HOMEGATE HOSPITALITY INC, S-1/A, 1996-10-04

HOMEGATE HOSPITALITY INC
S-1/A, 1996-10-04
HOTELS & MOTELS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1996.

REGISTRATION NO. 333-11113
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------

AMENDMENT NO. 1

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

----------------
HOMEGATE HOSPITALITY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 7011 75-0511313
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S.
JURISDICTION OF CLASSIFICATION CODE NUMBER) EMPLOYER
INCORPORATION OR IDENTIFICATION
ORGANIZATION) 2001 BRYAN STREET, SUITE 2300 NO.)
DALLAS, TEXAS 75201
(214) 863-1777
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT A. FAITH
CHIEF EXECUTIVE OFFICER
HOMEGATE HOSPITALITY, INC.
2001 BRYAN STREET, SUITE 2300
DALLAS, TEXAS 75201
(214) 863-1777
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
DEREK R. MCCLAIN L. STEVEN LESHIN
VINSON & ELKINS L.L.P. JENKENS & GILCHRIST,
3700 TRAMMELL CROW CENTER A PROFESSIONAL CORPORATION
2001 ROSS AVENUE 1445 ROSS AVENUE, SUITE 3200
DALLAS, TEXAS 75201 DALLAS, TEXAS 75202
TELEPHONE: (214) 220-7700 TELEPHONE: (214) 855-4500
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(c) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]_____________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X] ____________
CALCULATION OF REGISTRATION FEE
===============================================================================
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share.......................... 4,973,750 $13.00 $64,658,750 $21,757
</TABLE>
===============================================================================

(1) Includes 648,750 as to which the Company has granted the Underwriters an
option to cover over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee.

(3) Paid $17,845 with initial filing.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
===============================================================================

<PAGE>

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

SUBJECT TO COMPLETION, DATED OCTOBER 4, 1996

PROSPECTUS

[LOGO]
4,325,000 SHARES

HOMEGATE HOSPITALITY, INC.

COMMON STOCK

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

All of the 4,325,000 shares of Common Stock, $.01 par value (the "Common
Stock"), offered hereby (the "Offering") are being sold by Homegate
Hospitality, Inc. (the "Company"). After the completion of the Formation (as
defined below), but prior to the completion of the Offering, executive
officers, directors and affiliates of the Company will own, in the aggregate,
100% of the outstanding Common Stock. Upon the completion of the Offering, such
parties will own in the aggregate approximately 59.7% and collectively have
control of the Company. See "Risk Factors--Control of the Company by Management
and Principal Stockholders." Prior to the Offering, there has been no public
market for the Common Stock of the Company, and no assurance can be given that
an active trading market for the Common Stock will develop after the Offering.
It is currently anticipated that the initial public offering price will be
between $11.00 and $13.00 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
Company's Common Stock has been approved for quotation on The Nasdaq National
Market, subject to notice of issuance, under the symbol "HMGT."

ANY INVESTMENT IN THE SECURITIES OFFERED HEREIN INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.

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

THE 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.

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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Total(3)........................ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $ .

(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 648,750 shares of Common Stock on the same terms as the
Common Stock offered hereby, solely to cover over-allotments, if any (the
"Over-Allotment Option"). If the Over-Allotment Option is exercised in
full, the Price to Public, Underwriting Discounts and Commissions, and
Proceeds to the Company will be $ , $ , and $ , respectively. See
"Underwriting."

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

The shares of Common Stock are offered, subject to prior sale, when, as, and
if delivered to and accepted by the Underwriters, and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made on or about October ,
1996, at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York,
New York 10167.

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

BEAR, STEARNS & CO. INC. MONTGOMERY SECURITIES

, 1996.
<PAGE>
[PICTURES]

Inside the front cover of the document, located in the upper left hand corner,
appears the Company's logo. Underneath the logo is a caption that reads HOMEGATE
Studios & Suites. Also located on the inside front cover are three pictures and
one artist's depiction. In the upper right-hand corner is the artist's depiction
of the interior corridor of a Homegate Hospitality hotel with a caption that
reads as follows: "Prototype interior corridor elevation for Homegate's new
hotel construction and planned development." Below that artist's depiction, on
the right side, is a photograph of a hotel room showing the bed with a caption
above the photograph that reads as follows: "Characteristic interior of the
Studio Suites Hotel in Grand Prairie, Texas." Immediately below that is another
photograph of an exterior view of a Homegate Hospitality hotel with a caption
that reads as follows: "Exterior view of Homegate Hospitality, Inc.'s first
hotel, Studio Suites, in Grand Prairie, Texas." To the left is a photograph of
exercise equipment with a caption above the photograph that reads as follows:
"Exercise Center of the Studio Suites Hotel in Grand Prairie, Texas representing
a typical upscale amenity."

Opening the cover is a gate-fold of a map of the United States with certain
states containing symbols. Below the map is a legend with the Homegate
Hospitality logo representing existing hotels (Texas- four planned hotel sites)
a symbol representing planned hotel sites (Texas, Illinois, Florida, Indiana,
Arizona, Oregon and North Carolina), and a symbol representing sites under
development (Texas, Colorado, Kansas and Arizona). Directly below the southeast
portion of the map is text that reads as follows:

Existing Hotels Planned Hotel Sites
.Studio Suites - Grand Prairie, TX .Austin, TX - Gracy Farms
.Westar - Irving, TX .Austin, TX - Miracle Hills
.Westar - Amarillo, TX .Austin, TX - Norwood Park
.Westar - El Paso, TX .Chicago, IL - Itasca
.Westar - San Antonio, TX (Fiesta Park) .Dallas, TX - Las Colinas
.Westar - San Antonio, TX .Ft. Lauderdale, FL - Cypress Creek
(San Antonio International Airport) .Houston, TX - Galleria
.Houston, TX - Stafford/Sugar Land
Sites Under Development .Indianapolis, IN - North Loop
.Dallas, TX - Park Central .Orlando, FL - Maitland Center
.Denver, CO - Denver Tech Center .Phoenix, AZ - Chandler
.Kansas City, KS - Overland Park .Portland, OR - Hillsboro
.Kansas City, KS - Lenexa .Raleigh/Durham, NC - South Square
.Phoenix, AZ - 44th/Oak
.Phoenix, AZ - Metro Center

Located directly below is a symbol of a circle representing Developer Affiliates
(Washington, Oregon, Utah, California, Arizona, Texas, Kansas, Minnesota,
Missouri, Illinois, Indiana, Tennessee, North Carolina, Georgia and Florida) and
a triangle representing Wyndham National Sales Offices (New York, Washington,
D.C., Illinois, California). In the upper left-hand corner of the page is the
Homegate logo. Directly beneath is HOMEGATE Studios & Suites and text which
reads as follows: "Homegate Hospitality, Inc.'s goal is to become a national
provider of high quality extended-stay hotels in strategically selected markets
located throughout the United States. The market includes business travelers,
professionals on temporary work assignments, persons between domestic
situations, and persons relocating or purchasing a home, who often desire
accommodations for an extended duration."

"The Company's hotels will be designed to compete primarily in the midprice
segment of the extended-stay industry, and will contain a variety of features
that are attractive to the extended-stay guest, such as fully-equipped kitchens,
resident laundry facilities, twice-weekly linen service, weekly maid service,
business centers and exercise facilities." Directly below that is an artist's
rendition of the exterior of a Homegate Hospitality hotel. Directly above that
is a caption which reads as follows: "Prototype Exterior." Directly below the
artist's rendition and superimposed upon the bottom portion of it are three room
designs showing the room configuration for the three suites. Under the extreme
left rendition is a caption which reads as follows: "Deluxe Endcap Unit." Under
the middle rendition is a caption which reads as follows: "Deluxe Unit." Under
the extreme right rendition is a caption that reads as follows: "Standard Unit."

Below is text which reads as follows:

The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent certified public
accountants and with quarterly reports containing unaudited financial
statements for each of the first three quarters of each fiscal year.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ NATIONAL MARKET
SYSTEM, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

On the following page is an artist's rendition of the exterior of a Homegate
Hospitality hotel. Located directly below is a photograph of the Westar Suites
hotel with a caption that reads as follows: "Westar Suites at San Antonio
International Airport Before Renovation." Below and to the left is text which
reads as follows: "The Westar portfolio consists of five properties which will
undergo substantial renovations (as depicted in the before and after pictures
above) to conform with Homegate Studios & Suites extended-stay standards."
Located in the extreme lower right-hand corner is the Homegate logo and below
text which reads "HOMEGATE Studios & Suites."

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this prospectus
(this "Prospectus"). Unless otherwise indicated, the information in this
Prospectus assumes (i) the completion of the formation of the Company and
related transactions (the "Formation," as more specifically defined under "The
Formation Transaction") to occur immediately prior to, or simultaneously with,
the completion of the Offering, (ii) no exercise of the Over-Allotment Option,
and (iii) an initial public offering price of $12.00 per share (which
represents the midpoint of the range on the cover page of this Prospectus and
which affects the number of shares to be received by the parties in the
Formation and the calculation of the proceeds from the Offering). See "The
Formation Transaction," "Underwriting" and "Principal Stockholders." Unless the
context suggests otherwise, references in this Prospectus to (i) the "Company"
mean Homegate Hospitality, Inc. and its predecessors, (ii) the "Crow Family"
include various descendants of Mr. and Mrs. Trammell Crow and various
corporations, partnerships, trusts and other entities beneficially owned or
controlled by such persons, (iii) "TCR" mean Trammell Crow Residential Company
and its affiliates, (iv) "Greystar" mean Greystar Capital Partners, L.P. and
its affiliates, (v) "Crow" mean Crow Realty Investors, L.P. d/b/a Crow
Investment Trust and its affiliates, and (vi) "Wyndham" mean Wyndham Hotel
Corporation and its predecessors and affiliates. "Homegate Studios & Suites"
and "Homegate Studios" are service marks of the Company.

THE COMPANY

Homegate Hospitality, Inc.'s goal is to become a national provider of high
quality extended-stay hotels in strategically selected markets located
throughout the United States. The Company plans to rapidly develop a chain of
midprice extended-stay hotels under the Homegate Studios & Suites brand name to
capitalize on what management believes is a large and underserved market of
guests who desire extended-stay accommodations. This market includes business
travelers, professionals on temporary work assignments, persons between
domestic situations, and persons relocating or purchasing a home, who often
desire accommodations for an extended duration. As of the completion of the
Offering, the Company will own six hotels and have six hotels under
development, and expects to have agreements, letters of intent, contracts or
other arrangements to purchase 13 additional development sites (each a "Planned
Hotel Site"). Of the six hotels under development, three are currently under
construction and three more are expected to be under construction by December
31, 1996. The Company's objective is to have approximately 65 extended-stay
hotels open or under construction by December 31, 1998 (the "Initial Hotel
Program").

The Company was recently founded by management and by affiliates of the
following three entities: Trammell Crow Residential Company, one of the
nation's leading developers of multi-family housing units with 22 regional
offices; Greystar Capital Partners, L.P., a private investment company with
substantial multi-family housing development and construction expertise; and
Crow Investment Trust, the real estate investment arm of the Crow Family. In
TCR, Greystar and Crow, the Company brings together extensive experience in
developing, constructing and managing properties on a national scale and in
structuring, financing and executing national real estate investment programs.
The Company has entered into a master development agreement with a partnership
(the "Developer Partnership"), comprised of TCR and Greystar (the "Developer
Affiliates"), to provide site selection, construction and development services
for the Company's Initial Hotel Program. Management believes the Developer
Affiliates' expertise and local market presence will significantly enhance the
Company's ability to execute its Initial Hotel Program.

The Company has also entered into a master management assistance agreement
(the "Management Agreement") with a subsidiary of Wyndham Hotel Corporation,
which owns, operates or franchises over 70 hotels in North America, to manage
the Company's hotels pursuant to 10-year management contracts. Management
believes that Wyndham's experience in managing and operating one of the
nation's leading hotel chains will facilitate the Company's ability to provide
consistently high quality accommodations and services to

3
<PAGE>

its guests, and that access to Wyndham's resources will minimize the Company's
overhead expenses during its initial phase of operations. Although Wyndham owns
no Common Stock in the Company, over 48% of Wyndham's stock is owned by the
Crow Family. See "Certain Transactions" and "Risk Factors--Reliance upon
Affiliated Companies." Upon completion of the Offering, TCR, Greystar, Crow and
their affiliates will own 59.7% of the outstanding Common Stock. See "Risk
Factors--Control of the Company by Management and Principal Stockholders" and
"Principal Stockholders."

The Company's product strategy is to develop a well-recognized national brand
under the Homegate Studios & Suites name by offering high quality
accommodations in a standard format, providing much of the value offered by
limited service hotels with many of the added features and comforts of
apartment living. Homegate Studios & Suites hotels will feature three
functional room configurations, each with a fully equipped kitchen, upscale
residential-quality finishes and accessories, and separation between the
cooking, living, and sleeping areas, and other amenities, including weekly maid
service, twice-weekly linen service, resident laundry facilities, direct dial
telephone service with voice mail messaging and dataport capabilities, cable
TV, a business center and an exercise facility. See "Business--Product
Concept."

The extended-stay category (defined as hotel suites with full kitchens) is
one of the most rapidly growing sectors of the U.S. lodging industry. From 1990
through 1995, the compounded annual growth rate in occupied rooms in dedicated
extended-stay hotels was 7.2% compared to 2.1% for the overall U.S. lodging
industry, while the compounded annual growth rate in room supply was 5.3%
compared to 1.0% for the overall U.S. lodging industry. However, the vast
majority of dedicated extended-stay rooms developed during this time period
were in the upscale segment of the extended-stay category. Average occupancy
rates for extended-stay hotel chains have exceeded such rates in the overall
U.S. lodging industry for each of the previous six years, and extended-stay
hotel chains have achieved an 80% or greater occupancy level during each of the
past three years. The Company believes that the size of the demand for
extended-stay lodging compares favorably to the limited supply of dedicated
extended-stay rooms, and that this is especially true in the midprice segment
of the extended-stay category. In 1995, extended-stay guests (defined as those
guests staying five or more nights) who were accommodated at hotels accounted
for a total of 137.8 million room nights, or 15.9%, of the approximately 867.7
million room nights occupied in hotel accommodations in the United States. Of
these 137.8 million room nights, only six to nine percent (8.3 million to 12.4
million) were accommodated by extended-stay hotel chains, which management
believes was due in part to the limited number of dedicated extended-stay
facilities in operation in 1995. Of the approximately 3.3 million total
available rooms in the U.S. lodging industry at the end of 1995, approximately
51,100, or only 1.5%, were extended-stay rooms at approximately 445 dedicated
extended-stay facilities. Of these 445 facilities, approximately 25, or 5.6%,
operated in the midprice segment of the extended-stay category. As a result,
management believes that there exist favorable growth opportunities in the
extended-stay category in the near term. The sources of the industry
information set forth above were Smith Travel Research and D. K. Shifflet,
neither of which provided any form of consultation, advice or counsel regarding
any aspect of the Offering, or are in any way associated with the Offering.

Management believes that the Company's affiliations with TCR, Greystar and
Wyndham will provide significant competitive advantages in achieving its growth
and operating objectives and distinguish the Company from many of its
competitors in the extended-stay market.

DEVELOPMENT, CONSTRUCTION AND LOCAL SITE SELECTION EXPERTISE. TCR and
Greystar have constructed an aggregate of approximately 115,000 multi-
family housing units over the last 14 years, and have extensive experience
in the development of standardized properties nationwide. Management
believes that the construction of multi-family housing units is similar to
construction of the Company's hotels. TCR and Greystar's combined regional
office network will provide the Company with local market knowledge and
site selection, development and construction expertise. As the partners of
the Developer Partnership, TCR and Greystar will identify and evaluate
potential development sites in the markets targeted by the Company. Once
sites are approved by Company management, either TCR or Greystar will
manage site acquisition,

4
<PAGE>

development and construction of the property. The Company believes its
relationships with TCR and Greystar will produce significant competitive
advantages and cost efficiencies, and will minimize the Company's
development and administrative overhead costs during the Initial Hotel
Program.

The Developer Partnership has entered into a master development agreement
to develop and construct up to 60 extended-stay facilities for the Company
by December 31, 1998. Unless extended, the master development agreement
will terminate upon the earlier of the commencement of the 60th project or
December 31, 1998. The Developer Partnership will own 1,073,103 shares of
Common Stock, constituting 10.0% of the Common Stock outstanding after the
Offering, and will distribute a portion of these shares as each project is
completed to the Developer Affiliate that is responsible for the completed
project. The Developer Affiliates have agreed to accept below-market
development fees in exchange for these equity interests in the Company.
Management believes this distribution mechanism will provide the Developer
Affiliates the necessary incentives to assist the Company in achieving its
Initial Hotel Program. See "Certain Transactions," "Risk Factors--Reliance
upon Affiliated Companies" and "Business--Growth Strategy."

HOTEL MANAGEMENT CAPABILITIES. Pursuant to the Management Agreement,
Wyndham has agreed to manage up to 60 Company hotels, each under a 10-year
management contract, and to provide the Company market research, assistance
with interior and exterior design, a preferred vendor program, a
proprietary property management software package and national and local
marketing services. See "Certain Transactions" and "Risk Factors--Reliance
upon Affiliated Companies." Management believes that being able to utilize
Wyndham's expertise will be a competitive advantage and will produce cost
efficiencies in the Company's buying, marketing and development programs.
Unless extended, the Management Agreement will terminate upon the earlier
of the signing of a management contract for the 60th hotel or December 31,
1998. Wyndham has agreed, subject to certain exceptions, not to compete
with Company hotels that it manages. See "Certain Transactions."

SUPERIOR PRICE/VALUE RELATIONSHIP. Based on its expected average weekly
rates of $280 to $350, the quality of its interior design elements and
finishes, the separation between cooking, living and sleeping areas and the
available amenities, management believes that its hotels will offer a
superior price/value relationship and appeal to extended-stay guests of
both upscale and economy extended-stay facilities. The Company has
carefully designed its product and marketing programs to (i) attract guests
who ordinarily patronize higher priced/comparable quality or comparably
priced/lower quality extended-stay or traditional hotel chains in markets
in which the Company competes, and (ii) educate extended-stay guests who
have typically stayed in traditional hotels of the value offered by the
Company's extended-stay facilities.

The Company's first property, which it acquired while under construction, is
located in Grand Prairie, Texas near the Dallas/Fort Worth International
Airport. This 139-unit facility opened on June 17, 1996, under the name "Studio
Suites," and will be renamed "Homegate Studios." The Company has also acquired
beneficial ownership of five extended-stay hotels currently operated under the
name "Westar Suites" (the "Westar Transaction"). See "The Formation
Transaction." The Westar hotels are located in Texas in the cities of San
Antonio (2), El Paso, Amarillo and Irving. Collectively, the Westar hotels
contain an aggregate of 622 units, all of which are similar to the prototype
developed by the Company for its guest rooms. The Westar facilities will be
renovated at an anticipated cost of approximately $4 million in order to
conform to the quality standards of the Homegate Studios & Suites prototype,
and will be operated under the Homegate Studios & Suites brand name.

As of the completion of the Offering, the Company will have begun
construction of three extended-stay hotels--a 139-unit facility in Phoenix,
Arizona, a 143-unit facility in Denver, Colorado and a 117-unit facility in
Lenexa, Kansas, and expects each of these hotels to be operational in the
second or third quarter of 1997. The Company also owns development sites in
Overland Park, Kansas, Dallas, Texas and an additional site in Phoenix,
Arizona, and expects to begin construction of hotels on each of these sites
during the fourth quarter of 1996.

5
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the Company........ 4,325,000 shares
Common Stock to be outstanding after the
Offering(1)............................... 10,725,000 shares
Use of Proceeds............................ To finance the development or
acquisition of additional extended-
stay hotels and other general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol.............. HMGT
</TABLE>
- --------

(1) Excludes 496,250 shares issuable upon exercise of options to be granted as
of the completion of the Offering under the Company's 1996 Plan (as defined
below), with an exercise price equal to the initial public offering price
shown on the cover page of this Prospectus.

6
<PAGE>

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
--------------------------
EXTENDED STAY
LIMITED
PARTNERSHIP COMPANY
HISTORICAL(1) PRO FORMA(2)
------------- ------------
<S> <C> <C>
OPERATING DATA:
Revenue............................................. $ 26 $ 3,970
Property operating expenses......................... 30 2,504
Corporate operating expenses........................ 204 541
Depreciation and amortization....................... 10 454
Interest expense.................................... 21 934
------- ---------
Net loss............................................ $ (239) $ (463)
======= =========
Net loss per share.................................. $ (0.07)
Weighted average number of shares of common stock
outstanding........................................ 6,400,000
OTHER DATA:
EBITDA(3)........................................... $ (208) $ 925
======= =========
Cash flows provided by (used in):
Operating activities.............................. $ 313 $ 1,110
Investing activities.............................. (8,264) (8,290)
Financing activities.............................. 9,225 9,167
</TABLE>

<TABLE>
<CAPTION>
EXTENDED STAY
LIMITED COMPANY
PARTNERSHIP COMPANY PRO FORMA, AS
HISTORICAL PRO FORMA(2) ADJUSTED(4)
------------- ------------ -------------
<S> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents............. $1,274 $ 4,857 $52,624
Property and equipment, net........... 8,201 36,189 36,189
Total assets.......................... 9,725 41,457 89,224
Total debt............................ 2,869 20,896 20,896
Total partners' capital (stockholders'
equity pro forma and as adjusted).... 6,156 19,761 67,528
</TABLE>
- --------

(1) From inception (February 9, 1996) through June 30, 1996. Extended Stay
Limited Partnership ("ESLP") is the predecessor to the Company. The Company
was incorporated on August 16, 1996, to succeed to the business of ESLP,
and prior to the Offering, has minimal assets and no operations of its own.
Immediately prior to or simultaneously with the completion of the Offering,
ESLP will merge into the Company. See "The Formation Transaction."

(2) Giving pro forma effect to the Formation, the Westar Transaction and the
acquisition of three development sites as if such transactions had occurred
as of January 1, 1995 for the purposes of the operating and other data and
as of June 30, 1996 for the purposes of balance sheet data. See the pro
forma financial statements and notes thereto contained elsewhere herein.

(3) EBITDA means operating income before mortgage and other interest, income
taxes, depreciation and amortization. EBITDA does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles ("GAAP"), is not to be considered as an alternative
to net income or any other GAAP measurement as a measure of operating
performance and is not necessarily indicative of cash available to fund
cash needs. The Company has included EBITDA herein because the Company
believes that it is one measure used by certain investors to determine
operating cash flow. EBITDA, as calculated above, may not be comparable to
other similarly titled measures of other companies.

(4) Giving pro forma effect to the Formation, the Westar Transaction, the
acquisition of three development sites, and the Offering at an assumed
initial public offering price of $12.00 per share as if such transactions
had occurred on June 30, 1996. See the pro forma financial statements and
notes thereto contained elsewhere herein.

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RISK FACTORS

Any investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should read this entire Prospectus carefully and
should consider, among other things, the risks and the speculative factors
inherent in and affecting the Company's business described below and
throughout this Prospectus. This Prospectus contains forward-looking
statements that involve risk and uncertainty. Actual results and the timing of
certain events could differ materially from those projected in the forward-
looking statements as a result of the risk factors set forth below and other
factors discussed elsewhere in this Prospectus. See "Special Note Regarding
Forward-Looking Statements."

LIMITED OPERATING HISTORY AND COSTS ASSOCIATED WITH EXPANSION

The Company acquired its first extended-stay hotel in May 1996 and
beneficial ownership of five hotels in September 1996. In addition, as of the
completion of the Offering, the Company will have six hotels under development
(three of which will be under construction as of the completion of the
Offering and three more of which the Company expects to begin construction of
during the fourth quarter of 1996). The Company has a limited operating
history upon which investors may evaluate the Company's performance. The
Company has incurred losses to date, and there can be no assurance that the
Company will be profitable in the future. Given the start-up nature of the
Company's operations, it expects to have net losses for the foreseeable
future.

DEVELOPMENT RISKS

The Company intends to grow primarily by developing additional extended-stay
hotels. Development involves substantial risks, including, among others, the
risks that development costs will exceed budgeted or contracted amounts, that
completion of construction will be delayed, that all necessary zoning and
construction permits will not be obtained, that financing might not be
available on favorable terms, that developed properties will not achieve
desired revenue or profitability levels once opened, that competitors with
greater financial resources than the Company will compete for suitable
development sites, that substantial costs will be incurred in the event a
development project must be abandoned prior to completion, that governmental
rules, regulations, and interpretations (including interpretations of the
requirements of the Americans with Disabilities Act of 1990 (the "ADA")) will
change, and that downturns in general economic and business conditions will
occur. The Company intends to manage development to reduce such risks. For
example, the Company will obtain guaranties for certain development cost
overruns from individuals who are affiliated with the Developer Affiliates and
will not acquire development properties until all necessary zoning and
construction permits are reasonably likely to be obtained. However, there can
be no assurance that present or future developments will proceed in accordance
with the Company's expectations. In addition, the development cost overrun
guaranties will be business asset guaranties (i.e., recourse will be limited
to the individual guarantor's interests in TCR or Greystar, as appropriate,
and some of their affiliates). There can be no assurance that such assets will
be sufficient to fund the costs of any specific development cost overrun.

The Company currently owns one extended-stay hotel, and has beneficial
ownership of five additional extended-stay hotels which it acquired in the
Westar Transaction. The Company's objective is to have approximately 65 hotels
open or under construction by December 31, 1998. There can be no assurance,
however, that the Company will complete the development and construction of
the hotels, or will acquire each of the planned properties and complete
development of a Company-owned hotel thereon, or that any such developments
will be completed in a timely manner or within budget. See "Business--Growth
Strategy."

RISKS ASSOCIATED WITH RAPID GROWTH

The Company intends to pursue an aggressive growth strategy through the
development of or acquisition of properties suitable for conversion to
Homegate Studios & Suites hotels; its objective is to have approximately 65
hotels open or under construction by December 31, 1998. The Company's growth
plans will require the implementation of specialized operational and financial
systems and will require additional management, operational, and financial
resources. There can be no assurance that the Company will be able to manage
its expanding operations effectively. See "--Reliance upon Affiliated
Companies," "--New Management" and "Business--Growth Strategy."

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<PAGE>

The Company has only recently developed its product strategy, which includes
the design of what will be its prototypical hotel and available amenities. See
"Business--Product Strategy." As of the completion of the Offering, the first
three hotels embodying its product strategy will be under construction. The
Company has no history upon which it can gauge consumer acceptance of its
facilities, and there can be no assurance that the Company's hotels will be
readily accepted by guests who are looking for extended-stay hotel
accommodations. Further, the Company's hotels will compete against other
facilities with substantially greater brand recognition.

RISKS ASSOCIATED WITH THE LODGING INDUSTRY

Operating Risks. The extended-stay industry in which the Company operates
may be adversely affected by changes in national or local economic conditions
and other local market conditions, such as an oversupply of hotel space or a
reduction in demand for hotel space in a geographic area, corporate
relocations or downsizing that may produce a reduced demand for local hotel
space, changes in travel patterns, extreme weather conditions, the recurring
need for renovation, refurbishment and improvement of lodging properties,
changes in governmental regulations which influence or determine wages,
prices, or construction or maintenance costs, changes in interest rates, the
availability of financing for operating or capital needs, and changes in real
estate tax rates and other operating expenses. In addition, due in part to the
strong correlation between the lodging industry's performance and economic
conditions, the lodging industry is subject to cyclical change in revenues and
profits. There can be no assurance that downturns or prolonged adverse
conditions in real estate or capital markets, or in national or local
economies, will not have a material adverse impact on the Company. See
"Business--Operations."

Competition in the Lodging Industry. The United States lodging industry is
highly competitive. Competition in the United States lodging industry is based
generally on convenience of location, price, range of services and available
amenities, and quality of customer service. Each of the Company's hotels will
be located in a developed area that includes competing lodging facilities. The
Company believes the location of its hotels, the high quality of its
accommodations, the reasonableness of its room rates, and the services and
guest amenities provided by it will be among the most important factors in its
business. Demographic or other changes in one or more of the Company's markets
could impact the convenience or desirability of the sites of certain hotels,
which could adversely affect their operations.

The Company anticipates that competition within the extended-stay industry
segment will increase substantially in the foreseeable future. In the midprice
category of the extended-stay industry segment, a number of other lodging
chains and developers have recently announced plans to develop or are
currently developing extended-stay hotels which may compete with the Company's
hotels. The Company may compete for guests and for new development sites with
certain of these established entities and other entities which have greater
financial resources and brand awareness than the Company and better
relationships with lenders and real estate sellers. Further, there can be no
assurance that new or existing competitors, including traditional hotels with
nationally recognized brand names, will not significantly lower rates or offer
greater convenience, services, or amenities or significantly expand or improve
facilities in a market in which the Company's hotels compete, thereby
adversely affecting the Company's operations. See "Business--Competition."

Seasonality. The lodging industry is seasonal in nature. Quarterly earnings
may be adversely affected by events beyond the Company's control, such as poor
weather conditions, economic factors and other considerations affecting
travel. In addition, occupancy rates and room revenues typically decline
during the fourth calendar quarter as business travel decreases during the
holiday season. The timing of openings of new properties could also lead to
fluctuations in the Company's quarterly earnings.

REAL ESTATE INVESTMENT RISKS

General Risks. The Company's investments will be subject to varying degrees
of risk generally incident to the ownership of real property. The underlying
value of the Company's real estate investments depends significantly upon the
Company's ability to operate its properties in a manner sufficient to maintain
or increase

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<PAGE>

cash provided by operations. Income from the properties, and the value of the
properties, may be adversely affected by adverse changes in national, general
or local economic conditions, adverse changes in local market conditions due
to changes in neighborhood characteristics, competition from other lodging
properties, changes in real property tax rates and in the availability, cost
and terms of financing, the impact of present or future environmental
legislation and compliance with environmental laws, the continuing need for
capital improvements, changes in operating expenses, adverse changes in
governmental rules and fiscal policies, civil unrest, acts of God, including
earthquakes and other natural disasters (which may result in uninsured
losses), acts of war, adverse changes in zoning laws, and other factors which
are beyond the Company's control.

Illiquidity of Real Estate. Real estate investments are relatively illiquid.
The Company's ability to vary its portfolio in response to changes in economic
and other conditions will be limited. There can be no assurance that the
Company will be able to dispose of an investment when it finds disposition
advantageous or necessary or that the sale price of any disposition will
recoup or exceed the amount of the Company's investment.

Losses in Excess of Insurance Coverage. The Company intends to maintain
comprehensive insurance on each of its properties, including liability, fire
and extended coverage, in the types and amounts customarily obtained by an
owner and operator in the Company's industry. Nevertheless, there are certain
types of losses, generally of a catastrophic nature, such as hurricanes,
earthquakes and floods, that may be uninsurable or not economically insurable.
The Company intends to use its discretion in determining amounts, coverage
limits and deductibility provisions of insurance, with a view to obtaining
appropriate insurance on the Company's properties at a reasonable cost and on
suitable terms. This may result in insurance coverage that in the event of a
loss would not be sufficient to pay the full current market value or current
replacement value of the Company's lost investment. Inflation, changes in
building codes and ordinances, environmental considerations and other factors
might also make it infeasible to use insurance proceeds to replace a hotel
after it has been damaged or destroyed.

RELIANCE UPON AFFILIATED COMPANIES

The Company's success will depend, in large part, upon the efforts of TCR,
Greystar and Wyndham, on which the Company will rely to develop, construct,
and manage its extended-stay hotels. The Company has entered into various
agreements with each of these companies which the Company believes will enable
it to successfully achieve its growth objectives. The Company's ability to
control and direct these companies in their performance under such agreements,
however, will be limited. If any of these parties fails to meet its
obligations to the Company, that failure could have a material adverse effect
on the Company's ability to achieve its growth objectives. See "--New
Management" and "--Dealings with Affiliates/Conflicts of Interest."

The Company has entered into a Management Agreement with Wyndham, pursuant
to which the Company will have the right to enter into property-specific
management contracts with Wyndham to manage up to 60 Company hotels. See
"Certain Transactions." While there is significant common ownership of the
Company and Wyndham (over 48% of the outstanding common stock of Wyndham is
owned by the Crow Family), there can be no assurance that Wyndham will enter
into future management contracts or continue to provide the Company market
research, design and other support services after the Management Agreement has
terminated. During the term of the Management Agreement, the Company is
restricted from engaging any other third party to manage its hotels.

Similarly, the Company has entered into a master development agreement with
the Developer Partnership, pursuant to which the Company and the Developer
Partnership have agreed to enter into property-specific development agreements
for up to 60 Company hotels. See "Certain Transactions." While there is
significant common ownership of the Company and the Developer Partnership, and
the Developer Affiliates will own a significant portion of the outstanding
Common Stock, there can be no assurance that the Company and the Developer
Partnership or the Developer Affiliates will enter into new development
agreements that are acceptable to Company management after the master
development agreement has terminated.

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<PAGE>

DEALINGS WITH AFFILIATES/CONFLICTS OF INTEREST

Dealings with Affiliates. The Company has engaged and expects to continue to
engage in numerous transactions with affiliates, including the development and
construction of hotels through the Developer Partnership and the management of
hotels through Wyndham. See "--Reliance upon Affiliated Companies,"
"Business--Growth Strategy," "--Operations," and "Certain Transactions." The
Developer Partnership will own 10.0% of the Common Stock outstanding upon
completion of the Offering. While Wyndham does not own any of the outstanding
Common Stock, over 48% of Wyndham's outstanding common stock is owned by the
Crow Family. Additionally, each of the Crow Family and Ron Terwilliger own
approximately 20% of the interests in TCR, Leonard Wood owns zero to 30% of
various divisions of TCR, and a majority of the interests in Greystar is owned
by Robert Faith. Mr. Wood and Mr. Terwilliger are both stockholders of the
Company, Mr. Wood serves as a Director of the Company and Mr. Terwilliger is
an Advisor to the Company. Mr. Faith is the Chairman of the Board, President,
and Chief Executive Officer of the Company. In addition, James Carreker is a
Director of the Company, and is the President and Chairman of the Board of
Wyndham. The Crow Family, through Crow, will also own a significant percentage
of the Common Stock outstanding after the Offering. See "Principal
Stockholders."

While many future transactions with affiliates will be effected pursuant to
existing contracts, the Company may expand its relationships with certain
affiliates to take advantage of such affiliates' capabilities. Although the
Company believes that its transactions with affiliates have been and will
continue to be on terms no less favorable to the Company than those that could
have been obtained from third parties with similar capabilities, there can be
no assurance that its affiliates will continue to transact business with the
Company or that they will not attempt to use their ownership positions in the
Company to influence the terms on which they transact business with the
Company in the future.

Policy with Respect to Related Party Transactions. The Company has
implemented a policy requiring any material transaction (or series of related
transactions) between the Company and related parties to be approved by a
majority of the directors who have no beneficial or economic interest in such
related party (the "Disinterested Directors"), upon such directors'
determination that the terms of the transaction are no less favorable to the
Company than those that could have been obtained from third parties. The
policy defines a material related party transaction (or series of related
transactions) as one involving a purchase, sale, lease or exchange of property
or assets or the making of any investment with a value to the Company in
excess of $1.0 million or a service agreement (or series of related
agreements) with a value in excess of $1.0 million in any fiscal year. There
can be no assurance that this policy will always be successful in eliminating
the influence of conflicts of interest. See "Management--Directors and
Executive Officers" and "Certain Transactions--Policy with Respect to Related
Party Transactions."

NEW MANAGEMENT

Since its formation in February 1996, the Company has recruited a management
team, none of whom have had prior experience in the extended-stay industry
segment in which the Company is engaged. Similarly, neither TCR, Greystar nor
Wyndham have prior experience in the development or management of extended-
stay hotels. The Company's success will depend upon the ability of management,
TCR, Greystar and Wyndham to develop expertise in developing and managing its
extended-stay lodging business. See "Management--Directors and Executive
Officers."

RISK OF BORROWING

The Company expects to borrow substantial capital for its expansion.
Pursuant to a $30 million mortgage loan facility (the "Existing Mortgage
Facility") with Bank One, Arizona, N.A. ("BOA") described under "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources," the Company may currently borrow up to $30
million to finance its acquisition and construction of properties. This
compares to total equity of $67.5 million, assuming net proceeds from the
Offering of $47.8 million based on an assumed initial public offering price of
$12.00 per share. The Company's borrowings under the Existing Mortgage
Facility will be secured by mortgages on the Company's properties and various
accounts and other assets. The Company will be required to procure substantial
additional capital over

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<PAGE>

time to complete its Initial Hotel Program, including additional construction
loans to finance the construction of additional extended-stay facilities. The
Company is currently negotiating a $90 million facility to be provided by BOA
to replace the Existing Mortgage Facility. There can be no assurance that such
replacement facility will be obtained. See "--Need for Additional Capital."
Leverage increases the risks to the Company of any variations in its results,
construction cost overruns, or any other factors affecting its cash flow or
liquidity. In addition, the Company's interest costs could increase as the
result of general increases in interest rates. The principal and interest
amounts to be borrowed under the Existing Mortgage Facility will be due two
years from the date of borrowing, but the term of such loans may be extended
for an additional three years if certain conditions are met. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."

In addition, Westar (as defined below), which the Company recently acquired
in the Westar Transaction, will have approximately $18 million of mortgage
indebtedness as of the completion of the Offering. This indebtedness is secured
by the five Westar facilities and Westar's various accounts and other assets,
and is due in monthly installments through January 11, 2021.

NEED FOR ADDITIONAL CAPITAL

Although the Company has access to financing under the Existing Mortgage
Facility, the Company will need to procure substantial additional financing
over time to complete its Initial Hotel Program, the amount of which will
depend upon a number of factors including the number of properties the Company
constructs or acquires and the cash flow generated by its properties. Upon
completion of the Offering and including the funds that may be available under
the Existing Mortgage Facility, the Company believes that it will have access
to sufficient resources to fund the development or acquisition of approximately
20 of the hotels contemplated by the Initial Hotel Program (including the six
existing facilities to be owned upon completion of the Offering), based on
expected development or acquisition costs. The Company's Initial Hotel Program
calls for the Company to have approximately 65 hotels open or under
construction by December 31, 1998. There can be no assurance regarding the
availability or terms of additional financing the Company may be able to
procure over time. The failure of the Company to obtain the required additional
financing needed to complete the Initial Hotel Program would adversely affect
the Company's ability to implement its growth strategy and would have a
material adverse effect on the Company's earnings and results of operations. In
addition, future financing facilities may restrict the ability of the Company
to incur additional debt. The Existing Mortgage Facility and any future debt
financings or issuances of Preferred Stock (as defined below) by the Company
will be senior to the rights of the holders of Common Stock, and any future
issuances of Common Stock will result in the dilution of the then-existing
stockholders' proportionate equity interests in the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."

IMPACT OF ENVIRONMENTAL REGULATIONS

The Company's operating costs may be affected by its obligations to pay for
the cost of complying with existing environmental laws, ordinances, and
regulations. Under various federal, state, and local environmental laws,
ordinances, and regulations, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances on, under, or in such property. Such laws often impose
liability whether or not the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. In addition, the presence
of contamination from hazardous or toxic substances, or the failure to
remediate properly such contaminated property, may adversely affect the owner's
ability to borrow using such real property as collateral. Persons who arrange
for the disposal or treatment of hazardous or toxic substances also may be
liable for the costs of removal or remediation of such substances at the
disposal or treatment facility, whether or not such facility is or ever was
owned or operated by such person. Certain environmental laws and common law
principles could be used to impose liability for releases of hazardous
materials, including asbestos-containing materials ("ACMs"), into the
environment, and third parties may seek recovery from owners or operators of
real properties for personal injury associated with exposure to released ACMs
or other hazardous materials. Environmental laws also may impose restrictions
on the manner in which property may be used or transferred or in which
businesses may be operated, and these restrictions may require

12
<PAGE>

expenditures. In addition, in the event any future legislation is adopted, the
Company may, from time to time, be required to make significant capital and
operating expenditures in response to such legislation. In connection with the
ownership of its properties, the Company may be potentially liable for any such
costs. The cost of defending against claims of liability or remediating
contaminated property and the cost of complying with environmental laws could
materially and adversely affect the Company's results of operations and
financial condition.

The Company attempts to minimize its exposure to potential environmental
liability through its site-selection procedures. The Company typically secures
an option to purchase land subject to certain contingencies. Prior to
exercising such option and purchasing the property, the Company conducts a
Phase I environmental assessment ("Phase I Surveys"), which generally involves
a physical inspection and database search, but not soil or groundwater
analyses. To date, the Phase I Surveys have not revealed any environmental
liability or compliance concern that the Company believes would have a material
adverse effect on the Company's business, assets, results of operations, or
liquidity, and the Company is not aware of any such liability or concern.
Nevertheless, it is possible that Phase I Surveys will not reveal all
environmental liabilities or compliance concerns or that there will be material
environmental liabilities or compliance concerns of which the Company will not
be aware. Moreover, no assurances can be given that (i) future laws,
ordinances, or regulations will not impose any material environmental
liability, or (ii) the current environmental condition of the Company's
existing and future properties will not be affected by the condition of the
neighboring properties (such as the presence of leaking underground storage
tanks) or by third parties unrelated to the Company. Thus, there can be no
assurance that the Company will not incur environmental costs which could have
a material adverse effect on the Company. See "Business--Environmental
Matters."

GOVERNMENT REGULATION AND COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT

The lodging industry is subject to numerous federal, state and local
government regulations, including building and zoning requirements. A number of
states also regulate the licensing of hotels by requiring registration,
disclosure statements, and compliance with specific standards of conduct. In
addition, the Company is subject to employment laws, including minimum wage
requirements, overtime, working conditions and work permit requirements. Recent
amendments to the minimum wage laws will go into effect in October 1996, and
will increase the Company's labor costs. The Company believes that the Studio
Suites hotel and each of the Westar hotels have the necessary permits,
approvals and licenses to operate their respective business and that
collectively they comply with the applicable employment laws, and the Company
intends to continue to comply with such laws and regulations. A change in such
building, zoning, or licensing requirements or a further increase in the
minimum wage rate, employee benefit costs or other costs associated with
employees could materially and adversely affect the Company.

Under the ADA, all public accommodations are required to meet certain federal
requirements related to access and use by disabled persons. While the Company
believes that its existing hotel and the Westar hotels are substantially in
compliance with these requirements, a determination that the Company is not in
compliance with the ADA could result in the imposition of fines or an award of
damages to private litigants. In addition, changes in governmental rules and
regulations or enforcement policies affecting the use and operation of the
facilities, including changes to building codes and fire and life-safety codes,
may occur. If the Company were required to make substantial modifications at
its facilities to comply with the ADA or other changes in governmental rules
and regulations, the Company's financial condition and ability to develop new
hotels could be materially and adversely affected.

MARKET CONCENTRATION

The Company's existing six hotels are located in the state of Texas. See "The
Formation Transaction" and "Business--Growth Strategy." While the Company will
be constructing hotels in Phoenix, Arizona, Denver, Colorado and Lenexa, Kansas
as of the completion of the Offering and intends to continue to build or
acquire hotels throughout the United States, adverse events or conditions which
affect Texas particularly (such as natural disasters or adverse changes in
local economic conditions) could have a more pronounced negative impact on the
operations of the Company until such diversification of local market risks is
in fact achieved. See

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"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

PROPERTY TAX AND INSURANCE RATE FLUCTUATIONS

Each of the Company's properties is subject to real property taxes. Real
property taxes may increase as property tax rates change and as the properties
are assessed or reassessed by taxing authorities. Also, each of the Company's
properties is covered by property and casualty insurance. Property and
casualty insurance rates may increase depending upon claims experience,
insurance market conditions and the replacement value of the hotels.

RISKS ASSOCIATED WITH ACQUISITIONS

Although the Company expects that the construction and development of new
extended-stay hotels will be its primary means of expansion, the Company will,
as part of its growth strategy, consider making future acquisitions of
existing extended-stay hotels or other properties that are suitable for
conversion to the Company's extended-stay concept. The Company regularly
pursues and evaluates acquisition opportunities of extended-stay lodging
facilities or facilities that may be converted to the Company's extended-stay
lodging concept, and at any given time may be in various stages of evaluating
such opportunities. Such stages may take the form of internal property
analysis, preliminary due diligence, the submission of an indication of
interest, preliminary negotiations, negotiation of a letter of intent or
negotiation of a definitive agreement. While the Company is currently
evaluating a number of acquisition opportunities (some of which may be
material in size to the Company), it has not signed a letter of intent, nor
does it have any commitment or understanding, with respect to any material
acquisition and currently has no assurance of completing any particular
material acquisition or of entering into negotiations with respect to any
material acquisition. If the Company does make any such acquisitions, it will
encounter various associated risks, including possible environmental and other
regulatory costs, diversion of management's attention, unanticipated problems
in converting such properties to the quality standards of the Company's
prototype and unanticipated liabilities, some or all of which could have a
material adverse effect on the Company's earnings and operations. See
"Business--Growth Strategy."

RELIANCE ON KEY PERSONNEL

The Company's success will depend to a significant extent upon the efforts
and abilities of its senior management and key employees, particularly Robert
A. Faith, the Chairman of the Board, Chief Executive Officer and President,
and John C. Kratzer, the Executive Vice President and Chief Operating Officer.
The loss of the services of any of these individuals could have a material
adverse effect upon the Company. See "Management--Directors and Executive
Officers." Messrs. Faith and Kratzer have agreed, subject to certain
exceptions and certain limitations, not to compete with the Company. The
Company does not have employment or consulting agreements with any of its
officers other than Mr. Kratzer, nor does it carry key man life insurance on
any of its officers. See "Management--Noncompetition, Employment and Indemnity
Agreements."

CONTROL OF THE COMPANY BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS

It is expected that after the completion of the Offering, the officers and
Directors of the Company and TCR, Greystar and Crow and their affiliates will
beneficially own approximately 59.7% of the outstanding shares of Common
Stock. By reason of such holdings, such stockholders acting as a group will be
able to control the affairs and policies of the Company and will be able to
elect a sufficient number of Directors to control the Company's Board of
Directors. In addition, such stockholders acting as a group will be able to
approve or disapprove most matters submitted to a vote of the stockholders.
See "Principal Stockholders." Crow and Greystar have entered into a
Stockholders Agreement by which they have agreed to act in concert with
respect to the election of Company Directors. For information with respect to
the voting agreement, see "Description of Capital Stock--Stockholders'
Agreement."

ANTI-TAKEOVER CONSIDERATIONS

Staggered Board of Directors. The Board of Directors is divided into three
classes serving staggered terms. The terms of the directors will expire in
1997, 1998, and 1999. The staggered terms of Directors may

14
<PAGE>

limit the ability of holders of Common Stock to change control of the Company
even if a change of control were in such stockholders' best interests. See
"Description of Capital Stock--Anti-takeover Provisions." The foregoing may
discourage offers or other bids for the Common Stock at a premium over the
market price thereof.

Certificate of Incorporation and Bylaws. The ownership positions of the
officers and Directors of the Company and of TCR, Greystar, and Crow and their
affiliates, together with the anti-takeover effect of certain provisions of
the Company's Certificate of Incorporation and Bylaws, may have the effect of
delaying, deterring or preventing a takeover of the Company that stockholders
purchasing shares in the Offering may consider to be in their best interest.
The Company's Certificate of Incorporation requires that any merger or other
business combination involving the Company be approved by at least 66 2/3% of
the shares of Common Stock outstanding, that all stockholder actions must be
effected at a duly-called annual or special meeting of the stockholders, and
that stockholders follow an advance notification procedure for certain
stockholder nominations of candidates for the Board of Directors and for
certain other business to be conducted at any stockholders' meeting. In
addition, the Company's Certificate of Incorporation authorizes the Board of
Directors to issue up to 5,000,000 shares of Preferred Stock, having such
rights, preferences and privileges as designated by the Board of Directors,
without stockholder approval. The issuance of such preferred stock could
inhibit a change of control. See "Description of Capital Stock--Anti-takeover
Provisions."

Delaware Anti-takeover Statute. Section 203 of the Delaware General
Corporation Law (the "DGCL"), which is applicable to the Company, restricts
certain business combinations with interested stockholders upon their
acquiring 15% or more of the Common Stock. This statute may have the effect of
inhibiting a non-negotiated merger or other business combination involving the
Company, even if such event would be beneficial to the then-existing
stockholders. See "Description of Capital Stock--Anti-takeover Provisions."

Stockholders' Agreement. Pursuant to a Stockholders' Agreement, each of Crow
and Greystar has certain rights of first refusal with respect to shares of
Common Stock held by the other. In addition, Crow and Greystar have agreed to
act in concert with respect to the election of Company Directors. These
provisions may have the effect of inhibiting a change in control of the
Company. See "Description of Capital Stock--Anti-takeover Provisions--
Stockholders' Agreement."

UNCERTAINTY AS TO USE OF PROCEEDS

As of the date of this Prospectus, the Company has not allocated the net
proceeds from this Offering to any specific use other than to the expansion of
its business. Pending any corporate uses, the Company plans to invest the net
proceeds in short-term investment grade, interest-bearing investments. See
"Use of Proceeds."

ABSENCE OF PRIOR PUBLIC MARKET; VOLATILITY OF MARKET PRICE

Prior to the Offering, there has been no public market for shares of the
Common Stock, and there can be no assurance that an active trading market will
develop or, if developed, will be sustained. The Company has been informed by
each of the representatives of the Underwriters that it intends to make a
market in the Common Stock following the Offering, although there can be no
assurance that such representatives will make such a market. The initial
public offering price of the Common Stock will be determined through
negotiations with the representatives of the Underwriters, and there can be no
assurance that future market prices for the Common Stock will equal or exceed
such public offering price. See "Underwriting" for the factors to be
considered in determining the initial public offering price of the shares of
Common Stock in the Offering. After completion of the Offering, the market
price of the Common Stock could be subject to significant fluctuations due to
variations in quarterly operating results and other factors, such as changes
in general conditions in the economy, the financial markets or the lodging
industry, natural disasters or other developments affecting the Company or its
competitors. In addition, the securities markets have experienced significant
price and volume fluctuations from time to time in recent years. This
volatility has had a significant effect on the market prices of securities
issued by many companies for reasons unrelated to their operating performance,
and these broad fluctuations may materially and adversely affect the market
price of the Common Stock.

15
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Approximately 6,400,000 shares of Common Stock will become eligible for sale
in the public market at various times after the completion of the Offering,
subject to compliance with an exemption from the registration requirements of
the Securities Act of 1933 (the "Securities Act"), such as Rule 144 or Rule
144A. The holders of these shares have agreed that they will not sell any
shares of Common Stock held by them for a period of 360 days from the date of
this Prospectus without the consent of Bear, Stearns & Co. Inc., one of the
representatives of the Underwriters. Such holders have certain rights,
beginning one year after the date of the completion of the Offering, to
request the Company to file a registration statement under the Securities Act
with respect to the resale by such stockholders of all of the shares of Common
Stock owned at that time by such stockholders. Shares so registered could be
sold in the public market by such stockholders at any time on or after the
date such registration statement is declared effective. No predictions can be
made as to the effect, if any, that market sales of such shares or the
availability of such shares for sale will have on the market price for shares
of Common Stock prevailing from time to time. Sales of substantial amounts of
shares of Common Stock in the public market following the Offering could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of equity
securities. See "Shares Eligible for Future Sale."

DILUTION

Investors purchasing shares of Common Stock in the Offering will experience
immediate and substantial dilution in the net tangible book value per share of
the Common Stock from the initial public offering price. Based on an assumed
initial public offering price of $12.00 per share, as of June 30, 1996, such
dilution, on a pro forma basis, would have been equal to $5.33 per share with
respect to shares purchased in the Offering. See "Dilution."

ABSENCE OF DIVIDENDS

The Company intends to retain its earnings to finance its growth and for
general corporate purposes and therefore does not anticipate paying any cash
dividends in the foreseeable future. In addition, future financing agreements
will contain limitations on the payment of cash dividends or other
distributions of assets. See "Dividend Policy" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

It is the Company's belief that certain statements contained or incorporated
by reference in this Prospectus, including without limitation statements
containing the words "believes," "anticipates," "expects" and words of similar
import, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the
Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such factors include, among others, the following: adverse
changes in national or local economic conditions, competition from other
lodging properties, changes in real property tax rates and in the
availability, cost 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 operating expenses, adverse changes
in governmental rules and fiscal policies, civil unrest, acts of God,
including earthquakes and other natural disasters (which may result in
uninsured losses), acts of war, adverse changes in zoning laws, and other
factors referenced in this Prospectus. Certain of these factors are discussed
in more detail elsewhere in this Prospectus, including, without limitation,
under the captions "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business." Given these uncertainties, prospective investors are cautioned not
to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to announce publicly
the result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.

16
<PAGE>

THE FORMATION TRANSACTION

The Company was incorporated on August 16, 1996 to succeed to the business
of ESLP, which was formed by TCR, Greystar and Crow in February 1996.
Immediately prior to, or simultaneously with, the completion of the Offering,
the current capital partners of ESLP will contribute in cash to ESLP, any
amounts remaining due on their initial obligations to contribute $20 million
to ESLP, and the Company will succeed to all of the assets and liabilities of
ESLP as a result of the merger of ESLP with and into the Company. As of
October 4, 1996, such amounts remaining due were $1.33 million. In
consideration thereof, the Company will issue 6,400,000 shares of Common Stock
to the current partners of ESLP which represents an average price per share of
$3.13. As a result of such transaction, affiliates of Greystar and Crow,
collectively, will acquire 6,400,000 shares of Common Stock which will
constitute in the aggregate 59.7% of the Common Stock outstanding after the
Offering. See "Principal Stockholders." Of such number, the Developer
Partnership will receive 1,073,103 shares of Common Stock, constituting 10.0%
of the Common Stock outstanding after the Offering, in exchange for its
interest in ESLP which the Developer Partnership received as consideration for
its agreement to provide the services under the master development agreement.
See "Certain Transactions." The Developer Partnership will distribute a
portion of these shares as each project is completed to the Developer
Affiliate that is responsible for the completed project. See "Certain
Transactions."

ESLP currently owns the 139-unit Studio Suites hotel (which the Company
intends to rename "Homegate Studios") in Grand Prairie, Texas, and will, as of
the completion of the Offering, have begun construction of a 139-unit hotel in
Phoenix, Arizona, a 143-unit hotel in Denver, Colorado, and a 117-unit hotel
in Lenexa, Kansas. ESLP expects each of these hotels to be operational in the
second or third quarter of 1997. ESLP also will have acquired development
sites in Overland Park, Kansas, Dallas, Texas and an additional site in
Phoenix, Arizona, on each of which it expects to begin construction of an
extended-stay hotel during the fourth quarter of 1996. The Company has entered
into agreements, letters of intent, contracts or other arrangements to acquire
13 other Planned Hotel Sites. The Company's hotels, current development sites
and proposed acquisitions are located in nine states. As of June 30, 1996,
ESLP had incurred indebtedness under the Existing Mortgage Facility of
approximately $2,869,000, which is payable over two years with interest at
either the BOA prime rate plus 0.5% or LIBOR plus 2.25%. At June 30, 1996, the
interest rate was equal to the BOA prime rate plus 0.5%. At October 4, 1996,
the interest rate was equal to LIBOR plus 2.25%.

In addition, in September 1996 ESLP acquired beneficial ownership of five
extended-stay hotels currently operated under the name of "Westar Suites" from
the constituent partners of VPS I, L.P., an unaffiliated Delaware limited
partnership (which is hereinafter referred to as "Westar"). The hotels are
located in Texas in the cities of San Antonio (2), El Paso, Amarillo and
Irving, and contain 622 rooms in the aggregate, all of which are similar to
the prototype developed by the Company for its hotels. In connection with this
acquisition, ESLP acquired all of the outstanding stock of VPS, Inc., a
Delaware corporation and the sole general partner of Westar, and all of the
limited partnership interests in Westar. The aggregate purchase price of the
stock and the partnership interests was approximately $7 million (with $1.5
million of such consideration allocable to the termination of a 20-year
management contract to which the hotels were subject). Westar also has
approximately $18 million of mortgage indebtedness. This debt is payable in
monthly installments through January 11, 2021, with an interest rate of 9.71%
per annum through January 11, 2011 (at which time the annual interest rate
will increase by at least 5% and the loan will become prepayable in full at
the borrower's discretion). The Westar hotels will be renovated at an
aggregate anticipated cost of approximately $4 million to conform to the
quality standards of the Homegate Studios & Suites prototype, and will be
operated under the Homegate Studios & Suites brand name.

17
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the Offering are estimated to be
approximately $47.8 million ($55.0 million if the Over-Allotment Option is
exercised in full) assuming an initial public offering price of $12.00 per
share and after deduction of the estimated underwriting discounts and
commissions and other offering expenses. The Company intends to use
substantially all of such net proceeds to expand its business by developing
additional extended-stay hotels and for other general corporate purposes. The
Company will also consider future acquisitions of existing extended-stay
hotels or other properties that are suitable for conversion to the Company's
extended-stay concept, although there are no such acquisitions pending.
Pending use of the proceeds as set forth above, they will be invested in
short-term investment-grade, interest bearing investments.

The Company regularly pursues and evaluates acquisition opportunities of
extended-stay lodging facilities or facilities that may be converted to the
Company's extended-stay lodging concept, and at any given time may be in
various stages of evaluating such opportunities. Such stages may take the form
of internal property analysis, preliminary due diligence, the submission of an
indication of interest, preliminary negotiations, negotiation of a letter of
intent or negotiation of a definitive agreement. While the Company is
currently evaluating a number of acquisition opportunities (some of which may
be material in size to the Company), it has not signed a letter of intent, nor
does it have any commitment or understanding, with respect to any material
acquisition and currently has no assurance of completing any particular
material acquisition or of entering into negotiations with respect to any
material acquisition.

DIVIDEND POLICY

The Company has not paid dividends on its Common Stock. The Board of
Directors intends to retain earnings to finance its growth and for general
corporate purposes and, therefore, does not anticipate paying any such
dividends in the foreseeable future. In addition, the Company's future
financing agreements may contain net worth and other covenants and limitations
on payment of any cash dividends or other distributions of assets, which
covenants and limitations could restrict the Company's ability to pay
dividends. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

18
<PAGE>

DILUTION

As of June 30, 1996, the net tangible book value of the Company, giving pro
forma effect to the Formation, the Westar Transaction, and the other
transactions (other than the Offering) described in the notes to the pro forma
balance sheet contained elsewhere herein, was approximately $19,651,215, or
$3.07 per share of Common Stock. "Net tangible book value" per share is
determined by dividing the Company's tangible net worth (the Company's assets,
excluding intangible assets, less total liabilities) by the number of shares
of Common Stock outstanding. After giving effect to the sale of shares of
Common Stock in the Offering (at an assumed initial public offering price of
$12.00 per share), and before estimated expenses and underwriting discounts
and commissions, the pro forma net tangible book value of the Company at June
30, 1996 would have been approximately $71,551,215, or $6.67 per share, based
on 10,725,000 shares outstanding after the Offering. This represents an
immediate increase in net tangible book value of $3.60 per share to the
existing stockholders of the Company, and an immediate dilution in net
tangible book value to new investors of $5.33 per share. The following table
illustrates the per share dilution as of June 30, 1996:

<TABLE>
<S> <C> <C>
Initial public offering price.................................. $12.00
------
Pro forma net tangible book value per share before the
Offering.................................................... $3.07
-----
Increase in pro forma net tangible book value per share
attributable to purchase by new stockholders in the
Offering(1)................................................. 3.60
-----
Pro forma net tangible book value per share after the Offering. 6.67
------
Dilution per share to new stockholders......................... $ 5.33
======
</TABLE>

The following table sets forth on a pro forma basis as of June 30, 1996, the
difference between the existing stockholders and the new investors with
respect to the number of shares of Common Stock purchased, the total
consideration paid and the average price per share paid (assuming an initial
public offering price of $12.00 per share):

<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED(2) CONSIDERATION PAID AVERAGE
------------------ ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE(2)
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 6,400,000 59.7% $20,000,000 27.8% $ 3.13
New stockholders in the
Offering..................... 4,325,000 40.3% $51,900,000 72.2% $12.00
---------- ----- ----------- -----
Total....................... 10,725,000 100.0% $71,900,000 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Before deducting underwriting discount and estimated expenses of the
Offering.

(2) Excludes 496,250 shares of Common Stock issuable upon exercise of options
to be granted as of the completion of the Offering under the Company's
1996 Plan, with an exercise price equal to the initial public offering
price shown on the cover page of this Prospectus.

19
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of ESLP as of June 30,
1996, the capitalization of the Company as of June 30, 1996, as adjusted to
give pro forma effect to the Formation, the Westar Transaction and the other
transactions (except for the Offering) described in the notes to the pro forma
balance sheet contained elsewhere herein, and the capitalization of the
Company as of June 30, 1996, as adjusted to give pro forma effect to the
Offering at an assumed initial public offering price of $12.00 per share, less
estimated expenses and underwriting discounts and commissions. This table
should be read in conjunction with the selected financial data, the pro forma
financial statements of the Company, the historical financial statements of
ESLP and the combined historical financial statements of Westar, and the
related notes thereto contained elsewhere herein.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
----------------------------------------
EXTENDED STAY
LIMITED COMPANY
PARTNERSHIP COMPANY PRO FORMA, AS
HISTORICAL(1) PRO FORMA(2) ADJUSTED(3)
------------- ------------ -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Total debt............................ $2,869 $20,896 $20,896
Partners' capital/stockholders'
equity:
Stockholders' equity:
Preferred Stock, par value $.01
per share, 5,000,000 shares
authorized; no shares issued and
outstanding...................... -- -- --
Common Stock, par value $.01 per
share, 20,000,000 shares
authorized; 6,400,000 shares
issued and outstanding on a pro
forma basis; 10,725,000 shares
issued and outstanding on a pro
forma basis, as adjusted for the
Offering......................... -- 64 107
Additional paid-in capital........ -- 19,697 67,421
Partners' capital................... 6,156 -- --
------ ------- -------
Total partners'
capital/stockholders' equity... 6,156 19,761 67,528
------ ------- -------
Total capitalization............ $9,025 $40,657 $88,424
====== ======= =======
</TABLE>
- -------

(1) ESLP is the predecessor to the Company. The Company was incorporated on
August 16, 1996 to succeed to the business of ESLP, and prior to the
Offering, has minimal assets and no operations of its own. Immediately
prior to or simultaneously with the consummation of the Offering, ESLP
will merge into the Company. See "The Formation Transaction."

(2) Giving pro forma effect to the Formation, the Westar Transaction, and the
acquisition of three development sites as if such transactions had
occurred as of June 30, 1996. See the pro forma financial statements and
notes thereto contained elsewhere herein.

(3) Giving pro forma effect to the Formation, the Westar Transaction, the
acquisition of three development sites, and the Offering at an assumed
initial public offering price of $12.00 per share as if such transactions
had occurred as of June 30, 1996. See the pro forma financial statements
and notes thereto contained elsewhere herein.

20
<PAGE>

SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)

The selected financial data set forth below has been derived from the pro
forma financial statements of the Company, from the historical financial
statements of ESLP and from the historical combined financial statements of
Westar. The Company was incorporated on August 16, 1996, to succeed to the
business of its predecessor (ESLP), and prior to the Offering, has minimal
assets and no operations of its own. The historical financial statements of
the Company as of August 22, 1996 and ESLP as of June 30, 1996 and for the
period from inception (February 9, 1996) through June 30, 1996 have been
audited by Ernst & Young LLP, independent auditors, whose reports thereon
appear elsewhere herein. The financial data for such period is not necessarily
indicative of results for subsequent periods or the full year. The historical
combined financial statements of Westar for the three years ended December 31,
1993, 1994 and 1995, have been audited by Ernst & Young LLP, independent
auditors, whose report thereon appears elsewhere herein. The pro forma data is
unaudited but, in the opinion of management, all pro forma adjustments
necessary to reflect the effects of these transactions have been made. The
selected financial data of Westar set forth below for the years ended December
31, 1991 and 1992 and for the six month periods ended June 30, 1995 and 1996
have been derived from Westar's unaudited combined financial statements and
reflect all adjustments consisting of normal recurring accruals, which
management considers necessary for a fair presentation of the financial
position and the results of operations for these periods.

The selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
the pro forma financial statements and related notes thereto of the Company
and the historical financial statements and related notes thereto of ESLP and
Westar contained elsewhere herein.

THE COMPANY

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
--------------------------
EXTENDED
STAY LIMITED
PARTNERSHIP COMPANY
HISTORICAL(1) PRO FORMA(2)
------------- ------------
<S> <C> <C>
OPERATING DATA:
Revenue............................................. $ 26 $ 3,970
Property operating expenses......................... 30 2,504
Corporate operating expenses........................ 204 541
Depreciation and amortization....................... 10 454
Interest expense.................................... 21 934
------ ---------
Net loss............................................ $ (239) $ (463)
====== =========
Net loss per share.................................. $ (.07)
Weighted average number of shares of common stock
outstanding ....................................... 6,400,000
OTHER DATA:
EBITDA(3)........................................... $ (208) $ 925
====== =========
Cash flows provided by (used in):
Operating activities.............................. $ 313 $ 1,110
Investing activities.............................. (8,264) (8,290)
Financing activities.............................. 9,225 9,167
</TABLE>

21
<PAGE>

WESTAR

<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>
OPERATING DATA:
Revenue................. $7,667 $8,294 $8,761 $8,584 $8,439 $ 4,303 $ 3,944
Property operating
expenses............... 4,330 4,896 4,922 5,136 5,126 2,372 2,357
Corporate operating
expenses............... 627 709 538 930 875 214 337
Depreciation and
amortization........... 696 648 592 611 662 296 305
Interest expense........ 2,625 2,570 2,455 2,375 2,609 1,038 1,210
------ ------ ------ ------ ------ -------- --------
Income (loss) before
extraordinary item..... $ (611) $ (529) $ 254 $ (468) $ (833) $ 383 $ (265)
====== ====== ====== ====== ====== ======== ========
OTHER DATA:
EBITDA(3)............... $3,301 $2,518 $2,438 $ 1,717 $ 1,250
====== ====== ====== ======== ========
Cash flows provided by
(used in):
Operating activities.. $ 943 $ 861 $ 213 $ 1,211 $ 616
Investing activities.. (366) (910) (640) (262) (26)
Financing activities.. (482) (202) 673 (812) (58)
</TABLE>
- --------
(1) From inception (February 9, 1996) through June 30, 1996.

(2) Giving pro forma effect to the Formation, the Westar Transaction, and the
acquisition of three development sites as if such transactions had
occurred as of January 1, 1995 for the purposes of the operating and other
data, and as of June 30, 1996 for the purposes of the balance sheet data.
See the pro forma financial statements and notes thereto contained
elsewhere herein.
(3) EBITDA means operating income before mortgage and other interest, income
taxes, depreciation and amortization. EBITDA does not represent cash
generated from operating activities in accordance with GAAP, is not to be
considered as an alternative to net income or any other GAAP measurement
as a measure of operating performance and is not necessarily indicative of
cash available to fund cash needs. The Company has included EBITDA herein
because the Company believes that it is one measure used by certain
investors to determine operating cash flow. EBITDA, as calculated above,
may not be comparable to other similarly titled measures of other
companies.

(4) Giving pro forma effect to the Formation, the Westar Transaction, the
acquisition of three development sites, and the Offering at an assumed
initial public offering price of $12.00 per share as if such transactions
had occurred as of June 30, 1996. See the pro forma financial statements
and notes thereto contained elsewhere herein.

22
<PAGE>

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

GENERAL

The Company was incorporated in August 1996 and, as a result of the
Formation, will succeed to the business of ESLP, which was organized in
February 1996 to become a provider of high quality, midprice extended-stay
hotels. Prior to the Formation (which is expected to occur immediately prior
to, or simultaneously with, the completion of the Offering), all business
activities of the Company have been and will be conducted by ESLP. See "The
Formation Transaction."

During the period from its inception through June 30, 1996, ESLP hired its
initial employees, engaged in concept and product design, market study and
site selection activities, and acquired its first properties. On May 31, 1996,
ESLP purchased Studio Suites, a 139-unit extended-stay facility located in
Grand Prairie, Texas. The property was in the final stages of construction
when acquired and was opened for business on June 17, 1996. Prior to June 30,
1996, ESLP also purchased development sites in Phoenix, Arizona and Denver,
Colorado.

Subsequent to June 30, 1996, ESLP acquired beneficial ownership of five
hotels from the constituent partners of Westar. See "The Formation
Transaction." The hotels are located in Texas in the cities of San Antonio
(2), El Paso, Amarillo and Irving. The hotels contain 622 units in the
aggregate and will be renovated to conform to the quality standards of the
Homegate Studios & Suites prototype. The Westar facilities will then be
operated under the Homegate Studio & Suites brand name.

As of the completion of the Offering, the Company will have commenced
construction of extended-stay hotels on its Phoenix, Arizona (139 units) and
Denver, Colorado (143 units) sites and on a Lenexa, Kansas (117 units) site
acquired subsequent to June 30, 1996. The Company currently owns additional
development sites in Overland Park, Kansas, Dallas, Texas and a second site in
Phoenix, Arizona, on each of which it expects to begin construction of an
extended-stay hotel by the fourth quarter of 1996. At September 30, 1996, ESLP
had agreements, letters of intent, contracts or other arrangements to acquire
13 other Planned Hotel Sites. See "Business-Growth Strategy."

RESULTS OF OPERATIONS

Property Operations

ESLP's results of operations from inception through June 30, 1996 reflect
only 13 days of hotel operations. Occupancy averaged 44.5%. Weekly room rates
averaged $199, reflecting an "opening day" promotion. Property operating
expenses include salaries and benefits, repairs and maintenance, energy,
property taxes and insurance. A management fee of 3% of gross revenues was
paid to Wyndham to manage the property.

The following is a summary of certain historical operating information for
the Westar hotels (dollars in thousands, except for average daily room rate):

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Average occupancy rate............ 76.0% 74.5% 74.6% 82.9% 83.1%
Average daily room rate........... $ 49.18 $ 49.27 $ 48.54 $ 52.41 $ 50.56
Room revenue...................... 8,466 8,299 8,193 4,222 3,871
Total revenue..................... 8,761 8,584 8,439 4,303 3,944
Property operating expenses....... 4,922 5,136 5,126 2,372 2,357
Property operating expenses as a
percentage of total revenue...... 56.2% 59.8% 60.7% 55.1% 59.8%
</TABLE>

23
<PAGE>

The Westar hotels have not been operated historically as extended-stay
facilities, and therefore the average room rates shown above are daily rates
rather than weekly rates. Room revenue decreased by 2.0% from 1993 to 1994, by
1.3% from 1994 to 1995 and by 8.3% from the six month period ended June 30,
1995 to the comparable period in 1996. Property operating expenses increased
by 4.3% from 1993 to 1994 and decreased by 0.2% from 1994 to 1995. Such
expenses decreased by 0.6% from the six months ended June 30, 1995 to the
comparable period in 1996.

Partnership/Corporate Operations

Partnership/corporate expenses consisted primarily of salaries and benefits,
travel, office supplies, market research, data processing and ESLP formation
costs.

Interest expense of $21,457 was recorded by ESLP for the period on its
borrowings under the Existing Mortgage Facility.

LIQUIDITY AND CAPITAL RESOURCES

ESLP had cash balances of $1,274,000 as of June 30, 1996. In addition,
certain capital partners were obligated to make additional capital
contributions to ESLP in the aggregate amount of $13,605,000. These
contributions will be made prior to or simultaneously with the completion of
the Offering.

Westar owes indebtedness of approximately $18 million on a 9.71% secured
promissory note. This debt is payable on a fixed 25-year amortization schedule
in monthly installments through January 11, 2021, and will be paid from
Westar's operations.

The Company has a $30 million Existing Mortgage Facility with BOA, which
provides the Company with construction financing for new extended-stay hotels.
The Company is permitted to borrow under the Existing Mortgage Facility
through November 30, 1997. Each project may be funded under the Existing
Mortgage Facility through a separate loan, with all loans being cross-
collateralized and cross-defaulted. Initially, such loans will be advanced as
construction loans, payable over twenty-four months (the "Construction Term")
with interest at either the BOA prime rate plus 0.5% or LIBOR plus 2.25%. The
Company must make interest payments on each construction loan for the first
twelve months of the loan, followed by principal and interest payments based
upon a fifteen-year amortization schedule for the remaining twelve months of
the loan. The Company may elect to extend each loan for three additional years
(the "Mini-perm Term") if certain conditions are met and upon payment of a
specified extension fee. If the Company elects to extend the loan as a mini-
permanent financing, the Company will continue to make principal and interest
payments on a fifteen-year amortization schedule during each year of the
three-year extension period, and the interest rate may, in certain
circumstances, be reduced. During the Construction Term, the amount of any
loan may not exceed 55% of the total project costs of the related project.
During the Mini-perm Term, the loan amount to costs-of-project ratio may be
increased to 65% if certain conditions are met. BOA will have full recourse
against the Company for the loans, including environmental indemnities.

As of June 30, 1996, ESLP had incurred indebtedness under the Existing
Mortgage Facility of approximately $2,869,000 bearing interest at the BOA
prime rate plus 0.5%. This debt is due June 1, 1998, and may be extended for
an additional three years as described above. At October 4, 1996, the interest
rate on the Existing Mortgage Facility was equal to LIBOR plus 2.25%.

24
<PAGE>

acquisition costs. In particular, the Company anticipates spending an aggregate
of approximately $4 million to renovate the Westar facilities to conform to the
Homegate Studios & Suites prototype, and expects that it will spend between $5
million and $6 million on each developed or acquired hotel. The Company's
Initial Hotel Program calls for 65 hotels to be open or under construction by
December 31, 1998. There can be no assurance regarding the availability or
terms of additional financing the Company may be able to procure over time. In
addition, future financing facilities may restrict the ability of the Company
to incur additional debt in the future. The failure of the Company to obtain
the required additional financing needed to complete the Initial Hotel Program
would adversely affect the Company's ability to implement its growth strategy
and would have a material adverse effect on the Company's earnings and
operations. The Existing Mortgage Facility and any future debt financings or
issuances of Preferred Stock by the Company will be senior to the rights of the
holders of Common Stock, and any future issuances of Common Stock will result
in the dilution of the then-existing stockholders' proportionate equity
interests in the Company. See "Risk Factors--Development Risks," "--Risks
Associated with Acquisitions" and "--Need for Additional Capital."

The Company is currently negotiating a $90 million master line of credit (the
"Replacement Facility") with BOA to replace the Existing Mortgage Facility. The
Company will be permitted to borrow under the Replacement Facility for up to
two years after the closing of the facility, provided that in no event may the
Company's debt to net worth ratio exceed 1.25:1. The closing of the Replacement
Facility is subject to a variety of conditions, including the negotiation of
definitive documents and the syndication of $60 million of the facility amount.
There can be no assurance that the Replacement Facility can be obtained or, if
obtained, that it will be in the anticipated amount.

SEASONALITY

The lodging industry is seasonal in nature. Quarterly earnings may be
adversely affected by events beyond the Company's control, such as poor weather
conditions, economic factors and other considerations affecting travel. In
addition, occupancy rates and room revenues typically decline during the fourth
calendar quarter as business travel decreases during the holiday season. The
timing of openings of new properties could also lead to fluctuations in the
Company's quarterly earnings.

INFLATION

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

25
<PAGE>

BUSINESS

OVERVIEW

Homegate Hospitality, Inc.'s goal is to become a national provider of high
quality extended-stay hotels in strategically selected markets located
throughout the United States. The Company plans to rapidly develop a chain of
midprice extended-stay hotels under the Homegate Studios & Suites brand name
to capitalize on what management believes is a large and underserved market
for extended-stay accommodations. This market includes business travelers,
professionals on temporary work assignments, persons between domestic
situations, and persons relocating or purchasing a home, who often desire
accommodations for an extended duration. As of the completion of the Offering,
the Company will own six hotels and have six more hotels under development,
and expects to have agreements, letters of intent, contracts or other
arrangements to purchase 13 additional development sites. Of the six hotels
under development, three are currently under construction and three more are
expected to be under construction by December 31, 1996. The Company's
objective is to have approximately 65 extended-stay hotels open or under
construction by December 31, 1998.

The Company was recently founded by management and by affiliates of the
following three entities: Trammell Crow Residential Company, one of the
nation's leading developers of multi-family housing units with 22 regional
offices; Greystar Capital Partners, L.P., a private investment company with
substantial multi-family housing development and construction expertise; and
Crow Investment Trust, the real estate investment arm of the Crow Family. In
TCR, Greystar and Crow, the Company brings together extensive experience in
developing, constructing and managing properties on a national scale and in
structuring, financing and executing national real estate investment programs.
The Company has entered into a master development agreement with the Developer
Partnership to provide site selection, construction and development services
for the Company's Initial Hotel Program. Management believes the Developer
Affiliates' expertise and local market presence will significantly enhance the
Company's ability to execute its Initial Hotel Program, while minimizing the
Company's development costs and administrative overhead.

The Company also has entered into the Management Agreement with a subsidiary
of Wyndham Hotel Corporation, which owns, operates or franchises over 70
hotels in North America, to manage the Company's hotels pursuant to 10-year
management contracts. Management believes that Wyndham's experience in
managing and operating one of the nation's leading hotel chains will
facilitate the Company's ability to provide consistently high quality
accommodations and services to its guests, and that access to Wyndham's
resources will reduce the Company's overhead expenses during its initial phase
of operations. Although Wyndham owns no Common Stock in the Company, over 48%
of Wyndham's stock is owned by the Crow Family. See "Certain Transactions" and
"Risk Factors--Reliance upon Affiliated Companies." Upon completion of the
Offering, TCR, Greystar, Crow and their affiliates will own 59.7% of the
outstanding Common Stock. See "Risk Factors--Control of the Company by
Management and Principal Stockholders" and "Principal Stockholders."

The Company's product strategy is to develop a well-recognized national
brand under the Homegate Studios & Suites name by offering consistent, high
quality accommodations in a standard format, providing much of the value
offered by limited service hotels with many of the added features and comforts
of apartment living. Homegate Studios & Suites hotels will feature three
functional room configurations, each with a fully equipped kitchen, upscale
residential-quality finishes and accessories, and separation between the
cooking, living, and sleeping areas, and other amenities, such as weekly maid
service, twice-weekly linen service, resident laundry facilities, direct
telephone service with voice mail messaging and dataport capabilities, cable
TV, a business center and an exercise facility. See "--Product Concept."

The Company was incorporated in August 1996 as a Delaware corporation to
succeed to the business of a predecessor partnership. See "The Formation
Transaction." Its executive offices are located at 2001 Bryan Street, Suite
2300, Dallas, Texas 75201, and its telephone number is (214) 863-1777.

26
<PAGE>

GROWTH STRATEGY

The Company's growth strategy is to rapidly develop a chain of high quality,
midprice extended-stay hotels by leveraging its relationships with TCR,
Greystar, Crow, and Wyndham. Although the Company expects that the
construction and development of new extended-stay hotels will be its primary
means of expansion, the Company may consider, as part of its growth strategy,
franchising opportunities or future acquisitions of existing extended-stay
hotels or other properties that are suitable for conversion to the Company's
extended-stay concept. The Company regularly pursues and evaluates acquisition
opportunities of extended-stay lodging facilities or facilities that may be
converted to the Company's extended-stay lodging concept, and at any given
time may be in various stages of evaluating such opportunities. While the
Company is currently evaluating a number of acquisition opportunities (some of
which may be material in size to the Company), it has not signed a letter of
intent, nor does it have any commitment or understanding, with respect to any
material acquisition and currently has no assurance of completing any
particular material acquisition or of entering into negotiations with respect
to any material acquisition.

Pursuant to the master development agreement, the Developer Partnership has
agreed to develop up to 60 Homegate Studios & Suites hotels, and that neither
it, its partners, nor their respective affiliates will own, operate or develop
a competing extended-stay facility, subject to certain exceptions,within the
continental United States during the duration of such agreement. This
agreement will terminate upon the earlier of the commencement of the 60th
facility or December 31, 1998. Pursuant to this agreement, the Developer
Affiliates' regional offices will, under the Company's direction, provide site
sourcing, obtain entitlements and building permits, and provide construction,
architectural and engineering oversight. In addition, individual affiliates of
the Developer Affiliates will provide business asset guaranties for
construction cost overruns on each project. The Company believes its
utilization of the regional office network will produce competitive advantages
and cost efficiencies in its site selection, development and construction
operations, by providing local expertise and minimizing the Company's
development and administrative overhead costs during its Initial Hotel
Program.

The Company's development plan calls for identification of multiple markets
in which construction can occur within the Company's targeted time frame and
budget. The Company has developed a list of target markets and submarkets
based upon local hotel market conditions, the availability of development
sites and local construction capabilities, the existence of development
barriers to entry, the overall health and growth trends of the local
economies, and the presence of multiple corporate, residential and leisure
travel demand generators. Having identified its target markets, the Company
reviews each market to determine if it can achieve operational efficiencies by
either locating its hotels in proximity to existing Wyndham-managed hotels or
by clustering two or more Company hotels within the market.

In selecting sites within its targeted markets, the Company considers
demographic analysis, including surrounding population and employment data.
The prototypical site includes the following attributes:

. located close to an employment center (Fortune 500 companies and
corporate headquarters preferred) and to a freeway or major traffic
thoroughfare with good visibility;

. located in a clean, accessible area which provides some buffer from noise
generators and is close to restaurants and retail services;

. located in an area with residential density; and

. site size of approximately 2.5 to 3.0 acres which allows for the
construction of 110 to 150 units.

As of the completion of the Offering, the Company will have begun
construction of three hotels--a 139-unit facility in Phoenix, Arizona, a 143-
unit facility in Denver Colorado, and a 117-unit facility in Lenexa, Kansas--
and expects each of these hotels to be operational in the second or third
quarter of 1997. The Company currently owns development sites in Overland
Park, Kansas, Dallas, Texas, and a second site in Phoenix, Arizona, on each of
which it expects to begin construction of an extended-stay hotel during the
fourth quarter of 1996. As of September 30, 1996, the Company also has entered
into agreements, letters of intent, contracts, or other arrangements to
purchase 13 additional Planned Hotel Sites, as set forth below:

27
<PAGE>

<TABLE>
<CAPTION>
LOCATION NUMBER OF SITES
-------- ---------------
<S> <C>
Austin, Texas............................................. 3
Dallas, Texas (second site)............................... 1
Houston, Texas............................................ 2
Orlando, Florida.......................................... 1
Phoenix, Arizona (third site)............................. 1
Portland, Oregon.......................................... 1
Indianapolis, Indiana..................................... 1
Fort Lauderdale, Florida.................................. 1
Raleigh-Durham, North Carolina............................ 1
Chicago, Illinois......................................... 1
</TABLE>

The purchase prices for these Planned Hotel Sites range from $600,000 to
$1,500,000. The arrangements which the Company enters into for the purchase of
potential hotel sites provide for numerous investigations and other diligence,
including environmental studies and title reports, prior to the closing of the
purchase of the real property. The Company reserves the right to terminate
each contract if it is not satisfied with the results of its investigations
and diligence. There can be no assurance that the Company will be successful
in purchasing or developing any of the sites that are under contract or are
subject to a letter of intent or other arrangement. See "Risk Factors--
Development Risks" and "--Real Estate Investment Risks." However, the Company
is currently evaluating a variety of sites for construction of Homegate
hotels, and does not believe that the failure to acquire any or all of the
sites currently under some form of purchase arrangement would have a material
adverse effect upon its ability to complete its Initial Hotel Program.

The Company currently operates one extended-stay hotel in Grand Prairie,
Texas near the Dallas/Fort Worth International Airport. This newly-constructed
139-unit hotel opened on June 17, 1996 under the name of "Studio Suites," and
will be renamed "Homegate Studios." The Company has acquired beneficial
ownership of five additional extended-stay hotels in the Westar Transaction.
See "The Formation Transaction." These hotels are located in Texas in the
cities of San Antonio (2), El Paso, Amarillo and Irving. The Westar hotels
contain an aggregate of 622 units, all of which are similar to the Homegate
Studios & Suites prototype. The Westar hotels will be renovated at an
aggregate anticipated cost of approximately $4 million in order to conform to
the quality standards of the Company's prototype, and will be operated under
the Homegate Studios & Suites brand name. Set forth below is a summary of
certain data regarding these hotels:

<TABLE>
<CAPTION>
1995-
1997 PLANNED 1995 AVG. 1995 AVG. 1995 TOTAL AVERAGE
YEAR MONTH RENOVATION 1995 AVG. DAILY WEEKLY ROOM ROOM
LOCATION TYPE BUILT ACQUIRED EXPENDITURES OCCUPANCY RATE RATE(1) REVENUE REVENUE(3)
- -------- ---------------- ----- --------- ------------ --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Grand Prairie, Texas Studio Suites(2) 1996 May, 96 -- n/a n/a n/a n/a n/a
San Antonio, Texas Westar (Airport) 1986 Sept., 96 $866,050 75.1% $53.66 $375.62 $1,729,733 $40.16
San Antonio, Texas Westar (Fiesta) 1985 Sept., 96 $869,700 63.1% $50.29 $352.03 $1,455,990 $31.66
Irving, Texas Westar 1985 Sept., 96 $918,180 75.7% $46.19 $323.33 $1,604,068 $34.88
El Paso, Texas Westar 1986 Sept., 96 $813,180 80.7% $50.69 $354.83 $1,876,461 $40.80
Amarillo, Texas Westar 1985 Sept., 96 $841,240 78.3% $42.58 $298.06 $1,529,824 $33.26
</TABLE>
- -------

(1) The Westar hotels have not historically been operated as extended-stay
facilities, and therefore charged daily and not weekly room rates. The
amounts shown as weekly room rates reflect the average daily room rate
multiplied by the number of days in a week.

(2) The Studios Suites hotel was opened in June 1996, and accordingly has no
1995 operating history. From the period of its opening through August 31,
1996, the Studio Suites hotel had an average occupancy rate of 46.5%; an
average daily rate of $29.58; an average weekly rate of $207.06; and total
room revenue of $145,197.

(3) Calculated on the basis of dividing 1995 total room revenue by total
available room nights.

PRODUCT CONCEPT

Based on its expected average weekly room rate of $280 to $350, the quality
of its interior design elements and finishes, the separation between cooking,
sleeping and living areas and the available amenities, management

28
<PAGE>

believes that its hotels will offer a superior price/value relationship and
appeal to extended-stay guests of both upscale and economy facilities. The
Company believes that the extended-stay industry is currently segmented into
three price categories and that the weekly room rates charged in the various
categories are as follows: less than $280 in the economy or budget category;
greater than $280 and less than $500 in the midprice category; and over $500 in
the upscale category. The Company's hotels will generally offer extended-stay
accommodations for average weekly rates between $280 and $350, but room rates
at specific hotels may vary significantly depending upon local market factors.
The Company's hotels will be designed to compete primarily in the midprice
segment of the extended-stay industry segment, and will contain a variety of
features that are attractive to the extended-stay guest, such as fully equipped
kitchens, resident laundry facilities, twice-weekly linen service, weekly maid
service, business centers and exercise facilities. The facilities will consist
of an apartment-style complex with two or three story buildings containing, on
average, approximately 136 guest rooms. The Company will utilize both interior
and exterior corridor building designs, depending primarily on local market
standards, building codes and weather factors.

The hotels will typically feature three functional room configurations:
studio, deluxe, and one bedroom. Management believes that the price/value
relationship of its guest rooms is enhanced by offering the following features:

. a fully equipped kitchen with full-size refrigerator, stove, microwave,
coffee maker, dishwasher and cooking utensils;

. separate cooking, living and sleeping areas;

. residential-quality interior design elements;

. upscale finishes and accessories;

. an oversized work desk;

. two telephone jacks with dataports;

. direct dial telephone with voice mail messaging;

. fax and copy services available to guests;

. cable TV; and

. a sleeper sofa.

OPERATIONS

The Company's operating objective is to establish a well-recognized national
brand of extended-stay hotels while maximizing operating performance. The
Company intends to achieve these goals by (i) developing and offering
consistent, high quality accommodations; (ii) capitalizing on the attractive
operating characteristics of the extended-stay segment of the lodging industry;
and (iii) leveraging Wyndham's significant hotel management expertise.

Consistent Lodging Experience. The Company believes it will be able to create
a well-recognized brand under the Homegate Studios & Suites name by creating a
uniform and high quality lodging experience for its guests. Because the Company
will own and Wyndham will manage each hotel, the Company will be better able to
maintain a high level of consistency and quality at its hotels. Management
believes that consistency and reliability in lodging experience are among the
most important factors considered by midprice extended-stay guests in
determining where to stay, and that its focus on these factors will lead to a
higher level of customer satisfaction which will enable the Company to create a
positive brand image for its hotels.

Attractive Extended Stay Operating Characteristics. The Company believes that
the extended-stay industry segment offers superior property-level operating
characteristics when compared to other segments of the lodging industry.
Extended-stay hotels typically experience longer average guest stays than
traditional hotels, resulting in higher average occupancies and a more stable
revenue stream. The Company will require minimum stays of one week at its
hotels, and will provide daily rates only after the minimum stay has been met.

29
<PAGE>

In addition, the staffing levels of extended-stay hotels are much lower than
those of traditional hotels, since many of the labor intensive services offered
by full-service hotels are de-emphasized or excluded entirely, resulting in
lower labor costs. At the Company's hotels, there will be no food and beverage
service and limited common area amenities. The front desk will typically offer
a limited operating schedule (7:00 a.m. to 9:00 p.m. Monday through Friday plus
9:00 a.m. to 1:00 p.m. on Saturday and 1:00 p.m. to 5:00 p.m. on Sunday). Voice
mail messaging will eliminate the need for a telephone switchboard. The Company
has developed a system to allow for after hours check-in, eliminating the need
for 24-hour front desk operations. Housekeeping services will be offered
weekly, and linen service will be available twice weekly. Several common area
amenities that do not substantially increase operating expenses will be
included, such as an exercise room, resident laundry, and a business center.

Wyndham Hotel Management. Pursuant to the Management Agreement, Wyndham has
agreed to manage up to 60 Company hotels, each pursuant to a 10-year management
contract. Each Company hotel will have a Wyndham hotel manager, who will share
duties with and oversee a Wyndham-employed and -trained staff generally
consisting of approximately 10 employees. Wyndham's hotel managers typically
consist of college educated, career-oriented individuals. The Company believes
that Wyndham-trained hotel managers will provide consistent, high quality
service and will assist the Company in achieving operating efficiencies. In
particular, management believes that Wyndham's expertise will be particularly
beneficial in helping the Company's hotels quickly achieve normalized occupancy
levels. In addition, Wyndham will provide the Company with market research, a
preferred vendor program, a proprietary property management software system,
and national and local marketing efforts. See "Certain Transactions" and "Risk
Factors--Reliance upon Affiliated Companies."

The Company's strategy includes leveraging Wyndham's national and local
marketing efforts to market its hotels. The Company believes that direct sales
will be one of the Company's primary marketing tools, and will utilize
Wyndham's "push-pull" approach to marketing, where appropriate.

. The "push" refers to Wyndham's national marketing efforts, which include,
among other things, calling programs to frequent travelers and national
corporate travel departments, and marketing to major travel agencies. The
Wyndham National Sales Office has over 20 sales people and offices in
Chicago, Los Angeles, Dallas, New York and Washington, D.C., and will
attempt to generate business on behalf of the Company. Wyndham will
provide these services pursuant to the Management Agreement and will
receive a fee for business generated.

. The "pull" refers to property specific marketing efforts both before and
after a facility has opened. Prior to opening, Wyndham will conduct a
marketing program to establish relationships with likely users of the
facility, such as human resource personnel or travel executives at local
corporations, local realtors and other lodging demand generators. After
the grand opening, the manager of each hotel will be responsible for
maintaining these relationships and generating new prospects, as well as
direct mailings, fliers, and local advertising.

In markets with existing Wyndham-managed hotels, each of the Company's local
hotel managers will attend a weekly sales meeting with the sales organization
of the Wyndham hotel. The marketing representatives of the Wyndham hotels will
also be trained to refer extended-stay demand to the Company's hotels, as well
as to refer leads to the Company's local hotel manager.

The Company believes that the management and additional services furnished by
Wyndham will provide it with competitive advantages over other extended-stay
hotel companies, even though the Company's hotels will not be operated under
the Wyndham name.

INDUSTRY OVERVIEW

Traditional Lodging Industry

The U.S. lodging industry is estimated to have generated approximately $52.7
billion in annual room revenues in 1995 and to have had approximately 3.3
million rooms at the end of 1995. Industry statistics, which

30
<PAGE>

the Company believes to be reliable, indicate that the U.S. lodging industry's
performance is strongly correlated to economic activity. Room supply and demand
historically have been sensitive to shifts in economic growth, which has
resulted in cyclical changes in average daily room and occupancy rates. The
recession in 1990 and 1991 compounded the negative effects of the overbuilding
in the mid- and late-1980s, and led to depressed industry performance and a
lack of capital available to the industry in the early-1990s.

The Company believes that the lodging industry has benefited from a gradually
improving supply and demand balance, evidenced by increased average daily room
and occupancy rates in recent years. Room supply growth in the lodging industry
slowed in the early-1990s and has rebounded in recent years, but demand
continues to grow faster then supply. According to industry reports, which the
Company believes to be reliable, supply growth was 1.1% in 1993, 1.4% in 1994,
and 1.6% in 1995. This slow supply growth, coupled with 3.3%, 4.1% and 2.9%
increases in demand (measured by occupied rooms) in 1993, 1994 and 1995,
respectively, reflects an improved supply and demand balance in the industry.
Management believes that these factors have led to an increase in average daily
room rates from $61.85 in 1993 to $64.24 in 1994 and to $67.34 in 1995 and
increases in the industry average occupancies as shown below.

Extended-Stay Category

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1990 1991 1992 1993 1994 1995
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Average Occupancy Rates:
Extended-Stay Hotel Chains(1)............... 73.9% 73.4% 76.7% 80.0% 81.3% 80.9%
All U.S. Lodging Industry(2)................ 62.4% 60.6% 61.6% 63.0% 64.6% 65.4%
</TABLE>
- --------
(1) Occupancy rates were provided by Smith Travel Research. Includes Homestead
Village(R) , Villager Lodge(R), Studio Plus(R), Lexington Hotel Suites(R),
Hawthorn Suites(R), Homewood Suites(R), Residence Inn(R), Summerfield
Suites(R) and Woodfin Suites(R).
(2) Occupancy rates were provided by Smith Travel Research.

Based on 1995 industry statistics, which the Company believes to be reliable,
the size of the demand for extended-stay lodging compares favorably to the
limited supply of dedicated extended-stay rooms, especially in the midprice
segment of the extended-stay category. In 1995, extended-stay guests (defined
as those guests staying five or more nights) accounted for a total of 175.1
million room nights, or 15.8% of the total number of room nights that were
accommodated by hotel and non-hotel facilities in the United States. Of these
175.1 million extended-stay room nights, 79%, or 137.8 million room nights,
were accommodated at hotels, 11%, or 19.1 million room nights, in apartments or
apartment complexes, and 10%, or 18.2 million room nights, in other types of
accommodations, such as bed and breakfast inns, timeshares and cruises. Of
these 137.8 million room nights, only six to nine percent (8.3 million to 12.4
million) of the room nights generated by extended-stay guests at hotels were
accommodated by extended-stay hotel chains. Management believes that the
extended-stay hotel chains' limited penetration of the extended-stay room
demand in 1995 was partly due to the limited number of dedicated extended-stay
facilities in operation in 1995. Of the approximately 3.3 million total
available rooms in the U.S. lodging industry at the end of 1995, approximately
51,100, or only 1.5%, were extended-stay rooms at approximately 445 dedicated
extended-stay facilities. Of these 445 dedicated extended-stay facilities,

31
<PAGE>

approximately 320, or 72%, operated in the upscale segment of the extended-
stay market, while approximately 25, or 5.6%, operated in the midprice segment
of the extended-stay category. The sources of the industry information set
forth above were Smith Travel Research and D. K. Shifflet, neither of which
provided any form of consultation, advice or counsel regarding any aspect of
the Offering, or are in any way associated with the Offering.

In addition, management believes that the disparity between demand and
supply for extended-stay facilities in 1995 was greater for the midprice
segment of the total extended-stay category. In 1995, extended-stay guests who
were accommodated at hotels represented approximately 378,000 daily occupied
rooms, while the total number of available dedicated extended-stay rooms
consisted of only approximately 51,100. Of these 378,000 daily occupied rooms,
approximately 164,000 represented rooms occupied in the midprice range, while
the total number of available dedicated extended-stay, midprice rooms
consisted of only approximately 1,800. As a result, management believes that
there exist favorable growth opportunities in the midprice segment of the
extended-stay category for the near term.

INSURANCE

The Company intends to maintain comprehensive insurance on each of its
properties, including liability, fire and extended coverage, in the types and
amounts customarily obtained by an owner and operator in the Company's
industry. Nevertheless, there are certain types of losses, generally of a
catastrophic nature, such as hurricanes, earthquakes and floods, that may be
uninsurable or not economically insurable. The Company intends to use its
discretion in determining amounts, coverage limits and deductibility
provisions of insurance, with a view to obtaining appropriate insurance on the
Company's properties at a reasonable cost and on suitable terms. This may
result in insurance coverage that in the event of a loss would not be
sufficient to pay the full current market value or current replacement value
of the Company's lost investment. Inflation, changes in building codes and
ordinances, environmental considerations and other factors might also make it
infeasible to use insurance proceeds to replace a hotel after it has been
damaged or destroyed.

COMPETITION

The U.S. lodging industry is highly competitive. Competition in the U.S.
lodging industry is based generally on convenience of location, price, range
of services and guest amenities offered, and quality of customer service. Each
of the Company's facilities will be located in a developed area that includes
competing lodging facilities. The Company believes the location of its hotels,
the high quality of its accommodations, the reasonableness of its room rates,
and its services and guest amenities will be among the most important factors
in its business. Demographic or other changes in one or more of the Company's
markets could impact the convenience or desirability of the sites of certain
hotels, which would adversely affect their operations.

The Company anticipates that competition within the extended-stay industry
segment will increase substantially in the foreseeable future. In the midprice
category of the extended-stay industry segment, a number of other lodging
chains and developers have recently announced plans to develop or are
currently developing extended-stay hotels which may compete with the Company's
hotels. The Company may compete for guests and for new development sites with
certain of these established entities and other entities which have greater
financial resources and brand awareness than the Company and better
relationships with lenders and real estate sellers. Further, there can be no
assurance that new or existing competitors, including traditional hotels with
nationally recognized brand names, will not significantly lower rates or offer
greater convenience, services, or amenities or significantly expand or improve
facilities in a market in which the Company's facilities compete, thereby
adversely affecting the Company's operations.

ENVIRONMENTAL MATTERS

Under various federal, state, and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation
of certain hazardous or toxic substances on such property. Such laws often
impose liability without regard to whether the owner knew of, or was
responsible for, the presence of

32
<PAGE>

hazardous or toxic substances. Furthermore, a person that arranges for the
disposal of or transports for disposal or treatment a hazardous substance at a
property owned by another may be liable for the costs of removal or
remediation of hazardous substances released into the environment at that
property. The costs of remediation or removal of such substances may be
substantial, and the presence of such substances or the failure to remediate
properly such substances, may adversely affect the owner's ability to sell
such real estate or to borrow using such real estate as collateral. In
connection with the ownership and operation of its properties, the Company may
be potentially liable for any such costs.

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

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

GOVERNMENTAL REGULATION

The lodging industry is subject to numerous federal, state and local
government regulations including those relating to building and zoning
requirements. A number of states also regulate the licensing of hotels by
requiring registration, disclosure statements, and compliance with specific
standards of conduct. In addition, the Company is subject to employment laws,
including minimum wage requirements, overtime, working conditions and work
permit requirements. Recent amendments to the minimum wage laws will go into
effect in October 1996, and will increase the Company's labor costs. The
Company believes that the Studio Suites hotel and each of the Westar hotels
have the necessary permits, approvals and licenses to operate their respective
business and that collectively they comply with the applicable employment
laws, and the Company intends to continue to comply with such laws and
regulations. A change in such building, zoning, or licensing requirements or a
further increase in the minimum wage rate, employee benefit costs or other
costs associated with employees could materially and adversely affect the
Company.

Under the ADA, all public accommodations are required to meet certain
federal requirements related to access and use by disabled persons. While the
Company believes that the Studio Suites hotel and the Westar hotels are
substantially in compliance with these requirements, a determination that the
Company is not in compliance with the ADA could result in the imposition of
fines or an award of damages to private litigants. In addition, changes in
governmental rules and regulations or enforcement policies affecting the use
and operation of the facilities, including changes to building codes and fire
and life-safety codes, may occur. If the Company were required to make
substantial modifications at its hotels to comply with the ADA or other
governmental rules and regulations, the Company's financial condition and
ability to develop or acquire new hotels could be materially and adversely
affected.

TRADEMARKS

The Company has made application to register its name and logo and its
"Homegate Studios & Suites," "Homegate Studios" and "Homegate Studios Suites"
servicemarks with the United States Patent and Trademark office.

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<PAGE>

INSURANCE

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

EMPLOYEES

As of June 30, 1996, the Company employed approximately seven people. The
Company expects that it will significantly increase the number of its employees
as it expands its business. The Company's employees are not subject to any
collective bargaining agreements, and management believes that its relationship
with its employees is good.

LEGAL PROCEEDINGS

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

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<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the Company's
Directors and executive officers, including their respective ages, at June 30,
1996. The Company intends to add two independent Directors no later than 90
days after the date the registration statement of which this Prospectus is a
part (as amended and together with all exhibits and schedules thereto, the
"Registration Statement") is declared effective. Each independent Director
will be a person other than an officer or employee of the Company or any other
individual having a relationship which, in the opinion of the Board of
Directors, would interfere with the exercise of independent judgement in
carrying out the responsibilities of a Director.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert A. Faith......................... 32 Chairman of the Board, Chief
Executive Officer and President
John C. Kratzer......................... 33 Chief Operating Officer and
Executive Vice President
Tim V. Keith............................ 43 Chief Financial Officer and
Treasurer
Anthony W. Dona......................... 37 Senior Vice President and Director
Joel Kinzie Oldham IV................... 34 Senior Vice President and Secretary
James D. Carreker....................... 49 Director
Harlan R. Crow.......................... 46 Director
John J. Moores.......................... 52 Director
Charles E. Noell........................ 44 Director
Leonard W. Wood......................... 49 Director
</TABLE>

ROBERT A. FAITH joined the Company in February 1996 as its Chairman of the
Board, Chief Executive Officer and President. Since August 1991, Mr. Faith has
served as the Chairman of the Board of Faith Holdings, Inc., a private holding
and management company with various business interests. Mr. Faith also
currently serves as the Chairman of the Board of the corporate general partner
of Greystar Capital Partners, L.P., a private holding company with investments
in real estate, apartment buildings and apartment management firms, a position
which he has held since May 1993. In August 1991, Mr. Faith co-founded
Starwood Capital Partners, a private real estate investment firm, for which he
served as Chief Executive Officer until May 1993.

JOHN C. KRATZER is the Chief Operating Officer and Executive Vice President
of the Company. Before joining the Company in February 1996, Mr. Kratzer
served as a Principal with Benton Resources, which invested over $100 million
in land, notes and income producing assets. Mr. Kratzer served in this
capacity from February 1994 to February 1996. From September 1993 to November
1994, Mr. Kratzer served as Vice President of Crow Family, Inc., a private
investment company. From September 1993 to February 1994, Mr. Kratzer served
as Vice President of Mill Spring Holdings, Inc., a private investment company.
During the period from September 1993 to February 1996, Mill Spring Holdings,
Inc. was the general partner of a limited partnership which held interests in
approximately 55 partnerships or corporations that filed for protection under
federal bankruptcy laws. In addition, during the same period, Mr. Kratzer was
a general partner, executive officer or director in approximately 15
partnerships or corporations, or affiliates of such partnerships or
corporations, that were placed in receivership. From September 1990 to August
1993, Mr. Kratzer was with Trammell Crow Realty Advisors, an institutional
real estate investment management company that acquired a multi-asset
portfolio of apartments valued at over $250 million. At the time of his
departure, Mr. Kratzer served as the Director of Multi-Family Acquisitions for
Trammell Crow Realty Advisors.

TIM V. KEITH joined the Company in July 1996 as its Chief Financial Officer
and Treasurer. Prior to joining the Company, Mr. Keith served as the
Controller/Treasurer of David Weekley Homes, a private single-family home
builder, from June 1994 to July 1996. From March 1989 to June 1994, Mr. Keith
served as Vice President

35
<PAGE>

of Finance for Coscan Florida Inc., a subsidiary of Coscan Development
Corporation, a Canadian public real estate developer and builder. Mr. Keith
has accumulated 17 years of experience in real estate accounting and finance,
as well as three years in public accounting.

ANTHONY W. DONA is a Senior Vice President and Director of the Company. In
addition, Mr. Dona is the Managing Director of Crow Realty Investors, L.P.,
d/b/a Crow Investment Trust, a position which he has held since 1994, and is a
Director of Trammell Crow Company and TCR. Mr. Dona has served in these
capacities since 1994 and 1996, respectively. In addition, Mr. Dona serves on
the advisory board of Trammell Crow Interest Company. From 1985 until 1994,
Mr. Dona served in various capacities with the Crow entities including Chief
Financial Officer of the Texas region of Trammell Crow Company, a partner in
the Dallas Office Building Division of Trammell Crow Company, Chief Executive
Officer of the Asset Management Group of Trammell Crow Company and Director of
Crow Family Administration. As part of his asset management role, Mr. Dona
managed a large portfolio of distressed real estate partnerships during the
recent real estate down-cycle. In connection with the restructuring of that
portfolio, Mr. Dona has served during the last five years as an officer or
director in approximately 90 partnerships or corporations, or affiliates of
such partnerships or corporations, that filed for protection under federal
bankruptcy laws. In addition, in the past five years, Mr. Dona was an
executive officer or director in approximately 15 partnerships or
corporations, or affiliates of such partnerships or corporations, that were
placed in receivership.

JOEL KINZIE OLDHAM IV joined the Company in February 1996 as a Senior Vice
President and its Secretary. Mr. Oldham is also the Executive Vice President
of Greystar Capital Partners, L.P. Mr. Oldham joined Greystar in May 1993.
Prior to joining Greystar, Mr. Oldham was the Vice President of Starwood
Capital Partners, a position he held from September 1992 to June 1993. Prior
to joining Starwood, Mr. Oldham was a Marketing Director with Trammell Crow
Company, which he joined in 1988.

JAMES D. CARREKER is a Director of the Company. Mr. Carreker has served as
President and Chief Executive Officer of Wyndham since May 1988 and as
Chairman of the Board of Wyndham since February 1996. He also served as Chief
Executive Officer of Trammell Crow Company from August 1994 to December 1995.
Prior to 1988, Mr. Carreker served as President of Burdine's, the Miami-based
division of Federated Department Stores.

HARLAN R. CROW is a Director of the Company. Mr. Crow is the Chief Executive
Officer of Crow Family Holdings, a private investment company managing
investments in a variety of real estate-related and other businesses, a
position he has held since 1986. Mr. Crow currently serves as a Director of
Trammell Crow Company and TCR. In addition, Mr. Crow serves as a Director of
Wyndham. In any given year within the past five years, Mr. Crow has indirectly
owned interests in over 1,000 partnerships (or affiliates of partnerships) or
corporations. In the past five years, Mr. Crow was a general partner, officer
or director in approximately 90 partnerships or corporations, or affiliates of
such partnerships or corporations, that filed for protection under federal
bankruptcy laws. In addition, in the past five years, Mr. Crow was a general
partner, executive officer or director in approximately 15 partnerships or
corporations, or affiliates of such partnerships or corporations, that were
placed in receivership.

JOHN J. MOORES is a Director of the Company. Mr. Moores founded BMC
Software, Inc., a vendor of system software utilities for IBM mainframe
computing environments in 1980. Prior to founding BMC Software, Mr. Moores was
employed by International Business Machines, Inc. and Shell Oil Corporation in
various of their technical divisions. Mr. Moores is Chairman of the Board of
the San Diego Padres, L.P., JMI Services, Inc., a private investment company,
Peregrine Systems, Inc., a computer software designer, and Neon Systems, Inc.,
a computer software designer, all of which are privately-held companies.

CHARLES E. NOELL is a Director of the Company. Mr. Noell is President of JMI
Services, Inc., a private investment company, which he joined in 1992 after 11
years in the corporate finance department of Alex. Brown & Sons Incorporated.
Mr. Noell is the Managing Partner of JMI Equity Fund, L.P., a private equity
investment fund, and is a Director of two publicly-traded companies:
Transactions Systems Architects, Inc. and Expert Software, Inc.

36
<PAGE>

LEONARD W. WOOD is a Director of the Company. Mr. Wood is currently a Group
Managing Partner for TCR, and is responsible for overseeing the activities of
TCR throughout Northern Florida and the Southeastern and Midwestern United
States. Mr. Wood joined TCR in 1982.

The Company's Certificate of Incorporation provides, among other things, for
a Board of Directors divided into three classes, designated Class I, Class II
and Class III. Directors serve for staggered terms of three years each, except
that initially the Class I Directors will serve until the Company's 1997
annual meeting of stockholders, the Class II Directors until the 1998 meeting
and the Class III Directors until the 1999 meeting. The Class I Directors are
Messrs. Carreker and Wood, the Class II Directors are Messrs. Crow and Moores,
and the Class III Directors are Messrs. Faith, Dona and Noell. Class I and
Class II will be expanded by one Director each when the two independent
Directors are elected to the Board of Directors.

The Company does not currently compensate, and does not anticipate
compensating, its Directors for their services as Directors, except that each
of the Company's non-employee Directors will receive certain automatic stock
option grants as described in "Director Compensation" below. In addition, each
of the Company's Directors will receive reimbursement of all ordinary and
necessary expenses incurred in attending any meeting of the Board of Directors
or any committee of the Board of Directors.

ADVISORS

The Company has consulting arrangements with several advisors who are
available to counsel the Company and the Board of Directors. Such advisors
include:

LESLIE V. BENTLEY has been an advisor to the Company since prior to its
formation. Mr. Bentley has been employed by Wyndham since March 1985 and has
served as Executive Vice President and Wyndham Garden Division President of
Wyndham since May 1990.

J. RONALD TERWILLIGER has been an advisor to the Company since prior to its
formation. Mr. Terwilliger has served as Managing Partner of TCR since 1986.
In that capacity, Mr. Terwilliger is responsible for all residential
development and operations conducted by Trammell Crow partners and associates
in 22 offices located throughout the United States. Mr. Terwilliger is also
Vice President, Treasurer and a Trustee of the Urban Land Institute. Mr.
Terwilliger serves as Chairman of the Advisory Board of the Wharton Real
Estate Center at the University of Pennsylvania.

JACK VANHARTESVELT has been an advisor to the Company since prior to its
formation. Mr. vanHartesvelt is the Corporate Vice President of Development
for Wyndham and has 20 years of hotel development experience with Wyndham,
Residence Inn, Hawthorn Suites, and Eagle Hotel Group.

The advisors to the Company will not receive cash compensation for their
services, but may receive grants of unallocated options under the 1996 Plan,
as discussed below.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board of Directors of the Company has established an Audit Committee and
a Compensation Committee. The Audit Committee's functions include recommending
to the Board of Directors the engagement of the Company's independent public
accountants, reviewing with such accountants the plans for and the results and
scope of their auditing engagement and certain other matters relating to their
services provided to the Company, including the independence of such
accountants. The Compensation Committee reviews on behalf of, and makes
recommendations to the Board of Directors with respect to the compensation of
executive officers, and administers the Company's incentive and stock option
plans. The two independent Directors will serve on the Audit Committee.
Messrs. Carreker, Noell and one of the independent Directors will serve on the
Compensation Committee.

Prior to August 16, 1996, Messrs. Faith and Dona approved the terms of
compensation for the Company's executive officers in such officers' capacities
as ESLP employees.

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<PAGE>

Certain Directors are parties to transactions with the Company, as described
under the caption "Certain Transactions."

EXECUTIVE COMPENSATION

The Company was incorporated in August 1996, to succeed to the business of
ESLP, its predecessor, which was formed in February 1996. Accordingly, the
Company did not conduct any operations prior to February 1996. The Company
anticipates that during 1996 its most highly compensated officers, with
estimated base salary amounts for each such individual on an annualized basis,
will be Mr. Robert A. Faith, $200,000; Mr. John C. Kratzer, $145,000; and Mr.
Tim V. Keith, $110,000 (the "Named Executives"). The Named Executives may be
entitled to performance bonuses of up to 100% of their base salary, as
determined by the Compensation Committee.

NON-COMPETITION, EMPLOYMENT AND INDEMNITY AGREEMENTS

In October 1996, Mr. Faith entered into a non-compete agreement with the
Company. For the longer of (a) a period of 30 months after the date on the
cover page of this Prospectus and (b) so long thereafter as Mr. Faith serves
as an officer or Director, Mr. Faith has agreed not to compete, directly or
indirectly, with the Company in the extended-stay hotel business or serve as
an officer, director, consultant or stockholder of any competing company
engaged in the extended-stay hotel business.

The Company has not entered into any employment agreements with any of its
officers other than John C. Kratzer. Mr. Kratzer entered into a two-year
employment agreement in September 1996 with the Company, pursuant to which Mr.
Kratzer will receive a minimum annual base salary of $145,000. If Mr.
Kratzer's employment is terminated during the term of the agreement by him for
any reason or by the Company for cause, Mr. Kratzer has agreed that he shall
not, directly or indirectly, compete with the Company within a 25-mile radius
of any hotel owned by the Company at the time of termination for a period of
two years from the date of termination. The agreement provides that in the
event Mr. Kratzer's employment is terminated by the Company for any reason
other than for cause or for disability, Mr. Kratzer shall be entitled to
receive an amount equal to his then base salary for the remainder of the term
of the employment agreement.

Pursuant to his employment agreement, Mr. Kratzer has agreed to restrict the
transfer of 158,092 shares of Common Stock owned by him for a period of seven
years. The restrictions will lapse with respect to 50% of such shares if Mr.
Kratzer is employed by the Company at the time of the earlier of the
completion or acquisition by the Company of its 30th hotel or December 31,
1997. The restrictions will lapse with respect to the remainder of the shares
held by Mr. Kratzer if he is employed by the Company at the time of the
earlier of the completion or acquisition by the Company of its 60th hotel or
December 31, 1998.

Prior to completion of the Offering, the Company intends to enter into
indemnification agreements with each of its executive officers and Directors.
Pursuant to such agreements, the Company will, to the extent permitted by
applicable law, indemnify such persons against all expenses, judgments, fines
and penalties incurred in connection with the defense or settlement of any
actions brought against them by reason of the fact that they were Directors or
officers of the Company or assumed certain responsibilities at the direction
of the Company. In addition, the Company's Certificate of Incorporation
provides for certain limitations on Directors' liability. See "Description of
Capital Stock--Limitations on Directors' Liability."

THE 1996 PLAN

The Company has adopted the Homegate Hospitality, Inc. 1996 Long-Term
Incentive Plan (the "1996 Plan") for the purpose of (i) attracting and
retaining employees and advisors with ability and initiative, (ii) providing
incentives to those deemed important to the success of the Company, and (iii)
associating the interests of these individuals with the interests of the
Company and its stockholders through opportunities for increased ownership of
Common Stock. The summary of the 1996 Plan set forth below is qualified in its
entirety by reference to the text of the 1996 Plan, which has been filed as an
exhibit to the Registration Statement.

Administration. The 1996 Plan will be administered by the Compensation
Committee of the Board of Directors. The Compensation Committee consists
solely of non-employee Directors.

38
<PAGE>

Eligibility. Each employee and advisor of the Company or a subsidiary of the
Company, including an employee who is a member of the Board of Directors, is
eligible to participate in the 1996 Plan. The Compensation Committee will
select the persons to be granted awards or options pursuant to the 1996 Plan
(the "Participants"), but no person may be granted awards or options
thereunder while he or she is a member of the Compensation Committee. The
Compensation Committee may, from time to time, grant incentive stock options
("ISOs"), non-qualified stock options or restricted stock awards to
Participants.

Stock Options. Options granted under the 1996 Plan may be ISOs or
nonqualified stock options. A stock option entitles the Participant to
purchase shares of Common Stock from the Company at the option price. The
option price may be paid in cash, with shares of Common Stock or with a
combination of cash and Common Stock. The terms of the option, including the
vesting of such option and the option price, will be fixed by the Compensation
Committee at the time the option is granted, but the option price shall not be
less than the fair market value of the shares at the date of grant (or, in the
case of ISOs issued to a Ten Percent Stockholder, as defined below, 110% of
the fair market value of the shares at the date of grant). A Participant is a
"Ten Percent Stockholder" if he owns, or is deemed to own, more than 10% of
the total combined voting power of all classes of stock of the Company or a
related entity. A Participant is deemed to own any voting stock owned
(directly or indirectly) by the Participant's spouse, siblings, ancestors and
lineal descendants. A Participant and such persons are also considered to own
proportionately any voting stock owned (directly or indirectly) by or for a
corporation, partnership, estate or trust of which the Participant or any such
person is a stockholder, partner or beneficiary. The options will expire
within ten years from the date of grant, except that ISOs issued to Ten
Percent Stockholders will not be longer than five years. In addition, the
Compensation Committee may specify that an option will terminate prior to the
end of its stated term upon termination of employment, disability or death.
Options that contain vesting schedules ordinarily will become fully
exercisable in case of disability or death or if the Company terminates the
employee without cause (as such term is used in the 1996 Plan). Moreover, no
Participant may be granted ISOs which are first exercisable in any calendar
year for stock having an aggregate fair market value (determined as of the
date the ISO was first granted) that exceeds $100,000.

Restricted Stock Awards. Participants may also be awarded shares of Common
Stock pursuant to a stock award. The Compensation Committee, in its
discretion, may prescribe that a Participant's rights in a stock award shall
be nontransferable or forfeitable or both unless certain conditions are
satisfied. These conditions may include, for example, a requirement that the
Participant continue employment with the Company for a specified period or
that the Company or the Participant achieve specified objectives. Any such
restrictions will lapse in accordance with a schedule or such other conditions
as the Compensation Committee determines.

Share Authorization. All awards under the 1996 Plan will be evidenced by
written agreements between the Company and the Participant. The maximum number
of shares of Common Stock that may be issued under the 1996 Plan is initially
750,000 and will automatically increase by 100,000 on each anniversary of the
completion of this Offering through the fifth such anniversary (thereby
increasing to 1,250,000 shares). The share limitation and the terms of
outstanding awards shall be adjusted, as the Compensation Committee deems
appropriate, in the event of a stock dividend, stock split, combination,
reclassification, recapitalization or other similar event.

Nontransferability. Any option granted under the 1996 Plan is
nontransferable except by will or by the laws of descent and distribution.
During the lifetime of a Participant, options may only be exercised by the
Participant. Notwithstanding the foregoing, a Participant may transfer a
nonqualified option with respect to all or part of the shares of Common Stock
subject to such option to the Participant's spouse, children or grandchildren,
to a trust for the benefit of such family members or to a partnership in which
such family members are the only partners if (a) no consideration is received
by the Participant in exchange for the option, (b) the agreement evidencing
the option expressly provides for transfers described herein and is approved
by the Compensation Committee, (c) the option continues to be subject to the
same terms and conditions after the transfer and (d) the transfer is
permissible under Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act"), as in effect from time to time.

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<PAGE>

Change in Control. In the event the Company undergoes a change in control
(as defined below), all restricted stock shall vest (other than restricted
stock granted within six months of the change in control) and all options
granted under the 1996 Plan shall become exercisable. Amounts payable or
earned as a result of a change in control are subject to certain reductions to
mitigate the effect of section 280G of the Internal Revenue Code of 1986 (the
"Code"). For the purposes of the 1996 Plan, a "change in control" is deemed to
have occurred if:

(a) any acquiring person is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting
power of the then-outstanding voting securities of the Company; or

(b) members of the incumbent Board of Directors cease for any reason to
constitute at least a majority of the Board of Directors; or

(c) a public announcement is made of a tender or exchange offer by any
acquiring person for 50% or more of the outstanding voting securities of
the Company and the Board of Directors approves or fails to oppose that
tender or exchange offer in its statements in Schedule 14D-9 under the
Exchange Act; or

(d) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation or partnership (or, if no such
approval is required, the consummation of such a merger or consolidation of
the Company), other than (i) a merger or consolidation that would result in
the voting securities of the Company outstanding immediately before the
consummation thereof continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity or of a parent of the surviving entity) a majority of the combined
voting power of the voting securities of the surviving entity (or its
parent) outstanding immediately after that merger or consolidation or (ii)
a merger or consolidation of the Company with ESLP; or

(e) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all the Company's assets (or, if no
such approval is required, the consummation of such a liquidation, sale or
disposition in one transaction or series of related transactions) other
than a liquidation, sale or disposition of all or substantially all the
Company's assets in one transaction or a series of related transactions to
a corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their ownership of Common
Stock of the Company.

Assumption of Awards. In the event of a merger, consolidation or statutory
share exchange in which the Company either is not the survivor or becomes the
subsidiary of the acquiring entity, or an acquisition of the Company's assets
that results in the Company's going out of business, all awards granted under
the 1996 Plan shall be assumed by the acquiring entity.

Termination and Amendment. No option or stock award may be granted under the
1996 Plan after October 31, 2006. The Board of Directors may amend or
terminate the 1996 Plan at any time, but an amendment will not become
effective without stockholder approval if it changes the eligibility
requirements, increases the benefits that may be provided under the 1996 Plan
or extends the term of the 1996 Plan.

Initial Awards. The Company will grant, on the effective date of this
Registration Statement, options to acquire an aggregate of 496,250 shares of
Common Stock to certain employees and Company advisors. The exercise price for
such stock options will be the initial public offering price of the Common
Stock offered for sale in the Offering. The stock option grants will include
the following grants to Named Executives and Officers of the Company: Mr.
Faith, 125,000 option shares, Mr. Kratzer, 93,750 option shares, Mr. Keith,
62,500 option shares and Mr. Oldham, 40,000 option shares; all of which will
vest ratably over a four-year period. Also included in the option grants will
be options for 175,000 shares of Common Stock granted to employees of Greystar
(25,000 shares), TCR (50,000 shares), Crow (50,000 shares) and Wyndham (50,000
shares) who have served as consultants to the Company. All of such options
will vest ratably over a four-year period. Each of the grantees will receive
an ISO covering the maximum number of shares for which an ISO may be awarded,
given the $100,000 per year annual limitation discussed above, and a
nonqualified stock option covering the remainder of the shares.

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<PAGE>

The Company will also grant, on the effective date of the Registration
Statement, restricted stock awards of 13,333 shares of Common Stock (assuming
an initial offering price of $12.00 per share). The stock awards will include
awards to the following Named Executives and officers of the Company: Mr.
Keith, 4,167 shares, and Mr. Oldham, 4,167 shares.

Stockholder Rights. During the restriction period, the holder of a restricted
stock award may, in the Compensation Committee's discretion, have certain
rights as a stockholder, including the right to vote the stock subject to the
award or to receive dividends on that stock. An optionholder will have no
rights as a stockholder with respect to the shares subject to his or her option
until the option is exercised.

Non-Employee Directors. Each member of the Company's Board of Directors who
is not an employee of the Company (a "Non-Employee Director") will receive
annual grants of options to purchase 5,000 shares of Common Stock at the fair
market value of such shares on the date of grant. Only a Non-Employee Director
who is serving on December 31st of any calendar year is eligible to receive the
annual stock option grant under the 1996 Plan.

In compliance with the Exchange Act, no discretion with respect to any award
under the 1996 Plan shall be afforded to a person who is not a Non-Employee
Director regarding (i) eligibility of a Non-Employee Director to participate,
(ii) the times when elections can be made, when shares of Common Stock will be
issued, or when distributions will be made to a Non-Employee Director, or (iii)
any other decisions under the 1996 Plan required by Rule 16b-3(b) under the
Exchange Act to be afforded exclusively to "disinterested persons" as defined
thereunder.

Federal Income Taxes. No income is recognized by a Participant at the time an
option is granted. If the option is an ISO, no income will be recognized upon
the Participant's exercise of the option, and gain will be recognized by a
Participant when he disposes of shares acquired under an ISO (assuming he meets
certain holding period requirements with respect to the acquired stock). The
exercise of a nonqualified stock option is generally a taxable event that
requires the Participant to recognize, as ordinary income, the difference
between the fair market value of the shares on the date of exercise and the
option price. The Company will generally be entitled to a compensation
deduction for the amount that is included in the Participant's income with
respect to the exercise of nonqualified stock options.

Unless an election is made under section 83(b) of the Code, a Participant
will recognize income on account of a stock award on the first day that the
shares are either transferable or not subject to a substantial risk of
forfeiture. The amount of income recognized by the Participant is equal to the
fair market value of the Common Stock received on that date. The Company will
generally be entitled to a compensation deduction for the amount that is
included in the Participant's income with respect to the stock awards.

401(K) SAVINGS PLAN

The Company intends to sponsor a retirement plan called the Homegate Employee
Savings & Retirement Plan (the "401(k) Plan"), following the completion of the
Offering. The trustee for the 401(k) Plan will be State Street Bank and Trust
Company. Employees (including members of management) will be eligible to make
voluntary contributions of up to fifteen percent (15%) of their compensation
under the 401(k) Plan, subject to the applicable limitations of the Code. The
Company will be permitted to make a discretionary contribution to the 401(k)
Plan each fiscal quarter which will be allocated among participants as a
matching contribution based on their contributions under the 401(k) Plan. The
401(k) Plan will permit employees to direct investments of their accounts among
a selection of four mutual funds and four pooled funds. The Company intends to
amend the 401(k) Plan in the near future to also permit employees to direct the
investment of some or all of their accounts to purchase shares of Common Stock,
and to permit the Company to make any contributions to the 401(k) Plan in the
form of Common Stock. The 401(k) Plan is intended to qualify as a profit
sharing plan under Sections 401(a) and 401(k) of the Code.

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<PAGE>

CERTAIN TRANSACTIONS

In connection with the Formation, the current partners of ESLP will receive
6,400,000 shares of Common Stock, constituting approximately 59.7% of the
outstanding Common Stock after the Offering, as a result of the merger of ESLP
into the Company. Prior to such merger, the partners of ESLP will have
contributed an aggregate of $20 million in capital to ESLP. See "Principal
Stockholders."

In connection with the completion of the Offering, the Company will issue
stock options exercisable for 496,250 shares of Common Stock and restricted
stock awards of 13,333 shares of Common Stock (assuming an initial offering
price of $12.00 per share) to certain employees and Company advisors. See
"Management--The 1996 Plan." The exercise price for such stock options will be
the initial public offering price of the Common Stock shown on the cover page
of this Prospectus. The stock option grants will include the following grants
to Named Executives and officers of the Company: Mr. Faith, 125,000 option
shares, Mr. Kratzer, 93,750 option shares, Mr. Keith, 62,500 option shares and
Mr. Oldham, 40,000 option shares. Also included in the option grants will be
options for 175,000 shares of Common Stock granted to employees of Greystar
(25,000 shares), TCR (50,000 shares), Crow (50,000 shares) and Wyndham (50,000
shares) who have served as consultants to the Company. The restricted stock
awards will include awards to the following Named Executives and officers of
the Company: Mr. Keith 4,167 shares, and Mr. Oldham, 4,167 shares.

The Company has entered into a master development agreement with the
Development Partnership (which is comprised of TCR and Greystar), pursuant to
which the Development Partnership will develop up to 60 hotels on behalf of
the Company. In addition, the Developer Partnership will assist the Company in
locating sites suitable for development of Company hotels in markets
designated by the Company, and has agreed that neither it, its partners, nor
their respective affiliates will own, operate or develop a competing extended-
stay facility, subject to certain exceptions, within the continental United
States during the duration of the master development agreement. Unless
extended, the master development agreement will terminate upon the earlier of
the commencement of construction of the 60th facility or December 31, 1998.

Upon the selection of a site for development, the Company and one of the
Developer Affiliates will enter into a development and construction agreement,
pursuant to which the Developer Affiliate will construct the hotel on the site
in question. Pursuant to the development and construction agreement, the
Developer Affiliate will receive a development fee of $250,000. This
development fee is paid as follows: $50,000 upon approval of the development
budget, development plan and development schedule and commencement of
construction; $150,000, payable in installments each month over the course of
construction based upon the percentage of completion of the hotel; and $50,000
upon completion. The Company believes that $250,000 in development fees for
each project is substantially less than the fees that an unrelated third party
developer would charge the Company for similar services. The Company may
terminate a development and construction agreement if the Developer Affiliate
fails to meet certain performance standards.

Upon the merger of ESLP into the Company, the Developer Partnership will own
1,073,103 shares of Common Stock, constituting 10.0% of the outstanding shares
of Common Stock after the Offering. The Developer Partnership received its
interest in ESLP in exchange for entering into the master development
agreement. Pursuant to its partnership agreement, the Developer Partnership
will distribute one-sixtieth of such Common Stock to a Developer Affiliate for
each facility that the Developer Affiliate constructs. If 60 projects have not
been commenced by the Developer Affiliates by December 31, 1998, then the
remaining shares held by the Developer Partnership (i.e., the product of the
number of shares initially owned by the Developer Partnership, multiplied by a
fraction, the numerator of which equals 60 less the sum of the number of
completed facilities and the number of facilities on which construction has
commenced by December 31, 1998, and the denominator of which is 60) will be
distributed to the Developer Affiliates proportionately, based upon the number
of facilities each affiliate has constructed or commenced prior to December
31, 1998.

The Company has also entered into the Management Agreement with a subsidiary
of Wyndham, pursuant to which Wyndham will manage up to 60 Company hotels and
will provide market research, a preferred vendor program, a proprietary
property management software package and national and local marketing efforts
to the Company. In addition, Wyndham has agreed not to own, operate or develop
a competing extended-stay facility

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<PAGE>

within certain specified states that include the Company's target markets
(subject to certain exceptions), for the term of such agreement. Unless
extended, the Management Agreement will terminate upon the earlier of the
execution of a management contract with respect to the 60th Company hotel or
December 31, 1998. The Company shall pay Wyndham a one-time fee of $25,000 for
Wyndham's provision of design services in developing the initial prototype,
certain other fees for the provision of software and other services, and a
commission of 5% of the aggregate purchase price of all items that the Company
purchases through Wyndham's purchasing department. The Company believes that
it will be able to obtain substantial cost savings through the use of
Wyndham's purchasing department, but has retained the right not to use such
department at the Company's sole discretion upon 90-days' notice. The Company
will also reimburse Wyndham for up to $100,000 for the costs incurred in
developing the Company's payroll and accounts payable software and for
developing a marketing database, which costs will be reimbursed ratably upon
the signing of the first 10 management contracts. Wyndham and the Company will
agree upon any fees to be paid with respect to ongoing systems support and
maintenance services. In connection with the execution of the Management
Agreement, CRI/ESH Partners, L.P., Harlan Crow, and Crow Family, Inc. have
agreed to grant Wyndham a right of first refusal affording Wyndham a
preferential right to purchase their shares in connection with any proposed
sale by any of such parties or their affiliates of shares of Common Stock into
the public market pursuant to Rule 144 under the Securities Act or pursuant to
a shelf registration statement filed pursuant to such Act. See "Principal
Stockholders."

Pursuant to each property-specific management contract, Wyndham will manage
and operate the specific Company hotel in exchange for the payment of a base
management fee of 3% of the hotel's gross revenues for the applicable period,
and an incentive management fee equal to (i) 3% of the gross revenues for the
applicable period if the Company's return on costs exceeds 16%, (ii) 2%, if
the Company's return on costs exceeds 13% but is less than 16%, and (iii) 1%,
if the Company's return on costs exceeds 10% but is less than 13%. In
addition, the Company will pay Wyndham a monthly fee of $1,000 (adjusted
annually for inflation) for Wyndham's accounting services, and will reimburse
Wyndham for reimbursable expenses (as defined in the contract) incurred by
Wyndham with respect to the hotel. The management contract also provides that
the Company will contribute 1.5% of the gross room revenues from each hotel
into a marketing and advertising fund to be administered for the benefit of
all Company hotels that are managed by Wyndham, and that Wyndham will not own,
develop, manage or lend money to an extended-stay facility that is similar in
operation and format to the Company's hotel within a five-mile radius thereof,
subject to certain exceptions. This non-competition covenant will survive for
the duration of the applicable management contract. The Company will have the
right to terminate the property-specific management contract if certain
performance standards are not met. In addition, the Company may terminate such
contracts without cause with the payment of a cancellation fee if the Company
desires to manage the hotel internally. The Company believes that the
management fees paid pursuant to the property-specific management contracts
are commensurate with the fees that would be charged by unrelated third
parties to manage the hotels.

In the past, Wyndham has paid certain payroll and other expenses of the
Company and the Company has agreed to reimburse Wyndham for such payments. At
June 30, 1996, ESLP owed Wyndham $89,434 for reimbursement of payroll and
insurance expenditures.

In the past, ESH Partners, L.P. ("ESH"), a limited partner of ESLP,
Greystar, TCR and Wyndham have made certain payments on behalf of the Company
with respect to the acquisition and development of certain properties and the
Company has reimbursed or has agreed to reimburse them for such payments. From
the period of inception through June 30, 1996, the Company has made payments
of $56,312 to Greystar and $94 to TCR in reimbursement of such acquisition and
development expenditures. At June 30, 1996, the Company owed the following to
ESH Partners, L.P., Greystar and Wyndham for reimbursement of such acquisition
and development expenditures: ESH Partners, L.P., $163,001; Greystar, $14,163;
and Wyndham, $13,407.

In the past, Greystar has paid the salary of the Chief Executive Officer of
the Company and the Company has agreed to reimburse Greystar for such
payments. At June 30, 1996, the Company owed Greystar $55,662 for such
payments.

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<PAGE>

POLICY WITH RESPECT TO RELATED PARTY TRANSACTIONS

The Company has implemented a policy requiring any material transaction (or
series of related transactions) between the Company and related parties to be
approved by a majority of the disinterested Directors, upon such Directors'
determination that the terms of the transaction are no less favorable to the
Company than those that could have been obtained from unrelated third parties.
The policy defines a material related party transaction (or series of related
transactions) as one involving a purchase, sale, lease or exchange of property
or assets or the making of any investment with a value to the Company in
excess of $1.0 million or a service agreement (or series of related
agreements) with a value in excess of $1.0 million in any fiscal year. There
can be no assurance that this policy will always successfully eliminate the
influence of conflicts of interest. See "Management--Directors and Executive
Officers."

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<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock assuming the Formation occurs on October 15,
1996, and as adjusted to reflect the sale of the Common Stock offered hereby,
by (i) each person known by the Company to own beneficially more than 5% of any
class of the Company's outstanding voting securities, (ii) each of the
Company's Directors, (iii) each Named Executive of the Company and (iv) all
current Directors and executive officers of the Company as a group. Unless
otherwise indicated, the Company believes that each person or entity named
below has sole voting and investment power with respect to all shares shown as
beneficially owned by such person or entity, subject to community property laws
where applicable and the information set forth in the footnotes to the table
below.

<TABLE>
<CAPTION>
PERCENT OF CLASS
--------------------
NUMBER OF SHARES BEFORE THE AFTER THE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
- ------------------------ --------------------- ---------- ---------
<S> <C> <C> <C>
JMI/Greystar Extended Stay Partners, 2,260,200 35.32% 21.07%
L.P. ..............................
Two Riverway, Suite 850
Houston, TX 77056
Developer Extended Stay Partners 1,073,103 16.77% 10.01%
L.P.(2) ...........................
Two Riverway, Suite 850
Houston, TX 77056
CRI/ESH Partners, L.P.(3)........... 2,011,578 31.43% 18.76%
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, TX 75201
Robert A. Faith(4).................. 3,729,885 58.28% 34.78%
Two Riverway, Suite 850
Houston, TX 77056
James D. Carreker................... -- -- --
Harlan R. Crow(5)................... 3,207,595 50.12% 29.91%
Anthony W. Dona..................... 46,657 * *
John J. Moores(6)................... 396,581 6.2% 3.70%
Charles E. Noell.................... -- -- --
Leonard W. Wood..................... 121,175 1.89% 1.13%
John C. Kratzer..................... 233,283 3.65 2.18%
Tim V. Keith........................ 4,167 * *
Directors and Named Executives of
the Company as a group............. 6,278,825 98.11% 58.54%
</TABLE>
- --------
* Less than 1%.

(1) The indicated share numbers assume an initial offering public price of
$12.00 per share. Pursuant to the terms of the Formation a higher or lower
initial offering price will result in adjustments in the number of shares
of Common Stock.
(2) Shares owned by Developer Extended Stay Partners, L.P. will be voted by its
general partner, DESP General Partner, L.L.C., until such time as such
shares are distributed by such partnership to its partners, TCR Extended
Stay I Limited Partnership and Greystar Realty Services, L.P. See "Certain
Transactions."
(3) Crow Investment Trust indirectly owns an approximate 74% limited partner
interest in such partnership.

(4) Includes 2,260,200 shares owned by JMI/Greystar Extended Stay Partners,
L.P. which may be deemed to be beneficially owned by Mr. Faith, who is the
sole stockholder of Greystar Holdings, Inc., the sole general

45
<PAGE>

partner of such partnership. Mr. Faith disclaims beneficial ownership of
all such shares held by such partnership beyond his percentage ownership
therein. Includes 1,073,103 shares owned by Developer Extended Stay
Partners, L.P. as to which Mr. Faith has shared voting power as a result of
his indirect ownership of a percentage interest in DESP General Partner,
L.L.C., the sole general partner of such partnership. Mr. Faith disclaims
beneficial ownership of all such shares beyond his percentage ownership
therein. Includes 396,581 shares owned by JMI/Greystar Realty Partners,
L.P. as to which Mr. Faith has shared voting power as a result of his being
the sole stockholder of Greystar Holdings, Inc., one of the two general
partners of such partnership. Mr. Faith disclaims beneficial ownership of
all such shares held by such partnership beyond his percentage ownership
therein.

(5) Includes 22,602 shares owned by Crow Family, Inc., of which Mr. Crow is
the sole director. Also includes 2,011,578 shares owned by CRI/ESH
Partners, L.P. and 100,312 shares owned by Crow Hotel Realty Investors,
L.P., as Crow Family, Inc. is the sole general partner of each such
partnership. Also includes 1,073,103 shares owned by Developer Extended
Stay Partners, L.P., as to which Mr. Crow has shared voting power as a
result of Crow Family, Inc.'s ownership of a percentage interest in DESP
General Partner, L.L.C., the sole general partner of such partnership. Mr.
Crow disclaims beneficial ownership of all such shares.

(6) Represents shares owned by JMI/Greystar Realty Partners, L.P., as to which
Mr. Moores has shared voting power as a result of his ownership of JMI
Realty, Inc., one of the two general partners of such partnership. Mr.
Moores disclaims beneficial ownership of all such shares held by such
partnership beyond his percentage ownership therein. Excludes 570,701
shares owned by JMI/Greystar Extended Stay Partners, L.P. attributable to
Mr. Moores' percentage interest in such partnership.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

The following summary description is qualified in its entirety by reference
to the Company's Certificate of Incorporation, which is filed as an exhibit to
the Registration Statement. The authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock, par value $.01 per share, and
5,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred
Stock").

The authorized and unissued shares of Common Stock and Preferred Stock may
be used by the Company for various purposes, including possible future
acquisitions. The Company currently does not have any specific plans or
obligations to issue shares of Common Stock or Preferred Stock, other than (i)
the sale of the shares of Common Stock offered hereby and (ii) the issuance of
shares of Common Stock under the Company's benefit plans. See "Management--The
1996 Plan" and "Certain Transactions."

COMMON STOCK

Prior to the completion of the Offering, but after giving effect to the
Formation, the Company will have 6,400,000 shares of Common Stock outstanding,
which will be held by 12 stockholders of record.

The holders of shares of Common Stock are entitled to one vote for each
share held on all matters submitted to a vote of common stockholders. There is
no provision in the Company's Certificate of Incorporation for cumulative
voting with respect to the election of Directors. Accordingly, the holders of
more than 50% of the total voting power of the Common Stock can, if they
choose to do so, elect all of the Directors of the Company. Each share of
Common Stock is entitled to participate equally in dividends, when, as and if
declared by the Board of Directors, and in the distribution of assets in the
event of liquidation, dissolution or winding up of the Company, subject in all
cases to any prior rights of outstanding shares of Preferred Stock. The shares
of Common Stock have no preemptive or conversion rights, redemption rights or
sinking fund provisions and are not subject to calls, assessments or rights of
redemption by the Company. All shares of Common Stock outstanding upon the
closing of this Offering will be duly authorized, validly issued, fully paid
and nonassessable.

PREFERRED STOCK

The Board of Directors is authorized, without further action by the
Company's stockholders, to issue Preferred Stock from time to time in one or
more series and to fix, as to any such series, the voting rights, if any,
applicable to such series and such other designations, preferences and special
rights as the Board of Directors may determine, including dividend,
conversion, redemption and liquidation rights and preferences. Upon the
closing of this Offering, there will be no shares of Preferred Stock
outstanding. The issuance of shares of Preferred Stock under certain
circumstances could have the effect of delaying or preventing a change in
control of the Company or other corporate actions. See "--Anti-takeover
Provisions."

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

The Company is subject to the provisions of Section 203 of the DGCL which
provides, with certain exceptions, that a Delaware corporation may not engage
in any of a broad range of business combinations, such as mergers,
consolidations and sales of assets, with a person or an affiliate or associate
of such person who is an "Interested Stockholder" (as defined below) for a
period of three years from the date that such person became an Interested
Stockholder unless: (i) the business combination or the transaction resulting
in a person's becoming an Interested Stockholder is approved by the Board of
Directors of the Company before the person becomes an Interested Stockholder,
(ii) upon consummation of the transaction which results in the person becoming
an Interested Stockholder, the Interested Stockholder owned 85% or more of the
voting stock of the Company outstanding at the time the transaction commenced
(excluding shares owned by persons who are both officers and Directors of the
Company and shares held by certain employee stock ownership plans) or (iii) on
or after the date the person became an Interested Stockholder, the business
combination is approved by the Company's

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<PAGE>

Board of Directors and by the holders of at least 66 2/3% of the Company's
outstanding voting stock, excluding shares owned by the Interested
Stockholder, at an annual or special meeting. An "Interested Stockholder" is
defined as any person, other than the Company and any direct or indirect
majority-owned subsidiaries of the Company, that is (i) the owner of 15% or
more of the outstanding voting stock of the Company or (ii) an affiliate or
associate of the Company and was the owner of 15% or more of the outstanding
voting stock of the Company at any time within the three-year period
immediately prior to the date on which it is sought to be determined whether
such person is an Interested Stockholder.

LIMITATIONS ON DIRECTORS' LIABILITY

The Company's Certificate of Incorporation provides that no Director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a Director, except for
liability (i) for any breach of the Director's duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) in respect
of certain unlawful dividend payments or stock redemptions or repurchases, or
(iv) for any transaction from which the Director derived an improper personal
benefit. The effect of these provisions is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a Director for breach of
fiduciary duty as a Director (including breaches resulting from grossly
negligent behavior), except in the situations described above.

ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Certificate of Incorporation, Delaware
law, the 1996 Plan and the Stockholders' Agreement (defined below) summarized
in the following paragraphs may have an anti-takeover effect and may delay,
defer or prevent a tender offer or takeover attempt that a stockholder might
consider to be in that stockholder's best interests, including attempts that
might result in a premium over the market price to be paid for the shares held
by stockholders.

Certificate of Incorporation

Pursuant to the Company's Certificate of Incorporation, the Company's Board
of Directors by resolution may issue additional shares of Common Stock or
establish one or more classes or series of Preferred Stock having the number
of shares, designations, relative voting rights, dividend rates, liquidation
and other rights, preferences and limitations that the Board of Directors
fixes without stockholder approval. Any additional issuance of Common Stock or
designation of rights, preferences, privileges and limitations with respect to
Preferred Stock could have the effect of impeding or discouraging the
acquisition of control of the Company by means of a merger, tender offer,
proxy contest or otherwise, and thereby protect the continuity of the
Company's management. Specifically, if, in the due exercise of its fiduciary
obligations, the Board of Directors were to determine that a takeover proposal
was not in the Company's best interest, such shares could be issued by the
Board of Directors without stockholder approval in one or more transactions
that might prevent or render more difficult or costly the completion of the
proposed takeover transaction by diluting the voting or other rights of the
proposed acquiror or insurgent stockholder group, by putting a substantial
voting block in institutional or other hands that might undertake to support
the position of the incumbent Board of Directors, by effecting an acquisition
that might complicate or preclude the takeover, or otherwise.

Super-majority Votes

The Certificate of Incorporation requires the affirmative vote of the
holders of at least 66 2/3% of all securities of the Corporation entitled to
vote generally in the election of Directors to adopt an agreement of merger
(other

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<PAGE>

than a merger effected between the Corporation and one of its subsidiaries
under Section 253 of the DGCL) or to approve the sale, lease or exchange of
all or substantially all of the Corporation's property and assets.

Under the Certificate of Incorporation, the Board of Directors is authorized
to adopt, amend or repeal the Bylaws of the Corporation. However, the
stockholders of the Corporation may only amend or repeal the Bylaws with the
affirmative vote of the holders of at least 66 2/3% of the voting power of all
shares of the Corporation entitled to vote generally in the election of
Directors voting together as a single class.

These super-majority voting provisions may have the effect of discouraging
or preventing a tender offer or takeover attempt which a stockholder might
consider to be in that stockholder's best interests.

Classified Board of Directors

The Certificate of Incorporation provides for the Board of Directors to be
divided into three classes of Directors serving staggered three-year terms. As
a result, approximately one-third of the Board of Directors will be elected
each year.

The Board of Directors believes that a classified Board of Directors will
help to assure the continuity and stability of the Board of Directors and the
business strategies and policies of the Company as determined by the Board of
Directors, because the likelihood of continuity and stability in the
composition of the Company's Board of Directors and in the policies formulated
by the Board of Directors will be enhanced by staggered three-year terms.

The classified board provision could have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
the Company, even through such an attempt might be beneficial to the Company
and its stockholders. In addition, the classified board provision could delay
stockholders who do not agree with the policies of the Board of Directors from
removing a majority of the Board for two years. See "--Number of Directors;
Removal; Filling Vacancies."

Number of Directors; Removal; Filling Vacancies

The Certificate of Incorporation provides that the Board of Directors shall
consist of between five and 13 members, the exact number to be fixed from time
to time by resolution adopted by a majority of the Directors then in office.
The Company will have seven Directors prior to the Offering. Further, subject
to the rights of the holders of any series of Preferred Stock then
outstanding, the Certificate of Incorporation authorizes only a majority of
the Directors then in office to fill vacancies, including newly created
directorships. Accordingly, the Board of Directors could prevent a stockholder
from obtaining majority representation on the Board of Directors by enlarging
the Board of Directors and filling the new directorships with its own
nominees. The Certificate of Incorporation also provides that Directors of the
Company may be removed only for cause and, even then, only by the affirmative
vote of holders of a majority of the outstanding shares of stock eligible to
vote in such matters.

Advance Notice Requirements for Stockholder Proposals and Director
Nominations

The Certificate of Incorporation establishes an advance notice procedure for
the nomination, other than by or at the discretion of the Board of Directors
or a committee thereof, of candidates for election as Director, as well as for
other stockholder proposals to be considered at an annual stockholders'
meeting.

Notice of stockholder proposals and Director nominations must be timely
given in writing to the Secretary of the Company prior to the meeting at which
the matters are to be acted upon or the Directors are to be elected. To be
timely, notice must be received at the principal offices of the Company not
less than 60, nor more than 90, days prior to the meeting of stockholders;
provided, that if less than 70 days' notice or prior public disclosure of the
date of the meeting is given or made, notice by the stockholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which notice of the date of the meeting was mailed or the
day on which public disclosure was made, whichever first occurs.

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<PAGE>

The purpose of requiring advance notice is to afford the Board of Directors
an opportunity to consider the qualifications of the proposed nominees or the
merits of other stockholder proposals and, to the extent deemed necessary or
desirable by the Board of Directors, to inform stockholders about those
matters.

Written Consent; Special Meetings of Stockholders

The Certificate of Incorporation prohibits the taking of stockholder action
by written consent without a meeting. The Certificate of Incorporation
provides that special meetings of the stockholders of the Company may be
called only by the Chairman of the Board or a majority of the members of the
Board of Directors. These provisions will make it more difficult for
stockholders to take action opposed by the Board of Directors.

Amendment of Certain Provisions of the Certificate of Incorporation

The Certificate of Incorporation generally requires the affirmative vote of
the holders of at least 66 2/3% of the outstanding voting stock in order to
amend any provisions of the Certificate of Incorporation concerning (i) the
classified Board of Directors, (ii) the amendment of Bylaws, (iii) any
proposed compromise or arrangement between the Company and its creditors, (iv)
the authority of stockholders to act by written consent, (v) the liability of
Directors, (vi) certain mergers, consolidations and sales, leases and
exchanges of all or substantially all of the Company's property and assets,
(vii) the required vote to amend the Certificate of Incorporation, (viii) the
call of a special meeting of stockholders, (ix) stockholder proposals
concerning business to be conducted at an annual meeting of stockholders, (x)
Director nominations by stockholders, (xi) what considerations the Board of
Directors, a committee of the Board of Directors and each Director may take
into account when discharging their respective duties, (xii) indemnification
of Directors, and (xiii) authorization of the Board of Directors to pursue or
take action with respect to transactions that would result in a change of
control of the Company. These voting requirements will make it more difficult
for minority stockholders to make changes in the Certificate of Incorporation
that could be designed to facilitate the exercise of control over the Company.
In addition, the requirement for approval by at least a 66 2/3% stockholder
vote will enable the holders of a minority of the voting stock of the Company
to prevent the holders of a majority or more of such securities from amending
such provisions of the Certificate of Incorporation.

Stockholders' Agreement

Pursuant to the Stockholders' Agreement, each of Greystar and Crow has
certain rights of first refusal with respect to shares of Common Stock held by
the other. In addition Crow and Greystar have agreed to act in concert with
respect to the election of Company Directors. These provisions may have the
effect of hindering a change in control of the Company. See "--Stockholders'
Agreement."

REGISTRATION RIGHTS

Contemporaneously with the Formation (see "The Formation Transaction"), the
Company will enter into a registration rights agreement with Greystar, Crow
and certain existing holders of Common Stock (the "Registration Rights
Agreement"), pursuant to which the Company will agree, subject to certain
limitations and under certain circumstances, to register for sale any shares
of Common Stock of the Company (and other securities of the Company that are
exercisable to purchase, convertible into or exchangeable for shares of
capital stock of the Company) that are held by the parties thereto
(collectively, the "Registrable Securities"). All of the 6,400,000 shares of
Common Stock issued in the Formation of the Company will be Registrable
Securities. The Registration Rights Agreement provides that any holder of
Registrable Securities may require the Company upon written notice to register
for sale such Registrable Securities (a "Demand Registration"), provided that
the total amount of Registrable Securities to be included in the Demand
Registration has a market value of at least $20 million and provided that
notice is not given prior to six months after the effective date of a previous
Demand Registration. If Registrable Securities are going to be registered by
the Company pursuant to a Demand Registration, the Company must provide
written notice to the other holders of Registrable Securities and permit them
to include any or all Registrable Securities that they hold in the Demand
Registration, provided that the amount of Registrable Securities requested to
be registered may be limited by the underwriters in an underwritten offering
based on such underwriters' determination that inclusion of the total amount
of Registrable Securities

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<PAGE>

requested for registration would materially and adversely affect the success
of the offering. Upon notice of a Demand Registration, the Company is required
to file a Registration Statement within 60 days of the date on which notice is
given, although the Company may postpone the filing for up to 90 days under
certain circumstances. Subject to the conditions stated or referred to above,
the holders of Registrable Securities may request an unlimited number of
Demand Registrations. The parties to the Registration Rights Agreement have
agreed not to exercise any Demand Registration rights for a period of 12
months from the date of execution of the Registration Rights Agreement.

The Registration Rights Agreement also provides that, subject to certain
exceptions, in the event the Company proposes to file a registration statement
with respect to an offering of any class of equity securities, other than
certain types of registrations, the Company will offer the holders of
Registrable Securities the opportunity to register the number of Registrable
Securities they request to include (the "Piggyback Registration"), provided
that the amount of Registrable Securities requested to be registered may be
limited by the underwriters in an underwritten offering based on such
underwriters' determination that inclusion of the total amount of Registrable
Securities requested for registration would materially and adversely affect
the success of the offering. The Company is generally required to pay all of
the expenses of Demand Registrations and Piggyback Registrations, other than
underwriting discounts and commissions.

STOCKHOLDERS' AGREEMENT

Pursuant to a Stockholders' Agreement among Crow Family, Inc., CRI/ESH
Partners, L.P., J. Ronald Terwilliger, and Leonard W. Wood (collectively, the
"ESH Parties"), JMI/Greystar Extended Stay Partners, L.P. ("JMI/Greystar") and
the Company (the "Stockholders' Agreement"), in connection with any election
of Company Directors, the Company has agreed to nominate as Directors such
number of designees of the ESH Parties and JMI/Greystar as shall be required
in order that the percentage of the entire Board of Directors thereafter
represented by the ESH Parties and JMI/Greystar nominees (taking into account
then sitting Directors who were nominated by the ESH Parties or JMI/Greystar
and assuming the election of the nominees then being designated) is equal to
the nearest whole number determined by multiplying (i) the number of Directors
that is to constitute the entire Board of Directors after giving effect to
such election by (ii) a fraction the numerator of which is the number of
shares of Common Stock owned by the ESH Parties and JMI/Greystar (and their
permitted transferees) and the denominator of which is the total number of
outstanding shares of Common Stock. The ESH Parties and JMI/Greystar have each
agreed to vote in favor of the other's nominees all shares of Common Stock it
owns or has the right to vote. Upon completion of the Offering, the ESH
Parties and JMI/Greystar will own collectively approximately 42.3% of the then
outstanding Common Stock, entitling them to nominate three of the Company's
seven Directors. Within 90 days following the Offering, the Company intends to
appoint to its Board of Directors two additional independent Directors. Upon
the resulting increase in the number of Directors constituting the entire
Board of Directors, such percentage ownership would entitle the ESH Parties
and JMI/Greystar to nominate four of the Company's nine Directors. For
purposes of the provisions described above, Harlan R. Crow, Anthony W. Dona,
John J. Moores and Charles E. Noell are deemed to be nominees of the ESH
Parties and JMI/Greystar. The foregoing provisions of the Stockholder's
Agreement will terminate at such time as the ESH Parties, JMI/Greystar and
their permitted transferees no longer own collectively 20.0% of the
outstanding Common Stock. The rights to nominate Directors are apportioned
among the ESH Parties and JMI/Greystar proportionately based on their
respective stock ownership in the Company.

The Stockholders' Agreement requires that the ESH Parties and JMI/Greystar
first offer their shares to the other before they are permitted to transfer
the shares to a third party in a private transaction or in a registered
underwritten offering. By reason of the right of first offer provisions of the
Stockholders' Agreement, the ESH Parties and JMI/Greystar will have the first
right to purchase shares proposed to be sold in any such transaction by the
other so as to enable them, in such context, to maintain the collective stock
ownership position of these entities in the Company.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.

51
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon the closing of the Offering, the Company will have an aggregate of
10,725,000 shares of Common Stock outstanding. Of these shares, the 4,325,000
shares sold in the Offering will be freely transferable without restriction or
further registration under the Securities Act.

SALES OF RESTRICTED SHARES

The 6,400,000 shares of Common Stock held by existing stockholders that were
not purchased in the Offering were sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act and are
thus treated as "restricted" securities under Rule 144 promulgated under the
Securities Act ("Rule 144"). In general, under Rule 144 as currently in
effect, a person (or persons whose shares are aggregated), including an
affiliate of the Company, who has beneficially owned restricted securities
within the meaning of Rule 144 for at least two years, is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of the Company's Common Stock
(approximately 107,250 shares immediately after the Offering) or (ii) the
average weekly trading volume of the Company's Common Stock on Nasdaq during
the four calendar weeks preceding the date on which notice of the sale is
filed with the Securities and Exchange Commission (the "Commission"). Sales
under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is not deemed
to have been an affiliate of the Company at any time during the three months
immediately preceding the sale is entitled to sell restricted shares pursuant
to Rule 144(i) without regard to the limitations described above, provided
that three years have expired since the later of the date on which such
restricted shares were acquired from the Company or the date they were
acquired from an affiliate of the Company.

Certain stockholders of the Company hold registration rights. See
"Description of Capital Stock--Registration Rights." However, these
stockholders have entered into certain arrangements with the representatives
of the Underwriters, pursuant to which they have agreed not to offer, sell,
contract to sell or otherwise dispose of their shares of Common Stock for a
period of 360 days after the date of this Prospectus ("Lock-up Arrangements").
See "--Lock-up Arrangement."

LOCK-UP ARRANGEMENT

The Company and certain existing stockholders have agreed, subject to
certain exceptions, to enter into Lock-up Arrangements for a period of 360
days from the date of this Prospectus. Under the Lock-up Arrangements, such
stockholders will not offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock or any securities convertible into, or exercisable
or exchangeable for shares of Common Stock without the prior written consent
of Bear Stearns & Co. Inc., one of the representatives of the Underwriters.
Upon the expiration of the Lock-up Arrangements, those shares subject to Lock-
up Arrangements will not, absent registration, be freely tradeable, but will
become eligible for sale under Rule 144 on various dates in the future.

EFFECT OF SALES OF SHARES

Prior to the Offering, there has been no public market for the Common Stock
of the Company and no prediction can be made as to the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
market price of the Common Stock prevailing from time to time. Nevertheless,
sales of substantial numbers of shares in the public market could adversely
affect the market price of the Common Stock and could impair the Company's
ability to raise capital through a sale of its equity securities.

52
<PAGE>

UNDERWRITING

The Underwriters of the Offering of Common Stock (the "Underwriters"), for
whom Bear, Stearns & Co. Inc. and Montgomery Securities are acting as
representatives, have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (the form of which is filed as an exhibit to the
Company's Registration Statement of which this Prospectus is a part), to
purchase from the Company an aggregate of 4,325,000 shares of Common Stock.
The aggregate number of shares of Common Stock that each Underwriter has
agreed to purchase is set forth opposite its name below. The Underwriters are
committed to purchase and pay for all of such shares of Common Stock if any
are purchased.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Bear, Stearns & Co. Inc. .............................................
Montgomery Securities.................................................
---------
Total............................................................... 4,325,000
=========
</TABLE>

The Underwriters have advised the Company that they propose to offer
4,325,000 shares of Common Stock 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 concession not to exceed $ per share. The selected dealers may
reallow a concession to certain other dealers not to exceed $ per share.
After the initial offering to the public, the public offering price, the
concession to selected dealers and the reallowance to other dealers may be
changed by the representatives. The Common Stock is offered subject to receipt
and acceptance by the Underwriters and to certain other conditions, including
the right to reject orders in whole or in part. The Underwriters have informed
the Company that the Underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.

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

The Company has granted to the Underwriters an option to purchase up to
648,750 additional shares of Common Stock at the public offering price less
the underwriting discount set forth on the cover page of this Prospectus,
solely to cover over-allotments, if any. This option may be exercised at any
time until 30 days after the date of this Prospectus. If the Underwriters
exercise this option, each of the Underwriters will be committed, subject to
certain conditions, to purchase a number of additional shares proportionate to
such Underwriter's initial commitment as indicated in the preceding table.

Prior to the Offering there has been no public market for the Company's
Common Stock. The initial public offering price set forth on the cover page of
this Prospectus has been determined by negotiations between the Company and
the representatives. In determining such price, consideration was given to
various factors including: (i) the market valuation of comparable companies;
(ii) market conditions for initial public offerings; (iii) the history of and
prospects for the Company's business; (iv) the Company's past and present
operations and earnings; (v) the Company's current financial position; (vi) an
assessment of the Company's management; (vii) the position of the Company in
its industry; and (viii) the market value of the Company's assets.
Consideration also was given to the general condition of the securities
markets, the demand for similar securities of comparable companies and other
market factors.

The Company has agreed not to offer, issue, sell, agree to sell, grant any
option for the sale of or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable

53
<PAGE>

or exchangeable for Common Stock (except for options granted pursuant to the
1996 Plan) for a period of 360 days after the date of this Prospectus without
the prior written consent of the Representatives.

The Company's officers and Directors and certain stockholders have also
agreed with the Underwriters not to offer, sell, agree to sell, grant any
option to purchase or otherwise dispose of any shares owned by them for a
period of 360 days after the date of this Prospectus without the prior written
consent of the Representatives. This agreement may be released without notice
to persons purchasing shares in the Offering and without notice to any market
on which the Common Stock is traded.

The Company has been advised by the representatives of the Underwriters that
they presently intend to make a market in the Common Stock offered hereby;
however, the representatives of the Underwriters are under no obligation to do
so, and any market making activity may be discontinued at any time. There can
be no assurance that an active public market for the Common Stock will develop
and continue after the Offering.

A managing director of Smith Barney, Inc. has an indirect ownership interest
in 11,301 shares of Common Stock and a Vice President of Goldman, Sachs & Co.
has an indirect ownership in 56,505 shares of Common Stock.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Vinson & Elkins L.L.P. Certain legal matters relating to the
Offering of Common Stock will be passed upon for the Underwriters by Jenkens &
Gilchrist, a Professional Corporation.

EXPERTS

The Company's balance sheet as of August 22, 1996, the financial statements
and schedule of Extended Stay Limited Partnership as of June 30, 1996, and for
the period from inception (February 9, 1996) through June 30, 1996, and the
combined financial statements and schedule of Westar as of December 31, 1994
and 1995, and for the three years ended December 31, 1993, 1994 and 1995,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein.

The information for Extended Stay Limited Partnership as of June 30, 1996,
and for the period from inception (February 9, 1996) through June 30, 1996,
and for Westar for the three years ended December 31, 1993, 1994 and 1995,
under the caption "Selected Financial Data" appearing in this Prospectus and
Registration have been derived from financial statements of Extended Stay
Limited Partnership and the combined financial statements of Westar audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein.

Such financial statements, combined financial statements and selected
financial data are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.

54
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Commission the Registration Statement under
the Securities Act with respect to the shares of Common Stock offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus
does not contain all of the information set forth in the Registration
Statement. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement,
including the exhibits and schedules filed therewith. Statements contained in
this Prospectus concerning the provisions of any contract, agreement or other
document referred to herein or therein are not necessarily complete, but
contain a summary of the material terms of such contracts, agreements or other
documents. With respect to each contract, agreement or other document filed as
an exhibit to the Registration Statement, reference is made to the exhibit for
the complete contents of the exhibit, and each statement concerning its
provisions is qualified in its entirety by such reference. The Registration
Statement may be inspected, without charge, at the offices of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices
at 7 World Trade Center, New York, New York 10048 and Citicorp Center, 500
West Madison Street, Chicago, Illinois 60661-2551. Copies of such materials
may also be obtained by mail at prescribed rates from the Public Reference
Section of the Commission at its principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such materials may also be obtained from the
web site that the Commission maintains at www.sec.gov.

55
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HOMEGATE HOSPITALITY, INC.
Pro Forma Financial Statements
Pro Forma Balance Sheet as of June 30, 1996........................... F-3
Notes to Pro Forma Balance Sheet...................................... F-4
Pro Forma Statements of Operations for the Six Months Ended June 30,
1996 and for the Year Ended December 31, 1995........................ F-6
Notes to Pro Forma Statements of Operations........................... F-7
Balance Sheet:
Report of Independent Auditors........................................ F-8
Balance Sheet as of August 22, 1996................................... F-9
Notes to Balance Sheet................................................ F-10
EXTENDED STAY LIMITED PARTNERSHIP
Financial Statements:
Report of Independent Auditors........................................ F-11
Balance Sheet as of June 30, 1996..................................... F-12
Statement of Operations for the Period from Inception (February 9,
1996) through June 30, 1996.......................................... F-13
Statement of Changes in Partners' Capital for the Period from
Inception (February 9, 1996) through June 30, 1996................... F-14
Statement of Cash Flows for the Period from Inception (February 9,
1996) through June 30, 1996.......................................... F-15
Notes to Financial Statements......................................... F-16
WESTAR
Combined Financial Statements:
Report of Independent Auditors........................................ F-20
Combined Balance Sheets as of December 31, 1994 and 1995 and June 30,
1996 (unaudited)..................................................... F-21
Combined Statements of Operations for the Years Ended December 31,
1993, 1994 and 1995 and the Six Months Ended June 30, 1995 and 1996
(unaudited).......................................................... F-22
Combined Statements of Stockholders' Equity (Deficit) and Partners'
Capital (Deficit) for the Years Ended December 31, 1993, 1994 and
1995 and the Six Months Ended June 30, 1996 (unaudited).............. F-23
Combined Statements of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995 and the Six Months Ended June 30, 1995 and 1996
(unaudited).......................................................... F-24
Notes to Combined Financial Statements................................ F-25
</TABLE>

F-1
<PAGE>

HOMEGATE HOSPITALITY, INC.

PRO FORMA BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)

The unaudited pro forma balance sheet, as adjusted, of the Company is
presented as if the Formation, the Westar Transaction, the acquisition of
three development sites, and the Offering had occurred on June 30, 1996, and
reflects ESLP at historical values and the Westar acquisition under the
purchase method of accounting. The unaudited pro forma balance sheet should be
read in conjunction with the financial statements listed in the index on page
F-1 of this Prospectus. In management's opinion, all adjustments necessary to
reflect the effects of these transactions have been made.

The unaudited pro forma balance sheet is not necessarily indicative of what
the actual financial position would have been at June 30, 1996, nor does it
purport to represent the future financial position of the Company.

F-2
<PAGE>

HOMEGATE HOSPITALITY, INC.

PRO FORMA BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL ACQUISITION
---------------------- AND COMPANY
FORMATION COMPANY OFFERING PRO FORMA
ESLP WESTAR ELIMINATIONS (A) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ----------- ---------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $1,273,882 $ 1,012,683 $(1,012,683) $ 3,583,585 (B) $ 4,857,467 $47,767,000(H) $52,624,467
Accounts receivable... 7,184 225,811 (225,811) 7,184 7,184
Prepaid expenses and
other................ 3,078 217,400 (217,400) 3,078 3,078
---------- ----------- ----------- ----------- ----------- ----------- -----------
Total current assets.. 1,284,144 1,455,894 (1,455,894) 3,583,585 4,867,729 47,767,000 52,634,729
Property and equipment,
net................... 8,200,570 14,237,577 13,750,797 (C) 36,188,944 36,188,944
Receivables from
affiliates............ 675,359 (675,359)
Escrow and reserve
funds................. 194,715 194,715 194,715
Other assets........... 223,524 7,485 (7,485) (35,000)(D) 188,524 188,524
Deferred loan costs.... 17,240 875,272 (875,272) 17,240 17,240
---------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets........... $9,725,478 $17,446,302 $(3,014,010) $17,299,382 $41,457,152 $47,767,000 $89,224,152
========== =========== =========== =========== =========== =========== ===========
LIABILITIES AND
STOCKHOLDERS'
EQUITY/PARTNERS'
CAPITAL
Current liabilities:
Accounts payable...... $ 305,649 $ 472,938 $ (472,938) $ $ 305,649 $ $ 305,649
Other accrued
expenses............. 45,803 679,532 (679,532) 45,803 45,803
Payables to
affiliates........... 348,789 6,208,789 (6,208,789) 348,789 348,789
Current portion of
obligations under
capital leases....... 130,760 (86,305) 44,455 44,455
Current portion of
long-term debt....... 374,430 374,430 374,430
---------- ----------- ----------- ----------- ----------- ----------- -----------
Total current
liabilities.......... 700,241 7,866,449 (7,447,564) 1,119,126 1,119,126
Mortgage note
payable/long-term
debt, less current
portion............... 2,869,387 18,308,808 (656,058) 20,522,137 20,522,137
Obligations under
capital leases, less
current portion....... 161,654 (106,695) 54,959 54,959
Redeemable preferred
stock................. 500,000 (500,000)
Stockholders'
equity/partners'
capital:
Common stock.......... 531,914 (531,914) 64,000 (E) 64,000 43,250(I) 107,250
Preferred Stock.......
Additional paid-in
capital.............. 19,696,930 (F) 19,696,930 47,723,750(J) 67,420,680
Retained earnings/
accumulated deficit.. (6,059,913) 6,059,913
Partners' capital..... 6,155,850 (3,862,610) 3,862,610 (6,155,850)(G)
---------- ----------- ----------- ----------- ----------- ----------- -----------
Total stockholders'
equity/ partners'
capital............... 6,155,850 (9,390,609) 9,390,609 13,605,080 19,760,930 47,767,000 67,527,930
---------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders'
equity/partners'
capital............... $9,725,478 $17,446,302 $ 680,292 $13,605,080 $41,457,152 $47,767,000 $89,224,152
========== =========== =========== =========== =========== =========== ===========
</TABLE>

See accompanying notes.

F-3
<PAGE>

HOMEGATE HOSPITALITY, INC.

NOTES TO PRO FORMA BALANCE SHEET

(A) Reflects the elimination of assets not acquired and liabilities not
assumed in connection with the purchase of Westar.

(B)Net increase reflects the following:

<TABLE>
<S> <C>
Additional capital contributions by ESLP partners to fund
Westar and land acquisitions................................. $10,021,495
Acquisition of Westar......................................... (6,970,715)
Acquisition of development sites(1)........................... (3,050,780)
Remaining capital contributions from ESLP partners to meet
$20,000,000 commitment....................................... $ 3,583,585
-----------
$ 3,583,585
===========
</TABLE>
--------

(1) Includes the acquisition of sites in Lenexa, Kansas, Overland Park,
Kansas, and Dallas, Texas purchased in July, August, and September
1996.

(C) Increase reflects excess of purchase price over net book value of Westar
assets acquired ($10,665,017) and acquisition of land of ($3,085,780).

(D) Decrease reflects escrow applied to acquisition of the Dallas, Texas site.

(E) Reflects the par value of Common Stock issued to ESLP partners in exchange
for partnership interests.

(F) Net increase reflects the equity of ESLP before the merger ($16,177,345)
plus remaining capital contributions ($3,583,585), less par value of
Common Stock issued ($64,000).

(G) Decrease reflects the following:

<TABLE>
<S> <C>
Additional capital contributions by ESLP partners to fund
Westar and land acquisitions................................ $ 10,021,495
Exchange of ESLP partnership interests for Common Stock...... (19,760,930)
Remaining capital contributions from ESLP partners........... 3,583,585
------------
$ (6,155,850)
============
</TABLE>

(H) Increase reflects the proceeds of Offering ($51,900,000), net of expenses
of the Offering ($4,133,000).

(I) Reflects par value of Common Stock issued in connection with the Offering.

(J) Reflects the proceeds of the Offering in excess of par value of Common
Stock ($51,856,750), net of expenses of the Offering ($4,133,000).

F-4
<PAGE>

PRO FORMA STATEMENTS OF OPERATIONS

The unaudited pro forma statements of operations, as adjusted, of the
Company are presented as if the Formation, the Westar Transaction, the
acquisition of three development sites, and the Offering had occurred on
January 1, 1995, and reflects ESLP at historical values and the Westar
acquisition under the purchase method of accounting. The unaudited pro forma
statements of operations should be read in conjunction with the financial
statements listed in the index on page F-1 of this Prospectus. In management's
opinion, all adjustments necessary to reflect the effects of these
transactions have been made.

The unaudited pro forma statements of operations are not necessarily
indicative of what the actual results of operations of the Company would have
been assuming such transactions had been completed at the beginning of the
period, nor do they purport to represent the results of operations of the
Company for any future periods.

F-5
<PAGE>

HOMEGATE HOSPITALITY, INC.

PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL ACQUISITION
--------------------- AND COMPANY
FORMATION COMPANY OFFERING PRO FORMA
ESLP WESTAR ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
--------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ 24,803 $3,871,050 $ $3,895,853 $ $3,895,853
Other revenue.......... 1,703 73,027 74,730 74,730
--------- ---------- --------- ---------- --------- -----------
Total revenue........... 26,506 3,944,077 3,970,583 3,970,583
Costs and expenses:
Property operating
expenses.............. 30,313 2,357,259 116,132 (A) 2,503,704 2,503,704
Corporate operating
expenses.............. 204,273 336,948 541,221 208,000 (D) 749,221
Depreciation and
amortization.......... 9,533 305,274 139,476 (B) 454,283 454,283
Interest............... 21,457 1,209,850 (297,376)(C) 933,931 933,931
--------- ---------- --------- ---------- --------- -----------
Total expenses.......... 265,576 4,209,331 (41,768) 4,433,139 208,000 4,641,139
--------- ---------- --------- ---------- --------- -----------
Loss before
extraordinary item..... $(239,070) $ (265,254) $ 41,768 $ (462,556) $(208,000) $ (670,556)
========= ========== ========= ========== ========= ===========
Loss per common share... $ (.07) $ (.06)
========== ===========
Weighted average number
of shares of common
stock outstanding...... 6,400,000 10,725,000
========== ===========
</TABLE>

PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL ACQUISITION AND COMPANY
---------- FORMATION COMPANY OFFERING PRO FORMA
WESTAR ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- --------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $8,193,093 $ $8,193,093 $ $ 8,193,093
Other revenue.......... 245,756 245,756 245,756
---------- --------- ---------- --------- -----------
Total revenue........... 8,438,849 8,438,849 8,438,849
Costs and expenses:
Property operating
expenses.............. 5,126,346 270,793 (A) 5,397,139 5,397,139
Corporate operating
expenses.............. 875,043 875,043 576,000 (D) 1,451,043
Depreciation and
amortization.......... 662,314 181,628 (B) 843,942 843,942
Interest............... 2,608,468 (621,417)(C) 1,987,051 1,987,051
---------- --------- ---------- --------- -----------
Total expenses.......... 9,272,171 (168,996) 9,103,175 576,000 9,679,175
---------- --------- ---------- --------- -----------
Loss before
extraordinary item..... $ (833,322) $ 168,996 $ (664,326) $(576,000) $(1,240,326)
========== ========= ========== ========= ===========
Loss per common share... $ (.10) $ (.12)
========== ===========
Weighted average number
of shares of common
stock outstanding...... 6,400,000 10,725,000
========== ===========
</TABLE>

See accompanying notes.

F-6
<PAGE>

HOMEGATE HOSPITALITY, INC.

NOTES TO PRO FORMA STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
(A) Net increase reflects the following:
Hotel management fee................................. $ 116,132 $ 245,793
One-time fee under Management Agreement.............. -- 25,000
--------- ---------
$ 116,132 $ 270,793
========= =========
(B) Increase reflects additional depreciation relating
to purchase price allocation of Westar acquisition,
net of reduction in depreciation expense to reflect
increase in estimated useful lives from 30 to 40
years.............................................. $ 139,476 $ 181,628
========= =========
(C) Decrease reflects reduction in interest expense due
to Westar debt not assumed......................... $(297,376) $(621,417)
========= =========
(D) Increase reflects changes to corporate operating
expenses as follows:
Additional costs of operating as a public company.... $ 208,000 $ 416,000
Compensation relating to the awarding of shares of
common stock........................................ -- 160,000
--------- ---------
$ 208,000 $ 576,000
========= =========
</TABLE>

F-7
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Homegate Hospitality, Inc.

We have audited the accompanying balance sheet of Homegate Hospitality, Inc.
as of August 22, 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 balance sheet
presentation. We believe our audit of the balance sheet provides a reasonable
basis for our opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Homegate Hospitality, Inc. as of
August 22, 1996, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Dallas, Texas
August 22, 1996

F-8
<PAGE>

HOMEGATE HOSPITALITY, INC.

BALANCE SHEET
AUGUST 22, 1996

<TABLE>
<S> <C>
Assets:
Cash.................................................................. $1,000
------
Total assets.......................................................... $1,000
======
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; none
issued or outstanding................................................ $ --
Common stock, $.01 par value; 20,000,000 shares authorized; 10 shares
issued and outstanding............................................... --
Additional paid-in capital............................................ 1,000
------
Total stockholders' equity............................................ $1,000
======
</TABLE>

See accompanying notes.

F-9
<PAGE>

HOMEGATE HOSPITALITY, INC.

NOTES TO BALANCE SHEET
AUGUST 22, 1996

1. ORGANIZATION

Homegate Hospitality, Inc. (the "Company") was organized in Delaware on
August 16, 1996. The Company is authorized to issue 20,000,000 shares of
common stock (par value--$.01 per share). The Board of Directors of the
Company also has the authority to issue 5,000,000 shares of preferred stock
(par value--$.01 per share). The Company intends to offer for sale common
stock in an initial public offering in the United States (the "Offering"). The
Company was capitalized with the issuance of 10 shares of common stock to
Extended Stay Limited Partnership. Each common stockholder is entitled to one
vote for each share held. As more fully described in the Formation Transaction
in the Registration Statement relating to the Offering, the Company was formed
to continue the extended-stay lodging facility development, acquisition, and
management operations of Extended Stay Limited Partnership, and to acquire,
develop and maintain certain extended-stay lodging facilities throughout the
United States.

Income Taxes

The Company was formed as a Subchapter C corporation and, as such, will be
subject to federal and any applicable state income taxes.

F-10
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Partners
Extended Stay Limited Partnership

We have audited the accompanying balance sheet of Extended Stay Limited
Partnership as of June 30, 1996, and the related statements of operations,
changes in partners' capital and cash flows for the period from inception
(February 9, 1996) through June 30, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Extended Stay Limited
Partnership as of June 30, 1996, and the results of its operations and its
cash flows for the period from inception (February 9, 1996) through June 30,
1996, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Dallas, Texas
August 8, 1996

F-11
<PAGE>

EXTENDED STAY LIMITED PARTNERSHIP

BALANCE SHEET
JUNE 30, 1996

<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents......................................... $1,273,882
Accounts receivable............................................... 7,184
Prepaid expenses.................................................. 3,078
----------
Total current assets............................................ 1,284,144
Property and equipment, net (Notes 2 and 3)......................... 8,200,570
Deferred loan costs................................................. 17,240
Other assets........................................................ 223,524
----------
Total assets........................................................ $9,725,478
==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable.................................................. $ 305,649
Accrued expenses.................................................. 45,803
Payables to affiliates (Note 4)................................... 348,789
----------
Total current liabilities....................................... 700,241
Mortgage note payable (Note 3)...................................... 2,869,387
Partners' capital (Note 5)
Greystar.......................................................... 3,077,925
ESH............................................................... 3,077,925
Limited partners.................................................. --
----------
Total partners' capital......................................... 6,155,850
----------
Total liabilities and partners' capital............................. $9,725,478
==========
</TABLE>

See accompanying notes.

F-12
<PAGE>

EXTENDED STAY LIMITED PARTNERSHIP

STATEMENT OF OPERATIONS
PERIOD FROM INCEPTION (FEBRUARY 9, 1996)
THROUGH JUNE 30, 1996

<TABLE>
<S> <C>
REVENUES
Room revenue........................................................ $ 24,803
Other revenue....................................................... 1,703
---------
26,506
COSTS AND EXPENSES
Property operating expenses......................................... 30,313
Corporate operating expenses........................................ 204,273
Depreciation and amortization....................................... 9,533
Interest............................................................ 21,457
---------
265,576
---------
Net loss............................................................ $(239,070)
=========
</TABLE>

See accompanying notes.

F-13
<PAGE>

EXTENDED STAY LIMITED PARTNERSHIP

STATEMENT OF CHANGES IN PARTNERS' CAPITAL

<TABLE>
<CAPTION>
LIMITED
GREYSTAR ESH PARTNERS TOTAL
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Balance at inception (February 9,
1996)............................ $ -- $ -- $ -- $ --
Contributions................... 3,197,460 3,197,460 -- 6,394,920
Net loss........................ (119,535) (119,535) -- (239,070)
---------- ---------- ----- ----------
Balance at June 30, 1996.......... $3,077,925 $3,077,925 $ -- $6,155,850
========== ========== ===== ==========
</TABLE>

See accompanying notes.

F-14
<PAGE>

EXTENDED STAY LIMITED PARTNERSHIP

STATEMENT OF CASH FLOWS
PERIOD FROM INCEPTION (FEBRUARY 9, 1996)
THROUGH JUNE 30, 1996

<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss.......................................................... $ (239,070)
Adjustments to reconcile net loss to net cash provided by operat-
ing activities
Depreciation and amortization................................... 9,533
Accrued interest added to mortgage note payable................. 21,457
Changes in operating assets and liabilities:
Accounts receivable........................................... (7,184)
Prepaid expenses.............................................. (3,078)
Accounts payable.............................................. 136,403
Accrued expenses.............................................. 45,803
Payables to affiliates........................................ 348,789
----------
Net cash provided by operating activities......................... 312,653
INVESTING ACTIVITIES
Acquisition of hotel facility..................................... (4,911,486)
Acquisition of land............................................... (2,991,123)
Additions to property and equipment, net of development costs pay-
able............................................................. (133,038)
Additions to other assets......................................... (228,734)
----------
Net cash used in investing activities............................. (8,264,381)
----------
FINANCING ACTIVITIES
Proceeds from mortgage note payable............................... 2,847,930
Payment of deferred loan costs.................................... (17,240)
Contributions from partners....................................... 6,394,920
----------
Net cash provided by financing activities......................... 9,225,610
----------
Net increase in cash and cash equivalents......................... 1,273,882
Cash and cash equivalents at beginning of period.................. --
----------
Cash and cash equivalents at end of period........................ $1,273,882
==========
</TABLE>

See accompanying notes.

F-15
<PAGE>

EXTENDED STAY LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996

1. ORGANIZATION AND ACCOUNTING POLICIES

ORGANIZATION

Extended Stay Limited Partnership, a Delaware limited partnership (the
"Partnership"), was formed on February 9, 1996, by ESH Partners, L.P. ("Crow")
and JMI/Greystar Extended Stay Partners, L.P. ("Greystar"), as the general
partners, and various limited partners, for the purpose of holding,
maintaining, improving, developing, operating, managing, selling, and
exchanging moderately priced extended-stay lodging facilities ("hotel
facilities") throughout the United States. Development and management of the
facilities will be performed by various related entities.

USE OF ESTIMATES

The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in financial statements and
accompanying notes. Actual results could differ from these estimates.

INCOME TAX MATTERS

Under present income tax laws, the Partnership is not subject to federal
income taxes; therefore, no taxes have been provided in the accompanying
financial statements. The partners are to include their respective share of
Partnership income or losses in their individual tax returns.

REVENUE RECOGNITION

Room revenue and other income are recognized when earned, utilizing the
accrual method of accounting.

CASH AND CASH EQUIVALENTS

The Partnership considers all highly liquid investments with a maturity of
three months or less, when purchased, to be cash equivalents.

PROPERTY AND EQUIPMENT

The Partnership capitalizes costs directly related to the acquisition,
renovation or development of property and equipment while maintenance and
repairs are charged to operating expense when incurred. Property and equipment
is recorded at cost. The building and improvements and furniture and fixtures
are depreciated over their estimated useful lives, which are 40 years and 7
years, respectively, using the straight-line method.

DEFERRED LOAN COSTS

The Partnership has incurred costs in obtaining financing. These costs have
been deferred and will be amortized over the life of the loan.

OTHER ASSETS

Other assets include site deposits, preacquisition and development costs,
pre-opening costs, and organization costs. Site deposits have been paid to
escrow agents in conjunction with executed purchase agreements, whereby the
Partnership is considering the purchase of certain land parcels.

F-16
<PAGE>

EXTENDED STAY LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)

Preacquisition and development costs related to the acquisition of property
sites are capitalized when it is probable that a site will be acquired and are
reclassified to property and equipment upon acquisition. In the event the
acquisition is not consummated, the costs are expensed.

Compensation, promotional costs and other costs relating to the opening of
new properties are capitalized by the Partnership. Amortization is provided
using the straight line method over a twelve-month period.

Organization costs of $78,158 incurred in conjunction with the formation of
the Partnership have been capitalized and are being amortized over sixty
months using the straight-line method. Accumulated amortization for
organization costs was $5,210 at June 30, 1996.

2. PROPERTY AND EQUIPMENT

At June 30, 1996, property and equipment consists of the following:

<TABLE>
<S> <C>
Land........................................................... $3,825,326
Buildings and improvements..................................... 3,806,052
Furniture, fixtures, and equipment............................. 573,515
----------
8,204,893
Less accumulated depreciation.................................. 4,323
----------
$8,200,570
==========
</TABLE>

On February 15, 1996, the Partnership acquired a land parcel in Phoenix,
Arizona, and on May 24, 1996, acquired a land parcel in Denver, Colorado, for
future development of hotel facilities. Additionally, on May 31, 1996, the
Partnership acquired Studio Suites (the "Hotel") in Grand Prairie, Texas.
Operations of the Hotel commenced during June 1996 and are included in the
accompanying statement of operations.

Long-lived assets are evaluated when indicators of impairment are present
and provisions for possible losses are recorded when the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.

3. MORTGAGE NOTE PAYABLE

The Partnership has entered into a Master Loan Agreement (the "Note") with
Bank One, Arizona. The Note provides up to $30 million in construction/mini-
perm mortgage loans for the acquisition and development of land and hotel
facilities for up to five years. A loan of up to $3,448,250 (the "Loan") was
committed under the Note in connection with the acquisition of the Hotel. The
Loan, secured by the Hotel, accrues interest at prime plus .5% (8.75% at June
30, 1996), and requires interest payments for the first twelve months of the
loan, followed by principal and interest payments based upon a fifteen year
amortization until maturity, June 1, 1998. The outstanding balance at June 30,
1996, includes $2,847,930 of original principal borrowed and $21,457 of
accrued interest added from a $70,000 interest reserve.

The Loan requires the Partnership to make payments equal to 4% of the
monthly net operating income, as defined, into a capital replacement reserve,
held by the lender, to establish and maintain a balance of $60,000. No such
payments were due at June 30, 1996.

F-17
<PAGE>

EXTENDED STAY LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

3. MORTGAGE NOTE PAYABLE (CONTINUED)

At the time of maturity, the Partnership has an option to extend the loan
for three years, for a fee equal to .375% of the unpaid principal balance.

Principal maturities of the mortgage note payable at June 30, 1996, are as
follows:

<TABLE>
<S> <C>
Six months ending December 31, 1996............................ $ --
1997........................................................... 63,928
1998........................................................... 2,805,459
----------
$2,869,387
==========
</TABLE>

The carrying value of the mortgage note payable as of June 30, 1996
approximates fair value as the interest rate approximates market rate for
similar debt instruments.

4. RELATED PARTY TRANSACTIONS

Wyndham Management Corporation ("Wyndham") an affiliate of Crow, administers
and funds payroll and insurance benefits for all employees of the Partnership
and the Hotel. Payables to affiliates includes $89,434 due to Wyndham at June
30, 1996, for reimbursement of payroll and insurance expenditures.

Wyndham is entitled to receive a management fee equal to 3% of gross
revenues, as defined, for management of the Hotel.

The Partnership reimburses Greystar for a portion of the salary of
Greystar's CEO, based on an allocation of his time incurred on the
Partnership. Payables to affiliates includes $55,662 due to Greystar at June
30, 1996.

Additionally, payables to affiliates includes $163,001, $13,407, and $14,163
due to affiliates of Crow, Wyndham, and Greystar, respectively, at June 30,
1996, for reimbursement of out-of-pocket expenditures incurred in conjunction
with the pursuit and acquisition of land and property.

One of the limited partners has agreed to develop up to 60 hotel facilities
for the Partnership, under an agreement that expires at the earlier of the
completion of the sixtieth hotel or December 31, 1998.

5. PARTNERS' EQUITY

CAPITAL CONTRIBUTIONS

Upon formation of the Partnership, Greystar and Crow each made initial cash
contributions of $750,000. The general partners each made additional capital
contributions of $2,447,460 during the period ended June 30, 1996, and are
each required to contribute an additional $6,802,540.

ALLOCATIONS OF PROFITS AND LOSSES

Net profits and losses are to be allocated in accordance with the
Partnership Agreement, as limited by the provisions of Section 704(b) of the
Internal Revenue Code.

F-18
<PAGE>

EXTENDED STAY LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

5. PARTNERS' EQUITY (CONTINUED)

CASH DISTRIBUTIONS

Distributions may be made as determined by the Management Committee of the
Partnership and are to be distributed as follows:

. First, to the general partners in payment of their cumulative Preferred
Return equal to 13% on their Capital Contribution Account, as defined,
and in proportion to their cumulative Preferred Return ($75,159 and
$70,066 for Greystar and Crow, respectively, at June 30, 1996); then,

. To the general partners an amount equal to their Capital Contributions
and in proportion to the balances of their Capital Contribution Accounts
($3,197,460 for each of Greystar and Crow as of June 30, 1996); then,

. To the partners in accordance with their Percentage Interests as limited
by the Partnership Agreement.

No distributions were made for the period ended June 30, 1996.

6. SUBSEQUENT EVENTS

Subsequent to June 30, 1996, the Partnership purchased two land sites for an
aggregate purchase price of $2,010,780 for future hotel development.
Additionally, the Partnership began the development of one hotel facility.
Total expected development costs for the facility are approximately
$5,400,000.

F-19
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Westar

We have audited the accompanying combined balance sheets of Westar at
December 31, 1994 and 1995, and the related combined statements of operations,
stockholders' equity (deficit) and partners' capital (deficit), and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 Westar at
December 31, 1994 and 1995, and the combined results of their operations and
their cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.

Ernst & Young LLP

San Antonio, Texas
August 2, 1996

F-20
<PAGE>

See accompanying notes.
WESTAR

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
JUNE 30
1994 1995 1996
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................. $ 234,358 $ 480,761 $ 1,012,683
Accounts receivable.................. 275,345 226,800 225,811
Prepaid expenses and other........... 127,940 164,531 217,400
------------ ----------- -----------
Total current assets................... 637,643 872,092 1,455,894
Hotel property and other fixed assets,
net................................... 14,516,183 14,493,834 14,237,577
Net receivables from affiliates........ 577,821 678,654 675,359
Deferred loan costs, net............... 59,542 898,050 875,272
Escrow and reserve funds............... -- 194,715 194,715
Other assets........................... 13,502 3,729 7,485
------------ ----------- -----------
Total assets........................... $ 15,804,691 $17,141,074 $17,446,302
============ =========== ===========
LIABILITIES, STOCKHOLDERS' EQUITY
(DEFICIT) AND PARTNERS' CAPITAL
(DEFICIT)
Current liabilities:
Accounts payable..................... $ 387,633 $ 413,774 $ 472,938
Other accrued liabilities............ 314,674 304,936 679,532
Current portion of obligations under
capital leases...................... 76,321 140,569 130,760
Current portion of long-term debt.... 328,751 332,584 374,430
Notes payable to stockholders and
partners............................ 5,508,162 5,799,138 6,208,789
------------ ----------- -----------
Total current liabilities.............. 6,615,541 6,991,001 7,866,449
Obligations under capital leases, less
current portion....................... 88,201 193,509 161,654
Long-term debt, less current portion... 20,021,219 19,894,994 18,308,808
Redeemable cumulative Preferred Stock;
$10 par value, 1,000,000 shares autho-
rized, 50,000 shares issued and out-
standing at a redemption value of
$10.00 per share...................... 500,000 500,000 500,000
Commitments and contingencies
Stockholders' equity (deficit) and
partners' capital (deficit):
Class A common stock, voting, $1 par
value, 10,000,000 shares authorized,
500,000 shares issued and
outstanding......................... 500,000 500,000 500,000
Class B common stock, nonvoting, $1
par value, 72,500 shares authorized,
31,914 shares issued and
outstanding......................... 31,914 31,914 31,914
Retained earnings (deficit).......... (5,439,375) (5,608,665) (6,059,913)
------------ ----------- -----------
Total stockholders' equity (deficit)... (4,907,461) (5,076,751) (5,527,999)
Partners' capital (deficit)............ (6,512,809) (5,361,679) (3,862,610)
------------ ----------- -----------
Total stockholders' equity (deficit)
and partners' capital (deficit)....... (11,420,270) (10,438,430) (9,390,609)
------------ ----------- -----------
Total liabilities, stockholders' equity
(deficit) and partners' capital
(deficit)............................. $ 15,804,691 $17,141,074 $17,446,302
============ =========== ===========
</TABLE>

F-21
<PAGE>

WESTAR

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
--------------------------------- -------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Room revenue.......... $8,465,611 $8,299,237 $8,193,093 $ 4,222,107 $ 3,871,050
Other revenue......... 295,405 284,476 245,756 81,349 73,027
---------- ---------- ---------- ------------ ------------
Total revenue........... 8,761,016 8,583,713 8,438,849 4,303,456 3,944,077
Expenses:
Property operating ex-
penses............... 4,921,659 5,135,787 5,126,346 2,371,702 2,357,259
Corporate operating
expenses............. 537,933 930,460 875,043 213,937 336,948
Depreciation and amor-
tization............. 592,176 610,551 662,314 296,519 305,274
Interest.............. 2,454,930 2,375,122 2,608,468 1,038,612 1,209,850
---------- ---------- ---------- ------------ ------------
Total expenses.......... 8,506,698 9,051,920 9,272,171 3,920,770 4,209,331
---------- ---------- ---------- ------------ ------------
Income (loss) before ex-
traordinary gain....... 254,318 (468,207) (833,322) 382,686 (265,254)
Extraordinary gain on
extinguishment of debt. -- -- 1,465,113 -- --
---------- ---------- ---------- ------------ ------------
Net income (loss)....... $ 254,318 $ (468,207) $ 631,791 $ 382,686 $ (265,254)
========== ========== ========== ============ ============
</TABLE>

See accompanying notes.

F-22
<PAGE>

WESTAR

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND PARTNERS' CAPITAL
(DEFICIT)

<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
RETAINED STOCKHOLDERS' PARTNERS' AND PARTNERS'
COMMON EARNINGS EQUITY CAPITAL CAPITAL
STOCK (DEFICIT) (DEFICIT) (DEFICIT) (DEFICIT)
-------- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1992................... $531,914 $(5,746,479) $(4,714,565) $(6,046,701) $(11,261,266)
Net income (loss)...... -- 482,650 482,650 (228,332) 254,318
-------- ----------- ----------- ----------- ------------
Balance at December 31,
1993................... 531,914 (5,263,829) (4,231,915) (6,275,033) (11,006,948)
Net (loss)............. -- (175,546) (175,546) (292,661) (468,207)
Capital contribution... -- -- -- 54,885 54,885
-------- ----------- ----------- ----------- ------------
Balance at December 31,
1994................... 531,914 (5,439,375) (4,407,461) (6,512,809) (11,420,270)
Net income (loss)...... -- (169,290) (169,290) 801,081 631,791
Capital contribution... -- -- -- 350,049 350,049
-------- ----------- ----------- ----------- ------------
Balance at December 31,
1995................... 531,914 (5,608,665) (4,576,751) (5,361,679) (10,438,430)
Net income (loss)...... -- (451,248) (451,248) 185,994 (265,254)
Conversion of long-term
debt into partners'
capital............... -- -- -- 1,383,200 1,383,200
Distributions.......... -- -- -- (70,125) (70,125)
-------- ----------- ----------- ----------- ------------
Balance at June 30, 1996
(Unaudited)............ $531,914 $(6,059,913) $(5,027,999) $(3,862,610) $ (9,390,609)
======== =========== =========== =========== ============
</TABLE>

See accompanying notes.

F-23
<PAGE>

WESTAR

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
---------------------------------- --------------------------
1993 1994 1995 1995 1996
--------- --------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $ 254,318 $(468,207) $ 631,791 $ 382,686 $ (265,254)
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and amor-
tization............. 592,176 610,551 662,314 296,519 305,274
Extraordinary gain.... -- -- (1,465,113) -- --
Interest payable to
stockholders and
partners............. 328,911 341,808 345,697 177,848 197,661
Changes in:
Accounts receivable. (135,562) 118,973 48,545 90,128 989
Prepaids and other.. (64,020) 146,165 (36,591) 62,431 (52,869)
Accounts payable.... (120,829) 158,927 26,141 (18,410) 59,164
Other accrued lia-
bilities........... 95,365 (50,103) (9,738) 214,543 374,596
Other............... (7,113) 2,660 9,773 5,770 (3,756)
--------- --------- ------------ ------------ ------------
Net cash provided by op-
erating activities..... 943,246 860,774 212,819 1,211,515 615,805
INVESTING ACTIVITIES
Acquisition of hotel
property and other
fixed assets........... (365,920) (910,165) (639,965) (262,061) (26,239)
--------- --------- ------------ ------------ ------------
Net cash used in invest-
ing activities......... (365,920) (910,165) (639,965) (262,061) (26,239)
FINANCING ACTIVITIES
Borrowings of long-term
debt................... -- -- 19,650,000 -- --
Payments of long-term
debt................... (300,000) (284,861) (18,307,279) (509,494) (161,140)
Advances from (to) af-
filiates............... (236,994) 443,621 (100,833) (51,539) 3,295
Advances from (payments
to) stockholders and
partners............... -- (362,579) (54,721) -- 211,990
Payments on obligations
under capital leases... (54,000) (52,648) (84,000) -- (41,664)
Borrowings on obliga-
tions under capital
leases................. 109,047 -- 253,556 -- --
Capital contributions... -- 54,885 350,049 -- --
Distributions........... -- -- -- -- (70,125)
Deferred loan costs..... -- -- (838,508) -- --
Escrow and reserve
funds.................. -- -- (194,715) (251,264) --
--------- --------- ------------ ------------ ------------
Net cash provided by
(used in) financing
activities............. (481,947) (201,582) 673,549 (812,297) (57,644)
--------- --------- ------------ ------------ ------------
Net change in cash and
cash equivalents....... 95,379 (250,973) 246,403 137,157 531,922
Cash and cash
equivalents at
beginning of year...... 389,952 485,331 234,358 234,358 480,761
--------- --------- ------------ ------------ ------------
Cash and cash equiva-
lents at end of year... $ 485,331 $ 234,358 $ 480,761 $ 371,515 $ 1,012,683
========= ========= ============ ============ ============
Supplemental schedule of
noncash activities:
Conversion of long-
term debt to
partners' capital.... $ -- $ -- $ -- $ -- $ 1,383,200
</TABLE>

See accompanying notes.

F-24
<PAGE>

WESTAR

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
(INFORMATION AS TO JUNE 30, 1996 AND THE
SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BASIS OF PRESENTATION

Westar ("Westar" or "Company") operates and manages five suite hotels and
serves as the general and a limited partner of certain partnerships formed to
develop and own the suite hotels. The accompanying financial statements have
been presented on a combined basis to represent both the ownership and results
of operations of the five hotels. The combined financial statements include
the accounts of Westar, Inc., VPS I, L.P., and five separate limited
partnerships, RHF-Amarillo, Ltd., RHF-El Paso, Ltd., RHF-Irving, Ltd., RHF San
Antonio North, Ltd., and RHF-San Antonio #2, Ltd. Each of these five
partnerships owned one of the hotels until December 29, 1995, at which time
the hotel properties were contributed to VPS I, L.P. (see Note 2). VPS I, L.P.
leases the hotels to Westar, Inc. All intercompany transactions and balances
have been eliminated.

INTERIM FINANCIAL STATEMENTS

The accompanying consolidated interim financial statements are unaudited,
but reflect all adjustments (consisting only of normal recurring accruals)
which are, in the opinion of the Company's management, necessary to present
fairly the financial position as of June 30, 1996, and the results of
operations and cash flows for the six months ended June 30, 1995 and 1996. The
results of the six months ended June 30, 1996 are not necessarily indicative
of results to be expected for the full year.

HOTEL PROPERTY AND OTHER FIXED ASSETS

Depreciation of hotel property and other fixed assets is provided by the
straight-line method over the estimated useful lives of the various assets,
generally from three to thirty years. Amortization of capital leases is also
included with depreciation.

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, money market funds and all highly liquid short-term investments which
have a maturity of three months or less, when purchased, and which are
available for operations and are readily convertible into cash.

INCOME TAXES

Westar accounts for income taxes using Financial Accounting Standards Board
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the years in which the differences are
expected to reverse. Under SFAS 109, changes in tax rates are recognized in
the year the new legislation is enacted.

The partnerships are not subject to federal or state income taxes. The
income or loss of the partnerships is reported by the general and limited
partners of each respective partnership.

F-25
<PAGE>

WESTAR

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash and accounts receivable.
Though limited to one geographical area, the concentration of credit risk with
respect to the Company's receivables is minimized due to the large number of
customers, individually small balances, short payment terms, and required
deposits.

ADVERTISING COSTS

Advertising costs are expensed as incurred.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

2. CHANGE IN PARTNERSHIP STRUCTURE AND REFINANCING OF LONG-TERM DEBT

On December 29, 1995, the five separate partnerships which were formed to
develop and own each of the hotels contributed all of their hotel property and
other fixed assets to a newly-formed partnership, VPS I, L.P., at their
historical basis. Simultaneous with these transactions, VPS I, L.P. obtained
new financing which was used to pay the existing mortgage debt of the
individual partnerships. The Company paid approximately $18,112,000 on
December 29, 1995, as complete and final settlement of the existing mortgage
debt which had a carrying value of approximately $19,577,000 (including
capitalized financing fees), resulting in an extraordinary gain on settlement
of debt of $1,465,113. Essentially, the partnerships each contributed their
fixed assets to VPS I, L.P. to serve as collateral for newly-issued debt so
that the Company could consolidate its debt into a single credit agreement.

3. HOTEL PROPERTY AND OTHER FIXED ASSETS

Hotel property and other fixed assets consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31
----------------------- JUNE 30
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Land.................................... $ 4,474,418 $ 4,649,419 $ 4,649,419
Hotel buildings and improvements........ 13,176,370 13,061,569 13,107,391
Furniture and fixtures.................. 3,337,972 3,888,799 3,893,776
----------- ----------- -----------
20,988,760 21,599,787 21,650,586
Less accumulated depreciation and amor-
tization............................... 6,472,577 7,105,953 7,413,009
----------- ----------- -----------
$14,516,183 $14,493,834 $14,237,577
=========== =========== ===========
</TABLE>

F-26
<PAGE>

WESTAR

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

4. NOTES PAYABLE TO STOCKHOLDERS AND PARTNERS

Notes payable to stockholders and partners consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31
---------------------
JUNE 30
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
10% convertible subordinated notes payable to
primary stockholder, principal and interest
due in varying amounts during 1996,
unsecured, convertible at any time to Class A
common stock at $1 per share................. $ 400,000 $ 400,000 $ 400,000
10% notes payable to primary stockholder,
principal and interest due in 1996,
unsecured.................................... 240,727 186,006 397,996
9% notes payable to limited partners in
partnership, principal and interest due in
varying amounts based on certain cash flow
requirements through 2002, with investments
in partnerships as collateral, subordinated
to other stockholder debt.................... 2,700,000 2,700,000 2,700,000
---------- ---------- ----------
3,340,727 3,286,006 3,497,996
Accrued interest payable...................... 2,167,435 2,513,132 2,710,793
---------- ---------- ----------
$5,508,162 $5,799,138 $6,208,789
========== ========== ==========
</TABLE>

During the years ended 1993, 1994, and 1995, and the six months ended June
30, 1995 and 1996, the Company recorded interest expense on the above notes
and related accrued interest of approximately $329,000, $342,000, $346,000,
$178,000, and $198,000, respectively. Pursuant to agreements with the primary
limited partner and the primary stockholder, (and Company president), so long
as the Company is not otherwise in default with respect to its mortgage and
floating rate debt obligations or obligation to the primary limited partner or
primary stockholder that are due in 1996, no demand will be made on the notes
payable to the limited partner or to the primary stockholder through the
earlier of June 30, 1997, or the date of sale of the five hotels occurs, nor
will such primary stockholder exercise any rights to redeem any of the
Preferred Stock owned by such primary stockholder.

F-27
<PAGE>

WESTAR

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

5. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31
----------------------- JUNE 30
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Mortgage note due to Nomura Asset Capital
Corporation, with interest at 9.71%
through January 11, 2011 and the greater
of 14.71% or the Treasury Rate plus 9%
thereafter, due in monthly installments
of $160,789, including interest,
commencing February 1996 through January
2021, secured by hotel properties and
improvements (see discussion below)...... $ -- $18,100,000 $18,027,180
Floating rate note due to Nomura Asset
Capital Corporation, with interest at
LIBOR plus 6%, due in January 2001,
secured by hotel properties and
improvements. This debt was converted
into an ownership interest on February
29, 1996 (see discussion below).......... -- 1,400,000 --
Loan agreement with Franklin Federal
Bancorp, with interest at 10%, due in
August 1997 with a balloon payment of the
remaining principal and interest,
guaranteed by hotel properties and
improvement. Debt was paid off on
December 29, 1995........................ 19,765,109 -- --
Note payable to bank, interest due monthly
at a fixed rate of 8.85%, principal due
August 1997, unsecured, guaranteed by
primary stockholder and affiliates....... 300,000 300,000 300,000
Note payable to bank, interest due monthly
at a fixed rate of 8.85%, principal due
August 1997, unsecured, guaranteed by
primary stockholder...................... 200,000 200,000 200,000
Note payable to bank, interest due monthly
at prime plus 1.5%, principal due May
1996, secured by certain securities owned
by a stockholder......................... -- 150,000 150,000
Other bank notes.......................... 84,861 77,578 6,058
----------- ----------- -----------
20,349,970 20,227,578 18,683,238
Less current portion...................... 328,751 332,584 374,430
----------- ----------- -----------
$20,021,219 $19,894,994 $18,308,808
=========== =========== ===========
</TABLE>

The $18,100,000 mortgage note payable to Nomura Asset Capital Corporation
does not allow for prepayment of the debt until January 11, 2011, except by
providing the lender with U.S. obligations that produce payments which
replicate the payment obligations of the Company under the note. This
restriction represents a substantial prepayment penalty. On or after January
11, 2011, the loan can be prepaid at any time with no prepayment penalty.

The note agreement imposes various conditions, restrictions, and limitations
on the Company including those substantially restricting the payment of
dividends or incurring additional debt.

On February 29, 1996, the $1,400,000 note due to Nomura Asset Capital
Corporation was converted into an ownership interest in VPS I, L.P. The then
outstanding note balance of $1,383,200 was converted into 277 Class B
partnership units.

F-28
<PAGE>

WESTAR

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

5. LONG-TERM DEBT (CONTINUED)

Future annual maturities of long-term debt for the years subsequent to
December 31, 1995 consist of the following:

<TABLE>
<S> <C>
1996............................................................. $ 332,584
1997............................................................. 711,843
1998............................................................. 225,218
1999............................................................. 242,968
2000............................................................. 262,628
Thereafter....................................................... 18,452,337
-----------
$20,227,578
===========
</TABLE>

Cash paid for interest during the years ended December 31, 1993, 1994, and
1995, and the six months ended June 30, 1995 and 1996 was approximately
$2,126,000, $2,033,000, $2,262,000, $861,000, and $1,012,000, respectively.

6. OTHER RELATED PARTY TRANSACTIONS

In addition to the borrowings from the Company's stockholders and partners
discussed above and capital lease obligations discussed in Note 7, the Company
makes noninterest-bearing advances to, and receives noninterest-bearing
advances from, affiliates on a periodic basis as working capital is available
or needed. There are no formal terms related to such advances, the amounts of
which are carried as net receivables from affiliates on the balance sheets.

7. LEASE COMMITMENTS

The Company leases certain equipment and office facilities under long-term
noncancelable leases. Future minimum lease payments for capital and operating
leases at December 31, 1995 consist of the following:

<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
---- -------- ---------
<S> <C> <C>
1996..................................................... $177,836 $ 57,441
1997..................................................... 138,991 57,441
1998..................................................... 76,621 57,441
1999..................................................... -- 46,474
2000..................................................... -- 39,218
Thereafter............................................... -- 192,822
-------- --------
Total minimum lease payments............................. 393,448 $450,837
========
Less amount representing interest........................ 59,370
--------
Present value of net minimum lease payments.............. 334,078
Less current portion of capital lease obligations........ 140,569
--------
$193,509
========
</TABLE>

Included in the minimum capital lease obligations is $311,275 for various
furniture and fixtures being leased from the Company's president. The minimum
lease obligation amounts to $130,433, $112,273, and $68,569 for the years
ended December 31, 1996, 1997, and 1998, respectively. Also, included in
operating lease obligations is a lease for the Company's corporate office with
various officers of the Company. The annual minimum lease

F-29
<PAGE>

WESTAR

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

7. LEASE COMMITMENTS (CONTINUED)

obligation is $39,218 through 2005. The office lease allows for adjustment of
the monthly lease payment for increases in operating costs.

Total rental expense incurred under operating leases was approximately
$151,000, $157,000, and $57,000 for the years ended December 31, 1993, 1994,
and 1995, respectively, and $28,000 for each of the six-month periods ended
June 30, 1995 and 1996. Approximately $40,000 of the expense for each year
relates to leases with related parties.

8. FEDERAL INCOME TAXES

Deferred income taxes for Westar, Inc. reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
The provision for federal income taxes does not include the tax impact of
flow-through items of income or loss from the partnerships to its owners other
than Westar, Inc. because such amounts are not determinable due to federal
income tax limitation rules. Significant components of Westar, Inc.'s deferred
tax assets and liabilities at December 31, 1995 are as follows:

<TABLE>
<S> <C>
Deferred tax asset:
Current:
Allowance for doubtful accounts............................. $ 5,643
Noncurrent:
Accrued interest to related parties......................... 166,390
Loss carryforwards.......................................... 1,743,467
Book versus tax basis of depreciable assets................. 22,600
-----------
1,938,100
Less valuation allowance.................................... (1,938,100)
-----------
Net deferred taxes.......................................... $ --
===========
</TABLE>

Results of operations for the year ended December 31, 1995 increased both
the deferred tax assets and the corresponding valuation allowance by $68,848.
Westar, Inc. has net operating loss carryforwards for income tax purposes and
unused investment tax credit carryforwards of approximately $4,650,000 and
$21,000, respectively, which will expire beginning in 1999. The Company's
future utilization of net operating loss carryforwards may be subject to an
annual limitation if there is a "change in ownership" as defined for federal
income tax purposes.

9. STOCKHOLDERS' EQUITY

The Company's 10% cumulative preferred stock is redeemable at the option of
the preferred stockholders in three equal annual installments after December
31, 1994 at a price of $10.00 per share, plus any unpaid dividends. Unpaid
dividends in arrears totaled approximately $240,000 and $290,000 at December
31, 1994 and 1995, respectively.

Under an agreement with the affiliated partnerships' lender, the Company may
not, without prior approval from the lender, redeem or retire any shares of
its capital stock or pay any dividends.

10. SUBSEQUENT EVENT/PENDING TRANSACTION

The stockholders and partners have entered into a letter of intent to sell
all of the hotel properties to an unrelated third party.

F-30
<PAGE>

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRIT-
ERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SO-
LICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Special Note Regarding Forward-Looking Statements......................... 16
The Formation Transaction................................................. 17
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Dilution.................................................................. 19
Capitalization............................................................ 20
Selected Financial Data................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 26
Management................................................................ 35
Certain Transactions...................................................... 42
Principal Stockholders.................................................... 45
Description of Capital Stock.............................................. 47
Shares Eligible for Future Sale........................................... 52
Underwriting.............................................................. 53
Legal Matters............................................................. 54
Experts................................................................... 54
Additional Information.................................................... 55
</TABLE>
----------------

UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE REQUIRED SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDER-
WRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENT OR SUBSCRIPTION.

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

4,325,000 SHARES

HOMEGATE HOSPITALITY, INC.

COMMON STOCK

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

PROSPECTUS

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

BEAR, STEARNS & CO. INC.

MONTGOMERY SECURITIES

, 1996

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses payable by the registrant in connection with the
registration, issuance and distribution of the Common Stock offered hereby,
other than underwriting discounts and commissions, are as follows.

<TABLE>
<S> <C>
SEC Registration Fee............................................. $19,594
Nasdaq National Market System Filing Fee......................... *
-------
NASD Filing Fee.................................................. 6,966
Printing and Engraving Expenses.................................. *
-------
Legal Fees and Expenses.......................................... *
-------
Accounting Fees and Expenses..................................... *
-------
Fees and Expenses of Transfer Agent.............................. *
-------
"Blue Sky" Fees and Expenses (including legal fees).............. 3,000
-------
Miscellaneous Expenses........................................... *
-------
Total........................................................ $ *
=======
</TABLE>
- --------
* To be provided by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article Sixteenth of the Certificate of Incorporation of the registrant
provides that the registrant shall indemnify its officers and directors to the
maximum extent allowed by the DGCL. Pursuant to Section 145 of the DGCL, the
registrant generally has the power to indemnify its present and former
directors and officers against expenses and liabilities incurred by them in
connection with any suit to which they are, or are threatened to be made, a
party by reason of their serving in those positions so long as they acted in
good faith and in a manner they reasonably believed to be in, or not opposed
to, the best interests of the registrant, and with respect to any criminal
action, so long as they had no reasonable cause to believe their conduct was
unlawful. With respect to suits by or in the right of the registrant, however,
indemnification is generally limited to attorneys' fees and other expenses and
is not available if the person is adjudged to be liable to the registrant,
unless the court determines that indemnification is appropriate. The statute
expressly provides that the power to indemnify authorized thereby is not
exclusive of any rights granted under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise. The registrant also has
the power to purchase and maintain insurance for its directors and officers.
Additionally, Article Sixteenth of the Certificate of Incorporation provides
that, in the event that an officer or director files suit against the
registrant seeking indemnification of liabilities or expenses incurred, the
burden will be on the registrant to prove that the indemnification would not
be permitted under the DGCL.

The preceding discussion of the registrant's Certificate of Incorporation
and Section 145 of the DGCL is not intended to be exhaustive and is qualified
in its entirety by the Certificate of Incorporation and Section 145 of the
DGCL.

The Company intends to enter into indemnification agreements with the
Company's Directors and officers. Pursuant to such agreements, the Company
will, to the extent permitted by applicable law, indemnify such persons
against all expenses, judgments, fines and penalties incurred in connection
with the defense or settlement of any actions brought against them by reason
of the fact that they were Directors or officers of the Company or assumed
certain responsibilities at the direction of the Company.

II-1
<PAGE>

The form of Underwriting Agreement included as Exhibit 1.1 provides for
indemnification of the registrant and certain controlling persons under
certain circumstances, including indemnification for liabilities under the
Securities Act.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In connection with the Formation, the current partners of ESLP will receive
6,400,000 shares of Common Stock, constituting approximately 59.67% of the
outstanding Common Stock after the Offering, as a result of the merger of ESLP
into the Company. Such Shares were sold without registration under the
Securities Act, in reliance on Section 4(2) of the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*1.1 Underwriting Agreement
*2.1 Plan of Merger between Extended Stay Limited Partnership and
Homegate Hospitality, Inc.
3.1 Certificate of Incorporation
3.2 Bylaws of the Company
*4.1 Form of specimen certificate for the Common Stock
*5.1 Opinion of Vinson & Elkins L.L.P.
*10.1 Master Management Assistance Agreement between Wyndham Hotel Corporation
and Homegate Hospitality, Inc.
10.2 Master Development Agreement between Developer Extended Stay Partners,
L.P. and Homegate Hospitality, Inc.
*10.3 Employment Agreement between John C. Kratzer and Homegate Hospitality,
Inc.
*10.4 Homegate Hospitality, Inc. 1996 Long-term Incentive Plan
10.5 [Intentionally omitted]
10.6 [Intentionally omitted]
10.7 Agreement to Purchase Ownership Interests and Termination of Management
Agreement among RHF-Amarillo, Ltd., RHF-El Paso, Ltd., RHF-Irving, Ltd.,
RHF-San Antonio, Ltd., RHF-San Antonio North, Ltd., Westar Hotels, Inc.
and Extended Stay Limited Partnership
*10.8 Loan Agreement between VPS I, L.P. and Nomura Asset Capital Corporation
10.9 Mortgage Loan Facility between Bank One Arizona, N.A. and
Homegate Hospitality, Inc.
*10.10 Stockholders Agreement between ESH Partners, L.P. and JMI/Greystar
Extended
Stay Partners, L.P.
*10.11 Registration Rights Agreement
10.12 Limited Partnership Agreement of Developer Extended Stay Partners, L.P.
+23.1 Consent of Ernst & Young LLP
+23.2 Consent of Ernst & Young LLP
*23.3 Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1)
24.1 Powers of Attorney
</TABLE>
- --------
*To be filed by amendment.

+Filed herewith.

(B) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

Schedule III (Real Estate Investments and Accumulated Depreciation--
Extended-Stay Limited Partnership)
Schedule III (Real Estate Investments and Accumulated Depreciation--Westar)

II-2
<PAGE>

All other schedules are omitted because they are not required under the
applicable instructions, because they are inapplicable or because the
requested information is shown in the financial statements or notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned Company hereby undertakes to provide to the representatives
of the Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.

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

The undersigned registrant hereby undertakes that:

(a) For the purpose of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and this Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-3
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF DALLAS, STATE OF TEXAS, ON THE 4TH DAY OF OCTOBER, 1996.

Homegate Hospitality, Inc.

/s/ Robert A. Faith
By: _________________________________
ROBERT A. FAITH
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Robert A. Faith President, Chief
- ------------------------------------- Executive Officer October 4, 1996
ROBERT A. FAITH and Chairman of the
Board (Principal
Executive Officer)

/s/ Tim V. Keith Chief Financial
- ------------------------------------- Officer (Principal October 4, 1996
TIM V. KEITH Financial and
Accounting Officer)

*James D. Carreker Director
- ------------------------------------- October 4, 1996
JAMES D. CARREKER

/s/ Anthony W. Dona Director
- ------------------------------------- October 4, 1996
ANTHONY W. DONA

*Harlan R. Crow Director
- ------------------------------------- October 4, 1996
HARLAN R. CROW

**John J. Moores Director October 4, 1996
- -------------------------------------
JOHN J. MOORES

**Charles E. Noell Director
- ------------------------------------- October 4, 1996
CHARLES E. NOELL

*Leonard W. Wood Director
- ------------------------------------- October 4, 1996
LEONARD W. WOOD

/s/ Anthony W. Dona
- -------------------------------------
*By: ANTHONY W. DONA ATTORNEY-IN-
FACT

/s/ Robert A. Faith
- --------------------------------------
**By: ROBERT A. FAITH ATTORNEY-IN-FACT
</TABLE>

II-4
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Partners
Extended Stay Limited Partnership

We have audited the financial statements of Extended Stay Limited Partnership
as of June 30, 1996, and for the period from inception (February 9, 1996)
through June 30, 1996 and have issued our report thereon dated August 8, 1996
(included elsewhere in this Registration Statement). Our audit also included
the financial statement schedule listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the management of Extended
Stay Limited Partnership. Our responsibility is to express an opinion based on
our audit.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

Ernst & Young LLP

Dallas, Texas
August 8, 1996

S-1
<PAGE>

EXTENDED STAY LIMITED PARTNERSHIP

SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION

JUNE 30, 1996

(IN THOUSANDS)

<TABLE>
<CAPTION>
GROSS AMOUNTS AT WHICH
INITIAL COST COSTS CARRIED AT JUNE 30, 1996
------------------- CAPITALIZED --------------------------
BUILDINGS SUBSEQUENT BUILDINGS
RELATED AND TO AND ACCUMULATED DATE OF DATE
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED
----------- ----------- ------ ------------ ----------- ------ ------------ ------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Grand Prairie,
Texas
Studio Suites.... $2,869 $ 834 $4,077 $303 $ 834 $4,380 $5,214 $ 4 5/96 5/96
Denver, Colorado
land............. -- 1,605 -- -- 1,605 -- 1,605 -- (a) 5/96
Phoenix, Arizona
land............. -- 1,386 -- -- 1,386 -- 1,386 -- (a) 2/96
------ ------ ------ ---- ------ ------ ------ ----
Total........... $2,869 $3,825 $4,077 $303 $3,825 $4,380 $8,205 $ 4
====== ====== ====== ==== ====== ====== ====== ====
<CAPTION>
DEPRECIABLE
DESCRIPTION LIVES IN YEARS
----------- --------------
<S> <C>
Grand Prairie,
Texas
Studio Suites.... 7-40
Denver, Colorado
land............. --
Phoenix, Arizona
land............. --
Total...........
</TABLE>
- ----
(a) As of June 30, 1996, development had not commenced.

NOTE TO SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION

Changes in real estate investments and accumulated depreciation for the six
months ended June 30, 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
1996
------
<S> <C>
Property and equipment
Balance at beginning of period........................... $ --
Acquisitions........................................... 7,902
Additions and improvements............................. 303
------
Balance at end of period................................. $8,205
======
Accumulated depreciation
Balance at beginning of period........................... $ --
Depreciation........................................... 4
------
Balance at end of period................................. $ 4
======
</TABLE>

S-2
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Westar

We have audited the financial statements of Westar as of December 31, 1994
and 1995, and for each of the three years in the period ended December 31, 1995
and have issued our report thereon dated August 2, 1996 (included elsewhere in
this Registration Statement). Our audit also included the financial statement
schedule listed in Item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audit.

Ernst & Young LLP

San Antonio, Texas
August 2, 1996

S-3
<PAGE>

WESTAR

SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION

DECEMBER 31, 1995

(IN THOUSANDS)

<TABLE>
<CAPTION>
GROSS AMOUNTS AT WHICH
INITIAL COST COSTS CARRIED AT DECEMBER 31, 1995
------------------------------ CAPITALIZED --------------------------------------
(1) BUILDINGS FURNITURE, SUBSEQUENT BUILDINGS FURNITURE,
RELATED AND FIXTURES & TO AND FIXTURES & ACCUMULATED
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS EQUIPMENT ACQUISITION LAND IMPROVEMENTS EQUIPMENT TOTAL DEPRECIATION
----------- ------------ ------ ------------ ---------- ----------- ------ ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Suite hotels:
Amarillo, Texas.. $ $ 535 $ 2,513 $ 547 $ 15 $ 604 $ 2,485 $ 521 $ 3,610 $1,254
San Antonio,
Texas
San Antonio #1.. 799 2,598 563 123 857 2,552 674 4,083 1,351
San Antonio #2.. 909 2,785 659 132 1,014 2,752 720 4,486 1,317
Land............ 175 175 175
Irving, Texas.... 1,255 2,758 548 192 1,350 2,752 651 4,753 1,323
El Paso, Texas... 551 2,537 566 176 649 2,493 687 3,829 1,210
------- ------ ------- ------ ---- ------ ------- ------ ------- ------
$18,027 $4,224 $13,191 $2,883 $638 $4,649 $13,034 $3,253 $20,936 $6,455
======= ====== ======= ====== ==== ====== ======= ====== ======= ======
<CAPTION>
DATE OF DATE DEPRECIABLE
DESCRIPTION CONSTRUCTION ACQUIRED LIVES IN YEARS
----------- ------------ -------- --------------
<S> <C> <C> <C>
Suite hotels:
Amarillo, Texas.. 1985 1985 5-40
San Antonio,
Texas
San Antonio #1.. 1985 1985 5-40
San Antonio #2.. 1986 1986 5-40
Land............ 1985
Irving, Texas.... 1985 1985 5-40
El Paso, Texas... 1985 1985 5-40
</TABLE>
- ----
(1) The related encumbrance is collateralized by all properties in Schedule
III.

NOTE TO SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION

Changes in real estate investments and accumulated depreciation for the
three years ended December 31, 1995, are as follows (in thousands):

<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Real estate investments:
Balance at beginning of year............ $19,383 $19,552 $20,325
Additions and improvements............ 366 910 640
Deletions............................. (197) (137) (29)
------- ------- -------
Balance at end of year.................. $19,552 $20,325 $20,936
======= ======= =======
Accumulated depreciation:
Balance at beginning of year............ $ 4,980 $ 5,477 $ 5,916
Depreciation.......................... 497 516 568
Deletions............................. -- (77) (29)
------- ------- -------
Balance at end of year.................. $ 5,477 $ 5,916 $ 6,455
======= ======= =======
</TABLE>

S-4

<PAGE>

Exhibit 23.1

Consent of Independent Auditors

We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our reports dated August 22, 1996 and
August 8, 1996, in Amendment No. 1 to the Registration Statement (Form S-1 No.
333-11113) and related Prospectus of Homegate Hospitality, Inc. for the
registration of 4,325,000 shares of its common stock.

ERNST & YOUNG LLP

Dallas, Texas
October 1, 1996

<PAGE>

Exhibit 23.2

Consent of Independent Auditors

We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our reports dated August 2, 1996, in
Amendment No. 1 to the Registration Statement (Form S-1 No. 333-11113) and
related Prospectus of Homegate Hospitality, Inc. for the registration of
4,325,000 shares of its common stock.

ERNST & YOUNG LLP

San Antonio, Texas
October 1, 1996