initial public offering price of $20.00 per share), the number of Common Shares
outstanding and the number of Units to be issued in connection with the
Formation Transactions; (ii) the net tangible book value as of June 30, 1996 of
the assets contributed to the Company and the Partnership; and (iii) the net
tangible book value of the average contribution per share and Unit based on
total contributions.

<TABLE>
<CAPTION>
SHARES ISSUED BY BOOK VALUE OF
THE COMPANY TOTAL TANGIBLE
AND UNITS ISSUED CONTRIBUTIONS TO TANGIBLE BOOK
BY THE PARTNERSHIP THE COMPANY VALUE OF
-------------------------- -------------------------- CONTRIBUTION
NUMBER PERCENT AMOUNT PERCENT PER SHARE/UNIT
-------------- ------- -------------- ------- --------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Common Shares issued by the
Company in the Offering......... 8,275 85.7% $165,500 128.0% $ 20.00(1)
Units issued by the Partnership in
the Formation Transactions...... 1,378 14.3% (36,167) (28.0%) $ (26.25)(2)
------ ------- -------------- -------
Totals.......................... 9,653 100% $129,333 100% $ 13.40
============= ======= ============= =======
<FN>
- ---------------

(1) Before deducting underwriting discounts and estimated expenses of the
Offering.

(2) Pro forma net tangible book value prior to the Offering is determined by
subtracting total liabilities assumed from total tangible assets purchased
of the Initial Hotels divided by the total Units to be issued by the
Partnership in the Formation Transactions.

(3) Based on the total pro forma net tangible book value of the Company
($109,737) divided by the total Common Shares and Units outstanding after
the Offering and Formation Transactions (9,653). Does not give effect to the
1,000 Common Shares issuable under the Company's Long Term Incentive Plan or
to the Common Shares subject to the options covering 25 Common Shares to be
granted to the Company's Independent Directors upon completion of the
Offering. See "Management -- Long-Term Incentive Plan" and "-- Compensation
of Directors."
</TABLE>

38
<PAGE> 43

SELECTED FINANCIAL INFORMATION

The following tables set forth (i) selected unaudited pro forma condensed
consolidated financial information for the Company for the year ended December
31, 1995, and the twelve months ended June 30, 1996, and the six month periods
ended June 30, 1995 and 1996; (ii) selected unaudited combined pro forma
financial information for the Initial Lessee for the year ended December 31,
1995, the twelve months ended June 30, 1996, and the six month periods ended
June 30, 1995 and 1996; (iii) selected combined historical financial and
operating data of the Initial Hotels, which are presented as (a) the Initial
Hotels (Excluding Lake Norman Hotels) for each of the years in the five-year
period ended December 31, 1995, and the six months ended June 30, 1995 and 1996;
and (b) selected combined historical financial and operating data of the Lake
Norman Hotels for each of the years in the five-year period ended December 31,
1995 and the six months ended June 30, 1995 and 1996.

The selected combined historical financial data for both the Initial Hotels
(Excluding Lake Norman Hotels) and the Lake Norman Hotels for the three years
ended December 31, 1995 have been derived from the historical financial
statements audited by Arthur Andersen LLP, independent public accountants, whose
reports with respect thereto are included elsewhere in this Prospectus. The
selected combined historical financial data for each of the two years in the
period ended December 31, 1992 are derived from unaudited financial statements.
In the opinion of management, the unaudited financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein.

The pro forma statement of operations data is presented as if the Offering,
the Formation Transactions, and the beginning of the relevant lease year had
occurred on January 1, 1995 and, therefore, incorporates certain assumptions
that are included in the Notes to the Pro Forma Condensed Consolidated
Statements of Operations included elsewhere in this Prospectus. The pro forma
operating information for the Initial Lessee is presented to reflect the pro
forma operations of the Initial Lessee for the periods presented, which
operations are the source of the Initial Lessee's Percentage Lease payments to
the Partnership. The pro forma balance sheet data is presented as if the
Formation Transactions had occurred on June 30, 1996.

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.

39
<PAGE> 44

BOYKIN LODGING COMPANY

SELECTED PRO FORMA FINANCIAL DATA (1)

(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,(2)
YEAR ENDED TWELVE MONTHS -------------------
DECEMBER 31, 1995(2) ENDED JUNE 30, 1996(2) 1995 1996
-------------------- ----------------------- ------- -------
<S> <C> <C> <C> <C>
OPERATING DATA:
Percentage lease
revenue(3)................ $ 25,521 $27,166 $12,277 $13,922
------- ------- ------ ------
Depreciation................. 9,514 9,514 4,757 4,757
Real estate and personal
property taxes, property
and casualty insurance,
and ground rent........... 3,893 3,935 1,973 2,015
General and
administrative(4)......... 1,450 1,450 725 725
Interest expense............. 736 736 368 368
Minority interest(5)......... 1,420 1,649 637 866
------- ------- ------ ------
Total expenses and minority
interest.................. 17,013 17,284 8,460 8,731
------- ------- ------ ------
Net income attributable to
Common Shares............. $ 8,508 $ 9,882 $ 3,817 $ 5,191
======= ======= ====== ======
Net income per Common Share.. $ 1.03 $ 1.19 $ .46 $ .63
Weighted average number of
Common Shares
outstanding............... 8,275 8,275 8,275 8,275
OTHER DATA:
Funds From Operations(6)..... $ 19,442 $21,045 $ 9,211 $10,814
Additions to Capital
Expenditures Fund(7)...... (3,373) (3,492) (1,654) (1,773)
Amortization of debt issue
costs included in interest
expense................... 367 367 184 184
Cash Available for
Distribution(8)........... 16,436 17,920 7,741 9,225
Distributions(9)............. 17,375 17,375 8,688 8,688
Number of Common shares and
Units outstanding......... 9,653 9,653 9,653 9,653
</TABLE>

<TABLE>
<CAPTION>
AT JUNE 30, 1996(2)
-----------------------
<S> <C>
BALANCE SHEET DATA:
Investment in hotel properties,
net......................... $ 115,293
Total assets................... 117,828
Total debt..................... 5,000
Minority interest in
Partnership................. 15,850
Shareholders' equity........... 94,987
</TABLE>

40
<PAGE> 45

INITIAL LESSEE

SELECTED PRO FORMA FINANCIAL DATA(1)

(UNAUDITED, AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,(2)
YEAR ENDED TWELVE MONTHS -----------------
DECEMBER 31, 1995(2) ENDED JUNE 30, 1996(2) 1995 1996
-------------------- ----------------------- ------- -------
<S> <C> <C> <C> <C>
OPERATING DATA:
Room revenue....................... $ 54,785 $57,298 $27,398 $29,911
Food and beverage revenue.......... 23,643 23,980 11,711 12,048
Other revenue--Initial Hotels...... 4,643 4,760 2,237 2,354
---------- ---------- ------- -------
Total revenues of Initial
Hotels........................ 83,071 86,038 41,346 44,313
Other revenue--Initial Lessee...... 2,051 2,270 1,042 1,355
---------- ---------- ------- -------
Total revenues.................. 85,122 88,308 42,388 45,668
---------- ---------- ------- -------
Operating expenses................. 56,601 58,315 28,090 29,899
Cost of goods sold of Initial
Lessee.......................... 1,254 1,438 511 756
Percentage Lease payments(3)....... 25,521 27,166 12,277 13,922
---------- ---------- ------- -------
Total expenses.................. 83,376 86,919 40,878 44,577
---------- ---------- ------- -------
Income before extraordinary
items......................... $ 1,746 $ 1,389 $ 1,510 $ 1,091
================ ================== ======= =======
</TABLE>

<TABLE>
<CAPTION>
AT JUNE 30, 1996(2)
-----------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 3,833
Total assets....................... 11,429
Equity............................. 3,000
</TABLE>

41
<PAGE> 46

INITIAL HOTELS (EXCLUDING LAKE NORMAN HOTELS)

SELECTED COMBINED HISTORICAL FINANCIAL DATA

(UNAUDITED, AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31,(2) JUNE 30,(2)
---------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Room revenue....................... $ 42,645 $ 45,200 $ 45,753 $ 48,652 $ 50,730 $25,631 $ 27,845
Food and beverage revenue.......... 21,791 22,514 22,357 22,811 22,984 11,411 11,763
Other revenue...................... 3,334 3,634 3,977 4,092 4,490 2,159 2,266
-------- -------- -------- -------- -------- ------- --------
Total revenues.............. 67,770 71,348 72,087 75,555 78,204 39,201 41,874
-------- -------- -------- -------- -------- ------- --------
Departmental and other expenses.... 51,321 52,248 53,242 53,967 54,629 27,161 28,864
Real estate and personal property
taxes, insurance and rent........ 2,534 2,988 3,112 3,329 3,579 1,818 1,863
Depreciation and amortization...... 5,663 5,822 5,822 5,690 6,545 2,990 3,528
Interest expense................... 12,557 12,997 12,375 12,397 14,169 6,452 7,367
Gain on property insurance
recovery......................... -- -- -- -- (670) -- --
-------- -------- -------- -------- -------- ------- --------
Income (loss) before extraordinary
items.............................. (4,305) (2,707) (2,464) 172 (48) 780 252
Extraordinary item -- gain (loss)
on early extinguishment of
debt............................. -- -- -- -- 556 556 (1,315)
-------- -------- -------- -------- -------- ------- --------
Net income (loss)........... $ (4,305) $ (2,707) $ (2,464) $ 172 $ 508 $ 1,336 $ (1,063)
========= ========= ========= ========= ========= ======== =========
BALANCE SHEET DATA:
Investment in hotel properties,
net.............................. $ 66,238 $ 62,497 $ 59,457 $ 58,527 $ 70,577 N/A $ 68,204
Total assets....................... 74,380 70,823 68,757 68,688 83,332 N/A 83,421
Mortgage notes payable............. 114,132 113,333 112,660 111,788 122,203 N/A 123,726
Total partners' deficit............ (61,256) (64,458) (66,795) (67,197) (56,260) N/A (57,192)
CASH FLOW DATA:
Net cash provided by operating
activities....................... N/A N/A $ 3,723 $ 7,700 $ 7,175 $ 5,853 $ 3,326
Net cash used for investing
activities....................... N/A N/A (2,771) (4,746) (4,244) (2,006) (1,546)
Net cash used for financing
activities....................... N/A N/A (635) (1,488) (4,018) (3,287) (842)
OTHER DATA:
EBITDA(10)......................... $ 13,915 $ 16,112 $ 15,733 $ 18,259 $ 19,996 $10,222 $ 11,147
</TABLE>

42
<PAGE> 47

LAKE NORMAN HOTELS

SELECTED COMBINED HISTORICAL FINANCIAL DATA

(UNAUDITED, AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,(11)
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Room revenue...................... $ 2,643 $ 2,596 $ 2,764 $ 3,200 $ 3,764 $ 1,767 $ 2,066
Food and beverage revenue(12)..... 612 631 300 -- -- -- 223
Other revenue..................... 117 132 149 153 124 78 88
-------- -------- -------- -------- -------- -------- --------
Total revenues............. 3,372 3,359 3,213 3,353 3,888 1,845 2,377
-------- -------- -------- -------- -------- -------- --------
Departmental and other expenses... 2,485 2,605 2,225 2,096 2,437 1,244 1,580
Real estate and personal property
taxes, insurance and rent....... 125 130 129 96 106 55 52
Depreciation and amortization..... 601 606 576 523 466 289 289
Interest expense.................. 507 401 289 326 415 759 759
-------- -------- -------- -------- -------- -------- --------
Net income (loss).......... $ (346) $ (383) $ (6) $ 312 $ 464 $ (502) $ (303)
========= ========= ========= ========= ========= ========= =========
BALANCE SHEET DATA:
Investment in hotel properties,
net............................. $ 7,268 $ 6,807 $ 6,276 $ 5,888 $ 5,739 N/A $ 9,438
Total assets...................... 7,803 7,199 6,846 6,452 6,229 N/A 10,465
Mortgage notes payable............ 6,050 5,860 5,595 5,318 5,057 N/A 9,618
Total partners' equity............ 1,372 988 982 894 938 N/A 456
CASH FLOW DATA:
Net cash provided by (used for)
operating activities............ N/A N/A $ 477 $ 804 $ 938 $ (54) $ 155
Net cash used for investing
activities...................... N/A N/A (30) (129) (311) (247) (51)
Net cash used for financing
activities...................... N/A N/A (265) (677) (681) (43) (49)
OTHER DATA:
EBITDA(10)........................ $ 762 $ 624 $ 859 $ 1,161 $ 1,345 $ 546 $ 745
<FN>
- ---------------

3. Represents lease payments from the Initial Lessee to the Partnership
calculated on a pro forma basis by applying the rent provisions in the
Percentage Leases to the historical revenues of the Initial Hotels for the
period indicated, including for the Melbourne Quality Suites Inn an
additional $725 of rent for the year ended December 31, 1995 and the 12
months ended June 30, 1996 required under the rental interruption insurance
provision of the Percentage Lease agreements. The rent formula utilized in
computing the pro forma Percentage Lease revenue and expense includes, for
the calendar year 1995, an adjustment to reduce the threshold revenue
amounts in the Percentage Lease formulas by the 2.5% increase in the
Consumer Price Index for that year.
</TABLE>

43
<PAGE> 48

4. Estimated at $1.45 million annually for salaries, professional fees,
directors' and officers' insurance, directors' fees and expenses and other
general and administrative expenses associated with being a public company.

5. Calculated as 14.3% of the income before minority interest.

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
JUNE 30, 1996
--------------------
<S> <C>
Net income................................... $ 9,882
Minority interest............................ 1,649
Depreciation................................. 9,514
----------
Funds From Operations........................ $ 21,045
=====================
</TABLE>

7. Represents additions to the Capital Expenditures Fund calculated as 4% of
total revenue of the Initial Hotels, adjusted for $1,261 additional revenues
at the Melbourne Quality Suites for the year ended December 31, 1995 as
required under the rental interruption insurance provision of the Percentage
Leases.

8. Calculated as Funds From Operations less additions to the Capital
Expenditures Fund plus amortization of debt issue costs included in interest
expense.

9. Represents estimated initial dividends to be paid based on the initial
dividend rate of $1.80 per share and an aggregate of 9,653 Common Shares and
Units outstanding.

10. Represents income (loss) before extraordinary items, excluding depreciation
and amortization, interest expense, and gain on property insurance recovery.

11. The Summary Combined Historical Operating Data, Cash Flow Data and Other
Data for the Lake Norman Hotels for the six month periods ended June 30,
1995 and 1996 are presented on a pro forma basis, making necessary pro forma
adjustments to the historical operating results to reflect additional
depreciation expense associated with the purchase accounting writeup to the
investment in hotel properties, the additional interest expense associated
with the acquisition indebtedness and an increase in management fee expense.

44
<PAGE> 49

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

OVERVIEW

Upon completion of the Formation Transactions and the Offering, the Company
will own an 85.7% interest in the Initial Hotels through its interest in the
Partnership. In order for the Company to qualify as a REIT, neither the Company
nor the Partnership can operate hotels. Therefore, the Partnership will lease
the Initial Hotels to the Initial Lessee. The Partnership's, and therefore the
Company's, principal sources of funds will be lease payments under the
Percentage Leases. Percentage Rent will be based on the Initial Hotels'
revenues, and the Initial Lessee's ability to make payments to the Partnership
under the Percentage Leases will be dependent primarily on the Initial Lessee's
ability to generate cash flow from the operation of the Initial Hotels.

GENERAL

Results of operations are best explained by three key performance
indicators: Occupancy, ADR, and REVPAR. Increases in REVPAR attributable to
increases in Occupancy are accompanied by increases in most categories of
variable operating costs. Increases in REVPAR attributable to increases in ADR
are accompanied by increases in limited categories of operating costs, such as
management fees and license fees.

PRO FORMA RESULTS OF OPERATIONS FOR THE CONSOLIDATED COMPANY

The following table sets forth key indicators for all of the Initial Hotels
combined and is useful in understanding the underlying changes in the percentage
rent for the Company during the pro forma period of 1995 and the six months
ended June 30, 1996.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- ----------------
KEY FACTORS 1993 1994 1995 1995 1996
------------------------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Occupancy........................... 72.6% 74.7% 74.9% 74.2% 76.8%
ADR................................. $75.50 $79.27 $85.47 $84.82 $89.03
REVPAR.............................. $54.80 $59.24 $63.98 $62.93 $68.35
</TABLE>

For the year ended December 31, 1995 the Company had pro forma revenues of
$25.5 million from the Percentage Leases that would have been in place at the
Initial Hotels. The pro forma revenues for the twelve months ended June 30, 1996
would have been $27.2 million. This 6.7% increase of $1.7 million is
attributable to a 2.6% improvement in occupancy from 74.2% for the six months
ended June 30, 1995 to 76.8% for the six months ended June 30, 1996, and a 5%
improvement in ADR from $84.82 in the six months ended June 30, 1995 to $89.03
in the six months ended June 30, 1996. Pro forma expenses remained about the
same as no significant changes have occurred during the six month period.

RESULTS OF OPERATIONS OF THE INITIAL HOTELS (EXCLUDING LAKE NORMAN HOTELS)

The following table sets forth certain combined historical financial
information for the Initial Hotels (Excluding Lake Norman Hotels), as a
percentage of revenues, for the periods indicated.

45
<PAGE> 50

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------- ------------------
FINANCIAL DATA 1993 1994 1995 1995 1996
------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Room revenue................... 63.5% 64.4% 64.9% 65.4% 66.5%
Food and beverage revenue...... 31.0 30.2 29.4 29.1 28.1
Other revenue.................. 5.5 5.4 5.7 5.5 5.4
------- ------- ------- ------- -------
Total revenue................ 100.0 100.0 100.0 100.0 100.0
Departmental and other
expenses..................... 73.9 71.4 69.9 69.3 68.9
Real estate and personal
property taxes, insurance and
rent......................... 4.3 4.4 4.6 4.6 4.4
Depreciation and
amortization................. 8.1 7.5 8.4 7.6 8.4
Interest expense............... 17.2 16.4 18.1 16.5 17.6
Gain on property insurance
recovery..................... -- -- (.9) -- --
------- ------- ------- ------- -------
Income (loss) before
extraordinary items.......... (3.5) .3 (.1) 2.0 .7
Extraordinary item -- gain
(loss) on early
extinguishment of debt....... -- -- .7 1.4 (3.1)
------- ------- ------- ------- -------
Net income (loss).............. (3.5)% .3% .6% 3.4% (2.4)%
======= ======= ======= ======= =======
OTHER DATA(1)
EBITDA, as a % of revenue...... 21.8% 24.2% 25.6% 26.1% 26.6%
KEY FACTORS(2)
Occupancy...................... 74.3% 74.9% 74.3% 73.8% 77.1%
ADR............................ $ 77.73 $ 82.00 $ 88.63 $ 88.44 $ 91.56
REVPAR......................... $ 57.78 $ 61.44 $ 65.87 $ 65.30 $ 70.55
<FN>
- ---------------

(1) The Company believes that EBITDA, defined as net income before interest,
depreciation, amortization, gain on property insurance recovery and
extraordinary items, provides a good indicator of the financial performance
of the Initial Hotels and will be a significant factor in determining the
Initial Lessee's ability to make lease payments to the Partnership. Industry
analysts generally consider this to be an appropriate measure of the
performance of hotels. However, this indicator should not be considered as
an alternative to net income as an indication of the Initial Lessee's
performance or to cash flow as a measure of liquidity.

(2) No assurance can be given that the trends reflected in this data will
continue or that occupancy, ADR and REVPAR will not decrease as a result of
changes in national or local economic or hospitality industry conditions.
</TABLE>

Comparison of the six months ended June 30, 1996 with the six months ended
June 30, 1995

Room revenues increased $2.2 million, or 8.6% from the six months ended
June 30, 1995 to the same period in 1996. REVPAR increased from $65.30 in the
six months ended June 30, 1995 to $70.55 for the same period in 1996, or a 8%
increase. Room revenues were driven by both increases in ADR at all of the
Initial Hotels (excluding Lake Norman Hotels), and occupancy which increased
between the periods at six of the seven Initial Hotels (excluding Lake Norman
Hotels). The occupancy growth is attributable to a continuation into 1996 of the
strong demand experienced in the last half of 1995, particularly in the Ohio and
California markets.

Food and beverage revenue grew $.4 million or 3.1% from the six months
ended June 30, 1995 compared to the same period in 1996. This is attributable to
the growth in occupancy between the periods.

Departmental and other expenses grew by $1.7 million or 6.3% between the
periods. This was caused primarily by the growth in occupancy, which is
accompanied by increases in most categories of variable expenses. This is
demonstrated by these costs remaining relatively unchanged as a percentage of
revenues during both periods. In addition, management fees increased by $.2
million between the periods because of

46
<PAGE> 51

higher revenues and increases in the management fee rate implemented in the
second quarter of 1995 at four of the hotels. Franchisor fees also increased by
$.3 million between the periods because of revenue increases and contractually
scheduled increases in the fee rate at two of the hotels.

Depreciation and amortization expense increased by $.5 million or 18%
primarily due to the additional depreciation on the property writeup recorded in
May 1995 when the Melbourne, Berkeley, and Cleveland Airport hotels redeemed
their respective partnership interests held by non-Boykin Group Affiliates and
Boykin Group Affiliates were admitted as new partners, and the depreciation on
new property additions. Interest expense increased by $.9 million or 14.2% due
to the new mortgage debt incurred in May 1995 to finance the redemptions of the
Melbourne, Berkeley and Cleveland Airport hotels' partnership interests and to
refinance existing mortgage debt at the Fort Myers, Melbourne, Berkeley and
Cleveland Airport hotels.

The gain on early extinguishment of debt of $.6 million recorded in May
1995 related to the refinancing referred to above while the loss of $1.3 million
on early extinguishment of debt in 1996 related to the refinancing of the
mortgage debt of the Buffalo hotel.

Net income was impacted most significantly by the change in the
extraordinary items between the periods. In 1995 the Initial Hotels (excluding
Lake Norman Hotels) recorded an extraordinary gain of $.6 million on refinancing
while in 1996 the Buffalo hotel recorded an extraordinary loss of $1.3 million
on its refinancing.

EBITDA increased $.9 million or 9.0% from the six months ended June 1995 to
the six months ended June 1996. This improvement is attributable to the increase
in revenues of $2.7 million due to growth in occupancy during the periods,
reduced by the corresponding increases in variable operating costs of $1.7
million in departmental and other expenses.

Comparison of the year ended December 31, 1995 with 1994

Room revenues increased $2.1 million, or 4.3% from 1994 to 1995. As can be
seen by the growth of REVPAR, revenues as reported were driven by increases in
the ADR which occurred at almost all of the hotels, while occupancy declined .6%
overall. This was attributable in part to the general improvement in the
business travel and tourism industries. The continuation of the Boykin Group's
focus on maximizing REVPAR by focusing on increasing ADR while maintaining
stable occupancy during this period had a significant effect. Food and beverage
revenue grew $.2 million or .8% from 1994 to 1995. This reflects the slight
decline in occupancy offset by inflationary price increases in food and
beverages. The composition of revenue stayed consistent between the periods,
with only a slight decline in food revenues, from 30.2% of the total to 29.4%,
reflecting that the gains in revenue occurred in room rates during this period.

Total revenues increased $2.6 million, or 3.5%, from 1994 to 1995. This
increase was in spite of the loss of an estimated $1.3 million in revenues
arising from the damage to the Melbourne Quality Suites by Hurricane Erin in
August 1995. The hurricane damage was covered by insurance, including business
interruption insurance, so the net income of the combined hotels was not
materially affected.

Departmental and other expenses increased by $.7 million or 1.2% between
the years because of general inflationary pressures which were offset by
aggressive cost management and $1.1 million in estimated proceeds from the
Melbourne business interruption insurance claims which were netted against
operating expenses. These costs declined as a percentage of revenues from 71.4%
in 1994 to 69.9% in 1995, due to the positive effect of revenues growing at a
faster pace than expenses. In addition, management fees increased from 3.8% of
revenues in 1994 to 4.2% of revenues in 1995 because of higher revenues and
increases in the management fee rate implemented in the second quarter of 1995
at four of the hotels. Franchisor fees increased $.9 million, or 29.2%, between
years primarily because 1994 contained a reduction in franchise fees of $.6
million from the forgiveness of accrued franchise fees at the Melbourne Quality
Suites hotel that resulted from a renegotiation of the franchise agreement. This
was offset by growth in fees as a result of improved revenues and a
contractually scheduled increase in the fee rate at the Columbus Marriott North.
Real estate and personal property taxes, insurance and rent increased 7.5% from
1994 to 1995. This is primarily attributable to higher costs for insurance as
the Boykin Group purchased improved coverage. The gain on property insurance

47
<PAGE> 52

recovery of $.7 million recorded in 1995 related to the excess of insurance
proceeds over the net book value of assets replaced at the Melbourne Quality
Suites due to the damage caused by Hurricane Erin in August 1995.

Depreciation and amortization expense increased by $.9 million or 15%
primarily due to the additional depreciation on the property writeup recorded in
May 1995 when Melbourne, Berkeley and Cleveland Airport hotels redeemed their
respective partnership interests held by non-Boykin Group Affiliates and Boykin
Group Affiliates were admitted as new partners. Interest expense increased by
$1.8 million or 14.3% due to the new mortgage debt incurred in May 1995 to
finance the redemption of the Melbourne, Berkeley and Cleveland Airport hotels'
partnership interests and to refinance existing mortgage debt at the Fort Myers,
Melbourne, Berkeley and Cleveland Airport hotels.

The gain on early extinguishment of debt of $.6 million recorded in May
1995 related to the refinancing referred to above.

Net income improved $.3 million due to the improved ADR at most of the
Initial Hotels (excluding Lake Norman Hotels), the benefit of the Melbourne
property insurance settlement and the extraordinary gain on refinancing, all of
which were partially offset by higher depreciation and interest costs resulting
from the May 1995 redemption of partnership interests held by certain non-Boykin
Group Affiliates.

EBITDA grew $1.7 million or 9.5% from 1994 to 1995. This improvement is
attributable to the increase in revenues due to growth in ADR during the periods
which was partially offset by increases in franchise and management fees.

Comparison of the year ended December 31, 1994 with 1993

Room revenues increased $2.9 million, or 6.3% from 1993 to 1994. This was
primarily driven by increases in ADR at almost all of the Initial Hotels
(excluding Lake Norman Hotels), while occupancy increased .6%. This was
attributable to the general improvement in the business travel and tourism
industries and lack of any new competition in the markets where the Initial
Hotels (excluding Lake Norman Hotels) operate. Food and beverage revenue grew
$.5 million or 2% from 1993 to 1994, relating to the slight increase in
occupancy and inflationary price increases in food and beverages. The
composition of revenue stayed consistent between the periods, with only a slight
decline in food revenues, from 31.0% of the total to 30.2%, which reflects that
most of the gains in revenue occurred in room rates during this period.

Departmental and other expenses grew by $.7 million, or 1.4%, between the
years because of general inflationary pressures, offset by aggressive cost
management. These costs declined as a percentage of revenues from 73.9% in 1993
to 71.4% in 1994, as revenues grew faster than expenses. Expenses were also
reduced in 1994 by $.6 million because of the forgiveness of accrued franchise
fees at the Melbourne Quality Suites hotel that resulted from a renegotiation of
the franchise agreement with the franchisor. Depreciation and amortization
expense remained relatively constant between 1993 and 1994.

Net income improved $2.6 million due to improved ADR and the benefit of the
forgiveness of franchise fees at Melbourne, offset partially by higher
departmental and other expenses.

EBITDA grew $2.5 million or 16.1% from 1993 to 1994. This improvement is
attributable to the increase in ADR during the periods and the forgiveness of
accrued in franchise fees at Melbourne.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal source of cash to meet its cash requirements,
including distributions to shareholders, will be its share of the Partnership's
cash flow. The Partnership's principal source of revenue will be rent payments
under the Percentage Leases. The Initial Lessee's obligations under the
Percentage Leases are unsecured and the Initial Lessee's ability to make rent
payments to the Partnership under the Percentage Leases, and the Company's
liquidity, including its ability to make distributions to shareholders, will be
dependent on the Initial Lessee's ability to generate sufficient cash flow from
the operation of the Initial Hotels.

On consummation of the Offering and application of the net proceeds
therefrom, the Company expects to have approximately $5.0 million of outstanding
debt arising from a draw on the Credit Facility. The Company

48
<PAGE> 53

intends to acquire and develop additional hotels and will incur indebtedness to
fund that acquisition and development. The Company may also incur indebtedness
to meet distribution requirements imposed on a REIT under the Code to the extent
that working capital and cash flow from the Company's investments are
insufficient to make the required distributions. The terms of the Credit
Facility permit borrowings for that purpose, but impose certain limitations on
the Company's ability to engage in other borrowings. See "Policies and
Objectives with Respect to Certain Activities -- Financing."

The Company has obtained the Credit Facility to assist it in funding its
acquisition and development of additional hotels and for certain other purposes,
including capital expenditures and working capital, as necessary. Borrowings
under the Credit Facility will be secured by first mortgages on several of the
Initial Hotels and on any additional properties acquired or developed by the
Company, subject to certain release provisions. The Company may seek to increase
the amount of the Credit Facility, negotiate additional credit facilities, or
issue debt instruments. Any debt incurred or issued by the Company may be
secured or unsecured, long-term, medium-term or short-term, bear interest at a
fixed or variable rate, and be subject to such other terms as the Board of
Directors considers prudent.

The Company will acquire or develop additional hotels only as suitable
opportunities arise, and the Company will not undertake acquisition or
development of properties unless adequate sources of financing are available.
Funds for future acquisitions or development of hotels are expected to be
derived, in whole or in part, from borrowings under the Credit Facility or other
borrowings or from the proceeds of additional issuances of Common Shares or
other securities. The Company has no agreement or understanding to invest in any
properties other than the Initial Hotels, and there can be no assurance that the
Company will successfully acquire or develop additional hotels. See "The
Company -- Business Objectives and Strategies -- Acquisition Strategy."

The Company will contribute to the Capital Expenditures Fund on a
continuing basis, from the rent paid under the Percentage Leases, an amount
equal to 4% of the Initial Lessee's revenues from operation of the Initial
Hotels. In addition, the Company intends to make available $3.5 million from the
Credit Facility to fund the Capital Expenditures Fund, as needed. The Company
intends to use the Capital Expenditures Fund for capital improvements to the
Initial Hotels and refurbishment and replacement of FF&E, but may make other
uses of amounts in the fund that it considers appropriate from time to time. The
Company anticipates making similar arrangements with respect to future hotels
that it may acquire or develop. During the period from January 1, 1993 through
June 30, 1996, the Initial Hotels spent approximately $15 million for capital
expenditures. The Company considers the majority of these improvements to be
revenue producing and therefore these amounts have been capitalized and are
being depreciated over their estimated useful lives. The Initial Hotels also
spent $13.5 million during the period from January 1, 1993 through June 30, 1996
on repairs and maintenance and these amounts have been charged to expense as
incurred. See "The Company -- Business Objectives and Strategies -- Renovation
Strategy" for further discussion of capital expenditures at the Initial Hotels.

INFLATION

The Company's revenues initially will be based on the Percentage Leases,
which will result in changes in the Company's revenues based on changes in the
underlying Initial Hotel revenues. Therefore, the Company initially will be
relying entirely on the performance of the Initial Hotels and the Initial
Lessee's ability to increase revenues to keep pace with inflation. Operators of
hotels in general, and the Initial Lessee, can change room rates quickly, but
competitive pressures may limit the Initial Lessee's ability to raise rates
faster than inflation. The compound annual growth rate of ADR on the Initial
Hotels for the five years ended December 31, 1995 was 3.0%, or about the rate of
inflation in the Consumer Price Index. According to industry statistics,
industry-wide annual increases in ADR have failed to keep pace with inflation
since 1987.

The Company's largest fixed expense is the depreciation of the investment
in hotel properties. The Company's variable expenses, which are subject to
inflation, represent approximately 20% of pro forma revenues. These variable
expenses (general & administrative costs as well as real estate and personal
taxes, property and casualty insurance and ground rent) are expected to grow
with the general rate of inflation.

49
<PAGE> 54

SEASONALITY

The Initial Hotels' operations historically have been seasonal. Seven of
the Initial Hotels maintain higher occupancy rates during the second and third
quarters. The two Florida Initial Hotels experience their highest occupancy in
the first quarter. This seasonality pattern can be expected to cause
fluctuations in the Company's quarterly lease revenue under the Percentage
Leases. The Company anticipates that its cash flow from the Initial Lessee's
operation of the Initial Hotels will be sufficient to enable the Company to make
quarterly distributions at the estimated initial rate for at least the next
twelve months. To the extent that cash flow from operations is insufficient
during any quarter, because of temporary or seasonal fluctuations in lease
revenue, the Company expects to utilize other cash on hand or borrowings to make
those distributions. See "Business and Properties -- Business
Strategy -- Financing Strategy.") No assurance can be given that the Company
will make distributions in the future at the initially estimated rate, or at
all.

50
<PAGE> 55

BUSINESS AND PROPERTIES
THE HOTEL INDUSTRY

The hotel industry is currently benefiting from an increase in room demand
which outpaces the growth in supply. According to the Kenneth Leventhal Real
Estate Group of Ernst & Young LLP, industry-wide room demand increased between
3.0% and 4.7% each year from 1992 through 1995, while the supply of new rooms
increased between 1.0% and 1.4% annually during that period. As might be
expected in such a supply/demand environment, occupancies and ADR have increased
each year during the period and are projected to increase in 1996. Occupancy
rose from 62% industry-wide in 1992 to a projected 66% in 1995. As shown in the
following chart from Kenneth Leventhal's 1996 National Lodging Forecast (the
"1996 Forecast") Kenneth Leventhal projects industry-wide occupancy to grow to
67% in 1996 and to increase to 68% by year-end 1997.

See the chart set forth under "The Company" for a comparison of the
occupancy, ADR and REVPAR for the Initial Hotels to that of their local markets
(including the Initial Hotels and their local competing hotels as defined by the
Company), all U.S. upscale/moderate full service hotels, and all U.S. hotels.

U. S. HOTEL OCCUPANCY
HISTORIC AND PROJECTED
[GRAPHIC]

<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) PERCENTAGE OF OCCUPANCY
<S> <C>
1990 62
1991 61
1992 62
1993 63
1994 65
1995 66
1996 67
1997 68
</TABLE>

SOURCE: SMITH TRAVEL RESEARCH (1990-1994); E&Y KENNETH LEVENTHAL REAL ESTATE
GROUP (1995-1997)

Industry-wide ADR grew from $60 to $66 during the period 1992 through 1995,
and, as shown in the following chart from the 1996 Forecast, ADR is projected to
increase 4.5% to $69 in 1996 and 4.3% to $72 in 1997.

U. S. HOTEL AVERAGE DAILY RATE
HISTORIC AND PROJECTED
[GRAPHICS]

<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) $ AVERAGE DAILY RATE
<S> <C>
1990 58
1991 59
1992 60
1993 61
1994 64
1995 66
1996 69
1997 72
</TABLE>

SOURCE: SMITH TRAVEL RESEARCH (1990-1994); E&Y KENNETH LEVENTHAL REAL ESTATE
GROUP (1995-1997)

51
<PAGE> 56

THE INITIAL HOTELS

The following table sets forth certain information with respect to each of
the Initial Hotels:
<TABLE>
<CAPTION>
NUMBER NUMBER OF
NUMBER OF RESTAURANTS/
OF PARKING LOUNGES/ FITNESS GIFT
PROPERTY ROOMS SPACES PROPERTY DESCRIPTION POOL BARS MEETING ROOM CENTER POOL SHOP
- ----------------------------- ------ ------ -------------------------- ------------ ---------------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Berkeley Marina Marriott 373 539 Three 3-story buildings 1/1/0 11,000 sq. ft, Yes Yes Yes
and one 4-story building. including 5,100
sq. ft. ballroom
Buffalo Marriott 356 637 One 10-story tower. 1/1/1 11,500 sq. ft. Yes Yes Yes
Cleveland Airport Marriott 375 600 Two 4-story room wings and 2/1/0 11,600 sq. ft. Yes Yes Yes
one 9-story guest room including 4,900
tower. sq. ft. ballroom
Cleveland Marriott East 403 840 Two 7-story guest room 1/1/0 14,400 sq. ft. Yes Yes Yes
wings, one 4-story guest including 6,864
room wing. sq. ft. ballroom
Columbus North Marriott 300 694 One 9-story tower and one 1/1/0 14,000 sq. ft. Yes Yes Yes
3-story guest room wing. including 7,500
sq. ft. ballroom
Lake Norman Hampton Inn 117 134 One 5-story building. 0/0/0 900 sq. ft. Yes Yes No
Lake Norman Holiday Inn 119 195 One 2-story building. 1/1/0 2,300 sq. Yes Yes No
Melbourne Quality Suites 208 295 Two 9-story guest towers. 1/1/1 1,584 sq. ft. Yes Yes Yes
Radisson Inn Sanibel Gateway 157 160 Two 3-story guest 1/1/1 480 sq. ft. No Yes Yes
buildings.

<CAPTION>
OTHER
PROPERTY AMENITIES
- ----------------------------- --------------------------
<S> <C>
Berkeley Marina Marriott Concierge
Buffalo Marriott Car rental desk; shoe
shine stand; concierge;
game room
Cleveland Airport Marriott Concierge; auto rental
Cleveland Marriott East Concierge; auto rental
Columbus North Marriott Concierge
Lake Norman Hampton Inn Free continental breakfast
Lake Norman Holiday Inn Free continental breakfast
Melbourne Quality Suites Beach; game room
Radisson Inn Sanibel Gateway Beach access; game room
</TABLE>

52
<PAGE> 57

GENERAL. Each of the Initial Hotels is under the direction of a general
manager and an executive committee, which are accountable for and are
compensated in part based on the property's performance. This group oversees
day-to-day operations and develops annual budgets and marketing, long-term
capital, and human resource development plans. Each Initial Hotel is responsible
for developing its own marketing plan. These plans are comprehensive, analyzing
local market conditions and the hotel's competition, determining hotel
positioning, identifying consumer needs, and outlining marketing objectives and
strategies. Each plan will continue to be evaluated quarterly by the Initial
Lessee to maintain effectiveness under changing market conditions.

The Initial Lessee stresses first-rate financial management and
comprehensive revenue reporting and believes its management team is skilled at
anticipating business needs and changes to maintain competitiveness in its
markets. All hotel departments, including rooms, food & beverage, accounting,
sales and marketing, engineering and human resources, will continue to receive
regular on-site performance reviews and have open lines of communication
directly to the Initial Lessee's management. These performance reviews will
enable the Initial Lessee to maintain an in-depth understanding of each hotel's
marketing opportunities and insure that the Company's properties receive
direction to enable on-site management to maximize profits.

The following discussion sets forth additional information for each Initial
Hotel. Additional statistical data concerning capital expenditures at each of
the Initial Hotels during the fiscal years 1991 through 1995 is set forth in the
chart under the heading "The Company -- Business Objectives and
Strategies -- Renovation Strategy." Information concerning the indebtedness
associated with the Initial Hotels and the payment thereof in connection with
the Offering is set forth under "Use of Proceeds."

The information set forth below comparing each Initial Hotel to its local
competition is based on reports obtained from Smith Travel Research, which is
not associated in any way with the Company or any of its Affiliates and has not
provided any form of assistance in connection with and the Offering. Each
Initial Hotel's Local Competition includes four to seven competitors in its
market, as currently defined by Boykin Management for property and personnel
performance evaluation purposes and used for all periods referred to. Boykin
Management's consistently-applied criteria for defining each hotel's competitive
set include comparability of location, target customers, rates, and level of
service provided. The composition of a hotel's competitive set changes from time
to time as competitors enter or exit the market or as comparative information
for competitors becomes unavailable.

BERKELEY MARINA MARRIOT. This 373-room waterfront hotel is on the east side
of San Francisco Bay in the Berkeley Marina Complex. The hotel is in a secluded
area approximately 20 minutes from downtown San Francisco and 30 minutes from
San Francisco International Airport. The hotel is located near the Golden Gate
Bridge, Fisherman's Wharf and the Napa/Sonoma wine country. The University of
California at Berkeley is three miles away. Approximately 60% of the guests are
business travelers. The primary business travelers are employed by Sybase,
Chevron, University of California at Berkeley, Kaiser, and AT&T. Tourist travel
accounts for approximately 15% of the hotel's business and is based on nearby
tourist destinations and the hotel's marina location. Group travel, which
accounts for about 25% of the hotel's business and tourist travel, is primarily
related to professional and amateur sports, entertainment and educational
groups.

The property has been owned and managed by the Boykin Group as a Marriott
since its opening in 1972. The property was expanded to its current size in
1985. The hotel has approximately 11,000 square feet of flexible meeting and
banquet space, which can be divided into 14 rooms. In addition, there are seven
executive suites that can accommodate smaller conferences. The hotel also has a
300-seat restaurant and a lounge and has 700 feet of dock space in the Berkeley
Marina Complex that is leased to Hornblower Dining Yachts. Areas budgeted for
renovation during the next 12 months include additional guest rooms, the hotel's
conference center, and certain structural improvements and equipment upgrades.

The land underlying this hotel is leased under a ground lease that expires
in 2033 but can be extended by the tenant to 2051. The rent payable under the
lease includes annual minimum rent of $100,000 and percentage rent based on the
hotel's revenues. The tenant is responsible for all taxes, maintenance and
insurance on the leased property. See Note 8 to the Combined Financial
Statements for the Initial Hotels

53
<PAGE> 58

(Excluding Lake Norman Hotels) for the year ended December 31, 1995, for further
information concerning the lease.

This hotel's average occupancy, ADR and REVPAR for the years 1991 through
1995 exceeded the aggregate average occupancy, ADR and REVPAR of its local
competition during that period by 7.9%, 11.5% and 20.4%, respectively.

BUFFALO MARRIOTT. This 356-room hotel is the only full-service Marriott
hotel in the greater Buffalo Metropolitan area. Located just off Interstate 290
in the growing suburb of Amherst, the hotel is adjacent to the State University
of New York at Buffalo and is approximately 15 minutes from downtown Buffalo, 30
minutes from Niagara Falls, and 10 minutes from the Greater Buffalo
International Airport. Approximately 70% of the guests are business travelers.
The primary business travelers are employed by General Motors, NYNEX, Citicorp,
Dupont and the State University of New York. Group travel, which accounts for
approximately 18% of the hotel's business, is generated by sports and
social-related activities.

The property has been owned and managed by the Boykin Group as a Marriott
since opening in 1981. The hotel has approximately 11,500 square feet of
flexible meeting and banquet space, which can be divided into 11 rooms. In
addition, there are six executive suites that can accommodate smaller
conferences. The hotel also has a 250-seat restaurant and a lounge. The property
had approximately 200 rooms renovated in 1995. The hotel's design will
accommodate a 2,500 square foot ballroom expansion and the addition of up to 100
guest rooms. Improvements and renovations budgeted for the next 12 months
include installation of a business center, renovation of the hotel's restaurant,
guest room HVAC and bedding replacements, and miscellaneous equipment items.

CLEVELAND AIRPORT MARRIOTT. This 375-room hotel is located in Cleveland,
Ohio on Interstate 71 approximately eight miles from downtown Cleveland and two
miles from Cleveland Hopkins International Airport. Approximately 48% of the
guests are business travelers. The primary business traveler guests are employed
by PPG Industries, American Greetings, General Electric, Marriott Corporation,
Ford Motor Company, and certain others. Group travel, which accounts for
approximately 28% of the hotel's business, is primarily related to professional
sports and entertainment and educational groups. Tourist travel accounts for
approximately 24% of the hotel's business and is based on nearby tourist
attractions such as the Cleveland Zoo and Rainforest, NASA Lewis Research
Center, the Rock & Roll Hall of Fame, Jacobs Field, the home of the Cleveland
Indians baseball team, and Gund Arena, the home of the Cleveland Cavaliers
basketball team. The hotel is also expected to benefit from the contemplated
expansion of the airport, the development of Science Parkway (adjacent to NASA),
and continued usage of the nearby International Exposition Center, which houses
the largest meeting facility under one roof in the world.

The property was developed by the Boykin Group and has been managed by it
since its opening in 1970. In 1974, the property was expanded to 375 guest
rooms, and meeting space, a ballroom and a second restaurant were added. The
hotel has approximately 11,600 square feet of flexible meeting and banquet
space, which can be divided into 14 rooms. In addition there are four executive
suites that can accommodate smaller conferences. The hotel also has a lounge. As
part of an ongoing program, approximately $2.6 million has been spent over the
last five years on improvement and renovation of this hotel. Areas budgeted for
renovation during the next 12 months include certain meeting rooms, exterior lot
lighting, guest room bathroom floors and miscellaneous equipment.

CLEVELAND MARRIOTT EAST. This 403-room hotel is located in Beachwood, Ohio,
a suburb of Cleveland, just off Interstate 271. The hotel adjoins commercial
office development and is approximately 20 minutes from downtown Cleveland and
30 minutes from the Cleveland Hopkins International Airport. Approximately 70%

54
<PAGE> 59

of the guests are business travelers. The primary business travelers are
employed by Swagelok, Allen Bradley, General Electric, TRW, Progressive
Insurance, Picker International and Master Builders. Group travel accounts for
approximately 20% of the hotel's business. The hotel is also adjacent to the
planned 650-acre Chagrin Highlands research-office park development.

The property has been owned and managed by the Boykin Group as a Marriott
since its opening in 1977. The hotel has approximately 14,400 square feet of
flexible meeting and banquet space, which can be divided into as many as 17
rooms. In addition, there are eight executive suites that can accommodate
smaller conferences. The hotel also has a 200-seat restaurant and a lounge. As
part of an ongoing program, approximately $2.6 million has been spent over the
last five years on improvement and renovation of this hotel, including a
substantial lobby renovation. Areas budgeted for renovation and improvement
during the next 12 months include the restaurant and ballroom, guest room
corridor carpeting, guest elevators and certain exterior maintenance items.

While this hotel's average occupancy for the years 1991 through 1995
trailed the aggregate average occupancy of its local competition during that
period by 2.5%, the hotel's average ADR and REVPAR for that period exceeded the
aggregate average ADR and REVPAR of that competitive set during that period by
4.2% and 1.5%, respectively.

COLUMBUS NORTH MARRIOTT. This 300-room hotel is located in Columbus, Ohio,
just off Interstate 71 and near Interstate 270. The hotel is the only
full-service Marriott Hotel in Columbus, and is approximately 20 minutes from
downtown Columbus, 20 minutes from Ohio State University and 20 minutes from the
Port Columbus International Airport. Approximately 50% of the guests are
business travelers. The primary business travelers are employed by American
Express, Honda, Banc One, Borden, General Electric, AT&T and IBM. Group travel,
which accounts for 40% of the hotel's business, is primarily related to
convention and business groups.

The property has been owned and managed by the Boykin Group as a Marriott
since its opening in 1981. The hotel has approximately 14,000 square of flexible
meeting and banquet space, which can be divided into 13 rooms. In addition,
there are ten executive suites that can accommodate smaller conferences. The
hotel also has a 200-seat restaurant and a lounge. A $2.5 million renovation of
the hotel's guest rooms, lobby and lounge was completed in 1994. Items budgeted
for capital expenditures during the next 12 months include renovation of the
restaurant and certain guest rooms, installation of fire sprinklers, replacement
of the hotel's parking lot, and certain exterior maintenance items. The hotel's
management is evaluating expansion of the ballroom by 2,500 square feet and an
addition of up to 100 guest rooms, but no decision has been made regarding
either opportunity.

LAKE NORMAN HAMPTON INN. This 117-room limited-service hotel, which was
built in 1991, is located in Lake Norman, North Carolina at the southeast corner
of the intersection of Interstate 77 North, Exit 28 and North Carolina Highway
73. See "Business and Property -- The Initial Hotels -- Lake Norman Holiday
Inn," for a description of this hotel's location and sources of room demand.

The hotel has one meeting room. In 1995 the property underwent a soft goods
renovation and improvement. Improvements budgeted for the next 12 months include
replacement of lobby furniture and area rugs and guest room furniture and
televisions.

The Boykin Group acquired this hotel in February 1996, and the competitive
data available to the Company does not cover the period 1991 through 1993. While
this hotel's average occupancy for the years 1994 and 1995 exceeded the
aggregate average occupancy of its local competition during those years by 2.2%,
the hotel's average ADR and REVPAR for those years trailed the aggregate average
ADR and REVPAR of that competitive set for those years by 5.0% and 2.9%,
respectively.

55
<PAGE> 60

LAKE NORMAN HOLIDAY INN. This 119-room hotel is located in Lake Norman,
North Carolina at the northeast corner of the intersection of Interstate 77
North, Exit 28 and North Carolina Highway 73. Charlotte, North Carolina is 19
miles to the south. Lake Norman is an upscale community located approximately
five miles south of downtown Mooresville, North Carolina and just southeast of
Lake Norman, one of North Carolina's most widely-used recreational lakes,
offering boating, swimming, and nearby golf facilities. About 30% to 40% of the
demand results from leisure travel. Approximately 60% to 70% of the area's hotel
market is represented by the commercial segment, which includes government,
social, military, educational, religious and fraternal groups. Commercial
sources of room demand include Duke Power, Ingersol Rand, Matsushita,
Muratec/Murata, Widemann, Polymerland, Nautilus, Trans Industries and
Westinghouse.

This hotel has three banquet and meeting rooms. In 1994 and 1995 the
property underwent a soft goods renovation and improvement. Areas budgeted for
renovation and improvement during the next 12 months include banquet meeting
room, restaurant and guest room renovations and installation of certain exterior
lighting.

The Boykin Group acquired this hotel in February 1996 and the competitive
data available to the Company does not cover the period 1991 through 1993. While
this hotel's average occupancy for the years 1994 and 1995 trailed the aggregate
average occupancy of its local competition by 1.6% during those years, the
hotel's average ADR and room REVPAR for those years exceeded the aggregate
average ADR and REVPAR of that competitive set for those years by 10.9% and
9.2%, respectively.

MELBOURNE QUALITY SUITES. This 208-suite oceanfront hotel is located in
Indialantic, Florida, on the beach off Florida's coastal highway A1A,
approximately 20 miles south of Kennedy Space Center and 65 miles southeast of
Disney World. The hotel, which received a Gold Hospitality Award from Choice
Hotels in 1994, is approximately ten miles from Melbourne International Airport.
Approximately 65% of the guests are tourist or vacation travelers attracted by
popular destinations such as Disney World, Universal Studios and Sea World.
Approximately 16% of the guests are business travelers. The primary business
travelers are employed by Harris Corporation, the Department of Defense, and
certain aerospace companies. Group travel, which represents 19% of the hotel's
business, is primarily related to government and military travel.

This property has been owned and managed by the Boykin Group as a Quality
Suites hotel since its opening in 1986. The hotel has approximately 1,584 square
feet of flexible meeting and banquet space, which can be divided into two rooms.
In addition, there are three executive suites that can accommodate smaller
conferences. The hotel also has a 128-seat restaurant and a lounge. The property
has recently undergone a substantial renovation after being temporarily closed
as a result of damage caused by Hurricane Erin in August 1995. Capital
improvements budgeted for the next 12 months include installation of a new
lounge, conversion of the existing lounge into meeting rooms, certain guest room
conversions, and replacement of guest room televisions.

RADISSON INN SANIBEL GATEWAY. This 157-room hotel, located in Fort Myers,
Florida, is 15 miles from I-75, and seven miles off U.S. Highway 41. The hotel,
which was a President's Award recipient (awarded to the top 10% of Radisson
Hotels based on measures established by Radisson) in 1993, 1994 and 1995, is two
and one-half miles from Sanibel Island and four and one-half miles from Ft.
Myers Beach. It is 25 minutes from the New Southwest Florida Airport and 15
minutes from the Boston Red Sox and Minnesota Twins spring training complexes.
Approximately 80% of the guests are tourists and vacationers. Group travel
accounts for 14% of the hotel's business.

The property has been owned and managed by the Boykin Group since its
opening in 1986. The hotel has approximately 865 square feet of flexible meeting
and banquet space, a 90-seat restaurant and a lounge. Improvements budgeted for
the next 12 months include installation of guest room wall coatings, replacement
of guest room bathroom wall coverings and flooring, and certain guest room
furniture and equipment upgrades.

56
<PAGE> 61

THE PERCENTAGE LEASES

Each of the Initial Hotels will be leased by the Partnership to the Initial
Lessee. The following table sets forth (i) the Percentage Rent formulas, (ii)
the annual Minimum Rent, and (iii) the pro forma Percentage Rent and total Rent
that would have been paid for each Initial Hotel pursuant to the terms of the
Percentage Leases based upon pro forma revenues for the twelve months ended June
30, 1996 as if the Partnership had owned the Initial Hotels and the Percentage
Leases had been in effect since January 1, 1995 (dollar amounts in thousands).
<TABLE>
<CAPTION>
FOR THE
TWELVE
MONTHS
ENDED
JUNE 30,
1996
FOOD & ---------
FRANCHISE BEVERAGE PRO FORMA
LEASE RENEWAL ANNUAL PERCENTAGE ROOMS &
EXPIRATION EXPIRATION MINIMUM ROOMS & OTHER PERCENTAGE RENT OTHER
HOTEL DATE DATE RENT RENT FORMULA(1) FORMULA(1) REVENUE
- ------------------- ---------- ---------- --------- --------------------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Berkeley 12/31/00 10/31/97 $ 5,200 35% from $0 to $8,391 6% $12,692
Marina 50% from $8,391 to $11,188
Marriott 75% over $11,188
Buffalo 3/26/04 3/26/04 2,570 31% from $0 to $5,731 6% 9,830
Marriott 45% from $5,731 to $8,597
70% over $8,597
Cleveland 4/1/02 4/1/02 2,740 33% from $0 to $6,832 6% 9,928
Airport 52.5% from $6,832 to $8,784
Marriott 70% over $8,784
Cleveland 10/7/01 10/7/01 3,020 32% from $0 to $7,566 6% 10,985
Marriott 50% from $7,566 to $9,728
East 70% over $9,728
Columbus 12/31/06 9/4/14 1,970 30% from $0 to $5,282 6% 7,639
North 45% from $5,282 to $6,791
Marriott 70% over $6,791
Lake Norman 12/31/06 4/11/10 520 30% from $0 to $1,110 6% 1,998
Hampton Inn 45% from $1,110 to $1,737
65% over $1,737
Lake Norman 2/8/06 2/8/06 580 30% from $0 to $1,512 6% 2,199
Holiday Inn 50% $1,512 to $1,944
75% over $1,944
Melbourne 12/31/06 12/31/06(3) 1,300 35% from $0 to $3,336 6% 4,779(4)
Quality Suites 50% from $3,336 to $4,290
75% over $4,290
Radisson Inn 12/31/06 12/31/09 740 25% from $0 to $1,875 6% 3,155
Sanibel 45% from $1,875 to $2,813
Gateway 65% over $2,813
--------- ---------
Total $18,640 $63,205
========= =========

PRO FORMA
FOOD &
BEVERAGE PRO FORMA
HOTEL REVENUE ANNUAL RENT(2)
- ------------------- --------- --------------
<S> <C> <C>
Berkeley $ 5,343 $ 5,833
Marina
Marriott
Buffalo 4,475 4,234
Marriott

Cleveland 3,985 4,355
Airport
Marriott
Cleveland 4,924 4,717
Marriott
East
Columbus 3,818 3,117
North
Marriott
Lake Norman 0 792
Hampton Inn

Lake Norman 585 906
Holiday Inn

Melbourne 493(4) 2,060
Quality Suites

Radisson Inn 471 1,152
Sanibel
Gateway
--------- -------
Total $24,094 $ 27,166
========= ==============
<FN>
- ---------------

(1) Shown as a percentage of revenues.

(2) Calculated on a pro forma basis by applying the rent provisions in the
Percentage Leases to pro forma revenues of the Initial Hotels for the twelve
month period as if January 1, 1995 was the beginning of the lease year. The
rent formula utilized in computing the pro forma Percentage Lease revenue
and expense includes for the calendar year 1995 an adjustment to reduce the
threshold revenue amounts in the Percentage Lease formulas by the 2.5%
increase in the Consumer Price Index for that year.

(3) Both the Initial Lessee and Choice Hotels International, Inc. may terminate
the franchise effective December 31, 2001, upon three months prior notice.

(4) Includes $1,147 of Rooms and Other Revenue and $114 of Food and Beverage
Revenue, as required under the rental interruption insurance provision of
the Percentage Lease agreements.
</TABLE>

57
<PAGE> 62

At the inception of the Company, each Initial Hotel will be separately
leased by the Company to the Initial Lessee under a Percentage Lease. Hotels
acquired in the future may be leased to the Initial Lessee or other lessees and
it is possible, though not presently intended, that the Initial Hotels may also
be leased to others or sold in the future. Each Percentage Lease contains the
provisions described below. The Company expects that leases with respect to its
future hotel property investments will contain substantially similar provisions,
although the Board of Directors may, in its discretion, alter any of these
provisions with respect to any particular lease, depending on the purchase price
paid, economic conditions and other factors it considers relevant. The following
summary of the material terms of the Percentage Leases is qualified in its
entirety by reference to the form of Percentage Lease, which has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.

Duration. The Percentage Leases will have noncancelable terms ranging from
four to 10 years, subject to earlier termination on the occurrence of certain
contingencies described in the Percentage Leases (including, particularly, the
provisions described herein under "Damage to Hotels," "Condemnation of Hotel"
and "Termination of Percentage Leases on Disposition of the Hotels"). The
Percentage Leases do not contain renewal terms. The Percentage Leases for seven
of the Initial Hotels expire on the earlier of the franchise renewal date or the
tenth anniversary of the Offering. Having these lease terminations coincide with
franchise renewal dates may facilitate any necessary repositioning of the hotels
at the time of the franchise renewals. In addition, having staggered lease
termination dates will enable the Company to deal with lease and franchise
renewal issues on a more deliberate basis than would be the case if all of the
leases expired simultaneously.

Amounts Payable Under the Percentage Leases. The Initial Lessee will be
obligated to pay (i) the higher of Minimum Rent or Percentage Rent; and (ii)
certain other amounts, including interest accrued on any late payment or charge
(the "Additional Charges"). Minimum Rent is a fixed amount determined by
negotiation between the Company and the Initial Lessee. Percentage Rent is
calculated by multiplying fixed percentages by gross room and other revenue, and
gross food and beverage revenue, over specified threshold amounts. Minimum Rent
is payable monthly in advance, and Percentage Rent is payable for each quarter
within 30 days after the end of the quarter.

Both the threshold gross room and other revenue amounts used in computing
Percentage Rent and Minimum Rent will be adjusted for changes in the Consumer
Price Index. The changes will be calculated at the beginning of each calendar
year beginning with 1997, based on the average annual change in the CPI during
the prior 12 months.

Each Percentage Lease requires the Initial Lessee to pay rent, all costs
and expenses, and all utility and other charges incurred in the operation of the
hotel. All capital expenditures (as defined in the lease) will be the
responsibility of the Company. Each Percentage Lease also provides for rent
reductions and abatements in the event of damage or destruction or a partial
taking of the hotel as described under "Damage to Initial Hotels" and
"Condemnation of Initial Hotels." The Initial Lessee will be required to carry
insurance to cover rental interruption for a period up to one year.

Maintenance and Modifications. The Initial Lessee will be required, at its
expense, to maintain the hotel in good order and repair, except for ordinary
wear and tear, and to make nonstructural, foreseen and unforeseen, and ordinary
and extraordinary, repairs which may be necessary and appropriate to keep the
hotel in good order and repair. The Company will fund capital expenditures and
the repair, replacement and refurbishment of FF&E in the hotel, when and as
considered necessary by the Company as required by the Franchises, and will
maintain the Capital Expenditures Fund to help provide funds to cover such
expenses. See "The Company -- Business Objectives and Strategies -- Renovation
Strategy." The Company will make an annual contribution to the Capital
Expenditures Fund in an amount equal to 4% of the Initial Lessee's aggregate
gross revenues generated from the hotel. The Company and the Initial Lessee will
agree on an annual capital budget for each Initial Hotel.

The Initial Lessee, at its expense, may make noncapital and capital
additions, modifications or improvements to the hotel, so long as doing so does
not significantly alter the character or purposes of the hotel or significantly
detract from its value or operating efficiencies. All such alterations,
replacements and improvements will be subject to all of the terms of the
Percentage Lease and will become the property of the

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Company on termination of the lease. The Company will own the FF&E, except in
limited circumstances under which the Initial Lessee may purchase certain FF&E
and the Initial Lessee will own substantially all other personal property not
affixed to, or considered a part of, the real estate or improvements thereon.
Any purchase of FF&E by the Initial Lessee will be made on terms negotiated
between the Company and the Initial Lessee.

For so long as the Initial Lessee maintains its interior design and
purchasing operations, it will perform interior design and purchasing services
for the Initial Hotels without charge to the Company.

Insurance and Property Taxes. The Company is responsible for paying real
estate and personal property taxes on the hotel and for maintaining property
insurance, including casualty insurance. The Initial Lessee is required to
maintain comprehensive general public liability, workers' compensation, 12-month
rental interruption insurance and any other insurance customary for properties
similar to the hotel or required by any relevant Franchisor, and to have the
Company named as an additional insured. The Company believes that the insurance
coverage carried by each Initial Hotel is adequate in scope and amount.

Indemnification. Under each Percentage Lease, the Initial Lessee will
indemnify the Company against all liabilities, costs and expenses (including
reasonable attorneys' fees and disbursements) incurred by, imposed on or
asserted against the Partnership, on account of, among other things, (i) any
accident or injury to person or property on or about the hotel; (ii) any
negligence by the Initial Lessee or any of its agents as to the leased property;
(iii) any environmental liability resulting from conditions existing at the time
of completion of the Offering or caused or resulting thereafter from any action,
inaction or negligence of the Initial Lessee (see "Business and Properties --
Environmental Matters"); (iv) taxes and assessments in respect of the hotel
(other than real estate taxes and income taxes of the Company on income
attributable to the hotel); (v) the sale or consumption of alcoholic beverages
on or in the real property or improvements thereon; or (vi) any breach of the
lease by the Initial Lessee. The Initial Lessee will not be required, however,
to indemnify the Company against the Company's negligence or willful misconduct.

Assignment and Subleasing. The Initial Lessee will not be permitted to
sublet all or any part of the hotel or assign its interest under the lease
without the prior written consent of the Partnership. The Initial Lessee may,
however, enter into a management agreement with a third party for the management
and operation of the hotel, with the consent of the Company, which the Company
may withhold in its sole and absolute discretion. No assignment, subletting or
management agreement will release the Initial Lessee from any of its obligations
under the lease. The lease may not be indirectly sold by selling direct or
indirect ownership or control of the Initial Lessee without causing a default
under the Initial Lease.

Damage to Initial Hotels. If damage to or destruction of any Initial Hotel
renders such hotel unsuitable for the Initial Lessee's use and occupancy and is
covered by insurance, the Company may elect to repair, rebuild or restore the
hotel or offer to acquire it on the terms set forth in the lease. If the hotel
is not rebuilt, the lease will terminate and the insurance proceeds will be
retained by the Company. If damage to or destruction of the hotel does not
render the hotel wholly unsuitable for the Initial Lessee's use and occupancy
and is covered by insurance, the Company generally will be obligated to repair
or restore the hotel. The lease will remain in full force and effect during the
first 12 months of any period required for repair or restoration of the hotel,
after which time rent will be equitably abated.

Condemnation of Initial Hotels. In the event of a total condemnation of an
Initial Hotel, each of the Company and the Initial Lessee will be entitled to
terminate the lease as of the date of taking. The resulting condemnation award
will be allocated between the Company and the Initial Lessee as set forth in the
lease. In the event of a partial taking that does not render the hotel
unsuitable for the Initial Lessee's use, the Company must restore the untaken
portion of the hotel to a complete architectural unit, subject to an equitable
abatement of the rent during the period in which the hotel is not fully useable,
and the Company must provide the required funds to cover the cost of that
restoration, which may include that part of the condemnation award specified for
restoration.

Events of Default. Events of Default under each Percentage Lease include,
among others, the following:

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(i) the failure by the Initial Lessee to pay Minimum Rent when due and the
continuation of that failure for a period of 10 days;

(ii) the failure by the Initial Lessee to pay the Percentage Rent for any
quarter within 10 days after the end of that quarter;

(iii) the failure by the Initial Lessee to observe or perform any other
term of the Lease and the continuation of that failure beyond any applicable
cure period;

(iv) an Event of Default under any other Percentage Lease;

(v) if the Initial Lessee files a petition in bankruptcy or reorganization
under any federal or state bankruptcy law or any similar federal or state law,
or is adjudicated a bankrupt or makes an assignment for the benefit of creditors
or admits in writing its inability to pay its debts generally as they become
due, or if a petition or answer proposing the adjudication of the Initial Lessee
as a bankrupt or its reorganization pursuant to any federal or state bankruptcy
law or any similar federal or state law is filed in any court and the Initial
Lessee is adjudicated a bankrupt and that adjudication is not vacated or set
aside or stayed within 60 days after the entry of an order in respect thereof,
or if a receiver of the Initial Lessee or of the whole or substantially all of
the assets of the Initial Lessee is appointed in any proceeding brought by the
Initial Lessee or any such receiver, trustee or liquidator is appointed in any
proceeding brought against the Initial Lessee and that appointment is not
vacated or set aside or stayed within 60 days after that appointment is made;

(vi) if the Initial Lessee voluntarily discontinues operations of the hotel
for more than 10 days, except as a result of damage, destruction, or
condemnation;

(vii) if the franchise agreement with respect to any Initial Hotel is
terminated by the franchisor as a result of any action or failure to act by the
Initial Lessee or its agents;

(viii) any failure to comply with the Initial Lessee's covenants regarding
distributions and maintenance of its net worth, as described under
"Lessees -- The Initial Lessee"; or

(ix) Robert and John Boykin and their heirs cease to own at least 51% of
the Initial Lessee or otherwise fail to control the Initial Lessee.

If an Event of Default occurs and continues beyond any curative period, the
Company may terminate the Lease and any or all of the other Percentage Leases,
and the Initial Lessee will be required to surrender possession of the affected
hotels.

Termination of Percentage Leases on Disposition of the Initial Hotels. If
the Company enters into an agreement to transfer an Initial Hotel to a
non-Affiliate, the Company may terminate that hotel's Percentage Lease by giving
the Initial Lessee 30 days prior notice and paying it the fair market value of
its leasehold interest in the remaining term of that Percentage Lease.

Franchise Agreements. The Initial Lessee will be the franchisee under the
franchise agreements for the Initial Hotels.

Inventory. All working capital assets required in the operation of the
Initial Hotels will be purchased by the Initial Lessee at its expense.

FRANCHISE AGREEMENTS

Five of the nine Initial Hotels are licensed by Marriott International,
Inc. Of the four remaining Initial Hotels, one is licensed by Promus Hotels,
Inc. (licensor of Hampton Inns hotels), one by Choice Hotels International, Inc.
(licensor of Quality Suites hotels), one by Radisson Hotels International, Inc.
and one by Holiday Inns Franchising, Inc. These franchisors have consented to
the transfer of the Initial Hotels to the Partnership and of the related
franchise agreements to the Initial Lessee.

The Company anticipates that the additional hotel properties in which it
invests will in most cases be operated under franchise agreements. The Company
believes that the public's perception of quality associated with a franchisor
can be an important feature in the operation of a hotel. Franchisors provide a
variety of

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benefits for franchisees, including 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 agreements generally impose certain management, operational,
recordkeeping, accounting, reporting, and marketing standards and procedures
with which the Initial Lessee must comply. The franchise agreements will
obligate the Initial Lessee to comply with the franchisors' standards and
requirements with respect to, among other things, training of operational
personnel, safety, maintenance of insurance, provision of ancillary services and
products, display of signage, and the type, quality, and age of FF&E included in
guest rooms and lobbies and other common areas. See "Risk Factors -- Hotel
Industry Risks -- Franchise Risks."

Termination. Each franchise agreement gives the Initial Lessee the right to
operate the related Initial Hotel under a franchise for a period of years
specified in that agreement. The Initial Lessee is responsible for making all
payments under the franchise agreements to the franchisor. The expiration dates
for the Initial Hotels' franchise agreements range from October 31, 1997 to
September 4, 2014. The franchise agreements provide for early termination at the
franchisor's option on the occurrence of certain events, including the Initial
Lessee's failure to pay fees or perform its other covenants under the franchise
agreement, bankruptcy, abandonment of the franchise, or assignment of the
franchise without the consent of the franchisor. The Initial Lessee has the
right to terminate the Berkeley Marina Marriott franchise agreement, which is
scheduled to expire on October 31, 1997, at any time on or after December 31,
1996. Each of the Initial Lessee and Choice Hotels International, Inc. has the
right to terminate the Melbourne Quality Suites franchise agreement, which is
scheduled to expire on December 31, 2006, effective December 31, 2001.

Sale of Hotel. The franchise agreements with Marriott contain a provision
requiring the franchisee, on receiving a bona fide offer to buy or lease the
related Initial Hotel, to give the franchisor the option to buy or lease (as
applicable) that hotel on the same terms as are contained in that offer. The
Choice Hotel franchise agreement provides that the agreement automatically
terminates on transfer of the related hotel unless the franchisor expressly
consents to that transfer. The Hampton Inn license agreement provides that a
transferee of the related hotel must apply for a new franchise and that
transfers not specifically authorized under the license agreement (for example,
transfers upon the death of the licensee or an equity owner of the licensee) are
void and are also a breach of the license agreement. The Holiday Inn license
agreement provides that a transferee of the hotel must apply for a new license
unless the franchisor has given its prior written consent to the transfer of the
hotel.

Noncompetition. The franchise agreements for the five Marriott hotels
included in the Initial Hotels prohibit the franchisee from being connected or
associated in any manner with any hotel, motel or inn business within a 5 mile
radius around the franchised hotel. These restrictions can be waived by
Marriott, whose waiver may not be unreasonably withheld. The Company has
obtained a waiver of these restrictions in regard to the Offering. If a
franchise agreement is terminated because of a default by the Initial Lessee,
the Initial Lessee may not, for 24 months after termination, operate any motel,
hotel or inn business (other than those in which it is then engaged) that is in
the 5 mile radius trade area.

There are no restrictions on the Company's ownership of other hotels in the
Hampton or Holiday Inn license agreements, or in the Radisson or Choice Hotel
franchise agreements.

Fees. Under the franchise agreements, the Initial Lessee will pay franchise
fees ranging from 3% to 6% of gross room sales and advertising or marketing and
reservation fees ranging from .8% to 4% of gross room sales.

HAMPTON INN IS A REGISTERED TRADEMARK OF PROMUS HOTELS, INC. PROMUS HOTELS,
INC., HAS NOT ENDORSED OR APPROVED THE OFFERING. A GRANT OF A HAMPTON INN
FRANCHISE LICENSE FOR ANY 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 OR THE
PARTNERSHIP OR THE COMMON SHARES OFFERED HEREBY.

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NEITHER HOLIDAY INNS, INC., HOLIDAY INNS FRANCHISING, INC., NOR ANY PARENT,
SUBSIDIARY, DIVISION OR AFFILIATE OF EITHER HAS ENDORSED OR APPROVED THE
OFFERING OR THIS PROSPECTUS. THE GRANT OF A HOLIDAY INN(R) LICENSE AGREEMENT BY
HOLIDAY INNS FRANCHISING, INC. WITH RESPECT TO ANY HOTEL IS NOT INTENDED AS, AND
SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY
HOLIDAY INNS, INC. OR HOLIDAY INNS FRANCHISING, INC. (OR ANY SUCH PARENT,
SUBSIDIARY, DIVISION OR AFFILIATE) OF THE COMPANY OR THE SALE OF THE COMMON
SHARES TO PROSPECTIVE INVESTORS AS DESCRIBED IN THIS PROSPECTUS.

MARRIOTT(R) HOTEL IS A REGISTERED TRADEMARK OF MARRIOTT INTERNATIONAL, INC.
("MARRIOTT"). MARRIOTT HAS NOT ENDORSED OR APPROVED THE OFFERING. A GRANT OF A
MARRIOTT HOTEL FRANCHISE FOR ANY OF THE HOTELS IS NOT INTENDED AS, AND SHOULD
NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY MARRIOTT
(OR ANY OF ITS SUBSIDIARIES, AFFILIATES OR DIVISIONS) OF THE COMPANY, THE
PARTNERSHIP OR THE COMMON SHARES OFFERED HEREBY.

QUALITY SUITES INN(R) IS A REGISTERED TRADEMARK OF CHOICE HOTELS
INTERNATIONAL, INC. CHOICE HOTELS INTERNATIONAL, INC. HAS NOT ENDORSED OR
APPROVED THE OFFERING. A GRANT OF A QUALITY SUITES INN FRANCHISE LICENSE FOR ANY
HOTEL IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR
IMPLIED APPROVAL OR ENDORSEMENT BY CHOICE HOTELS INTERNATIONAL, INC. (OR ANY OR
ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY OR THE PARTNERSHIP OR
THE COMMON SHARES OFFERED HEREBY.

RADISSON INN(R) IS A REGISTERED TRADEMARK OF RADISSON HOTELS INTERNATIONAL,
INC. RADISSON HOTELS INTERNATIONAL, INC. HAS NOT ENDORSED OR APPROVED THE
OFFERING. A GRANT OF A RADISSON INN FRANCHISE LICENSE FOR ANY HOTEL IS NOT
INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR
ENDORSEMENT BY RADISSON HOTELS INTERNATIONAL, INC. OR ANY OF ITS AFFILIATES,
SUBSIDIARIES OR DIVISIONS OF THE COMPANY OR THE PARTNERSHIP OR THE COMMON SHARES
OFFERED HEREBY.

EXCLUDED PROPERTIES

Robert and John Boykin will participate with an unrelated party in the
development of a parcel, other than for hotel use, that is located near the
Buffalo Marriott Hotel and that is not owned by the Boykin Group. One parcel of
undeveloped real estate owned by William Boykin will also not be transferred to
the Partnership.

OTHER ACTIVITIES

At the time of the Formation Transactions, subsidiaries of the Initial
Lessee will acquire and continue the third-party hotel management, interior
design and purchasing services business of Boykin Management. John E. Boykin
will serve as the initial Secretary of the subsidiaries. The subsidiaries
initially will manage 11 hotels, none of which is owned by the Company, Boykin
Management or any other Boykin Group Affiliate. Three of these hotels are
Hampton Inns in the Chicago, Illinois area, containing an aggregate of 366
rooms. These hotels are owned by an insurance company and have been managed by
Boykin Management since December 1995. The remaining eight managed hotels, which
Boykin Management has managed since February 1996 on behalf of an institutional
investor, contain an aggregate of 1,154 rooms and are located in Santa Barbara
County and Ventura County, California.

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EMPLOYEES

The Company will have five employees. These employees will perform,
directly or through the Partnership, various acquisition, development,
redevelopment and management functions. Approximately 75% of the Initial
Lessee's employees will be engaged in managing the operations of the Initial
Hotels. Approximately 25 of the Initial Lessee's employees will also have
responsibilities relating to the design, purchasing and management services to
be rendered to third parties, as described above. The Initial Lessee will
continue the Boykin Group's ongoing recruiting efforts to attract the highest
quality talent at all levels of sales management.

None of the persons who will be employees of the Company or the Initial
Lessee are represented by a union. The Company believes that its and the Initial
Lessee's relations with their respective employees are excellent.

ENVIRONMENTAL MATTERS

Phase I environmental site assessments are intended, among other things, to
identify potential sources of contamination for which the Initial Hotels may be
responsible. The Phase I assessments include historical reviews of properties,
reviews of certain public records, preliminary investigations of the sites and
surrounding properties (without invasive sampling or testing), screening for the
presence of asbestos, PCBs and underground storage tanks, and the preparation
and issuance of a written report. Certain Phase I assessments test for the
presence of radon, lead-based paint, or lead in drinking water. Phase II
assessments involve subsurface sampling.

Phase I environmental site assessments or assessment updates have been
completed within the last 24 months for each Initial Hotel, and a Phase II
assessment was conducted for one Initial Hotel in April 1996. Additional
sampling was conducted at one Initial Hotel because its Phase I assessment
identified the presence

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of contaminants at an adjacent gasoline station. None of the Phase I or Phase II
assessments revealed any environmental contamination or condition that the
Company believes would have a material adverse effect on the Company's business,
assets or results of operations. Furthermore, the Company is not aware of any
such contamination or condition. Nevertheless, it is possible that there exists
material environmental contamination of which the Company is unaware.

No assurance can be given that (i) the assessments described above revealed
all potential environmental liabilities; (ii) future or amended laws, ordinances
or regulations, or more stringent interpretations or enforcement policies of
existing environmental requirements, will not impose any material environmental
liability; or (iii) the environmental condition of the Initial Hotels has not
been and will not be affected by changes in the condition of properties in the
vicinity of the Initial Hotels or by the acts of third parties unrelated to the
Company, Partnership or the Initial Lessee.

The Company believes that the Initial Hotels are in compliance in all
material respects with all federal, state and local laws, ordinances and
regulations regarding hazardous or toxic substances and other environmental
matters, the violation of which could have a material adverse effect on the
Company or the Partnership. Neither the Company nor, to the knowledge of the
Company, any other entity with an interest in any of the Initial Hotels, has
been notified by any governmental authority, or is otherwise aware, of any
material noncompliance, liability or claim relating to hazardous or toxic
substances or other environmental matters in connection with any of its present
or former properties. Certain Boykin Group Affiliates, including Robert and John
Boykin, have agreed to indemnify and hold harmless the Company from and against
any liability arising as a result of any environmental condition relating to the
Initial Hotels at the time of consummation of the Offering.

COMPETITION

Each of the Initial Hotels is located in a developed area that includes
other hotel properties. See "Business and Properties--The Initial Hotels" for a
more detailed description of each Initial Hotel's competitive position in its
market. The occupancy, ADR and REVPAR of any Initial Hotel or any hotel property
acquired in the future could be materially and adversely affected by the number
of competitive hotel properties in its market area. 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 entities in which investments may be made or
risks attendant to a geographic concentration of 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.

TAX DEPRECIATION

The Partnership will acquire all of the equity interests in the Initial
Hotels in exchange for cash and equity interests in the Partnership. The
Partnership's initial basis for federal income tax purposes in the hotels in
which the Partnership acquires equity interests will be a carryover of the basis
of the sellers in the hotels on the date of the acquisitions, increased by any
gain recognized on the transfers to the Partnership. The Partnership plans to
use the Alternative Depreciation System ("ADS") for the buildings and
improvements constituting the Initial Hotels. Under ADS, the Partnership
generally will depreciate those buildings and improvements (even those acquired
with a carryover basis) over a new 40-year recovery period using a straight-line
method and a mid-month convention. The depreciation deductions generally will be
specially allocated to the Company under Code Section 704(c).

THE INTERCOMPANY CONVERTIBLE NOTE

The Company will lend approximately $40 million of the net proceeds of the
Offering to the Partnership for uses specified under "Use of Proceeds." The loan
will be evidenced by the Intercompany Convertible Note, which will mature on the
fifth anniversary of the closing of the Offering. Interest will accrue at a rate
equal to 9.5% per annum, increasing to 9.75% per annum on the third anniversary
of the completion of the Offering, and will be payable quarterly. The
Intercompany Convertible Note may be prepaid in full, but not in part, at any
time. The Company will have the right to convert the Intercompany Convertible
Note after the second anniversary of the completion of the Offering, and prior
to maturity and in advance of any proposed

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prepayment by the Partnership, into additional equity interests in the
Partnership at face value based on the initial offering price of the Common
Shares (and assuming that the value of one Partnership Unit equals the value of
one Common Share). On conversion of the Intercompany Convertible Note, the
Company would receive an additional equity interest in the Partnership of 3.7%,
which will reduce the equity interest in the Partnership of the other holders of
Units to 14.3%, assuming no other Common Shares or Units were issued prior to
that conversion. The Intercompany Convertible Note will be secured by a mortgage
on certain of the Initial Hotels and will be subordinated in right of payment to
all other indebtedness of the Partnership.

The Intercompany Convertible Note will be guaranteed by certain Boykin
Group Affiliates and by certain Other Partners of the Contributed Partnerships.
The existence of the Intercompany Convertible Note may assist certain of the
Partnership's limited partners in continuing the tax deferral inherent in the
leveraged assets they will be contributing to the Partnership because, pursuant
to Section 752(a) of the Code, any increase in a partner's share of partnership
liabilities is treated as a cash contribution by the partner to the partnership,
thereby increasing the partner's tax basis in his partnership interest. The
Company is unable to predict whether the Intercompany Convertible Note will be
converted or when any such conversion would occur. Any determination regarding
conversion will be made by the Independent Directors. Although the yield on the
Intercompany Convertible Note will initially exceed the yield on the equity in
the Partnership, the Company has not relied on the incremental cash flow in
setting its initial dividend rate. There should be no negative federal income
tax consequences to the shareholders of the Company resulting from the
conversion (or lack of conversion) of the Intercompany Convertible Note.

LEGAL PROCEEDINGS

Neither the Company, the Initial Lessee nor the Partnership is currently
involved in any material litigation nor, to the Company's knowledge, is any
material litigation currently threatened against the Company, the Initial Lessee
or the Partnership. Robert and John Boykin and the other Boykin Group Affiliates
holding ownership interests in the Initial Hotels have represented to the
Partnership that there is no material litigation threatened against or affecting
the Initial Hotels, or threatened against or affecting any Boykin Group
Affiliate, in a manner that would have a material adverse effect on the Initial
Lessee.

POLICIES AND OBJECTIVES WITH RESPECT
TO CERTAIN ACTIVITIES

The following supplements the discussion of the Company's internal growth,
acquisition, development and financing strategies set forth in "The
Company -- Business Objectives and Strategies." The Company's policies with
respect to those activities and the matters discussed below have been
established 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 shareholders of the Company, except that changes in certain policies
with respect to conflicts of interest must be consistent with legal
requirements.

INVESTMENT POLICIES

Investments in Real Estate. The Company may acquire equity interests in
hotel properties other than the Initial Hotels through the Partnership or other
entities controlled by the Partnership, or through joint ventures or other types
of co-ownership. These investments may be subject to existing mortgage financing
and other indebtedness that may have priority over the equity interest of the
Company.

The Company's current policy is to not invest in any one property more than
25% of its total assets at the time of the investment.

Investments in Real Estate Mortgages. While the Company will emphasize
equity real estate investments, it may invest in mortgage and other real estate
interests, including securities of other REITs, and in nonperforming mortgages
with the goal of acquiring the underlying property. The Company may invest in
participating or convertible mortgages (which are similar to equity
participation) if it may benefit from the cash flow or any appreciation in the
value of the subject property. The Company does not currently intend to invest
in mortgages or securities of other REITs.

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FINANCING

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 maintain a debt-to-total market capitalization ratio
(measures at the time the debt is incurred) of not more than 45%. The Company
may from time to time re-evaluate its debt capitalization policy in light of
economic conditions, relative costs of debt and equity capital, market valued of
its properties acquisitions, development and expansion opportunities and other
factors. Any indebtedness may be incurred through the Partnership or the
Company. Indebtedness incurred by the Company may be in the form of bank
borrowings, secured or unsecured, and publicly or privately placed debt
instruments, the proceeds of which would be loaned or contributed to the
Partnership. Indebtedness incurred by the Partnership may be in the form of
purchase money obligations to the sellers of properties, publicly or privately
placed debt instruments, further borrowings from the Company, or financing from
banks, institutional investors or other lenders, any of which indebtedness may
be unsecured or may be secured by mortgages or other interests in the property
owned by the Partnership. This indebtedness may be recourse to all or any part
of the property of the Company or the Partnership, or may be limited to the
specific property to which the indebtedness relates. The proceeds from any
borrowings by the Company or the Partnership may be used for the payment of
distributions or dividends, for working capital, or to refinance existing
indebtedness or to finance acquisitions or expansions of properties. See
"Federal Income Tax Considerations -- Requirements for
Qualification -- Distribution Requirements."

If the Board of Directors determines to raise additional equity capital,
the Board has the authority, without shareholder approval, to issue additional
Common Shares or Preferred Shares or other capital shares of the Company in any
manner (and generally on such terms and for such consideration) as it deems
appropriate, including in exchange for property. Any such offering might cause a
dilution of the existing shareholders' investment in the Company.

The Company has obtained the Credit Facility. See "The Company -- Business
Objectives and Strategies -- Financing Strategy" for a description of the terms
of the Credit Facility.

POLICIES WITH RESPECT TO CERTAIN OTHER ACTIVITIES

The Company has authority to offer capital shares 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 issue Common Shares to holders of Units in
connection with exercise of the Exchange Rights. The Company has not issued
Common Shares or any other securities to date, except in connection with the
formation of the Company. The Company has no outstanding loans to other entities
or persons, including its officers and directors, except for the loan to the
Partnership evidenced by the Intercompany Convertible Note, and except as
described above under " -- Investment Policies," does not currently intend to
make loans to other entities. The Company has not engaged, and does not
currently intend to engage, in trading, underwriting or agency distribution or
sale of securities of other issuers, and has not invested, and does not
currently intend to invest, in the securities of other issuers (other than the
Partnership) for the purpose of exercising control. 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.

The Company intends to make investments at all times in a manner consistent
with the requirements of the Code in order for the Company to qualify as a REIT
unless, because of changing circumstances or changes in the Code, in Treasury
Regulations or in the interpretations of either, the Company's Board of
Directors determines that it is no longer in the best interests of the Company
and its shareholders to qualify as a REIT.

CONFLICT OF INTEREST POLICY

Neither the Company's governing instruments nor Company policy prohibit any
Company director, officer, security holder or Affiliate from having a pecuniary
interest in any investment to be acquired or disposed of by the Company or in
any transaction to which the Company is a party or in which it has an interest.

The Company's Articles of Incorporation require that a majority of the
Company's Board of Directors consist of persons who are not officers or other
employees of the Company, Affiliates of the Boykin Group, or

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<PAGE> 71

persons (or members of firms) who directly or indirectly receive substantial fee
income from the Company ("Independent Directors"). Determinations to be made on
behalf of the Company with respect to relationships or opportunities that
represent a conflict of interest for any Company officer or director as such
will be subject to the approval of the Independent Directors. See "Risk
Factors -- Conflicts of Interest." In addition, Robert and John Boykin and the
other Affiliates of the Boykin Group have agreed that they will conduct all of
their hotel ownership, development and acquisition activities through the
Company, except as described under " -- Excluded Properties." The Company and
the Initial Lessee have agreed on certain additional measures that are designed
to minimize conflicts of interest between the Initial Lessee and its owners, on
one hand, and the Company and its shareholders, on the other. See
"Lessees -- The Initial Lessee."

The Partnership's partnership agreement requires the Company to resolve in
favor of the Company's shareholders any conflict of interest between those
shareholders, on one hand, and the limited partners of the Partnership, on the
other hand, if the conflict cannot be resolved in a manner not adverse to the
interests of either group. The partnership agreement also exonerates the Company
from monetary damages for losses sustained, liabilities incurred, or benefits
not derived by limited partners in connection with any such resolution, so long
as the Company has acted in good faith.

THE FORMATION

Formation Transactions. The principal transactions in connection with the
formation of the Company as a REIT and the acquisition of the Initial Hotels by
the Partnership are as follows:

- The Company was formed as an Ohio corporation in February 1996 and issued
an aggregate of one Common Share to Raymond P. Heitland.

- The Company will sell 8,275,000 Common Shares in the Offering.

- The Company will contribute approximately $111.6 million of the net
proceeds from the Offering to the Partnership in exchange for an
approximately 82.0% equity interest in the Partnership. The Company will
be the sole general partner of the Partnership. The Company will also
lend to the Partnership approximately $40 million of the net proceeds
from the Offering in exchange for an interest-bearing note convertible by
the Company into equity interests of the Partnership (the "Intercompany
Convertible Note"). See "Business and Properties -- The Intercompany
Convertible Note."

- Entities owned by Robert and John Boykin will form the Initial Lessee as
its sole members, and the Initial Lessee will acquire the Boykin Group
hotel operation and management business of Boykin Management.
Subsidiaries of the Initial Lessee will continue the third-party hotel
management, interior design and purchasing services businesses of Boykin
Management following the Offering. See "Lessees -- The Initial Lessee."

- The Boykin Group Affiliates will (i) cause the Contributed Partnerships
to convey certain working capital assets and liabilities to the Initial
Lessee; and (ii) together with the Other Partners and certain Boykin
Associates, indemnify the Partnership against liabilities of the
Contributed Partnerships other than the mortgage indebtedness to be
discharged by the Partnership as described herein.

- Each Initial Hotel is owned by a Contributed Partnership that comprises
other entities and individuals. Through the Contributed Partnerships,
Boykin Group Affiliates hold interests in all nine of the Initial Hotels,
Boykin Associates hold interests in two of the Initial Hotels, and Other
Partners hold interests in five of the Initial Hotels. The Partnership
will acquire a 100% ownership interest in all of the Initial Hotels for
an aggregate of approximately 1.38 million Units (valued at approximately
$27.6 million), approximately $9.1 million in cash, and the repayment of
approximately $8.1 million of existing indebtedness on the Initial
Hotels, as follows:

-- The Partnership will acquire interests in all nine of the Initial
Hotels from Boykin Group Affiliates in exchange for approximately
1.21 million Units (valued at approximately $24.2 million), and
repayment of a $3.1 million loan made by Boykin Management for the
benefit of one of the Initial Hotels (approximately $1.5 million of
which the Initial Lessee, as Boykin Management's successor, will in
turn repay to a third-party lender, and the balance of which will

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<PAGE> 72

be used to pay income taxes payable as a result of the Formation
Transactions or for working capital of the Initial Lessee).

-- The Partnership will acquire interests in two of the Initial Hotels
from Boykin Associates in exchange for approximately 22,700 Units
(valued at approximately $454,000), and $829,000 in cash;

-- The Partnership will acquire interests in five of the Initial Hotels
from the Other Partners in exchange for approximately 143,800 Units
(valued at approximately $2.9 million) and $8.3 million in cash; and

-- The Partnership will repay a loan of approximately $5.0 million made
by the Other Partners to one of the Initial Hotels.

(See "Risk Factors -- Lack of Independent Appraisals and Arm's-Length
Negotiations" for a discussion of the valuation matters considered in
connection with the Formation Transactions.)

- The recipients of Units will have rights (generally not exercisable until
the third anniversary of the closing of the Offering in the case of
Boykin Group Affiliates and Boykin Associates) to exchange their Units
for cash (the "Exchange Rights"), subject to the Company's right to issue
Common Shares for those Units on a one-for-one basis. The Unit recipients
will enter into a Registration Rights Agreement with the Company under
which any Common Shares so issued may be registered in certain public
offerings made by the Company after the transfer restrictions on those
Common Shares lapse. Exchange Rights may be exercised before the
specified anniversary of the closing of the Offering to the extent
necessary to enable the estate of any Unit holder to satisfy estate tax
liabilities, subject to the prior approval of the Company's Board of
Directors for any exercise that would cause the number of Units exchanged
in any 12-month period to exceed five percent of the Units outstanding at
the beginning of that period.

- The Partnership will lease each Initial Hotel to the Initial Lessee
pursuant to a Percentage Lease.

- The Initial Lessee will assume the liquor licenses, franchise agreements,
other licenses and permits and certain working capital liabilities of the
Initial Hotels.

- Robert W. Boykin will become the Chief Executive Officer of the Company
and will enter into the employment agreement and be granted the stock
options described under "Management -- Employment Agreements" and
"Management -- Executive Compensation."

The Formation Transactions benefits to the Boykin Group Affiliates, the
Boykin Associates and the Other Partners, in addition to those described above,
include: (i) increased cash distributions to recipients of Units from the
operations of the Initial Hotels, because of the prepayment of mortgage debt;
(ii) elimination of approximately $5.3 million of mortgage debt guaranties;
(iii) the ability to exchange Units received in the Formation Transactions (as
described above) for cash, or at the Company's election, Common Shares with
registration rights, which will be more liquid than their interests in the
Initial Hotels; (iv) deferral of income tax by contributing their interests in
the Contributed Partnerships; (v) repayment from the proceeds of the Offering of
$3.1 million of loans made by Boykin Management to one of the Initial Hotels;
(vi) realization of an immediate accretion in the net tangible book value of
their investment in the Partnership of $37.62 per Unit (an aggregate accretion
of $51.8 million); and (vii) receipt by Robert W. Boykin, Raymond P. Heitland
and Mark L. Bishop of options to purchase 250,000, 75,000 and 75,000 Common
Shares, respectively, under the Company's Long Term Incentive Plan. In addition,
Robert and John Boykin will indirectly own all of the interests in the Initial
Lessee, which will be entitled to all profits and cash flow from the Initial
Hotels after payment of rent under the Percentage Leases and other operating
expenses.

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MANAGEMENT

COMPANY DIRECTORS AND EXECUTIVE OFFICERS

The Board of Directors of the Company consists of two members, each of whom
is a Boykin Group Affiliate. The Company will expand the Board of Directors, on
or prior to completion of the Offering, to seven persons, including five
Independent Directors. Directors will be elected at each annual meeting of
shareholders and will serve until their successors are elected and qualified.

Executive officers of the Company are elected and serve at the discretion
of the Board of Directors until their successors are duly chosen and qualified.

The following table sets forth certain information concerning the
individuals who will be directors and officers of the Company on the completion
of the Offering.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------------
<S> <C> <C>
Robert W. Boykin 47 Director; Chairman of the Board, President and
Chief Executive Officer
Raymond P. Heitland 61 Director; Chief Financial Officer
Mark L. Bishop 37 Senior Vice President--Acquisitions and
Development
Ivan J. Winfield 62 Proposed Director
Lee C. Howley, Jr. 49 Proposed Director
Frank E. Mosier 66 Proposed Director
William N. Hulett III 52 Proposed Director
Albert T. Adams 45 Proposed Director
</TABLE>

The following is a biographical summary of the business experience of the
current and proposed directors and executive officers of the Company.

Robert W. Boykin is the President and Chief Executive Officer of the
Company. He has served as the President and Chief Executive officer of Boykin
Management since 1985. He served as Boykin Management's Executive Vice-President
from 1981 to 1985.

Raymond P. Heitland is the Chief Financial Officer of the Company. He has
served as the Chief Financial Officer of Boykin Management since 1970.

Mark L. Bishop is Senior Vice President--Acquisitions and Development of
the Company. He has served as Senior Vice President--Acquisitions of Boykin
Management since April 1994. From December 1986 until April 1994 Mr. Bishop was
employed by Grubb-Ellis, serving as National Chairman of the Hospitality
Properties Division beginning in February 1988, and as Vice President/Senior
Marketing Consultant beginning in February 1991.

Ivan Winfield is currently Associate Professor and Chairholder of the
Herzog Chair in Free Enterprise at Baldwin Wallace College, in Berea, Ohio. Mr.
Winfield retired in 1994 from Coopers & Lybrand, L.L.P. From 1978 to 1990 he was
managing partner of the firm's Oklahoma practice and from 1990 to 1994 he was
managing partner of the firm's Northeast Ohio practice. Mr. Winfield is a
Trustee of The Fairport Funds and is Chairman of its audit committee. Mr.
Winfield is also a Director of HMI Industries, Inc. and is Chairman of its
Finance Committee.

Lee C. Howley, Jr. has been the sole owner and president of Howley &
Company, a real estate brokerage and development company, since 1981, and has
been the sole owner and Chairman of Coast Management Company, a cleaning and
real estate management company, since 1987. Since January 1992 Mr. Howley has
served as the Chairman of the Convention and Visitors Bureau of Greater
Cleveland. Mr. Howley serves on the Board of Directors of LESCO, Inc., a
publicly held manufacturer and supplier of lawn care products.

Frank E. Mosier is a director of Centerior Energy Corporation and
Associated Estates Realty Corporation. Mr. Mosier was Vice Chairman of the
Advisory Board of BP America Inc., a producer and refiner of

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petroleum products, from 1991 to 1993. Mr. Mosier was Vice Chairman of BP
America Inc. from 1988 until his retirement in 1991 and president and Chief
Operating Officer of BP America Inc. from 1986 to 1988.

William N. Hulett III is the Co-Chairman and Chief Executive Officer of the
Rock and Roll Hall of Fame and Museum in Cleveland, Ohio. From 1981 to 1993, Mr.
Hulett was the President of Stouffer Hotel Company, the owner of a national
hotel chain. Prior to that time, Mr. Hulett served as Vice President of
Operations for Westin Hotels, based in Seattle, Washington. In December 1991, he
completed a third consecutive term as Chairman of the Convention and Visitors
Bureau of Greater Cleveland. He is a member of the Board of Trustees of the New
Cleveland Campaign, a director of the Greater Cleveland Growth Association and a
member of the 1992 U.S. Savings Bonds Volunteer Committee appointed by the
Secretary of the Treasury. Mr. Hulett was named Business Executive of the year
for 1995 by the Sales and Marketing Executive Association. Mr. Hulett is a
Director of Developers Diversified Realty Corporation.

Albert T. Adams has been a partner with the law firm of Baker & Hostetler
in Cleveland, Ohio since 1984, and has been affiliated with the firm since 1977.
Baker & Hostetler provides legal services to the Boykin Group and various Boykin
Group Affiliates. Mr. Adams is a graduate of Harvard College, Harvard Business
School and Harvard Law School. He serves as a member of the Board of Trustees of
the Western Reserve Historical Society and is a Vice President of the Harvard
Business School Club of Northeastern Ohio. Mr. Adams is a director of Developers
Diversified Realty Corporation and Associated Estates Realty Corporation.

AUDIT COMMITTEE

The Audit Committee will consist of five Independent Directors. The Audit
Committee will make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the plans and
results of the audit engagement, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and nonaudit fees, review the
independent public accountants' letter of comments and management's responses,
review the adequacy of the Company's internal accounting controls, and review
major accounting or reporting changes contemplated or made.

COMPENSATION COMMITTEE

The Compensation Committee will consist of five Independent Directors, will
determine compensation for senior management, advise the Board of Directors on
the adoption and administration of employee benefit and compensation plans, and
administer the Company's Long-Term Incentive Plan.

LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Ohio Revised Code provides, with certain limited exceptions, that a
director may be held liable in damages for his act or omission as a director
only if it is proved by clear and convincing evidence that he undertook the act
or omission with deliberate intent to cause injury to the corporation or with
reckless disregard for its best interest.

The Ohio Revised Code authorizes Ohio corporations to indemnify officers
and directors from liability if the officer or director acted in good faith and
in a manner reasonably believed by the officer or director to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal actions, if the officer or director had no reason to believe his action
was unlawful. In the case of an action by or on behalf of a corporation,
indemnification may not be made (i) if the person seeking indemnification is
adjudged liable for negligence or misconduct, unless the court in which such
action was brought determines such person is fairly and reasonably entitled to
indemnification or (ii) if liability asserted against such person concerns
certain unlawful distributions. The indemnification provisions of the Ohio Code
require indemnification if a director or officer has been successful on the
merits or otherwise in defense of any action, suit or proceeding that he was a
party to by reason of the fact that he is or was a director or officer of the
corporation. The indemnification authorized under Ohio law is not exclusive and
is in addition to any other rights granted to officers and directors under the
articles of incorporation or code of regulations of the corporation or any
agreement between officers and directors and the corporation. A corporation may
purchase and maintain

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insurance or furnish similar protection on behalf of any officer or director
against any liability asserted against him and incurred by him in his capacity,
or arising out of the status, as an officer or director, whether or not the
corporation would have the power to indemnify him against such liability under
the Ohio Code.

The Company's Code of Regulations provides for the indemnification of
directors and officers of the Company to the maximum extent permitted by Ohio
law as authorized by the Board of Directors of the Company, and for the
advancement of expenses incurred in connection with the defense of any action,
suit or proceeding that he was a party to by reason of the fact that he is or
was a director of the Company upon the receipt of an undertaking to repay such
amount unless it is ultimately determined that the director is entitled to
indemnification.

The Company is seeking to obtain an insurance policy which will insure the
officers and directors of the Company against claims arising out of alleged
wrongful acts by such persons in their respective capacities as officers and
directors of the Company.

EXECUTIVE COMPENSATION

The Company was incorporated in Ohio on February 8, 1996, and did not pay
any compensation to its officers or directors prior to the Offering. The
following table sets forth the annual base compensation expected to be paid for
the year ending December 31, 1996, to the Chief Executive Officer and to each of
the other executive officers of the Company whose annual salary will exceed
$100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
NAME PRINCIPAL POSITION SALARY
- -------------------- --------------------------------------------------- --------
<S> <C> <C>
Robert W. Boykin Chairman, President and Chief Executive Officer $250,000
Raymond P. Heitland Chief Financial Officer and Treasurer $150,000
Mark L. Bishop Senior Vice President--Acquisitions and Development $140,000
</TABLE>

EMPLOYMENT CONTRACTS

Robert W. Boykin, Raymond P. Heitland and Mark L. Bishop have entered into
employment contracts with the Company. Mr. Boykin's agreement provides for an
initial three year term that is automatically extended for an additional year at
the end of each year of the agreement, subject to the right of either party to
terminate the agreement by giving two years' prior written notice. The
agreements for Messrs. Heitland and Bishop provide for an initial one year term
that is automatically extended for an additional year at the end of each year of
the agreement, subject to the right of either party to terminate the agreement
by giving six months' prior written notice.

Mr. Boykin will also be entitled to a bonus of from 10% to 90% of his
annual base salary, and Messrs. Heitland and Bishop will be entitled to bonuses
of from 5% to 45% of their annual base salaries, if Funds From Operations per
Common Share for any year exceed, by 5% to 20% or more, the Funds From
Operations per Common Share for the immediately preceding year. For purposes of
the bonuses payable for 1996, the Compensation Committee of the Board will
calculate appropriate prorated amounts. Messrs. Boykin, Heitland and Bishop will
also be granted certain options to purchase Common Shares in connection with the
Offering. See "-- Long-Term Incentive Plan."

Each agreement provides that the employee will not compete with the Company
in the ownership, acquisition or development of hotels during his employment or
at any time during a period of up to two years immediately following the
termination of his employment. Further, each agreement provides that upon (i)
the termination of the employee's employment by the Company other than for
"cause" (as defined in the employment contracts) or by the employee for certain
actions of the Company, such as effecting a material adverse change in the
employee's duties and responsibilities, or (ii) a "change in control" of the
Company (as defined in the employment contracts), the employee will be entitled
to all of the compensation and benefits payable to him under the employment
contract for the remainder of the stated term of the employment contract.

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<PAGE> 76

REGISTRATION RIGHTS

The Company has entered into a Registration Rights Agreement with certain
Boykin Group Affiliates and other partners of the Contributed Partnerships
pursuant to which the Company has granted those individuals and entities certain
rights, on exchange of their Units for Common Shares, to register Common Shares
in public offerings initiated by the Company after the transfer restrictions on
the Units and Common Shares held by those individuals and entities lapse.

COMPENSATION OF DIRECTORS

The Company intends to pay its Independent Directors an annual fee of
$16,000 and a fee of $1,000 for each directors' meeting and each committee
meeting attended. Each director may elect to receive his compensation in the
form of grants of Common Shares. No other directors will receive directors'
fees. Upon completion of the Offering, each Independent Director will receive an
option for 5,000 Common Shares exercisable at the initial public offering price
of the Common Shares, which option will vest fully within the first two years of
issuance and will have a term of ten years.

DIRECTORS' DEFERRED COMPENSATION PLAN

The purpose of the Company's Directors' Deferred Compensation Plan (the
"Deferred Plan") is to assist it in attracting and retaining persons of
competence and stature to serve as outside directors by giving them the option
to defer receipt of the fees payable to them by the Company for their services
as directors. A director is eligible to participate in the Deferred Plan if he
or she receives fees for services as a director and is not employed by the
Company. The Deferred Plan is administered by Company officers and directors who
are (i) appointed by the Board of Directors of the Company and (ii) not eligible
to participate in the Deferred Plan. The Deferred Plan is applicable to all
director's fees payable with respect to periods commencing on or after October
1, 1996. The value of amounts credited to a director in the Deferred Plan
increases or decreases based on the market value of the Company's Common Shares
plus the value of dividends or other distributions on the Company's Common
Shares. Distribution of amounts credited to a director in the Deferred Plan
commences (i) on a date elected by the director, provided that the date is not
earlier than the January 1 following the year in which the director attains age
55, and not later than the January 1 following the year in which the director
attains age 72, or (ii) within ninety (90) days after the date of the director's
death or disability.

LONG-TERM INCENTIVE PLAN

The purpose of the Company's Long-Term Incentive Plan (the "Plan") is to
promote the long-term growth and profitability of the Company by enabling it to
attract, retain and reward key employees of the Company and its affiliates and
to strengthen the mutuality of interest between such key employees and the
Company's shareholders. Grants of incentive or nonqualified share options,
restricted shares, deferred shares, share purchase rights, share appreciation
rights in tandem with options ("SARs"), other share-based awards, or any
combination thereof, may be made under the Plan. Officers and key employees who
are responsible for or contribute to the management, growth or profitability of
the business of the Company and its affiliates are eligible for grants and
awards under the Plan. The Compensation Committee will administer the Plan and
determine the type, amount and timing of grants and awards. The members of the
Compensation Committee are not eligible to participate in the Plan. The Company
has reserved 1,000,000 Common Shares for issuance under the Plan. No Participant
in the Plan may be granted stock options or other share awards in any calendar
year for more than 300,000 shares. Upon the Closing, Robert W. Boykin, Raymond
P. Heitland and Mark L. Bishop will be granted options to purchase 250,000,
75,000 and 75,000 shares, respectively, under the Plan. The share limitations,
shares reserved and the terms of outstanding awards will be adjusted, as the
Compensation Committee deems appropriate, in the event of a share dividend,
split or other change in the corporate structure of the Company affecting the
shares.

Share Options and Tandem SARs. The term of each option granted under the
Plan will not exceed 10 years from the date of grant, and the exercise price of
share options may not be less than 100% of the fair market value (as defined in
the Plan) of the shares on the date the option is granted. The Compensation

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Committee may grant tandem SARs to any person granted an option under the Plan.
Each tandem SAR will represent the right to receive, in cash or shares as the
Compensation Committee determines, a distribution in an amount equal to the
excess of the fair market value of the option shares (to which the SAR
corresponds) on the date of exercise over the exercise price for those shares.
Each tandem SAR expires at the same time as its corresponding option. The
exercise of an option will result in an immediate forfeiture of its
corresponding SAR, and the exercise of an SAR will cause an immediate forfeiture
of its corresponding option. The Plan provides that all options and tandem SARs
will vest on a change in control (as defined in the Plan) of the Company.

Share Awards. The Compensation Committee may award Common Shares under the
Long-Term Incentive Plan and may place restrictions on the transfer or defer the
date of receipt of those shares. Each award will specify any applicable
restrictions or deferral date, the duration of those restrictions, and the time
at which the restrictions lapse. Participants will be required to deposit shares
with the Company during the period of any restrictions. The Compensation
Committee may also grant share purchase rights for which the purchase price may
not be less than 100% of the fair market value (as defined in the Plan) on the
date of grant.

Other Share-Based Awards. The Compensation Committee may grant other awards
of shares and other awards that are valued or otherwise based on the Company's
Common Shares.

Miscellaneous. The Plan provides for vesting, exercise or forfeiture of
rights granted under the Plan on retirement, death, disability, termination of
employment or a change of control. The Board of Directors may modify, suspend or
terminate the Plan as long as it does not impair the rights thereunder of any
participant. Under applicable law, the holders of Common Shares must approve any
increase in the maximum number of shares reserved for issuance under the Plan,
any change in the classes of employees eligible to participate in the Plan and
any material increase in the benefits accruing to participants.

INITIAL LESSEE DIRECTORS AND OFFICERS

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------------
<S> <C> <C>
Ronald A. Cook 44 Director; President
Paul A. O'Neil 38 Director; Chief Financial Officer and Treasurer
John E. Boykin 51 Director; Secretary
Thomas J. O'Leary 53 Director; Vice President--Operations
Joseph P. Berardi 47 Vice President--Architecture and Construction
Robert W. Boykin 47 Director
</TABLE>

The following is a biographical summary of the business experience of the
current and proposed directors and executive officers of the Initial Lessee.

Ronald A. Cook has served as Executive Vice President of Boykin Management
since December 1995. From March 1995 to December 1995, Mr. Cook was Executive
Vice President of Ruffin Hotel Management Company. Mr. Cook was President of
Hotel Management Group, Inc. from May 1986 to February 1995.

Paul A. O'Neil has served as Senior Vice President of Boykin Management
since October 1994. Mr. O'Neil was with Arthur Andersen from 1979 to October
1994, and managed the Real Estate Services Group in Arthur Andersen's Cleveland,
Ohio office from July 1990 to October 1994.

John E. Boykin, the brother of Robert W. Boykin, has served as Senior Vice
President--Food and Beverage Operations of Boykin Management since 1979. In 1981
he formed Purchasing Concepts, Inc., which manages the food and beverage
procurement activities for Boykin Management's hotels and for over 50
independent hotels, clubs and restaurants. Mr. Boykin has served as President of
Purchasing Concepts, Inc. since its inception.

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Thomas J. O'Leary has served as Senior Vice President, Hotel Operations of
Boykin Management since February 1990. He was Vice President of Operations for
Mariner Hotel Corporation from 1988 to February 1990.

Joseph P. Berardi has served as Senior Vice President, Architecture and
Construction of Boykin Management since 1981.

CERTAIN TRANSACTIONS

Formation Transactions. In connection with the formation of the Company in
February 1996, Raymond P. Heitland acquired one Common Share for a price of
$100.

In connection with the Formation Transactions, all of the equity interests
in the Contributed Partnerships (which own the Initial Hotels) will be
transferred to the Partnership in exchange for an aggregate of 1,378,000 Units
and $9.1 million in cash. William, Robert and John Boykin will receive, either
directly or indirectly through entities that they own and control, approximately
150,000, 577,112 and 484,381 Units, respectively, for their ownership interests
in the Contributed Partnerships. These Units in the aggregate will represent
approximately 12.6% of the equity interest in the Partnership. The Contributed
Partnership that owned the Lake Norman Initial Hotels acquired those properties
in February 1996. The aggregate purchase price for the properties was
approximately $10 million. Prior to the Formation Transactions, Robert and John
Boykin, together, held a 46% interest and two of the Other Partners, together,
held a 54% interest, in that Contributed Partnership. The aggregate value of the
Units distributed and mortgage indebtedness paid by the Partnership in the
Formation Transactions with respect to the Lake Norman Hotels will be
approximately $13.3 million. See "The Formation."

The Partnership will use approximately $8.1 million of the net proceeds of
the Offering to repay loans made to the Contributed Partnerships by certain
partners of the Contributed Partnerships (the "Partner Loans"). Approximately
$3.1 million of the Partner Loans is payable to Boykin Management. The Initial
Lessee, as the successor to Boykin Management, will use those funds to retire
third party bank indebtedness incurred by it and to pay income taxes or meet
working capital needs.

Approximately $5.3 million of the mortgage indebtedness to be paid by the
Partnership from the net proceeds of the Offering is guaranteed by Boykin Group
Affiliates, including William, Robert and John Boykin.

Transactions with the Initial Lessee. The Initial Lessee, which is
indirectly owned by Robert and John Boykin, will enter into the Percentage
Leases with the Partnership and will be obligated to pay rent thereunder. The
Initial Lessee will acquire certain assets and assume certain liabilities of the
Initial Hotels, including the Franchise Agreements of the Initial Hotels. See
"Lessees -- The Initial Lessee" and "The Formation."

The Initial Lessee manages the Initial Hotels under the Percentage Leases.
See "Business and Properties -- Percentage Leases."

Employment Arrangements. The Company has entered into employment agreements
with, and granted certain options to, Robert W. Boykin, Raymond P. Heitland and
Mark L. Bishop. The agreement for Robert W. Boykin provides for an initial three
year term and the agreements for Mr. Heitland and Mr. Bishop provide for an
initial term of one year. See "Management -- Employment Contracts" and "--
Long-Term Incentive Plan."

Fees for Services and Other Transactions. The Initial Hotels paid a Boykin
Group Affiliate $148,000 and $143,000 for purchasing and design services
rendered for the years ended December 31, 1994 and 1995,

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<PAGE> 79

respectively. The Initial Hotels purchased hotel furnishings through a Boykin
Group Affiliate in the amounts of $1.8 million and $2.5 million for the year
ended December 31, 1994 and the year ended December 31, 1995, respectively.
These Boykin Group Affiliates will become subsidiaries of the Initial Lessee at
the time of the Offering, and these subsidiaries will perform such purchasing
and design services for the Initial Hotels without charge to the Company. See
"Business and Properties -- The Percentage Leases."

The Contributed Partnerships were indebted to Boykin Management and certain
other Boykin Group Affiliates in the aggregate amounts of $4.0 million and $3.8
million at December 31, 1995 and June 30, 1996, respectively, for management
fees, design fees, certain loan guarantee fees and loans payable, and certain
other amounts including reimbursable expenses.

Buffalo Property. Robert and John Boykin hold interests in a joint venture
formed to purchase, other than for hotel purposes, a six-acre parcel in the
immediate vicinity of the Buffalo Marriott Hotel. The Company and the joint
venture have entered into an agreement that provides for certain cross-easements
between the properties and provides that the land will contain specific deed
restrictions to prevent the development of any hotel thereon.

Relationship with Counsel. Albert T. Adams, a proposed director of the
Company, is a partner in Baker & Hostetler, which provides legal services to the
Boykin Group and various Boykin Group Affiliates and is serving as counsel to
the Company in connection with the Offering. See "Legal Matters."

PRINCIPAL SHAREHOLDERS OF THE COMPANY

The following table sets forth certain information regarding the beneficial
ownership of Common Shares and Units by each director and proposed director of
the Company, by each named executive officer of the Company, by all directors,
officers and proposed directors and officers of the Company as a group, and by
each person who is expected to be the beneficial owner of 5% or more of the
outstanding Common Shares immediately following the completion of the Offering.
The table assumes that the Formation Transactions and the Offering are completed
and that the Underwriters' over-allotment option will not be exercised. Each
person named in the table has sole voting and investment power with respect to
all Common Shares or Units shown as beneficially owned by that person, except as
otherwise set forth in the notes to the table.

<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP
NAME AND ADDRESS OF THE COMPANY
OF BENEFICIAL OWNER(1) UNITS (2) AFTER CONVERSION (5)
- ------------------------------------------------------------- --------- --------------------
<S> <C> <C>
Robert W. Boykin............................................. 577,112(3) 5.98%
Raymond P. Heitland.......................................... 10,650 *
Mark L. Bishop............................................... 0 0
Ivan J. Winfield............................................. 0 0
3901 Insworth Drive
Pepper Pike, Ohio 44124
Lee C. Howley, Jr............................................ 0 0
5430 Portage Drive
Vermilion, Ohio 44089
Frank E. Mosier.............................................. 0 0
1111 Superior Ave.
Suite 785
Cleveland, Ohio 44114
William N. Hulett III........................................ 0 0
6127 Chagrin River Road
Bentleyville, Ohio 44022
John E. Boykin............................................... 484,381(4) 5.02%
Albert T. Adams.............................................. 0 0
3200 National City Center
Cleveland, Ohio 44114
All directors and officers and proposed directors and
officers of the Company as a group......................... 1,072,143 11.11%
</TABLE>

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<PAGE> 80

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

* Less than 1%.

(1) Unless otherwise indicated, the address of each beneficial owner is Terminal
Tower, Suite 1500, 50 Public Square, Cleveland, Ohio 44113-2258.

(2) None of the persons listed will own any Common Shares immediately following
the completion of the Offering. All Units are exchangeable for Common Shares
at an exchange ratio of one Unit for each Common Share (subject to the
Company's right to elect to instead pay cash for those Units), but the
Boykin Group Affiliates and Boykin Associates who receive Units in
connection with the formation generally may not exchange those Units until
the third anniversary of the Offering. If all Units were exchanged for
Common Shares (without regard to the Ownership Limit) these shares would
constitute approximately 14.3% of the then outstanding Common Shares. Units
are subject to certain restrictions on transfer.

(3) Includes 419,998 Units held by other Boykin Group Affiliates. Does not
include options for 300,000 shares.

(4) Includes 359,943 Units held by other Boykin Group Affiliates.

(5) On a fully-diluted basis, assuming Units are exchanged for Common Shares at
the exchange rate of one Unit for each Common Share without regard to the
Ownership Limit. It is not anticipated that the Ownership Limit will be
waived.

CAPITAL STOCK OF THE COMPANY
GENERAL

The Company was formed as an Ohio corporation on the filing of its Articles
of Incorporation on February 8, 1996. The Company's Articles of Incorporation
authorize the issuance of 40 million Common Shares, without par value, of which
one share is issued and outstanding. In addition, up to 1 million Common Shares
have been reserved for issuance under the Company's Long-Term Incentive Plan and
an additional 25,000 Common Shares will be reserved for issuance on exercise of
options to be granted to the Independent Directors. Following completion of the
Offering, 8,275,000 Common Shares will be issued and outstanding (9,516,250 if
the Underwriters' overallotment option is exercised in full).

There is no established trading market for the Common Shares. The Common
Shares have been approved for listing on the New York Stock Exchange, subject to
official notice of issuance, under the symbol "BOY."

National City Bank, Cleveland, Ohio, will act as transfer agent and
registrar for the Common Shares.

The following description of the Company's capital shares and of certain
provisions of the Company's Articles of Incorporation is a summary of and is
qualified in its entirety by reference to the Articles of Incorporation, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part. See "Additional Information."

COMMON SHARES

Holders of the Company's Common Shares are entitled to receive dividends,
when, as and if declared by the Board of Directors of the Company, out of funds
legally available therefor. The holders of Common Shares, upon any liquidation,
dissolution or winding-up of the Company, are entitled to share ratably in any
assets remaining after payment in full of all liabilities of the Company and all
preferences of the holders of any outstanding preferred shares. The Common
Shares possess ordinary voting rights, each share entitling the holder thereof
to one vote. Holders of Common Shares do not have cumulative voting rights in
the election of directors and do not have preemptive rights. All of the
Company's Common Shares now outstanding are, and the Common Shares offered
hereby when issued and sold to the Underwriters in the manner described in this
Prospectus will be, fully paid and nonassessable.

PREFERRED SHARES

The Board of Directors is authorized to provide for the issuance of two
classes of preferred shares (collectively, the "Preferred Shares"), each in one
or more series, to establish the number of shares in each series and to fix the
designation, powers, preferences and rights (other than voting rights) of each
series and the qualifications, limitations or restrictions thereon. An aggregate
of 10 million Preferred Shares are authorized. Because the Board of Directors
has the power to establish the preferences and rights of each series of
Preferred Shares, the Board of Directors may afford the holders of any series of
Preferred Shares preferences, powers and rights senior to the rights of holders
of Common Shares. The issuance of Preferred Shares could have the effect of
delaying or preventing a change in control of the Company. The Company has no
present intention to issue Preferred Shares.

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<PAGE> 81

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. Specifically,
not more than 50% in value of the Company's outstanding shares 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 (other than the
first year of the Company's existence) or during a proportionate part of a
shorter taxable year, and the Company must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year (other than that first year)
or during a proportionate part of a shorter taxable year. See "Federal Income
Tax Considerations -- Requirements for Qualification." Because the Company
expects to qualify as a REIT, the Articles of Incorporation limit the
acquisition of shares of the Company's capital stock (the "Ownership Limit").

The Ownership Limit provides that, subject to certain exceptions set forth
in the Articles of Incorporation, no person may own, or be deemed to own, by
vote or value, by virtue of the applicable attribution provisions of the Code,
more than 9.0% of each class of the outstanding shares of the Company. The Board
of Directors may, but is not required to, waive the Ownership Limit if it
determines that greater ownership will not jeopardize the Company's status as a
REIT. As a condition of that waiver, the Board of Directors may require opinions
of counsel satisfactory to it and undertakings or representations from the
applicant with respect to preserving the REIT status of the Company.

If any purported transfer of capital shares of the Company or any other
event would otherwise result in any person or entity violating the Ownership
Limit or would cause the Company to be beneficially owned by fewer than 100
persons, that transfer will be void and of no force or effect as to the number
of shares in excess of the Ownership Limit, and the purported transferee (the
"Prohibited Transferee") will acquire no right or interest (or, in the case of
any event other than a purported transfer, the person or entity holding record
title to shares in excess of the Ownership Limit (the "Prohibited Owner") will
cease to own any right or interest) in the excess shares. In addition, if any
purported transfer of shares of the Company or any other event would cause the
Company to become "closely held" under the Code or otherwise to fail to qualify
as a REIT under the Code, that transfer will be void and of no force or effect
as to the number of shares in excess of the number that could have been
transferred without that result, and the Prohibited Transferee will acquire no
right or interest (or, in the case of any event other than a transfer, the
Prohibited Owner will cease to own any right or interest) in the excess shares.
Also, if any purported transfer of shares of the Company or any other event
would otherwise cause the Company to own, or be deemed to own by virtue of the
applicable attribution provisions of the Code, 10% or more, by vote or value, of
the ownership interests in the Initial Lessee or in any sublessee, that transfer
or event will be void and of no force or effect as to the number of shares in
excess of the number that could have been transferred or affected by that event
without that result, and the Prohibited Transferee will acquire no right or
interest (or, in the case of any event other than a transfer, the Prohibited
Owner will cease to own any right or interest) in the excess shares.

Any excess shares arising from a prohibited transfer described above will
be transferred automatically to a trust, the beneficiary of which will be a
qualified charitable organization selected by the Company (the "Beneficiary").
The trustee of the trust, who will be designated by the Company and be
unaffiliated with the Company and any Prohibited Owner, will be empowered to
sell the excess shares to a qualified person or entity and to distribute to the
applicable Prohibited Transferee an amount equal to the lesser of the price paid
by the Prohibited Transferee for those excess shares or the sale proceeds
received for those shares by the trust. The trustee will be empowered to sell
any excess shares resulting from any event other than a transfer, or from a
transfer for no consideration, to a qualified person or entity and distribute to
the applicable Prohibited Owner an amount equal to the lesser of the fair market
value of those excess shares on the date of the triggering event or the sale
proceeds received by the trust for those excess shares. Prior to a sale of any
excess shares by the trust, the trustee will be entitled to receive, in trust
for the benefit of the Beneficiary, all dividends and other distributions paid
by the Company with respect to those shares, and also will be entitled to
exercise all voting rights with respect to those shares.

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

Every owner of more than 5% (or such lower percentage as may be required by
the Code or Treasury Regulations) of the outstanding shares of the Company must
file no later than January 30 of each year a

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<PAGE> 82

written notice with the Company containing the information specified in the
Articles of Incorporation. In addition, each shareholder will be required, upon
demand, to disclose to the Company in writing such information as the Company
may request in order to determine the effect, if any, of that shareholder's
actual and constructive ownership on the Company's status as a REIT and to
ensure compliance with the Ownership Limit.

The Ownership Limit may have the effect of precluding an acquisition of
control of the Company without approval of the Board of Directors.

OHIO ANTI-TAKEOVER PROVISIONS

The Company has elected not to be subject to Ohio's "Merger Moratorium"
statute (Chapter 1704 of the Ohio Revised Code) or its "Control Share
Acquisition" act (Section 1701.831 of the Ohio Revised Code), in light of the
substantial share transfer restrictions included in the Company's Articles of
Incorporation. Section 1707.041 of the Ohio Revised Code, which regulates
certain "control bids" for Ohio corporations, does not contain an election
provision and remains applicable to the Company.

THE PARTNERSHIP

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

MANAGEMENT

The Partnership is an Ohio limited partnership. Pursuant to the Partnership
Agreement, the Company, as the sole general partner of the Partnership (the
"General Partner"), will have full, exclusive and complete responsibility and
discretion in the management and control of the Partnership, and the limited
partners of the Partnership (the "Limited Partners") will have no authority to
transact business for, or to participate in the management activities or
decisions of, the Partnership. However, any amendment to the Partnership
Agreement that would (i) seek to impose personal liability on the Limited
Partners; (ii) affect the Exchange Rights; or (iii) impose on the Limited
Partners any obligation to make additional contributions to the capital of the
Partnership, would require the consent of Limited Partners holding at least
66 2/3% of the limited partnership interests.

The Partnership has been formed to own the Initial Hotels and to own all
other properties acquired by the Company. Accordingly, the income and expenses
of the Company that will be reflected in the financial information to be
provided to the shareholders will be the income and expenses of the Partnership,
adjusted (on a pro forma basis) to deduct the minority interest of the Limited
Partners. Distributions from the Partnership will be made at the discretion of
the Company as the sole general partner of the Partnership. See "Distributions"
for a discussion of the factors relevant to the determination of those
distributions. All distributions from the Partnership will be made to the
Company and the Limited Partners concurrently, and will be allocated to the
Company, on the one hand, and to the Limited Partners, on the other, on a pro
rata basis by reference to their respective percentage interests in the
Partnership.

TRANSFERABILITY OF INTERESTS

The Company may not voluntarily withdraw from the Partnership or transfer
or assign its interest in the Partnership unless the transaction in which the
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 the transaction, or unless the
successor to the Company contributes substantially all of its assets to the
Partnership in return for an interest in the Partnership. With certain limited
exceptions, the Limited Partners may not transfer their interests in the
Partnership without the consent of the Company. The Company may not consent to
any transfer that would cause the Partnership to be treated as a corporation for
federal income tax purposes.

CAPITAL CONTRIBUTIONS

The Company will contribute or loan to the Partnership all of the net
proceeds of the Offering as its initial capital contribution or pursuant to the
Intercompany Convertible Note. The Limited Partners will contribute to the
Partnership the Limited Partners' proportionate ownership interests in the
Initial Hotels as their initial

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<PAGE> 83

capital contributions. The value of each Limited Partner's capital contribution
will equal its pro rata share of the price paid by the Partnership to acquire
the Contributed Partnerships.

The Partnership Agreement provides that if the Partnership requires
additional funds at any time or from time to time in excess of funds available
to the Partnership from borrowings or capital contributions, the Company may
borrow those funds from a financial institution or other lender and lend those
funds to the Partnership on the same terms and conditions as are applicable to
the Company's borrowing of the funds. As an alternative to borrowing funds
required by the Partnership, the Company may contribute the amount of the
required funds as an additional capital contribution to the Partnership. If the
Company so contributes additional capital, the Company's partnership interest in
the Partnership will be increased on a proportionate basis based on the amount
of the additional capital contributions and the value of the Partnership at the
time of the contributions. If the Company issues Preferred Shares, it will
contribute the proceeds therefrom to the Partnership in exchange for Partnership
interests that have the same terms as those Preferred Shares. The partnership
interests of the Limited Partners will be correspondingly decreased or adjusted
in connection with any such contribution.

EXCHANGE RIGHTS

Pursuant to the Partnership Agreement, the Limited Partners will receive
the Exchange Rights, which will enable them to cause the Partnership to purchase
their Units for cash. The Exchange Rights may be exercised by Limited Partners
who are Boykin Group Affiliates or Boykin Associates at any time after the third
anniversary of the closing of the Offering, and by the Other Partners, who hold
an aggregate of 1.5% of the Units, at any time after the closing of the
Offering, in whole or in part. The amount of cash to be received by a Limited
Partner exercising exchange rights will be determined by mathematically
converting the Limited Partner's Units to a number of Common Shares at a
conversion rate of one Common Share for each Unit held by that Limited Partner
and then multiplying the resulting number of Common Shares by the average daily
market price of a Common Share for the ten (10) consecutive trading days
immediately preceding the date the Company receives the applicable notice of
exchange from that Limited Partner.

The Company may elect to assume and directly satisfy an Exchange Right by
paying cash to the Limited Partner or by delivering Common Shares for the
exchanged Units on a one-for-one basis. If the Company elects to pay cash in
satisfaction of an Exchange Right, the amount payable by the Company is due
within one year after the exercise of the right, subject to an interest charge
equal to the lower of the Company's current annual dividend rate or 8.0% per
annum. The number of shares into which Units are converted for purposes of
determining the cash payable on exercise of Exchange Rights will be adjusted on
the occurrence of stock splits, mergers, consolidations or similar pro rata
share transactions that otherwise would have the effect of diluting the
ownership interests of the Limited Partners or the shareholders of the Company.

TAX MATTERS; PROFITS AND LOSSES

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

Profit and loss of the Partnership generally will be allocated among the
partners in accordance with their respective interests in the Partnership,
except to the extent that the Partnership is required pursuant to Section 704(c)
of the Code to allocate depreciation deductions relating to, or gain on sale of,
the Initial Hotels in a different manner. See "Federal Income Tax
Considerations -- Tax Aspects of the Company's Investment in the
Partnership -- Tax Allocations With Respect to the Properties."

OPERATIONS

The Partnership Agreement requires that the Partnership be operated in a
manner that will enable the Company to satisfy the requirements for being
classified as a REIT and to avoid any federal income tax liability.

DISTRIBUTIONS

The Partnership Agreement provides that the Partnership will make cash
distributions from cash from operations (including net sale or refinancing
proceeds, but excluding net proceeds from the sale of the Partnership's property
in connection with the liquidation of the Partnership) quarterly, in amounts
determined by the Company, in its sole discretion, to the partners in accordance
with their respective percentage interests

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in the Partnership. Upon liquidation of the Partnership, after payment of, or
adequate provision for, debts and obligations of the Partnership, including any
partner loans, any remaining assets of the Partnership will be distributed to
all partners with positive capital accounts in accordance with their respective
positive capital account balances. If the Company has a negative balance in its
capital account following a liquidation of the Partnership, it will be obligated
to contribute cash to the Partnership equal to the negative balance in its
capital account.

TERM

The Partnership will continue until December 31, 2050, or until sooner
dissolved on (i) the bankruptcy, dissolution or withdrawal of the Company
(unless the Limited Partners elect to continue the Partnership); (ii) the sale
or other disposition of all or substantially all the assets of the Partnership;
(iii) the redemption of all limited partnership interests in the Partnership
(other than those held by the Company, if any); or (iv) the election of the
General Partner.

SHARES AVAILABLE FOR FUTURE SALE

On the completion of the Offering, the Company will have 8,275,000 Common
Shares outstanding (without taking into account any options granted to employees
or directors of the Company and assuming no exercise of the Underwriters'
overallotment option or exchange of Units). All of the Common Shares issued in
the Offering will be freely tradeable, by persons other than "affiliates" of the
Company, without restriction under the Securities Act of 1933 (the "Securities
Act"). All of the outstanding Units will be "restricted" securities within the
meaning of Rule 144 under the Securities Act and may not be sold under the
Securities Act unless an exemption from registration is available, including
exemptions contained in Rule 144.

Prior to the date of this Prospectus, there has been no public market for
the Common Shares. Trading of the Common Shares is expected to commence
following the completion of the Offering. No prediction can be made as to the
effect, if any, that future sales of shares or the availability of shares for
future sale will have on the market price prevailing from time to time. Sales of
substantial amounts of Common Shares (including shares issued on the exercise of
options), or the perception that such sales could occur, could adversely affect
the market price of the Common Shares. The holders of all of the Common Shares
and Units outstanding immediately prior to the Offering have agreed, subject to
certain exceptions, not to offer, sell, contract to sell or otherwise dispose of
any Common Shares or Units for a period of one year after the date of this
Prospectus without the prior written consent of the Representatives. See
"Underwriting."

FEDERAL INCOME TAX CONSIDERATIONS

The following discussion summarizes the federal income tax considerations
that materially affect a prospective shareholder who is a U.S. citizen or
resident or a tax-exempt organization (including individual retirement
accounts). The discussion is general in nature and not exhaustive of all
possible tax considerations, nor does the discussion give a detailed description
of any state, local, or foreign tax considerations. The discussion does not
address all aspects of federal income tax law that may be relevant to a
prospective shareholder of the Company in light of his or her particular
circumstances or to certain types of shareholders (including insurance
companies, financial institutions or broker-dealers, and (except to the limited
extent discussed herein) foreign corporations and persons who are not citizens
or resident of the United States) subject to special treatment under the federal
income tax laws.

THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING
AND EACH PROSPECTIVE SHAREHOLDER OF THE COMPANY IS ADVISED TO CONSULT WITH HIS
OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF
THE PURCHASE, OWNERSHIP AND SALE OF COMMON SHARES IN AN ENTITY ELECTING TO BE
TAXED AS A REIT, INCLUDING THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.

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GENERAL

The Company expects that it will be organized and will operate in such a
manner so as to qualify for taxation as a REIT under Sections 856 through 860 of
the Code commencing with its taxable year ending December 31, 1996 and the
Company intends to operate in such a manner in the future. No assurance can be
given, however, that the Company will operate in a manner so as to qualify or
remain qualified as a REIT.

Baker & Hostetler, counsel to the Company ("Counsel"), has rendered its
opinion, subject to certain assumptions and conditioned upon certain factual
representations made by the Company, that (i) the Company will be organized in
conformity with the requirements for qualification as a REIT under the Code and
that the method of operation of the Company and the Partnership will permit the
Company to continue to so qualify for its current and future taxable years; (ii)
the Partnership will be treated as a partnership for federal income tax
purposes; and (iii) the summary of federal income tax considerations set forth
in this Prospectus accurately summarizes the federal income tax considerations
that are likely to be material to a holder of Common Shares. Unlike a tax
ruling, an opinion of counsel is not binding on the IRS, and no assurance can be
given that the IRS will not challenge the status of the Company as a REIT for
federal income tax purposes. With respect to Counsel's opinion relating to the
qualification of the Company as a REIT, it should be noted that the Company's
continued qualification as a REIT in current and future taxable years will
depend upon whether the Company and the Partnership continue to meet the various
qualification tests imposed under the Code (discussed below). Counsel will not
review compliance with these tests on a periodic or continuing basis.
Accordingly, no assurance can be given that the actual results of the Company's
operations for the current or future taxable years will satisfy such
requirements. See "Federal Income Tax Considerations -- Requirements for
Qualification as a REIT -- Failure to Qualify."

The opinions and discussion herein are based upon the Code, as currently in
effect, applicable Treasury Regulations adopted thereunder, reported judicial
decisions, and IRS rulings, all as of the date hereof and certain factual
representations and assumptions made by the Company concerning the organization
and proposed operation of the Company. There can be no assurance, however, that
the legal authorities on which such opinions and this discussion are based will
not change, perhaps retroactively, that the Company's representations and
factual assumptions underlying this discussion will be accurate, or that there
will not be a change in circumstances of the Company that would affect such
opinions or this discussion. Accordingly, there can be no assurance that the IRS
will not challenge the conclusion of Counsel's opinions.

TAXATION OF THE COMPANY AS A REIT

If the Company qualifies for taxation as a REIT and distributes to its
shareholders at least 95% of its REIT taxable income, it generally will not be
subject to federal corporate income tax on the portion of its ordinary income or
capital gain that is timely distributed to its shareholders. This treatment
substantially eliminates the "double taxation" (at the corporate and shareholder
levels) that generally results from investment in a corporation. If the Company
were to fail to qualify as a REIT, it would be taxed at rates applicable to
corporations on all of its income, whether or not distributed to its
shareholders. Even if the Company qualifies as a REIT, it may be subject to
federal income or excise tax as follows:

(i) The Company will be taxed at regular corporate rates on REIT
taxable income and net capital gains not distributed to its shareholders;

(ii) Under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference, if any;

(iii) If the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property,
other than foreclosure property, held primarily for sale to customers in
the ordinary course of business) such income will be subject to a 100% tax;

(iv) If the Company should fail to satisfy the 75% gross income test
or the 95% gross income test (as discussed below), and has nonetheless
maintained its qualification as a REIT because certain other requirements
have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the
75% or 95% test, multiplied by a fraction intended to reflect the Company's
profitability;

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<PAGE> 86

(v) If the Company should fail to distribute during each calendar year
at least the sum of (A) 85% of its REIT ordinary income for such year, (B)
95% of its REIT capital gain net income for such year and (C) any
undistributed taxable income from prior years, it would be subject to a 4%
excise tax on the excess of such required distribution over the amounts
actually distributed;

(vi) If the Company has (A) net income from the sale or other
disposition of "foreclosure property" (which is, in general, property
acquired by the Company by foreclosure or otherwise on default on a loan
secured by the property) which is held primarily for sale to customers in
the ordinary course of business or (B) other nonqualifying income from
foreclosure property, it will be subject to tax on such income at the
highest corporate rate; and

(vii) If the Company acquires assets from a C corporation (i.e.,
generally a corporation subject to tax at the corporate level) in a
transaction in which the bases of the acquired assets in the Company's
hands are determined by reference to the bases of the assets (or any other
property) in the hands of the C corporation, and the Company recognizes net
gain on the disposition of such assets in any taxable year during the
10-year period (the "Restriction Period") beginning on the date on which
such assets were acquired by the Company then, pursuant to guidelines
issued by the IRS, the excess of the fair market value of such property at
the beginning of the applicable Restriction Period over the Company's
adjusted basis in such property as of the beginning of such Restriction
Period will be subject to a tax at the highest regular corporate rate.

REQUIREMENTS FOR QUALIFICATION AS A REIT

General. The Code defines a REIT as a corporation, trust or association:

(i) which is managed by one or more trustees or directors;

(ii) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;

(iii) which would be taxable as a domestic corporation but for
Sections 856 through 859 of the Code;

(iv) which is neither a financial institution nor an insurance company
subject to certain provisions of the Code;

(v) which has the calendar year as its taxable year;

(vi) the beneficial ownership of which is held by 100 or more persons;

(vii) during the last half of each taxable year not more than 50% in
value of the outstanding shares of which is owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
exempt entities);

(viii) which makes an election to be a REIT (or made such an election
in a previous taxable year that is still valid) and satisfies all relevant
filing and other administrative requirements that must be met in order to
maintain REIT status; and

(ix) which meets certain income and asset tests, described below.

Conditions (i) through (v), inclusive, must be met during the entire taxable
year and condition (vi) must be met during at least 335 days of a taxable year
of 12 months, or during a proportionate part of a taxable year of less than 12
months. However, conditions (vi) and (vii) will not apply until after the first
taxable year for which an election is made to be taxed as a REIT. The Company's
taxable year will be the calendar year. Following the consummation of this
Offering, the Company will have satisfied the share ownership requirements set
forth in (vi) and (vii) above (respectively, the "100 shareholder requirement"
and "five or fewer requirement"). In order to ensure continuing compliance with
the share ownership requirements, the Company has placed certain restrictions on
the transfer of its Common Shares to prevent further concentration of share
ownership. See "Capital Stock of the Company -- Restrictions on Transfer."
Moreover, to evidence compliance with these requirements, the Company must
maintain records which

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disclose the actual ownership of its outstanding Common Shares. In fulfilling
its obligation to maintain these records, the Company must, and will, demand
written statements each year from the record holders of designated percentages
of its Common Shares disclosing the actual owners of such Common Shares. A list
of those persons failing or refusing to comply with such demand must be
maintained as a part of the Company's records. A shareholder failing or refusing
to comply with the Company's written demand must submit with his or her tax
return a similar statement and certain other information.

Asset Tests. In order for the Company to maintain its qualification as a
REIT, at the close of each quarter of its taxable year, it must satisfy three
tests relating to the nature of its assets:

(i) At least 75% of the value of the Company's total assets must be
represented by any combination of interests in real property, interests in
mortgages on real property, shares in other REITs, cash, cash items, and
certain government securities.

(ii) Not more than 25% of the Company's total assets may be
represented by securities other than those in the 75% asset class.

(iii) Of the investments included in the 25% asset class, the value of
any one issuer's securities 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 (as defined in the Code) or another REIT).

Where the Company owns an interest in a partnership, it will be treated for
purposes of the asset tests as owning a proportionate part of the partnership's
assets. See "-- Tax Aspects of the Company's Investment in the
Partnership -- General." The Company's investment in the Initial Hotels through
its interest in the Partnership will constitute qualified assets for purposes of
the 75% asset test. As such, the Company expects that more than 75% of the value
of its assets will be real estate assets.

The Company does not expect to hold any securities representing more than
10% of any one issuer's voting securities nor does the Company expect to hold
securities of any one issuer exceeding 5% of the value of the Company's gross
assets.

If the Company inadvertently fails one or more of the asset tests at the
end of a calendar quarter, such a failure would not cause it to lose its REIT
status, provided that (i) it satisfied all of the asset tests at the close of a
preceding calendar quarter, and (ii) the discrepancy between the values of the
Company's assets and the standards imposed by the asset test either did not
exist immediately after the acquisition of any particular asset or was not
wholly or partly caused by such an acquisition. If the condition described in
clause (ii) of the preceding sentence was not satisfied, the Company could still
avoid disqualification by eliminating any discrepancy within 30 days after the
close of the calendar quarter in which it arose.

Income Tests. In order for the Company to maintain its qualification as a
REIT, it must satisfy three separate percentage tests relating to the source of
its gross income in each taxable year. For purposes of these tests, where the
Company invests in a partnership, the Company will be treated as receiving its
proportionate share of the gross income of the partnership, and such gross
income will retain the same character in the hands of the Company as it had in
the hands of the partnership. See "-- Tax Aspects of the Company's Investment in
the Partnership -- General."

(i) The 75% Test. At least 75% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year
must be derived from specified real estate sources, including "rents from
real property" and interest and certain other income earned from mortgages
on real property, gain from the sale of real property or mortgages (other
than in prohibited transactions) or income from qualified types of
temporary investments.

(ii) The 95% Test. At least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year
must be derived from the same items which qualify under the 75% income test
or from dividends, interest and gain from the sale or disposition of stock
or securities, or from any combination of the foregoing.

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(iii) The 30% Test. Less than 30% of the Company's gross income
(including gross income from prohibited transactions) for each taxable year
must be derived from a gain in connection with the sale or other
disposition of stock or securities held for less than one year, property in
a prohibited transaction and real property held for less than four years
(other than involuntary conversions and foreclosure property).

Rents received by the Company will qualify as "rents from real property"
for purposes of the 75% and 95% income tests if the following requirements are
met.

(i) The amount of rent received must generally not be based in whole
or in part on the income or profits derived by any person from such
property. However, amounts received or accrued generally will not be
excluded from the term "rents from real property" solely by reason of being
based on a fixed percentage or percentages of receipts or sales, or if they
are based on the net income or profits of the tenant and the tenant derives
substantially all of its income with respect to such property from the
leasing or subleasing of substantially all of such property and such tenant
receives from subtenants only amounts which would be treated as rents from
real property if received directly by the Company.

(ii) Rents must not be received from a tenant in which the Company or
a direct or indirect owner of 10% or more of the Company, owns directly or
constructively a 10% or greater interest in the assets or net profits of
such tenant (a "Related Party Tenant").

(iii) The Company must not operate or manage its property or furnish
or render directly services to its tenants unless such services are of a
type that a tax-exempt organization can provide its tenants without causing
its rental income to be unrelated business taxable income under the Code
("Qualifying Services"). If such services are not Qualifying Services, such
services must be rendered by an "independent contractor" that is adequately
compensated and from whom the Company derives no income. Receipts for
services furnished (whether or not rendered by an independent contractor)
that are not customarily provided to tenants of properties of a similar
class in the geographic market in which the Company's property is located
("Noncustomary Services") will not qualify as rents from real property.

(iv) Rent attributable to personal property leased in connection with
a lease of real property will not qualify as "rents from real property" if
such rent is greater than 15% of the total rent received under the lease.

In order for the Minimum Rent and the Percentage Rent to constitute "rents
from real property," the Percentage 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 Percentage
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 the intent of the parties, the form of the agreement, and
the degree of control over the property that is retained by the property owner.

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
savings 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 unrelated 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 whether a service contract should be
treated as a lease is inherently factual, the present or absence of any single
factor may not be dispositive in every case.

In rendering its opinion that the Company will qualify for taxation as a
REIT, Counsel has concluded that the Percentage Leases should be treated as true
leases for federal income tax purposes. Such conclusion is based, in part, on
the following facts: (i) the Partnership and the Initial Lessee intend for their
relationship to

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be that of a lessor and lessee and such relationship will be documented by lease
agreements; (ii) the Initial Lessee will have the right to exclusive possession
and use and quiet enjoyment of the Initial Hotels during the term of the
Percentage Leases; (iii) the Initial Lessee will bear the cost of, and be
responsible for, day-to-day maintenance and repair of the Initial Hotels, other
than the cost of maintaining underground utilities and structural repairs, and
will dictate how the Initial Hotels are operated, maintained and improved; (iv)
the Initial Lessee will bear all of the costs and expenses of operating the
Initial Hotels (including the cost of any inventory used in their operation)
during the term of the Percentage Leases (other than real property taxes, and
the cost of replacement or refurbishment of furniture, fixtures and equipment,
to the extent such costs do not exceed the allowance of such costs provided by
the Partnership under each Percentage Lease); (v) the Initial Lessee will
benefit from any savings in the costs of operating the Initial Hotels during the
term of the Percentage Leases; (vi) the Initial Lessee will indemnify the
Partnership against all liabilities imposed on the Partnership during the term
of the Percentage Leases by reason of (A) injury to persons or damage to
property occurring at the Initial Hotels or (B) Initial Lessee's use,
management, maintenance or repair of the Initial Hotels; (vii) the Initial
Lessee is obligated to pay substantial fixed rent for the period of use of the
Initial Hotels; and (viii) the Initial Lessee stands to incur substantial losses
(or reap substantial gains) depending on how successfully it operates the
Initial Hotels.

Investors should be aware that there are no controlling Treasury
Regulations, published rulings, or judicial decisions involving leases with
terms substantially the same as the Percentage Leases that discuss whether such
leases constitute true leases for federal income tax purposes. Therefore, the
foregoing conclusions with respect to the relationship between the Partnership
and the Initial Lessee is based upon all of the facts and circumstances and upon
rulings and judicial decisions involving situations that are considered to be
analogous. There can be no complete assurance that the IRS will not successfully
assert a contrary position. If the Percentage Leases are recharacterized as
service contracts or partnership agreements, rather than true leases, part or
all of the payments that the Partnership receives from Initial Lessee may not be
considered rent or may 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% income tests and, as a
result, would lose its REIT status. See "-- Requirements for Qualification as a
REIT -- Income Tests."

As noted above, in order for the Rents to qualify as "rents from real
property," the Percentage Rent must not be based in whole or in part on the
income or profits of any person. The Percentage 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 Percentage Leases are entered
into; (ii) are not renegotiated during the term of the Percentage Leases in a
manner that has the effect of basing Percentage Rent on income or profits; and
(iii) conforms with normal business practice. More generally, the Percentage
Rent will not qualify as "rents from real property" if, considering the
Percentage 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 Percentage Rent on income or profits. Since the Percentage Rent is
based on fixed percentages of the gross revenues from the Initial Hotels that
are established in the Percentage Leases, and the Company has represented that
the percentages (i) will not be renegotiated during the terms of the Percentage
Leases in a manner that has the effect of basing the Percentage Rent on income
or profits; and (ii) conform with normal business practice, the Percentage 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, 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).

Another requirement for the Rents to constitute "rents from real property"
is that the Rents attributable to personal property leased in connection with
the lease of the real property comprising an Initial Hotel must not be greater
than 15% of the Rents received under the Percentage Lease. The Rents
attributable to the personal property in an Initial Hotel is the amount that
bears the same ratio to total rent for the taxable year as the average of the
adjusted bases of the personal property in the Initial Hotel at the beginning
and at the end of the taxable year bears to the average of the aggregate
adjusted bases of both the real and personal property comprising the Initial
Hotel at the beginning and at the end of such taxable year (the "Adjusted Basis

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Ratio"). Furthermore, the Company has represented that rents attributable to
personal property will not exceed 15% of the rents received under the Percentage
Lease.

A third requirement for qualifications of the Rents as "rents from real
property" is that the Company must not own, directly or constructively, 10% or
more of any tenant (the "10% Ownership Limitation"). Under the attribution rules
governing the 10% Ownership Test, the Company is considered to own any shares
owned by the Partnership if partners in the Partnership collectively own 10% or
more (by value) of the Company. The Partnership Agreement provides that a
redeeming Limited Partner will receive cash, rather than Common Stock, if the
acquisition of Common Stock by such Partner would result in the Company being
treated as owning, directly or constructively, 10% or more of the Initial Lessee
or any sublessee. However, notwithstanding such restriction, because the Code's
constructive ownership rules for purposes of the 10% Ownership Limitation are
broad and it is not possible to continually monitor direct and indirect
ownership of all Company Shares, it is possible that the Limited Partners of the
Partnership may at some time own, directly or through attribution, 10% or more
of such Shares, which would cause the Company to fail the gross income
requirements and thus lose its REIT status.

A fourth requirement for qualification of the Rents as "rents from real
property" is that the Company cannot furnish or render non-Qualifying Services
other than through an independent contractor from whom the Company itself does
not derive or receive any income. Although the Company does provide certain
management services, the Company has represented and warranted to Baker &
Hostetler that these services are usual and customary management services
provided by landlords in the geographic areas in which the Company owns
property, and that such services are not primarily for the convenience of its
residents. To the extent the provision of services would cause such
disqualification, the Company has represented that it will hire independent
contractors, from which the Company derives no income, to perform such services.
As described above, however, if the Percentage Leases are recharacterized as
service contracts, partnership agreements or some other form of arrangement, the
Rents likely would be disqualified as "rents from real property" because the
Company would be considered to furnish or render non-Qualifying Services to the
occupants of the Initial Hotels other than through an independent contractor
from whom the Company derives or receives no income.

In summary, if the Rents do not qualify as "rents from real property"
because either (i) the Percentage Rent is based on income or profits of the
Initial Lessee; (ii) the Company owns, directly or constructively, 10% or more
of the Lessee or any sublessee; or (iii) the Company furnishes non-Qualifying
Services to the tenants of the Initial Hotels other than through a qualifying
independent contractor (or furnishes Non-Customary Services (whether or not
through an independent contractor) unless separately charged for by the
independent contractor), none of the Rents would qualify as "rents from real
property." In such event, the Company likely would lose its REIT status because
it would be unable to satisfy either the 75% or 95% income tests. See
"-- Requirements for Qualification as a REIT -- Income Tests."

Based on the foregoing, the Rents should qualify as "rents from real
property" for purposes of the 75% and 95% income tests. As described above, the
foregoing conclusions and Counsel's opinion as to the qualification of the
Company to be taxed as a REIT are based upon an analysis of all the facts and
circumstances and upon rulings and judicial decisions involving situations that
are considered to be analogous, as well as representations by the Company and
the Partnership and assumptions that are described above and set out in
Counsel's opinion. Opinions of counsel are not binding upon the IRS or a court.
Accordingly, there cannot be complete assurance that the IRS will not assert
successfully a contrary position and, therefore, prevent the Company from
qualifying for taxation as a REIT.

The interest accrued on the Intercompany Convertible Note by the Company
will be qualified income for purposes of the 75% test because the Intercompany
Convertible Note is secured by second mortgages on two of the Initial Hotels.

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

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It is possible that, from time to time, the Company or the 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 or the 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 or the 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 Company fails to satisfy one or both of the 75% or 95% income tests
for any taxable year, it may still qualify as a REIT in such year if (i) it
attaches a schedule of the source and nature of each item of its gross income to
its federal income tax return for such year; (ii) the inclusion of any incorrect
information in its return was not due to fraud with intent to evade tax; and
(iii) the Company's failure to meet such tests is due to reasonable cause and
not due to willful neglect. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. Even if these relief provisions apply, the Company will still be
subject to a tax imposed with respect to the excess net income. See "-- Taxation
of the Company as a REIT." No such relief is available for violations of the 30%
income test.

Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (A) the sum of (i) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the REITs net capital gain); and (ii) 95% of the net income (after
tax), if any, from foreclosure property, minus (B) the sum of certain items of
noncash income. In addition, if the Company disposes of any asset during its
Restriction Period, the Company will be required to distribute at least 95% of
the built-in gain (after tax), if any, recognized on the disposition of such
asset. 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 dividend
payment after such declaration. 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 "REIT taxable income," as adjusted, it will be subject to tax
on the undistributed amount at regular capital gains and ordinary corporate tax
rates. Moreover, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year; (ii)
95% of its REIT net capital gain income for such year; and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed.

The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements. In this regard, the partnership agreement of
the Partnership authorizes the Company, as general partner, to take such steps
as may be necessary to cause the Partnership to distribute to its partners an
amount sufficient to permit the Company to meet these distribution requirements.
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 due primarily to
the expenditure of cash for nondeductible expenses such as principal
amortization or capital expenditures. In the event that such timing differences
occur, the Company may find it necessary to cause the Partnership to arrange for
borrowings or liquidate some of its investments in order to meet the annual
distribution requirement. In order to avoid any problem with the 95%
distribution requirement, the Company will closely monitor the relationship
between its REIT taxable income and cash flow and, if necessary, will borrow
funds (or cause the Partnership to borrow funds) in order to satisfy the
distribution requirements.

If the Company fails to satisfy the 95% distribution requirement as a
result of an adjustment to the Company's tax return by the IRS, the Company may
be permitted to remedy such a failure by paying a "deficiency dividend" (plus
applicable interest and penalties) within a specified time.

Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year and the relief provisions do not apply, the Company will be
subject to tax (including any applicable corporate

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alternative minimum tax) on its taxable income at regular corporate rates.
Distributions to shareholders in any year in which the Company fails to qualify
will not be deductible by the Company, nor will they be required to be made. In
such event, to the extent of current and accumulated earnings and profits, all
distributions to shareholders will be taxable to them as ordinary income, and,
subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, the Company also will be ineligible for
qualification as a REIT for the four taxable years following the year during
which qualification was lost. It is not possible to state whether in all
circumstances the Company would be entitled to such statutory relief.

TAX ASPECTS OF THE COMPANY'S INVESTMENT IN THE PARTNERSHIP

General. The Company will hold a direct interest in the Partnership. In
general, a partnership is not subject to federal income tax. Rather, each
partner includes in the partner's taxable income or loss its allocable share of
the partnership's items of income, gain, loss, deduction and credit, without
regard to whether the partner receives a distribution from the partnership. The
Company will include its proportionate share of the foregoing items of the
Partnership for purposes of the various REIT income tests and in the computation
of its REIT taxable income. See "-- Requirements for Qualification as a
REIT -- Income Tests." Any resultant increase in the Company's REIT taxable
income will increase its distribution requirements (see "-- Requirements for
Qualification as a REIT -- Annual Distribution Requirements"), but will not be
subject to federal income tax in the hands of the Company provided that such
income is distributed by the Company to its shareholders. Moreover, for purposes
of the REIT asset tests (see "-- Requirements for Qualification as a
REIT -- Asset Tests"), the Company will include its proportionate share of
assets held by the Partnership.

Entity Classification. The Company's interest in the Partnership involves
special tax considerations, including the possibility of a challenge by the IRS
of the status of the Partnership as a partnership (as opposed to an association
taxable as a corporation) for federal income tax purposes. If the Partnership
was treated as an association, it would be taxable as a corporation and
therefore subject to an entity-level tax on its income. In such a situation, the
character of the Company's assets and items of gross income would change, which
would preclude the Company from satisfying the asset and income tests (see
"-- Requirements for Qualification as a REIT -- Asset Tests" and "-- Income
Tests"), and in turn would prevent the Company from qualifying as a REIT. See
"-- Requirements for Qualification as a REIT -- Failure to Qualify" above for a
discussion of the effect of the Company's failure to meet such tests for a
taxable year. The Company does not intend to request a ruling from the IRS that
the Partnership will be treated as a partnership for federal income tax
purposes. Counsel has rendered its opinion, subject to certain factual
assumptions and representations of the Company and the Partnership, that the
Partnership will be treated for federal income tax purposes as a partnership.
Counsel's opinion is not binding on the IRS or the courts.

Tax Allocations with Respect to the Properties. The Partnership initially
will acquire a tax basis in each of the Initial Hotels equal to the adjusted tax
basis of such asset in the hands of the current ownership entities, increased by
any gain realized by the current ownership entities on the transfer. For
purposes of determining the percentage interests of the contributing partners,
the contributing partners will be credited with having contributed an amount
equal to the agreed value of the contributed assets. The difference between the
agreed value of a contributed asset and its adjusted tax basis is referred to as
the book-tax difference (the "Book-Tax Difference"). It is expected that the
agreed value of most of the Initial Hotels will substantially exceed their tax
basis, so that there will be substantial Book-Tax Differences at the time of
contribution. Pursuant to Section 704(c) of the Code, income, gain, loss and
deduction attributable to property contributed by a partner in exchange for a
partnership interest (such as the Initial Hotels), must be allocated so that the
contributing partner is charged with, or benefits from, respectively, any
Book-Tax Difference associated with the property at the time of the
contribution. Such allocations are solely for federal income tax purposes and do
not affect the book capital accounts or other economic arrangements among the
partners. The partnership agreement of the Partnership will require such
allocations to be made in a manner consistent Section 704(c) of the Code.

In general, the Partnership's Section 704(c) allocations allocate to the
Company the same amounts of depreciation deductions attributable to the Initial
Hotels and other assets and taxable gain or loss upon sale of such assets as the
Company would have received had it purchased its interest in such assets at
their agreed

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value. To accomplish this, the existing owners will be allocated lower amounts
of depreciation deductions for tax purposes and increased taxable income (or
less loss) on sale by the Partnership of the Initial Hotels than their
allocations of depreciation deductions and income or gain for book purposes.
This will tend to eliminate the Book-Tax Difference over the life of the
Partnership. However, the special allocation rules of Section 704(c) do not
always entirely rectify the Book-Tax Difference on an annual basis or with
respect to a specific taxable transaction such as a sale. Thus, the carryover
basis of the contributed assets in the hands of the Partnership in some cases
may cause the Company to be allocated lower depreciation and other deductions,
and possibly greater amounts of taxable income in the event of a sale of the
Initial Hotels in excess of the economic or book income allocated to it as a
result of such sale. This might adversely affect the Company's ability to
distribute sufficient dividends to comply with the REIT distribution
requirements. See "-- Requirements for Qualification as a REIT -- Annual
Distribution Requirements." The foregoing principles also apply in determining
the earnings and profits of the Company for purposes of determining the portion
of distributions taxable as dividend income. See "-- Taxation of the Company's
Shareholders." The application of these rules over time may result in a higher
portion of distributions being taxed as dividends than would have occurred had
the Company purchased its interest in the Initial Hotels at their agreed value.

Treasury Regulations under Section 704(c) of the Code allow partnerships to
use any reasonable method of accounting for Book-Tax Differences for
contributions of property so that a contributing partner receives the tax
benefits and burdens of any built-in gain or loss associated with contributed
property. The Partnership currently intends to account for Book-Tax Differences
using the traditional method provided for in the regulations.

With respect to any property purchased by the Partnership subsequent to the
formation of the Company, such property will initially have a tax basis equal to
its purchase price and Section 704(c) of the Code will not apply.

Basis in Partnership Interest. The Company's adjusted tax basis in its
partnership interest in the Partnership generally (i) will be equal to the
amount of cash and the basis of any other property contributed to the
Partnership by the Company; (ii) will be increased by (A) its allocable share of
the Partnership's income and (B) its allocable share of indebtedness of the
Partnership; and (iii) will be reduced, but not below zero, by the Company's
allocable share of (a) the Partnership's loss and (B) the amount of cash
distributed to the Company and by constructive distributions resulting from a
reduction in the Company's share of indebtedness of the Partnership.

If the allocation of the Company's distributive share of the Partnership's
loss would reduce the adjusted tax basis of the Company's partnership interest
in the Partnership below zero, the recognition of such loss will be deferred
until such time as the recognition of such loss would not reduce the Company's
adjusted tax basis below zero. To the extent that the Partnership's
distributions, or any decrease in the Company's share of the indebtedness of the
Partnership (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) constitute taxable
income to the Company. Such distributions and constructive distributions
normally will be characterized as capital gain, and, if the Company's
partnership interest in the Partnership has been held for longer than the
long-term capital gain holding period (currently one year), the distributions
and constructive distributions will constitute long-term capital gain.

Depreciation Deductions Available to the Partnership. Immediately after
the Offering, the Company will make a cash contribution to the Partnership in
exchange for an approximately 82.0% general partnership interest in the
Partnership (which interest will increase to 85.7% if the Intercompany
Convertible Note is converted). The Partnership will concurrently acquire all of
the equity interests in the Contributed Partnerships in exchange for
approximately $9.1 million in cash and issuance of Units representing
approximately 18.0% of the equity interests in the Partnership (14.3% if the
Intercompany Convertible Note is converted). The Partnership's initial basis in
the Initial Hotels for federal income tax purposes will be a carryover of the
basis of the Contributed Partnerships in the Initial Hotels on the date of such
transactions, increased by any gain recognized on the transfers to the
Partnership. The Partnership plans to depreciate, for federal income tax
purposes, the Initial Hotels and any depreciable hotel property which it may
acquire for cash in the future under ADS. Under ADS, the Partnership will
depreciate such building and improvements

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- -- even those acquired with a carryover basis -- over a new 40 year recovery
period using a straight-line method and a mid-month convention. The Partnership
plans to use the modified accelerated cost recovery system of depreciation
("MACRS") for subsequently acquired furnishings and equipment. Under MACRS, the
Partnership generally will depreciate such furnishings and equipment over a
seven-year recovery period using a 200% declining balance method and a half-year
convention. If, however, the Partnership places more than 40% of its furnishings
and equipment in service during the last three months of a taxable year, a mid-
quarter depreciation convention must be used for the furnishings and equipment
placed in service during that year. The Partnership plans to use ADS for the
depreciation of subsequently acquired buildings and improvements. Under ADS, the
Partnership generally will depreciate such buildings and improvements over a
40-year recovery period using a straight line method and a mid-month convention.

Sale of the Properties. Generally, any gain realized by a partnership on
the sale of assets held by the partnership for more than one year will be
long-term capital gain. However, under REIT rules, the Company's share of any
gain realized by the Partnership on the sale of any property held as inventory
or other property held primarily for sale to customers in the ordinary course of
a trade or business ("dealer property") will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. See "-- Taxation
of the Company as a REIT." Under existing law, whether property is dealer
property is a question of fact that depends on all the facts and circumstances
with respect to the particular transaction. A safe harbor to avoid
classification as a prohibited transaction exists as to real estate assets held
for the production of rental income by a REIT for at least four years where in
any taxable year the REIT has made no more than seven sales of property, or, in
the alternative, the aggregate of the adjusted bases of all properties sold does
not exceed 10% of the adjusted bases of all of the REIT's properties during the
year and the expenditures includable in a property's basis made during the
four-year period prior to disposition do not exceed 30% of the property's net
sale price. All inventory required in the operation of the Initial Hotels will
be purchased by the Initial Lessee or its designee as required by the terms of
the Percentage Leases. Accordingly, the Company and the Partnership believe that
no asset owned by the Company or the Partnership is dealer property of the
Company or the Partnership. Nevertheless, the Company and the Partnership will
attempt to comply with the terms of the safe-harbor provisions of the Code.
Complete assurance cannot be given, however, that the Company or the Partnership
can comply with the safe-harbor provisions of the Code or avoid owning property
that may be characterized as dealer property.

TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS

As long as the Company qualifies as a REIT, distributions made to the
Company's taxable shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by such shareholders as ordinary income. Domestic shareholders generally
are shareholders who are (i) citizens or residents of the United States; (ii)
corporations, partnerships or other entities created in or organized under the
laws of the United States or any political subdivision thereof; or (iii) estates
or trusts the income of which is subject to United States federal income
taxation regardless of its source. Corporate shareholders will not be entitled
to the dividends received deduction. Any dividend declared by the Company in
October, November or December of any year payable to a shareholder of record on
a specific date in any such month shall be treated as both paid by the Company
and received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by the Company during January of the following
calendar year.

Distributions that are designated as capital gain dividends will be taxed
as long-term capital gains (to the extent they do not exceed the Company's
actual net capital gain for the taxable year) without regard to the period for
which the shareholder has held its shares. However, corporate shareholders may
be required to treat up to 20% of certain capital gain dividends as ordinary
income.

Distributions in excess of current and accumulated earnings and profits
will not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's Common Shares, but rather will reduce the
adjusted basis of such shares. To the extent that such distributions exceed the
adjusted basis of a shareholder's Common Shares, they will be included in income
as long-term capital gain assuming the shares are a capital asset in the hands
of the shareholder and have been held for more than one year.

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Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. In general, a shareholder
will realize capital gain or loss on the disposition of Common Shares equal to
the difference between (a) the sales price for such shares and (b) the adjusted
tax basis of such shares. Gain or loss realized upon the sale or exchange of
Common Shares by a shareholder who has held such Common Shares for more than one
year (after applying certain holding period rules) will be treated as long-term
gain or loss, respectively, and otherwise will be treated as short-term capital
gain or loss. However, losses incurred upon a sale or exchange of Common Shares
by a shareholder who has held such shares for six months or less (after applying
certain holding period rules) will be deemed a long-term capital loss to the
extent of any capital gain dividends received by the selling shareholder with
respect to such Common Shares.

Distributions from the Company and gain from the disposition of shares will
not be treated as passive activity income. Distributions from the Company (to
the extent they do not constitute a return of capital) will generally be treated
as investment income for purposes of the investment interest limitation. Gain
from the disposition of shares and capital gain dividends will not be treated as
investment income unless the taxpayer elects to have the gain taxed at ordinary
income rates.

Backup Withholding. The Company will report to its domestic shareholders
and the IRS the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such shareholder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
shareholder who does not provide the Company with its correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the shareholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions made to any shareholders who fail to
certify their nonforeign status to the Company.

TAXATION OF TAX-EXEMPT SHAREHOLDERS

Tax-exempt entities, including qualified employee pension and
profit-sharing trusts, individual retirement accounts and certain funded welfare
plan arrangements ("Exempt Organizations"), generally are exempt from federal
income taxation. However, they are subject to taxation on their unrelated
business taxable income ("UBTI"). While many investments in real estate generate
UBTI, the IRS has issued a published ruling that dividend distributions by a
REIT to an exempt employee pension trust do not constitute UBTI, provided that
the shares of the REIT are not otherwise used in an unrelated trade or business
of the exempt employee pension trust. Based on that ruling and on the intention
of the Company to invest its assets in a manner that will avoid the recognition
of UBTI by the Company, amounts distributed by the Company to Exempt
Organizations generally should not constitute UBTI. However, if an Exempt
Organization finances its acquisition of the Common Stock with debt, a portion
of its income from the Company will constitute UBTI pursuant to the
"debt-financed property" rules. Furthermore, social clubs, voluntary employee
benefits associations, supplemental unemployment benefit trusts, and qualified
group legal services plans that are exempt from taxation under paragraphs (7),
(9), (17), and (20), respectively, of Code section 501(c) are subject to
different UBTI rules, which generally will require them to characterize
distributions from the Company as UBTI. In addition, for taxable years beginning
on or after January 1, 1994, a pension trust that owns more than 10% of the
Company is required to treat a percentage of the dividends from the Company as
UBTI (the "UBTI Percentage") in certain circumstances. The UBTI Percentage is
the gross income derived from an unrelated trade or business (determined as if
the Company were a pension trust) divided by the gross income of the Company for
the year in which the dividends are paid. The UBTI rule applies only if (i) the
UBTI Percentage is at least 5%; (ii) the Company qualifies as a REIT by reason
of the modification of the 5/50 Rule that allows the beneficiaries of the
pension trust to be treated as holding shares of the Company in proportion to
their actuarial interests in the pension trust; and (iii) either (A) one pension
trust owns more than 25% of the value of the Company's stock or (B) a group of
pension trusts individually holding more than 10% of the value of the Company's
stock collectively own more than 50% of the value of the Company's stock.

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While an investment in the Company by an Exempt Organization generally is
not expected to result in UBTI except in the circumstances described in the
preceding paragraph, any gross UBTI that does arise from such an investment will
be combined with all other gross UBTI of the Exempt Organization for a taxable
year and reduced by all deductions attributable to the UBTI plus $1,000. Any
amount then remaining will constitute UBTI on which the Exempt Organization will
be subject to tax. If the gross income taken into account in computing UBTI
exceeds $1,000, the Exempt Organization is obligated to file a tax return for
such year on an IRS Form 990-T. Neither the Company, its Board of Directors, nor
any of its Affiliates expects to undertake the preparation or filing of IRS Form
990-T for any Exempt Organization in connection with an investment by such
Exempt Organization in the Common Stock. Generally, IRS Form 990-T must be filed
with the IRS by April 15 of the year following the year to which it relates.

TAXATION OF FOREIGN SHAREHOLDERS

The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex, and no attempt
will be made herein to provide more than a summary of such rules. PROSPECTIVE
NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE AND LOCAL INCOME TAX LAWS WITH REGARD TO AN
INVESTMENT IN THE COMMON SHARES, INCLUDING ANY REPORTING REQUIREMENTS.

It is currently anticipated that the Company will qualify as a
"domestically controlled REIT" (i.e., a REIT in which at all times during a
specified testing period less than 50% of the value of the shares is owned
directly or indirectly by Non-U.S. Shareholders) and therefore gain from the
sale of Common Shares by a Non-U.S. Shareholder would not be subject to United
States taxation unless such gain is treated as "effectively connected" with the
Non-U.S. Shareholder's United States trade or business.

Distributions that are not attributable to gain from the sale or exchange
by the Company of United States real property interests (and are not designated
as capital gain dividends) will be treated as dividends of ordinary income to
the extent that they are made out of current or accumulated earnings and profits
of the Company. Such distributions generally will be subject to a United States
withholding tax equal to 30% of the gross amount of the distribution, subject to
reduction or elimination under an applicable tax treaty. However, if dividends
from the investment in the shares are treated as "effectively connected" with
the Non-U.S. Shareholder's conduct of a United States trade or business, such
dividends will be subject to regular U.S. income taxation (foreign corporations
may also be subject to the 30% branch profits tax). The Company expects to
withhold United States income tax at the rate of 30% on the gross amount of any
such dividends made to a Non-U.S. Shareholder unless: (i) a lower treaty rate
applies and the Non-U.S. Shareholder files certain information evidencing its
entitlement to such lower treaty rate; or (ii) the Non-U.S. Shareholder files an
IRS Form 4224 with the Company claiming that the distribution is "effectively
connected" income. Distributions which exceed current and accumulated earnings
and profits of the Company will not be taxable to the extent that they do not
exceed the adjusted basis of a shareholder's shares but, rather, will reduce
(but not below zero) the adjusted basis of such shares. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Shareholder's shares, they
generally will give rise to United States tax liability if the Non-U.S.
Shareholder would otherwise be subject to tax on gain from the sale or
disposition of his or her shares in the Company, as described above. If it
cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the distributions will be subject to withholding at the same rate as dividends.
However, amounts thus withheld are refundable if it is subsequently determined
that such distribution was, in fact, in excess of current and accumulated
earnings and profits of the Company.

Distributions by the Company to a Non-U.S. Shareholder that are
attributable to gain from sales or exchanges by the Company of a United States
real property interest are subject to income and withholding tax under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, these distributions, if any, that are treated as gain
recognized from the sale of a United States real property interest, are taxed as
income "effectively connected" with a United States business. Non-U.S.
Shareholders would thus be taxed at the normal capital gain rates applicable to
U.S. shareholders (subject to

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the applicable alternative minimum tax and a special alternative minimum tax for
nonresident alien individuals). Also, distributions subject to FIRPTA may be
subject to a 30% branch profits tax in the hands of a foreign corporate
shareholder not entitled to treaty exemption. The Company is required by
applicable Treasury Regulations to withhold 35% of any distribution that could
be designated by the Company as a capital gains dividend. This amount is
creditable against the Non-U.S. Shareholder's FIRPTA tax liability. A refund may
be available if the amount exceeds the Non-U.S. Shareholder's federal tax
liability.

OTHER TAX CONSIDERATIONS

State and Local Taxes. The company or its shareholders or both may be
subject to state, local or other taxation in various state, local or other
jurisdictions, including those in which they transact business or reside. The
tax treatment in such jurisdictions may differ from federal income tax
consequences discussed above. Consequently, prospective shareholders should
consult with their own tax advisors regarding the effect of state, local and
other tax laws on an investment in the Common Shares of the Company.

ERISA CONSIDERATIONS

A fiduciary of a pension, profit sharing, retirement, welfare or other
employee benefit plan ("Plan") subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), should consider the fiduciary
standards under ERISA in the context of the Plan's particular circumstances
before authorizing an investment of a portion of the Plan's assets in the Common
Shares. Accordingly, any such fiduciary should consider (i) whether the
investment satisfies the diversification requirements of Section 404(a)(1)(C) of
ERISA; (ii) whether the investment is in accordance with the documents and
instruments governing the Plan as required by Section 404(a)(1)(D) of ERISA; and
(iii) whether the investment is prudent under ERISA. In addition to the
imposition of general fiduciary standards of investment prudence and
diversification, ERISA, and the corresponding provisions of the Code, prohibit a
wide range of transactions involving the assets of the Plan and persons who have
certain specified relationships to the Plan ("parties in interest" within the
meaning of ERISA, "disqualified persons" within the meaning of the Code). Thus,
a Plan fiduciary considering an investment in the Common Shares also should
consider whether the acquisition or the continued holding of the Common Shares
might constitute or give rise to a direct or indirect prohibited transaction.

The Department of Labor (the "DOL") has issued final regulations (the
"Regulations") as to what constitutes assets of an employee benefit plan under
ERISA. Under the Regulations, if a Plan acquires an equity interest in an
entity, which interest is neither a "publicly offered security" nor a security
issued by an investment company registered under the Investment Company Act of
1940, as amended, the Plan's assets would include, for purposes of the fiduciary
responsibility provisions of ERISA, both the equity interest and an undivided
interest in each of the entity's underlying assets unless certain specified
exceptions apply. The Regulations define a publicly offered security as a
security that is "widely held," "freely transferable," and either part of a
class of securities registered under the Exchange Act, or sold pursuant to an
effective registration statement under the Securities Act (provided the
securities are registered under the Exchange Act within 120 days after the end
of the fiscal year of the issuer during which the public offering occurred). The
Common Shares are being sold in an offering registered under the Securities Act
and will be registered under the Exchange Act.

The DOL Regulations provide that a security is "widely held" only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. A security will not fail to be "widely held"
because the number of independent investors falls below 100 subsequent to the
initial public offering as a result of events beyond the issuer's control. The
Company expects the Common Shares to be "widely held" on completion of the
Offering.

The DOL Regulations provide that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The DOL Regulations further provide that when
a security is part of an offering in which the minimum investment is $10,000 or
less, as is the case with the Offering, certain restrictions ordinarily will
not, alone or in combination, affect the finding that those securities are
"freely transferable." The Company believes that the restrictions imposed under
its Articles of

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Incorporation on the transfer of the Common Shares are limited to the
restrictions on transfer generally permitted under the DOL Regulations and are
not likely to result in the failure of the Common Shares to be "freely
transferable." The Company also believes that certain restrictions that apply to
the Common Shares to be held by the Company, or derived from contractual
arrangements requested by the Underwriters in connection with the Offering, are
unlikely to result in the failure of the Common Shares to be "freely
transferable." See "Shares Available for Future Sale" and "Underwriting." The
DOL Regulations only establish a presumption in favor of the finding of free
transferability, and, therefore, no assurance can be given that the DOL and the
U.S. Treasury Department will not reach a contrary conclusion.

Assuming that the Common Shares will be "widely held" and are "freely
transferable," the Company believes that the Common Shares will be publicly
offered securities for purposes of the Regulations and that the assets of the
Company will not be deemed to be "plan assets" of any Plan that invests in the
Common Shares.

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UNDERWRITING

The underwriters of the Offering (the "Underwriters"), for whom Lehman
Brothers Inc., Alex. Brown & Sons Incorporated, Dean Witter Reynolds Inc., A.G.
Edwards & Sons, Inc., EVEREN Securities, Inc. and McDonald & Company Securities,
Inc. are serving as representatives, have severally agreed, subject to the terms
and conditions of the Underwriting Agreement (the "Underwriting Agreement") (the
form of which is filed as an exhibit to the Registration Statement (as defined)
of which this Prospectus is a part), to purchase from the Company and the
Company has agreed to sell to each Underwriter, the aggregate number of shares
of Common Stock set forth opposite their respective names below:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------------ ---------
<S> <C>
Lehman Brothers Inc..................................................... 1,012,500
Alex. Brown & Sons Incorporated......................................... 1,012,500
Dean Witter Reynolds Inc................................................ 1,012,500
A.G. Edwards & Sons, Inc................................................ 1,012,500
EVEREN Securities, Inc.................................................. 1,012,500
McDonald & Company Securities, Inc...................................... 1,012,500
Bear, Stearns & Co. Inc................................................. 125,000
BT Securities Corporation............................................... 125,000
CS First Boston Corporation............................................. 125,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated...................... 125,000
Montgomery Securities................................................... 125,000
PaineWebber Incorporated................................................ 125,000
Prudential Securities Incorporated...................................... 125,000
Smith Barney Inc........................................................ 125,000
J.C. Bradford & Co...................................................... 75,000
Crowell, Weedon & Co.................................................... 75,000
Fahnestock & Co. Inc.................................................... 75,000
First Albany Corporation................................................ 75,000
Interstate/Johnson Lane Corporation..................................... 75,000
Legg Mason Wood Walker, Incorporated.................................... 75,000
Morgan Keegan & Company, Inc............................................ 75,000
The Ohio Company........................................................ 75,000
Ormes Capital Markets, Inc.............................................. 75,000
Prime Charter Ltd....................................................... 75,000
Raymond James & Associates, Inc......................................... 75,000
The Robinson-Humphrey Company, Inc...................................... 75,000
Roney & Co., L.L.C...................................................... 75,000
Scott & Stringfellow, Inc............................................... 75,000
Southwick Investments, Inc.............................................. 75,000
Sutro & Co. Incorporated................................................ 75,000
---------
Total.............................................................. 8,275,000
========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters to purchase Common Shares are subject to certain other conditions
and that if any of the Common Shares are purchased by the Underwriters pursuant
to the Underwriting Agreement, all Common Shares agreed to be purchased by the
Underwriters pursuant to the Underwriting Agreement must be so purchased.

Although the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD") exempt REITs from the conflict of interest provisions
thereof, the Underwriters have determined to conduct the Offering in accordance
with Rule 2720 of the Conduct Rules because an affiliate of Lehman Brothers Inc.
will receive more than ten percent of the net proceeds of the Offering in
repayment of currently outstanding indebtedness. In accordance with these
provisions, Lehman Brothers Inc. has agreed that the price at which the Common
Shares are to be distributed to the public shall be no higher than that
recommended by a

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"qualified independent underwriter" meeting certain standards described in the
Rules of Fair Practice of the NASD. Dean Witter Reynolds Inc. has agreed to act
as the qualified independent underwriter in connection with the Offering, has
participated in the preparation of the Prospectus and the Registration Statement
of which this Prospectus forms a part, and has exercised the usual standard of
due diligence with respect thereto.

The Company has been advised that the Underwriters propose to offer the
Common Shares directly to the public initially at the public offering price set
forth on the cover page of this Prospectus and to certain selected dealers (who
may include the Underwriters) at such public offering price less a selling
concession not in excess of $1.30 per share. The Underwriters may allow, and the
selected dealers may reallow, a concession not in excess of $.10 per share to
certain other brokers and dealers. After the initial public offering of the
Common Shares, the concession to selected dealers and the reallowances to other
dealers may be changed by the Underwriters.

The Company has granted to the Underwriters an option to purchase up to an
additional 1,241,250 Common Shares at the public offering price less the
aggregate underwriting discounts and commissions shown on the cover page of this
Prospectus solely to cover over-allotments, if any. The option may be exercised
at any time up to 30 days after the date of this Prospectus. To the extent that
the Underwriters exercise such option, the Underwriters will be committed
(subject to certain conditions) to purchase a number of option shares
proportionate to such Underwriter's initial commitment.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.

The Common Shares have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance, under the symbol "BOY." In
order to meet one of the requirements for the listing of the Common Shares, the
Underwriters have undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial holders for a minimum of 1.1 million publicly-held shares and
for an aggregate market value of at least $40 million.

The Underwriters have informed the Company that they do not intend to
confirm sales to any account over which they exercise discretionary authority.

At the request of the Company, up to 200,000 Common Shares offered in the
Offering have been reserved for sale to employees of the Company and certain
members of their families. The price of such shares to such persons will be
equal to the public offering price set forth on the cover of this Prospectus.
The number of shares available to the general public will be reduced to the
extent those persons purchase reserved shares. Any shares not so purchased will
be offered in the Offering at the public offering price set forth on the cover
of this Prospectus.

The Company has agreed not to offer, sell or contract to sell, or otherwise
dispose of, or announce the offering of, any Common Shares, or any securities
convertible into, or exchangeable for, Common Shares, except the Common Shares
offered hereby, for a period of 180 days from and after the date of this
Prospectus without the prior written consent of Lehman Brothers Inc.

From time to time, certain of the Underwriters or their affiliates may
provide investment banking services to the Company. The Company will pay an
advisory fee equal to .5% of the gross proceeds of the Offering (including any
exercise of the Underwriters' over-allotment option) to Lehman Brothers Inc. for
advisory services in connection with the evaluation, analysis and structuring of
the Company's formation and the Offering. In connection with the Offering, an
affiliate of Lehman Brothers Inc. will be repaid mortgage loans in the principal
amount of $65.2 million made by it to certain Boykin Group Affiliates and will
be a participant in the Credit Facility. The interest payable with respect to
the mortgage loan repayment is less than it would be if the repayment had not
been made in connection with the Offering. See "Use of Proceeds" and "The
Company -- Business Objectives and Strategies -- Financing Strategy."

Prior to this Offering there has been no public market for the Common
Shares. The initial public offering price for the Common Shares offered hereby
was determined by negotiation between the Company and the Underwriters and was
based on, among other things, the Initial Hotels' financial and operating
history and

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condition, the prospectus of the Company and its industry in general, the
management of the Company and the market prices of securities of companies
engaged in businesses similar to those of the Company.

EXPERTS

The Balance Sheet of Boykin Lodging Company as of June 30, 1996; the
Combined Financial Statements of the Initial Hotels (Excluding Lake Norman
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; the
Combined Financial Statements of the Lake Norman Hotels as of December 31, 1994
and 1995 and for each of the three years in the period ended December 31, 1995;
and the Combined Statements of Net Assets of Boykin Management Company,
Purchasing Concepts, Inc. and Bopa Design Company as of June 30, 1995 and 1996
and the related Combined Statements of Revenues and Expenses for each of the
three years in the period ended June 30, 1996 included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

LEGAL MATTERS

The validity of the Common Shares offered hereby as well as certain legal
matters described under "Federal Income Tax Considerations" will be passed upon
for the Company by Baker & Hostetler, Cleveland, Ohio, and certain legal matters
will be passed upon for the Underwriters by Willkie Farr & Gallagher, New York,
New York. Baker & Hostetler provides legal services to the Boykin Group and
various Boykin Group Affiliates. Albert T. Adams, a proposed director of the
Company, is a partner in Baker & Hostetler.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part) on
Form S-11 under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all 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 thereto. For further information regarding the Company
and the Common Shares offered hereby, reference is hereby made to the
Registration Statement and such exhibits and schedules, which may be obtained
from the Commission at its principal office in Washington, D.C. on payment of
the fees prescribed by the Commission. The Commission also maintains a Web site
(address http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.

The Company intends to furnish its shareholders 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.

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GLOSSARY

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

"ADR" means average daily room rate.

"ADS" means the alternative depreciation system under the Code.

"Affiliate" of any person means (i) any person who directly or indirectly
controls or is controlled by or is under common control with that person, (ii)
any other person who owns, beneficially, directly or indirectly, five percent
(5%) or more of the outstanding capital stock, shares or equity interests of
that person, or (iii) any officer, director, employee, partner or trustee of
that person or any person controlling, controlled by or under common control
with that person (excluding trustees and persons serving in similar capacities
who are not otherwise an Affiliate of that person). The term "person" means and
includes individuals, corporations, general and limited partnerships, stock
companies or associations, joint ventures, associations, companies, trusts,
banks, trust companies, land trusts, business trusts, or other entities and
governments and agencies and political subdivisions thereof. For purposes of
this definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that person, through the
ownership of voting securities, partnership interests or other equity interests.

"AMT" means the alternative minimum tax.

"Articles of Incorporation" means the Amended and Restated Articles of
Incorporation of the Company.

"Minimum Rent" means the fixed obligation of the Initial Lessee to pay a
sum certain in monthly rent under each of the Percentage Leases.

"Boykin Associates" means certain Boykin Group officers and employees other
than Robert W. Boykin and John E. Boykin, and certain former employees of the
Boykin Group.

"Boykin Group" means Boykin Management Company and its Affiliates.

"Boykin Group Affiliate" means Boykin Management Company or any Affiliate
of Boykin Management Company.

"Boykin Management" means Boykin Management Company.

"Capital Expenditures Fund" means the account required by the Percentage
Leases to be maintained by the Partnership to provide a reserve for capital
expenditures on the Initial Hotels.

"Code" means the Internal Revenue Code of 1986, as amended from time to
time.

"Code of Regulations" means the Code of Regulations of the Company.

"Commission" means the United States Securities and Exchange Commission.

"Common Shares" means the Common Shares, without par value, of the Company.

"Company" means Boykin Lodging Company, an Ohio corporation, including,
when the context so requires, its subsidiaries (including the Partnership and
its subsidiaries).

"Consumer Price Index" means the "U.S. City Average, All Items" Consumer
Price Index for All Urban Consumers published by the Bureau of Labor Statistics
of the United States Department of Labor (Base: 1982-1984=100), or any successor
index thereto.

"Contributed Partnerships" means the various partnerships and limited
liability company that own the Initial Hotels.

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<PAGE> 103

"Distributable Cash Flow" means Funds From Operations less scheduled
mortgage debt amortization payments and provisions for ongoing capitalized
improvements to the Hotels.

"Exchange Right" means the right of the holders of Units to exchange each
Unit for one Common Share.

"FF&E" means furnishings, fixtures and equipment of the Initial Hotels.

"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980.

"Formation Transactions" means the principal transactions in connection
with the formation of the Company as a REIT, the formation of the Partnership
and the acquisition of the Initial Hotels by the Partnership.

"Franchise Agreements" means the existing franchise agreements relating to
the Initial Hotels.

"Funds From Operations" means income (loss) before minority interest
(computed in accordance with generally accepted accounting principles),
excluding gains (losses) from debt restructuring and sales of property
(including furniture and equipment), plus real estate related depreciation and
amortization (excluding amortization of financing costs), and after adjustments
for unconsolidated partnerships and joint ventures.

"Independent Director" means a person who is (i) independent of management
of the Company, (ii) not employed by or an officer of the Company, (iii) not an
"affiliate" (as defined in Rule 405 under the Securities Act of 1933, as
amended) of the Company or of any subsidiary of the Company, and (iv) not a
person who acts on a regular basis as an individual or representative of an
organization serving as a professional advisor, legal counsel or consultant to
management if, in the opinion of the Board of Directors, the relationship is
material to the Company, that person, or the organization represented.

"Initial Hotels" means the nine hotel properties to be acquired by the
Partnership in the Formation Transactions.

"Initial Lessee" means Boykin Management Company Limited Liability Company,
which will lease the Initial Hotels from the Partnership pursuant to the
Percentage Leases.

"Intercompany Convertible Note" means the $40 million loan from the Company
to the Partnership.

"IRS" means the United States Internal Revenue Service.

"Limited Partners" means the limited partners of the Partnership.

"Offering" means the offering of Common Shares of the Company pursuant to
this Prospectus.

"Other Partners" means the partners in the Contributed Partnerships who are
not Boykin Group Affiliates.

"Ownership Limit" means the beneficial ownership of 9.8% of the outstanding
Common Shares of the Company.

"Partnership" means Boykin Hotel Properties, L.P., a limited partnership
organized under the laws of the State of Ohio.

"Partnership Agreement" means the partnership agreement of the Partnership
as amended and restated.

"Percentage Leases" mean the operating leases between the Initial Lessee
and the Partnership pursuant to which the Initial Lessee leases the Initial
Hotels from the Partnership.

"Percentage Rent" means rent payable by the Initial Lessee pursuant to the
Percentage Leases based on percentages of room revenue, food revenue, and
beverage revenue.

99
<PAGE> 104

"Purchase Agreements" means the agreements between the Partnership and each
of the partners of the Contributed Partnerships pursuant to which the
Partnership will acquire the entire equity interest in the Contributed
Partnerships, which own the Initial Hotels.

"REIT" means a real estate investment trust as defined pursuant to Sections
856 through 860 of the Code.

"REIT requirements" means the requirements for qualifying as a REIT under
the Code and the Treasury Regulations.

"Related Party Limit" means the constructive ownership of more than 9.8% of
the outstanding Common Shares of the Company.

"Related Party Tenant" means a tenant that is owned, directly or
constructively, by a REIT or by an owner of 10% or more of a REIT.

"Representatives" means Lehman Brothers Inc., Alex. Brown & Sons
Incorporated, Dean Witter Reynolds Inc., A.G. Edwards & Sons, Inc., EVEREN
Securities, Inc. and McDonald & Company Securities, Inc.

"Rule 144" means the rule adopted by the Commission that permits holders of
restricted securities and affiliates of an issuer of securities, pursuant to
certain conditions and subject to certain restrictions, to sell publicly their
securities of the issuer without registration under the Securities Act.

"Securities Act" means the Securities Act of 1933, as amended from time to
time.

"Total Market Capitalization" means the aggregate market value of the
Company's outstanding Common Shares and total long-term debt of the Company.

"Treasury Regulations" means the Income Tax Regulations promulgated under
the Code.

"UBTI" means unrelated business taxable income as defined in Section 512(a)
of the Code.

"Underwriters" means the Underwriters named in this Prospectus.

"Underwriting Agreement" means the Underwriting Agreement between the
Company and the Underwriters.

"Units" means units of limited partnership interests in the Partnership.

100
<PAGE> 105

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BOYKIN LODGING COMPANY:
Pro Forma (Unaudited)
Condensed Consolidated Statement of Income for the Year Ended December 31, 1995...... F-3
Condensed Consolidated Statement of Income for the Twelve Months Ended June 30,
1996................................................................................. F-4
Condensed Consolidated Statement of Income for the Six Months Ended June 30, 1995.... F-5
Condensed Consolidated Statement of Income for the Six Months Ended June 30, 1996.... F-6
Notes to the Pro Forma Condensed Consolidated Statements of Income................... F-7
Condensed Consolidated Balance Sheet as of June 30, 1996............................. F-8
Notes to Pro Forma Condensed Consolidated Balance Sheet.............................. F-9
Historical
Report of Independent Public Accountants............................................. F-11
Balance Sheet as of June 30, 1996.................................................... F-12
Notes to Balance Sheet............................................................... F-13

INITIAL LESSEE:
Pro Forma (Unaudited)
Condensed Combined Statement of Operations for the Year Ended December 31, 1995...... F-17
Condensed Combined Statement of Operations for the Twelve Months Ended June 30,
1996................................................................................. F-18
Condensed Combined Statement of Operations for the Six Months Ended June 30, 1995.... F-19
Condensed Combined Statement of Operations for the Six Months Ended June 30, 1996.... F-20
Notes to Pro Forma Condensed Combined Statements of Operations....................... F-21
Condensed Combined Balance Sheet as of June 30, 1996................................. F-23
Notes to Pro Forma Condensed Combined Balance Sheet.................................. F-24

INITIAL HOTELS (EXCLUDING LAKE NORMAN HOTELS):
Historical
Report of Independent Public Accountants............................................. F-26
Combined Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996........... F-27
Combined Statements of Operations for the Years Ended December 31, 1993, 1994 and
1995
and for the Six Months Ended June 30, 1995 and 1996................................ F-28
Combined Statements of Partners' Deficit for the Years Ended December 31, 1993, 1994
and 1995 and the Six Months Ended June 30, 1996...................................... F-29
Combined Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995
and for the Six Months Ended June 30, 1995 and 1996................................ F-30
Notes to Combined Financial Statements............................................... F-31
Schedule III -- Real Estate and Accumulated Depreciation............................. F-41

LAKE NORMAN HOTELS:
Historical
Report of Independent Public Accountants............................................. F-43
Combined Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996........... F-44
Combined Statements of Operations for the Years Ended December 31, 1993, 1994, 1995,
for the six months ended June 30, 1995, the period January 1 to February 7, 1996, the
period February 8 to June 30, 1996 and the Pro Forma six months ended June 30, 1995
and 1996............................................................................. F-45
Combined Statements of Partners' Equity for the Years Ended December 31, 1993, 1994
1995, for the period January 1 to February 7, 1996 and the period February 8 to June
30, 1996............................................................................. F-46
Combined Statements of Cash Flows for the Years Ended December 31, 1993, 1994, 1995,
the six months ended June 30, 1995, the period January 1 to February 7, 1996 and the
period February 8 to June 30, 1996................................................... F-47
Notes to Combined Financial Statements............................................... F-48

BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC. AND BOPA DESIGN COMPANY:
Historical
Report of Independent Public Accountants............................................. F-53
Combined Statements of Net Assets as of March 31, 1995 and 1996 and June 30, 1996.... F-54
Combined Statements of Revenues and Expenses for the Years Ended March 31, 1994, 1995
and 1996 and the six months ended June 30, 1995 and 1996........................... F-55
Notes to Combined Financial Statements............................................... F-56
</TABLE>

F-1
<PAGE> 106

BOYKIN LODGING COMPANY

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995,
THE TWELVE MONTHS ENDED JUNE 30, 1996,
THE SIX MONTHS ENDED JUNE 30, 1995,
AND THE SIX MONTHS ENDED JUNE 30, 1996

(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)

The Company's unaudited Pro Forma Condensed Consolidated Statements of
Income for the year ended December 31, 1995, the twelve months ended June 30,
1996, and the six month periods ended June 30, 1995 and 1996 are presented as if
the consummation of the Formation Transactions had occurred as of January 1,
1995 and carried forward through each period presented. The unaudited Pro Forma
Condensed Consolidated Statement of Income for the twelve months ended June 30,
1996 is presented in conjunction with the analysis of the expected initial
distributions as set forth under the caption "Distribution Policy." Such pro
forma information is based in part upon the Pro Forma Combined Statements of
Operations of the Initial Lessee and the application of the net proceeds of the
Offering as set forth under the caption "Use of Proceeds." Such information
should be read in conjunction with the Pro Forma Combined Statements of
Operations of the Initial Lessee and the Combined Financial Statements of the
Initial Hotels listed in the Index to Financial Statements at page F-1 of this
Prospectus. In management's opinion, all adjustments necessary to reflect the
effects of the Formation Transactions have been made.

The following unaudited Pro Forma Condensed Consolidated Statements of
Income are not necessarily indicative of what actual results of operations of
the Company would have been assuming such transactions had been completed as of
the beginning of the periods presented, nor do they purport to represent the
results of operations for future periods. Further, the unaudited Pro Forma
Condensed Consolidated Statements of Income for the interim periods ended June
30, 1995 and 1996 are not necessarily indicative of the results of operations
for the full year.

F-2
<PAGE> 107

BOYKIN LODGING COMPANY

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995

(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Percentage Lease revenue.................................... $ -- $25,521(A) $25,521
---------- ----------- ---------
Depreciation................................................ -- 9,514(B) 9,514
Real estate and personal property taxes, property and
casualty insurance, and ground rent....................... -- 3,893(C) 3,893
General and administrative.................................. -- 1,450(D) 1,450
Interest expense............................................ -- 736(E) 736
Minority interest........................................... -- 1,420(F) 1,420
---------
Total expenses and minority interest................... 17,013
---------
NET INCOME ATTRIBUTABLE TO COMMON SHARES.................... $ 8,508
========
NET INCOME PER COMMON SHARE................................. $ 1.03
========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............... 8,275
========
</TABLE>

See Notes to Pro Forma Condensed Consolidated Statements of Income.

F-3
<PAGE> 108

BOYKIN LODGING COMPANY

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED JUNE 30, 1996

(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Percentage Lease revenue.................................... $ -- $27,166(A) $27,166
---------- ----------- ---------
Depreciation................................................ -- 9,514(B) 9,514
Real estate and personal property taxes, property and
casualty insurance, and ground rent -- 3,935(C) 3,935
General and administrative.................................. -- 1,450(D) 1,450
Interest expense............................................ -- 736(E) 736
Minority interest........................................... -- 1,649(F) 1,649
---------
Total expenses and minority interest................... 17,284
---------
NET INCOME ATTRIBUTABLE TO COMMON SHARES.................... $ 9,882
========
NET INCOME PER COMMON SHARE................................. $ 1.19
========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............... 8,275
========
</TABLE>

See Notes to Pro Forma Condensed Consolidated Statements of Income.

F-4
<PAGE> 109

BOYKIN LODGING COMPANY

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1995

(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Percentage Lease revenue.................................... $ -- $12,277(A) $12,277
---------- ----------- ---------
Depreciation................................................ -- 4,757(B) 4,757
Real estate and personal property taxes, property and
casualty insurance, and ground rent....................... -- 1,973(C) 1,973
General and administrative.................................. -- 725(D) 725
Interest expense............................................ -- 368(E) 368
Minority interest........................................... -- 637(F) 637
---------
Total expenses and minority interest................... 8,460
---------
NET INCOME ATTRIBUTABLE TO COMMON SHARES.................... $ 3,817
========
NET INCOME PER COMMON SHARE................................. $ 0.46
========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............... 8,275
========
</TABLE>

See Notes to Pro Forma Condensed Consolidated Statements of Income.

F-5
<PAGE> 110

BOYKIN LODGING COMPANY

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996

(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Percentage Lease revenue.................................... $ -- $13,922(A) $13,922
---------- ----------- ---------
Depreciation................................................ -- 4,757(B) 4,757
Real estate and personal property taxes, property and
casualty insurance, and ground rent....................... -- 2,015(C) 2,015
General and administrative.................................. -- 725(D) 725
Interest expense............................................ -- 368(E) 368
Minority interest........................................... -- 866(F) 866
---------
Total expenses and minority interest................... 8,731
---------
NET INCOME ATTRIBUTABLE TO COMMON SHARES.................... $ 5,191
========
NET INCOME PER COMMON SHARE................................. $ 0.63
========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............... 8,275
========
</TABLE>

See Notes to Pro Forma Condensed Consolidated Statements of Income.

F-6
<PAGE> 111

BOYKIN LODGING COMPANY

NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)

(A) Represents lease payments from the Initial Lessee to the Partnership
calculated on a pro forma basis by applying the rent provisions of the
Percentage Leases to the pro forma revenues of the Initial Hotels, as well
as an additional $725 of Percentage Lease payments required for the year
ended December 31, 1995 and the 12 months ended June 30, 1996 pursuant to
the rental interruption insurance provisions of the Percentage Lease
agreements. The rent formula utilized in computing the pro forma Percentage
Lease revenues includes for the calendar year 1995 an adjustment to reduce
the threshold revenue amounts in the Percentage Lease formulas by the 2.5%
increase in the Consumer Price Index for that year. See "The Initial
Lessee -- The Percentage Leases" for the Percentage Lease formulas.

(B) Represents depreciation of the Initial Hotel properties. Depreciation is
computed using the straight-line method and is based upon the estimated
useful lives of 30 years for buildings and improvements and 7 years for
furniture and equipment. These estimated useful lives are based on
management's knowledge of the properties and the hotel industry in general.

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

<TABLE>
<CAPTION>
CONTRIBUTED LAKE NORMAN
HOTELS HOTELS TOTAL
----------- ----------- --------
<S> <C> <C> <C>
Land.................................... $ 11,638 $ 1,430 $ 13,068
Buildings and improvements.............. 71,570 8,457 80,027
Furniture, fixtures and equipment....... 20,704 1,494 22,198
----------- ----------- --------
$ 103,912 $11,381 $115,293
======== ========== ========
</TABLE>

(C) Represents real estate and personal property taxes, property and casualty
insurance, and ground rent expense to be paid by the Partnership. Such
amounts were derived from historical amounts paid by the Initial Hotels.
Historical real estate tax expense has been increased on a pro forma basis
by $200 per annum due to estimated reassessments of the property values
resulting from the Formation Transactions of the Initial Hotels.

(D) Represents general and administrative expenses to be paid by the
Partnership. These amounts are based on historical general and
administrative expenses, the employment contracts discussed in "Management
-- Executive Compensation" and "Management -- Employment Contracts," as well
as probable 1996 expenses.

<TABLE>
<S> <C>
Salaries and wages.................................. $ 745
Professional fees................................... 150
Directors' and officers' insurance.................. 250
Directors' fees and expenses........................ 100
Other operating expenses............................ 205
------
$1,450
======
</TABLE>

(E) Represents (i) interest expense at 7.375% on $5,000 of pro forma borrowings
against the Credit Facility in connection with the completion of the
Formation Transactions, and (ii) amortization of debt issue costs associated
with the Credit Facility. Debt issue costs of $1,100 are being amortized on
a straight-line basis over a three-year term. Pro forma amortization expense
is $367 for each of the year ended December 31, 1995 and the twelve months
ended June 30, 1996, and is $184 for each of the six month periods ended
June 30, 1995 and June 30, 1996.

(F) Calculated at 14.3% of the income of the Partnership.

F-7
<PAGE> 112

BOYKIN LODGING COMPANY

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996

(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)

The unaudited Pro Forma Condensed Consolidated Balance Sheet is presented
as if the consummation of the Formation Transactions and the application of the
net proceeds of the Offering as set forth under the caption "Use of Proceeds"
had occurred on June 30, 1996. Such pro forma information is based in part upon
the combined balance sheets of the Initial Hotels. It should be read in
conjunction with the financial statements listed in the Index to Financial
Statements at page F-1 of this Prospectus. In management's opinion, all
adjustments necessary to reflect the effects of these transactions have been
made.

This unaudited Pro Forma Condensed Consolidated Balance Sheet is not
necessarily indicative of what the actual financial position would have been
assuming such transactions had been completed as of June 30, 1996, nor does it
purport to represent the future financial position of the Company.

<TABLE>
<CAPTION>
HISTORICAL (A)
--------------------
COMBINED LAKE
CONTRIBUTED NORMAN PRO FORMA PRO
HOTELS HOTELS ADJUSTMENTS FORMA
-------- -------- --------- --------
<S> <C> <C> <C> <C>
ASSETS
INVESTMENT IN HOTEL PROPERTIES, net............ $ 68,204 $ 9,438 $ 37,651(B) $115,293
CASH AND CASH EQUIVALENTS...................... 3,847 359 (3,116)(C) 1,090
ACCOUNTS RECEIVABLE, net....................... 4,307 216 (4,523)(D) --
INVENTORIES, PREPAID EXPENSES AND OTHER
ASSETS....................................... 4,823 48 (4,526)(D) 345
DEFERRED EXPENSES, net......................... 2,240 404 (1,544)(E) 1,100
-------- -------- --------- --------
Total assets.............................. $ 83,421 $ 10,465 $ 23,942 $117,828
======== ======== ========= ========
LIABILITIES AND EQUITY
MORTGAGE NOTES PAYABLE......................... $123,726 $ 9,618 $(133,344)(F) $ --
BORROWINGS AGAINST CREDIT FACILITY............. -- -- 5,000(G) 5,000
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER
LIABILITIES.................................. 9,162 391 (7,562)(D) 1,991
ADVANCES FROM AND ACCRUED INTEREST DUE TO
PARTNERS..................................... 7,725 -- (7,725)(H) --
MINORITY INTEREST IN PARTNERSHIP............... -- -- 15,850(I) 15,850
-------- -------- --------- --------
Total liabilities......................... 140,613 10,009 (127,781) 22,841
-------- -------- --------- --------
EQUITY:
Combined accumulated equity (deficit)........ (57,192) 456 56,736(J) --
Common stock and capital surplus............. -- -- 101,805(K) 101,805
Retained earnings............................ -- -- (6,818)(L) (6,818)
-------- -------- --------- --------
Total equity.............................. (57,192) 456 151,723 94,987
-------- -------- --------- --------
Total liabilities and equity.............. $ 83,421 $ 10,465 $ 23,942 $117,828
======== ======== ========= ========
</TABLE>

See Notes to Pro Forma Condensed Consolidated Balance Sheet.

F-8
<PAGE> 113

BOYKIN LODGING COMPANY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)

(A) Reflects the historical combined balance sheets as of June 30, 1996 of the
Initial Hotels.

(B) Increase in investment in hotel properties attributable to the application
of purchase accounting to those properties in which persons not affiliated
with the Boykin Group exchanged their interests for Units of the Partnership
or cash, and persons affiliated with the Boykin Group exchanged their
interests for cash. In addition, reflects the payment of transfer taxes and
other direct costs of acquisition as an increase to the investment in hotel
properties.

<TABLE>
<CAPTION>
CONTRIBUTED LAKE NORMAN
HOTELS HOTELS TOTAL
----------- ----------- -------
<S> <C> <C> <C>
Cash purchase price............................. $ 9,111 $ -- $ 9,111(a)
Value of Units issued........................... 1,138 1,738 2,876(b)
Transfer taxes and other direct costs of
acquisition................................... 1,249 31 1,280(c)
Historical capital account deficit of
nonaffiliated persons in Initial Hotels....... 24,210 174 24,384(d)
----------- ----------- -------
Purchase accounting writeup $35,708 $ 1,943 $37,651
======== ========== =======
</TABLE>

The exchanges of ownership interests by Boykin Group Affiliates for Units
in the Partnership do not result in adjustments to historical basis as such
transactions are between entities under common control.

<TABLE>
<S> <C>
Proceeds of the Offering............................................. $ 165,500(e)
Expenses of the Offering............................................. (13,988)(f)
Proceeds from borrowing against Credit Facility...................... 5,000
Debt issue costs related to the Credit Facility...................... (1,100)(o)
Retirement of mortgage notes payable (See (F))....................... (133,344)
Prepayment penalties and other fees on retirement of mortgage notes
payable............................................................ (4,508)(g)
Retirement of partner advances and accrued interest (See (G))........ (7,725)
Cash purchase price of hotel property acquisitions................... (9,111)(a)
Payment of transfer taxes and other direct costs of acquiring Initial
Hotels............................................................. (1,280)(c)
Reimbursements to (from) the Partnership for prorated expenses:
Prepaid expenses................................................... (345)(h)
Accrued expenses................................................... 1,991(i)
Cash and cash equivalents not being purchased........................ (4,206)(j)
---------
$ (3,116)
=========
</TABLE>

(D) Decrease reflects assets and liabilities of the Initial Hotels which are not
being purchased.

(E) Net decrease reflects deferred expenses not being purchased by the Company
and the writeoff of deferred financing costs in conjunction with the
repayment of mortgage notes payable of the Initial Hotels, partially offset
by debt issue costs related to the Credit Facility.

<TABLE>
<S> <C>
Deferred expenses not being purchased by the Company....................... $ (334)(k)
Write-off of deferred financing costs...................................... (2,310)(l)
Debt issue costs related to the Credit Facility............................ 1,100(o)
-------
$(1,544)
=======
</TABLE>

(F) Decrease reflects the repayment of historical mortgage notes payable of the
Initial Hotels with a portion of the proceeds from the Offering.

F-9
<PAGE> 114

BOYKIN LODGING COMPANY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
AS OF JUNE 30, 1996

(G) Reflects initial borrowing against the Credit Facility in connection with
the completion of the Formation Transactions.

(H) Decrease reflects the repayment of partner advances and accrued interest
thereon with a portion of the proceeds of the Offering.

(I) Represents the recognition of minority interest in the Partnership that will
not be owned by the Company. Adjustment reflects the following:

<TABLE>
<S> <C>
Value of Units issued to nonaffiliated persons.................. $ 2,876(b)
Minority interest applicable to affiliated persons.............. 12,974(m)
-------
$15,850
=======
</TABLE>

The manner in which the value assigned to minority interest was determined
is as follows:

<TABLE>
<S> <C>
Total equity of the Partnership................................ $110,837
Minority interest percentage................................... 14.3%
--------
$ 15,850
========
</TABLE>

(J) Adjustment reflects the following:

<TABLE>
<S> <C>
Historical capital account deficit of nonaffiliated persons.......... $ 24,384(d)
Assets and liabilities of the Initial Hotels not purchased:
Cash and cash equivalents.......................................... (4,206)(j)
Accounts receivable (See (D))...................................... (4,523)
Inventories, prepaid expenses and other assets (See (D))........... (4,526)
Deferred expenses, net............................................. (334)(k)
Accounts payable, accrued expenses and other liabilities (See
(D))............................................................ 7,562
Reimbursements to (from) the Partnership for prorated expenses:
Prepaid expenses................................................... (345)(h)
Accrued expenses................................................... 1,991(i)
Recognition of minority interest in the Partnership applicable to
affiliated persons................................................. (12,974)(m)
Transfer of balance to common stock.................................. 49,707(n)
--------
$ 56,736
========
</TABLE>

(K) Net increase reflects the following proposed transactions:

<TABLE>
<S> <C>
Proceeds of the Offering............................................. $165,500(e)
Expenses of the Offering............................................. (13,988)(f)
Transfer of balance from combined equity of the Initial Hotels....... (49,707)(n)
--------
$101,805
========
</TABLE>

(L) Reflects the payment of prepayment penalties and other fees and the writeoff
of deferred financing costs in conjunction with the repayment of the
mortgage notes payable of the Initial Hotels with a portion of the proceeds
from the Offering.

<TABLE>
<S> <C>
Prepayment penalties and other fees........... $4,508(g)
Writeoff of deferred financing costs.......... 2,310(l)
------
$6,818
======
</TABLE>

F-10
<PAGE> 115

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO BOYKIN LODGING COMPANY:

We have audited the accompanying balance sheet of Boykin Lodging Company
(an Ohio corporation) as of June 30, 1996. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.

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

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Boykin Lodging Company as of June
30, 1996, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Cleveland, Ohio,
July 25, 1996.

F-11
<PAGE> 116

BOYKIN LODGING COMPANY

BALANCE SHEET
JUNE 30, 1996

ASSETS

<TABLE>
<S> <C>
CASH..................................................................... $100
====
STOCKHOLDERS' EQUITY
PREFERRED SHARES, without par value, 10,000,000 shares authorized, no
shares issued and outstanding.......................................... $ --
COMMON SHARES, without par value, 40,000,000 shares authorized, 1 share
issued and outstanding................................................. --
ADDITIONAL PAID-IN CAPITAL............................................... 100
----
Total stockholders' equity $100
====
</TABLE>

The accompanying notes are an integral part of this balance sheet.

F-12
<PAGE> 117

BOYKIN LODGING COMPANY

NOTES TO BALANCE SHEET
AS OF JUNE 30, 1996

1. ORGANIZATION AND BASIS OF BALANCE SHEET PRESENTATION:

Boykin Lodging Company (the Company) was incorporated February 8, 1996 to
acquire equity interests in existing hotel properties and to selectively
consider the development of new hotels. The Company expects to qualify as a real
estate investment trust for federal income tax purposes. The Company intends to
offer for sale 8,275,000 shares of common stock in an initial public offering
(the Offering). The Company has had no operations during the period from
inception through June 30, 1996.

Upon completion of the Offering, the Company will contribute substantially
all of the net proceeds of the Offering to Boykin Hotel Properties, L.P., a
limited partnership (the Partnership) in exchange for an equity interest in the
Partnership and will provide a $40 million Intercompany Convertible Note (the
Note) to the Partnership. The Note will mature on the fifth anniversary of the
closing of the Offering. Interest on the Note will accrue at a rate equal to
9.5% per annum, increasing to 9.75% per annum on the third anniversary of the
completion of the Offering, and will be payable quarterly. The Note may be
prepaid in full, but not in part, at any time. The Company will have the right
to convert the Note after the second anniversary of the completion of the
Offering, and prior to maturity and in advance of any proposed prepayment by the
Partnership, into additional equity interests in the Partnership at face value
based on the initial offering price of the Company's Common Shares (and assuming
that the value of one Partnership Unit equals the value of one Common Share). On
conversion of the Note, the Company will receive an additional equity interest
in the Partnership of 3.7%. Assuming conversion of the Note, the Company will
have an 85.7% equity interest in the Partnership. The Company will be the sole
general partner of the Partnership. The Note will be secured by mortgages on
certain of the Initial Hotels, defined below. The Partnership will use a
substantial portion of the proceeds from the Company and will issue limited
partnership interests representing approximately 14.3% (after conversion of the
Note) of the Partnership to acquire nine hotel properties (the Initial Hotels)
from various entities, to finance certain capital improvements, and for general
working capital purposes. The Partnership will lease the Initial Hotels to
Boykin Management Company Limited Liability Company (the Initial Lessee)
pursuant to leases which contain provisions for rent based on the revenues of
the Initial Hotels (the Percentage Leases). Each Percentage Lease obligates the
Initial Lessee to pay rent equal to the greater of the minimum rent or a
percentage rent based on the gross revenues of each Initial Hotel. The Initial
Lessee will hold the franchise agreement for each Initial Hotel.

Pursuant to the Partnership Agreement, the limited partners of the
Partnership will receive Exchange Rights, which will enable them to cause the
Company to pay cash for their interests in the Partnership, or at the Company's
election, to exchange common shares for such interests. The Exchange Rights may
be exercised in whole or in part. The number of Common Shares initially issuable
to the limited partners upon exercise of the Exchange Rights is 1,378,000. The
number of shares issuable upon exercise of the Exchange Rights will be adjusted
upon the occurrence of stock 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 shareholders of the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Distributions

The Company intends to make regular quarterly distribution which are
dependent upon receipt of distributions from the Partnership.

Acquisitions of Initial Hotels

In accounting for the acquisitions of the Initial Hotels discussed in Note
1, purchase accounting will be applied to those hotel properties in which (i)
non-affiliated persons exchange their interests for Units of the Partnership or
cash, or (ii) affiliated persons exchange their interests for cash
consideration. The exchange of

F-13
<PAGE> 118

BOYKIN LODGING COMPANY

NOTES TO BALANCE SHEET -- (CONTINUED)
AS OF JUNE 30, 1996

ownership interests by affiliated persons for Units of the Partnership will not
result in purchase accounting adjustments to historical basis as such
transactions will be between entities under common control.

3. DESCRIPTION OF CAPITAL STOCK:

Common Shares

Preferred Shares

The Board of Directors is authorized to provide for the issuance of two
classes of preferred shares (collectively, the Preferred Shares), each in one or
more series, to establish the number of shares in each series and to fix the
designation, powers, preferences and rights (other than voting rights) of each
series and the qualifications, limitations or restrictions thereon. An aggregate
of ten million Preferred Shares are authorized. Because the Board of Directors
has the power to establish the preferences and rights of each series of
Preferred Shares, the Board of Directors may afford the holders of any series of
Preferred Shares preferences, powers and rights senior to the rights of holders
of Common Shares. The issuance of Preferred Shares could have the effect of
delaying or preventing a change in control of the Company. The Company has no
present intention to issue Preferred Shares.

4. EMPLOYEE BENEFITS:

Long-Term Incentive Plan

Grants of incentive or nonqualified share options, restricted shares,
deferred shares, share purchase rights and share appreciation rights in tandem
with options, or any combination thereof, may be made under the plan. Eligible
employees of the Company may participate in the long-term incentive plan.
Members of the Compensation Committee are not eligible to participate in the
long-term incentive plan. The Company has reserved 1,000,000 Common Shares for
issuance under the plan. Upon the Closing, Robert W. Boykin, Raymond P. Heitland
and Mark L. Bishop will be granted options to purchase 250,000, 75,000 and
75,000 shares, respectively, under the long-term incentive plan. These grants
will be made at the initial public offering price. The Company will follow the
disclosure option in Statement of Financial Accounting Standards No. 123 and
accordingly no expense will be recognized for these options.

The long-term incentive plan provides for vesting, exercise or forfeiture
of rights granted under the long-term incentive plan on retirement, death,
disability, termination of employment or a change of control. The Board of
Directors may modify, suspend or terminate the long-term incentive plan as long
as it does not impair the rights thereunder of any participant. Under applicable
law, the holders of Common Shares must approve any increase in the maximum
number of shares reserved for issuance under the long-term incentive plan, any
change in the classes of employees eligible to participate in the long-term
incentive plan and any material increase in the benefits accruing to
participants.

F-14
<PAGE> 119

BOYKIN LODGING COMPANY

NOTES TO BALANCE SHEET -- (CONTINUED)
AS OF JUNE 30, 1996

Compensation of Directors

Each independent director will receive an option for 5,000 Common Shares
exercisable at the initial public offering price of the Common Shares. These
options will vest fully within the first two years of issuance and will have a
term of ten years.

Employment Contracts

The Company will enter into an employment contract with Robert W. Boykin,
the Company's Chairman of the Board, President and Chief Executive Officer, at
an initial annual base compensation of $250,000. The employment contract with
Mr. Boykin provides for an initial three year term that is automatically
extended for an additional year at the end of each year of the agreement,
subject to the right of either party to terminate the agreement by giving two
years' prior notice. In addition, the Company will enter into employment
contracts with two other executive officers at an aggregate annual base
compensation of $290,000. These contracts provide for an initial one year term
that is automatically extended for an additional year at the end of each year of
the agreement, subject to the right of either party to terminate the agreement
by giving six months' prior notice.

In addition, each employment contract provides for the payment of a bonus
based upon specified percentages of annual base salary in the event that
specified operating results are achieved.

F-15
<PAGE> 120

INITIAL LESSEE

PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS

The Initial Lessee's unaudited Pro Forma Condensed Combined Statements of
Operations for the year ended December 31, 1995, the twelve months ended June
30, 1996, and the six month periods ended June 30, 1995 and 1996, respectively,
are presented as if the consummation of the Formation Transactions had occurred
as of January 1, 1995 and carried forward through each period presented. The
unaudited Pro Forma Condensed Combined Statement of Operations for the twelve
months ended June 30, 1996 is presented in conjunction with the analysis of the
expected initial distributions as set forth under the caption "Distribution
Policy." Such pro forma information is based upon the combined statements of
operations of the Initial Hotels and the combined statements of revenues and
expenses of Boykin Management Company, Purchasing Concepts, Inc. and Bopa Design
Company. It should be read in conjunction with the financial statements listed
in the Index to Financial Statements at page F-1 of this Prospectus. In
management's opinion, all adjustments necessary to reflect the effects of the
Formation Transactions have been made. The Initial Lessee will be structured as
a pass through entity for income tax purposes and, accordingly, no provision for
income taxes has been provided.

These unaudited Pro Forma Condensed Combined Statements of Operations are
not necessarily indicative of what the actual results of operations of the
Initial Lessee would have been assuming that the Formation Transactions had been
completed as of the beginning of the periods presented, nor do they purport to
represent the results of operations for future periods. Further, the unaudited
Pro Forma Condensed Combined Statement of Operations for the interim periods
ended June 30, 1995 and 1996 are not necessarily indicative of the results of
operations for the full year.

F-16
<PAGE> 121

INITIAL LESSEE

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995

(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------
(A) (B) INITIAL PRO
(A) LAKE ADJUSTMENTS HOTELS (C) FORMA
CONTRIBUTED NORMAN TO CONFORM COMBINED INITIAL PRO FORMA INITIAL
HOTELS HOTELS YEAR-ENDS HISTORICAL LESSEE ADJUSTMENTS LESSEE
---------- -------- ---------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Room revenue..................... $ 50,730 $ 3,764 $ 291 $54,785 $ -- $ -- $54,785
Food and beverage revenue........ 22,984 -- 59 23,043 -- 600(D) 23,643
Other revenue -- Initial
Hotels......................... 4,490 124 29 4,643 -- -- 4,643
Other revenue -- Initial
Lessee......................... -- -- -- -- 8,737 (6,686)(E) 2,051
---------- -------- ---------- --------- -------- ---------- --------
Total revenues................. 78,204 3,888 379 82,471 8,737 (6,086) 85,122
---------- -------- ---------- --------- -------- ---------- --------
EXPENSES:
Departmental expenses of Initial
Hotels:
Rooms.......................... 11,896 1,025 48 12,969 -- (65)(F) 12,904
Food and beverage.............. 16,597 -- (57) 16,540 -- 500(G) 17,040
Other.......................... 2,313 78 15 2,406 -- -- 2,406
Cost of goods sold of Initial
Lessee......................... -- -- -- -- 3,720 (2,466)(H) 1,254
General and administrative....... 6,832 368 23 7,223 2,733 (603)(I) 9,353
Advertising and promotion........ 3,253 194 (2) 3,445 -- -- 3,445
Utilities........................ 3,245 207 19 3,471 -- -- 3,471
Management fees.................. 3,280 115 20 3,415 -- (3,415)(J) --
Franchisor royalties and other
charges........................ 3,813 271 30 4,114 -- -- 4,114
Repairs and maintenance.......... 3,771 182 (5) 3,948 -- -- 3,948
Real estate and personal property
taxes, property and casualty
insurance, and ground rent..... 3,579 106 8 3,693 105 (3,693)(K) 105
Interest expense................. 14,169 415 7 14,591 170 (14,761)(L) --
Depreciation and amortization.... 6,545 466 -- 7,011 85 (6,996)(M) 100
Unallocated business interruption
income......................... (474) -- -- (474) -- -- (474 )
Gain on property insurance
recovery....................... (670) -- -- (670) -- 670(N) --
Other............................ 103 (3 ) 39 139 -- 50(O) 189
Percentage Lease payments........ -- -- -- -- -- 25,521(P) 25,521
---------- -------- ---------- --------- -------- ---------- --------
Total expenses............ 78,252 3,424 145 81,821 6,813 (5,258) 83,376
---------- -------- ---------- --------- -------- ---------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS............................ $ (48) $ 464 $ 234 $ 650 $ 1,924 $ (828) $ 1,746
=========== ========= =========== ========== ========= =========== =========
</TABLE>

See Notes to Pro Forma Condensed Combined Statements of Operations.

F-17
<PAGE> 122

INITIAL LESSEE

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 30, 1996

(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------
(A) INITIAL PRO
(A) LAKE HOTELS (C) PRO FORMA
CONTRIBUTED NORMAN COMBINED INITIAL FORMA INITIAL
HOTELS HOTELS HISTORICAL LESSEE ADJUSTMENTS LESSEE
---------- -------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Room revenue............................... $ 53,235 $ 4,063 $ 57,298 $ -- $ -- $57,298
Food and beverage revenue.................. 23,395 223 23,618 -- 362 (D) 23,980
Other revenue -- Initial Hotels............ 4,626 134 4,760 -- -- 4,760
Other revenue -- Initial Lessee............ -- -- -- 8,700 (6,430 )(E) 2,270
---------- -------- ---------- --------- -------- --------
Total revenues........................... 81,256 4,420 85,676 8,700 (6,068 ) 88,308
---------- -------- ---------- --------- -------- --------
EXPENSES:
Departmental expenses of
Initial Hotels:
Rooms.................................... 12,415 1,019 13,434 -- (55 )(F) 13,379
Food and beverage........................ 16,788 220 17,008 -- 300 (G) 17,308
Other.................................... 2,377 82 2,459 -- -- 2,459
Cost of goods sold of Initial Lessee....... -- -- -- 3,528 (2,090 )(H) 1,438
General and administrative................. 6,987 402 7,389 2,896 (651 )(I) 9,634
Advertising and promotion.................. 3,385 196 3,581 -- -- 3,581
Utilities.................................. 3,312 208 3,520 -- -- 3,520
Management fees............................ 3,537 147 3,684 -- (3,684 )(J) --
Franchisor royalties and other charges..... 4,182 287 4,469 -- -- 4,469
Repairs and maintenance.................... 3,773 213 3,986 -- -- 3,986
Real estate and personal property taxes,
property and casualty insurance, and
ground rent.............................. 3,632 103 3,735 101 (3,735 )(K) 101
Interest expense........................... 15,091 415 15,506 150 (15,656 )(L) --
Depreciation and amortization.............. 7,083 466 7,549 86 (7,529 )(M) 106
Unallocated business interruption income... (474) -- (474) -- -- (474 )
Gain on property insurance recovery........ (670) -- (670) -- 670 (N) --
Other...................................... 180 (1 ) 179 (4) 71 (O) 246
Percentage Lease payments.................. -- -- -- -- 27,166 (P) 27,166
---------- -------- ---------- --------- -------- --------
Total expenses........................... 81,598 3,757 85,355 6,757 (5,193 ) 86,919
---------- -------- ---------- --------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS..... $ (342) $ 663 $ 321 $ 1,943 $ (875 ) $ 1,389
=========== ========= =========== ========== ========= =========
</TABLE>

See Notes to Pro Forma Condensed Combined Statements of Operations.

F-18
<PAGE> 123

INITIAL LESSEE

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995

(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------
(A) INITIAL PRO
(A) LAKE HOTELS (A) PRO FORMA
CONTRIBUTED NORMAN COMBINED INITIAL FORMA INITIAL
HOTELS HOTELS HISTORICAL LESSEE ADJUSTMENTS LESSEE
---------- -------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Room revenue............................... $ 25,631 $ 1,767 $ 27,398 $ -- $ -- $27,398
Food and beverage revenue.................. 11,411 -- 11,411 -- 300 (D) 11,711
Other revenue -- Initial Hotels............ 2,159 78 2,237 -- -- 2,237
Other revenue -- Initial Lessee............ -- -- -- 4,389 (3,347 )(E) 1,042
---------- -------- ---------- --------- -------- --------
Total revenues........................... 39,201 1,845 41,046 4,389 (3,047 ) 42,388
---------- -------- ---------- --------- -------- --------
EXPENSES:
Departmental expenses of Initial Hotels:
Rooms.................................... 5,886 495 6,381 -- (24 )(F) 6,357
Food and beverage........................ 8,103 -- 8,103 -- 250 (G) 8,353
Other.................................... 1,126 45 1,171 -- -- 1,171
Cost of goods sold of Initial Lessee....... -- -- -- 2,025 (1,514 )(H) 511
General and administrative................. 3,436 200 3,636 1,330 (298 )(I) 4,668
Advertising and promotion.................. 1,597 77 1,674 -- -- 1,674
Utilities.................................. 1,625 98 1,723 -- -- 1,723
Management fees............................ 1,551 111 1,662 -- (1,662 )(J) --
Franchisor royalties and other charges..... 1,797 127 1,924 -- -- 1,924
Repairs and maintenance.................... 1,910 91 2,001 -- -- 2,001
Real estate and personal property taxes,
property and casualty insurance, and
ground rent.............................. 1,818 55 1,873 58 (1,873 )(K) 58
Interest expense........................... 6,452 759 7,211 91 (7,302 )(L) --
Depreciation and amortization.............. 2,990 289 3,279 40 (3,272 )(M) 47
Other...................................... 130 -- 130 13 (29 )(O) 114
Percentage Lease payments.................. -- -- -- -- 12,277 (P) 12,277
---------- -------- ---------- --------- -------- --------
Total expenses........................... 38,421 2,347 40,768 3,557 (3,447 ) 40,878
---------- -------- ---------- --------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS..... $ 780 $ (502 ) $ 278 $ 832 $ 398 $ 1,510
=========== ========= =========== ========== ========= =========
</TABLE>

See Notes to Pro Forma Condensed Combined Statements of Operations.

F-19
<PAGE> 124

INITIAL LESSEE

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996

(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------
(A) INITIAL PRO
(A) LAKE HOTELS (A) PRO FORMA
CONTRIBUTED NORMAN COMBINED INITIAL FORMA INITIAL
HOTELS HOTELS HISTORICAL LESSEE ADJUSTMENTS LESSEE
---------- -------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Room revenue............................... $ 27,845 $ 2,066 $ 29,911 $ -- $ -- $29,911
Food and beverage revenue.................. 11,763 223 11,986 -- 62 (D) 12,048
Other revenue -- Initial Hotels............ 2,266 88 2,354 -- -- 2,354
Other revenue -- Initial Lessee............ -- -- -- 4,678 (3,323 )(E) 1,355
---------- -------- ---------- --------- -------- --------
Total revenues........................... 41,874 2,377 44,251 4,678 (3,261 ) 45,668
---------- -------- ---------- --------- -------- --------
EXPENSES:
Departmental expenses of Initial Hotels:
Rooms.................................... 6,357 489 6,846 -- (13 )(F) 6,833
Food and beverage........................ 8,351 220 8,571 -- 50 (G) 8,621
Other.................................... 1,175 49 1,224 -- -- 1,224
Cost of goods sold of Initial Lessee....... -- -- -- 1,894 (1,138 )(H) 756
General and administrative................. 3,568 234 3,802 1,586 (346 )(I) 5,042
Advertising and promotion.................. 1,731 79 1,810 -- -- 1,810
Utilities.................................. 1,673 99 1,772 -- -- 1,772
Management fees............................ 1,788 143 1,931 -- (1,931 )(J) --
Franchisor royalties and other charges..... 2,136 143 2,279 -- -- 2,279
Repairs and maintenance.................... 1,917 122 2,039 -- -- 2,039
Real estate and personal property taxes,
property and casualty insurance, and
ground rent.............................. 1,863 52 1,915 62 (1,915 )(K) 62
Interest expense........................... 7,367 759 8,126 62 (8,188 )(L) --
Depreciation and amortization.............. 3,528 289 3,817 40 (3,804 )(M) 53
Other...................................... 168 2 170 2 (8 )(O) 164
Percentage Lease payments.................. -- -- -- -- 13,922 (P) 13,922
---------- -------- ---------- --------- -------- --------
Total expenses........................... 41,622 2,680 44,302 3,646 (3,371 ) 44,577
---------- -------- ---------- --------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS..... $ 252 $ (303 ) $ (51) $ 1,032 $ 110 $ 1,091
=========== ========= =========== ========== ========= =========
</TABLE>

See Notes to Pro Forma Condensed Combined Statements of Operations.

F-20
<PAGE> 125

INITIAL LESSEE

NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS

(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)

(A) Derived from the historical combined financial statements of the Initial
Hotels for the period presented.

(B) Conforms the operating results of the Initial Hotel having a September 30
fiscal year-end to a December 31, 1995 year-end by adding the operating
results of that Initial Hotel for the period October 1 to December 31, 1995
and subtracting the operating results of that Initial Hotel for the
corresponding interim period of the prior year.

(C) For the year ended December 31, 1995, includes the operating results of
Boykin Management Company (BMC) for the year ended March 31, 1996 and the
operating results of Purchasing Concepts, Inc. (PCI) and Bopa Design
Company (Spectrum Services) for the year ended December 31, 1995. Such
amounts are derived from the historical combined statement of revenues and
expenses of BMC, PCI and Spectrum Services. In the opinion of management,
the effect of nonconforming period ends is not material. For the twelve
months ended June 30, 1996, and the six month periods ended June 30, 1995
and 1996, the period ends of BMC, PCI and Spectrum Services have been
combined using the same months and periods. In preparing the pro forma
statement of operations of the Initial Lessee for the twelve months ended
June 30, 1996, the period end of BMC has been conformed to June 30, 1996 by
adding its historical operating results for the three-month period April 1
to June 30, 1996 to its historical fiscal year-end operating results for
the fiscal year ended March 31, 1996 and then subtracting its historical
operating results for the three-month period April 1 to June 30, 1995.

(D) From August 1993 until February 1996, the catering, meeting, lounge and
restaurant facilities of the Lake Norman Holiday Inn were operated by a
third-party operator. In February 1996, when a Boykin Affiliate purchased
the hotel facility, it also purchased the food and beverage business assets
of this operator. This adjustment represents the approximate food and
beverage revenues of this operator for the period indicated, based upon
actual historical revenue information obtained by the Company.

(E) Reflects the elimination of management fees charged to the Initial Hotels
by BMC, the elimination of intercompany sales from PCI and Spectrum
Services to the Initial Hotels, and the elimination of interest income
earned by BMC on the advances due from Boykin Columbus Joint Venture; such
advances will be retired in connection with the Formation Transactions.

<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
YEAR ENDED ENDED JUNE ENDED JUNE 30,
DECEMBER 31, 30, ------------------
1995 1996 1995 1996
------------ ------------- ------- -------
<S> <C> <C> <C> <C>
Management fees charged to Initial Hotels... $ (3,600) $(3,736) $(1,521) $(1,889)
Intercompany sales to Initial Hotels:
PCI.................................... (136) (134) (64) (62)
Spectrum Services...................... (2,683) (2,274) (1,647) (1,238)
Interest income on advances to Boykin
Columbus
Joint Venture.......................... (267) (286) (115) (134)
------------ ------------- ------- -------
($ 6,686) $(6,430) $(3,347) $(3,323)
========== =========== ======= =======
</TABLE>

(F) Prior to February 1996, the Lake Norman Hotels provided complimentary
breakfasts to their guests. In February 1996, when a Boykin Affiliate
purchased the Lake Norman Hotels, the practice of providing complimentary
breakfasts was terminated at one of the Lake Norman Hotels. This adjustment
eliminates the historical expense associated with the complimentary
breakfasts at that hotel.

(G) Reflects operating costs associated with the food and beverage operations
discussed in (D).

(H) Reflects the cost of sales related to the Spectrum Services revenues
eliminated in (E).

F-21
<PAGE> 126

(I) Decrease reflects (i) the elimination of expenses related to the PCI
revenues eliminated in (E), and (ii) the elimination of estimated general
and administrative expenses of BMC which will be incurred by the
Partnership. The expenses to be incurred by the Partnership primarily
relate to administrative salaries.

<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
YEAR ENDED ENDED JUNE ENDED JUNE 30,
DECEMBER 31, 30, ------------------
1995 1996 1995 1996
------------ ------------- ------- -------
<S> <C> <C> <C> <C>
Expenses recorded by Initial Hotels
in connection with purchases
from PCI.................................. $ (136) $ (134) $ (64) $ (62)
General and administrative expenses
of BMC to be incurred by the
Partnership............................... (467) (517) (234) (284)
------------ ------------- ------- -------
$ (603) $ (651) $ (298) $ (346)
========== =========== ======= =======
</TABLE>

(J) Reflects the elimination of management fee expense of the Initial Hotels
related to the management fee revenues eliminated in (E).

(K) Reflects the elimination of real estate and personal property taxes,
property and casualty insurance, and ground rent expenses to be paid by the
Partnership.

(L) Reflects the elimination of (i) mortgage interest expense of the Initial
Hotels due to the expected repayment of such debt with a portion of the
proceeds from the Offering, and (ii) interest expense on note payable
obligations of BMC which are expected to be retired in connection with the
formation and capitalization of the Initial Lessee.

(M) Reflects the elimination of depreciation expense related to the investments
in hotel properties of the Initial Hotels which are to be acquired by the
Partnership.

(N) Reflects the elimination of the gain recognized on property insurance
recovery. As the Company will own the Initial Hotel properties, the Initial
Lessee will not realize or incur such gains or losses.

(O) Reflects the elimination of miscellaneous items of nonoperating income and
expense which will not be earned or incurred by the Initial Lessee. The pro
forma adjustments consist of the following:

<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
YEAR ENDED ENDED JUNE ENDED JUNE 30,
DECEMBER 31, 30, ------------------
1995 1996 1995 1996
------------ ------------- ------- -------
<S> <C> <C> <C> <C>
Interest income earned by Initial Hotels.... $ 192 $ 194 $ 89 $ 91
Expenses incurred by Initial Hotels in
connection with a prior attempted public
offering and sale of assets............... (51) (36) (51) (36)
Gain (loss) on fixed asset disposals........ 7 1 (10) (16)
Other non-recurring charges................. (98) (88) (57) (47)
------------ ------------- ------- -------
$ 50 $ 71 $ (29) $ (8)
========== =========== ======= =======
</TABLE>

(P) Represents lease payments calculated on a pro forma basis by applying the
rent provisions of the Percentage Leases to the pro forma room, food and
beverage and other revenues of the Initial Hotels as well as an additional
$725 of Percentage Lease payments required pursuant to the rental
interruption insurance provisions of the Percentage Lease agreements for
the year ended December 31, 1995 and the 12 months ended June 30, 1996. The
rent formula utilized in computing the pro forma Percentage Lease expense
includes for the calendar year 1995 an adjustment to reduce the threshold
revenue amounts in the Percentage Lease formulas by the 2.5% increase in
the Consumer Price Index for that year. See "Business and Properties" for
the Percentage Lease formulas.

F-22
<PAGE> 127

INITIAL LESSEE

PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1996

(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)

The unaudited Pro Forma Condensed Combined Balance Sheet is presented as if
the consummation of the Formation Transactions (as they relate to the formation
of the Initial Lessee) had occurred on June 30, 1996. Such pro forma information
is based in part upon the Pro Forma Condensed Consolidated Balance Sheet of the
Company, the combined balance sheets of the Initial Hotels, and the combined
statement of net assets of Boykin Management Company, Purchasing Concepts, Inc.,
and Bopa Design Company, all as of June 30, 1996. It should be read in
conjunction with the financial statements listed in the Index to Financial
Statements at page F-1 of this Prospectus. In management's opinion, all
adjustments necessary to reflect the effects of the Formation Transactions have
been made.

This unaudited Pro Forma Condensed Combined Balance Sheet is not
necessarily indicative of what the actual financial position would have been
assuming the Formation Transactions had been completed as of June 30, 1996, nor
does it purport to represent the future financial position of the Initial
Lessee.

<TABLE>
<CAPTION>
(A) (B) (B) HISTORICAL
INITIAL CONTRIBUTED LAKE NORMAN AS PRO FORMA
LESSEE HOTELS HOTELS COMBINED ADJUSTMENTS PRO FORMA
------- ----------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CASH AND EQUIVALENTS................. $ 2,605 $ 3,847 $ 359 $ 6,811 $ (2,978)(C) $ 3,833
ACCOUNTS RECEIVABLE.................. 5,482 4,307 216 10,005 (4,201)(D) 5,804
INVENTORIES, PREPAIDS AND OTHER
ASSETS............................. 149 4,498 28 4,675 (3,551)(E) 1,124
PROPERTY AND EQUIPMENT, net.......... 334 -- -- 334 -- 334
DEFERRED FRANCHISE FEES AND OTHER
DEFERRED COSTS..................... -- 86 248 334 -- 334
------- ----------- ----- ---------- ----------- ---------
Total assets................. $ 8,570 $12,738 $ 851 $ 22,159 $ (10,730) $11,429
====== =========== ============= ========= ============ ==========
LIABILITIES AND EQUITY
NOTES PAYABLE........................ $ 1,495 $ -- $ -- $ 1,495 $ (1,495)(F) $ --
ACCOUNTS PAYABLE, ACCRUED EXPENSES
AND OTHER LIABILITIES.............. 2,056 7,213 344 9,613 (1,184)(G) 8,429
EQUITY............................... 5,019 5,525 507 11,051 (8,051)(H) 3,000
------- ----------- ----- ---------- ----------- ---------
Total liabilities and
equity..................... $ 8,570 $12,738 $ 851 $ 22,159 $ (10,730) $11,429
====== =========== ============= ========= ============ ==========
</TABLE>

See Notes to Pro Forma Condensed Combined Balance Sheet.

F-23
<PAGE> 128

INITIAL LESSEE

NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1996

(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)

(A) Initial Lessee balance sheet data was derived from the unaudited combined
statement of net assets of Boykin Management Company, Purchasing Concepts,
Inc. and Bopa Design Company as of the date indicated, included elsewhere
in this Prospectus. See the Index to Financial Statements included on page
F-1 of this Prospectus.

(B) Amounts are derived from the Pro Forma Condensed Consolidated Balance Sheet
as of June 30, 1996 of the Company, and the related notes thereto, and
reflect the historical balances of the Initial Lessee and the Initial
Hotels less those assets and liabilities contributed to or assumed by the
Company. See the Index to Financial Statements included on page F-1 of this
Prospectus.

<TABLE>
<S> <C>
Reclassification of escrow cash (See (E))............................ $ 3,551
Payment to the Company for prorated expenses......................... (1,646)(a)
Distributions to shareholders........................................ (2,019)(b)
Retire BMC notes payable (See (F))................................... (1,495)
Distributions to partners prior to transfer of working capital to
Initial Lessee:
Boykin Partnerships................................................ (3,906)(c)
Lake Norman Hotels................................................. (480)(c)
Collection of note receivable due from affiliate..................... 3,017(d)
-------
$(2,978)
=======
</TABLE>

(D) Reflects the collection of the advances and accrued interest due to the
Initial Lessee from Boykin Columbus Joint Venture (BCJV), the elimination
of management and design fees due to the Initial Lessee from the Initial
Hotels and the elimination of amounts due to the Initial Hotels from the
Initial Lessee.

<TABLE>
<S> <C>
Advances and accrued interest due from BCJV.......................... $(3,017)(d)
Management fees due from Initial Hotels to the Initial Lessee........ (908)(e)
Design fees due from Initial Hotels to the Initial Lessee............ (157)(f)
Amounts due to the Initial Hotels from Initial Lessee................ (119)(g)
-------
$(4,201)
=======
</TABLE>

(E) As the mortgage debt and real estate will be sold to the Partnership, the
Initial Lessee will not be required to maintain escrow cash accounts. This
adjustment transfers the former restricted escrow fund to available cash.

(F) Reflects the repayment of BMC's bank debt with available cash.

(G) Reflects the elimination of management and design fees payable to the
Initial Lessee by the Initial Hotels, and the elimination of miscellaneous
amounts due to the Initial Hotels from the Initial Lessee.

<TABLE>
<S> <C>
Management fees due to the Initial Lessee from the Initial Hotels.... $ (908)(e)
Design fees due to the Initial Lessee from the Initial Hotels........ (157)(f)
Amounts due to the Initial Lessee from the Initial Hotels............ (119)(g)
-------
$(1,184)
=======
</TABLE>

F-24
<PAGE> 129

(H) Reflects the following:

<TABLE>
<S> <C>
Payment to the Partnership for prorated expenses of the Initial
Hotels............................................................. $(1,646)(a)
Distributions to partners/shareholders by contributed entities:
Initial Hotels..................................................... (4,386)(c)
BMC................................................................ (2,019)(b)
-------
$(8,051)
=======
</TABLE>

As stated in "Lessees -- Initial Lessee," the Initial Lessee will have a
minimum net worth of $3,000 upon completion of the Formation Transactions.
It is the intention of the Initial Lessee that, to the extent cash is
available, the Initial Hotels and BMC will make cash distributions to
their respective partners and shareholders, as applicable, such that the
aggregate net assets to be transferred by these entities to the Initial
Lessee at closing will result in the Initial Lessee having an initial net
worth of $3,000.

F-25
<PAGE> 130

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Boykin Management Company:

We have audited the accompanying combined balance sheets of the Initial
Hotels (excluding Lake Norman Hotels), as defined in Note 1 to the combined
financial statements, as of December 31, 1994 and 1995, and the related combined
statements of operations, partners' deficit and cash flows for each of the three
years in the period ended December 31, 1995. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Initial Hotels
(excluding Lake Norman 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.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements and included on page F-41 of this Prospectus is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. The schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

Cleveland, Ohio,
February 2, 1996.

F-26
<PAGE> 131

INITIAL HOTELS

EXCLUDING LAKE NORMAN HOTELS

COMBINED BALANCE SHEETS

(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1994 1995
-------- -------- JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
INVESTMENTS IN HOTEL PROPERTIES, at cost:
Land..................................................... $ 7,382 $ 7,382 $ 7,382
Buildings and improvements............................... 78,948 89,371 89,895
Furniture and equipment.................................. 31,228 36,099 36,892
Construction in progress................................. 951 1,036 389
-------- -------- -----------
118,509 133,888 134,558
Less- Accumulated depreciation........................... 59,982 63,311 66,354
-------- -------- -----------
Net investment in hotel properties....................... 58,527 70,577 68,204
CASH AND CASH EQUIVALENTS.................................. 3,996 2,909 3,847
ACCOUNTS RECEIVABLE, net of allowance for doubtful accounts
of $64 and $34 at December 31, 1994 and 1995,
respectively, and $20 at June 30, 1996................... 2,820 2,369 3,525
INSURANCE CLAIM RECEIVABLE................................. -- 913 663
RECEIVABLES FROM AFFILIATE................................. 7 129 119
INVENTORIES................................................ 460 480 456
PREPAIDS AND OTHER ASSETS.................................. 587 788 816
CASH HELD IN ESCROW........................................ 1,896 2,607 3,551
DEFERRED EXPENSES, net..................................... 395 2,560 2,240
-------- -------- -----------
$ 68,688 $ 83,332 $ 83,421
======== ======== ===========
LIABILITIES AND PARTNERS' DEFICIT
MORTGAGE NOTES PAYABLE..................................... $111,788 $122,203 $ 123,726
ADVANCES FROM AND ACCRUED INTEREST DUE TO PARTNERS......... 15,198 7,751 7,725
ACCOUNTS PAYABLE:
Trade.................................................... 1,746 1,490 1,876
Affiliate................................................ 221 75 --
Management fees to related party......................... 498 943 808
Bank overdraft........................................... 1,435 1,402 757
ACCRUED EXPENSES AND OTHER LIABILITIES..................... 4,999 5,728 5,721
COMMITMENTS AND CONTINGENCIES..............................
-------- -------- -----------
135,885 139,592 140,613
PARTNERS' DEFICIT.......................................... (67,197) (56,260) (57,192)
-------- -------- -----------
$ 68,688 $ 83,332 $ 83,421
======== ======== ===========
</TABLE>

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

F-27
<PAGE> 132

INITIAL HOTELS

EXCLUDING LAKE NORMAN HOTELS

COMBINED STATEMENTS OF OPERATIONS

(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES FROM HOTEL OPERATIONS:
Room revenue.......................... $45,753 $48,652 $50,730 $25,631 $27,845
Food and beverage revenue............. 22,357 22,811 22,984 11,411 11,763
Other revenue......................... 3,977 4,092 4,490 2,159 2,266
------- ------- ------- ------- -------
Total revenues..................... 72,087 75,555 78,204 39,201 41,874
------- ------- ------- ------- -------
EXPENSES:
Departmental expenses --
Rooms.............................. 11,268 11,869 11,896 5,886 6,357
Food and beverage.................. 16,833 16,924 16,597 8,103 8,351
Other.............................. 2,125 1,986 2,313 1,126 1,175
General and administrative............ 6,848 6,906 6,832 3,436 3,568
Advertising and promotion............. 3,407 3,191 3,253 1,597 1,731
Utilities............................. 3,251 3,346 3,245 1,625 1,673
Management fees to related party...... 2,693 2,882 3,280 1,551 1,788
Franchisor royalties and other
charges............................ 3,308 2,952 3,813 1,797 2,136
Repairs and maintenance............... 3,429 3,728 3,771 1,910 1,917
Real estate and personal property
taxes, insurance and rent.......... 3,112 3,329 3,579 1,818 1,863
Interest expense...................... 11,411 11,324 13,430 6,079 6,993
Interest expense on partner
advances........................... 964 1,073 739 373 374
Depreciation and amortization......... 5,822 5,690 6,545 2,990 3,528
Unallocated business interruption
insurance income................... -- -- (474) -- --
Gain on property insurance recovery... -- -- (670) -- --
Other................................. 80 183 103 130 168
------- ------- ------- ------- -------
Total expenses..................... 74,551 75,383 78,252 38,421 41,622
------- ------- ------- ------- -------
Income (loss) before extraordinary
item............................. (2,464) 172 (48) 780 252
EXTRAORDINARY ITEM -- GAIN (LOSS) ON
EARLY EXTINGUISHMENT OF DEBT.......... -- -- 556 556 (1,315)
------- ------- ------- ------- -------
NET INCOME (LOSS)....................... $(2,464) $ 172 $ 508 1,336 (1,063)
======= ======= ======= ======= =======
</TABLE>

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

F-28
<PAGE> 133

INITIAL HOTELS

EXCLUDING LAKE NORMAN HOTELS

COMBINED STATEMENTS OF PARTNERS' DEFICIT

(IN THOUSANDS)

<TABLE>
<CAPTION>
NET
COMBINED
PARTNERS'
(DEFICIT)
--------
<S> <C>
BALANCE, DECEMBER 31, 1992................................... $(64,458)
Net loss................................................... (2,464 )
Capital contributions...................................... 775
Cash distributions......................................... (648 )
--------
BALANCE, DECEMBER 31, 1993................................... (66,795 )
Net income................................................. 172
Cash distributions......................................... (574 )
--------
BALANCE, DECEMBER 31, 1994................................... (67,197 )
Net income................................................. 508
Capital contributions...................................... 7,811
Cash distributions......................................... (2,015 )
Redemption of partnership interests, net of $9,357
aggregate cash redemption payments...................... 4,633
--------
BALANCE, DECEMBER 31, 1995................................... (56,260 )
Net loss (unaudited)....................................... (1,063 )
Capital contributions (unaudited).......................... 800
Cash distributions (unaudited)............................. (600 )
Net loss of Pacific Ohio Partners for the period October 1,
1995 to December 31, 1995 excluded from these statements
(unaudited)............................................. (69 )
--------
BALANCE, JUNE 30, 1996 (UNAUDITED)........................... $(57,192)
=========
</TABLE>

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

F-29
<PAGE> 134

INITIAL HOTELS

EXCLUDING LAKE NORMAN HOTELS

COMBINED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- ---------------------
1993 1994 1995 1995 1996
------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................................. $(2,464) $ 172 $ 508 $ 1,336 $ (1,063)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities --
Net income (loss) of Pacific Ohio Partners for the periods
October 1 to December 31, 1994 and 1995, respectively,
excluded from the combined statements of operations........ -- -- -- 16 (69)
Depreciation and amortization expense........................ 5,888 5,756 7,645 3,409 5,089
Deferred interest expense on partner advances................ 871 989 705 353 374
Extraordinary loss (gain) on early extinguishment of debt.... -- -- (556) (556) 1,315
Gain on property insurance recovery.......................... -- -- (670) -- --
Changes in assets and liabilities --
Receivables................................................ (319) 155 (264) (383) (896)
Inventories, prepaids and other assets..................... (161) 311 (221) (159) (4)
Cash held in escrow........................................ (206) 61 (711) 266 (944)
Accounts payable, accrued expenses and other liabilities... 114 256 739 1,571 (476)
------- ------- -------- -------- --------
Net cash provided by operating activities............. 3,723 7,700 7,175 5,853 3,326
------- ------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements and additions to hotel properties, net............ (2,771) (4,746) (5,366) (2,006) (1,546)
Property insurance proceeds received, net...................... -- -- 1,122 -- --
------- ------- -------- -------- --------
Net cash used for investing activities................ (2,771) (4,746) (4,244) (2,006) (1,546)
------- ------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage notes payable................... $ (673) $ (872) $(54,082) $(53,900) $(42,087)
Proceeds from refinancing of mortgage debt..................... -- -- 66,250 66,250 41,673
Payment of debt prepayment premium and debt issuance costs..... (51) -- (4,473) (4,203) (228)
Payments on advances from partners............................. (38) (42) (529) (529) (400)
Capital contributions.......................................... 775 -- 188 188 800
Cash distributions paid........................................ (648) (574) (2,015) (1,736) (600)
Redemptions of partnership interests........................... -- -- (9,357) (9,357) --
------- ------- -------- -------- --------
Net cash used for financing activities................ (635) (1,488) (4,018) (3,287) (842)
------- ------- -------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS.......................... 317 1,466 (1,087) 560 938
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................. 2,213 2,530 3,996 3,996 2,909
------- ------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................... $ 2,530 $ 3,996 $ 2,909 $ 4,556 $ 3,847
======== ======== ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest..................... $11,424 $11,499 $ 12,056 $ 5,415 $ 6,451
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Contributions of partner advances to capital................. $ -- $ -- $ 7,623 $ 7,623 $ --
Mortgage principal forgiven.................................. -- -- 2,335 2,335 --
Prepayment penalty financed with additional borrowing........ -- -- -- -- 1,246
</TABLE>

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

F-30
<PAGE> 135

INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS)

(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1995 AND 1996
AND FOR THE PERIODS THEN ENDED ARE UNAUDITED)

1. BASIS OF PRESENTATION:

The Initial Hotels excluding Lake Norman Hotels consist of the following
full-service hotels:

<TABLE>
<CAPTION>
NUMBER OF
PROPERTY NAME LOCATION ROOMS
------------------------------------------ --------------------- ---------
<S> <C> <C>
Berkeley Marina Marriott.................. Berkeley, California 373
Buffalo Marriott.......................... Buffalo, New York 356
Cleveland Airport Marriott................ Cleveland, Ohio 375
Cleveland Marriott East................... Beachwood, Ohio 403
Columbus North Marriott................... Columbus, Ohio 300
Melbourne Quality Suites.................. Melbourne, Florida 208
Radisson Inn Sanibel Gateway.............. Ft. Myers, Florida 157
</TABLE>

Boykin Management Company (BMC) was involved in the development of each of
the above hotels and has managed all of the Initial Hotels excluding the Lake
Norman Hotels since their respective inceptions. The hotels are owned by
partnerships (Boykin Partnerships) in which the shareholders of The Boykin
Company (TBC), BMC's parent company, and certain officers and employees of BMC
(collectively, BMC Affiliates) have significant direct and indirect ownership
interests.

As of December 31, 1995, the Boykin Partnerships are owned as follows:

<TABLE>
<CAPTION>
PARTNERSHIP
INTEREST
------------------
BMC THIRD
AFFILIATES PARTY
---------- -----
<S> <C> <C>
Berkeley Marina Associates, L.P. (BMLP)................. 100% 0%
Buffalo Hotel Joint Venture (BHJV)...................... 50% 50%
Pacific Ohio Partners (POP)............................. 100% 0%
Beachwood Hotel Joint Venture (Beachwood)............... 35% 65%
Columbus Hotel Joint Venture (CHJV)..................... 50% 50%
Melbourne Oceanfront Hotel Associates (MOHA)............ 100% 0%
Fort Myers Hotel Partnership (FMHP)..................... 100% 0%
</TABLE>

The Lake Norman Hotels consist of a Hampton Inn and a Holiday Inn, both
located in Charlotte, North Carolina. The Lake Norman Hotels, together with the
hotels owned by the Boykin Partnerships, are the Initial Hotels.

Boykin Lodging Company is a recently organized Ohio corporation which has
been established to acquire equity interests in existing hotel properties and to
consider selectively the development of new hotels. Boykin Lodging Company will
use the proceeds from a proposed initial public offering to acquire the general
partnership interest, representing an 85.7% equity interest (assuming conversion
of the Intercompany Convertible Note), in Boykin Hotel Properties, L.P., an Ohio
limited partnership (the Partnership). It is proposed that the partners and
shareholders of the entities owning the Initial Hotels will contribute their
respective partnership interests to the Partnership in exchange for cash and
partnership interests. The Partnership will use a portion of the proceeds from
the sale of the general partnership interest to Boykin

F-31
<PAGE> 136

INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

Lodging Company to retire mortgage indebtedness encumbering the Initial Hotel
properties. All of the Initial Hotels will be leased to Boykin Management
Company Limited Liability Company (the Initial Lessee) pursuant to operating
leases which contain provisions for rent based on the revenues of the Initial
Hotels. The Initial Lessee is an affiliate of BMC.

Management believes that these combined financial statements result in a
more meaningful presentation of the Initial Hotel businesses excluding the Lake
Norman Hotels to be acquired by the Partnership and thus appropriately reflect
the historical financial position and results of operations of the predecessor
of the Initial Lessee. All significant intercompany balances and transactions
have been eliminated. The Lake Norman Hotels have been excluded from the
accompanying combined financial statements as they were not owned or managed by
BMC Affiliates until February 8, 1996.

Interim Unaudited Financial Information

The combined financial statements as of and for the six months ended June
30, 1995 and 1996 are unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair representation of the combined financial statements for these interim
periods have been included. The results of interim periods are not necessarily
indicative of the results to be obtained for a full year.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Accounting Periods

For annual reporting purposes, all of the Boykin Partnerships except POP
have been included in the accompanying combined financial statements based on a
December 31 year-end. The accompanying combined financial statements as of
December 31, 1993, 1994 and 1995 include the accounts of POP as of September 30,
1993, 1994 and 1995.

In order to show comparable operations during the interim periods ended
June 30, 1995 and 1996, POP's operating results were adjusted to exclude the
three month periods October 1 to December 31, 1994 and 1995. The total revenues
of POP excluded from the combined statements of operations for the six month
periods ended June 30, 1995 and 1996 were $2,950 and $3,328, respectively, and
total net income (loss) excluded was $16 and $(69), respectively.

In the opinion of management, the effect of nonconforming period ends is
not material to the combined financial statements.

Hotel Properties

Hotel properties are stated at cost. Depreciation is computed using
primarily the straight-line method based upon the following estimated useful
lives:

Buildings and improvements 7-40 years
Furniture and equipment 3-20 years

For the year ended December 31, 1995, the Boykin Partnerships adopted
Statement of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, the partners and management of the Boykin Partnerships review
the hotel properties for impairment when events or changes in circumstances
indicate the carrying amounts of the hotel properties may not be recoverable.
When such conditions exist, management estimates the future cash flows from
operations and disposition of the hotel properties. If the estimated
undiscounted future cash flows are less than the carrying amount of the asset,
an adjustment to reduce the carrying amount to the related hotel property's
estimated fair market value would be recorded and an impairment loss would be
recognized. No such impairment losses were recognized in connection with the
adoption of SFAS No. 121.

F-32
<PAGE> 137

INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

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 related accumulated depreciation are removed from the
accounts, and the gain or loss is included in the determination of net income or
loss.

Cash and Cash Equivalents

All highly liquid investments with an original maturity date of three
months or less when purchased are considered to be cash equivalents.

Inventories

Inventories consisting primarily of food and beverages and gift store
merchandise are stated at the lower of first-in, first-out cost or market.

Cash Held in Escrow

Cash held in escrow consists of amounts for real estate taxes remitted to
the lenders which hold the mortgages on the hotel facilities and amounts
deposited for the replacement of hotel real and personal property pursuant to
the terms of certain mortgage and franchise agreements.

Deferred Expenses

Deferred expenses consist of initial franchise fees and deferred loan
costs. Amortization of initial franchise fees is computed on a straightline
basis over the terms of the franchise agreements while deferred loan costs are
amortized over the terms of the related loan agreements. The amortization of
deferred loan costs of $66, $66, $519, $99 and $457 for the years ended December
31, 1993, 1994 and 1995 and the six month periods ended June 30, 1995 and 1996,
respectively, is included in interest expense in the accompanying combined
statements of operations. Accumulated amortization of deferred expenses was $620
and $1,002 at December 31, 1994 and 1995, respectively, and $1,075 at June 30,
1996.

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. Such losses have
been within management's expectations.

Income Taxes

The Boykin Partnerships are not subject to federal or state income taxes;
however, they must file informational income tax returns and the partners must
take income or loss of the Boykin Partnerships into consideration when filing
their respective tax returns.

Management's Use of Estimates in the Preparation of Financial Statements

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.

F-33
<PAGE> 138

INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

3. MORTGAGE NOTES PAYABLE:

Mortgage notes payable consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Notes payable to an investment banking firm in variable
monthly installments of interest at a specified
incremental rate over 30 day LIBOR; semiannual payments
of principal equal to a specified percentage of cash
flow, as defined; remaining unpaid principal due June
1, 1998; secured by real and personal property of FHMP,
MOHA, POP and BMLP (collectively, the Borrowers) having
an aggregate net book value of $45,632 at December 31,
1995. See Note (a) below............................... $ -- $ 66,250 $ 66,250
Accrued "additional interest" on above notes at 6%. See
Note (a) below......................................... -- 583 1,274
Mortgage note payable to a life insurance company in
monthly installments of interest only (Fixed Interest)
at a rate of 8% through April 1995, 9% from May 1995
through January 2000 and 10% from February 2000 through
October 2004; the unpaid principal due October 2004;
collateralized by real and personal property having a
net book value of $9,156 at December 31, 1995; requires
an escrow reserve of 4% of revenues for the replacement
or refurbishment of furniture, fixtures and equipment.
See Note (b) below..................................... 13,697 13,697 13,697
Mortgage notes payable to a life insurance company in
monthly installments of interest only at a blended rate
of 11.25%; the unpaid principal due in full May 1,
1996; collateralized by certain real and personal
property having a net book value of $5,630 at December
31, 1995; the partners of Beachwood have severally
guaranteed $3,000 until the net annual income, as
defined, of the property reaches $3,848 before debt
service but after capital reserves of 3% of gross
revenues. See Note (c) below........................... 28,500 28,500 --
Mortgage note payable to a life insurance company, in
monthly installments of principal and interest (at
11.25%) of $151 until June 2001, at which time the
remaining unpaid principal balance of approximately
$10,910 is due; additional interest equal to 5% of
gross annual room income, as defined, in excess of a
base of $5,125 per year is required; additional
interest payments of approximately $164, $165 and $181
were required for the years ended December 31, 1993,
1994 and 1995, respectively; collateralized by certain
real and personal property having a net book value of
$10,159 at December 31, 1995. See Note (c) below....... $ 13,480 $ 13,173 $ --
</TABLE>

F-34
<PAGE> 139

INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Mortgage notes payable to a life insurance company in
aggregate monthly installments of principal and
interest of $493 collateralized by certain real and
personal property having an aggregate net book value of
$15,789 at December 31, 1995. See Note (c) below....... -- -- 42,505
Mortgage note payable to a bank in monthly installments
of $225, including interest at 9.77%. See Note (d)
below.................................................. 24,937 -- --
Mortgage note payable to a bank in monthly installments
of $104, including interest at 9%. See Note (d)
below.................................................. 12,303 -- --
Mortgage note payable to a bank in monthly installments
of principal and interest of $27; the effective
interest rate was 4.77%. See Note (d) below............ 6,484 -- --
Mortgage note payable to a life insurance company, in
monthly installments of principal and interest (at
10.875%) of $123. See Note (d) below................... 12,387 -- --
-------- -------- --------
$111,788 $122,203 $123,726
======== ======== ========
<FN>
- ---------------

(a) The interest rate floats as follows:
</TABLE>

Until June 1, 1997, 4.25% over 30 day LIBOR
From then until June 1, 1998, 4.50% over 30 day LIBOR
Thereafter (if applicable) 5.00% over 30 day LIBOR
In addition, a service fee of .06% of the outstanding balance is required.

At December 31, 1995 and June 30, 1996, the interest rate was approximately
10%.

Under certain conditions, the Borrowers can elect an interest deferral
option whereby monthly payments of interest would be based on an interest
rate not to exceed 10%. However, the excess of interest based on the normal
interest rate over the deferral rate would be added to the principal
balance.

Semiannual principal payments are required equal to 50% of "cash flow," as
defined. The percentage increases to 100% after June 1, 1998 or if the
interest deferral option is elected. Such payments are to be applied first
to accrued and unpaid interest on deferred interest, next to deferred
interest, with the remainder to be applied to the outstanding principal
balance.

If certain conditions are met, the Borrowers can extend the initial maturity
date by a maximum of twelve months. To extend the maturity date, the
Borrowers must pay a fee equal to 1% of the then outstanding principal
balance.

In general, the notes are nonrecourse. However, in certain limited defined
circumstances, the lender would have recourse to the Borrowers and certain
BMC Affiliates.

The loan agreement contains restrictive covenants with respect to, among
other things, property maintenance and insurance, payment of taxes, property
transfers and maintenance of specified debt service coverage ratios. The
Borrowers were in compliance with the loan covenants at December 31, 1995
and June 30, 1996. Monthly escrow deposits are also required to be made to
fund repayments of furniture and fixtures reserves and property taxes.

The payment of "additional interest" is required upon maturity or repayment
in full of the notes. Such amount to be paid is equal to the product of
$66,250 multiplied by (i) 4.75% until June 1, 1996;

F-35
<PAGE> 140

INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

(ii) 5.25% until June 1, 1997, (iii) 6% thereafter. Under certain
conditions, the rate at which such additional interest is to be calculated
can be reduced. Management estimates that the additional interest to be paid
will be computed at 3% if the proposed initial public offering discussed in
Note 1 is completed. The "additional interest" is being charged to interest
expense utilizing the effective interest rate method over the contractual
term of the notes. Such amount was $583 for the year ended December 31, 1995
and $691 for the six-month period ended June 30, 1996.

(b) Commencing April 1996, the note requires the payment of additional interest
based on annual net cash flow (Net Cash Flow Interest), as defined. The
effect of Net Cash Flow Interest is to increase the effective interest rate
on the obligation to 11% per annum. For the year ended December 31, 1995 and
the six-month periods ended June 30, 1995 and 1996, $308, $154 and $137,
respectively, have been provided for the payment of Net Cash Flow Interest.
Upon the occurrence of a casualty, a taking, a transfer or maturity, all as
defined, additional interest based on the property's appreciation in value
will also be payable. In the event of prepayment, CHJV must pay an amount
which brings the lender's yield for the period from origination to
prepayment date to 12.75%, compounded monthly, inclusive of Fixed Interest
and Net Cash Flow Interest.

The mortgage agreement contains covenants which, among other restrictions,
limit CHJV's capacity to incur additional debt or sell assets; limit the
ability of partners of CHJV to sell or transfer their respective ownership
interests; require the property to be managed by BMC; and require CHJV to
make annual deposits into an escrow account for the replacement of
furnishings. As of December 31, 1995 and June 30, 1996, CHJV was in
compliance with such covenants.

(c) On January 29, 1996, the BHJV and Beachwood mortgage notes payable were
refinanced with the proceeds of new mortgage notes from the same lender. The
new notes carry an interest rate of 8.69% and have a five-year term. Monthly
payments of principal and interest of $116 and $251 are required for the new
BHJV and Beachwood mortgage notes payable, respectively, with the remaining
unpaid principal amounts due at maturity.

Additionally, the payment of the prepayment penalty on the previous BHJV
mortgage note was financed by the proceeds of a second mortgage note in the
amount of $1,246. The second note carries interest at the rate of 8.54% and
fully amortizes over five years with monthly payments of principal and
interest of $26.

The notes require monthly deposits for taxes and furniture and fixtures
replacement. The prepayment penalty for the notes is calculated based upon
yield maintenance formulas.

The new BHJV and Beachwood mortgage notes contain cross collateralization
and cross default provisions.

(d) These mortgage notes payable were refinanced in May 1995. See (a) for
discussion of the terms of the new mortgage notes.

Aggregate scheduled annual principal payments for the above mortgage notes
payable (reflecting the terms of the BHJV and Beachwood subsequent refinancings
discussed above, but excluding the BHJV second mortgage note) including the
"additional interest" discussed in (a) at December 31, 1995 are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
----------------------------------------------------- --------
<S> <C>
1996................................................. $ 1,551
1997................................................. 1,751
1998................................................. 69,415
1999................................................. 1,035
2000................................................. 1,129
Thereafter........................................... 50,714
--------
$125,595
========
</TABLE>

F-36
<PAGE> 141

INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

All of the outstanding debt is expected to be repaid from the proceeds of
the proposed initial public offering discussed in Note 1.

Debt Extinguishment

In May 1995, FMHP, MOHA, POP and BMLP refinanced their respective existing
mortgage indebtedness, realizing a net extraordinary gain of $556 on the early
extinguishment of debt. The net extraordinary gain was related to the
forgiveness of $2,335 of principal due on the FMHP mortgage reduced by the
payment of prepayment premiums and the writeoff of unamortized deferred
financing costs on the POP and BMLP mortgages. In addition to retiring existing
indebtedness, the refinancing proceeds were used to redeem partnership interests
held by non-BMC Affiliate partners of BMLP, MOHA and POP (Note 7).

The refinancing and concurrent payment of a prepayment penalty on the BHJV
note resulted in an extraordinary loss due to the early extinguishment of debt
in the amount of $1,315 for the six-month period ended June 30, 1996.

4. UNUSUAL ITEM -- PROPERTY DAMAGE FROM HURRICANE:

On August 2, 1995, certain hotel property of MOHA was damaged by
wind-driven rain associated with hurricane Erin. The damage led to the temporary
closure of the hotel until restoration of the damaged property took place. The
temporary closure reduced the available room nights for the year ended December
31, 1995 by 20,430 rooms, or 27% of the otherwise available room nights.
Management estimates that the temporary closure resulted in $1,261 in lost
revenue, and $1,093 in lost net income.

MOHA has made a business interruption insurance claim for reimbursement of
the lost net income. Included in the combined statement of operations for the
year ended December 31, 1995 is $1,093 of income related to this claim. This
income has been offset against departmental expenses and various other expense
categories in the aggregate amounts of $178 and $441, respectively.

In addition, MOHA has made a property insurance claim for the damage to
hotel property. The difference between the proceeds to be received from this
claim and the net book value of the damaged property is reflected in the
combined statement of operations as an unusual gain on property insurance
recovery. The costs of replacing and renovating the damaged property have been
capitalized as additions to hotel property in the accompanying combined balance
sheet.

MOHA has a $913 insurance claim receivable at December 31, 1995 ($663 at
June 30, 1996). The receivable at December 31, 1995 is comprised of $320 for
property damage and $593 for business interruption. MOHA has submitted its
claims to its insurance carrier, and believes that the claims are in accordance
with the terms of the related insurance policies.

5. RELATED PARTY TRANSACTIONS:

A substantial portion of the hotels' management and accounting functions
are performed by BMC, for a fee computed as specified in each hotel's management
agreement. The base management fee is based on percentages of hotel revenues of
3% or 3.5%. In addition, if specified operating results are achieved, an
incentive fee is due to BMC. The management agreements with BMC expire at
various dates through September 30, 2010.

Certain other costs relating to purchasing and design services are incurred
by an affiliate of BMC and billed to the hotels. Such purchases approximated
$133, $148, $143, $47 and $50 for the years ended December 31, 1993, 1994 and
1995 and the six-month periods ended June 30, 1995 and 1996, respectively.
Furthermore, the hotels made purchases of hotel furnishings through an affiliate
of BMC. These purchases

F-37
<PAGE> 142

INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

amounted to approximately $1,701, $1,823, $2,531, $666 and $698 for the years
ended December 31, 1993, 1994, and 1995 and the six-month periods ended June 30,
1995 and 1996, respectively.

Receivables from and payables to affiliates represent amounts due from or
to BMC and its affiliates applicable to insurance charges and various other
items. Included in accounts payable to affiliates at December 31, 1994 is $171
due from FMHP to BMC for loan guarantee fees related to the FMHP mortgage which
was refinanced in May 1995. The fees due were paid in 1995.

Until October 1994, the hotels maintained a "fully insured program under a
Minimum Premium Contract" for various insurance benefits offered to enrolled
employees under an insurance plan which included other entities affiliated with
BMC. The hotels provided a pro-rata share of expense required by the plan which
was based upon enrolled employees at each hotel. The total amount of such shared
expenses billed to the hotels approximated $1,617 and $1,176 for 1993 and 1994,
respectively. In October 1994, the plan was terminated and replaced with a
fully-insured plan which requires the payment of monthly premiums.

6. ADVANCES FROM PARTNERS:

Partner advances consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Advances from partners used to complete construction and
to fund operation, bearing interest at 10% per annum.
Note (a)............................................... $ 2,637 $ 2,637 $ 2,637
Unsecured notes payable to partners, with interest at
bank prime rate. Note (b).............................. 4,790 -- --
Second mortgage note payable to a partner in monthly
installments of principal and interest (at 10.25%) of
$8. Note (c)........................................... 529 -- --
Accrued interest payable on advances from partners. Note
(b).................................................... 7,242 5,114 5,088
-------- -------- --------
$ 15,198 $ 7,751 $ 7,725
======== ======== ========
<FN>
- ---------------

(a) Repayment of the loans and related accrued interest is determined by the net
cash flow, as defined, of CHJV, in accordance with the priority of payments
outlined in the partnership agreement. In February 1996, CHJV made a $400
payment of interest to the partners on their advances.

(b) In connection with the refinancing discussed in Note 3 and the change in
ownership discussed in Note 7, principal and interest aggregating $7,623
were contributed to the capital of MOHA in May 1995.

Total interest expense on partner advances was $964, $1,073 and $739 for
the years ended December 31, 1993, 1994 and 1995, respectively, and $373 and
$374 for the six-month periods ended June 30, 1995 and 1996, respectively.

7. CHANGES IN OWNERSHIP:

In May 1995, in connection with the refinancing discussed in Note 3, MOHA,
BMLP and POP redeemed their respective partnership interests held by non-BMC
Affiliates and BMC Affiliates were admitted as new partners. In addition, FMHP
redeemed its partnership interest held by BMLP. As a result of the redemptions,
BMC Affiliates own 100% of these partnerships. The aggregate cash redemption
price paid to non-BMC Affiliates was $9,357. For each partnership, the
difference between the redemption price paid and the related capital account
balances of the partners redeemed was recorded as an adjustment of the carrying
value of the respective investments in hotel properties of MOHA, FMHP, BMLP and
POP.

F-38
<PAGE> 143

INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

The purchase accounting adjustment recorded, which was equal to the cash
paid to redeem the partnership interests plus the deficit capital account
balances of the redeemed partners at the time of the redemptions, was an
aggregate increase in the carrying value of the investments in hotel property as
follows:

<TABLE>
<S> <C>
Buildings and improvements................... $10,230
Furniture and equipment...................... 3,760
--------
$13,990
=======
</TABLE>

Following is pro forma data assuming that the redemptions of the non-BMC
affiliates discussed above and the related refinancing discussed in Note 3 had
occurred at the beginning of 1995. The pro forma adjustments to historical
operating results are (i) to increase depreciation expense for the effect of the
purchase accounting adjustments to the carrying values of investments in hotel
properties; (ii) to adjust management fee expense for FMHP, MOHA, BMLP and POP
to 4.5% of hotel revenues as required by the terms of the refinancing; and,
(iii) to increase interest expense to reflect the terms of the new mortgage debt
and the amortization of related deferred financing costs.

<TABLE>
<CAPTION>
UNAUDITED
---------------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1995
------------ ------------
<S> <C> <C>
Total revenues............................... $ 78,204 $ 39,201
Loss before extraordinary item............... $ (2,016) $ (904)
Net loss..................................... $ (1,460) $ (348)
</TABLE>

8. COMMITMENTS AND CONTINGENCIES:

Claims and Legal Matters

Certain of the hotels are involved in claims and legal matters incidental
to their businesses. In the opinion of management, the ultimate resolution of
these matters will not have a material impact on the financial position or
results of operations of the hotels.

Franchise Agreements

Under the terms of hotel franchise agreements, annual payments for
franchise royalties and reservation and advertising services are due from the
hotels. For six of the hotels, fees are computed based upon percentages of gross
room revenues. At December 31, 1995, the franchise royalty fees payable by the
hotels ranged from 3% to 5% of room revenues while the fees for advertising
services ranged from .8% to 3.5%. Effective January 1, 1996, the royalty fee to
be paid by BMLP increased by 2% of room revenues. For MOHA, the payment is a
flat fee ranging from $6 per month in 1994 to $12 per month in 1998; in 1999 and
thereafter, the fee at MOHA will be at 6% of gross room revenues. The franchise
agreements expire at various dates through 2014.

During 1992, CHJV amended and extended its franchise agreement. Under the
terms of the amended agreement, no fee was due during 1992; franchise fees
commenced in August 1993 at a reduced percentage of room revenues, increasing
gradually through 1997.

In January 1994, MOHA executed an amended franchise agreement. The amended
agreement provided for the forgiveness of $600 of unpaid fees accrued under the
original franchise agreement through December 31, 1993. Such amount is reflected
as a reduction of franchisor royalties and other charges for 1994.

The franchise agreements contain provisions whereby the franchisor would be
entitled to additional payments in the event the franchisees would terminate the
franchise agreements prior to maturity.

F-39
<PAGE> 144

INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

Other

As a result of the proposed initial public offering discussed in Note 1 and
the resulting prepayment of the mortgage notes payable, prepayment penalties of
approximately $3,340 will be due upon closing. See Note 3 for a discussion of
additional interest payment requirements with respect to certain of the mortgage
notes.

The land on which the Berkeley Marina Marriott is located is leased under
an operating lease agreement expiring in 2033 which can be extended to 2051. The
lease requires minimum annual rentals of $100, and percentage rentals based on
hotel revenues. BMLP is responsible for all taxes, insurance and maintenance on
the property. Rental expense charged to operations for the land lease were as
follows:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
---------------------- -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Minimum rent................................ $100 $100 $100 $ 50 $ 50
Percentage rent............................. 521 550 584 288 318
---- ---- ---- ---- ----
$621 $650 $684 $338 $368
==== ==== ==== ==== ====
</TABLE>

9. FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments, whether or not recognized for
financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
December 31, 1995 and June 30, 1996. Considerable judgment is necessary to
interpret market data and develop estimated fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts which
could be realized on disposition of the financial instruments. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.

Cash Equivalents

Management estimates that the fair value of cash equivalents approximates
carrying value due to the relatively short maturity of these instruments.

Long-Term Debt

Management estimates that the fair values of mortgage and other long-term
debt approximate carrying values based upon the hotels' effective borrowing rate
for issuance of debt with similar terms and remaining maturities.

F-40
<PAGE> 145

INITIAL HOTELS
EXCLUDING LAKE NORMAN HOTELS

SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION

AS OF DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>

COSTS CAPITALIZED
INITIAL COST SUBSEQUENT TO ACQUISITION(D)
----------------------------- -----------------------------
BUILDINGS BUILDINGS
AND AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
- ------------------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Berkeley Marina Marriott,
Berkeley, California
(BMLP).................... $ 29,292 $ -- $ 5,013 $ -- $ 14,720
Buffalo Marriott,
Buffalo, New York........... 13,173 733 13,016 -- 1,149
Cleveland Airport Marriott,
Cleveland, Ohio (POP)....... 19,459 1,175 9,340 -- 8,038
Cleveland Marriott East,
Beachwood, Ohio............. 28,500 836 4,561 -- 6,465
Columbus North Marriott,
Columbus, Ohio.............. 13,697 828 11,829 -- 1,190
Melbourne Quality Suites,
Melbourne, Florida (MOHA)... 13,131 761 7,475 2,331 2,555
Radisson Inn Sanibel Gateway,
Ft. Myers, Florida (FMHP)... 4,951 718 4,023 -- (3)
------------ ------ ------------ ------ ------------
Total......................... $122,203 $ 5,051 $ 55,257 $ 2,331 $ 34,114
============= ====== ============ ====== ============

GROSS AMOUNTS AT WHICH ACCUMULATED
CARRIED AT CLOSE OF PERIOD DEPRECIATION NET BOOK
------------------------------------------ BUILDINGS VALUE
BUILDINGS AND BUILDINGS
AND TOTAL IMPROVEMENTS AND
DESCRIPTION LAND IMPROVEMENTS (A)(C) (B) IMPROVEMENTS
- ------------------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Berkeley Marina Marriott,
Berkeley, California
(BMLP).................... $ -- $ 19,733 19,733 $ 9,088 $ 10,645
Buffalo Marriott,
Buffalo, New York........... 733 14,165 14,898 7,095 7,070
Cleveland Airport Marriott,
Cleveland, Ohio (POP)....... 1,175 17,378 18,553 5,263 12,115
Cleveland Marriott East,
Beachwood, Ohio............. 836 11,026 11,862 8,041 2,985
Columbus North Marriott,
Columbus, Ohio.............. 828 13,019 13,847 6,437 6,582
Melbourne Quality Suites,
Melbourne, Florida (MOHA)... 3,092 10,030 13,122 2,459 7,571
Radisson Inn Sanibel Gateway,
Ft. Myers, Florida (FMHP)... 718 4,020 4,738 1,419 2,601
------ ------------ ------------ ------------ ------------
Total......................... $ 7,382 $ 89,371 96,753 $ 39,802 $ 49,569
====== ============ ======= ============ ============

LIFE ON WHICH
DEPRECIATION
IN INCOME
DATE OF DATE OF STATEMENT IS
DESCRIPTION CONSTRUCTION ACQUISITION COMPUTED
- ------------------------------ ------------ ------------ --------------
<S> <C> <C> <C>
Berkeley Marina Marriott,
Berkeley, California
(BMLP).................... 1972 N/A 7-30 years
Buffalo Marriott,
Buffalo, New York........... 1981 N/A 10-30 years
Cleveland Airport Marriott,
Cleveland, Ohio (POP)....... 1970 N/A 7-30 years
Cleveland Marriott East,
Beachwood, Ohio............. 1977 N/A 10-40 years
Columbus North Marriott,
Columbus, Ohio.............. 1981 N/A 7-30 years
Melbourne Quality Suites,
Melbourne, Florida (MOHA)... 1986 N/A 7-30 years
Radisson Inn Sanibel Gateway,
Ft. Myers, Florida (FMHP)... 1986 N/A 7-30 years

Total.........................

</TABLE>

F-41
<PAGE> 146

(a) Reconciliation of land, buildings and improvements:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period............... $84,816 $84,983 $86,330
Additions--improvements...................... 167 1,419 1,099
Retirements.................................. -- (72) (906)
Adjustments of basis resulting from partner
redemptions (see (d) below)................ -- -- 10,230
------- ------- -------
Balance at end of period..................... $84,983 $86,330 $96,753
======= ======= =======
</TABLE>

(b) Reconciliation of accumulated depreciation:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period............... $30,871 $33,803 $36,728
Depreciation expense......................... 2,932 2,992 3,333
Retirements.................................. -- (67) (259)
------- ------- -------
Balance at end of period..................... $33,803 $36,728 $39,802
======= ======= =======
</TABLE>

<TABLE>
<S> <C>
Land......................................... $ 8,309
Buildings and improvements................... 93,443
--------
$101,752
========
</TABLE>

(d) Includes the effect of purchase accounting adjustments recorded in 1995
in connection with the redemptions of certain partners of BMLP, POP, FMHP and
MOHA discussed in Note 7 to the combined financial statements. Such adjustments
were as follows:

<TABLE>
<CAPTION>
INCREASE (DECREASE)
BUILDINGS AND
IMPROVEMENTS
-------------------
<S> <C>
BMLP......................................... $ 2,866
POP.......................................... 5,977
FMHP......................................... (433)
MOHA......................................... 1,820
----------
$10,230
==================
</TABLE>

F-42
<PAGE> 147

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO BOYKIN LODGING COMPANY:

We have audited the accompanying combined balance sheets of the Lake Norman
Hotels (as defined in Note 1 to the financial statements) as of December 31,
1994 and 1995, and the related combined statements of operations, partners'
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 the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Lake Norman
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.

ARTHUR ANDERSEN LLP

Cleveland, Ohio,
April 5, 1996.

F-43
<PAGE> 148

LAKE NORMAN HOTELS

COMBINED BALANCE SHEETS

(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
------ ------ JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
INVESTMENTS IN HOTEL PROPERTIES, at cost:
Land........................................................ $ 788 $ 788 $ 1,190
Buildings and improvements.................................. 6,178 6,190 7,088
Furniture and equipment..................................... 2,279 2,578 1,351
------ ------ -----------
9,245 9,556 9,629
Less- Accumulated depreciation.............................. 3,357 3,817 191
------ ------ -----------
Net investments in hotel properties......................... 5,888 5,739 9,438
CASH AND CASH EQUIVALENTS..................................... 397 343 359
ACCOUNTS RECEIVABLE........................................... 90 82 216
DEFERRED EXPENSES, net........................................ 67 57 404
PREPAIDS AND OTHER ASSETS..................................... 10 8 48
------ ------ -----------
$6,452 $6,229 $10,465
====== ====== ===========
LIABILITIES AND PARTNERS' EQUITY
MORTGAGE NOTES PAYABLE........................................ $5,318 $5,057 $ 9,618
ACCOUNTS PAYABLE:
Trade....................................................... 43 30 84
Management fees............................................. 7 7 83
ACCRUED EXPENSES AND OTHER LIABILITIES........................ 190 197 224
COMMITMENTS AND CONTINGENCIES.................................
------ ------ -----------
5,558 5,291 10,009
PARTNERS' EQUITY.............................................. 894 938 456
------ ------ -----------
$6,452 $6,229 $10,465
====== ====== ===========
</TABLE>

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

F-44
<PAGE> 149

LAKE NORMAN HOTELS

COMBINED STATEMENTS OF OPERATIONS

(IN THOUSANDS)

<TABLE>
<CAPTION>
UNAUDITED
-------------------------------------------------------------
1996
------------------------- PRO FORMA
SIX JANUARY 1, FEBRUARY SIX MONTHS ENDED
MONTHS TO 8,
DECEMBER 31, ENDED FEBRUARY TO JUNE 30,
---------------------------- JUNE 30, 7, JUNE 30, -----------------
1993 1994 1995 1995 1996 1996 1995 1996
------ ------ ------ --------- ---------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HOTEL REVENUES:
Room revenue........... $2,764 $3,200 $3,764 $ 1,767 $ 339 $1,727 $1,767 $2,066
Food and beverage
revenue............. 300 -- -- -- -- 223 -- 223
Other revenue.......... 149 153 124 78 15 73 78 88
------ ------ ------ --------- ---------- ---------- ------ ------
Total revenues...... 3,213 3,353 3,888 1,845 354 2,023 1,845 2,377
------ ------ ------ --------- ---------- ---------- ------ ------
EXPENSES:
Departmental expenses--
Rooms............... 676 831 1,025 495 91 398 495 489
Food and beverage... 346 -- -- -- -- 220 -- 220
Other............... 63 63 78 45 9 40 45 49
General and
administrative...... 332 311 368 200 48 186 200 234
Advertising and
promotion........... 176 193 194 77 15 64 77 79
Utilities.............. 193 206 207 98 21 78 98 99
Management fees........ 84 98 115 54 10 121 111 143
Franchisor royalties
and other charges... 193 242 271 127 19 124 127 143
Repairs and
maintenance......... 165 160 182 91 18 104 91 122
Real estate and
personal property
taxes, insurance and
rent................ 129 96 106 55 10 42 55 52
Interest expense....... 289 326 415 217 37 582 759 759
Depreciation and
amortization........ 576 523 466 289 57 212 289 289
Other.................. (3) (8) (3) -- -- 2 -- 2
------ ------ ------ --------- ---------- ---------- ------ ------
Total expenses...... 3,219 3,041 3,424 1,748 335 2,173 2,347 2,680
------ ------ ------ --------- ---------- ---------- ------ ------
NET INCOME (LOSS)........ $ (6) $ 312 $ 464 $ 97 $ 19 $ (150) $ (502) $ (303)
====== ====== ====== ========= ========== ========== ====== ======
</TABLE>

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

F-45
<PAGE> 150

LAKE NORMAN HOTELS

COMBINED STATEMENTS OF PARTNERS' EQUITY

(IN THOUSANDS)

<TABLE>
<CAPTION>
NET
COMBINED
PARTNERS'
EQUITY
--------
<S> <C>
BALANCE, DECEMBER 31, 1992................................... $ 988
Net loss................................................... (6)
--------
BALANCE, DECEMBER 31, 1993................................... 982
Net income................................................. 312
Cash distributions......................................... (400)
--------
BALANCE, DECEMBER 31, 1994................................... 894
Net income................................................. 464
Cash distributions......................................... (420)
--------
BALANCE, DECEMBER 31, 1995................................... 938
Net income, January 1, to February 7, 1996 (unaudited)..... 19
--------
BALANCE, FEBRUARY 7, 1996 (unaudited)........................ $ 957
=========
- -------------------------------------------------------------------------
BALANCE FEBRUARY 7, 1996 (unaudited)......................... $ -
Capital contributions (unaudited).......................... 606
Net loss, February 8, to June 30, 1996 (unaudited)......... (150)
--------
BALANCE, JUNE 30, 1996 (unaudited)........................... $ 456
=========
</TABLE>

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

F-46
<PAGE> 151

LAKE NORMAN HOTELS

COMBINED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
(UNAUDITED)
-----------------------------------------
SIX
MONTHS JANUARY 1, FEBRUARY 8,
DECEMBER 31, ENDED TO TO
------------------------- JUNE 30, FEBRUARY 7, JUNE 30,
1993 1994 1995 1995 1996 1996
----- ----- ----- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ (6) $ 312 $ 464 $ 97 $ 19 $ (150)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities --
Depreciation and amortization expense... 583 529 472 292 60 361
Payments for franchise fees and other
deferred costs........................ -- -- -- -- -- (155)
Changes in assets and liabilities --
Accounts receivable................... (32) (14) 8 (38) 58 (216)
Inventories, prepaids and other
assets............................. 14 6 -- 2 (2) (48)
Accounts payable, accrued expenses and
other liabilities.................. (82) (29) (6) 9 (177) 391
----- ----- ----- --------- ----------- -----------
Net cash provided by (used for)
operating activities........... 477 804 938 362 (42) 183
----- ----- ----- --------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of assets of Lake Norman
Hotels................................ -- -- -- -- -- (9,719)
Improvements and additions to hotel
properties, net....................... (30) (129) (311) (247) (25) (26)
----- ----- ----- --------- ----------- -----------
Net cash used for investing
activities....................... (30) (129) (311) (247) (25) (9,745)
----- ----- ----- --------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings...... -- -- -- -- -- 9,500
Principal payments on mortgage notes
payable............................... (265) (277) (261) (125) (38) (14)
Capital contributions................... -- -- -- -- -- 606
Distributions paid...................... -- (400) (420) (315) -- --
Payments for deferred financing costs... -- -- -- -- -- (171)
----- ----- ----- --------- ----------- -----------
Net cash provided by (used for)
financing activities............. (265) (677) (681) (440) (38) 9,921
----- ----- ----- --------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS..... $ 182 $ (2) $ (54) $(325) $(105) $ 359
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.................................... 217 399 397 397 343 --
----- ----- ----- --------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.................................... $ 399 $ 397 $ 343 $ 72 $ 238 $ 359
====== ====== ====== ========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid........................... $ 283 $ 337 $ 415 $ 214 $ 67 $ 436
</TABLE>

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

F-47
<PAGE> 152

LAKE NORMAN HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS)

(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1995 AND 1996
AND FOR THE PERIODS THEN ENDED ARE UNAUDITED)

1. BASIS OF PRESENTATION:

Organization

The Lake Norman Hotels consist of the following hotels:

<TABLE>
<CAPTION>
NUMBER OF
PROPERTY NAME OWNER LOCATION ROOMS
- ------------- --------------------- ------------------------ ---------
<S> <C> <C> <C>

Holiday Inn Norman Associates Charlotte, North Carolina 119
Hampton Inn Norman Associates II Charlotte, North Carolina 117
</TABLE>

Belmont Land and Investment Company, DMC Properties, Inc. and CLT
Development Corp. each hold a one-third interest in both Norman Associates and
Norman Associates II.

In February 1996, B.B.G., I, L.L.C. (BBG), owned 46% by certain
shareholders of The Boykin Company and 54% by a third party, acquired the Lake
Norman Hotels for $9,721 from Norman Associates and Norman Associates II.

Basis of Presentation

Boykin Lodging Company is a recently organized Ohio corporation which has
been established to acquire equity interests in existing hotel properties and to
consider selectively the development of new hotels. Boykin Lodging Company will
use the proceeds from a proposed initial public offering to acquire the general
partnership interest, representing an 85.7% equity interest (assuming conversion
of the Intercompany Convertible Note), in Boykin Hotel Properties, L.P., an Ohio
limited partnership (the Partnership). It is proposed that the shareholders of
BBG will contribute their interests in the Lake Norman Hotels to the Partnership
in exchange for partnership interests. The Partnership will use a portion of the
proceeds from the sale of the general partnership interest to Boykin Lodging
Company to retire mortgage indebtedness encumbering the Lake Norman Hotels.

The accompanying combined financial statements are prepared on the accrual
basis of accounting and include the accounts of the Lake Norman Hotels using
their historical cost basis. All significant intercompany balances and
transactions have been eliminated.

Management believes that these combined financial statements result in a
more meaningful presentation of the Lake Norman Hotel businesses to be acquired
by the Partnership and thus appropriately reflect the historical financial
position and results of operations.

Interim Unaudited Financial Information

The combined financial statements for the six months ended June 30, 1995
and the periods January 1, to February 7, 1996 (period prior to acquisition by
BBG) and February 8, to June 30, 1996 (period after acquisition by BBG) are
unaudited. In the opinion of management, all adjustments, consisting solely of
normal recurring adjustments, necessary for a fair presentation of the combined
financial statements for these interim periods have been included. The results
of interim periods are not necessarily indicative of the results to be obtained
for a full year.

The unaudited pro forma data for the six-month periods ended June 30, 1995
and 1996 reflect pro forma operating results assuming that BBG had acquired the
Lake Norman Hotels as of the beginning of the respective accounting periods. The
primary pro forma adjustments to historical operating results are (i) to
increase interest expense to reflect the terms of the acquisition debt; (ii) to
increase depreciation expense for the effect of the purchase accounting writeup
of the investments in hotel properties; and (iii) to increase management fee
expense to 6% of hotel revenues as discussed in Note 5.

F-48
<PAGE> 153

LAKE NORMAN HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Accounting Periods

For annual reporting purposes, the Lake Norman Hotels have been included in
the accompanying combined financial statements based on a December 31 year-end.

Investments in Hotel Properties

Hotel properties are stated at cost. Depreciation is computed using
accelerated and straight-line methods based upon the following estimated useful
lives:

Buildings and improvements 10-39 years
Furniture and equipment 5-7 years

For the year ended December 31, 1995, the Lake Norman Hotels adopted
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Accordingly, the partners and management of the Lake Norman Hotels review the
hotel properties for impairment when events or changes in circumstances indicate
the carrying amount of the hotel properties may not be recoverable. When such
conditions exist, management estimates the future cash flows from operations and
disposition of the hotel properties. If the estimated undiscounted future cash
flows are less than the carrying amount of the asset, an adjustment to the
related estimated fair market value would be recorded and an impairment loss
would be recognized. No such impairment losses have been recognized.

Cash and Cash Equivalents

All highly liquid investments with an original maturity date of three
months or less when purchased are considered to be cash equivalents.

Deferred Expenses

Deferred expenses consist primarily of deferred loan costs, which are
amortized over the terms of the related loan agreements and deferred franchise
fees which are amortized over the terms of the related franchise agreements. The
amortization of deferred loan costs of $7, $7 and $7 for the years ended
December 31, 1993, 1994 and 1995, respectively, and $3, $1 and $14 for the
six-month period ended June 30, 1995, the period January 1, to February 7, 1996
and the period February 8, to June 30, 1996, respectively, has been included in
interest expense in the accompanying combined statements of operations.
Accumulated amortization of deferred expenses was $59, $69 and $39 at December
31, 1994 and 1995, and June 30, 1996, respectively.

Revenue Recognition

Income Taxes

The Lake Norman Hotels are not subject to federal or state income taxes;
however, they must file informational income tax returns and the partners must
take income or loss of the Lake Norman Hotels into consideration when filing
their respective tax returns.

F-49
<PAGE> 154

LAKE NORMAN HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

Management's Use of Estimates in the Preparation of Financial Statements

3. ACQUISITION BY BBG:

On February 8, 1996, BBG acquired certain assets of the Lake Norman Hotels
from Norman Associates and Norman Associates II in exchange for aggregate cash
consideration of $9,721. The purchase price allocation was as follows:

<TABLE>
<S> <C>
Land............................................. $1,190
Buildings and improvements....................... 7,088
Furniture and equipment.......................... 1,327
Other assets..................................... 116
------
$9,721
======
</TABLE>

BBG funded the purchase price with mortgage debt borrowings of $9,500 and
contributed capital. Norman Associates and Norman Associates II used a portion
of the sales proceeds to retire the mortgage notes encumbering the properties.
BBG also acquired certain food and beverage assets from the operator of those
facilities and canceled the lease (see Note 6).

4. MORTGAGE NOTES PAYABLE:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
------ ------ ---------
<S> <C> <C> <C>
First mortgage note payable in monthly installments of
principal and interest of $77; interest is at 2.75% above
the prime rate, with a floor of 11.5% and a ceiling of 17%;
matures February 2001, at which time the remaining
principal is due; secured by the real and personal property
of the Lake Norman Hotels. See (a) below................... $ -- $ -- $ 7,791
Second mortgage note payable in monthly installments of
principal and interest of $23; interest is at 4.5% above
the prime rate, with a floor of 13.25% and a ceiling of
17%; matures February 2001, at which time the remaining
principal is due; secured by a second mortgage interest in
the real and personal property of the Lake Norman Hotels.
See (a) below.............................................. -- -- 1,695
Accrued fees on the above notes. See (b) below............... -- -- 132
Mortgage note payable to a bank in monthly installments of
principal of $16 plus accrued interest; matures in May 1996
at which time the remaining principal and accrued interest
are due. The interest rate is adjustable and was 7.6% and
7.4% at December 31, 1994 and 1995, respectively. The note
is collateralized by certain real and personal property
having a net book value of $2,789 at December 31, 1995 and
is guaranteed by the partners of Norman Associates......... 2,742 2,552 --
</TABLE>

F-50
<PAGE> 155

LAKE NORMAN HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
------ ------ ---------
<S> <C> <C> <C>
Mortgage note payable to a bank in monthly installments of
principal and interest at the rate of .25% over the bank's
prime rate or 1.75% over the 30, 60 or 90 day LIBOR rate,
with a floor of 5% and a ceiling of 11.25% through December
31, 1996 and 12.25% through December 31, 1997. The interest
rate at December 31, 1995 was 7.7%. The fixed monthly
payment of principal and interest is adjusted and updated
semi-annually for interest rate changes. The unpaid
principal and interest is due in full December 31, 1997.
The note is collateralized by certain real and personal
property having a net book value of $2,950 at December 31,
1995 and is guaranteed by the partners of Norman Associates
II......................................................... 2,576 2,505 --
------ ------ ---------
$5,318 $5,057 $ 9,618
====== ====== ========
<FN>
- ---------------

(a) $600 of the first mortgage note and the full amount of the second mortgage
note are guaranteed on a joint and several basis by the shareholders of BBG.

(b) The payment of commitment fees and other financing fees is required upon
maturity or repayment in full of the notes. The aggregate amount of the fees
to be paid increases from $337 if repayment occurs within the first loan
year to $910 if the notes are retired at the maturity date. Management
estimates that the additional interest to be paid will be $337 if the
proposed initial public offering discussed in Note 1 is completed. The
additional interest is being charged to interest expense over a one-year
period due to the anticipated retirement of the notes within one year. For
the period ended June 30, 1996, $132 of additional interest was provided.

</TABLE>

Aggregate scheduled annual principal payments for the above notes as of June 30,
1996, excluding the additional interest discussed in (b), are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------------------- ------
<S> <C>
1996................................. $ 59
1997................................. 98
1998................................. 112
1999................................. 127
2000................................. 144
2001................................. 8,946
------
$9,486
======
</TABLE>

5. COMMITMENTS:

Franchise Agreements

Under the terms of hotel franchise agreements expiring in 2007 and 2010
with respect to the Holiday Inn and Hampton Inn, respectively, annual payments
for franchise royalties and reservation and advertising services are due from
the Lake Norman Hotels. Franchisor royalties and marketing contributions are
computed based upon percentages (ranging from 5.5% to 7%) of gross room revenue.

The franchise agreements contain provisions whereby the franchisors would
be entitled to additional payments in the event the franchisees would terminate
the franchise agreement prior to maturity.

F-51
<PAGE> 156

LAKE NORMAN HOTELS

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

Management Agreements

Prior to February 8, 1996, the Lake Norman Hotels were operated under
management agreements which provided for a management fee of 3% of gross
revenues in exchange for management services. Effective February 8, 1996, Boykin
Management Company (BMC) assumed management responsibilities for the Lake Norman
Hotels. The management agreements with BMC require the payment of a management
fee equal to 5% of hotel revenues. The management agreements with BMC expire
December 31, 1999. BBG also pays a 1% asset management fee to an affiliate of
the third-party owner.

Other

As a result of the proposed initial public offering discussed in Note 1 and
the resulting prepayment of the Lake Norman Hotels' mortgage notes payable,
prepayment penalties of approximately $234 will be due upon closing. See Note 4
for a discussion of commitment fees and other financing fee payment requirements
with respect to the mortgage notes payable.

6. HOLIDAY INN RESTAURANT:

Consistent with the franchise agreement, the Holiday Inn must maintain a
restaurant on the premises. In August 1993, the hotel ceased operation of the
restaurant, lounge and meeting/catering facilities and entered into a lease with
a third party to continue to maintain the food and beverage operation. The
five-year lease provided for a base rent of $5 per month plus a percentage rent
based on the gross revenues of the restaurant. In August 1994, the hotel waived
the base rent and in May 1995 the percentage rent was also waived. In February
1996, the lease was terminated in connection with the sale of the hotel to BBG.
BBG also acquired the assets and business of the operator at the same time of
its purchase of the hotel. See Note 3 for discussion of the sale. Rental income
of $49, $43 and $6 in 1993, 1994 and 1995, respectively, is included in other
revenue in the accompanying combined statements of operations.

7. FAIR VALUE OF FINANCIAL INSTRUMENTS:

Cash Equivalents

Management estimates that the fair value of cash equivalents approximates
carrying value due to the relatively short maturity of these instruments.

Long-Term Debt

Management estimates that the fair value of mortgage debt approximates
carrying value based upon the Lake Norman Hotels' effective borrowing rate for
issuance of debt with similar terms and remaining maturities.

F-52
<PAGE> 157

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Boykin Management Company, Purchasing Concepts, Inc.
and Bopa Design Company:

We have audited the accompanying combined statements of net assets of
Boykin Management Company (an Ohio corporation), Purchasing Concepts, Inc. (an
Ohio corporation) and Bopa Design Company (an Ohio corporation) as of March 31,
1995 and 1996 and the related combined statements of revenues and expenses for
each of the three years in the period ended March 31, 1996. These combined
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

The accompanying financial statements have been prepared to present the
combined net assets of Boykin Management Company, Purchasing Concepts, Inc. and
Bopa Design Company which are to be merged into or contributed to subsidiaries
of Boykin Management Company, Ltd. pursuant to the formation transactions
referred to in Note 2 and the related combined revenues and expenses of such
businesses. These combined financial statements are not intended to be a
complete presentation of the combined assets, liabilities, revenues and expenses
of Boykin Management Company, Purchasing Concepts, Inc. and Bopa Design Company.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined net assets of Boykin Management Company,
Purchasing Concepts, Inc. and Bopa Design Company as of March 31, 1995 and 1996,
to be merged into or contributed to subsidiaries of Boykin Management Company,
Ltd. pursuant to the formation transactions referred to in Note 2, and the
revenues and expenses related to such net assets for each of the three years in
the period ended March 31, 1996 in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Cleveland, Ohio,
April 30, 1996.

F-53
<PAGE> 158

BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY

COMBINED STATEMENTS OF NET ASSETS

(IN THOUSANDS)

<TABLE>
<CAPTION>
MARCH 31,
---------------- JUNE 30,
1995 1996 1996
------ ------ -----------
<S> <C> <C> <C>
(UNAUDITED)
CASH AND CASH EQUIVALENTS..................................... $ 828 $2,322 $ 2,605
MANAGEMENT FEES AND OTHER RECEIVABLES DUE FROM:
Affiliates.................................................. 3,759 3,997 4,082
Other....................................................... 159 386 1,400
DESIGN COSTS IN EXCESS OF BILLINGS............................ 994 -- --
PROPERTY AND EQUIPMENT, net................................... 243 324 334
PREPAID EXPENSES, DEPOSITS AND OTHER ASSETS................... 12 124 149
------ ------ -----------
Total assets........................................ 5,995 7,153 8,570
------ ------ -----------
ACCOUNTS PAYABLE:
Affiliates.................................................. 182 92 229
Other....................................................... 233 373 170
ADVANCE BILLINGS FOR DESIGN SERVICES.......................... 1,490 161 296
ACCRUED PAYROLL............................................... 179 179 216
OTHER ACCRUED EXPENSES........................................ 222 484 1,145
NOTES PAYABLE................................................. 1,845 1,570 1,495
COMMITMENTS AND CONTINGENCIES.................................
------ ------ -----------
Total liabilities................................... 4,151 2,859 3,551
------ ------ -----------
NET ASSETS.................................................... $1,844 $4,294 $ 5,019
====== ====== ===========
</TABLE>

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

F-54
<PAGE> 159

BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY

COMBINED STATEMENTS OF REVENUES AND EXPENSES

(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, JUNE 30,
-------------------------- ----------------
1994 1995 1996 1995 1996
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Management fees--
Affiliates................................... $2,877 $3,231 $3,817 $1,647 $1,935
Other........................................ 468 359 337 159 427
Design and other fees--
Affiliates................................... 1,769 1,612 2,819 1,711 1,300
Other........................................ 965 1,611 1,212 639 727
Interest income--
Affiliates................................... 253 243 268 118 153
Other........................................ 10 48 109 39 59
Other........................................... -- 157 175 76 77
------ ------ ------ ------ ------
Total revenues.......................... 6,342 7,261 8,737 4,389 4,678
------ ------ ------ ------ ------
EXPENSES:
Cost of sales and operating expenses............ 2,893 2,821 3,720 2,025 1,894
Selling, general and administrative expenses.... 2,276 2,502 2,733 1,330 1,586
Depreciation and amortization expense........... 76 78 85 40 40
Rent............................................ 115 119 105 58 62
Interest........................................ 166 181 170 91 62
Expenses associated with attempted public
offering..................................... -- 1,335 -- -- --
Other, net...................................... 17 8 -- 13 2
------ ------ ------ ------ ------
Total expenses.......................... 5,543 7,044 6,813 3,557 3,646
------ ------ ------ ------ ------
REVENUES IN EXCESS OF EXPENSES.................... $ 799 $ 217 $1,924 $ 832 $1,032
====== ====== ====== ====== ======
</TABLE>

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

F-55
<PAGE> 160

BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS)

(AMOUNTS AND DISCLOSURES FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1995 AND 1996 ARE UNAUDITED)

1. DESCRIPTION OF BUSINESSES:

Boykin Management Company (BMC), a wholly owned subsidiary of The Boykin
Company (TBC), and certain of its subsidiaries manage and operate full and
limited service hotels located throughout the United States pursuant to
management agreements. See Note 4 for further discussion of the management
agreements. Purchasing Concepts, Inc. (PCI), related to TBC through common
ownership, provides national purchasing services to hotels and restaurants. Bopa
Design Company (doing business as Spectrum Services), a wholly owned subsidiary
of TBC since January 1, 1996, provides interior design services to hotels and
other businesses. Certain of the hotels managed by BMC and served by PCI and
Spectrum Services are related to BMC, PCI and Spectrum Services through common
ownership.

2. BASIS OF PRESENTATION:

Pursuant to certain currently contemplated formation transactions, BMC and
Spectrum Services will merge into subsidiaries of Boykin Management Company
Limited Liability Company (BMCL), a newly formed Ohio Limited Liability Company.
Prior to such mergers, BMC and Spectrum Services will transfer certain assets
and liabilities to TBC pursuant to an Assignment and Assumption Agreement. In
addition, PCI will contribute its assets to a subsidiary of BMCL and that
subsidiary will assume PCI's liabilities.

BMCL and its subsidiaries will act as the successors to the businesses of
BMC, PCI and Spectrum Services and as the lessee of certain hotels affiliated
with TBC which are to be acquired by Boykin Hotel Properties, L.P., a
partnership in which Boykin Lodging Company, will be the general partner.

The accompanying financial statements present on a historical combined
basis the net assets of BMC, PCI and Spectrum Services to be merged into or
contributed to BMCL and its subsidiaries and the related revenues and expenses
of such businesses. Assets, liabilities, revenues and expenses of BMC, PCI and
Spectrum Services which are not to be merged into or contributed to BMCL and its
subsidiaries have been excluded from the accompanying financial statements.
Accordingly, the accompanying financial statements are not intended to be a
complete presentation of the combined assets, liabilities, revenues and expenses
of BMC, PCI and Spectrum Services (collectively, the Combined Entities).

BMC has a March 31 fiscal year-end, whereas PCI and Spectrum Services
utilize calendar year-ends. The accompanying audited financial statements
combine the accounts of BMC as of March 31, 1995 and 1996 and for each of the
three years in the period ended March 31, 1996 with the accounts of PCI and
Spectrum Services as of December 31, 1994 and 1995, and for each of the three
years in the period ended December 31, 1995, respectively. Such combined periods
are referred to as the years ended March 31, 1994, 1995 and 1996. The
accompanying unaudited financial statements combine the accounts of BMC, PCI and
Spectrum Services as of June 30, 1996 and for the six-month interim periods
ended June 30, 1995 and 1996.

As BMCL, BMC, PCI and Spectrum Services are related through common
ownership there will be no purchase accounting adjustments to the historical
carrying values of the assets and liabilities of BMC, PCI and Spectrum Services
upon merger into or contribution to the subsidiaries of BMCL.

3. SIGNIFICANT ACCOUNTING POLICIES:

The accompanying financial statements have been prepared on the accrual
basis of accounting. All significant intercompany balances and transactions have
been eliminated.

F-56
<PAGE> 161

BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

Cash and Cash Equivalents

All highly liquid investments with an original maturity of three months or
less when purchased are considered to be cash equivalents.

Income Taxes

Income tax attributes of the Combined Entities are not being assumed by
BMCL or its subsidiaries. As such, the accompanying combined statements of net
assets include no accrued or deferred income tax liabilities nor any future tax
benefits. The accompanying combined statements of revenues and expenses do not
reflect any federal income tax provisions as BMCL and its subsidiaries will be
formed as passthrough entities for tax purposes.

The taxable income of BMC is included in the consolidated federal income
tax return of its parent company, TBC. PCI and Spectrum Services are S
Corporations for federal income tax reporting purposes.

Property and Equipment, Net

Property and equipment, net is comprised of the following:

<TABLE>
<CAPTION>
AT MARCH 31,
------------ JUNE 30,
1995 1996 1996
---- ---- --------
<S> <C> <C> <C>
Leasehold improvements..................................... $124 $124 $128
Furniture and equipment.................................... 487 607 639
---- ---- --------
611 731 767
Less--Accumulated depreciation and amortization............ (368) (407) (433)
---- ---- --------
$243 $324 $334
==== ==== =======
</TABLE>

Property and equipment are stated at cost. Depreciation is computed using
the straight-line and declining balance methods based upon the following
estimated useful lives:

<TABLE>
<S> <C>
Leasehold improvements....................... 7-10 years
Furniture and equipment...................... 3-10 years
</TABLE>

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 related accumulated depreciation are removed from the
accounts and the gain or loss is included in the statement of revenues and
expenses.

Management's Use of Estimates in the Preparation of Financial Statements

4. REVENUES:

BMC has management agreements with several entities to manage the
operations of hotels and restaurants. Generally, BMC receives a fee based upon
percentages of revenues. In certain management contracts, BMC is entitled to
additional incentive fees in the event the managed property achieves specified
operating results. Certain contracts also include limitations on management
fees, or restrict payment of earned

F-57
<PAGE> 162

BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

fees to BMC based upon the defined cash flow of the related property. PCI
provides national purchasing services to hotels and restaurants and Spectrum
Services provides interior design services to hotels and other businesses.

Revenue is recognized as earned pursuant to the terms of hotel management
agreements with respect to BMC, and as the services of PCI and Spectrum Services
are rendered. 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. Such losses have been within
management's expectations.

Revenues from affiliates in the accompanying combined statements of
revenues and expenses represent revenues earned by the Combined Entities on
goods or services provided to various hotel properties in which the respective
owners of the Combined Entities or their affiliates have direct or indirect
ownership interests.

Other revenues consist of the following for the periods presented:

<TABLE>
<CAPTION>
SIX
MONTHS
YEAR ENDED MARCH ENDED
31, JUNE 30,
------------------- ----------
1994 1995 1996 1995 1996
--- ---- ---- --- ---
<S> <C> <C> <C> <C> <C>
Telephone commissions....................................... $-- $153 $123 $76 $64
Development fees............................................ -- -- 36 -- 5
Consulting fees............................................. -- -- 16 -- 8
Miscellaneous............................................... -- 4 -- -- --
--- ---- ---- --- ---
$-- $157 $175 $76 $77
=== ==== ==== === ===
</TABLE>

None of the above items resulted from related party transactions.

5. NOTES PAYABLE:

Notes payable consisted of the following:

<TABLE>
<CAPTION>
SIX
MONTHS
MARCH 31, ENDED
---------------- JUNE 30,
1995 1996 1996
------ ------ --------
<S> <C> <C> <C>
Installment note payable to a bank in quarterly installments of
$75, plus interest at prime plus 1/2%; last installment due
September 1, 1999; guaranteed by TBC and certain TBC
shareholders..................................................... $ -- $ 925 $ 850
$1,000,000 line of credit with a bank, due on demand; bearing
interest at prime; guaranteed by TBC and certain TBC
shareholders..................................................... -- 645 645
Term notes payable to a bank due January 1996 bearing interest at
prime
plus 1%.......................................................... 1,845 -- --
------ ------ --------
$1,845 $1,570 $1,495
====== ====== =======
</TABLE>

Aggregate scheduled annual principal payments for the above notes payable
at March 31, 1996 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING MARCH 31, AMOUNT
- --------------------------------------------- ------
<S> <C>
1997......................................... $ 870
1998......................................... 300
1999......................................... 300
2000......................................... 100
------
$1,570
=======
</TABLE>

F-58
<PAGE> 163

BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

6. COMMITMENTS AND CONTINGENCIES:

BMC is a guarantor of the mortgage debt (only in the event certain
specified limited events occur) of the following entities:

<TABLE>
<CAPTION>
DEBT OUTSTANDING
MARCH 31,
BORROWER 1996
----------------------------------------------------------------- ----------------
<S> <C>
Melbourne Oceanfront Hotel Associates............................ $ 13,000
Fort Myers Hotel Partnership..................................... 4,900
Berkeley Marina Associates Limited Partnership................... 29,000
Pacific Ohio Partners............................................ 19,350
</TABLE>

In October 1992, BMC entered into a five-year lease agreement for office
space. The lease provides for two, three-year renewal options. The annual rent
is $126. As an incentive to enter into the lease, BMC received a $70 payment
from the lessor which is being recognized as a reduction of rent expense on a
straight-line basis over the five-year lease term.

The Combined Entities are involved in claims and legal matters incidental
to their businesses. In the opinion of management of the Combined Entities, the
ultimate resolution of these matters will not have a material impact on the
financial position or the results of operations of the Combined Entities.

7. RELATED PARTY TRANSACTIONS:

Management fees and other receivables due from affiliates are comprised of
the following at March 31, 1995 and 1996:

<TABLE>
<CAPTION>
MARCH 31, JUNE
---------------- 30,
1995 1996 1996
------ ------ ------
<S> <C> <C> <C>
Management fees receivable.......................................... $ 409 $ 797 $ 908
Design fees receivable.............................................. 12 65 157
Loans and interest receivable from Boykin Columbus Joint Venture.... 2,670 2,941 3,017
Loans receivable from shareholders.................................. 340 -- --
Loan guarantee fee receivable....................................... 171 -- --
Other (reimbursable expenses, etc.)................................. 157 194 --
------ ------ ------
$3,759 $3,997 $4,082
====== ====== ======
</TABLE>

In general, the above amounts are due from partnerships or joint ventures
in which certain owners and officers of PCI, Spectrum Services or TBC, have
ownership interests. These partnerships or joint ventures own hotel properties
which are managed by BMC.

The shareholders of TBC, certain of their family members and certain
officers of BMC are material partners in Boykin Columbus Joint Venture. BMC
advanced funds to Boykin Columbus Joint Venture in connection with the
construction of a Marriott hotel in Columbus, Ohio and to fund operating
deficits of that hotel. The loans receivable from Boykin Columbus Joint Venture
bear interest at 10% per annum. Interest income earned on the loans to Boykin
Columbus Joint Venture was $220, $230 and $260 in 1994, 1995 and 1996,
respectively, and $115 and $134 for each of the six month periods ended June 30,
1995 and 1996, respectively.

F-59
<PAGE> 164

BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC.
AND BOPA DESIGN COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED

BMC guaranteed the mortgage debt of Fort Myers Hotel Partnership until such
debt was refinanced in May 1995. Included in interest income from affiliates for
both 1994 and 1995 was $33 of fee revenue related to the guarantee. No guarantee
fee was earned in 1996.

Included in other receivables at June 30, 1996 is $875 of costs incurred to
date by BMC in connection with the initial public offering of the stock of
Boykin Lodging Company. Upon completion of the offering, BMC will be reimbursed
for such costs incurred from the offering proceeds received by Boykin Lodging
Company.

Accounts payable to affiliates are comprised of property insurance retro
premium adjustments and telephone commissions received by BMC and payable to the
various affiliated hotels at the respective statement dates.

Advance billings for design services are related primarily to billings to
affiliates.

Included in other accrued expenses at June 30, 1996 is $700 of costs
accrued in connection with the Boykin Lodging Company initial public offering
discussed above.

8. FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments, whether or not recognized for
financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
March 31, 1996 and June 30, 1996. Considerable judgment is necessary to
interpret market data and develop estimated fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts which
could be realized on disposition of the financial instruments. The use of
different market assumptions and/or estimation methodology may have a material
effect on the estimated fair value amounts.

Cash Equivalents

Management estimates that the fair value of cash equivalents approximates
carrying value due to the relatively short maturity of these instruments.

Loans and Interest Receivable

Management estimates that the fair value of the loans and interest
receivable from Boykin Columbus Joint Venture (BCJV) approximates carrying value
based upon the discounted expected cash flows at an interest rate commensurate
with the creditworthiness of BCJV.

Notes Payable

Management estimates that the fair values of notes payable approximate
carrying values based upon BMC's effective borrowing rate for issuance of debt
with similar terms and remaining maturities.

F-60
<PAGE> 165

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

No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the Offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Underwriters. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the Common Stock in any
jurisdiction where, 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
hereunder shall, under any circumstances, create an implication that there has
not been any change in the facts set forth in this Prospectus or in the affairs
of the Company since the date hereof.

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

SUMMARY
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 16
The Company........................... 26
Lessees............................... 32
Use of Proceeds....................... 34
Distribution Policy................... 35
Capitalization........................ 37
Dilution.............................. 38
Selected Financial Information........ 39
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 45
Business and Properties............... 51
Policies and Objectives with Respect
to Certain Activities............... 65
The Formation......................... 67
Management............................ 69
Certain Transactions.................. 74
Principal Shareholders of the
Company............................. 75
Capital Stock of the Company.......... 76
The Partnership....................... 78
Shares Available for Future Sale...... 80
Federal Income Tax Considerations..... 80
ERISA Considerations.................. 93
Underwriting.......................... 95
Experts............................... 97
Legal Matters......................... 97
Additional Information................ 97
Glossary.............................. 98
Index to Financial Statements......... F-1
</TABLE>

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

8,275,000 COMMON SHARES

[LOGO]

COMMON SHARES
---------------------------

PROSPECTUS
October 29, 1996

---------------------------
LEHMAN BROTHERS

ALEX. BROWN & SONS
INCORPORATED

DEAN WITTER REYNOLDS INC.

A.G. EDWARDS & SONS, INC.

EVEREN SECURITIES, INC.

MCDONALD & COMPANY
SECURITIES, INC.

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